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. As BHO lectured the American people: "Elections have consequences."

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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 now. 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! 

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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?
 
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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 "new" 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 November 2021, we may have several months (years?) 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, with mortgage demand lowest in 28 years), persistently high oil prices, and large companies FIRING as fast as they can email, and we are 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 and 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: "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?"

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