Longevity

 Longevity

There is an old saying that "youth is wasted on the young, and wealth on the old." That presents a true quandary, because for many of us wealth does not appear until there is gray in the hair and we are on the pickleball courts! So barring a tectonic shift in altruism, the only other option is for investors to internalize a truth: time is the most valuable commodity. It deserves to be considered its own asset class.

If time is truly the most valuable commodity, then investors need to embrace longevity as one of their key tenets in creating dynastic wealth. Along with creating value (the more the better) and buying assets (once again, the more the better), living long allows for many opportunities for both creating wealth and compounding it. The latter factor is vital. Compounding alters lives.

Even a grub stake over time can become princely wealth. A vital factor is correct asset selection which results in compounding. Much of the asset selection process can be learned, and it is often quipped "lessons are expensive and good ones dear." Continuous (yes "Dollar Cost Averaging") of proper asset selection (read that as "real growth," defined as growth in excessive of inflation) over time (and here we want AS MUCH TIME AS POSSIBLE) can result in magnificent wealth. 

Of the three components of #CVBALL (Create Value, Buy Assets, Live Long), Live Long is the most important. You can have many, many failures in life, but generally the older you become you learn from mistakes and try not to repeat them. You may have new mistakes and never exhaust the total "pool" of mistakes possible, but generally you get better at the game as you age.

New Year, same plan! #CVBALL! Concentrating on the "LL," there have been many studies done on longevity. Increasingly it has moved from the fringe to mainstream, especially with widespread adoption of "miracle drugs" like Ozempic. These semaglutides decrease the urge to eat and help jumpstart a virtuous cycle that combined with exercise and a modified diet often results in significant weight loss, improved cardiovascular fitness, and better cognitive functionality. Bottom line, semaglutides along with changing behaviors will result in collectively MILLIONS of years in longer lifespans.

Longevity, whether obtained from pickleball, Ozempic, and/or a reboot of the traditional food pyramid will have massive effects on wealth. Adding just one (1) more doubling cycle to your wealth can drastically improve your quality of life and potentially that of your heirs. Adding two (or more!) doubling cycles is almost hard to fathom...an estate saved over a lifetime for someone in their early 60s worth say $3M potentially becomes close to $25M if they can live into their 90s. And that is becoming increasingly possible. The centurion is one of the fastest going age demographics.

So ILAF (Invest Like A Farmer) offers a solution to those who may feel they are priced out of the real estate market, or don't earn enough to compete, or who have perhaps just suffered a big financial or life loss...hang in there. Longevity offers a myriad of outcomes and forgives many mistakes. Create Value. Buy Assets. Live Long. (#CVBALL).

The Brass Ring

 The Brass Ring

Here at Invest Like A Farmer (ILAF) we play the long game, and you should too. Investing over the long-term, by definition, provides significantly more opportunities for you to compound your wealth than shorter, sporadic intervals. Even measly annual returns compounded over time can become great generators of wealth. We are not interested, however, in measly returns at ILAF...we seek the brass ring during life's carousel.

Getting the brass ring is tricky though, it takes a combination of skill and luck. For some, they are given a brass ring upon birth and their challenges are different; the adage "from shirtsleeves to shirtsleeves in three generations" is often aptly true. For those on the come, the deck and the game need to be understood.

Here is a quick primer: Modern economics in the United States has basically evolved from five (5) seminal events over the past ~100 years. One could go on the cocktail circuit for a lifetime simply addressing these five events.

The first was the creation of the Federal Reserve in 1913. For better or worse, this created an unelected quasi-government akin to Gringott's Wizarding Bank. Over time "The Fed" has arguably become the most powerful unelected (unaccountable?) organization in the world. Controlling interest rates is God-like power.

The second event(s) were World War I and World War II. Wars are extremely expensive in terms of resources, both physical and human capital. The United States transformed from a largely agrarian economy and culture to a full-on manufacturing behemoth. Some argue that the United States entry into WWII finally got it out of the Great Depression.

Bookending the two World Wars, there occurred the third and fourth events. The third was the creation of the income tax via the 16th Amendment in 1913 which effectively replaced tariffs for supporting the Federal, State, and Local government expenses. The fourth event occurred at the tail end of WWII, The Bretton Woods Agreement in 1944 which made the U.S. Dollar the de facto reserve currency for the entire World.

Finally, the fifth seminal event following the creation of the Federal Reserve, the 16th Amendment, WWI & WWII, and Bretton Woods was in 1971 when President Nixon took the United States off of the Gold Standard.

Often referred to as the "Nixon Shock," it effectively ended 2,000 years of monetary policy which had tethered gold to a unit of global government money.  These five events are critical to the long-term game plan of investors seeking the proverbial brass ring.

What the five seminal events normalized was the loss in buying power of the United States Dollar over time, ie a dollar today is worth more than a dollar tomorrow. The Fed organized it, the income tax solidified it, wars (WWI, WW2, Vietnam) expanded it, and Bretton Woods transmitted it around the world.

These five events have made it possible for the government(s) to essentially print unlimited amounts of money without necessarily creating any additional value. Everything humanity knows is finite, except fiat money. That is infinite. The only way around this quagmire is for investors is to: 1) Create value by increasing productivity in some manner, 2) Buy Assets, and/or 3) Live a long time. The crib notes? Create Value, Buy Assets, Live Long...CVBALL.

Qui Bono?

 Qui Bono?

The Roman people regarded Lucius Cassius as a wise and honest judge. He was in the habit of frequently asking "Qui Bono?" or "to whom might it be for a benefit?" Why the history lesson? Because responsibility has become a very touchy subject. But it shouldn't be a partisan one. Hence the utility of an impartial judge from 2,000 years ago.

What Cassius was getting at with the simple question of "Qui Bono?" is who benefits from an outcome? By and large, purposeful decisions over time result in outcomes. You study hard in high school, go to college, get a good job, further your education, etc. Generally you turn out with a decent outcome. Same with investing. If you start young and are diligent and have some luck along the way you generally compound your money over time. The LA Fires are an outcome.

Much will be written and hopefully studied during the autopsy of these fires. A "blue-ribbon" panel would be welcome. There are many important questions that need answers from Gov Gavin Newsom, Mayor Karen Bass, and Insurance Commissioner Ricardo Lara.

Having the courage to ask "Qui Bono?" is an important first step, whether you are evaluating a business deal, looking at an investment or in this case trying to understand an outcome like the LA Fires. LA, California, and yes US citizen taxpayers will be (not "could be" or "may be") on the hook for billions of dollars. We deserve better than the LA Fires outcome.

The challenge of asking "Qui Bono?" aloud is there are many intellectually weak and morally bankrupt  individuals who will instinctively label you a "conspiracy theorist" or worse. Hold your head up high and ask away, this isn't China. Very apropos for the LA Fires oddly though, in an almost mystical way calling back from the past some 50 years ago, is the required viewing of "Chinatown." Test your metal like Jake Gittes and follow the money...it will lead to the truth, perhaps one as Californians we do not want to admit.

Rule of 72

 Rule of 72

The magic in investing is in compounding. That is why knowing your personal "Rule of 72" is so important. This ratio tells you how quickly your net worth is doubling. It is simple and quick to calculate.

First, you will need to know your net worth over a period of time. And that's basically it. For argument's sake let's use 1-year as the base timeline and a $100,000 start value and a $110,000 end value a year later. Utilizing the "Rule of 72," ie subtracting $100,000 from $110,000 yields $10,000 or a 10% yearly return which then is used to divide 72 resulting in the number 7.2.

7.2 would be your personal "Rule of 72." Assuming an average lifespan of 78 in the United States, that would be ~ 11 doubling cycles. Or that $100,000 would turn into about $205,000,000. That is a nice chunk of change! Very few of us start off with $100,000 at birth and perhaps more importantly, very few can avoid touching that stash for a lifetime. Life happens. That is the great challenge we all face.

But the take-away from this post is this: If you know your personal "Rule of 72" you can modify it. Compressing it is like compressing time; even marginal decreases in your personal "Rule of 72" can have meaningful, life-altering results. Better housing. Better food. Better education. Better healthcare. Better outcomes at almost every life touch point.

In a typical life, just adding one or two more net worth doublings can make drastic differences. That is the difference in a 7.2 versus a 6.0. Imagine doubling your net worth every 5 years! This is why typically most people who can survive in the investing game the longest win, they have more doubling cycles at their peak net worths. Consider, Warren Buffett made more than 95% of his net worth in the last 10 years.  Staggering.

Start investing young, ideally at birth. Continue investing throughout your life. Keep a low "overhead" to avoid interrupting your net worth doubling cycle. Avoid losses. Spend judiciously. 

Price Gouging

 Price Gouging

Healthcare insurance has become the perfect storm for price gouging. Like many gainfully employed hard-working Americans, I was shocked (but not surprised) to see my healthcare premiums spike up again, this time +15% year-over-year. Over the past 5 years this cost has doubled. How could this be? Isn't annual inflation 2.5%? Don't economies of scale typically LOWER prices? Hmmm.

Price gouging flourishes under unique economic circumstances, which typically right themselves in a free market; ie if one seller is gouging, then other sellers lower their prices to capture market share. Price gouging almost universally is short-lived. Unless it is engineered.

The danger arises when the market is manipulated by health insurance companies, healthcare providers, and politicians to engineer unfair economic incentives and laws. No one does this better than California, although Massachusetts is a close second. Not surprisingly, these are two of the five states still clinging to the individual mandate.

The individual mandate has been arguably the single most destructive pieces of legislation in history, mandating the purchase of services at a price set by health insurance monopolies in cahoots with government punishable by the IRS. Think about that one.

Access to healthcare is best provided by an open marketplace with multiple competitors vying for your business. By definition, the vast majority of medical services are commoditized services which have been established for decades; provider to patient, no middle man required should be the norm. Simple enough. The gouging begins when access itself is simultaneously squeezed from both ends (it sounds like an uncomfortable medical procedure, and it is.)

First, dollars flow from health insurance companies to politicians who restrict access to the market by defining which health insurance companies "own" certain counties or areas. ie They choose who can compete. Next, the politicians squeeze the constituents by mandating that they HAVE to use said insurance company in certain areas. Finally, the politicians appease the base by using taxpayer resources (read money) to subsidize as many people (not necessarily citizens) as possible.

"Free" is the most expensive word in the English language. When considered a "right" in the context of the healthcare system, high delivery costs are laundered through the hospital, clinic, physician, pharma, and admin systems to name a few. So a routine procedure at the ER which on its face value may cost $100, is ultimately billed out in the $10,000s+. That bill is then thrown into the "insurer pool" like a Baby Ruth on a hot summer day. Gouge the pool!

Monterey, CA is a great example of this price gouging gone amok, but there are hundreds of counties across the country in the same boat. A smaller and smaller pool of full-price payers gets gouged every year because they have no voice; the reality is our local Congressmen Jimmy Panetta happily helped engineer the current system. Residents of counties all across the country facing similar corruption have the same tough choices; vote with your feet out of your home towns or "grin and bear it" every year for the RICO shakedown. Most are just hoping to live long enough to age into Medicare. 

Meanwhile health insurance companies, the true constituents of Congress, continue to pay off the politicians, who are "outraged" by the high cost of healthcare insurance and simply expand the taxpayer umbrella to a larger and larger pool who pay close to nothing for top notch healthcare which encourages all sorts of gaming the system. It is an interesting racket; notch up the premiums every year, subsidize more of the population, gouge the middle class. 

Ending the price gouging corruption is simple; open every marketplace to real competition amongst insurers, publish costs for every service, and eliminate the individual mandate. The free market will solve this problem, and in fact INCREASE the quality of healthcare for everyone as completion drives out losers and promotes winners. This country needs to be in the business of the best outcomes, not beholden to engineered price gouging.

Golden Years

 Golden Years

These are not the "Golden Years" of which many Americans have dreamed. Over the past 3.5 years inflation has destroyed ~45% of purchasing power. Proof? In January 2021 gold was fetching approximately $1850 per troy ounce. Yesterday we reached yet another all-time high in the noble metal, closing the day at $2686. So in less than 4 years almost HALF of your purchasing power has been wiped out.

Why does this matter? It provides concrete evidence that there has been wholesale destruction to the purchasing power of the American dollar. The prices in the grocery store, gas pump, and doctor's office are all real, and they hurt. Gold is a great litmus test because governments cannot create it, unlike fiat money like the US dollar. Much has been written of gold on this blog and how it is a physical form of truth.

America needs to move away from a policy of "Tax, Spend, and Regulate" to one promoting creation; ideally this country facilitates growth by a meritocracy of ideas stabilized by the rule of law.  We want the best engineers, scientists, physicians, entrepreneurs, and leaders. The problem with policy failure is that accountability takes at least 4 years at the national level. By that time chaos can reign, but there is hope for creators.

One surefire way to reduce what I consider to be the bane of society, inflation, is to increase productivity. Increasing productivity is a function of treating creators and their capital, both mental and fiscal, well. If that is not an outcome in the coming months, then prepare for gold's luster to shine even brighter. Expect the US dollar to further weaken with increased debt not supported by increased productivity.

Many of society's problems can be both addressed and solved by unleashing the power of productivity. Enable creators to operate in free markets to create solutions. Removing over-regulation facilitates outcomes in the best interest of society because it is the very members of the society who will make economic choices in their own best interests. Choice is the cornerstone of freedom and democracy. 

Ideally capital flows where it is best utilized and not via a laundering system which charges an exorbitant toll to deliver diminishing funds; consider the overhead in the existing income redistribution model. How many hundreds of billions are collected simply to hand out hundreds of millions? Less of the middleman is better for the middle class and nearly everyone else too.  

For the majority of Americans the answers are both simple and obvious; we know what is broken, we know how to fix it, and we know who is accountable. The challenge is can we still get a fair shake at the voting booth to elect leaders who can implement the will of the people? Does the rule of law still exist? Will an unelected shadow cabal run this country? These are the challenges of our Golden Years.

Circling the Wagons

Circling the Wagons

 

 

Investors are increasingly choosing to circle the wagons as it becomes apparent that the Federal Reserve will not be making multiple interest rate cuts this year, indeed this author predicts the next move is up.

 

As earning season kicks off, early indications show that misses are punished with death and even solid beats can result in a selloff. Why? Growth is paramount, and any indication of weakness is an excuse to sell.

 

Hyperinflation is starting to cause significant cracks in the economy, notably in the energy and food sectors where high prices are causing many Americans to make hard choices. Those unwilling or unable to take on a second or third job to makes end meet are particularly vulnerable.

 

For now, the stock market has stalled out and investors are looking toward the coming earning season to parse out winners and losers and adjust their portfolios accordingly. Sharp swings in share prices should present those with a longer time horizon with meaningful buying opportunities.

 

Historically, the adage has been to "Sell in May and Go Away" for the past 100+ years. Seasonality combined with a jittery consumer battling hyperinflation may lend significant credence to this old philosophy. When it is hard to see the upside, and you face danger on multiple fronts. sometimes it makes sense to circle the wagons.

 

 

Risky Business

Risky Business

 

 

In the classic movie Risky Business Tom Cruise's character Joel Goodsen says, in a slightly edited version, "Sooner or later, a man has to say 'What the heck, and make his move!'" The Federal Reserve is stuck in neutral as "transitory" inflation over the past 38 months has PROVEN to be "sticky." The Fed needs to make their move.

With the Truflation© index now well over 50% in the past 3 years, it is difficult to understand WHY the Federal Reserve has not continued to hike rates. Gas alone in California is up over 75% from Jan 21 until today! The other components of the index are also all markedly higher. The value of the dollar is collapsing all around us, yet no one in Washington, DC seems to care.

When the Federal Reserve does not do its job, literally billions of people around the world suffer. This is the impact of having the world's reserve currency, great responsibility. NOT making decisions based on data visible by everyone at the pump, grocery store, landlord's office, health insurance premium stub, or at the bursar is a dereliction of duty.

 

The Federal Reserve has a both a fiscal and moral responsibility to maintain a stable currency. It is failing terribly at this, as evidenced by massive price instability. Historically, price instability has proven to be disastrous. The domino effects of price instability often result in the toppling of nations.

Resolution to the inflation crisis can be straight-forward and transparent, raising interest rates until Truflation© falls and prices stabilize, or it can be exceedingly painful by doing nothing and watching while multiple demand shocks hit the economy. Hopefully elected leaders choose a sustainable future starting first with price stability.