Friday, December 30, 2022

Shearing Sheep

Shearing Sheep


This isn't a Christmas story for the faint of heart. As the Biden Crime Family disembarked from Air Force One, the gaggle of 15+ leisurely made their way to a billionaire's residence for the holidays. Though much of the country was "sheltering in place" due to a massive Arctic Bomb, the Bidens slipped off their loafers and Manolo Blahniks into flip-flops. Something though just wasn't sitting right in the America north of St. Croix.

Yes inflation was raging and the stock market had suffered a Barrackian year; its worst performance since the elder statesman's jefe began his reign in 2008. But that wasn't it. Only capitalist pigs bought companies! Far better to extract value via a Labor Union. Invent something? Everything has already been invented! Yes crime was surging in every major urban area, but that doesn't count. "Hold your tongue and count your blessings," admonished the High Septon. No it was something else. 

Gas at $5? What a deal! That couldn't be it. 10,000+ new *friends* joining our country illegally EVERY DAY? How dare you criticize someone committing an illegal activity! Americans don't want those jobs anyway, especially not American teenagers who have to compete with adults lacking documentation. What is documentation anyway? Paper! The theft of resources at scale only hurts the rich. No, it was a peculiar buzzing sound.

The noise reverberated through the night. A buzzing electric sound constant in application and thorough in design. Why it was the shearing of sheep! Taxpaying citizens lined up in seemingly endless rows having their hard-earned wool being sheared off at the peak of winter. Brrrr it was cold out there! Many sheep were shaking. What a foolish thing to shear so deeply, but ALL* must pay "their fair share."

So on it went day after day until the citizen sheep had given all that there was to shear; here, there, everywhere piles of wool lay. Much was burned to keep the shearers comfortably warm, less THEY too feel the cold. Being in the Shearer's Union meant never being cold. Aye, but they left many a sheep naught enough wool to harbor in the storm. But that is the penalty for following the law.

Boy was it hot in St. Croix! Even staying free can be troublesome, now the dear leader would have to favor some billionaire friend. What a labor of love this job was! Along the boardwalk he pandered around, his crusty feet full of golden sands. Laughter was heard all around, how they had gotten away with it all! Joy was theirs! And if they had gotten this far, why what could be next? On a silver tray a 4,000 page omnibus bill was flown in from America to the north totaling $1,650,000,000,000. Why it was even more than he asked for! Would the blessings ever end? And even here, far away from America to the north, the sound could be faintly heard. Bzzzz. Bzzzzz. Bzzzzz.

Investors beware, to what you value hold dear! The shears are out and your wool will soon be theirs. Protest and mutton you may become. The tide has turned and socialism is here. "A welfare state with open borders. What could possibly go wrong?"





*ALL = "All" refers to the subset of the American population who are legal U.S. taxpaying citizens, ideally veterans and non-union, with a net worth below $1M without any political connections and preferably small business owners.


Thursday, December 8, 2022

Speed Brake

Speed Brake


If ever there was a speed brake on the economy, well dear readers it is the ironically titled "American Rescue Plan." The keystone language in this travesty of a bill is the issuance of 1099-Ks for "transactions totaling a cumulative of $600 per year." Think about this for a moment. What better way to kill small business, prevent new business, and ramp up the police state than search for needles in the hay stack while the barn door is open out back (see previous post on failure to subpoena Samuel Bankman-Fried re: $32B fraud.)

Similar to the laughingly false "Inflation Reduction Act," which promises to reduce inflation by spending more, the "American Rescue Plan" aims to HELP Americans by raising their taxes, lowering taxable thresholds, and adding 87,000 more enforcement agents to "help" them. Cue up the Ronald Reagan quote of the most dangerous words in the English language: "I'm from the the Government, and I'm here to help."

Let's get serious people. As readers of this blog (currently on the "restricted reading list" of the Government) know we are big, big believers in the Laffer Curve. This economic visual miracle which has not be embrace by many socialist economists purports that there is a strong relationship between taxation and tax returns. As so elegantly illustrated above, when you squeeze the lemon to much you don't get more juice. In fact, you get less juice.

Consider for a moment the value of robust contribution of the Small Business to the American Economy. Small businesses account for two-thirds of new jobs and half of all existing jobs. The Small Business sector generates almost HALF of this country's GDP. So what happens when the jackboot of government is on the throat of Small Business? Well, nothing good happens. Productivity crashes. Output contracts. The lemon shrivels up.

There is little doubt this has been a coordinated effort to reallocate capital. Bills don't write themselves. They are typically written by lobbyists paid by special interests (who represents the citizen taxpayer?) So if Small Businesses are the losers, who are the winners? Winners would be those who typically don't need or have a Small Business or side hustle. They would be those with local, State, and Federal government jobs, labor unions, and big business execs. Collectively 45% of the population will seemingly reap significant benefits, but there is a flip side to this coin.

A healthy economy, as JFK (who would be considered a far-right Republican today) well knew to have Government welfare programs and an expanse state it is necessary first to have a thriving economy. A thriving economy is based on a free-market with light regulation. Light regulation does not mean no regulation, ie the bad actors like Samuel Bank-Fried need to be made examples of. The French coined this best with "Laissez-Faire."

What is an investor to do? Well until there is a regime change, investors not plugged into the political gravy train need to stay in their foxholes; consider dividend paying large companies with monopolistic pricing power and brand recognition. If their products are vital or addictive, so much the better. The landscape for startups is barren as the moon, never mind Mars. Raising capital in increasing interest rate environments during a recession is pointless. 

When the Laffer Curve is ignored, or even mocked, and we have taken a turn into a socialist regime then the capitalist must look for safety, income, and muted growth until an opportunity emerges to make a move into pro-growth, low-tax, and economically sound policy. It might be a while.






Wednesday, December 7, 2022

Zero Legitimacy

Zero Legitimacy


There is zero legitimacy in the House Financial Services Committee after Maxine Waters refused to subpoena Democrat mega-donor Samuel Bankman-Fried, the disgraced formed FTX CEO responsible for the bankruptcy of the $32B company.

Thankfully, Waters will lose her chairmanship when Republicans take control of the House on Jan. 3rd. Waters' decision is long on a list of malfeasance heaped on the American people over the past several years giving rise to the widespread belief that there is rampant corruption inside the halls of Congress and weaponization of the executive branch under Joe Biden against political opponents.

The primal victim of the failure of political leadership has been the citizens of the United States who no longer have faith in the leaders to duly execute their oaths of office; these shenanigans have resulted in serious damage to the rule of law, First Amendment rights, and the value of citizenship itself.

A fine example of this is the attempted deplatforming of this blog! After several articles critical of rampant corruption, previous traffic pattern of several thousand views per day were blocked and views trickled to a handful of views. 


The biggest challenge is speaking the truth in today's society without getting canceled. And getting canceled is easy business when "misleading content" policy basically involves anything tech monopolies find contradicts the narrative being pushed by screening committees. Eisenhower long warned us of the military-industrial complex. Here it is in full fruition:


So we have reached a great rubicon in our country; will tech monopolies dictate what is "misleading" or will elected representatives push back and do their jobs? It doesn't look good for the latter, as tech has lots and lots and lots of money to lobby. Who is lobbying for you? 








Monday, December 5, 2022

The War on Small Business

The War on Small Business


Kurt Vonnegut once quipped that: "The two real political parties in America are the Winners and the Losers." With the Small Business Index at 62.1, the lowest since the pandemic which itself was the lowest in a generation, small business owners are the losers. Given that small businesses create two-thirds of new jobs and deliver 43.5% of the United States GDP this is a BIG problem. But your elected leaders don't care. Why? Because small businesses do not have the clout to influence political change.

Case in point, why would a Veteran-owed small business have to pay 50X (you read that correctly, FIFTY) the Blue Shield healthcare premium as an illegal resident in California for the SAME healthcare plan? Answer: Because somebody has to pay the bills, and the proverbial "last man standing" is the small business owner. Heavy is the crown.

How did we get here? The war on small business has been brewing for decades, but finally the straw that broke the small business owner's back was healthcare. With the passage of the ACA on April Fool's 2010, pieces on the chess board started moving around rapidly. Political parties immediately started jockeying for pole position.

Since the majority of politicians never owned a small business, they were easy to influence. The labor unions got to work. Big corporations saw what was happening and they got to work too. Given that small businesses are by nature fragmented without a unifying central leadership they waited to see what happened next. Bad move.

The labor unions and big business effectively gamed the healthcare system so that union members and employees got cut rates on healthcare plans, and to make the deal more palatable, they also negotiated for universal care pools. But of course somebody had to pay unsubsidized premiums, and that of course would be based on income. Who better to sock it to than the silent small business owner?

Reaching out to my elected representative Jimmy Panetta resulted in the terse reply that "healthcare is complicated." After a decade in place, it is not that complicated; depending on your income you pay different rates. Imagine if McDonald's worked that way! Your "Happy Meal" price would be a direct result of whether you worked for a union, a large company, or your immigration status! Preposterous.

Across the spectrum of wealth distribution, healthcare is the most onerous. But that is just the most glaring example. Inflation is the next one. It hurts the small business owner most, because he has to absorb most of the pricing increase and passes along less of the increase. That 16% pay increase for rail workers or 10% pay increase to pilots won't decrease rail traffic or flight volume. In fact, the COST to ship freight or park a butt in a seat will simply be adjusted up, up, and away!

For the small business owner it is a death by a thousand cuts, with some "cuts" akin to a sucking chest wound. Like him or despise him, Joe Biden has done one thing really, really well...he has acted as a fine bellhop for the labor unions. When you print the money and sign the contracts to print more, inflation doesn't hurt much. Indeed, most union workers have never had it so good. 

With labor unions the winners and small businesses the losers, what will the impact be on larger businesses? The cost of labor is typically the MOST expensive part of creating and delivering a product or service. As we can imagine then, large business are increasing prices and laying off employees (non-union of course, and many expendable H-1Bs at that) to cover the cost of inflation.

Net net when the wokescreen clears, this equation balances by the destruction of small businesses, many of which will cease to exist, go heavily into the black market, and/or rapidly innovate by embracing new technology and doing business differently (low odds on the latter.) At the end of Joe Biden's reign, fewer small businesses will remain, more unions will exist, and big business will be thriving (with far fewer employees.) Invest accordingly.






Sunday, November 27, 2022

Layoff Guru

Layoff Guru


As the holiday season fast approaches, the number of tech layoffs in Silicon Valley has spiked, disproportionately affecting smaller startups without monopolistic business silos to shelter all of their employees. To be fair, though, there have been large cuts at the likes of Amazon, Twitter, Facebook, and (loomingly) Google too. Many employees with H-1B visas have both employment and continued residency concerns. This situation looks dire. Now what?

Tech has followed a classic boom/bust cycle for multiple generations now, ever since the introduction of the seminal Silicon Valley invention; the microprocessor. If one thing has been constant is that during every boom there is hedonistic excess, and after every bust (like a wildfire) new startups (sprouts) emerge from the charred landscape.

Being let go from a job is one of life's most stressful experiences and something you shouldn't have to deal with alone. Based in Monterey, CA I serve ALL of California and am accessible via phone, email or in person to help you navigate layoff decisions. Below are the "Big 3" questions I typically get asked most frequently by new clients recently laid off:

California Severance Pay

There is no legal requirement under California law that employers provide severance pay to an employee upon termination of employment. Employees should refer to their employer's policy with respect to severance pay. As such, most employees DO NOT have a legal right to receive severance pay. Many companies, however, DO offer severance pay to help reduce the their legal lability. Make sure you have a copy of your employee policy and consider requesting time to review any severance agreement prior to signing it.

Healthcare

If you have been laid off you have a lot on your mind right now, and health care is surely near the top of the list. You have options for continuing health coverage. You may have heard about the Consolidated Omnibus Budget Reconciliation Act (COBRA), it is intended to give families an insurance safety net after a job loss. It is available if you have already enrolled in an employer-sponsored medical, dental, or vision plan, and your company has 20 or more employees. You can learn more about COBRA here.

Legacy Benefits

Many of your legacy employment benefits can continue or be rolled over or kept in place. Make sure you have received a copy of your employee policy and benefits package. It will detail what your options are for life insurance, 401K, and restricted stock or options vesting.

For many employees in Silicon Valley, the proverbial "elephant in the room" is their H-1B status after a layoff. Typically there is a 60-day grace period, meaning you will have a maximum of 60 days to arrange for another employer to submit an H-1B petition for you, change to another status, or depart the United States. A more detailed explanation can be found here

For a complimentary consultation and review of your specific situation please fill in the appointment form and I will contact you within one business day. I have been working with laid off employees for decades now, through multiple boom/bust cycles, and understand the stress it brings, but having a game plan in place can make the transition to a new, better path forward a a lot easier.




Monday, November 21, 2022

Tech Layoffs

Tech Layoffs


Barring the recent "layoffs" of pranksters Rahul Ligma and Daniel Johnson, the Silicon Valley tidal wave of tech carnage is very real indeed. Assuming 10% of the Valley is laid-off, the economic impact of this bust cycle will be painful.  As the old adage goes, if your neighbor loses her job it is a recession; if you lose your job it is a depression. Time to head for higher ground.

Ten percent might be a significant understatement of what is about to occur in Silicon Valley. Typically these boom/bust cycles wipe out 30% or more of the carrying tech employment scene. To the upside, it also typically spawns new companies, ideas, and industries...but that is far, far down the road at this point. Amazon, Meta, Twitter, and Google are all cycling up MASSIVE layoffs, to the tune of well over 25,000 employees in the "Bay Area," while non-monopolies with less defensive business models are shedding employees like snake skin. The worst is yet to come.

It has been a solid decade since the last wipeout, so data suggests this one will be nasty. For every 1% of the local employment scene laid-off, the resulting real estate, medical, and social services (read as tax base) will be exponentially impacted. Cinderella may have lost her shoe, but when it finally drops that shoe is going to be called "real estate." With the highest prices in the nation, Silicon Valley real estate is uniquely positioned for a collapse with massive tech layoffs on the horizon.

As any small business owner knows, cash flow is king. And each one of these laid-off tech workers is becoming her own business now. And cash flow will dip first into severance, then into savings, and finally into retirement savings to either stay/survive in the Valley or flight to a lower cost of living/higher quality of living area (in the United States or abroad.) Given that the "uptake" (rehiring) rate will be tepid at best, but nonexistent as likely, many laid-off employees will return to their pre-Silicon Valley roots with a bag of cash (in the form of severance, vested options, and real estate sales gains.) Quitting while you're ahead isn't the same as quitting.

Is that Santa Claus flying over? No, that is a laid-off tech worker decamping from Silicon Valley. The first to know are typically the first to act. As with Covid, those who knew first acted first. In this case, those laid-off first have the ability to cash out of their company stock and over-priced Mountain View home first. Oddly enough, the first to go are probably the best off because they can still walk away with a Santa-bag. With the USD at an all-time high against most major world currencies, this decision is a no-brainer. And as everyone in the world has been told, Silicon Valley people are the smartest on Earth.

What does this mean for the typical Financial Farmer eagerly reading this blog? Big picture: Expect tech stocks to continue to be weak and most likely continue their selloff until that last sliding door pinches the last butt out because when the cutting finally stops, then those cost savings will hit the proverbial "bottom line" on corporate balance sheets. Until then, employees that were canned will make the easy choice of bolting to a lower cost of living area with a king's ransom in their savings accounts earning 5% risk-free from US Treasury T-Bills. As usual, Main Street will pay for the hubris and excess of Silicon Valley companies no longer run by founders. 

In the next 18-months to 24-months (that's right, 2 years), expect non-founder tech companies with bloated workforces to lose about 25% of their workforces, dramatically reign-in costs (like R&D), focus on their core monopolies, and regain obscene profitability number if they can stabilize revenues. The next cycle after that, or perhaps in parallel, should be the rise of Silicon Valley 6.0. Until then, consider looking elsewhere for reasonable returns on capital.




Thursday, November 17, 2022

Too Big To Innovate

Too Big To Innovate


With tens of thousands of layoffs pending, Silicon Valley has proven it is "Too Big To Innovate." The bloated employment roles of many major tech companies for years have been a symptom of a dearth of innovation; many hires were made simply to prevent those people from actually creating competition. The "C-Word" is the worst word in the lexicon of Silicon Valley amongst the "Big Five."

Google owns search. Apple owns iPhone. Facebook owns social. Amazon owns e-commerce. Microsoft owns PCs. Sprinkled in those distinct monopolies are a mix of other "bets" which help assuage regulators. But make no mistake dear readers, when times get tough (and your stock is down say 50%+ year-to-date), it is time to cull those losing hands and focus on what works: monopolistic control of niche segments.

Sadly the new aphorism for non-founder CEOs seems to be the same: "When in doubt, Grinch it out."

The net beneficiaries? Oddly enough, culling large numbers of superfluous employees to ramp up production of digital nicotine should have wondrous effects on the bottom lines of these companies. After the one-time costs associated with severing excess employees with a couple months salary and limited healthcare, those employees now largely become subsidized by taxpayers for healthcare. And the companies? Oh baby, get out the napkins because it is gravy train time!

Each percentage of layoffs translates to an exponential increase in bottom line profitability for these tech companies. Obviously the damage is most acute in regards to future products development, but when you own a tech monopoly R&D becomes an increasingly negligible cost. The only real danger to the "Big Five" is that maybe some of these employees become founders.


Friday, October 21, 2022

Venmo Fraud

Venmo Fraud


In today's eCONomy, a recurring threat to consumers is payment fraud. What started out as a simple idea, "How do I digitally transfer money?" has grown into a multi-billion dollar revenue geyser. At the front of this packed line, collecting buckets upon buckets of money, is Venmo (owned by PayPal.)

Venmo gets a taste of every transaction, and there are literally trillions of them, moving along its rails, bank rails, and the credit card company rails. These are the digital rails powering the internet, WiFi, and acting as the backbone of the new economy. 

Unlike the origin of the credit cards, however, Venmo was designed to be self-centric; ie neither favoring the buyer or seller of a good or service, but rather ensuring that the company got a small piece of every transaction. 

What has evolved is a landscape fraught with corruption where the singular purpose of peer-to-peer payments is volume rather than order fulfillment for goods and services. Processors are not worried about the back end; they are worried about the front end.

The greatest threat to digital payment processors is decreasing payment volume, which to a large extent is based both on their digital footprint and velocity of money. Payment volume is God to Venmo, fraud is the risk consumers must bear to use Venmo rails.

Using Venmo as the posterchild for payment fraud, the consumer has little to no recourse on a payment gone bad; ie sending to the wrong address or more likely thievery by digital bank robbers. The best way to accomplish this in non-fulfillment of purchases. The credit card companies avoid this buy being buyer-centric, payment processors are self-centric...volume, especially "bad volume," is good. 

The crimes of today are primarily digital, because as the old bank robber Willie Sutton said: "That's where the money is." Like consumers don't have enough to worry about, the rise of banksters like Venmo have seriously eroded trust in an industry that supposedly is regulated by the CFPB; most assuredly it is not.

Venmo fraud is real, recurring, and massive. It is no wonder their HQ is located on Locust Street! And those locusts are most definitely eating the wheat from the chaff. When you hear "Venmo" dear readers, run!



Tuesday, September 27, 2022

Crash Landing

Crash Landing


The economy is already in a recession. The stock market(s) are solidly in grizzly bear territory. Mortgage rates have doubled. Inflation is at nosebleed levels (highest in 40 years.) Great jobs numbers? Sure if you like flipping burgers. Housing? Yeah that's teetering on collapse. Buckle up America, those oxygen masks falling from the bulkhead are not comforting. The most likely outcome of Joe Biden's disastrous economic and monetary policies will be a crash landing.

Although there has been much speculation about the effects of the recent Fed moves and whether they can engineer a "soft" landing, the previous scenario is far more likely. Consider the rampant increase in the M2 (money supply) coupled with a a Federal Reserve hellbent (suddenly) on taming inflation. The "tough talk" coming out the Fed along with a crippling pace of hikes has kneecapped the consumer.

Where was the "A-Team" for the past 18 months? Nobody knows, but thanks for the postcard from Jackson Hole! Disgraceful. Prof Jeremy Siegel is correct, Jerome Powell owes the American People an apology for doing such a horrible job. A heartfelt resignation letter in conjunction would also be acceptable.

Destroying some $20 Trillion+ dollars in value must have consequences. Obscene government salaries, fat pensions, and free healthcare for life all need to be revoked. Even a child knows, if you do not have skin in the game then you are not in the game. Suit up Jerome Powell, or hit the locker room like Tony Fauci.

Recommended course of action? Here at ILAF, it is always game time and we are all about solutions. Start with a new Treasury Secretary in the form of Art Laffer. If he's busy, ask Steve Forbes. Either works. Then swap out a couple other cabinet secretaries (or all of them) like a scene from Moneyball; trade out Energy, Commerce, and Transportation. From there field a team that is pro-Energy, pro-Security, and pro-Growth. Pro-America damn it. Timeline to full recovery? Thirty days should do it. Elections have consequences.


Friday, September 16, 2022

Moon Dollars

Moon Dollars


The infamous investor Warren Buffett once quipped: "5% interest rates will attract money from the moon." Dear readers, that is where we are at. As the global economy craters due to rabid inflation, new business activity drys on the vine like raisons, and government spending is punched into overdrive, dutiful taxpaying citizens are left holding the bag, yet again.

For a large swath of the elite wealthy population these are Halcyon Days. Risk has been outsourced to the Middle Class. The Fed, whose benefit packages to themselves are an insult to the citizen-taxpayer, rackets the lever higher. Tech giants can now effectively capture hundreds of millions in risk-free interest. Consider, Apple's $200B cash hoard earns an extra $500M each 0.25% increase in the Fed Funds rate. There will be 3 jumbo 0.75% hikes this year...so some quick math 9 X $500 = $4.5B. That's nice.

Retail investors like us can also jump on the hay ride. Who wouldn't like some of this 5% gravy train? The one "bright spot" in the economy has been the strength of the dollar which is allowing US buyers of foreign goods to make a proverbially killing. Especially in French Chateaus. Swiss Chalets. And English Castles. For those peasant Americans who still need mortgages, the story isn't so sweet. The effective mortgage rate has doubled. Younger generations of Americans are completely priced out of the real estate market (unless they want to live OUTSIDE America.)

Moon Dollars should help the extremely wealthy protect their assets in risk-free Treasury Bills until the back of inflation is broken. Since they don't use mortgages, the borrowing costs won't bother them. A large segment of the ultra wealthy DO, however, borrow from themselves via the "Buy, Borrow, Die" investment strategy. The Fed Funds increase won't be as dramatic as their falling equity prices. The old adage of "Don't Fight the Fed" rings true.

So from a big picture perspective, expect the next 0.75%+ hike on Sept. 21st to be a final nail in the coffin for small businesses, especially those that don't have fat government contracts. Unions should do well. And of course the largess of government will also do well...their benefits are never reduced when there is vast economic destruction laid on the feet of citizen taxpayers.

What is a financial farmer to do? Bet on crops that have the best chance of survival. If cash is paying a good rate, take it. With blood in the streets there are bound to be good opportunities for savvy buyers looking to capitalize on the failure of other businesses. A crisis always offers a glimpse into opportunity. Like the svengali Rahm Emanuel once said: "Never let a good crisis go to waste." Go and do likewise financial farmers, these Halcyon Days of ineffectual leadership and disastrous economic policy won't be with us forever! 


Thursday, September 15, 2022

Ode to the Taxpayer

Ode to the Taxpayer


Taxpayer burdens increases by the day, yet their representation crumbles with the dilution of citizenship. How long can the Republic last?

Inflation, corruption, and dilution are all intricately linked. As financial farmers poor economic and monetary policy steals your seed capital, and ultimately your harvest as inflation swindles us all. The cost to plant is higher. The cost of the land is higher. Fertilizer is higher. Labor is higher. Even God's water is higher. All of this is a result of too many dollars chasing too few goods.

Obviously there is a problem(s). The current economic cycle *should* be firing on all cylinders as we are well out of the pandemic. But as any farmer knows, it is tough to make progress with the plow stuck. And that is where we are right now. Inflation has ripped the heart out of the American growth miracle and left us hobbled, bleeding out in a fallow field.

Until the ravages of inflation are dealt with we are in a precarious position. And the lonesome taxpayer will be called upon, yet again, to bail out a government increasingly bought and paid for by foreign interests (read China.)

But even this would be surmountable if the value of citizenship wasn't being diluted by the hour. That is the crux of the problem dear readers. A society's riches can only support a finite number of people well. Historically, those people have been citizens with the legal right to accept the largess of their own labors. 

The value of citizenship was similar to farming; the land from which you toiled yielded crops for your benefit as you tended the land, harvested the crops, and received benefits in return for your labor, intelligence, and sacrifice. Abundance came with increased work, yield from the fields, and protection from droughts, plagues, and marauders all capable of stealing your harvest.

We now have too few in the Middle Class, typically the 85% of the population working in small, family-owned businesses that built America, bearing too much of the yoke. Representatives are no longer representing their constituents. The Federal Government is no longer enforcing laws in violation of their respective oaths of office. What we're seeing is the collapse of a country. Next on the ballot? "Non-citizen voting rights."

Citizen-taxpayer options are steadily decreasing. Most now work for the privilege and duty of paying taxes to support healthcare for all, education for all, housing for all, etc., etc. And the tax burden grows. Get ready for the 1099-Ks coming your way in 2023 for purchases/sales of $600 or more. All while the barn door is open out back letting TRILLIONS blow away.

So here's a toast to you taxpayer, on the final day of withholding in 2022: Make sure you withhold some money (preferably gold) for yourself, and if you've taken a 30% haircut this year in your income, make sure the IRS gets their haircut too. We're in this together, right?

 

Saturday, September 3, 2022

Stagflation

Stagflation


Ever feel like you're going nowhere fast? That's stagflation in a nutshell; working harder for less while getting squeezed by paying more. A hallmark of the Biden Administration has been the failure of the economy. The jobs number gets a lot of ink, but the jobs are typically service-orientated, lower wage, and not full-time. And that's the bright spot in the economy!

A combination of raging inflation and economic stagnation has resulted in morass of stagflation. Recent market trends indicate that rather than achieving escape velocity from the Bear Market begun in January 2022, we may have several months to go especially if the S&P 500 tests the June '22 lows again. Couple that with a housing recession (mortgage rates have doubled since January), persistently high oil prices, and large companies freezing their hiring and we're in dire straits.

One of the only options for Americans is that most favored by Third World residents; buy hard assets as soon and quickly as possible because fiat money (think paper money NOT backed by gold) is worth less every day. Hence we have seen massive, incoherent, gains in machinery, durable goods, and of course real estate. But even the latter might be in for trouble now as the Federal Reserve is on a mission to break the back of inflation.

The noted investor Warren Buffett once said that "5% interest rates will attract money from the moon." Expect the Fed Funds rate to exceed that by the end of the year. There is no stopping a motivated Fed on a mission with the implicit backing of the Biden Administration.

With equities range-bound and drifting lower investors are in a pernicious position of having their dividends taxed at a higher rate, underlying corporate growth slowing, and innovative small companies being snuffed out of existence.

Stagflation ends when inflation is tamed and economic policies enable the free market to function. Two years into this Administration offers little hope that anything will change. The question that needs to be answered by investors is this: "What is the impetus to buy?"



Tuesday, August 30, 2022

Winter is Coming

 Winter is Coming


Winter is coming. For most of Europe this winter it will be the worst in at least a generation as potentially thousands will freeze. Why? For more than a generation Europe has relied on cheap Russian natural gas to prop up an economy essentially in decline that had not prepared for the possibility of having their primary energy source cut off.

With no energy bridge in place, Europe is completely at the mercy of Russia. President Trump warned Germany of this potential problem in 2018 and was laughed off the stage. The only laughter one can hear now is that from chattering teeth. 

The lesson financial farmers need to pull from this looming catastrophe is that old Boy Scout motto: "Be Prepared." Europe is not prepared, and its socialist leaders have led their people to a self-inflicted crisis. As previously blogged, corruption and inflation are intricately tied together. Almost always, where there is rampant inflation, there is widespread corruption.

Look no further than the ruling elites in Europe to pinpoint the source of corruption. It may take many names, but the result is the same: the people suffer, while the leaders jet off to cozy chalets for the winter.

For ambitious energy investors this is the primetime for profitability, as mismanagement of natural resources (and by that I mean not tapping existing supplies to achieve energy independence) has provided a window of unparalleled opportunity.

It seems Western Europe never remembers the past, while Eastern Europe never forgets.




Wednesday, August 24, 2022

Inflation Production Act

Inflation Production Act


The deceptively titled "Inflation Reduction Act" is right out of Saul Alinsky's "Rules for Radicals" playbook. It is more accurately an "Inflation Production Act" than anything. How Joe Biden can claim otherwise is pure malfeasance. What's even more troubling is that ALL 50 Democrat Senators AND the Vice President went along with the lie. But isn't inflation just a "First World" entitled problem?

As the famous Janus God of investing Warren Buffett recently quipped, "Inflation swindles us all." And up until recently, high inflation was actually almost always a Third World problem. That is because there is a strong correlation between inflation and corruption. Where there is high inflation, there is almost always rampant corruption. The two are joined at the hip. Consider the lowly penny for example.

Pictured at the top of this blog post today is a penny from 1845. It is 4X as heavy, almost 2X thick, and nearly 2X as wide as the corresponding 2022 penny. Oh yes...and the 1845 version is also 100% copper. The modern penny is almost all zinc. The penny provides a nice visual example of inflation over the past 77 years.

Generally speaking, when too much money is printed not backed by physical value (think gold), then the cost for goods increases because too many people have too much money chasing too few goods. That is the textbook definition of inflation. This is how a nation robs its people of value. It increases the money supply without increasing the value behind the money. You pay more for less.

The "Inflation Reduction Act" accomplishes this at scale by spending dollars we don't have on things we don't need at a price point that is too high. Even more troubling, it acts as a government clearing house for picking winners and losers rather than embracing a free market system where citizens are the deciders on how best to allocate their own capital. And then there is the IRS issue. 87,000 new armed tax police.

If this country is going to escape from a self-inflicted recession, then we need smart economic and monetary policies. Elected representatives should embrace the principle on which this country was founded, namely a "wide horizon, free range" mentality of low regulation, few laws, just enforcement, and a focus on self-reliance; from energy independence to USA manufacturing to leading the world in engineering, medicine, and free thought in all its forms...movies, painting, poetry.

The only thing holding this country back from enjoying a long stretch of uninterrupted Halcyon Days is hypocrisy...that failure to recognize, accept, and act on truth. Financial farmers would do well to concentrate on identifying ownership opportunities where truth reigns paramount.


Saturday, August 20, 2022

Leaky Cauldrons

Leaky Cauldrons


Fans of the monumentally successful Harry Potter series will well recognize the "Leaky Cauldron" reference in this blog post...in Harry's world it is a tavern. My reference is to the economy, and in particular, the fine balance between regulation and production. A leaky cauldron has many benefits.

Consider how a nation's economic success follows a delicate arc between enforcement and laissez-faire; the Joe Biden Administration would be wise to loosen the chokehold on small businesses and entrepreneurs in America. Today in the United States nobody really even knows how many laws there are. Most Americans need professional help figuring out their own taxes. Why is this? Absurd!

Rather then hiring 87,000 more armed IRS agents to enforce an encyclopedic tax code, this President and Congress should laser-focus on taking care of its Veterans by offering direct Small Business Loans from the Federal Reserve for the express purpose of buying small businesses. The citizens in this country who volunteered to serve should not be left behind on sidewalks while their government builds edifices to itself. A great benefit to a leaky cauldron is that not all the money gets to the people who waste it the worst, namely Congress.

Individuals will always waste money the best, ie in their own self-interest. We few proud scorned citizen taxpayers elect members of Congress for the primary purpose of spending our tax money. Think about that...every American citizen has their own personal shopper, who in reality rarely buys what you want, for the price you want, or even when you want it! A leaky cauldron helps to alleviate this problem.

Finally, a leaky cauldron bubbles over rather than causing the cauldron to explode. That's a good thing. Explosions cause a lot of damage, while bubbles typically can be mopped up. So in summary, government officials should focus primarily on understanding the Laffer Curve and loosely regulating an economy based on a "leaky cauldron" principle. Financial farmers should LEAN OUT hard against increased government regulation, enforcement, and penalization. All of those are taxes on productivity which shifts power away from the people. Remember, your government works for YOU.

Wednesday, August 10, 2022

Banana Republic

Banana Republic


The United States officially became a banana republic (and I don't mean the cargo-pant slinging clothier) on Monday August 8th, 2022. Couple the Trump Raid with the looming passage of the "Inflation Reduction Act" adding 87,000 armed "tax police" and we are there dear readers. As my good friend Jackie Chiles would say "Outrageous, Egregious, Preposterous!"

Under the auspices of non-compliance with an Archives Act violation (what is that anyway?) the FBI raided former President Donald Trump's Mar-a-lago home Monday August 8th, 2022 in the most brazen political hit job this country has ever witnessed. On the heels of this raid, Democrats have voted 51-50 to send arguably the most freedom destroying legislation to the House. The impact of creating an armed partisan tax police with 87,000 new recruits boggles the mind. This country is in trouble.

When justice is no longer blind to political affiliation or religious beliefs or the Bill of Rights truly storm clouds brew. Such is the case now as the country will undoubtedly become more polarized along political lines as the Constitution becomes a notion rather than an ideal.

What is a financial farmer to do? Oddly, the market continues to rally into the better-than-expected horrible inflation number (8.5% vs. 9.1% previously) so a crest in inflation may sling-shot us out of a Bear Market. But to a larger extent, the market is always forward-looking. How far forward is a matter of debate, but something along the lines of 6-9 months is a reasonable assumption. And based on inbound data from recent macro events it *appears* that with inflation peaking the Fed may only have to raise another couple points. 

"Only have to raise another couple points" is a tricky proposition nonetheless, as mortgage rate increases tied to the 10-year Treasury Note dictate the housing market. Expect purchasing to slow, inventory to rise, mortgage payments to be missed, and a general malaise to hit the housing market. It is hard to believe housing will continue to rally into a near-doubling of rates. The one savior (economically speaking) of this economy is the unemployment rate.

With historically low unemployment and steady to higher wages, the consumer has some semblance of protection from inflation, protection in the sense that they can now get less for more; "grin and bear it" has become the signature economic policy of the Biden Administration.

That's where we're at now as a country, trying to shoulder the burdens of inflation without breaking our backs all the while watching the rule of law disintegrate. But keep faith dear readers, as so plainly spoken in "Unbroken": "If you can take it, you can make it."

Thursday, August 4, 2022

Heat Waves

Heat Waves


It is said that farmers live and die by the weather, so too with financial farmers. Particular amongst weather events are heat waves. These heat inductions outside nominal weather conditions typically have rapid onsets. We know they're coming, but not necessarily the time or place. So too with Bear Markets. A confluence of events result in both; for farmers a heat wave can lay waste to their crops and livestock; for those of us farming for profits and cash flow, a Bear Market can do the same to our portfolios.

World War Z has one of my favorite lines: "First to know, first to act." It relates to the measures North Korea took to prevent the spread of the Solanum virus. It is application to both farmers and financial farmers is immense. In terms of farmers and ranchers, knowing weather patterns allows them to prepare (somewhat) for conditions on their farms and ranches. Sadly, most are held hostage to the weather they get. There is a limit to the actions that can be taken; increase the watering, provide shade perhaps, and maybe move the herd. The investor, however, has multiple choices when a heat wave is imminent. 

As discussed in a previous post, financial farmers have the ability to pursue an Absolute Alpha approach. This strategy harnesses early warnings systems to alert an investor to changing economic conditions. But just like heat waves and meteorology, the time and place of a Bear Market aren't precisely known to economists. Say hello to our old friend Pareto.

Pareto's Principle states that 80% of most results are directly proportional to 20% of the inputs. For our purposes we are keen to know where we are in an economic cycle and the corresponding stock market rotation (Bull/Bear). Why? Unlike farmers and ranchers beholden to heat waves, investors have the opportunity to take drastic, immediate action to protect their portfolios. 

Being on the right side of a trade is vital; stay too long on the wrong side of a trade and you risk serious financial pain that may not be recoverable in the short term (or long term.) Also, being on the wrong side of a trade naturally implies you are NOT on the right side of the trade...hence the opportunity cost of a being on the upside. Farmers, ranchers, and investors all know time is a valuable commodity. Maybe the most valuable. And generally speaking, being wrong for extended periods of time is bad for business.


Friday, July 29, 2022

Tax & Spend

Tax & Spend


If you really want to destroy a society, debase its money. With the M2 money supply currently at some $21T (that's correct, trillion) from a previous level of $14T, the country is flush with cash. This is causing lots of problems and weird things to happen. 

In terms of problems, too many people have too much money chasing too few goods. Hence, inflation is rampant. Of the two ways to combat this, either increasing supply of goods or killing demand, the Fed has chosen the latter. But even that action will be of little consequence if spending increases at a similar clip to the supply of money.

Money needs to come from somewhere, and the Treasury has been happy to keep the printing presses going night and day. This has led to an environment of stagflation and the government choosing winners and losers; the winners are the pork barrel recipients such as healthcare, (the) climate Solyndras, and "infrastructure." You can count on your taxes going on up, way up, especially if you're a small business owner. The pitch is always "pay your fair share" or "just a nibble" and when you take a look in the kitchen are your cookies are gone.

What is an investor to do? You need some good strategery. Assuming the omnipartisan "Inflation Reduction Act" agreed upon by Democrat members of the Senate gets approval in the House we can expect the "Tax & Spend" moniker to ring truer than ever. Investors need to adjust their portfolios accordingly.

Consider where and how the wealth redistribution is occurring, determine who the net losers and winners are, and allocate accordingly. Fighting the Fed is hard enough, fighting both the Fed and Congress is nearly impossible, especially when the IRS is being weaponized. Like the Indians of old, look for the gravy train and attack. Mark Twain put it best when he said "No man's liberty or property is safe while Congress is in session."

Saturday, July 23, 2022

ACA Gravy Train

ACA Gravy Train

In the annuals of history, there has naught been a bigger Gravy Train than the passing of the "Affordable Care Act" on March 23rd, 2010. It is a day that will live in infamy.  Imbued with the power of nation-states by the Sun King Barrack Hussein Obama, health insurers were granted pass-through monopolies.

Consider the charts above of the four largest remaining publicly traded health insurance companies. Almost to the day of ACA passage there has been a meteoric rise in their respective share prices. How is this possible? Amazing care? Deft management? Sweeping reform? Oh no dear readers, these companies have the implicit power to charge whatever the market will bear...and if you can't afford it, the government will pay your premium, but if you can afford it and DO NOT pay, then you can go to jail (the government of course determines "affordability.") Got that? 

So while Chicago burns this summer (both figuratively and literally), its most famous son, who vowed that "the South Side of Chicago is my Martha's Vineyard," is inking yet another lucrative media deal at his estate in...Martha's Vineyard.

The hypocrisy is as thick as our vast oil reserves that can't be pumped. In terms of corruption and maleficence perpetrated on the American people, the ACA ranks high. Consider the fallacy of mandating purchases, at any price, from private companies with geographic monopolies, of a product you may or may not use, but you are required to buy less face the loss of your freedom. Preposterous.

If there's one thing we've learned at ILAF though, crazy pays. Consider all the innovation in the tech space over the past decade. Or in EVs. Or in just about EVERY industry. The only thing healthcare seems to have innovated is consolidation, increased premiums, and higher share prices. Now that dear readers is true innovation! 

Friday, July 22, 2022

Reverse Engineering

Reverse Engineering


Generally speaking, stock prices increase with increased earnings. When a company makes more money, in general, their shares are worth more because investors put value in growth and reward it by bidding up the share prices of companies that increase their earnings. Naturally, the opposite is also true. Granted, there are always exceptions to the rule, but for the most part earnings drive the market higher.

Along those lines, investors should be able to reverse engineer a portfolio based on their spend habits, or even consider the spend habits of a typical cohort. So for example, if you have a breakdown of your monthly expenses you can also typically trace that spending to broad sectors, and specially individual brands. This provided a good backdrop to the Chinatown adage of "follow the money."

A classic Maslow's hierarchy of needs also works well in this example. For the "average" American, the top three expenses on a recurring monthly basis are housing, medical, and food. Now for people who are NOT self-employed, that medical cost might not be too high because your employer is picking up the tab. Consider their cost in our example as yours.

So right from the start we can see from a percentage basis how much of our monthly income feeds the banks for mortgages or the landlord, the medical plan operator, and the food prodders. Depending on your situation, there most likely will be energy costs (fuel and/electric), clothing, entertainment, and many others. List them out and I suspect you'll start to see the brands behind the sectors popping up. Take note of the specific brands you utilize both as a function of your purchase, but also your time. You might only buy a smartphone once a every couple years, but you most likely are using it frequently. Same for a computer. TV. Internet.

All of these purchases and time uses trickle down to brand utilization. The brands with the most utilization should be ones you pay attention to from a portfolio perspective. You are probably not alone in your brand utility. And generally speaking, yet again, the fewer brands choices you have for a good or service or time usage the more of the total market that brand is capturing.

This reverse engineering exercise should reveal some very powerful, some would say monopolistic, brands in your life. Maybe you should consider owning them?


Tuesday, July 19, 2022

One-Two Punch

One-Two Punch


Americans have been economically knocked out by their elected leaders. The Wayfair decision and American Recovery Act language stipulating a Form 1099-K for transactions totaling $600 or more effectively acts as a one-two punch. When did we vote to join a Fight Club?

In the words of noted U.S. attorney Jackie Chiles, it is "outrageous, egregious, preposterous" to pay elected members of Congress to knock us to the mat. Enough is enough. This author believes Wayfair was the single most harmful Supreme Court decision in a generation. Consider the rationale.

When basic freedoms are destroyed or restricted, it leads to the rise of juggernauts that monopolize the respective industries; whether they are natural resources, air travel, or in this case internet commerce. And internet commerce is huge...literally hundreds of billions of dollars of goods and services flow through those fiber optic cables on a daily basis. Every. Single. Day.

They say people get the government they deserve, but we don't deserve this...the problem arises that there are two (possibly three) sets of standards; one is the citizen taxpayer who is treated like dirt. Then there is the elected officials. They treat themselves well. The third is the true constituency. Now a rationale person would ask "Isn't that the citizen taxpayer?" Theoretically, yes. In reality, the true constituency is corporate America (think S&P 500 constituents) and pandering to special interest voting blocks.

Sadly what arises is the decay of the foundational Constitutional values AND rights. Citizen taxpayers get a watered down Slushie while the political machine feasts. The solution? One is to vote them out. That is very, very difficult in states like California with a majority rule impervious to reason or accountability. Another idea is to vote with your feet. That option is not available to everyone, but most people who can, do. Finally there is the "moat" strategy. This idea involves creating an economic and social moat by capturing enough value in your life to protect your family from your very government.


Saturday, July 9, 2022

Ghosting Pareto

Ghosting Pareto


Ghosting Pareto is like avoiding gravity. Yet, this is exactly what investors should do. Why suffer the proverbial "slings and arrows of outrageous fortune" shot by Big Finance when alternative strategies exist

Vilfredo Pareto is best remembered as an economist of the namesake "Pareto Principle" which is a economic, social, and mathematical rule of thumb commonly referred to as the "80/20 Principle" or the "80/20 Rule." It is the recognition and codification of a naturally occurring phenomenon in life which he learned occurred in nearly every facet of life; whether it be income distribution, height, or even touchdowns thrown.

Investors should be concerned with Pareto because he helps us, indeed reveals, that the market for the most part is bullish over time. There are, however, vicious downturns that roll through the economy like sneaker waves every 4-5 years aptly termed Bear Markets.

Big Finance (kinda like Big Tobacco, but more dangerous) continually pitches "buy-and-hold," "weather it out,' and "dollar cost average." Are these bad strategies? Not necessarily, but investors rarely, if ever, hear about methods to avoid Pareto; ie selling covered calls, buying puts, or selling short when markets turn.

Nobel Laureate Paul A. Samuelson made a profound comment when he said: "The longer you own stocks, the greater risk of a devastating loss." Think about that for a moment. As investors gradually build a portfolio over time it generally goes up in total value. Meaning, just at the point of retirement a portfolio is the most susceptible to a sneaker wave. Take a look at the historical performance of the S&P 500:


For those visual learners out there like me, it is apparent that enough sneaker waves roll in often enough to really put the hurt on a long-term portillo and potentially destroy decades of wealth. How often are these sneaker waves rolling in? You guested it, about 20% of the time. Meaning you can be cruising along on your yacht 80% of the time with the wind at your back, sun shining, and boom! A sneaker wave strikes.

How do investors avoid Pareto? First, investors need to accept that sneaker waves exist. For some reason Big Finance is obsessed with telling investors that they should only buy, buy, buy. I wonder why that is? Hmmm. Second, investors should build an "all-weather" strategy. This might be as simple as selling when the tide turns. Or it might be an aggressive approach like riding the wave, see Absolute Alpha. Third, investors should codify their strategy and monitor it. 

Blindly dumping money into Index Funds and ETFs has been the hallmark pitch of Big Finance now for decades. Low cost! Low cost! chimes the jingle over and over like Chinese water torture. And as the billionaire heirs and executives of these juggernauts motor by in their cash-burning steamboats, who's advising investors to avoid Pareto? ILAF, that's who!