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More Freedom. More Prosperity
Updated: 7 hours 24 min ago

The US dollar is now overvalued against almost every currency in the world

11 hours 1 min ago

In September 1986, The Economist weekly newspaper published its first-ever “Big Mac Index”.

It was a light-hearted way for the paper to gauge whether foreign currencies are over- or under-valued by comparing the prices of Big Macs around the world.

In theory, the price of a Big Mac in Rio de Janeiro should be the same as a Big Mac in Cairo or Toronto.

After all, no matter where in the world you buy one, a Big Mac generally consists of the same ingredients– two all beef patties, special sauce, etc.

A Big Mac currently sells for 49 pesos in Mexico, for example; at the current exchange rate, that’s about $2.23 US dollars.

Meanwhile in Switzerland, a Big Mac sells for 6.50 francs, or roughly USD $6.35.

This means that a Big Mac in Switzerland costs 2.8x as much as the exact same burger in Mexico.

Obviously there are a LOT of differences between Switzerland and Mexico that would ordinarily lead to some difference in price.

But 2.8x is clearly excessive, suggesting that the Mexican peso is undervalued relative to the Swiss franc.

The most recent Big Mac Index was just released last week.

It shows that the US dollar is currently OVERVALUED against almost every currency in the world.

Canada. Russia. UK. South Africa. Turkey. Poland. Colombia. Philippines. Euro Area. Australia.

The average price of a Big Mac in each of these countries is dramatically cheaper than in the United States.

The Economist’s data show, for example, that the average Big Mac price in the US is $5.06.

(By the way, that’s 17% higher than the average US price of $4.37 that the newspaper reported in January 2013… not that there’s been any inflation.)

In Canada, however, the paper reports an average price of $6 Canadian dollars, or USD $4.51 at current exchange rates.

This suggests that the Canadian dollar is about 11% undervalued relative to the US dollar.

In the Euro area, the average price of a Big Mac is 3.88 euros, about $4.06 based on current exchange rates.

That implies the euro is 20% undervalued against the US dollar.

In places like Malaysia, South Africa, and Russia, it’s even more extreme, with local currencies 60%+ undervalued against the US dollar.

It’s important to understand what this means.

The fact that the dollar is overvalued isn’t some big prize. It’s not an indication that America is #1, the dollar is King, or that the US economy is strong.

This is a bubble.

Currencies, just like stocks and bonds, are assets traded in global financial markets.

And just like stocks and bonds, currencies can be in a bubble.

You may remember the dot-com bubble of the 1990s, when the stock prices of laughable websites (like soared to unimaginable heights.

As with all bubbles, that one eventually burst, and stock prices crashed.

The US dollar has been in a bubble for more than two years.

Yes, there are clearly a number of fundamental differences between the United States and other countries that would lead to natural exchange rate imbalances.

But again, we’re not talking about the US dollar being overvalued by 5% or 10%. We’re talking about EXTREME differences that are completely irrational.

And it’s not just Big Macs either.

Nearly every shred of objective data suggests that the US dollar is overvalued.

The “US Dollar Index,” for example, which measures the US dollar’s value against an entire group of currencies like the euro, Japanese yen Canadian dollar, etc., is currently at its highest level in 14 years.

Politicians and policymakers hate this.

They ignore all the benefits of a strong currency, and instead claim that a strong dollar makes US goods and services too expensive for foreigners to buy, which hurts exports.

Donald Trump told the Wall Street Journal last week that the US dollar is “too strong. And it’s killing us.”

On that single statement alone, the dollar index fell 1%.

Fed Chair Janet Yellen has also weighed in on the overvalued US dollar, calling it “a drag on U.S. growth”.

No one has a crystal ball, and it’s impossible to predict precisely WHEN this bubble starts to deflate.

In fact, it’s possible that the dollar becomes even stronger than it is today.

But when the two most powerful policymakers in the country both want the US dollar to get weaker, it’s pretty clear what’s going to happen.

This means that, right now, if you’re holding US dollars, you have an opportunity.

The evidence shows that the dollar is irrationally overvalued, and both the Federal Reserve and the US government want it to be weaker.

The evidence also shows that there are plenty of foreign currencies which are heavily UNDER-valued against the US dollar.

The old saying in investing is “Buy Low, Sell High.”

It also works the other way: “Sell High, Buy Low.”

And that is precisely the opportunity right now: to SELL overvalued US dollars at their 14-year high, and BUY top quality, undervalued foreign assets at their record lows.

Summing up 8 years of Barack Obama

Fri, 01/20/2017 - 10:40

January 20, 2017
Sovereign Valley Farm, Chile

It’s hard to argue with Barack Obama’s jump shot. I can’t imagine Rutherford B. Hayes having that kind of game.

Or his swagger. Comedic timing. Even charisma.

And there have been plenty of times over the last eight years when, in all seriousness, those qualities have truly mattered.

I can’t imagine anyone not getting goose bumps when President Obama sang Amazing Grace during the eulogy of Reverend Clementa Pinckney in 2015 after the horrific church shooting in Charleston.

During his presidency he had thrust upon him the impossible task of consoling an entire nation over and over again. Personality truly mattered.

But tangible, productive results are an entirely different story, and that’s what I want to examine today.

I’ve read a number of articles this week which glowingly praise President Obama’s accomplishments. Others offer scathing critiques.

Most tend to focus on the Affordable Care Act (ACA), i.e. Obamacare, suggesting that reforming healthcare is one of his most important legacies.

Maybe so.

There are undoubtedly millions of people who now have medical insurance that never had insurance before.

And that is certainly a noble accomplishment.

The problem is that focusing on this single metric is a terrible premise.

Millions of people are no longer uninsured. Check. But that’s where their thinking stops.

What’s the overall quality in the system? What’s the cost?

Those metrics are conveniently overlooked.

Not even two months ago, the Obama administration was forced to publicly acknowledge that healthcare premiums will rise by an average of 25% in just a single year under Obamacare.

Plus, many consumers will only have a single option to choose from as a number of major insurance companies scale back insurance policies they offer.

The administration also admitted last year that overall healthcare spending continues to rise, surpassing $10,000 per person for the first time ever.

Then there’s a question of quality and efficiency.

In 2016, a Johns Hopkins study concluded that the number of preventable medical errors has soared in recent years and is now the third leading cause of death in the United States.

Obviously no one can blame Barack Obama for this trend.

But that’s precisely the point: it’s impossible for any program to be successful when the way you define success is so fundamentally flawed.

Obamacare focuses on one thing: coverage. Are more people insured? Yes. And in their mind, that makes it successful.

But anyone who looks at the big picture will reach an entirely different conclusion.

Premiums rose. Overall spending increased. Quality didn’t improve. Americans aren’t getting healthier.

(Not to mention the matter of that $2 billion website…)

However noble the intentions, it’s hard to consider these results a major success worthy of an enduring legacy.

Then there’s the issue of jobs. President Obama has been credited with ‘creating’ more than 11.3 million jobs.

This entire premise, of course, is total nonsense.

It’s not like the President starts businesses and hires people. The only jobs the President creates are in government.

It’s the private sector that create jobs.

And for a guy who once told entrepreneurs, “you didn’t build that,” (referring to their businesses), he sure is quick to take credit for 11.3 million jobs created.

But OK, let’s play along and give him credit: creating 11.3 million jobs is a very noble accomplishment.

Once again, however, this metric for success is flawed.

What’s the quality of those jobs? At what cost?

Total “goods-producing” jobs, i.e. workers who make stuff, actually declined under the Obama presidency.

Manufacturing jobs, construction jobs… even utilities and media jobs… all fell over the last eight years.

Bear in mind that the US was already at the peak of recession when President Obama took office, with unemployment surging.

Yet today, goods-producing jobs are even below those dismal figures from 2009.

So what jobs were created?

A good chunk of them are in healthcare, which sort of highlights the earlier point that Americans aren’t getting healthier since they need even more workers to care for them.

Additionally there were a lot of jobs created in the federal government.

Plus a full 2 million of those new jobs have been waiters and bartenders.

I’m serious.

At the beginning of the Obama presidency in 2009, there were 9.5 million waiters and bartenders in the United States.

Today there’s 11.5 million waiters and bartenders.

So it’s not like all these millions of workers who supposedly owe their jobs to President Obama are out there discovering the cure for cancer.

Then you have to look at cost.

Despite these 11.3 million new jobs, the number of food stamp recipients in the Land of the Free Lunch increased by 13.9 million during the Obama administration.

Plus, during his 8-years in office, the Obama administration spent a record $28.7 TRILLION and registered a $10 trillion increase in the national debt.

This means that every job President Obama supposedly created cost the American taxpayer $885,000 in debt. Per job.

This is a pretty pitiful return on investment.

And that’s really the bottom line. Debt lasts.

One day his Supreme Court justices will retire. Obamacare may be repealed. History will forget about his charisma and charm.

Edward Snowden may eventually return home. The 500,000+ pages of regulations his administration issued will be replaced.

And even the families of all the innocent victims who were accidentally killed in his drone strikes may move on with their lives.

But the debt will still be there.

Consider this: in the last two weeks alone, the Treasury Department has auctioned off tens of billions of dollars worth of debt in the form of 30-year bonds.

This means that a child who won’t even be born until 2030 will have some high school summer job in late 2046, and an increasing chunk of his income will be taxed to pay off the debt that Treasury Department borrowed a few days ago.

That’s a legacy which outlasts everything else.

Nobel Prize winner says US should “get rid of currency”

Thu, 01/19/2017 - 12:26

In the mid-1800s at a time when the United Kingdom was still the dominant superpower in the world, an English scientist named Francis Galton wrote a series of papers arguing for the selective breeding of human beings.

Galton’s ideas became known as eugenics.

The concept was that genius and talent were hereditary traits passed from generation to generation, and that, to ensure the growth of our species, the best and brightest should be bred like cattle.

Scientists soon began taking measurements of nose angles and forehead slopes in order to establish a correlation between a physical features and talent.

The scientific community concluded that a person with certain physical features was predisposed for great success and achievement.

But it worked both ways.

If your forehead was too wide, or your nose to jaw ratio too slight, you were viewed as morally and intellectually inferior.

Given that many races share similar physical features, this phony science became the moral justification for segregation, slavery, and even genocide.

Today our species is clearly more enlightened, and we can stand amazed that such ridiculous ideas used to be taken seriously.

There will come a time, however, when our descendents say the same thing about us.

Case in point: half a world away at the World Economic Forum in Davos, Switzerland, Nobel Laureate economist Joseph Stiglitz made remarks earlier this week that the US should “get rid of currency.”

He means paper currency, as in the US should not only get rid of $100 bills… but ALL paper currency– 50s, 20s, 10s, 5s, and even 1s.

You guessed it. Stiglitz suggests that regular people don’t need paper money, and that it’s only useful for drug dealers, terrorists, tax evaders, and money launders.

This thinking is so 20th century, and it’s simply wrong.

ISIS is a great example.

The US military has literally blown up more than a billion dollars worth of ISIS’s stockpiles of physical cash during airstrikes.

But this hasn’t affected their terrorist activities one bit.

That’s because the most notorious terrorist group on the planet famously uses both the world’s oldest currency (gold) and the world’s newest currency (Bitcoin).

Professor Stiglitz has likely never been anywhere near a terrorist, so he likely doesn’t have a clue how they conduct financial transactions.

Stiglitz also relies on the old claim that cash facilitates illicit activity.

Again, this thinking only highlights a Dark Ages mentality.

In the today’s world, drug dealers and prostitutes accept credit cards.

No matter what you’re selling on a street corner, whether it’s hot dogs or marijuana, there are plenty of solutions (like Stripe, Square, or PayPal) to easily allow anyone to accept credit card payments.

But these intellectuals seem stuck in a Pablo Escobar fantasy that drug dealers have entire rooms filled with cash.

What Stiglitz, and perhaps many law enforcement agencies, fail to realize is that one of the biggest tools in masking illegal activity is actually

Specifically, Amazon gift cards.

If you’re looking to quietly and easily pay large sums of money, even tens of thousands of dollars, you can do so with Amazon gift cards.

Amazon gift cards are essentially a “cash equivalent”.

Amazon sells just about everything on the planet, so its gift cards can either be spent or quickly resold for cash.

(You can obscure a financial transaction even more by using an Amazon gift card to buy another gift card…)

Curiously there are no loud, universal calls to ban Amazon gift cards. That’s because these policymakers and academics are stuck in the 1980s.

Instead, they’ve nearly all jumped on board the “cash ban” bandwagon.

These guys just don’t get it.

Cash isn’t about tax evasion or illegal activity.

It’s about having a choice.

Any rational person who actually looks at the numbers in the banking system has to be concerned.

In many parts of the world, banks are pitifully capitalized and EXTREMELY illiquid.

This is especially the case in Europe right now where entire nations’ banking systems are teetering on insolvency.

In the United States, liquidity is also quite low, and banks play all sorts of accounting games to hide their true financial condition.

Plus, never forget that the moment you deposit funds at a bank, it’s no longer YOUR money. It’s the bank’s money.

As a depositor, you’re nothing more than an unsecured creditor of the bank, and they have the power to freeze you out of your life’s savings without even giving you a courtesy call.

Physical cash provides consumers another option.

If you don’t want to keep 100% of your savings tied up in a system that’s rigged against you and has a long history of screwing its customers, you can instead choose to hold physical cash.

There’s very little downside in doing this, especially since most people are barely making any interest in their checking accounts anyhow.

Physical cash means there is no one else standing between you and your savings.

But Professor Stiglitz and his colleagues don’t want that.

They want a massive, centralized bureaucracy to have control over your savings.

This, coming from a man wrote in his 2012 book The Price of Inequality,

“[T]he success of [Apple and Google], and indeed the viability of our entire economy, depends heavily on a well-performing public sector. There are creative entrepreneurs all over the world. What makes a difference. . . is the government.”

Sam Walton, Richard Branson, Steve Jobs, and millions of other entrepreneurs are apparently worthless. To paraphrase Barack Obama, “They didn’t build that.”

All that matters is the government.

Just like his call to eliminate cash, Stiglitz’s entire book is an impassioned argument for MORE centralization and government control.

150 years ago, Francis Galton’s appalling ideas were considered science.

Stiglitz’s ideas are what pass as science today.

They’re equally ludicrous.

And one day our future descendants will look back on our own time and wonder how so many people could have allowed themselves to be fooled.

This data proves US stocks aren’t as healthy as we’ve been told

Wed, 01/18/2017 - 15:33

[Editor’s note: Tim Price, London-based wealth manager and co-manager of the VT Price Value Portfolio, is filling in for Simon today.]

Here’s some food for thought.

There’s been so much discussion over the past few years, and 2016 in particular, about the roaring US economy and stellar performance of US companies.

As an example, we are constantly told about the cash piles that US companies have hoarded around the world.

This is meant as an indicator that US companies are accumulating huge profits.

It turns out this is not entirely true.

As Andrew Lapthorne of Societe Generale pointed out at his bank’s investment conference last week, that giant pile of cash is concentrated in the hands of a few companies.

While the largest 25 US companies are rolling in cash, the remaining 99% of corporate North America barely has any.

Specifically, the 25 largest companies in the US have an average cash balance of over 150% of their average debt levels.

But the cash average for every other company averages about 16%, a nearly 10x difference.

It’s a similar story of concentration when it comes to corporate profitability.

The biggest US companies remain very profitable, with an average return on equity that has been very stable at around 16% since the early 1990s.

But the trend of profitability for the remaining 2500 US stocks has been deteriorating for the past two decades, with an average return on equity falling to just 6%.

In other words, all the supposed success of US companies is extremely concentrated, and the health of the overall US market has been obscured by the performance of a handful of mega-cap companies that are selling at record levels.

As value investors, this gives us reason to stay away.

Value investors are bargain shoppers; we’re on the lookout for high quality assets, especially profitable, growing businesses, whose shares are selling at an obvious discount.

As Warren Buffett has pointed out countless times, most people by nature are bargain shoppers.

Everyone wants a great deal, whether it’s on a new car, family vacation, or online purchase.

For some reason, though, that psychology doesn’t apply to investment decisions.

It’s as if people feel more comfortable buying shares of a company that’s popular, expensive, and overvalued.

In the long run, value investing is what matters.

Stock prices fluctuate wildly from day to day, and even year to year.

But a value investing strategy dramatically outperforms in the long run.

As the following chart shows, $10,000 invested in the broader US stock market in 1986 would be worth $291,334.08 today.

That’s a fantastic return on investment.

But had you invested in value stocks, that same $10,000 would be worth $449,358.86 today, over 50% more.

Value stocks beat other asset classes as well—bonds, international stocks, precious metals, real estate, etc.

The approach works.

The difficult part, of course, is finding that bargain discount business, particularly in a sea of overvalued share prices.

But this is when an astute investor starts looking abroad. There are always pockets of value somewhere in the world.

Japan remains a great example today.

Having endured a more than two-decade deflationary recession, Japanese corporate balance sheets are now among the strongest in the world.

Yet given the still inexpensive share prices, Japanese stocks offer something comparatively rare in modern investment markets: a genuine margin of safety.

One intriguing indicator of the Japanese stock market is its low “dividend payout ratio” compared to other countries around the world.

A company’s dividend payout ratio represents the portion of its profits that it pays to its shareholders each year.

Some companies pay a higher portion of their profits to shareholders, while others retain their profits to reinvest back in the business.

Japanese companies, on average, have THE lowest dividend payout ratios in the world, at less than 40%.

By contrast, British companies’ dividend payout ratios exceed 100%. This is hardly sustainable.

As an example, British company GlaxoSmithKline, popular among large equity income funds, made £1.9 billion in 2015… but paid out £3.8 billion in dividends that same year.

No company can indefinitely continue to pay its shareholders more than it makes in profit.

The Japanese stock market is at the other extreme.

Flush with cash, Japanese companies are now able to return capital to shareholders, either through dividends, or through share buybacks.

(When a company uses its cash pile to buy its own stock, the share price tends to rise, which benefits shareholders.)

Stock buybacks in Japan are now accelerating.

Yet unlike in the US and UK where companies go into debt to fund their dividends and share buybacks, Japanese companies can buy back their shares and pay dividends out of cash and profits.

(It may not be too much of a surprise to learn that Japan represents the single largest country exposure in our value fund.)

I’m not trying to encourage you to rush out right now and buy Japanese stocks.

The larger point is that successful investors do not constrain themselves by something as antiquated as geography.

There’s always a great deal to be had somewhere in the world.

And putting in a little bit of effort and education to find it can make an enormous difference in your portfolio.

This is definitely an asset that you want to own

Tue, 01/17/2017 - 11:12

I’ve got auditors sitting in my office here in Santiago right now.

No, not those auditors. Not the kind from the IRS that strike fear in the hearts of taxpayers.

The auditors in our office are from one of the big international accounting firms, and we invited them to review our agriculture company’s 2016 financials.

This is something that nearly all large, responsible businesses do in order to provide their shareholders with a comprehensive annual report.

I wear multiple hats; as an entrepreneur who has started a few large companies, I have shareholders that I need to keep updated.

But as an investor, I’m a shareholder in a multitude of businesses, and I need to be updated about how those investments are performing.

So this is an especially busy time of year… writing and reviewing multiple reports and business plans.

If that sounds boring, I assure you it’s not. There are few things more interesting to me than creating something valuable and tangible out of nothing.

And that’s ultimately what business is: value creation.

Great entrepreneurs come up with big ideas to solve problems for their customers.

And through sheer willpower, talent, and persistence, they birth their ideas into existence. If enough value is created, the rewards can be incredible.

The same goes for investors.

If a company performs well, the shareholders who invested in it can realize phenomenal returns.

The other day I was on the phone with a few CEOs of some of the companies we’ve invested in, listening to them discuss their progress.

One is a Colorado-based financial technology company, and the other is a Colombia-based medical cannabis producer.

Both businesses are doing exceptionally well and run by extremely talented people that I trust.

As an investor, I couldn’t ask for a better deal. All I had to do was write a check.

In exchange, I’ve got these two guys… some of the most successful and highly skilled entrepreneurs I know, busting their butts every day to add two zeros to the amount of money that I invested.

Obviously there’s risk in any investment… even if you buy government bonds or a bank certificate of deposit.

But an astute investor will reduce this risk by assembling a diversified portfolio of great businesses.

That way, if something goes wrong with a business, the rest of the portfolio will make up for it.

I’ve long argued that a great business is one of the best “real” assets to own.

It can provide so much benefit– cashflow, tax deductions, estate planning vehicle, asset protection, etc.

Plus, in times of inflation, a great business increases in value, so it’s a fantastic hedge.

In times of deflation, a great business generates highly valuable cashflow.

In good times, a great business expands and makes big profits.

In bad times, a great business weathers the storm and increases its market share as its phony copycat competitors get flushed away.

There aren’t a whole lot of asset classes that provide such diversity of benefits.

Now, there are ultimately three ways to own an asset like this.

First, you can start a business yourself. This isn’t as scary as it seems.

Like learning Chinese or public speaking, starting a business is a skill… and one that can be acquired with time, education, and experience.

(We hold an annual entrepreneurship camp every summer designed precisely to help people build those skills.)

Second, you can buy someone else’s business.

It may surprise you, but businesses are bought and sold every day, just like real estate or antique cars.

In 2015, for example, our holding company purchased a retail apparel business in Australia that has been in existence for about 20 years.

It’s a well-established brand, and the business is highly profitable.

Now we’ve hired new management and made several changes to increase those profits even more.

There are ‘business brokers’ around the world who specialize in finding buyers and sellers of private businesses, just like real estate agents match buyers and sellers of property.

But for people who don’t want to buy an entire company, the last option, of course, is to buy -shares- in a business.

When it comes to buying shares, most people naturally tend to think about the stock market.

The shares of large companies traded on major stock exchanges are extremely liquid; it only takes seconds to buy or sell shares of Apple.

Conversely, if you own 5% of a local sandwich shop, those shares are harder to liquidate.

The benefit is that shares in private companies tend to be MUCH cheaper.

As an example, I wrote a check for $1.5 million to purchase the Australian company I mentioned.

It makes that much in a year.

So the effective price was basically 1x annual profit (or a “P/E ratio” of 1), meaning my money is recouped in a year.

Large companies traded on major stock exchanges tend to have irrational valuations.

Consider Netflix, whose stock price is valued at 360 times its yearly profit.

So Netflix investors theoretically have to wait three centuries to recoup their investment.

This difference is phenomenal… and that’s why I generally tend to stick to private companies: you can get much more VALUE for your money.

There are exceptions, of course.

Just like a public company’s stock can sell for an absurdly high price, it’s also possible to sell for a ridiculously low valuation.

My analysts are always looking for profitable, well-managed companies in hidden corners of the market where the shares are so cheap they’re selling for less than the amount of money the company has in the bank.

It’s very hard to lose money when you’re able to buy $1 for 75 cents.

The great thing about these types of investments– cheap, undervalued shares traded on public exchanges, is that they’re available to ANYONE.

You just have to be willing to do the work to find them.

Later this week I’ll show you how my team spots these investments.

Two more major problems for Social Security & Medicare

Mon, 01/16/2017 - 11:57

Not too long ago my step-dad had to spend a few days in intensive care. Pretty scary stuff.

He had just about every nasty symptom imaginable, from constant vomiting to dizziness to ultra-high fever, but the doctors couldn’t figure out why.

Fortunately his condition improved enough that he was released from the hospital, and now he’s on the mend.

Now, my step-dad is a Medicare patient. But he just found out that he’s been unceremoniously dropped by his Primary Care doctor.

Apparently his physician dropped all of her Medicare patients in one giant culling.

It turns out that physicians across the country have been firing Medicare patients; and according to a late 2015 study from the Kaiser Family Foundation, 21% of physicians are not taking new Medicare patients.

Much of this trend is based on stiff penalties and financial disincentives from the Affordable Care Act (Obamacare), and 2015’s Medicare Access and CHIP Reauthorization (MACRA) Act.

MACRA in particular is completely mystifying.

The law created a whopping 2,400 pages of regulations that Medicare physicians are expected to know and follow.

Many of the rules are debilitating.

For instance, MACRA changed how physicians can be reimbursed for their Medicare patients by establishing a bizarre set of standards to determine if a physician is providing “value”.

As an example, if a patient ends up in the emergency room, his or her physician can incur a steep penalty.

This explains why my step-dad was dropped by his doctor.

The healthcare system has been broken to the point that physicians now have a greater incentive to fire their Medicare patients than to treat them.

One Florida-based physician summed up the situation like this:

“I have decided to opt-out of Medicare, acknowledging that I can no longer play a game that is rigged against me; one that I can never win because of constantly changing rules, and one where the stakes include fines and even potential jail time.”

The irony is that all these new laws and regulations were designed to “save” Medicare.

As we’ve discussed many times before, both Medicare and Social Security are dramatically underfunded and rapidly running out of cash.

Medicare is the worst off between the two; MACRA and Obamacare were supposed to create hundreds of billions of dollars in cost savings.

It’s clear now that this cost savings comes at the expense of physicians… and the result is a rising trend in Medicare patients being dropped.

But even with the cost savings, the Congressional Budget Office projects that Medicare will become completely INSOLVENT by 2026.

As I write this letter, Congress is already taking steps to repeal the Affordable Care Act.

If they finish the job, all the supposed cost savings will be eliminated, and Medicare’s projected insolvency date will be accelerated to 2021.

So the government must either keep legislation that isn’t working and have Medicare run out of money in 2026… or repeal the legislation and have Medicare run out of money in 2021.

Either way, Medicare is toast.

Oh, and bailing out Medicare isn’t an option either.

They would need TRILLIONS of dollars to fully fund Medicare, which is just about impossible for a government that loses hundreds of billions each year and already has a $20 trillion debt.

I’m not suggesting they’ll let Medicare go bust.

More than likely they’ll just come up with some band-aid fix that has terrible consequences.

For example, they could bail out Medicare by stealing from Social Security.

Bear in mind that Social Security is a total mess.

Back in the 1960s there were nearly 6.5 active workers paying into the system for every Social Security recipient.

Today that worker-to-beneficiary ratio has fallen by nearly half.

There simply aren’t enough workers paying into the system to support the swelling number of retirees.

That’s why Social Security is terminally underfunded.

And stealing from its trust funds to support Medicare would merely accelerate the demise of Social Security.

Again, there are no good options to save these programs.

But you can easily take charge of your own health and retirement, and there are plenty of solutions available.

Sure, if Social Security and Medicare are still around when it comes time for you to collect, great.

But you’ll be a LOT more secure, for example, if you set up a robust, flexible retirement structure like a solo 401(k) or self-directed IRA.

These allow you to contribute MUCH more money to your retirement, cut costs, and invest in a variety of asset classes that could produce superior returns.

Even just a 1% improvement in your net returns could boost your retirement savings by hundreds of thousands of dollars when compounded over 20-40 years.

A well-structured retirement plan could even own something like an e-commerce business, where not only the profits, but even the investment returns on those profits, would accumulate tax-free towards your retirement.

There are better options in healthcare as well.

Clearly no insurance plan can substitute for healthy food, good choices, and plenty of exercise.

But it’s amazing how much cheaper high quality care and medication can be if you expand your thinking overseas.

Countries like Canada, Mexico, Thailand, India, etc. are renowned for medical tourism.

Whatever treatment you require, from cancer to fertility, top-tier facilities are available abroad at a fraction of the price, and you can actually be treated like a respected human being.

And the cost savings in treatment is often vastly higher than any travel costs in getting there.

(You’d think Medicare would encourage going abroad for treatment…)

Social Security and Medicare are both finished. The numbers don’t lie, and even the annual trustee reports tell us that they’re pitifully underfunded.

But the good news is you don’t need the government to retire and be healthy.

There are plenty of solutions available to take back control for yourself. It just requires a little bit of education and the will to act.

“Copper is the new oil” and other views on the future of energy

Thu, 01/12/2017 - 12:54

One of my interesting friends is in town visiting Chile for a few days.

His name is Gianni– he’s originally from Croatia but lives in Vancouver, and has spent most of his career in the mining business.

Gianni is especially bullish on copper… primarily because he thinks the Age of Big Oil is coming to a rapid close.

He believes that conventional gasoline vehicles will be increasingly replaced with electric cars, which simultaneously reduces demand for oil AND increases demand for copper.

For investors, this presents an interesting opportunity.

Oil and copper prices have been strongly correlated for decades; in other words, as oil prices went up, copper prices went up.

This made sense in the past since both commodities were affected by the same macroeconomic forces.

Fast growing economies tend to consume a lot of copper and oil, pushing up prices.

But now Gianni thinks it’s time for those prices to de-couple.

You may recall that German carmaker Volkswagen is in hot water after being caught falsifying its emissions data. The press is calling it “dieselgate.”

Volkswagen has already been fined $15 billion by the US Justice Department, and roughly $2 billion of that is supposed to be earmarked to build electric vehicle charging stations across America.

This increase in EV charging infrastructure may very well create additional demand for electric vehicles… meaning that oil is going to start losing a LOT of customers, while electricity is going to gain.

Copper remains one of the most important commodities in electrical infrastructure, so prices may very well rise much higher in the future as a result of what’s starting to happen now.

Take a listen to today’s podcast, in which Gianni and I discuss the future of energy, as well as ways to profit from this long-term global trend.

Land of the Free: Michigan man issued parking ticket in his own driveway

Wed, 01/11/2017 - 10:22

The state of Michigan is not exactly known for its balmy weather this time of year.

And residents reasonably do what they have to do to cope with often extreme winter temperatures.

Last Thursday a man named Taylor Trupiano of Roseville, Michigan did what a lot of people do in cold climates.

He walked out of his house, started his car, turned on the heat, and went back inside for a few minutes while his engine and vehicle interior warmed up.

According to Mr. Trupiano, he was only inside for about 7 or 8 minutes.

But by the time he came back to his car, there was already a parking ticket on his windshield– with a fine totaling $128.

Some local police officer had apparently driven by, noticed the vehicle was unattended, written up this heinous infraction, and left.

There are so many things wrong with this picture it’s hard to know where to begin.

First off, the citation that Mr. Trupiano received was a parking ticket. Yet his car was parked on his own private property.

Let that sink in: this man received a parking ticket while his car was parked on his own property.

You can’t even park your car on your own property anymore without being in violation of some series of laws, rules, or local ordinances.

The city government’s reasoning is that, if you leave a vehicle unattended, it may encourage car thieves to steal it.

This is pretty flimsy logic.

Sure, maybe if a car thief is standing right there he/she may take the opportunity.

But it’s not like some lowlife felon is going to turn the other cheek and stop stealing cars just because there are no unattended vehicles with the keys in the ignition.

Criminals bent on theft are going to steal no matter what, just like some murderous thug in Chicago is going to find a gun and kill people regardless of local firearm regulations.

When the story broke on local news, Roseville’s Police Chief told reporters that his department is unapologetic about issuing the citation to Mr. Trupiano.

Sounding like a man who cares more about statistics than actually catching criminals, the Chief claimed that 5-10 unattended vehicles are stolen every winter, which “drives our crime rates up.”

I looked at Roseville’s crime rates. They’re high. This is not a safe place.

With a population of less than 50,000, there are nearly 2,000 property crime incidents per year.

That includes at least a few hundred car thefts– which means that 5-10 vehicles is statistically trivial.

Clearly this issue of unattended vehicles is NOT the root of the problem.

And even if all the citizens of Roseville never again left their vehicles unattended, even on a cold winter day for just a few minutes to let the car warm up, it still wouldn’t make a dent in the larger crime rate.

But that doesn’t matter.

Roseville’s city government deals with its crime problem by establishing obscure regulations to restrict what law-abiding people are allowed to do in their own homes with their private property.

It doesn’t matter whether you are aware that these ridiculous rules even exist: ignorance of the law is not an excuse.

You’re probably in violation of half a dozen rules and regulations right now without even knowing about them.

Naturally, they’re all for your own good… to protect you against all the terrible choices that you might make as a grown adult.

Thank goodness these people are here to save us from ourselves! Of course, there’s always more work to do.

Speaking of statistically trivial risks, I read recently that falling vending machines kill a handful of people each year. Let’s get rid of them.

Roller coaster malfunctions claim 4 lives each year. Maybe they should ban those too.

Sugary drinks are clearly bad for you. Perhaps they should outlaw those, at least above a certain size.

Oh wait, they’re already trying to do that.

This is what freedom means today in the United Nanny States of America.

How two people from New York started over in Chile

Tue, 01/10/2017 - 13:21

Yesterday on the drive back to Santiago from one of our blueberry farms, I stopped to visit some friends who lived in the area.

About a year ago they bought some land in Chile’s incredibly fertile 7th region, which boasts a rare Mediterranean climate.

It never gets too hot, and it never gets too cold. Plus, the rich, volcanic soil is packed with powerful nutrients.

As long as you’re in the right spot to ensure ample water security, the place is an agricultural paradise (our agriculture company owns two large farms in the region).

There are literally four other places on the planet with this combination– southern California, South Australia, the Western Cape of South Africa, and parts of the Mediterranean itself.

That’s it.

Yet by comparison to those other places, land in Chile is remarkably cheap.

Our agriculture company purchased several thousand acres in this prime region back in 2015 for about $1,700 per acre.

Similar property in California, especially given how much water we have, would easily sell for 10x to 20x that price.

My friends bought several acres of land for themselves as a sort of homestead, and they’re now living in a gorgeous setting surrounded by mountains and multiple rivers with cool, crystal clear water and a steady supply of fish.

They’re raising livestock and have a garden, plus I got them started with a gift of some baby trees which are already producing fruit in their first season.

It feels like lifetimes away from when they were living in New York City.

We were talking about it all yesterday, about how powerful it feels to be totally independent.

My friends purchased the land outright (again, land is inexpensive). Then they paid about $55,000 to build their home.

The house is quite nice– comfortably spacious with four bedrooms.

And it’s all wired up with the latest gadgetry and home automation, with all sorts of sensors to control appliances and conduct routine tasks.

So they now have a roof over their heads and plenty of land to do whatever they want, and they own it all outright… they don’t owe a penny on any of it.

They can feed themselves, they have their own water, and they can produce their own energy.

This is an extremely powerful feeling, knowing that, no matter what happens (or doesn’t happen), you’re always going be able to thrive.

And that’s precisely the point.

I’m not trying to convince you to rush out and buy some homestead property, or to leave the country.

(Though it doesn’t hurt to at least plant a small garden… or to look into your options to obtain a second residency or even passport.)

The larger idea is that, in the face of such obvious risks, rational people make plans and take steps that make sense no matter what happens.

My friends had concerns. They were living in New York before and didn’t like the trends they saw in their home country.

There was too much debt. Too much war. Too much money printing. Too many lies. Too much spying. Too much violence. Too much uncertainty.

They wanted to distance themselves from conditions that made them uncomfortable.

So they made a very deliberate plan and took steps that led them to where they are today– living in their own paradise. And they couldn’t be happier.

These guys aren’t hiding from the world. He’s still working in technology and she’s still producing art… exactly what they used to do.

They’re able to work from anywhere on the planet, including on their homestead in central Chile.

There’s no downside in them living in a place that makes them happy, working remotely, eating organic home-grown food, and not having any debt.

But if the risks they were concerned about turn into far bigger problems, their decision may end up being the best they ever made.

No matter what, they’re thriving.

You may share some of the same concerns that they had.

If so, it doesn’t mean you have to get on a plane.

That was the right plan for them. It might not be right plan for most people.

But there are countless other steps you can take without having to leave your living room, to ensure that, no matter what happens next, you can thrive too.

For example, you can withdraw money out of a risky financial system, take some easy steps to enhance your digital privacy, or structure a more robust retirement plan that helps ensure you don’t have to rely on a failing pension system.

These are just a few of the dozens of solutions that you can execute yourself… and quite easily.

Most of us have been programmed, practically from birth, to outsource our problems.

When we see big trends and big risks, we’re told to go to a voting booth to elect someone who promises to solve all the problems.

They say, “I’m going to fix the system,” or “I’m going to create jobs.”

Bullshit. We’re the ones who are in control of our own lives. We can fix our own system. We can create our own jobs.

Anyone can get started with a profitable e-commerce business with a very tiny investment.

Anyone can take steps to reduce their exposure to the enormous risks in the system, ranging from insolvent pension funds to unprecedented government debts.

It’s 2017.

Compared to our ancestors who had to slog it out with their bare hands, we have unparalleled resources and enormous, global opportunities at our fingertips.

All it takes to get started is the proper education, and the will to act.

Here’s a unique sign of inflation

Mon, 01/09/2017 - 10:53

I remember the first time I ever saw a $100 bill.

It was back in the early 80s, I must have only been 5 or 6 years old.

My parents took my sister and I to a fancy restaurant, and I distinctly remember a man dressed in a dark business suit a few tables over paying his bill with a crisp $100 note.

He pulled it out of his wallet, slid it onto the table, and walked away.

I was dumbfounded. It was more money than I had ever seen in my young life.

None of my friends had ever seen a $100 bill, and I was the big news at school the next day, regaling the whole class with stories of my proximity to such vast wealth.

Of course, back then, a $100 bill truly was a rare sighting because prices were so much lower.

A can of Campbell’s soup was 25 cents. Today it costs 4x as much.

A movie ticket ran about $3.50, according to the National Association of Theater Owners. Today it’s almost to $9.

Gasoline was 86 cents per gallon. Now it’s $2.20, and that’s after a major price collapse.

$100 could practically pay the rent in a lot of places back in the 80s.

That’s obviously no longer the case. Even a mundane trip to the grocery store can easily blow through $100 without feeling unusual.

$100 simply isn’t the awe-inspiring symbol of wealth that it used to be. And that’s because of inflation.

One measure of this trend is the average lifespan of the $100 bill.

As money changes hands during routine transactions, the constant wear and tear eventually starts to break down the paper.

You probably have a few bills in your wallet that look like they’re about to disintegrate.

The more frequently a bill is used, the faster that breakdown occurs.

According to the Federal Reserve, for example, a typical $1 bill lasts for about 5.8 years before becoming so fragile that it gets withdrawn from circulation and destroyed.

A $100 bill, on the other hand, lasts for 15.0 years.

This makes sense given that a $1 bill is used so much more frequently.

But what’s interesting is that, even as late as 2011, the average $100 bill lasted 21.6 years before becoming worn out.

So according to Federal Reserve data, the average lifespan of a $100 bill has fallen by more than 30% over the last several years.

This is primarily due to a significant increase in use, i.e. $100 bills are used more frequently in day-to-day transactions… at the gas station, grocery store, and even coffee shop.

Naturally, this increased use of the $100 bill is because prices are higher than they’ve ever been– you can’t pay the grocery bill anymore with a twenty.

Wages and salaries have also increased over time. But not as fast as living costs.

According to the US Department of Labor, most people are still earning less than they were 17-years ago when adjusted for inflation.

And that’s precisely the point: inflation is a very deliberate and sustained form of theft.

When prices rise faster than income levels, they’re ultimately stealing from your standard of living.

But not just once.

Inflation steals from you month after month, year after year. It never stops.

This has long been a common tactic for financially desperate governments throughout history.

Think about it– if they sent gun-toting police to your house demanding 2% of your wealth, there would be rioting in the streets.

But if the government and central bank engineer 2% inflation, no one cares.

And that’s the really amazing thing about inflation: governments and academia have managed to convince people that a little bit of inflation is totally normal.

They start early, even teaching students this garbage in high school economics classes.

Of course, they always forget to teach the part about how destructive inflation is over time.

2% inflation compounded year after year after year can have an explosive effect, doubling, tripling, and quadrupling prices.

The thing is, though, because inflation occurs so gradually, it feels ‘normal’.

Only when we look back to the past can we see how dramatically inflation has changed people’s lives.

The US Labor Department reports, for example, that in the late 1960s, fewer than half of households with children were dual income.

In other words, one parent supported the family on a single income.

Today in nearly 70% of households with children, BOTH parents have to work in order to make ends meet.

Just like the dramatic decline in the purchasing power of a $100 bill, this trend is a prime example of how inflation steals from people over time.

Policymakers will always downplay inflation.

Back in 2011 Federal Reserve official Bill Dudley infamously responded to soaring food prices by citing the fact that an iPad 2 was cheaper than an iPad 1.

(Prompting one reporter to say, “I can’t eat an iPad!”)

They may even reinvent the way they calculate inflation.

But despite the speeches and statistics, most of which focus on monthly or quarterly changes, the long-term effects of inflation are very much with us.

And they aren’t going away.

It would be foolish to assume that the people who are causing this problem will suddenly fix it.

If anything, they’ll make it worse.

In fact, central bankers around the world have been concerned that inflation isn’t high enough… as if a brief period of price stability is somehow a bad thing.

We should absolutely expect higher inflation.

Central bankers want inflation. Governments want inflation. And they’re the ones who have the power to make it happen.

Real assets, like precious metals, productive real estate, profitable businesses, etc. offer safety from inflation, especially if your savings is denominated in an overvalued paper currency.

More on that later in the week.

Wow. 60 Minutes was totally wrong about second passports

Thu, 01/05/2017 - 12:55

Steve Kroft has a problem with second passports.

Specifically, the reporter and his team of producers slammed “citizenship by investment” programs in an editorial piece that aired on 60 Minutes this past Sunday night.

As we’ve discussed before, many countries around the world, including Malta, Dominica, St. Kitts, and Antigua, have Citizenship-by-Investment (CIP) programs.

The programs differ between countries, but they all provide an opportunity for foreigners to receive citizenship in exchange for making a donation or investment in the country.

In Dominica, for example, a foreign investor can qualify to apply for citizenship by making a $100,000 contribution to a fund run by the local government (it’s literally called “The Government Fund”).

Presuming the investor meets the other due diligence requirements, he or she can become a citizen and receive a passport from Dominica within a few months.

These programs are all completely legal and run by the governments’ official agencies.

In fact, in most countries it’s legal for the government to award citizenship to foreigners, typically to people who are high achievers in science, arts, or sports.

If Usain Bolt decided that he wants to move to Poland to run for their Olympic Team, the Polish government would award him citizenship in about two seconds.

Governments want to attract talented people who can make valuable contributions or bring recognition to their countries.

So what’s the difference if a Polish investor moves to Jamaica and builds a brand-new school in an impoverished area?

Or if a Canadian invests hundreds of thousands of dollars in a local charity in Antigua?

These seem like equally valuable contributions to reward foreigners with citizenship, especially in poverty-stricken countries.

In Dominica, for example, the funding provided by the CIP program was a major factor aiding the country’s recovery from the devastation of 2015’s Tropical Storm Erika.

The CIP program also helped the economy stay afloat during the worst of the Global Financial Crisis nearly a decade ago.

But Kroft doesn’t like the idea at all and apparently thinks that he should be able to decide what a foreign country is able to do with its own sovereignty.

Naturally, Kroft’s aversion against these programs is fear-based, revolving around concerns over terrorism and security.

His report goes on to showcase an Iranian attorney who obtained a passport from St. Kitts, another Caribbean island with a CIP program.

It was a no-brainer investment for the gentleman; as a global professional, he has to travel frequently to meet clients.

This is extremely difficult to do with an Iranian passport as visa requirements are quite stiff.

With a St. Kitts passport, he can travel visa-free (or obtain visa on arrival) to over 130 countries, including almost all of Latin America, Europe, and much of Asia.

Kroft thinks that Iranians should stay in Iran… and he appeared completely flummoxed upon meeting the man in Dubai, stating tersely “So you’re an Iranian living in Dubai with St. Kitts citizenship.”


“That’s complicated.”

This Iranian is a man who was born in an oppressive country devoid of economic freedom; yet he worked hard and took active steps to improve his situation by moving to a better place and obtaining a less-restrictive passport.

But Kroft, who by mere accident of birth happens to have a US passport entitling him to travel around the world without a visa, finds this “complicated”.

What small-minded, 19th century thinking.

In Kroft’s worldview, you live in the country where you were born, and you travel with its passport, and that’s that.

If you happen to be, by accident of birth, from another country with less opportunity or more restrictions, then tough shit.

But perhaps the most ridiculous part of the broadcast was that Kroft completely missed the point of a second passport altogether.

Kroft believes that second passports are only for criminals and terrorists.

In fact he lists the names of 10 suspected criminals who obtained CIP passports, conveniently skipping over the thousands upon thousands of law-abiding investors who have gone through the same programs.

In reality a second passport is an ideal part of any rational individual’s Plan B.

A second passport means that if your home country ever deteriorates to the point that you need to leave, you’ll always have a place to go… a safe place where you and your family are welcome to live, work, invest, and do business.

That, of course, is a worst-case scenario.

Yet even if nothing like that ever happens, you’ll still be able to enjoy benefits, like additional visa-free travel options which, in many cases, your children and grandchildren may be able to inherit.

Candidly, citizenship-by-investment isn’t right for most people simply because of the price tag.

I’m sure most of us can find better uses for $100,000 to $1 million, especially when there are MUCH easier ways to obtain a second passport.

For example, you can obtain citizenship in a number of places like Ireland or Italy if you have documented ancestry.

You can also obtain citizenship in countries like Panama, Chile, or Argentina after a few years of legal residency (which you don’t necessarily have to spend in-country).

But the bottom line is that a second passport is a fantastic insurance policy. And this is something that makes sense for anyone.

What’s funny is that the 60 Minutes broadcast on Sunday showcased two other reports.

The first was about the extraordinary murder crisis in Chicago, where casualties have “surged to a level more in line with a war zone than one of America’s great cities.”

The second story was about a company in Cuba that was taken over by the communist government in 1959, and its owners were left with absolutely nothing but the clothes on their backs.

Ironically, both of these stories highlight the importance of having a second passport… of having a Plan B.

What’s yours?

US national debt soars by $100 billion. . . in just 8 hours

Wed, 01/04/2017 - 09:14

According to the latest statement issued yesterday afternoon by the Department of Treasury, the US national debt has reached $19,976,826,951,047.80.

That’s $19.976 trillion, as of the close of business on Friday December 30, 2016.

(The government is typically a day or two behind when it sends out these reports.)

That number itself is obviously remarkable, just shy of $20 trillion.

But what’s even more astounding is that, according to the Treasury Department’s own figures, they STARTED the day with a debt level of ‘just’ $19.879 trillion.

So literally in the span of a single 8-hour workday, the US government amassed an astonishing $97 billion in debt.

That’s simply incredible– $97 billion is larger than the entire GDP of New Mexico or Luxembourg. In 8 hours.

I review these reports every single day. Needless to say, an increase of this magnitude occurs… almost never.

And when I saw it yesterday afternoon, the “Holy Shit!” that came out of my mouth caused a rush of staff into my office asking “What happened?!?”

As I recovered from my shock, I explained that the US federal government had increased its debt by nearly $100 billion in a single day, to which one of them asked,

“What did they buy?”

I thought it a brilliant question, almost child-like in its simplicity. Indeed. What did they buy?

How many aircraft carriers did they purchase?

How many colonies on Mars did they build?

Did President $20,000,000,000,000BAMA acquire a controlling stake in the Walt Disney corporation on behalf of the taxpayers of the United States?

Did Congress suddenly recapitalize the FDIC, or any one of the half-dozen insolvent US trust funds?

Perhaps they fixed a decent portion of the nation’s crumbling infrastructure.

Or maybe they just decided to send a check for almost $1,000 to every household in America.

Nope. None of the above.

The reality is that these people indebted every single taxpayer, including future generations of taxpayers who won’t even be born for decades, with a massive bill that has almost no mathematical probability of ever being paid down.

And despite this prodigious debt, the government has absolutely nothing to show for it.

What’s really amazing is that this isn’t even unusual anymore.

The national debt in the United States is already much larger, and is growing much more quickly, than the US economy.

Plus, interest rates are rising from their historic lows.

In fiscal year 2016 (which ran from October 1, 2015 through September 30, 2016), the government’s total interest bill was $432,649,652,901.12.

This works out to be an average interest rate of 2.204%, according to the Treasury Department’s most recent data from November 2016.

But it wasn’t that long ago that interest rates were MUCH higher.

Back in January 2008, for example, the average interest rate on US government debt was 4.785%.

And even that was considered quite low by historical standards.

Today’s rates are less than half that level. And it’s reasonable to expect rates to increase. In fact, that’s already happening.

In late December, the Treasury Department sold $28 billion worth of 7-year Treasury notes at a yield of 2.24%.

2.24% is still pretty cheap. But it’s nearly double the rate from just six months ago.

Back in July, the 3-month T-bill rate was just 0.02%. Now it’s more than 25 TIMES greater at 0.51%.

This is a significant increase in a short period of time.

If the government’s average interest rate returned to 2007 levels, they would be spending nearly $1 trillion each year just to pay interest.

That’s more than they currently spend on Medicare or the US military.

So as you can see, the US government is not only increasing the debt level at an astonishing rate (with absolutely nothing to show for it), but they’re going to have to start paying a LOT more interest.

Remember that they already borrow money just to pay interest on the money they’ve already borrowed.

So higher interest rates mean that they’ll have to borrow even more money to pay interest, which will cause the debt to go up even higher, requiring them to borrow even more money to pay interest.

It’s a never-ending cycle that only ends one way: default.

The idea of ‘growing their way out’ of debt is a total fantasy.

The debt level is growing much faster than the economy, so each year the hole becomes even deeper.

They’ll either have to default on their creditors, causing a massive catastrophe across the global financial system…

… or they’ll have to default on the promises they’ve made to taxpayers.

You might be thinking– “Can’t they just cut government spending?”

No. Again, not without defaulting on taxpayers.

The three biggest line items in the budget that mop up almost ALL government spending are:

– Debt interest
– Social Security & Medicare
– Military

Everything else COMBINED is trivial by comparison.

So cutting spending quite literally requires a default on the promises they’ve made to taxpayers.

This includes everything from Social Security to maintaining a stable financial system without resorting to major inflation or capital controls.

None of this means there’s going to be some spectacular collapse tomorrow morning.

The sky is not falling.

In fact, despite this debt madness, we’re living in a world full of incredible business, investment, technological, and lifestyle opportunities.

It’s truly an incredible time to be alive.

But the rapid rise in interest rates coupled with an astonishing increase in the debt creates an obvious long-term trend with major consequences that anyone would be foolish to ignore.

What’s your Plan B?

The coming crackdown on Free Speech

Tue, 01/03/2017 - 12:21

It’s amazing what can happen in a week.

Before this publication went on hiatus last week, one of the last letters I wrote to you in 2016 was about the National Defense Authorization Act and its treasure trove of freedom-killing provisions.

Section 1287, for example, creates a new agency called the “Global Engagement Center”, aka Ministry of Truth.

It has one purpose: to combat fake news.

The Global Engagement Center will fund and train journalists around the world to push a never-ending flow of US propaganda and cripple any independent outlet that doesn’t conform to the official government narrative.

Sadly, this is not unusual.

Each year, Congress creates a new National Defense Authorization Act (NDAA), which is essentially the military budget for the following year.

But without fail, each year’s NDAA is crammed full of horrific provisions which either waste taxpayer funds on corrupt pet projects, or destroy Americans’ civil liberties.

You may remember the 2012 NDAA, for example, which President Obama signed into law on New Years Eve 2011.

That year’s NDAA contained a section authorizing the military detention of US citizens on US soil.

Now we’re getting the Ministry of Truth.

President Obama signed this year’s NDAA into law on Christmas Day, which means that the Global Engagement Center will be live and operational within six months.

Four days later on December 29th, he issued an executive order intended to punish the Russian government for manipulating the US election.

The order contains some incredibly vague language targeting anyone engaged in “cyber-related activities” that are “reasonably likely” to pose some threat, including “activities to undermine democratic processes or institutions”.

The order also threatens anyone who provides “goods or services” to those engaged in the aforementioned cyber-related activities.

Anyone deemed by the US government to fit those incredibly broad definitions can have their assets frozen instantly.

Now, the spirit of the order is to go after all the Russians and Chinese they think are complicit in hacking the US government and US corporations.

(Mr. Obama also expelled a multitude of Russian diplomats that the FBI suspects of being spies, raising the question of why these people were in the US to begin with.)

Yet such broad and vague language can easily be applied to ensnare just about anyone they want.

If you just happen to have sold a used mobile phone over Craigslist to someone who ends up being a hacker, you can be targeted under this order.

Same with anyone who uses the Internet (engages in “cyber-related activities”) to express strong anti-government opinions (“undermine democratic . . . institutions”).

Now, clearly that’s not the intention with this order.

But when enough time passes, rules and regulations have a strong tendency to be used in ways that dramatically diverge from their original intent.

Case in point: the US government has wrongfully seized billions of dollars worth of cash and property over the years through what’s known as Civil Asset Forfeiture.

Civil Asset Forfeiture is essentially a form of theft.

But it’s perfectly legal for local, state, and federal police agencies to steal from you because of technicalities that were written in laws passed decades ago.

For example, the Archaeological Resources Protection Act was passed in 1979 with the intention of helping to preserve historic sites.

Buried in the law is some vague language authorizing the recovery of any property that was stolen from historic sites.

Now, decades later, police agencies abuse the vague language from that law, as well as dozens of other laws, to give themselves the authority to seize your property.
Their theft of your property has nothing to do with protecting archaeological sites, but they still have the legal authority thanks to a 37-year old law.

So no matter how good the intentions behind a law or executive order, there’s always strong potential for nasty, unforeseen consequences down the road.

And between the NDAA’s Global Engagement Center and the President’s incredibly vague executive order, there’s some serious anti-free speech potential.

By the way, this is NOT just a US phenomenon.

Israel’s government is close to passing a bill that authorizes them to demand Facebook (and other social media platforms) to remove content that they deem threatening.

Germany’s government is talking about passing a similar bill to stop “fake news” during the election cycle, even suggesting that Facebook could be fined if it does not remove certain content within 24 hours of being told by the government to do so.

Yeah, clearly there’s a lot of garbage on the Internet.

Someone can write a post that Hillary Clinton’s campaign is running a child prostitution ring, and it gets retweeted by mindless automatons who believe everything they read.

But at the same time, there’s a lot of independent, boutique journalism out there, and many of these sites are being labeled “fake” because they don’t conform to the official government narrative.

After a terrible year for the status quo, between Brexit and the Trump election, politicians are clearly terrified of any dissent that threatens their position.

And now they’re putting together all the tools they need to stamp it out and keep you in line.

A great story from when America was still the Land of Opportunity

Mon, 01/02/2017 - 10:24

Last week during a long overdue vacation, a close friend of mine recommended reading the autobiography of Rich DeVos called Simply Rich.

DeVos is a billionaire entrepreneur who started countless ventures during his nine decades on this earth.

Back in the 1946, for example, DeVos started an airline… virtually overnight.

He just bought an airplane and started flying people around. No rules. No regulations.

They didn’t even have an airport. The local airfield north of Grand Rapids, Michigan, where they were based, hadn’t been completed yet.

As DeVos recounts in his book, “We put pontoon floats on our plane and took off and landed on the Grand River, which ran along the airfield.”

His first office at the airfield was an old chicken coop that he found, washed in the river, and re-painted.

The following year he and his partner opened up one of Michigan’s first “Drive Through” restaurants at the airfield, catering to passengers, workers, flight students, and spectators who came by in the evenings just to marvel at the planes.

Again, no rules. No regulations.

They just saw an opportunity and went for it.

DeVos started another business selling ice cream; another offering fishing excursions on Lake Superior; and another delivering trucks cross-country.

The truck delivery business was one of the more interesting ones; it started when he was just a kid– someone asked him to drive two pickups from Grand Rapids to Bozeman, Montana.

There were no hotels or motels… or even interstates back then.

So DeVos and his friend had to zig-zag their way across corn fields to get there, sleeping on haystacks each night along the way.

The book is a hell of an adventure– a reminder of how free and unencumbered things used to be.

Back in America’s heyday, people succeeded based on their hard work, ingenuity, and willingness to take action.

They didn’t have to spend three years filling out paperwork so that some government bureaucracy could justify its existence.

It was an environment that created unparalleled opportunity and prosperity which, candidly, have long since faded.

Today there are rules for everything; in fact, just this morning, the US federal government published an astonishing 709 pages of new regulations.

And that’s just for today. They publish new regulations every single business day. So tomorrow there will be even more.

These rules make it more difficult to produce, to start a business, to sell a product or service to a willing consumer.

And these rules carry costs, whether it’s in paying a fee, filling out paperwork, etc.

So just imagine the effect that literally decades worth of rules and regulations has had on US productivity (which is now noticeably contracting, even according to government data.)

It’s also worth noting that roughly 30% of occupations in the Land of the Free now require some sort of government license.

In its study “License to Work”, the Institute for Justice reports that 45 out of 50 of the largest cities in the United States have put up substantial obstacles to prevent budding entrepreneurs from selling food from street carts.

A manicurist in Alabama requires 163 days of training, while a shampoo specialist at a Tennessee hair salon must undergo 70 days of training, take two exams, and pay $140 in fees to obtain a license.

Hawaii requires fire alarm installers to undergo a whopping four years of training, pass two exams, and pay $380 in fees to obtain a license.

And a tree trimmer in California must also undergo four years of training, pass two exams, and pay $851 in fees to obtain a license.

It’s absurd.

Nothing that Rich DeVos his partner accomplished in their teens and 20s is even legal anymore.

It makes me think about all the people today who will never have the chance to realize their full potential thanks to the mountain of regulations blocking their way.

This is an important point to understand.

Looking at the data– the incredible overregulation, $20 trillion in debt, insolvent pension funds, etc., it’s painfully obvious that the US is past its prime and holding back millions of people from achieving greater prosperity.

Rich DeVos started so many businesses back in the 1940s because the government stayed out of the way and enabled hard-working risk takers to succeed.

Today the government spends $2 billion to build a website and churns out hundreds of pages of regulations each day.

And this trend gets worse each year.

Understanding this simple reality doesn’t mean that you’re pessimistic, unpatriotic, or expecting the end of the world.

It just makes you rational.

Things change. That’s the bottom line.

The US is still a fantastic place. But it’s no longer the same Land of Opportunity it was when Rich DeVos was getting started.

As I’ve summarized before, the US is a great place to consume… but an increasingly difficult place to PRODUCE.

That imbalance has serious long-term consequences, which we are only starting to experience.

How can anyone trust these people?

Thu, 12/22/2016 - 12:07

What I’m about to tell you is a true story.

And by the end of it, I hope it will be pretty clear that we’ve been programmed to put far, far too much trust in the banking system.

We’re told that banks are supposedly “risk free”.

And yet every scrap of publicly available evidence shows that banks take every opportunity to prove that they cannot be trusted with other people’s money.

They have been caught colluding to fix interest rates, exchange rates, and commodities prices to the detriment of their own customers.

They make insanely stupid bets with their depositors’ savings… and then when the bets go wrong, they go to the taxpayer with hat in hand claiming that they’re too important to go bust.

But most importantly, as my story will show you, they act with a sanctimonious sense of self-entitlement… that it’s no longer YOUR money in the bank. It’s their money.

And they’re going to do whatever they damn well please with it.

Take a listen in today’s podcast… the first I’ve put out in a very long five months.

Italy proves that banks are not the risk-free fantasy we’re told to believe

Wed, 12/21/2016 - 12:16

In the late 1400s, the city-states of Italy were among most dominant powers in the world.

Most of the city-states had abandoned the feudal system that persisted across Europe.

So Italy was one of the only places on the continent where anyone, including foreigners, could work hard, take risks, and become wealthy.

People could start businesses and own private property– revolutionary concepts in the 1400s.

Italy was truly the America of its day, and people from all over Europe flocked to the city-states in search of wealth and freedom.

Scientific, medical, and technological advancement flourished, as did commerce and banking.

The Medici Bank in Florence was by far the largest bank in Europe in the 1400s, and they helped popularize a double-entry system of accounting and the widespread use of credit, both of which still define modern banking.

Early Renaissance banks realized that hauling giant bags of gold coins across the countryside to settle payments with one another was expensive and risky.

Instead, every time they made or received a payment, the banks would adjust their accounting ledgers and then periodically get together to make sure everyone’s numbers matched up.

Italian banks perfected this technique and developed a comprehensive set of accounting rules that everyone followed.

When the bank Monte dei Paschi di Siena was founded in 1472, they adopted this system as well.

What’s interesting is that Monte dei Paschi di Siena still exists today (just barely).

And they’re basically still using the same system.

Despite all of our modern technology, commercial banking has changed very little over the past 5+ centuries.

Even today, whenever banks transact with one another, they’re merely making accounting entries in their ledgers.

It’s not like there’s actually any money that changes hands. Banks don’t FedEx cash or coin to one another to settle up. It’s all just digits on an electronic balance sheet.

The biggest “advance” in modern banking has been the involvement of government and central banks.

Back in the Renaissance, banks spent years building up a solid reputation as conservative, responsible custodians of other people’s money.

They had to earn their customer’s trust the old-fashioned way. It wasn’t handed to them by some government agency.

Today, few people give a single thought about their bank.

We’ve been programmed to sign over our life’s savings to a complete stranger simply because the government says it’s OK.

That same government has lied to us about everything else imaginable, ranging from the existence of Weapons of Mass Destruction to whether or not he had “sexual relations with that woman.”

Yet this government-sanctioned trust is routinely abused.

Hardly a month goes by these days without a major banking scandal.

Wells Fargo is in the spotlight right now for having fraudulently manufactured new accounts without customers’ consent (and then charging FEES on top of that).

And right this moment Wells Fargo is scrambling once again for submitting a questionable solvency plan to the Federal Reserve.

But that’s just the tip of the iceberg.

Banks have been caught red-handed colluding to manipulate interest rates, exchange rates, and commodities prices.

They force law-abiding customers to jump through bureaucratic hoops to prove that we aren’t criminal terrorists, but then giant banks like HSBC and Barclays literally do business with terrorist groups.

They maintain very loose controls, allowing “rogue traders” to lose billions of dollars on stupid bets.

And they maintain a strict culture of secrecy.

As depositors, we don’t have the foggiest idea what our banks are actually doing with our money.

Their financial statements provide cursory summary numbers for categories like “LOANS” or “INVESTMENTS”.

But there’s no detail for us to see whether those loans and investments are safe and conservative… or whether they’ve put our savings in danger once again.

Banks also notoriously abuse accounting tricks to massage their numbers and hide losses.

One common technique that banks have used over the last few years is reclassifying their bond investments.

Typically a bank has to report the gains and losses of its bond investments each quarter.

But banks have the option to reclassify their bond investments into a different category called “hold to maturity,” in which they no longer have to report the losses.

As you can imagine, when bond values decline, many banks conveniently reclassify their portfolios, thus hiding the losses.

Amazingly enough, this deceit is totally legal under modern accounting rules.

Look, I’m not suggesting that banks are about to collapse. Some of them are in great shape.

And others… yeah, they’re about to collapse. Like Monte dei Paschi di Siena, and most of the rest of the Italian banking system.

What’s important is to realize that banking is a black box with zero transparency, NOT the risk-free fantasy that we have been told.

We can see this right now in Italy.

If a bank goes under, shareholders will be wiped out first.

But as a depositor, you’re actually a creditor of the bank– an unsecured creditor who has nothing more than a claim on your account balance.

Most countries, including Canada, the United States, and most of Europe, have passed “bail-in” legislation to penalize a bank’s creditors in the event they collapse.

Europe’s Union Bank Recovery and Resolution Directive became effective on January 1st, and the Federal Reserve is issuing a new bail-in rule next week.

So, depositors can be on the hook for a bank’s losses as well, just as we saw in Cyprus back in 2013.

Depositors are supposedly protected by deposit insurance like the FDIC.

But a single bank failure can easily wipe out these insurance funds (which happened in 2008).

And most governments are now too broke to recapitalize them.

Bottom line: It matters where you put your money. They evidence is pretty obvious that banks are not risk-free.

Why take the chance?

You can quickly mitigate these risks at practically zero cost by holding a portion of your savings in a safer, better capitalized bank… or outside the banking system in physical cash or gold.

Three ridiculous ways Congress plans to Keep America Safe Again

Tue, 12/20/2016 - 17:25

Around the time of Passover in 67 AD, the Jews of Judea were in the midst of a major rebellion against the occupying Roman Empire.

Riots and violence were commonplace, and an organized rebel force of more than 25,000 men fought regularly against the imperial legions.

But a small group of zealots decided that conventional warfare wasn’t good enough.

So they went to the nearby town of Ein Gedi in modern-day Israel and killed 700 civilians.

This was one of the first recorded terror attacks in history.

Titus Flavius Josephus, an ancient historian (whose works are frequently disputed) described this massacre in his book The Jewish War, and goes on to explain that Sicarii committed mass suicide rather than be taken prisoner by the Romans.

Terrorism, radicalism, and fanaticism have existed for thousands of years; there have always been people willing to commit unspeakable acts of violence as a means to achieve their goals.

And sadly, though our species has evolved since ancient times, these traits still exist in a dangerous minority that struck at least three times just yesterday alone.

Most of us who don’t have our mental wires crossed can’t understand their belief systems– both ancient and modern-day terrorists alike are not only willing to die, but quite often HAPPY to die for their causes.

Today’s politicians are remarkably ill-equipped to deal with this kind of threat.

Their solution is to fight violent radicals by forming committees, issuing press releases, and passing mountains of legislation.

Case in point: The National Defense Authorization Act of 2017, which is sitting on President Obama’s desk awaiting signature, consists of over 3,000 pages of rules, regulations, and pet projects.

3,076 pages to be exact.

Hell, when dropped from the right altitude, that’s a lethal weapon.

To give you an example of exactly how these people could possibly fill 3,076 pages, there’s a new rule among the bill’s many, many, many passages that redefines administrative leave procedures for civilian contractors.

FINALLY! We’re safer already!

Just imagine all the terrorists quaking in their boots, petrified of carrying out another act of violence, knowing that American’s administrative leave policy has been refurbished.

Another gem is section 1224, which provides authorization to arm Syrian rebels with state-of-the-art weapons from the US military.

I’m not talking about small arms and ammunition. This is the heavy-duty stuff.

Apparently Congress didn’t learn its lesson when a bunch of the weapons they gave to the Iraqi military conspicuously ended up in the hands of ISIS.

Nor did they learn their lesson back in 2010 when it was found that the DEA had completely lost track of the thousands of weapons they supplied to Mexican cartels.

But don’t worry, the law provides plenty of safeguards.

For example, once the military supplies weapons to a Syrian rebel (who are obviously very easy to tell apart from ISIS terrorists), they have to file a report, including: “an explanation of the purpose and expected employment of such systems.”

Are these people serious?

Do they think that these high-tech precision munitions will be used to make coffee?

It’s amazing that this is what passes as Defense policy… THIS is how they plan on spending hundreds of billions of dollars to keep you safe– sending useless reports to their central bureaucracy.

Then, of course, there’s section 1287, my personal favorite.

Section 1287 requires that, within 180 days of the bill being signed to law, a new agency called the Global Engagement Center will be created under the State Department.

The Global Engagement Center’s job is to combat FAKE NEWS around the world, with sweeping powers to train and fund legions of journalists and bloggers to inundate the world with US propaganda.

Politicians have been praising the idea for the Global Engagement Center as a landmark new tool to keep Americans safe.

This is totally bogus; the US government has had propaganda and psychological warfare resources for decades.

Back in my intelligence days, I spent several months working right next to the Psychological Operations guys.

And outlets like Radio Free Europe and Radio Liberty have been in existence since the 1940s; both were funded by the CIA for decades.

So it’s not like it’s anything new for the US to be spreading propaganda.

What is new is creating and consolidating a whole lot of new power and authority into a single office to undermine any independent sources that don’t conform to the official narrative.

The Global Engagement Center is basically the Ministry of Truth.

This doesn’t make you safer. It makes you less free.

How is Martin Sheen any different than Vladimir Putin?

Mon, 12/19/2016 - 09:42

One of the quirks about being an expat in a faraway land is that, whenever something unusual happens in your home country, your local friends look to YOU for answers.

You become, by default, the de facto expert of your home country’s nuances.

Case in point: this weekend we had an intercompany Christmas party down here at the farm for two of the businesses that I run.

(Sadly there may be some video floating around YouTube of me singing “Lost that lovin’ feeling”)

The first is Sovereign Man, whose Chile-based staff consists of highly eclectic, internationally-minded folks from the US, Russia, Ukraine, Lithuania, Germany, Australia, Argentina, etc.

Then there’s the agricultural business that I co-founded in 2014; it’s one of the fastest growing companies in the industry, and we currently have around 350 employees, most of whom are Chilean.

Even though I’ve spent more than the last decade traveling to over 120 countries and living outside of the United States, I’m one of the only US citizens that these guys know.

So you can probably imagine that I’ve spent the last few months fielding their questions about Donald Trump and the US election.

Now the conversations has turned to the Electoral College, which meets today.

It’s difficult to explain to foreigners why the United States, which they perceive as the most advanced country in the world, still uses an electoral system that was designed in the 1780s.

It’s even more difficult to explain to foreigners why Hollywood celebrities are trying to interfere with America’s political process.

In Latin America, celebrities do normal celebrity stuff.

They score goals on the soccer field, date pop starlets, and engage in childish antics that make the cover of sports and entertainment magazines.

But nobody actually takes these people seriously.

Nor do the local celebrities have a self-righteous sense of entitlement to influence a national election. They stick to their TV shows and Gooooooooooooooals.

But a lot of my employees have seen this video of Hollywood celebrities trying to convince 37 “Electors” from the Electoral College to NOT vote for Donald Trump.

I don’t have a good answer to explain to a foreigner why Martin Sheen feels like he’s entitled to influence the outcome of the election– seemingly because he once played at President on television…?

It would be like Jane Seymour, who used to play Dr. Quinn Medicine Woman, feeling entitled to influence national healthcare legislation.

Or Scrooge McDuck wanting to set monetary policy.

This isn’t about celebrities voicing an opinion; it’s about brazenly trying to manipulate the election.

Ironically, the media has slammed Russia and its President Vladimir Putin for allegedly trying to manipulate the election.

So if Russia messes with the political process to advance Donald Trump (as the official narrative goes), it’s evil.

Yet when Martin Sheen blatantly tries to manipulate the election against Donald Trump with a pathetic piece of propaganda, the New York Times is noticeably silent.

Look, it’s fair to debate the merits and drawbacks of the incoming President, as well as the anachronistic Electoral College system itself.

But in trying to manipulate the process, these celebrities and their media cohorts prove they’ve failed to understand anything that’s just happened.

People are sick and tired of self-righteous elites trying to control the system.

This is what voters have been viscerally rejecting.

It’s a big reason why Donald Trump was elected to begin with, why Brits voted for Brexit, and why Italians rejected constitutional reform.

They’ve had entitled, out of touch moral crusaders pushing them around for years.

These people act as if they’re taking up some honorable burden to make decisions on your behalf because you’re too stupid and infantile to make up your own mind.

It’s insulting. Voters are tired of it. And these whiny celebrity activists are just digging themselves deeper.

Here’s one surprising deal that the government actually got right

Thu, 12/15/2016 - 11:23

On January 17, 1917, as the Great War raged in Europe, the government of the United States signed a deal to purchase the Virgin Islands from Denmark.

The agreement transferred Denmark’s territories in the West Indies, “including the islands of Saint Thomas, Saint John and Saint Croix together with the adjacent islands and rocks.”

Good thing they picked up those rocks!

The US government paid “a sum of twenty-five million dollars in gold coin of the United States.”

$25 million was clearly a lot more money back then than it is today.

But given the change in the gold price over the years, $25 million worth of gold in 1917 is valued just under $1.5 billion today.

That’s still an amazing deal.

It means that, adjusted for inflation to 2016 dollars, the US government paid about $175 per acre for the Virgin Islands.

Today, an acre of land on one of the islands could easily set you back around $400,000.

So the USVI purchase ended up being a pretty solid return on investment.

Of course, that was an era when the US government made lots of astute deals.

They bought the Louisiana territory from Napoleon in the early 1800s for peanuts, a price equivalent to about 40 cents per acre when adjusted for inflation to 2016 money.

They bought Florida from the Spanish, Alaska from the Russians, etc. All of these were phenomenal purchases.

Today they spend billions of dollars to build a website. The inefficiency and incompetence is almost unbelievable.

It’s also important to note that the Virgin Islands purchase was transacted in gold during a time when gold was still money.

Today, debt is money. Literally.

Look at a $1 bill, for example. It says “Federal Reserve Note.”

“Note” is just another name for debt in finance and accounting parlance.

The US dollar was originally defined by the Mint and Coinage Act of 1792 as 24.1 grams of pure silver.

Today’s dollar is simply a liability of the Federal Reserve. It’s debt.

Debt is also money at an institutional level.

For example, US government debt, all $19.9 trillion of it, is considered a “cash equivalent”.

That’s an accounting term which means that if you have $1 million in US government bonds, it’s the same as if you had $1 million at a bank, or even in physical cash.

US government debt is commonly held by commercial banks, central banks, large multinational companies, and even foreign governments as a type of cash reserve.

And it’s not unusual for these institutions to transact with one another using US government debt as a form of payment or collateral.

Large institutions will settle transactions and literally “pay” each other with US government bonds in the same way that you hand a $5 bill to the barista at Starbucks to buy a cup of coffee.

So US government debt is a widely-accepted medium of exchange, i.e. form of money.

This is incredibly bizarre, especially given how rapidly the US government is increasing its debt.

As of today, the US national debt is $19.9 trillion. And that’s up from $19.6 trillion on October 1st when the 2017 fiscal year began.

In other words, in the last ten weeks alone, the US government increased its debt by more than 200x the amount of money that they spent acquiring the Virgin Islands in 1917, even after adjusting for inflation.

And there’s no end in sight for this trend.

This coming Monday and Tuesday, the US government will auction off and issue another $52 billion in new debt over the course of just two days.

And as this chart from the Treasury Department shows, they have over 100 debt auctions scheduled just over the next 3 ½ months.

It just never stops.

The frequency, magnitude, and speed with which they’re piling on debt has been a VERY long-term trend.

And it’s one that is not possibly sustainable.

Just look at how quickly interest rates have jumped. Back in July, the yield on 10-year Treasury notes was 1.32%.

Today, just a few months later, it’s double that level at 2.63%. And that’s still incredibly cheap by historical standards. Rates could go much higher.

Higher interest rates increase the government’s borrowing costs. Higher borrowing costs mean more money is needed to pay interest.

Bear in mind that the US government’s budget has been deeply in the red for DECADES.

They have to borrow money just to pay interest on the money they’ve already borrowed.

So as interest rates rise, they’ll have to borrow even MORE money to pay the additional interest.

And that additional borrowing will mean that they’ll have to pay even MORE interest, which means they’ll have to borrow even MORE money…

This cycle is pretty obvious. And given the rapid rise in interest rates, it may have already started.

Look- I’ve written about this before. It’s fine to hope for the best. And hope seems to be at a multi-year high in the Land of the Free right now.

US consumer confidence, at least according to the government, is at a nine year high.

Markets have soared, pushing investor confidence to all-time highs.

Confidence is great. Success is even better.

But it’s dangerous to let emotion take hold, willfully ignore these trends, and blindly hope that this desperate cycle of debt and incompetence will somehow have a consequence-free, happy ending.

Whether that reckoning occurs today, tomorrow, or five years from now is totally irrelevant. Maybe it never happens.

But it’s hard to imagine you’ll be worse off for taking perfectly rational steps to distance yourself from the consequences of such an obvious trend.

Former intelligence officer on the bogus Russian hack

Tue, 12/13/2016 - 12:06

If there’s one thing that’s certain in the intelligence business, it’s that there’s rarely any certainty.

That’s pretty much the first thing they teach you at spy school.

Back in the early days of my intelligence career, I had one instructor who explained it in a way that I’ll never forget.

“If you present your analysis as if it’s fact, instead of conjecture, the person who’s relying on your intelligence could end up making a bad decision that gets people killed.”

Intelligence is not about definitive conclusions. It’s about gathering data and coming up with plausible theories that connect the dots.

Sadly, sometimes those theories are influenced by personal or political agendas.

Back in 2002-2003, the Bush White House had a pretty clear predisposition that Iraq possessed Weapons of Mass Destruction (WMDs).

Miraculously, the intelligence reports conformed to that narrative.

And America went to war based on an “unassailable conclusion” from the intelligence community that Iraq had WMDs.

The facts were largely bogus, circumstantial at best. But this became the rallying cry behind every politician and media outlet’s patriotic bloodlust.

How quickly they all forget.

Here we are today with a new assertion: those dastardly Russians hacked Hillary Clinton and the Democratic National Committee (DNC).

I read it in the New York Times, so it must be true.

Once again there is a chorus of condemnation from the intelligence community and political establishment based on supposed rock-solid conclusions.

Yet once again the assertions are nothing more than theories that connect some very circumstantial dots.

Here’s the actual evidence:

The hacks were executed using two types of malware known as Cozy Bear and Fancy Bear.

(Yes that’s what they’re actually called.)

Fancy Bear is malware that takes a conventional “phishing” approach.

A phishing attack is when a hacker creates a web page that’s almost an exact copy of one that you’re used to.

For example, they’ll create a website that looks like your bank’s login page.

So if you click on a malicious link in your email that takes you to the fake page, you’ll inadvertently supply a hacker with your bank username and password.

They’ll then use that information to compromise your bank account.

Fancy Bear allowed hackers to gain access to private emails… primarily because the users at the DNC got duped into providing their login credentials.

Cozy Bear is the second piece of malware that installs itself on a computer, typically after a user clicks on a malicious web link.

One installed, the Cozy Bear malware deploys Remote Access Tools (known as RATs), providing a remote hacker access to the machine and its files.

If, however, Cozy Bear finds that the machine has advanced security software that could detect the malware and cause problems for the RATs, Cozy Bear will self-terminate.

So the first thing to point out here is that the DNC (and potentially the people who were administering Hillary’s private email server) weren’t maintaining the latest security patches and updates on their systems.

Someone at the DNC clicked on a malicious web link that installed the malware, and it didn’t self-terminate because they weren’t bothering to use advanced security software.


This is a simple competence issue, and I’m surprised it never came up in the news.

More importantly, Cozy Bear was used against the DNC as far back as summer 2015… as in just before, or right after, Donald Trump entered the race.

So it’s hard for me to believe that Vladimir Putin was actively hacking the DNC to support a candidate that had barely (or not even yet) materialized.

Most importantly, just because cybersecurity experts detected Cozy Bear and Fancy Bear doesn’t mean that the Russians were behind the attacks.

These assertions aren’t based on concrete facts; they’re just speculating that Colonel Mustard did it in the library with the candlestick.

(Apologies to our readers who are too young to have played Clue.)

But facts (or lack of facts) don’t matter.

Whenever something bad happens, the US government blames Russia… and everyone believes it without taking any time to question the evidence.

It’s as if we’re living in some lame espionage movie from the 1980s where the Russians are always the bad guys.

Look, I have absolutely zero regard for the Russian government (as is the case with just about every country’s government).

But I find it almost hilariously short-sighted how quickly everyone rushes to judgment against the Russians. Or the Chinese. Or the North Koreans.

Sure, maybe the Russians did it. And I’m happy to believe that’s the case once clear evidence is presented.

But it’s worth acknowledging right now that their assertions are nowhere near conclusive.

It’s not like this is the first time in US history that the federal government or one of its intelligence agencies could be wrong… or… have a reason to lie.

It’s notable that last week President Obama ordered the entire intelligence community to investigate the Russian hacks.

Given the Obama administration’s numerous statements about the Russians’ complicity, and the nonstop media coverage about the “conclusive” evidence, it’s pretty clear that the outcome of the report is already pre-determined.

Just like the Iraq/WMD analysis back in 2002-2003, this investigation is biased by the boss’s predisposition that the Russians are guilty.

What I find most disturbing, though, is how they can’t let it go that the Russians influenced the election and manipulated voter sentiment.

I’m sure we can all appreciate that the hacks, no matter who perpetrated them, constitute criminal activity.

But the information that was released as a result of the hacks shined a painful and embarrassing spotlight on the inner workings of the corrupt political establishment.

So when the papers and politicians complain that the hacks influenced the election (as if the US government has never tried to influence a foreign election), they’re really just whining that voters found out the truth.

They have that little respect for your dignity.


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