Peak Hubris

Weimar

The sentiment against precious metals, especially gold, reached its apex around July.  In his now famous Wall Street Journal piece, Jason Zweig entitled his article, “Let’s Be Honest About Gold: It’s a Pet Rock.”  Zweig wrote, “Own gold if you feel you must, but admit honestly that you are relying on hope and imagination.”  He then went on to compare gold bugs as subjects of a “laboratory experiment on the psychology of cognitive dissonance.”  What Zweig fails to recognize is that he is describing himself.

The level of hope and hubris that one must possess to have faith in a 40 year old monetary experiment like the fiat backed U.S. dollar is really quite disturbing.  The only lab experiment taking place is that by Keynesian central planners on what has become a Frankenstein world reserve currency.  Pardon me if I’d rather put my faith in 5,000 years of monetary history.

Zweig then went on to write that gold is difficult to price because it is intrinsically worthless.  This assertion is ironic because he fails to realize that he’s describing paper money, which cannot even be used to blow your nose.  Worthless currency is merely good for building blocks as the Weimar children above are illustrating.  Zweig goes on to point out that gold miners were losing money on more than an eighth of gold dug from the earth.  But he never asks why gold mining suddenly became so unprofitable.  Would it have anything to do with the 300 to 1 suppression taking place on the Comex?  Zweig didn’t bother to address any irrelevant details like that.

Zweig’s article then goes onto to imply that gold is still a “barbarous relic” because you have to lug it around and it is a clumsy form of payment.  But he never reveals any of the technology based gold payment systems like BitGold, gold backed debit cards and the United Precious Metals Association in Utah.  Zweig wraps up his article by alleging that gold has had a meager 0.8% return since 1975, but he never provides any history to offer a possible explanation.  I’ll have to do that for him.

First, from 1975 to 1980, gold fell in value against stocks until Americans could finally buy the Dow Jones with only one ounce of gold!  In order to defend the dollar, then Federal Reserve Chairman Paul Volker had to raise interest rates to 20%!  If Janet Yellen tried this today, the U.S. treasury would need to spend almost $4 trillion on interest payments.  Since Uncle Sam only collects $3.25 trillion in annual tax revenues, this is clearly not an option for Yellen.

After Volker defended the dollar, the U.S. stock and bond markets began a 35 year ascent, but it was not without problems.  In Octrober 1987, the stock market fell 25% in a single day.  If that happened today, the Dow would fall over 4,000 points!  The late 90’s revealed an internet stock bubble that finally burst around 2000, cratering the Nasdaq as it fell from 5,046.86 to 1,114.11.  It wouldn’t see it’s high again for another 15 years!

The next stock market implosion occurred in 2008, when the artificially low interest rates that created a housing bubble finally moved up.  While foreclosures piled up, the Dow and S&P index fell by well over 50%.  The central planners couldn’t watch their Keynesian house of cards fall, so they unleashed unprecedented monetary policy.  Quantitative easing and zero percent interest rates became the norm for over 7 years, which leads us to the present moment in which I write.

A walk through recent monetary history is required in order to understand the lunacy taking place in the U.S. stock market.  When the world finally wakes up to the reality that the Fed can no longer send markets higher in real terms, then the Dow gold ratio will descend below its 1980 low to one half ounce of gold.  That’s when it will be time to spend your gold on other things because people like Zweig will finally be buying it.

America is Lost

Lost

One of the biggest frauds perpetrated against the American people is the idea that the U.S. is a “free country.”  According to the right leaning Heritage Foundation, the United States is not even on the top 10 of the 2015 List of Economic Freedom.  The U.S. is #12 behind countries like Canada, Ireland and Denmark.  It’s not uncommon for advocates of big government to cite these nations as successful examples of a nanny state.  What these same folks never admit though is that the U.S. is even less economically free than these welfare states.  To get a better idea of just how far America’s star has fallen, let’s take a look at the most competitive countries in the world:

Hong Kong

Honk Kong is #1 on the list of economic freedom, and it’s no surprise given the country’s loyalty to property rights, low regulations and adherence to the rule of law.  According to the index report,  “As the economic and financial gateway to China, and with an efficient regulatory framework, low and simple taxation, and sophisticated capital markets, the territory continues to offer the most convenient platform for international companies doing business on the mainland.”

Singapore

Singapore comes in at #2 on the Heritage list, and that’s why I’m investing there.  One of the reasons that Singapore ranks at the top is due to its world class legal system. Unlike the U.S., “Singaporean society has a low tolerance for corruption, and the effective rule of law strongly undergirds all aspects of economic development.”

New Zealand

Coming in at #3 is a small but economically mighty country.  Although an island nation, New Zealand is a beacon of economic hope to the rest of the world.  Heritage reports, “Reforms in the 1980s opened the economy to imports, reduced the size of government, and lowered the tax burden.”  New Zealand is proof that the socialist plan for the U.S. economy is precisely the wrong prescription.

Australia

Although Australia fell by a small margin from its prior year ranking, this continent is still the fourth best economy in the world.  “Regulatory efficiency remains firmly institutionalized, and well-established open-market policies sustain flexibility, competitiveness, and large flows of trade and investment.  In 2014, Australia became the first developed country to repeal a carbon-emissions tax.”

Switzerland

World renowned for its financial security and independence, Switzerland comes up at #5 of the world’s freest economies.  Heritage reports, “With an economy that benefits from sound fundamentals that include monetary stability, low public debt, and a vibrant employment market, the Swiss economy has weathered the global economic uncertainty well.”

Unites States

I would be remiss to not include information about this former bastion of economic freedom.  American products and way of life used to be the envy of the world, but these are becoming distant memories in our country’s rear view mirror.  Like a bickering married couple that is lost from bad directions, Americans are not sure when they will find their way again.  Heritage reports, “The anemic post-recession recovery has been characterized by slow growth, high unemployment, a decrease in the number of Americans seeking work, and great uncertainty that has held back investment.  Increased tax and regulatory burdens, aggravated by favoritism toward entrenched interests, have undercut America’s historically dynamic entrepreneurial growth.”

I couldn’t have written it better myself.  For those of you who disagree with all my positions but have somehow made it this far into this blog post, I will make a concession.  There are few places I would rather live than the U.S, but it is undeniable that we are on the wrong track.  And with the future generation that we have coming from college campuses, I’m pessimistic that we will get back on the right path anytime soon.

The Hidden Cost of Weddings

weddings

I want to take a quick moment to address the subject of weddings.  Thanks to television shows like the Bachelor and posts on Facebook, Americans seem to think that a wedding should cost a fortune.  The average American wedding is $26,444, but that doesn’t tally the entire economic cost.  Weddings cost your guests a fortune too.

Location weddings are the worst.  Not only are you expecting your guests to shell out money for an exotic hotel, but they have to board a plane, tip everyone and use precious vacation time.  This is a tall order in my book.  My wife (the editor of Financial Judo) and I routinely debate the merits of attending weddings, especially when they are far away.

Let me address the worst part of a wedding.  You will hardly get to spend any quality time with your friends and family!  So after you’ve been harassed by TSA, flown across the country, rented a car, checked into a room and paid for a gift, you’ve probably spent $1,000.  I’ve got a better idea.  How about sending a $400 gift, saving $600 and avoiding a tremendous amount of aggravation!  At a typical wedding, a $400 gift would probably put you in the top three gift givers.

Married couples really only remember three groups from their wedding.  They are the top three gifts, no gift, and “RSVP’d but didn’t show and never explained why.”  After the newlyweds are finished regretting the no gift and no show folks, they’ll say “Do you remember how generous Uncle Phil was at our wedding.”  Over time, they won’t even remember that you weren’t actually there.

I will admit that when my wife and I got married, we had a wedding reception.  But it cost about half the national average.  We shopped around and found a reasonable place that offered appetizers, dinner and an open bar for $50 a head.  I’ve been told that this deal is no longer available since the facility went out of business. I’m sure my Irish family’s alcohol consumption contributed to their demise.

We had about 150 friends and family attend the event, so the reception cost less than $10,000.  I’m not going to order you to skip the wedding reception in favor of investing because that would make me a hypocrite.  But if you can persuade your fiancé to take the cash over the party, then you two will be on the road to financial freedom before you even say “I do.”

Starting All Over Again

Vin

When it comes to starting over financially, many Americans ascribe to a defeatist attitude.  “I’m just always going to be broke,” these people say to themselves.  Many of them excuse their behavior saying, “I’m bad with money because my parents were too.”  These people could learn a lot from people who had money, and then lost it all.  Ex-NBA star Vin Baker is a great example of someone who is making this transition.

Baker, a 13 season veteran and four time all-star, blew $100 million during and after his NBA career.  Now the former millionaire is working as a barista at a Starbucks in North Kingstown, Rhode Island as part of his training to become a manager.  When interviewed, Baker told Kevin McNamara, “I’m 43 and I have four kids. I have to pick up the pieces. I’m a father. I’m a minister in my father’s church. I have to take the story and show that you can bounce back. If I use my notoriety in the right way, most people will appreciate that this guy is just trying to bounce back in his life.”

Vin Baker’s message is a lesson to the rest of us that just because you have no savings, doesn’t mean that you never will.  Your current net worth is the accumulation of all the decisions you’ve made over your lifetime.  You cannot change the financial indiscretions of youth, but you can immediately start fixing that problems that you created in the past.  It won’t be easy, but great satisfaction will come from getting out of debt, building a savings and leveraging the crash to your advantage.