US Debt 25 Trillion and Counting. How to Protect Yourself.

The United States is 25 trillion dollars in debt. It collects around 3.2 trillion dollars in tax revenue every year and spends 6.2 trillion dollars every year. The spending continues to go up and all the while the US is paying interest on its debt. Instead of hoarding dollars you should consider some of these other stores of value.

The US dollar is one of the strongest currencies out there, backed by the strongest military and economy the world has ever seen. That being said it is not in the interest of the United States government to have the US dollar increase in value, especially because it owes so much in the form of Treasury bonds and notes. Thankfully most debt is internal – meaning the debt is held by US entities and the Federal Reserve, however there is a lot of debt owned by foreign countries as well. This makes inflation FAVORABLE for multiple reasons – the amount owed to others decreases in real value and economic growth occurs when people use their money to make a higher return than inflation and the interest rates.

If the Federal Reserve were to increase interest rates it would strengthen the US dollar, going against the interests I mentioned above.

This is fine, you just need to know where to put your money so you aren’t affected as much by it.

Watch and subscribe.

Adam Interviews Damien

 

Watch the interview between Adam and Damien, and how a index fund investor is starting to doubt what he believed strongly all these years. We go over when we started investing, what tools we use, and how we determine what to put our hard earned money into.

The takeaways are as follows:

  1. Damien invests into an index fund and about 10% into bonds.
  2. Adam believes index funds include winners and losers, and attempts to pick the winners directly. He also points to unethical companies being in the mix when you buy the whole market.
  3. Damien manages a budget sofware YNAB and Adam just uses his credit card to track spending. Both agree restaurants and eating out are a cash drain.
  4. Adam contends that if you have a 401k you’re already forced into buying stocks you can’t pick so why do that in your managed portfolio?
  5. Adam talks about bitcoin and gold being good alternatives to cash rather than just stocks.
  6. Damien insults Adam’s hair
  7. Adam insults Damien’s yearly return on investment (ROI)

Two People Debating

Oil Ultra ETF UCO Goes Through Reverse Stock Split

This morning investors woke up to see their shares of UCO go from $1.35/share to $23/share. What happened was a reverse stock split, at a ratio of 25 shares into 1 share. By the end of the day on April 21, 2020 UCO then proceeded to go down to $14.57/share. That equates to about a 57% loss if you’re holding UCO stocks outright, and slim chance of profit if you have call options.

UCO is an ETF which is supposed to change twice as much as the price of oil. Oil, as you may know, has experienced a historic epic drop in prices as the plague has hit the world and people are confined to their homes. On top of this, Russia and OPEC have not cut production and have both left their “ceasefire” of production cuts – so production has actually risen!

Oil futures have actually gone into negative territory, time will tell how long this lasts. My guess is that negative prices will be unsustainable and eventually companies will just stop production and leave it all to the low cost producers (see table below).

Crude Oil Cost of Production by Country

The alternative is if some of these higher cost of production countries increase subsidies for domestic production or cut off imports. UCO is based on WTI prices, which stands for West Texas Intermediate. WTI futures are traded in New York, and traditionally the delivery hub for this oil has been Cushing, Oklahoma.

If protectionist actions are taken and US prices increase I expect UCO to follow suit. Given the high dependence of oil jobs in some of the countries listed I have very little doubt other countries will also take measures to protect their local industries and jobs.

Having lived through $100/bbl days and talk of Peak Oil being thrown around, I would have never had thought we’d come to a point like this. It will be a tale for the grandchildren to tell about the days when gas prices were below a dollar again.

If you’re interested in investing in oil futures take a look at our video on oil ultras. WARNING – these investments carry a lot of risk, moreso than company stocks. This is to show you what exists and not recommend any action, you should use your brain and think hard about the potential downside and how high the expense ratio is on these instruments.

 

GILD up 15% in after-hours trading

Gilead Sciences’s drug remdesivir produced rapid recoveries in 125 COVID-19 patients, according to University of Chicago Medicine.

I recommended GILD on my March 22 video below, along with WMT, KR, PG, INO, and MRNA. Since the video was released, PG has gone up 18.82%, WMT has gone up 16.09%, INO has gone up 9.75%, and MRNA has gone up 44.28%.

Based on after hours trading, GILD has gone up around 19%, if the news holds true expect that to climb dramatically.

KR was the only disappointing pick with a measly 0.47% return. Click on the video below and subscribe to my channel for updated stock picks.

A look at my video recommendations from March 23

Switching To YouTube for Awhile

While it’s been a blast writing these articles, the analytics shows that videos just get more views and are a more viable way to communicate to the audience of the internet. I’ll keep this blog open, but if you’re looking for new updates please check out my YouTube channel.

 

One Percentage Point Cut in Benchmark Rate, Now at 0% – 0.25%

What Happened?

Today the Federal Reserve announced it will cut the benchmark rate to between 0% and 0.25%. On top of this, the Federal Reserve has said it will proceed with $700 billion in asset purchases (quantitative easing)

This is an important milestone in that the only additional tools the Federal Reserve now has to curb further depression in the stock market and slowing of the economy due to Coronavirus is to either:

  1. Push the benchmark rate into negative territory
  2. Introduce additional quantitative easing

Focusing in on this change only, and not the other stimulus the Federal government is pursuing, indicates that there is a large amount of fear about the economy.

What should you do now based on these changes?

Refinance

If you have an existing home loan chances are very high at this point you will be able to refinance your loan for a lower interest rate (more than 1% of your current rate) which would make it financially worth the closing costs.

Figure out to do with your cash

0% benchmark rates and increased government spending through stimulus measures means your cash is at risk of devaluation.

Commodities

Consider investing in alternative forms of wealth including gold, silver, platinum, palladium, rhodium, and consider diversifying with some cryptocurrencies such as bitcoin or etherium. Last time quantitative easing was introduced and implemented gold prices more than doubled from $800/oz in 2009 to over $1800/oz in 2011. Today gold stands at $1544/oz. Gold isn’t so much a way to make huge returns rather a way to store value, but a tool nonetheless. Silver went from $10/oz to over $45/oz in 2011. Same concept applies except silver is more volatile, less expensive, and more abundant. Also silver oxidizes, unlike gold.

Equities

Consider investing in companies that can weather a Coronavirus instigated economic adjustment that are on discount after our stock market rout of the past few weeks. Don’t dump all your cash into the market immediately, but start moving money over time and pick up some bargains. Anyone who used this strategy in 2009 would be looking good today. Be careful of companies in high risk industries in the current environment. Casinos, resorts, cruise, and travel companies come to mind as high risk investments. Secondary companies that could share some of that risk include airplane manufacturers, and restaurant franchises that aren’t tuned for home delivery, and theater companies.

The no-brainer at this point is the refinance. Others are optional, and carry risk.

Ally Bank Loses Its Luster as Robinhood Introduces Cash Management


Robinhood vs Ally Savings Over time

Robinhood’s New Cash Management Feature

Robinhood has introduced a new feature Cash Management which allows Robinhood users to save their extra cash in a high-yield account. Current rates for Ally Bank is only 1.6% (see below). Considering the main draw for Ally Savings bank was the interest rate (Ally has no physical walk-in bank), I can see a huge challenge approaching if Robinhood indeed keeps it’s interest rate at 0.2% higher than Ally Savings.

Adding insult to injury, Robinhood does not impose the transaction restrictions on its new account.

The only redeeming factor for Ally at this point is that Robinhood is releasing this slowly on a waiting list as it has done with features in the past.

Side by Side Comparison

Interest rate (most important)

  1. Robinhood Cash Management: 1.8% APY
  2. Ally Savings: 1.6% APY

Initial Deposit

  1. Both have $0.01 minimum requirement

FDIC Insured

  1. Both are FDIC Insured

Transactions

  1. Robinhood Cash Management comes with a debit card and no transaction restrictions (huge)
  2. Ally limits transactions to 6 per statement cycle

Ally savings rate as of 12/31/2019

Robinhood cash management rate as of 12/31/2019

 

 

 

 

 

 

 

 

 


How to Get Robinhood?

You can use this link to join Robinhood. By using my referral code (included in the link) you will receive a free share as a signup bonus. Alternatively you can forgo the free share and go to Robinhood.com and figure it out from there. Good luck and best returns!

Buying Lasting Presents Which Appreciate in Value

Buying Gifts that Retain or Increase in Value

If you’ve ever watched the 1964 rendition of Rudolf the Red Nosed Reindeer you’ll know who Yukon Cornelius is. He’s the most famous prospector in the north, searching for silver and gold. That being said, he never finds any.

Don’t be like Yukon, buy your relatives gifts that appreciate in value! Silver coins are a nice gift because they are affordable and have a decent upside potential – and look nice!

Legos hold their value well if you don’t open the box! Video games depreciate fairly quickly, and clothes are basically worthless after they are used. Gift cards are worse than cash in that they usually have an expiration and can get lost or forgotten about. Stocks are not easy to buy for kids these days because you have to open accounts and deal with a lot of overhead in getting started. Bonds are boring.

So next time your considering buying present buy a fancy silver coin! There are a variety of designs to choose from, including Star Wars designs, battleships, pirates, and dinosaurs for the young ones.

Coins can be cool!

Recommended Websites

1.  Modern Coin Mart

https://www.moderncoinmart.com/

I like Modern Coin Mart because they have a wide variety of coins to choose from. These range from historical to modern (like the dinosaur coin), and hail from a variety of countries. You can buy directly from their website (link above) or go through eBay and buy from their eBay store. If you buy from the eBay store they are usually quick to give positive ratings to buyers – if you don’t care about ratings it may make more sense to buy directly from their website.

2. APMEX

https://www.apmex.com/

APMEX is another great website for starting your coin or bullion collecting journey. I like how their bullion includes hand poured bars (like below).

hand poured 2oz silver bar

The January Stock Market Bump

The IRS lets investors offset capital gains with capital losses. These are separated into two groups, long-term and short-term. At the end of the year (December) investors often dump stocks they lost money on in order to offset their capital gains of the same group. These investors have to wait a month before re-purchasing shares otherwise those losses will be disallowed (called a Wash sale). For this reason later in the money of January a historical trend of putting the money back to use occurs, often buying back the losing stocks because there was some anticipation of future gains.

 

Palladium Overtakes Gold and Platinum

What is Palladium?

The least well known precious metal is now the most valuable. Everyone knows about gold, silver, and platinum – it’s about time everyone educated themselves on palladium!

  • As of December 13, 2019 Palladium trades at $1,954.06 per ounce, compared to gold at $1,478.12 and platinum at $931.15.
  • 10 years ago Palladium traded at $363 per ounce, gold was $1118 and platinum was $1435.

Palladium is precious metal used primarily in the creation of catalytic converters – which convert harmful gas emissions into CO2 and water vapor. Without catalytic converters the noxious fumes would be released directly by motor vehicles, greatly increasing pollution and cancer rates among urban dwellings.

Where does it come from?

Mined primarily in Russia and South Africa.

A major source of palladium for new items comes from recycling of old catalytic converters (seen below). Palladium is often mined along side nickel and platinum, and unfortunately thieves have resorted to stealing these off of cars for the valuable scrap value of the metal.

Most common use of palladium is in catalytic converters

Jewelry and coinage use palladium

 

Why is it getting expensive?

Supply and demand is pushing prices up. Palladium mines are located in Russia and South Africa, and are not increasing their output of the metal but demand continues to rise. This has made recycling of the converters a necessity, and the increased price should eventually make more mining economically feasible – yet this has not yet happened.

Plop onto this combination speculation and investors buying up the metal and you have a perfect formula for a great price boost.

How do I get in?

The Fastest way is to buy a palladium ETF in your stock portfolio. The major ETF is:

PALL (Aberdeen Standard Physical Palladium Shares ETF). Below is a one year chart:

PALL 1 year performance

Slower way to invest is buy palladium coins or bullion.

Palladium 1 oz bar