Disclaimer: I’m not a financial advisor, nor should anything I say below be misconstrued as financial advice.  While I have an MBA, my focus was on managerial studies.  I did have finance and economic classes, but that was not my focus in school.  Wall street and the financial economy are evolving concepts in modern monetary theory and with that, are extremely complicated and nuanced subjects which only a very small number of people in the world have mastered.  The rest of us are left analyzing the fish tank from the outside.  This is a compilation of some recent thoughts and analysis on what I’m seeing.  Take extreme precaution when investing your own money – it’s a lot different than writing a blog post about it.

“Dow at record highs!!”

This report flashed on the screen multiple times this fall.  Everyone should be happy because the nation’s largest companies are continuing to boom!

At the exact same time, pretty much anyone in the know will tell you that all of these stocks are overvalued – or are they just properly inflated?  If someone came into some money, this is not the time I’d start investing into the stock market.  The concept is “buy low, sell high”.  You don’t necessarily want to buy high.

These past few weeks, we’ve also been rattled with the Iraq drone strikes as well as the zombie apocalypse coming by means of the coronavirus.  This dipped the markets, but it is also in the same week that Tesla and Amazon shot up on earnings reports.  In my MBA senior marketing thesis in 2016, our team did a 125 page paper on Tesla (I think we then had to trim down to like 55, but I don’t have the final/final/final version on hand).  Actually, our assignment was to find an industry, then a company, then a country to do a full marketing write up.  We had picked the automotive industry, then Tesla, then South Korea.  So I got a nice peak behind the curtain in my research to Tesla.  It has its problems.  For example, our assignment was to pick a country in the BRICS+16.  The BRICS were Brazil, Russia, India, China, South Africa + 16 emerging markets.  South Korea was in the 16.  One of the countries, Brazil, was about the size in population of the United States, but they had all kinds of power generation issues outside of their biggest cities.  Below are a couple of screen shots I took of our analysis so you can see it wasn’t just on the back of a napkin.  There’s some gray matter rattling around a little in my head at times.

With South Korea, they had a population of 50 million, but half of that entire population was within the area of Seoul and just a hop away from artillery in North Korea.   So there was risk with political instability.  It was a very densely populated area, with strong power generation.  If you wanted to put charging stations around the country, you could start with that major metropolitan area.  The United States was far different than South Korea in this respect, as commuters drive an average of 45 minutes each way to work and you could be urban, suburban, or be out in the boonies.  Power chargers would need to be EVERYWHERE!!  In order for the company as a whole to grow in this country, it needed to grow stronger fabrics internationally to boost sales and hit emerging economies while they were hot.  Those profits and investments could then bolster their US power charging stations and continue the case for buying an electric car.

So – I was bullish on Tesla due to their product and potential and did deep analysis of the countries and conditions which existed to choose from.  But as mentioned above, it has problems.  For example, the amount invested doesn’t translate to their sales – yet.  This has been why a lot of people have shorted them over the years.  The same could have been said about Amazon.  I just watched a video with Jim Cramer and he mentioned that – “Wall Street will continue to pump money into a company they believe in”.   I believe the ultimate success of Tesla will be due to a superior product combined with an influential visionary combined with the move off of fossil fuels for vehicles.  More on that later.

I watched the Jim Cramer videos and hundreds of hours of investment advice – not to think I know everything, but for diversification of opinion and to find the nuggets here and there to tug and pull on to learn more.  There’s a LOT out there!!!

Where are we at now?  We have a Dow north of 29,000 most days.  We have low unemployment.  A low CPI.  So why am I concerned?

 

The concern

Debt.  And continued spending.  Venezuela.  Zimbabwe.  Stock market crash.  Bank run on cash.  1929 could look like a pittance compared to what MIGHT be coming.

Debt is the problem that can ultimately make everything come crashing down.  I ask you this – anyone who has had their fair share of debt and credit cards, what happens to you?

As you borrow more money, your risk increases, your credit score goes down, and the cost for you to borrow more money goes up because you are more of a risk.  This tells you to stop spending so much, try and earn more money, and cut costs where you can.

The ultimate problem right now in our country is no one who is elected can seem to cut costs anywhere in Washington without fearing losing the next election.  This is the ROOT CAUSE of what **may** happen in the next few months…or years.

With you, if your spending hits a level that is excessive and your source of income is lowered, you default and your credit rating goes down more and unless you change your situation, you declare bankruptcy.

With our US way of living – I want you to really look at a dollar bill the next time you see it.  Or a $100 bill.  Both cost about $.15 to produce.  They only have value because they are supposedly scarce and the faith of the currency allows everyone to believe they are worth what is printed on the face of that bill.  But look at a bar of silver or gold.  That is how wealth has been stored for 5000 years.   So if the US spending keeps going up, their ratings are supposed to go down and rates are supposed to go up.

The problem is, if rates go up, the spending and debt has been so bad, that the whole system can come crashing down.

On September 17th 2019, the number spiked to over 5% and some reports have had the real effect of this closer to 10%.  The entire system almost melted down overnight.  This apparently was due to too high of a risk to lend to the banks.  No bank either had the liquidity to lend, OR, the collateral was such dog shit that no banks wanted to lend.  The Fed had to step in, and has ever since.  This….is not good.  The fed is now holding shit collateral on 4.8 trillion of stinky MBSs.  What if these people default on their houses?  Or a good portion of them?  Or some?

Let me explain what I see happening.

We have massive debt, and with that debt are the equivalent of monthly payments.  You are short on cash to make these payments, so you go out and get another credit card to pay that interest.  In a normal world, that credit should cost you more.  But with interest rates as low as they are, this additional credit card debt can be cheaper than the debt they are paying.  So they are essentially short term rolling one credit card payment into another credit card payment with a higher balance and lower interest rate.  The fed just seems to keep creating their own new shiny lower interest credit cards and giving more and more money out to those with really bad credit scores.  This is a recipe for disaster.

Debt continues to grow, with the interest payments continuing to grow.  Debt now sitting at $23 trillion.  Democrats will tell you to stop spending on the military and cut costs.  Republicans will tell you to close the borders, stop paying for illegal immigrants, and cut off welfare.  Believe it or not, BOTH PARTIES have merit with their cases.

In the “best economy of our time” with RECORD LOW UNEMPLOYMENT and RECORD DOW….we have….

“perpetual $1 trillion deficits indefinitely”.  This was something I believe I read from inspector Horowitz last week.

You mean to tell me….our economy is humming along the best it EVER was, and we are still short $1 trillion yearly?

Methinks something is wrong.

Lower taxes and regulations help spending.  This spending helps earnings.  This helps stock prices.  But….so does cheap cash.  Interest rates continue to go down.  This, in turn, allows companies to take out money to expand.  This increases corporate debt – and risk.  As long as people continue to spend like drunken sailors – but to do so, they need access to cheap credit.  No one puts their money into a savings account because who wants .1% interest when you can put it into Tesla and see your pile of fake money increasing?  Or, who wants to save up for a new iPhone when you can get a new $1100 one at $25 per month forever interest free?  This then led to Apple being valued at....$1.4 trillion.  Cut off the faucet for cheap capital, what then happens to the consumer?  What is the downstream effect on big business?

What do you think will happen when the economy contracts?  In theory, companies should fail and interest rates should climb.  It seems to me that the Fed is hellbent on not letting a recession happen by continuing to suppress interest rates.

However, there’s a lot of wheels in the financial economy turning.

Let’s just say your house is worth $300,000.  In my state, local taxes are based off of your property (asset) value.  The higher your asset value, the more local taxes they can take from you.  It makes sense for asset prices to be boosted, possibly even artificially.  The higher your earnings, the more you pay in income taxes.  The rate is lower, but the wages are higher, having a net effect of higher tax revenue.  Increased stock earnings then increase the taxes on trades.  Higher 401k piles of money then have higher taxes coming out when you finally draw from it.

Ring up debt – but if you artificially increase your tax base, you can inflate asset prices and income to then pay for that debt.  This also angers the debt holders in a sense because you are devaluing their money and in all practicality, providing them negative returns on their investment when you factor inflation into it.

You buy the house for $300k at 5% based off of how much you can spend monthly on your mortgage.  But what if the rate was 2%?  1%?  This makes your monthly payments less and you can afford “more house”.  This increases demand.  This then artificially increases asset prices.   The bank lent you that $300,000 now at 1%, but if real inflation is 5%, then they are getting negative interest.  This is why there’s a floor on what banks can lend to you and me.

….And you get more tax revenue when you inflate assets.

This is now what’s sort of happening with the economy, as I see it.  The problem is, they are lowering interest rates, which then have businesses borrow more money – and more people have money, so this increases earnings.  More people make more money on their investments.  More people are hired.  If you couple that with holding back immigration in all forms, you have a relatively closed group of people you can hire from.  This supply/demand will, in theory, boost wages.  If there are 100 programming positions open and 13 who are looking for work, and you are not importing talent from India, the bidding will take the price for this labor higher and benefit the worker.  This creates HIGHER TAX REVENUE based off of higher wages.  In the traditional model, if unemployment goes lower, you have to let more people in to the country to assist with hard to staff positions – this has an effect of using the government to hold wages down and thus wages remain stagnant.  In the current model, I see higher wage potential.  This is why tighter immigration models is thought to lead to higher wage growth.  It increases the pressure on the demand model of talent where supply is fixed and demand is increasing.

The idea then is that growth will increase the tax base and cover the spending.

But growth is still under 3%.

Banks are pumping out money, but then we have some liquidity issues with the repo market that popped up.  One of the assets used to temporarily borrow is “mortgage backed securities” (MBS).  The ratings on these used to be really good, but now you’re running into lots of these where the risk is pretty high.  Million dollar loans for a house that might legitimately be worth $300k to someone who is a part time artist.  You know, every Home and Garden show on those channels.  “She’s a waitress, he’s a part time interior designer.  Their budget is $1.2 million”.  This is what our MBS now have in them.  The crash of 2008 was supposed to prevent this from happening.  It hasn’t.

Interest rates on these MBS’ shot up due to the increased risks of these assets – but in order to keep the economy moving along, the government stepped in to the repo market and essentially offered interest-free capital and used those shitty MBSs at collateral.

Rut Roh.

This was my first indication to look deeper. Read up about the repo market stuff.

Funny money….

I recently read how there are now more $100 bills in circulation than $1 bills.  This is due to the constant printing of new money from the Fed.

Back in the day, countries would use gold to back their currencies.  This went away under Nixon in 1971, and since then, our debt has shot up because if we need more money, we just print it in our basement.  This is primarily why many feel the Fed can never fail.  We just print our way out of problems.

I ask you this…let’s just say you owe a doctor $1,000.  How do you pay it?  You look at your income and you apportion so much towards this.  Or, perhaps, you put it on a credit card wanting to pay it off soon.  What if you just went downstairs and printed it off?

This is now kind of what we are doing.  The danger is this…

The fed pumps out all of these trillions of dollars to pay for things.  And who gets this money?  Large banks, corporations, countries.  This money should be able to then be exchanged for goods or services.

Silly question.  What happened, tomorrow, if every person in this country won $400 million in the lottery?  Every…single…person.

Who would work?  Would you buy that $10 million home?  Would everyone?  What happens to all of the $300k homes?  Who would build them, if no one needed to work anymore?  What would the taxes collected look like on all of that money?

What if you went to then buy that Tesla you wanted because you have all of this money, and they were out of them?  Everyone wanted to buy one.  And they emptied their lot in a day.

This now runs into the laws of supply and demand.

If I’m a Tesla dealer and I have 50 cars on my lot, and 3,000 people show up to buy them each at $50k, maybe I raise the price to $100k and 1500 are still willing to pay that.  What about $1 million?  SOLD OUT!!  These are the principal laws of supply and demand.

See, the problem is when everyone has more money, your dollar is weaker.  Let’s just say right before everyone won the lottery, you were saving up $50k over 10 years and finally have that money to buy the Tesla of your dreams.  Suddenly, everyone has more money and you had thought that the car was worth $50k.  Overnight, now, with everyone’s spending power with cash money, that car is now costing $1 million due to supply and demand.  Everyone has deep pockets.  Your $50,000 has no spending power.

This is what is happening over the last 50 years in this country.  If you had $50,000 in a safe in your house 20 years ago, it doesn’t have the same power it did then.  Today, 20 years later, you may only have 1/3 the spending power with that 50k.

The fed talks about target rates of inflation at 2%.  But, that is compounding.  First, it’s 2% of $100.  Then 2% of $102.  Then 2% of $102.10 dollars and so on and so forth.  They need you to take your money out of the safe and put it into the stock market to get you the 4-8% return.

The debt they have can only be paid for by raising income tax values and asset values.  This forces them to keep the interest rates artificially low by pumping printed money into the system and people to continue to borrow out their eyeballs for shit they don’t need.  This is now what every country is doing.  Remember when we talked about China being a currency manipulator?  Well, turns out now ALL countries are racing to devalue their currency against each other in a race to see who can print money quickly enough to fix their debt problems by devaluing the debt we owe to others.  This is why Japan has a debt to GDP ratio over 100 and has negative interest rates – and why Europe has flipped the model to go to negative interest rates.  Deutsche Bank is caught in the middle of our system and theirs.  And they are losing, big time.

It’s getting out of control.

The left wants you to think “free college”.  “Free healthcare”.  People.  It’s not free.  Get your goddamn mind out of your ass.  To pay for these programs, everyone’s taxes go up.  Taxes go up in this economy (without assets/wages going up), people have less to spend on the free market and all of these over inflated companies tank.  Everyone’s out of work.  Taxes need to continue to be raised into a doom vortex.  The higher the taxes go, the more unemployment happens, the more business fail – the higher you have to raise taxes to pay for these programs.  California is now the poster child for this.  People are fleeing there in droves.

The right wants you to charge ahead with the free market and low restrictions.  The problem there is the derivative hedge fund shit that caused the 2009 collapse.  There’s massive spending on the military so we can have a McDonald’s in Baghdad and expand our lemonade stands to other countries in the world to feed our corporations.  This debt will be paid for by increased market activity leading to more better paying jobs and your house values going up.

Neither party wants to stop the goddamn spending.  One reason I switched from the left to the right was I’ve always been a fiscal conservative and a social liberal – I’m part of the 20% who sits on the fence on a lot of issues and call balls and strikes as I see them, not out of blind loyalty to a party, but to the issue.  On most issues these days I side more with the right than the left.  For this, somehow, the left now thinks of me as some uninformed boob.  How insulting.  They trash their platform to appease the furthest left you can imagine, and when you disagree with policies, you are called out as deplorable and stupid.  Good luck with that approach at the polls.  Good…luck.

Right now I’m seeing both parties printing money in their basements at will for their particular causes, each trying to use those causes to appease to their based in order to gain power.  The difference to me is one side is using a morality and justice argument to try and force their beliefs on you while they play with their money pile and the other side is using a logical strategic approach making you more money while they are playing with their money pile.

However, the right thing to do in both cases is to draw back the expenses and get your checkbook in order.  Maybe?

The left needs a harsh reality check that nothing in this world is free.  We are only a rich nation due to the hard work, risk taking, and unbelievable entrepreneurship of a small select few people.  Without them, our country could be far worse off.  They need to truly grasp that if you want “free college”, there are things called scholarships you can earn.  You can go to state schools.  You can join the military and use the GI bill.

The right needs to stop spending so much and stick with their principles of smaller government.  Let the states do as they want, and dial back the federal government’s role in propping up mega corporations.

Circling back…causes for hope.  TESLA again?

Tesla and many of those large corporations can only expand to places like South Korea because of our military.  There are little fears of our companies being nationalized by countries these days. It still happens, but on a smaller scale.  Our military does enable the expansion of our companies.  Fact.  Do we need $700 billion per year to do so?  Not really.  I have a feeling this will be drawn down over the next decade to $350 billion per year.

Some of that might and force has allowed us, over time, to buy us the time to be energy independent.  This now allows us to have a more forceful hand with the Irans of the world.  This has helped us keep energy prices low – which helps in keeping the production of goods low as well.  This helps us in some way compete with the Chinas of the world.  Why?  Because the power needed to run our automated robotic plants that requires a few hundred highly paid techs to maintain equipment is now far cheaper than their plants that hire thousands of workers at low wages.

Those who thought industrial production in this country was dead have another thing coming.  The currency manipulation along with civil rights and humanities issues China was doing was creating a situation where everything in Walmart was made by China. For now, a majority still is.  But the calculus is changing.  More production can happen in this country at plants that run cheaper than in Asia.  Couple that with the traditional low skill industrial workers than run a press are now replaced by those with advanced trade knowledge and robotics skills.  We now potentially have more spending power, higher wages, cheaper money, and a roaring stock market.

Suddenly, it might not be a good investment to send your child to Brown for a BS in Poetry.  It may make a lot more sense to have your child learn about welding, robotics, and mechanical engineering at a state school for a fraction of the cost and earning 2-5 years out of school in the 6 figures.  Couple this with restricting new forms of labor in legal and illegal immigration, coupled with the decreased social spending, and that sort of summarizes the Republican party’s strategy on wage growth and prosperity.

But current democrat policies are geared towards a dated model of get your college degree and all manufacturing jobs are going away.  They are actually coming back, in a different form!!!  Appeasing someone out of poverty isn’t the key here.  Pointing them towards a productive career is.  Their economic policy appears geared more towards the notion that college graduates earn more money.  More money increases the tax base.  It is sound logic – I don’t have problems with that – but the problem goes back to supply and demand.  What we saw with Occupy Wall Street were millions of college graduates across the country who got expensive college degrees – but no jobs waiting for them.  The economy had shrunk, and all of them were sold on a bill of goods that if they got this piece of paper, that they would get $100k right out of college.  They were in for a very rude awakening.

At issue is students in high school need to follow their aptitudes and interests towards careers that can product an ROI on their choice.  This is where a guidance counselor should come in to play.  I’m not sure they are utilized a lot like this now – but this could help potentially prevent future issues like the Occupy movement.  Instead of just making college free – they need to be smarter in what colleges or trade schools they go to.  This is not a problem of the system, it’s a problem of the student.  Sorry, but this is part of the Republican party background I identify with on owning your choices.  Do your homework.  There are no people on the other end that give a shit about your participation trophies.

The main causes now to look at hope?

1. Trade agreements.
2. Manufacturing coming back
3. High paying trade jobs.  Many of these now pay 6 figures
4. Low interest rates make housing affordable.  I think a lot of smaller houses need to be built.
5. Energy independence
6. Stock market continues to increase

Hope

When you have a good business model – people will invest.  Tesla was a company I championed due to what it was going for.  Cars that ran extremely long distances on electric only powered by a solar roof and battery in your home.  I had bought two hybrids over the years to help in the cause, but due to my long commutes and drives to the in-laws, could not fully commit to the ranges that most electric cars offer today – at these price points.  Hope was that as the company did better and more units were sold, the price points would come down more and the infrastructure would be in place so someone like me could consider it.  And due to the energy independence above, the generation of power with solar and from the grid makes an equivalent of like 125 miles per gallon in a traditional car.  This is environmentally good – USING THE FREE MARKET.

Tesla still hasn’t sold a ton of cars, but it’s estimated that there may be 125-150 million electric cars on the road within 10 years.  Put into perspective that just 3 years ago, there were only 3 million electric cars on the road.  More on that below.

Maybe a lot of this cheap cash is needed for the Teslas of the world to fully see their vision to completion?  Maybe this cheap cash is the answer to global warming the left has so desperately sought?  

The Chinese are working on roads that have solar power in them.  You know how you place your iPhone on a pad charger and it charges electromagnetically?  Same concept – plus power 800 homes in the surrounding area.  Solar is another area of interest for Tesla and Musk.

But what if all of this cheap cash may have unintended side effects on the lower and middle classes?

1. The demand for $15 minimum wages will backfire (and has).  Like I mentioned above, just because everyone gets more money in their pocket doesn’t mean shit if the costs of living increase to or beyond those means.  I predicted 10 years ago that this would lead to automation of most of these jobs.  There is a huge demand for trade workers.  I don’t think everyone is meant for college.  I have met plenty of people in my field of expertise with master’s degrees who could not spell for shit, would have worse grammar, and probably worse math skills.  Rather than give everyone “free college”, there can be more localized scholarships to community colleges and trade schools to help some displaced workers or even former inmates.
2. The wages cannot increase nearly as fast as the rate of inflation.  The CPI index you keep hearing about doesn’t take into effect food and energy costs.  Why?  This is where most lower to middle class families feel inflation the most.   They changed how they measured this in the 1980s, so in reality, we could be seeing 5-10% inflation each year when factoring in food and energy costs.
3. Over time, the gap between the haves and the have nots has increased.  Those living paycheck to paycheck see stagnant wages, layoffs, cost of living increases, and incredible healthcare cost increases.  Those who “have” have seen their 401k increase dramatically, home affordability improve, and upward mobility in their white collar careers.  Those who have invested in stocks have seen their pile of cash increase.

The problem is…the dollar is this giant balloon about to pop.  Or not.  If the government can thread the needle of improved and increased trade agreements, lower taxes, decreased costs of wars, decreased cost of social spending on illegal immigration, and improved stock values….

It is POSSIBLE this balloon actually builds and forms a backbone supporting it.  Over another 5 years of this, it’s POSSIBLE that the federal government starts to draw back services and the people employed make a smooth transition to a private sector job making more than they were currently at.  Federal taxes decrease.  American companies thrive.  The fed no longer needs to pump money into the system.  Deficits start to fall.  Federal spending is drawn down over a decade to not destroy the economy.

This is POSSIBLE.

Hedging

I’ve written a few articles lately about this.  If you have 10k in cash in your safe, in 5 years, the spending power of that with 5-10% inflation may be $5,000.  Or less.  Costs go up.  Quickly.  So having cash sitting in your bank account or safe, in a sense, is negative interest rates.  Think about that.

I’ve also mentioned how precious metals have been a safe haven for assets over the years.  IF you had 2 dimes in 1963 (made of 90% silver), you could buy a loaf of bread.  Those same 2 1963 dimes today have 90% silver in them and have a value of about $1.30 each if you take them to a coin shop to trade in for junk silver value.  So those two dimes 50 years later have the exact same spending power they did back then.

What you tend to see when the stock market goes down, people invest in gold.  The rich do, at least.  There’s usually then a lag of about 6 months with silver.  So if you took that $10,000 and instead of putting it in your bank, put it into silver, and then in your safe deposit box – in 5 years, that silver would still have a value of $10,000 in whatever the current fiat rate is.

But…it gets better.

Today, silver is widely used as an industrial metal.  The two main items it is used in?  Electric batteries and solar panels.  I want you to go back in the way back machine above.  I know, it was like 40 pages ago.

In 2017, there were 3 million electric cars on the road using those batteries.  In 10 years, it will be 125-150 million cars.  California passed a law that all new houses need to have solar panels.  The demand for solar panels and electric cars over the next 10 years will explode.

There’s about 1 billion ounces pulled out of the ground of silver each year – only about the rate of 10 ounces to 1 of gold.  It is a byproduct of gold, lead, copper, and zinc mining production.  Silver-only mines have closed at an alarming rate because it is not profitable to mine it at the current cheap rates.

So, silver today is about $18 per ounce.  Supply has been dwindling the past 5 years.  Mines have shuttered.  Demand is exponentially increasing, hammering down on-hand supplies and has a promise to increase dramatically in the next few years.

Take a look at palladium in 2005 versus now.  Palladium is used in catalytic converters in cars.  Platinum is mostly used for the diesel versions.  Look what happened when they increased the emissions requirements?

This went from $150 or so an ounce to over $2000.

Now, I ask you – what do you think will happen to that metal price over the next 10 years?  Well, if most companies are now switching to electric cars – they don’t have catalytic converters.  They have batteries.  Potentially powered by solar roofs and battery units in their houses.

My thoughts are palladium will drop – but I don’t care about that.  I see silver spiking over the next decade.  I could see $100 silver.

Adjusted for inflation, silver once hit $150 per ounce and has as recently as 2011 hit $50 per ounce.

So I ask you…

1. If the economy goes along and factories are being built and people are buying Teslas and investing in solar roofs, would it not make sense to put your money into something that has a chance to really pay off like palladium?
2. If the economy tanks with hyper inflation – would it not make sense to have those two dimes of silver you can always trade for currency for a loaf of bread – OR to have printed cash which may lose a lot of value overnight?
3. If virtually nothing changes, you still have put money into….money.  You can trade it back in down the road if needed, minus some premiums.

When you hedge your finances – in a sense you are trying to find that safe haven.

 

Chapter summary 🙂

4 reasons to panic

1. Fed getting involved with repo coupled with the possible imminent failure of Deutsche bank and possibly even Ford is problematic at a macro level.
2. If the US government is now indeed on the bandwagon of devaluing our currency like everyone else, your cash has a significant possibility to lose a lot of value in the next few years.
3. Counterparty risk can destroy all best-laid plans by the republicans.  You can have the smartest people planning this, but the coronavirus could be a 1 in 100 year flu event which decimates the economy.  Or massive hurricanes.  Nuclear accidents.  Big time events can happen and our economy is already running trillion dollar deficits.  It is POSSIBLE one of these big events creates a chain reaction of sell off and panic.
4. Political instability in this country can lead to all of this planning and policy getting turned on its head for socialist-like policies, increased tax rates, a flood of cheap labor to keep wages stagnant, and continued loss of the manufacturing sector could decimate the middle class out of existence.  Rich will always get richer.  Unless you take it from them, and then they move.  And then you have poor people getting rations like in Venezuela buying a loaf of bread for $300.

4 reasons for hope

1. Wage growth coupled with manufacturing jobs coming back coupled with stable asset price increase, available capital, and projected increase in tax revenue while tax rates are lower has a distinct possibility of entering us into a golden age of prosperity for all.
2. Trade deals that appear more in line with US interests have a possibility of decreasing trade gaps and improving sales of our goods to foreign markets.  No one likes trade wars, but it does appear that the net results of these efforts have led us far better off than where we were.  It appears we did lever countries at appropriate times where their economies were weakening and we had the ability to help them in the process of helping us.
3. Energy independence kept us in expensive middle eastern wars for a long time so production costs and transportation costs here didn’t go up tenfold overnight.  That indeed was a national security issue.  Now that we are energy independent, we can be more forceful with policies that help us.
4. The free market is backing the Teslas of the world.  Whether you are a Republican that feels it is a good car that makes economical sense to drive or a Democrat who feels good about reducing the usage of fossil fuels – you can see the free market has the potential to help our climate not through overarching government directives, but the free market.  I can say that government directives at mandating increased MPG directly led to this – as did possible gasoline taxes.

4 reasons to Hedge

1. Silver has a massive upside with battery and solar production to increase 10 to 20 fold over the next decade.  That will strain supplies and increase demand a LOT.
2. Silver can maintain value even if the currency is supremely devalued.
3. Worst case scenario, it can be a form of long term savings account that you can hold in case the government one day decides they want to go cash-less.
4.  If SHTF some day, and currency is garbage, precious metals will be used again as money as they have for thousands of years to store wealth and trade.  I feel someday there will be a move back to the gold standard.

 

Bonus

Recently, I came across something very interesting.  In Utah, they have introduced something called the Goldback.  This looks like a form of currency and is made with real gold.  There is an exchange rate for the Goldback posted on their website.  They’re meant to be used as a form of barter, if you will, instead of paper fiat currency.  It was passed into law in Utah that they can be used.  While there is a steep premium on these for gold prices, that premium transfers in the sale of goods so you do not lose the premium.  For example, a $100 bill and a $1 bill may cost $.15 each to produce, but in the case of the gold back, the 50 goldback takes 50 times longer with the electroplating process to put gold into it.  That’s also a higher energy cost to make it.  The 50 goldback is 1/20th troy ounce of gold.  Their website says:

“The Goldback solves a 2,600 year old problem in that gold can be spent in small increments.”

This was one reason to like silver.  If you have 1/2 ounce of gold at $800 in value, how do you buy a loaf of bread for that?  Enter 1 golback at $2.84 at today’s exchange rate.

Could we gradually see a larger adoption of this type of system to get gold into fractional currency of sorts?