Let me take you back to a few years ago…
Remember how companies used to be all about the “tech premium?”
If you were a financial company… you wanted to launch an app or a robo-advisor service and call yourself “fintech.”
And investors would pile in…
Or a car company… Sure, it would produce cars. But it would also promise an AI-powered, fully autonomous vehicle… and investors would slap a “tech” premium on your otherwise unprofitable business.
(Not pointing any fingers here, of course.)
But those days are gone, now that tech is out of favor.
Other sectors, like the “boring” banking sector, are making a comeback.
This is textbook late-cycle behavior.
The Tide Has Turned
Instead of “old economy” companies becoming more “techy,” technology businesses are trying to get into financial services and other “boring” areas.
People want stability these days, and whether they know it or not, they are positioning themselves to profit from the patterns that are characteristic of the late stages of the 18.6-year real estate cycle.
Take Apple, for example.
Apple has recently introduced its “buy now, pay later” (or BNPL) service, aptly (if bluntly) named Apple Pay Later.
Here’s why it’s huge news…
The “All Hands on Deck” Stage Has Begun
Apple Pay Later will provide interest-free loans to its customers.
Millions of people buying premium Apple products will be able to buy even more.
Remember, we’re talking about the upscale segment of the consumer gadgets space. These customers have more spending power than average.
Traditional banks understand this.
And the only thing they can do to respond is… compete.
They’ll have no other option but to revisit how much they charge their clients, lower their fees to match Apple’s offering – or be driven out of business.
(And by the way, I won’t be surprised if other tech majors like Amazon join the credit creation game as well.)
An Avalanche of New Credit
Apple and other tech giants made windfall profits over the past decade. Apple alone has about $51 billion in cash and short-term investments on its balance sheet.
Amazon has $70 billion in cash.
If tech giants are allowed to lend money against even a fraction of these insane cash holdings, they will add tens if not hundreds of billions of dollars in consumer credit.
And keep in mind that they don’t even need to attract depositor funds. They can lend against the cash they have already.
This “credit competition” is going to reach frenzy levels over the next several years… just mark this prediction.
Tech enters banking, banks get scared and start to frantically compete, the system gets overflowed with new credit, and drives the cycle to its end.
How long before Apple seeks a banking license?
Regards,
Phil Anderson
Editor, Cycles Trading with Phil Anderson