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.

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.

The Big Squeeze

The Big Squeeze

 

 

Chin up patriots, that most heinous annual civic duty is upon us! This solemn April 15th Tax Day, chronologically the year 2024, sure feels financially and socially like Orwell's 1984.

Multiple wars being financed by the United States, zero sovereign border security save that offered by the cartels, and a Congress which is really, really good at its primary function...spending money...has resulted in economic calamity.

The result? Crippling inflation is at 40-year highs resulting in the US Dollar having lost some 50% (you read that correctly) of its purchasing power since Joe Biden took the Oath of Office on that chilly morning in January 2021 watched by thousands through Concertina wire in our Nation’s Capital.

American citizen taxpayers are being squeezed out of their own country; consider, every 100 days now another $1,000,000,000,000 is being added to the National Debt!

Without significant increases in productivity, the US Dollar will careen towards zero value; put another way, when everything is free, nothing has value. The REAL “Green New Deal” is the collapse of the US Dollar because baby, this “green” has no value.

Socially, if ever there was a group of unrepresented, unspoken for, downtrodden, ridiculed, huddling masses it is surely composed of US taxpayers. April 15th should be a National No Tax Day; the effects would be immediate and staggering.

A Tax Holiday would result in annual productivity spikes which would defy comprehension and immediately trigger a Nobel nomination in economics. Imagine a world where citizens didn’t have to pay their own government to launder money!

The one upside to paying “your fair share,” is that at least we can still pay in U.S. Dollars, instead of something of real value like say gold, bitcoin, or real estate. Thankfully the words “This note is legal tender for all debts, private and public.” is still WRITTEN on U.S. currency. Be VERY concerned when the US Government no longer accepts US Dollars.

Truflation© Exceeds 50%

Truflation© Exceeds 50%

 

 

No hyperbole man, Truflation© on a cumulative basis since the start of the Joe Biden Administration in January 2021 now EXCEEDS 50%!

 

Truflation©, as per its definition, is a basket of goods that consumers actually "touch" on a daily basis and are required for living in a modern society. This basket includes five elements: Food, Housing, Gas, Education, and Health Insurance. 

 

The five pillars of Truflation© have now cumulatively exceeded a 50% increase since January 2021. In essence, consumers have LOST over 50% of their buying power in real terms. The effects have been particularly devastating for young working American families on the hook for supporting a large portion of entitlement programs, many of which it is unlikely they will ever benefit from personally.

 

What is a financial farmer to do? Well it is no coincidence that the price of gold, the stock market, real estate, and crypto to name a few assets are UP over 50% since January 2021. Fiat paper money like the USD has literally been "heading for the hills" almost as fast as it is being printed. Investor cash has sought refuge in physical commodities, ownership stakes in companies, and good old fashion dirt.

 

 

$12 Eggs

 $12 Eggs

 

 

 

Joe Biden has egg on his face. When the cost of a dozen eggs in the grocery store reaches twelve bucks, the economy is broken. Inflation over the past 3 years has ravished the United States far worse than any enemy, foreign or domestic.

This author estimates that we have lost some 50% (that's right, FIFTY percent) of our purchasing power over the past 3 years alone. And it has hit us where it hurts most; housing, food, energy, healthcare, and education. Nobody really cares about the cost of a ton of soybeans, that is literally for bean counters in Washington, D.C.!

The median American has been decimated by rampant inflation in core goods and services. Paying for two wars and absorbing some 5-10% of the existing US population in new migrants has triggered massive price increases across the board. "Free" is probably the most expensive word in existence; trillions in spending adds up, especially if there is not a corresponding increase in productivity. Empty carbs kill.

Credit Card Nation

 Credit Card Nation

Increasingly Americans are just saying "charge it!" This has resulted in America becoming a Credit Card Nation racking up $1.13T in credit card debt. The timeline to the run-up in credit card debt overlaps almost perfectly with the run-up in consumer prices. This author has argued for some time that the "truflation" consumers bear is most likely around +50% over the past 5 years.

With prices up so high and wages stagnant as a forest mushroom, the consumer has been forced to put purchases on the proverbial "loan shark in their wallet" to help cover expenses. By-and-large, the greatest costs borne have been in terms of housing, food, and energy...especially over the past 3 years when inflation has spiked sky high.

Given the rate of growth in debt, it is going to be nearly impossible for many people to EVER pay off their credit card debt. Especially when the usury rates are almost at 30%. It becomes a vicious cycle punishing people repeatedly for a purchase made on a credit card. Obviously it also punishes the poorest in our country as well because the rich pay off their balances monthly.

A strong, prudent man from Delaware, where the largest credit card companies are incorporated, sure could make a difference. Perhaps the Consumer Protection Bureau could look into the favorable deals given to credit card companies so they can charge so much interest? Who is on the dole? And why?

Barring some inclusive and diverse help, there will be a greater rate and dollar amount of defaults in the coming months. Ultimately consumers will slow spending or risk having the spigot of cash turned off. The upside? The dollars you owe today are worth less than the dollars you spent yesterday.

Why You Can't Buy a House

 Why You Can't Buy a House

 

 

You can't afford to buy a house because the Home Price to Median Household Income Ratio is at the highest level ever at 7.56. Historically that ratio has been around 4. Things are even worse, much worse, if you are in California.

 

Many of the small, medium and large cities in California are into the double digits. Are you a young family considering moving to Santa Barbara, CA? Good luck. With a median household income of $89,000 relocating to this beautiful city with a median home price of $2.4M results in a HP2MHIR of 27!

 

California is so bad because of the effects of Proposition 13 which has allowed a singular generation to capitalize on the real estate market by essentially capping their taxes while simultaneously allowing for unlimited upside potential. This law has kneecapped future generations. 

Historically real estate has been an IDEAL investment (Income, DEpreciation, Appreciation, Leverage), but with a HP2MHIR at 7.56 (or worse) what is a young, ambitious gainfully employed American family to do?

Well, first it helps to have 2 incomes. Ever since more women have entered the workforce rather than raise families the HP2MHIR has steadily risen. This makes sense. Money will chase good housing, and only those who have more money can get into better housing.

This brings up the next point; it is far better (from a housing standpoint) to have no children. Children are expensive, and the cost of childcare, either directly or indirectly, is tantamount to LOSING one income. Good housing incentivizes childless couples, while penalizing families with children.

 

All of these factors has lead many young families to be "trapped" in a never-ending renting loop that shows zero signs of abating. These families can afford to rent in a area that has good schools perhaps, but there is little to zero chance of them ever being able to purchase in these very areas.

 

As the population grows there hasn't necessarily been in a growth of good places to live, or housing for that matter; demand is increasing, but supply is not. By definition, prices will continue to march higher as demand outstrips supply. Naturally the demographics will also change. Santa Barbara is a good example.

 

What has historically been a sleepy surf town just two hours from Los Angeles, Santa Barbara has now become a large open air retirement enclave with many East Coast urban transplants along with many from the Chicago area whose politics fit neatly in their new home. The result of this migration has been the establishment of the owner class and the servant class. This scenario is playing out daily throughout coastal California.

 

What is a young family that wants to have children to do? Immediately, probably the best course of action is to prioritize the best schools for your kid(s) even if that means renting. Alternatively, you could also look to a 2nd or 3rd tier area to live which may not have everything you want, but it may have everything you NEED.

 

The United States is vast, so there really should be no housing shortage. Over the longer term, the best way to absorb the excess demand is to create more housing. There is plenty of room for multiple entire cities to spring up across the country. Creating more housing will lower the HP2MIHR.

The most obvious, and impactful, solution would be to increase productivity in the United States with a combination of monetary and fiscal policy that is pro-growth; the impact of this would be to significantly REDUCE inflation.

Inflation has bee the true scourge on the economy, causing prices to rise over 50% in the past 3 years alone. Couple that with dilution in the value of American Citizenship and we have some serious problems. The road ahead for potential home buyers is a slog. Unless there is a meaningful drop in prices, an increase in income, or both we have a polarized future of owners and renters who can never own.

Wage Collapse

 Wage Collapse

 

 

One of the greatest challenges Americans have faced over the past 3 years is the collapse in real wages caused by poor fiscal and monetary policy. 

As an investor, one of the primary goals is to increase the value of your portfolio over time. Value is typically associated with a dollar sign, ie the more your portfolio is worth in dollars over time, then logically one would assume that it is more valuable as well. That assumption would be a serious mistake.

M2, or money supply, generally increases over time for a variety of reasons. Ideally that increase is stable, predictable, and backed by productivity gains. Since the US Dollar is a fiat currency (ie not backed by anything but "the full faith and credit" of the United States government), an investor should keep a close eye on the M2. Why?

As M2 increases without a corresponding increase in productivity or physical commodity backing, it DILUTES the value of every other dollar. So say you're a guy named Dollar Bill just minding your own business looking to make a purchase of a good or service. And out of nowhere a hundred, perhaps thousands of NEW Dollar Bills appear out of nowhere and want the SAME good or service that you do!

The net effect of too many Dollar Bills is dilution in purchasing power. Value has decreased. The illusion created by flooding the country with dollars is one of prosperity and wealth, the reality is just the opposite. Wage earners feel the bite of this con worse than anyone else because wages are typically fixed, whereas the monetary supply, stock market, and gold market react immediately and exactly to the con.

Consider the charts below representing 5-year snapshots. The M2 increased by some $7,000,000,000,000 ($7 Trillion) over the past five years in nominal terms or roughly 50% MORE U.S. Dollars were created out of thin air. Not surprisingly, the stock market, as measured by the Dow Jones Industrial Average, also "gained" some 50%. As did the price of gold. Did your wage increase by 50%? Probably not.

As a proactive investor, it behooves you to understand the greatest challenge you face is probably inflation, especially if you are a wage earner. And broadly speaking, probably 80%+ of all Americans are wage earners; whether you are a blue collar worker on an assembly line with an hourly salary or a white collar worker behind a desk or in an office with a fixed salary or even a "no collar" worker on the gig economy with a hybrid salary, the vast majority of us are all subject to a recurring price paid for labor. Typically the wage lags, or never catches up, the price charged by the manufacturer or service lead.

What does this all mean? Vigilance coupled without action is useless. So the prudent financial farmer needs to have what I call an "Argentine Mindset." Americans can learn a lot from socialist countries that are corrupt and face raging inflation. Namely, what do their citizens do with cash when they get it from their jobs?

 

Answer: They dump local currency ASAP and turn it into (pick one or more): a more stable currency, gold, real estate, stocks and/or physical goods or tools. They literally cannot spend it fast enough because it depreciates so rapidly. Indeed, it has been recounted frequently that inflation was so bad in the Weimar Republic (pre-WW2 Germany) that a cart full of banknotes was left outside a bakery. When the owner returned, the cart was stolen.

If the goal is to increase the value of a portfolio over time, one should understand the true value of their country's money and deploy it accordingly.

Corruptflation

 Corruptflation

 

 

"Where there is smoke, there is fire," the old adage goes. So too is the relationship between corruption and inflation; where one finds raging inflation, inevitably one will find corruption pushing those prices up via any number of nefarious schemes.

 

As per the Bureau of Labor Statistics, consider the following facts since January 2021: Overall Inflation UP 17.2%, with Food UP 33.7%, Housing UP 18.7%, and Energy UP 32.8%. If you are a small business owner or someone working in the private sector paying full boat for your mandated healthcare insurance, that number is approaching UP 50% depending in which state your reside. It is no wonder that inflation is often referred to as "the silent killer."

When too many dollars chase to few goods or services, inflation is the natural result. Too few goods or services are often a victim of government regulation which often seeks to control outcomes by restricting free market choice. Stifling private competition is a classic tactic of big government.

Joe Biden's "Inflation Reduction Act," culpably passed by Congress, is as laughable as a Netflix comedy special. It may have done more damage to America than anything since Obamacare was forced upon us. The destruction to the economy is in the trillions, as freedom of choice has been destroyed and replaced with mandatory purchases at government mandated prices.

 

Consider how crazy things have become: If you do not purchase healthcare insurance as a legal California resident, you can be thrown in jail. Yet, if you are an illegal resident in California, you are provided with free healthcare insurance. Think about that one.

How did we get here? Tremendous power begets tremendous lobbying. And the taxpayer citizen really has no representation at an individual level anymore. The best a taxpayer citizen can hope for is perhaps membership in a labor union to shake down other taxpayers or such wealth that they cannot be ignored by their "representatives."

 

Barring those two scenarios, a taxpayer citizen is left at the whim of chance. The net result of fiscal corruption results in inflation which reduces your purchasing power. Your "fair share" has silently become whether you can afford to buy a house, start a family, or even retire in dignity.

 

 

Shearing Sheeple

Shearing Sheeple

This isn't a Christmas story for the faint of heart. As the First 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, however, just wasn't kosher 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 didn't matter. "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 anyways. No, it was a peculiar buzzing sound. Bzzz. Bzzz. Bzzz.

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

So on it went day after day, until the sheeple had given all that there was to give; here, there, everywhere piles of wool lay. Much was burned to keep the shearers themselves comfortably warm, less THEY too feel the cold. Being in the Shearer's Union meant never being cold. Aye, but they left many sheeple naught enough wool to harbor in the storm! No matter, the rows were endlessly long. There would always be sheeple to shear.

Boy was it hot in St. Croix! Even staying free can be troublesome, now the dear leader would have to grant his favor on 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 produced was a 4,000 page Omnibus Bill flown fresh 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. America has become a welfare state with open borders. What could possibly go wrong?

 

Speed Brake

Speed Brake

If ever there was a speed brake on the economy, 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 searching for needles in the haystack? Meanwhile, the barn door is wide open out back with government spending giving drunken sailors a good name.

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 nine most dangerous words in the English language: "I'm from the Government, and I'm here to help."

Let's get serious people! As readers of this blog well know, we are big believers in the Laffer Curve. This economic principle illustrates that there is a strong relationship between taxation and tax returns. As so elegantly illustrated above, when you squeeze the lemon too much you don't get more juice. In fact, you get less juice.

Consider for a moment the contribution of 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. Congressional bills don't write themselves. They are typically written by lobbyists paid by special interests. 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 executives. Collectively 15% of the population will seemingly reap significant benefits from the other 85%, but there is a flip side to this coin.

To have Government welfare programs and an expansive state, it is first necessary to have a thriving economy. Not many people know JFK passed some of the largest tax cuts in American history. He knew that a thriving economy is based on a free-market with light regulation. Light regulation does not mean no regulation, ie bad actors like Samuel Bank-Fried and the beneficiaries of his largess need to be held to account. The French coined this approach best with the term "Laissez-Faire."

What is an investor to do? 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 an increasing interest rate environments during a recession is pointless. Cash in this environment sits in risk-free Treasury Bills.

When the Laffer Curve is ignored, or even mocked, and a turn is taken 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.

 

 

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? 

 

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-owned small business like mine have to pay 50X (you read that correctly, FIFTY times) 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. Freedom is expensive.

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 Day 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. Plus they were busy working trying to make a living. Bad move.

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 more of the pricing increases and if he is to survive, passes along less of those increases. The 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-1B visa holders 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.

 

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."

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! 

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?

 

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?"

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.

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.

 

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."