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.

 

 

 

A Compelling Future

 A Compelling Future

We all need a compelling future to motivate us to do our best in life. The opportunity for a compelling future has traditionally been the greatest gift offered by these United States to its citizens. It is a belief that with strong motivation and diligent work one's goals could be achieved because we live in a society built on a bedrock of freedom and justice.

Visualization is a big component of achieving one's future. Many articles and studies have been written about the importance of seeing your future self. Indeed, it has often been said that one "should start with the end in mind." Meaning imagine yourself at a later date and contemplate how you got there. Just about this time of year though, New Year's Resolutions begin to fade and often drop by the wayside as we fall back into old comfortable patterns.

For most people investing and securing that compelling future are the same thing, or at least should be. Additive steps in the right direction over time begin to compound. And like most things, over time greater and greater experience leads to greater resources and success. Chance definitely plays as part. As does your starting block. But time is a great equalizer in those regards.

So for the young that compelling future is at first a fight for survival, honing one's skills, and becoming useful. As time passes that utility can be transformed into further growth and creation, from starting businesses to mastering valuable skills and building meaningful relationships. Utility becomes relevance.

Once relevance is achieved in the United States, the stars are the limit. Relevance can lead companies, raise capital, create new industry, unleash productivity, and a host of other meaningful results. Relevance by its very nature has a certain sanctity about it because others trust and believe in the potential of that individual. The flip side of the relevance coin is a higher standard to which that individual must be held.

It is this author's opinion that the most compelling future leads to relevance, regardless of industry or profession or even net worth in the traditional sense of dollar signs. As individuals, we can tell by the fruits of our labor the good accomplished. Steve Jobs considered his relevance most importantly as a toolmaker, not a tech titan or a visionary or a billionaire. But he ended up being all those things too.

 

Systemic Inflation

 Systemic Inflation

 

Systemic Inflation is one of the greatest risks to the survival of America. The debasement of the U.S. Dollar has resulted in wholesale destruction of value. And the rate of inflation is only increasing as poor monetary and fiscal policy has resulted in surging costs for diminishing values.

What is inflation? Inflation in practical terms is too much money chasing too few goods or services. "Money" can be considered the Federal Reserve's supply of funds to facilitate the functioning of the economy. Per Trading Economics: "Money Supply M2 in the United States averaged 5163.74 USD Billion from 1959 until 2023, reaching an all time high of 21703.20 USD Billion in July of 2022 and a record low of 286.60 USD Billion in January of 1959." -Source, Federal Reserve.

Visually that data looks like this:

 

 

From a pragmatic perspective, what this means is that every dollar you have in your pocket today is worth less tomorrow, and increasingly so.

 

The problem with fiat currency (money not linked to a physical commodity, like gold) is that is has unlimited notional "value." The Federal Reserve, at the direction of the U.S. Treasury and Congress can literally create as much money as they need to fund whatever they want. Hence, as there is no "check & balance' on the U.S. government. There is no limit to the money that can be created.

 

It wasn't always this way. In fact, looking at the data it is clearly obvious when things started to change. The moment the United States went off the Gold Standard, then under FDR made it illegal for Americans to actually own gold, then finally to create money to fund Vietnam Nixon took us fully off the Gold Standard. 

The level of political corruption *might* have been as bad in the past as it is now, but at least there was some "check & balance" on the currency because it was linked to a physical commodity. Now there is no tether supporting the value of the dollar, which as we have well seen has spiked to whatever sellers are willing to charge. $10 for a gallon of milk? Sure. $100,000 for a new truck? OK. $2,000,0000 for a starter home? What a deal!

Systemic Inflation has ravished our country and there is no end in sight. Here at Invest Like A Farmer we like to provide readers with some actionable solutions. First, as a society we need to take back control over our currency. Please support The Gold Money Act, which is a first step to restoring some semblance of sanity to our monetary policy.

 

The GMA will be a tough act to pass, as politicians are afraid of gold; it transfers power away from them and returns it to the citizens. If you live in an area of the country where your voice is ignored and your vote doesn't count, then there are a couple other options besides seeking representational relief.

Knowing that Systemic Inflation is only getting worse, the antidote(s) can be found in several areas. Since the definition of inflation is too much money chasing too few goods or services, it would behoove the inflation weary to own those goods and services which are being pursued by ever-increasing dollars. Who doesn't like to be wooed?

Land seems to make sense as there is a finite supply and you can also live on it. And for some, you can also sustain some level of farming. Obviously gold itself makes sense as it is both finite and extremely portable, liquid, and valuable. Ownership of select companies that are increasing their profitability in real dollar terms while also decreasing the number of outstanding shares.

 

A couple more esoteric plays: Locking into long-term contracts with either insurance companies or city, state, federal governments in which you pay a fixed cost indefinitely and they bear the burden of Systemic Inflation. Buying tools that increase your business productivity on favorable long-term fixed debt terms.

Systemic Inflation is like gravity; it is inevitable due to the human condition (that's a nice way of me saying corruption, malfeasance, and downright stupidity.) The best we can do as financial farmers is protect our farms by taking concerted, concrete actions to stymie Systemic Inflation.

Obsolete Cut

Obsolete Cut

 

 

In the future, the price of every diamond, regardless of cut, color, clarity or carat, will approach $0. How could this be possible? Aren't diamonds some of the most valuable objects on Earth? Haven't diamonds become almost mythical in love? Don't thousands of people each year die mining diamonds because they are so valuable? How can Invest Like a Farmer make such a bold prediction? Read on dear readers.

For those not in the diamond industry, you have never had it better to purchase a special diamond for your true love. Prices over the past 20 years first stagnated, then started falling, and have now completely collapsed. Mind you, for the diamonds considered "natural" they have gone down at a slower rate. But the writing is on the wall.

Using technology developed in the 1950s for producing diamonds for commercial use, think saws, grinders, lasers, etc., retail diamond creation has advanced at a pace akin to the size of PCs. What was once the size of a garage, now line rows upon rows of desk-sized pressure & heat kilns in multiple diamond farms around the world. These machines are "seeded" with small diamond specs and churn our diamonds with similar or better characteristics of natural diamonds. Color, clarity, and carat can all be custom-grown. The final "c," cut, is still finished with some of the old techniques.

Natural diamonds are considered those stones mined from the the earth which were created by the heat and pressure of the Earth over thousands of years. Chemically they are identical to man made diamonds; both are a form of the element carbon.

The implications of this science are monumental, but as usual mainstream media has completely ignored it. The wealth destruction to nearly every married household is significant, especially for those large-diamonded second & third wives. Kidding, aside from a national perspective we're talkling ~100M+ diamond rings being reduced in value to the gold or platinum in their settings plus some notional value of the stone. Cumulatively this is the in $500B-$1T+ range.

De Beers and the diamond monopoly is in a tough position now. They will need the mother of all marketing campaigns to convince the public that a natural diamond, a stone typically mined in Africa by poorly paid laborers under miserable conditions run by dictatorships bent on turning these diamonds into cash...yes the proverbial "blood diamond"...and then shipped for additional low cost labor to India for polishing typically by children, then a final polish in Antwerp then off to New York and beyond is BETTER than a man made stone which can be had for a fraction of the price and minimal social or environmental impact.

The only marketing campaign powerful enough to do this would be to pay the world's most powerful influencer to let her boyfriend know she prefers a natural diamond. I'm thinking De Beers could give the diamond industry one last gasp if it launched a "Love is Natural" diamond campaign. And yes, this would almost certainly involve Travis Kelce proposing to Taylor Swift with a large natural diamond.

Gold Money Act

Gold Money Act

"The United States Mint founded on April 2nd, 1792, some 231 years ago, is almost as old as our nation. As a bureau of the Treasury, it is responsible for producing coinage for the country to conduct commerce and also responsible for controlling the movement of bullion. It does not produce any paper money. That job is fulfilled by the Bureau of Engraving and Printing. Currently there are four active coin-producing mints: West Point, Philadelphia, Denver, and San Francisco. Legal tender coins of today are minted solely for the Treasury's account."--Largely sourced from Wikipedia

The primer above was to provide the reader with a synopsis of the U.S. Mint. This author hopes to persuade readers of this blog to ask of their elected representatives for the immediate introduction, debate, and passage of a "Gold Money Act" whereby: U.S. Gold Eagles be available for purchase or sale at any FDIC-insured retail banking institution in the United States at current spot gold price.

This legislation would allow Americans to buy and sell U.S. Gold Eagles at current spot gold price at any FDIC-insured bank in the United States. For far too long, many Americans have not had the opportunity to purchase or sell United States Gold Eagles. The nation's gold coinage should be widely available to all.

Gold Eagles, which are issued by the U.S. Mint and assigned nominal values by the U.S. Treasury, are legal United States currency. Yet, currently the only way for most American to acquire or sell the Gold Eagles is via an antiquated network of coin dealers, auction platforms, or pawn shops. It is particularly burdensome for Americans buying and selling small amounts of gold via these methods; they are typically charged usurious commission rates. The Gold Money Act would help democratize the ownership of assets that are already minted and distributed in our country and also provide a fair means of liquidity for all.

I encourage all readers of this blog to share this post with their colleagues, friends, and family in the hopes of getting a nonpartisan piece of legislation introduced and passed which will largely benefit all Americans. Access to gold is a hallmark of a free society. It will also help put to rest a shameful piece of history in which Executive Order 6102 made owning gold in this country illegal.

From almost time immemorial gold has proven to be an excellent store of value, especially so in times of rampant inflation. There is no good reason why Americans can not buy and sell their own currency with ease at any FDIC-insured bank. Let them hear you in the halls of Congress!

Buy Borrow Die

Buy Borrow Die

 

On this solemn day it is important to recognize that indeed only death and taxes are certain. To help assuage this bitter reality, let us focus our efforts today on one of the most effective investing strategies of all time termed "Buy Borrow Die." 

The fundamental premise behind the BBD strategy is that investors should purchase or create assets that will act as functional ATMs for life. An asset is defined as something that pays YOU to own IT. Assets can come in many shapes and sizes, the most common are real estate, companies, commodities, stocks & bonds, and intellectual property. There are others as well, some ingenious like a music catalog for example.

Regardless of the asset type, BBD's major function is to amass a significant portion(s) of said asset(s) that you own or control. The ideal holding period is forever because realizing a gain triggers taxation and also loss of that asset. And it also prevents the next, and crucial step, in the BBD approach: Borrow.

Once an asset is secured, then the investor can borrow against it. Typically the borrowing is accomplished via a loan against the underlying value of the asset; for example suppose an investor buys $100,000 worth of stock, typically the brokerage company will allow said investor to borrow up to 50% of that amount on margin. The margin interest, as of now at least, is considered an investment expense and can be "written off" by the investor.

 

The more an asset is worth, the more an investor can draw on it over time. The entire real estate industry is built on this premise, but in reverse; mortgage ("mort" from the French for "death") companies profit handsomely from lending large amounts of money secured by real estate. The BBD strategy works in the opposite, where the investor is his own bank borrowing against his own assets and paying interest to himself. 

The asset(s) might start out small initially, but over time they can grow like mighty redwood trees. Investing, like most of life, is built around a "surviorship bias," ie if you survive past a certain point then you have a good chance of reaching the next point, and so on until what was once a fragile sapling is now a towering, nearly impervious behemoth. If an investor is prudent in his borrowing, the asset(s) can long outlive him.

The final genius of the BBD plan is the "step-up" basis recorded upon the investor's death. Suppose that $100,000 worth of stock was purchased in say 1950 for example. Assuming an annual rate of return of say 8%, upon death that $27,000,000 in stock would have its cost basis "stepped-up" to a cool $27,000,000 for the heirs. And for them, the real gravy train begins because they can now utilize the BBD strategy all over again!

Ready for a New Investing Approach?

Click Here and Let's Talk