Are we entering a depression?
Everyone I talk to is terrified we’re on the cusp of one, but they’re wrong; what we’re experiencing now is more like a “wealth shift.”
Folks are right that something big is happening, but it’s not a total wipeout… it’s a transition.
As one of my wealthy friends said recently, it’s as if a giant drawbridge is dividing our country in half…
- On one side are the rich – who fully understand what’s happening and are taking full advantage of the situation. The rich get richer, as it were.
- And on the other side, there’s everyone else, who, no matter how hard they work or what they do, will continue to fall further behind.
And that proverbial drawbridge is rising, with the gap between the “haves” and the “have nots” widening.
And if the recent stock market action has shown us anything, that gap is widening with ferocious speed.
While thousands of cash-poor old-school companies are struggling mightily, hundreds of cash-rich companies are cruising comfortably through the crisis.
This dichotomy was well established before the COVID-19 pandemic arrived. We even coined a term for it: The Technochasm.
Long-time readers of Smart Money as well as subscribers to Investment Report and The Speculator know it well. But if you haven’t been around these parts for long, it’s been a hot minute since we last spoke of it.
And it’s critical that we revisit it, because the effects of this phenomenon are becoming more visible by the day.
And it has nothing to do with the stock market or the politicians that are leading this country.
This issue is bigger and runs deeper; it’s something that I fully expect to rewrite America’s social fabric in the coming years… bankrupting millions of Americans in the process.
So if you’re worried about your retirement or even what this country’s future looks like, you cannot afford to ignore the message that I want to share with you today.
What Is the Technochasm?
Let me paint the Technochasm phenomenon in an image we can all understand:
In the spring of 2000, a man named Reed Hastings traveled to Dallas with a big business idea.
Hastings approached the management of movie rental giant Blockbuster with a proposal. He wanted Blockbuster to buy his small business for $50 million.
At the time, Hastings’ company – Netflix Inc. (NFLX) – had a promising business model. It allowed people to rent movies through the mail. Netflix, at the time, was small and struggling to turn a profit.
Hastings believed a Blockbuster purchase of Netflix would be a win-win deal. Blockbuster’s managers did not. They didn’t think Netflix’s business model made sense for them. A Netflix executive later said that Blockbuster essentially laughed Hastings out of the room.
You can guess the outcome of this story.
Netflix secured investments from other sources and built a hugely popular mail-order DVD rental business.
Around 2007, it made a brilliant move and began transitioning into America’s No. 1 movie and television “streaming” service. This innovation annihilated traditional brick-and-mortar rental companies like Blockbuster.
In 2002, Netflix had less than three million subscribers; as of July 2022, the company boasts 220.6 million subscribers, and its stock reached a market valuation of $96.6 billion (even with the bear market we’ve been weathering this year!).
And how’s our old friend Blockbuster faring?
It has one singular store open in Bend, Oregon with three employees as of 2019.
It went from a market value of $5 billion to bankruptcy in less than nine years. Its shareholders lost everything… and its “pass” on Netflix is widely regarded as one of the worst decisions in modern corporate history.
To give you an idea of how an investor would have done with an early Netflix stake, consider that Netflix stock fell to a split-adjusted low of $0.35 per share in 2002. Assume you did not buy the bottom, but instead waited until the stock had developed some visible momentum, and then bought in at $1 a share.
If you had committed just $5,000 at that price to pick up 5,000 shares of Netflix, that modest investment would now be worth more than $1.6 million – a mind-numbing return of more than 32,000%!
On the other side of the drawbridge, the destruction of seemingly strong and dominant businesses by innovative technology-focused upstarts is a story we are starting to see over and over and over in America…
- In 2009, Travis Kalanick and Garrett Camp founded the ride-sharing company Uber Technologies Inc. (UBER). In less than seven years, Uber demolished the “old” taxi industry while making its founders billionaires.
- During the 10-year period from mid-2009 to mid-2019, shares of tech-focused Amazon.com Inc. (AMZN) soared more than 2,000%, making Jeff Bezos the world’s richest man. Meanwhile, dozens of old-school brick-and-mortar retailers were driven into bankruptcy.
- A study of the newspaper industry conducted by the University of North Carolina reported that 1,810 newspapers ceased publication from 2004 to 2018. Vast amounts of cheap online content killed many newspapers that followed the “old” media business model.
Year after year, we watch established businesses that appear sturdy and in control of their markets get utterly destroyed by upstarts.
In many cases, these businesses employ tens of thousands of workers… and are cornerstones of retirement accounts. But the seeming strength of these businesses often hides their underlying weakness. Companies that fail to adapt die a slow but certain death.
And the rate at which these huge disruptions occur will speed up over the coming decade.
They will make the wealth gap grow wider every year.
And they’re why I call this gap “The Technochasm.”
The idea of the Technochasm is not meant to strike fear into the hearts of my readers; rather, I want to help you prepare for any and all market threats I can.
Because no matter your take on investing right now, highly overvalued stocks will continue to plummet in value over the next few months… and other companies will skyrocket.
That’s why it’s critical that you reassess your holdings in the months ahead, and I want to help you get started.
That’s why I just named 25 stocks that you need to sell today. Every single one of the stocks on this list is toxic.
In fact, if you keep them in your portfolio, I have no doubt you’ll lose money hand over fist.
To get the full list of stocks, just click here