GameStink; The Odds of a Hard Economic Landing in the U.S. by 2023 Are Growing; Skiing; Winter tires

1) Two weeks ago today, I called the top of the short squeeze bubble – nailing it almost to the hour. In particular, I heaped scorn on GameStop (GME), which hit an intraday high of $483 the next day.

Yesterday, the shares hit a low of $46.58 (before closing at $50.31), meaning they declined by a staggering 90% in eight trading days!

So I have a new name for this stock: GameStink! Mark my words: it's going to $20.

Books and documentaries about this absurdity are already underway...

2) I think my friend Doug Kass of Seabreeze Partners is likely right... Here's his recent missive:

The Odds of a Hard Economic Landing in the U.S. by 2023 Are Growing

• A boom cycle may be on tap for the second half of 2021 as unprecedented stimulus (25% of GDP!!!) leads to higher interest rates, inflation, and better growth
• There were mild recessions following the Korean and Vietnam wars – but the scale of the military expenditures during those times were only between 2% to 4% of GDP
• But that boom will likely be short lived as the drying up of fiscal stimulus will likely lead to a bust within two years
• Even excessive monetary expansion may not save the U.S. economy as it is taking more and more liquidity to produce a unit of production
• Bookmark this post!

Though this post is short and to the point, the broader consequences for the economy and for the stock market are great.

The anticipated cumulative injection of fiscal stimulus (including the proposed $1.9 trillion Biden stimulus package and the previous $2.2 trillion and $0.9 trillion packages) will total $5 trillion over the last 12 months. This represents almost 25% of the anticipated GDP of $21 trillion.

As former Alliance Bernstein economist Joe Carson mentioned over the weekend – with the exception of World War II there has been nothing like this in history. Stimulus during World War I, in the Great Depression, and in the Great Decession of 2008-2009 didn't come close to the policy initiatives in reaction to COVID-19 – even though those periods had deeply depressed private sector activity. Today we are experiencing a rebounding manufacturing economy led by housing activity and higher home prices.

This chart demonstrates how large the recent stimulus has been in an historic context:

At the same time, the Federal Reserve's policy remains extremely aggressive and will be "as far as they eyes can see" – leading to very hot real estate markets around the country, particularly in wealthy communities.

Bottom Line

To me, there is only one inescapable economic conclusion: inflation and interest rates are heading higher as better economic growth in the last half of 2021 is delivered by the unprecedented stimulus.

Unfortunately the stimulus is in the form of mostly transfer payments and not in expansion of productivity or capacity.

As I see it, the economic boom will be a sugar-based high and there is an almost inevitable bust cycle emerging by or in 2023 when the heady fiscal stimulus ends.

Today's record stock prices belie a likely hard economic landing that may lie ahead.

3) Yesterday my analyst Kevin "100-bagger" DeCamp and I skied at Okemo in Vermont, where the powder and the tree skiing was amazing, as you can see in this video Kevin took!

Here's a picture of us at the summit:

4) To get there, I had to drive over an hour each way from my family's house in Sunapee, New Hampshire, where I'm spending the week with my parents (they flew in from Kenya to get vaccinated, as I discussed in Monday's e-mail).

The conditions on the roads were treacherous! Here are pictures of Interstate 89 I took through the windshield on my way there and the top of our driveway on the way back:

And here's a 36-second video my parents made driving their Kia rental car up the driveway.

I was so grateful that I bought winter tires for my car in December – they make a huge difference!

Such a difference, in fact, that some places require them – my friend Guy Spier of Aquamarine Capital writes from Zurich:

In Switzerland, you can get heavily fined and even have your license taken away if you drive in snow without winter tires.

And in Quebec, winter tires or studded tires must be used from December 1 to March 15. But in most of the rest of Canada and the U.S., it's up to drivers to decide.

Here's what I wrote about this back in mid-December, as part of an e-mail I had sent to friends and family at the time...

Susan recently took our car (a 2018 Volvo XC60) to the Volvo dealership for its regular servicing, and they told her it needed new tires, which would cost more than $2,000.

Fortunately, she said no for three reasons: 1) Costco Wholesale's (COST) tire center charges less than $1,300... 2) they measured the tread and said our tires don't need replacing – we can get another season out of them... and 3) it prompted me to do some research about whether we should get a second set of winter tires for the upcoming season.

Having a second set of tires is expensive (especially if you buy wheels/rims, as I did), it's going to be a hassle to change the tires twice a year, and an extra set of tires takes up a lot of room in our storage bin in the basement of our apartment building.

So why do it?

One word: SAFETY!

I've become a total car safety zealot ever since Susan fell asleep at the wheel three years ago this weekend and got in a frightening accident – one of a half-dozen serious accidents that various friends and family of ours have been in, resulting in numerous terrible concussions and, tragically, two deaths. I wrote about it in this article: Why you should get a new car.

The evidence is clear: Winter tires aren't a little safer – they're a lot safer if you do any amount of driving on snow and ice. This New York Times article, What's on Your Car? Winter Tires, We Hope, explains three reasons why:

Unlike all-seasons, winter tires have an increased tread depth that helps channel away snow and slush and improves traction by packing snow in the tread grooves for what Bridgestone, the tire company, calls "snow-on-snow" traction. The idea is to take advantage of the stickiness that makes snowballs hang together.

More noticeable are the many added small slits, called sipes, in the tread surface. The sipes help the tire by presenting more edges that can dig into the snow for grip. Smaller voids in the rubber surface help to disperse the layer of water that often lies over snow. That's also a significant benefit when the surface has turned to ice, like it's done this winter.

What you won't see, though, is the rubber chemistry tailored to cold-weather duties. Winter tires are engineered with softer compounds to remain flexible at far lower temperatures. While a summer performance tire becomes stiffer and loses grip as temperatures dip toward freezing, a winter tire stays pliable, making it superior even when the roads are dry.

Winter tires' superiority is obvious if you simply look at the tires – here's a picture I took of our original all-season tire that came with the car (on the left, wrapped in plastic, ready to go into storage) and the new winter tire just installed on our car on the right:

Now watch this 3:20 video and read this related article: Are Snow and Winter Tires Worth It? It tests a new car with all the latest safety features like anti-lock braking and all-wheel drive accelerating, turning, and braking on a skating rink – the only difference is the tires. Going a mere 12 mph, it took 57 feet for the car to come to a stop with all-season tires versus only 34 feet – 40% less! – with winter tires. And going around a corner at an even slower 11 mph, the car without winter tires skidded out of control.

In conclusion, don't scrimp on safety!

A friend added:

I want to give a big plug for tirebuyer.com and tirerack.com. They're the best thing to happen to tires – even better than Costco!

You order online, they ship to the installer of your choice (thousands of shops have partnered with them around the country), you make appointment at the shop, and the install is handled at a discount rate that these two sites have negotiated, which is usually 30% to 40% less than Costco, believe it or not.

Best regards,

Whitney