Category Archives: protection

20 Years Since US Government Ran a Surplus

Posted on by

“The principle of spending money to be paid by posterity, under the name of funding, is but swindling futurity on a large scale” -Thomas Jefferson

“Government debt is a system, not only ruinous while it lasts, but one that must soon fail and leave us destitute” – Abraham Lincoln

If you’ve graduated from university in the past 20 years most likely you’ve been taught that deficit spending is good for an economy, you’re also most likely aware that for the past 20 years that we’ve had consistent government deficit spending. The last time the government ran a surplus was between 1998 to 2001. Going back further the last surplus before 1998 was in 1969 when Nixon took office. The period between including the 70’s and 80’s the US experienced high inflation but on paper PPP per capita GDP also went up. If you look at the chart below the Federal Debt was still less than 60% of GDP throughout the 70’s and 80’s but as of the latest data reported at the end of 2020 we are currently at 127% Debt/GDP.

Federal Debt as % of GDP

The last time the US has ever had this much Federal Debt was back in 1945, when the US had not only spend a lot of money on Roosevelt’s New Deal to get out of the Depression but also we had spent an enormous amount of money on bringing an end to WWII.

US Public Debt Historical

 

The US has disastrously mismanaged the COVD-19 crises and unfortunately had to pay a lot of money because of it. How many rounds of stimulus will be enough, or will this become the new normal? A major beneficiary of this stimulus has been the stock market and real estate has been buoyed by historically low interest rates. However I think our consumption economy may have rough seas ahead unless it can tackle a few issues:

  1. Tax Evasion by Mega-Corporations – Without getting too much into specifics large corporations have ways to avoid taxes, a luxury not available to smaller businesses. This is a double edged thorn because not only does it stifle competition but also it further contributes to a growing national debt. Add lobbyists to the equation and the little guy has his work cut out for him. Ironically for us the investor class it means we should “go with the flow” and make sure we are at least riding the wave of blue chips and the Silicon six to retirement.
  2. Boosting manufacturing – the US needs to produce goods especially high tech manufacturing so it does not become eclipsed by other countries. It needs to make sure it can make medicines and vaccines domestically as well as cutting edge semiconductors, batteries, and circuit printing. Even though Intel is I would say one generation behind other companies I think the US needs to focus on getting it and other manufacturers caught up with, for example, Taiwan and South Korea.
  3. Repair infrastructure that was built in the 60’s. A lot of the US, especially the power grid and train systems, are woefully out of date. Rather than just giving money away, expanding the idea of UBI, the US should emphasize infrastructure from roads, electricity, trains, hydroelectric, and nuclear energy. Solar panel construction should only be done after evaluating the carbon cost of production and disposal, as well as impact on local environments.
  4. The Suburbs. The Suburbs as a concept were well-intentioned, but common sense and other towns across the world show that it really makes more sense for people to live closer if not walking distance from where they work. Strictly regulated commercial vs residential zoning should be re-evaluated so that people don’t need to travel by car or by train for that matter for everyday life. I think this will become essential as populations grow and in the US as the dollar starts to lose its status as the reserve currency.

So in conclusion, the US has some time left to fix a few things before the Federal Debt becomes an issue too hard to handle. It needs to use the time it has leverage as the world’s reserve currency to put the value of the currency to good use to put us on solid ground going into the future. Other countries have been keeping our standard of living up by creating cheap goods and accepting US dollars for them even though they know we can create dollars out of thin air. The Federal Reserve should keep it’s interest rates low while this transition takes place so the Government Debt doesn’t spiral up to 200% of GDP. Banks should be vigilant as they dole out mortgages with low interest rates to avoid another massive real estate bubble.

Is this going to happen? Probably not. Another large scale event like Covid, such as a new war would really cause issues with our government debt and most likely also crash the stock market. Stagflation may be the new buzzword and everyone will be wishing they were holding gold or bitcoin instead of stocks.

Buying Lasting Presents Which Appreciate in Value

Posted on by

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

Palladium Overtakes Gold and Platinum

Posted on by

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

Mining Stocks for 2018

Posted on by

The Bingham Canyon Mine in Utah, USA

The following is a list of a few mining stocks to consider coming into 2018. Some investors are eyeing mining stocks as an unappreciated sector in the past few years, and are looking to diversify their portfolio from overpriced stocks to some bargains. I have reallocated some gains from 2017 into the first option below in anticipation for a gold price increase to follow the recent commodity price increases.  Please comment below if you have any other suggestions.

  1. Barrick Gold (Nasdaq: ABX)  – the largest gold mining company in the world.  With a PE Ratio (TTM) of only 7.00 trading at $14.00 this is a steal. The dividend is weak though, so the hope would be that the gold price rises or they can cut expenses and improve efficiency. This would probably be one of your best bets on gold prices. With the US dollar starting to decline against other currencies and commodity prices starting to rise this stock is essentially a bet on gold. The expected output of gold in 2017 is 5.3 million ounces and the expected output of copper is 420 million pounds. The size of the company means it is more likely to be able to weather an extended gold price trough. Another positive is that this company has not issued more shares for the past few years, meaning they are less likely to dilute the price. The drawback to this company is that is heavily dependant on gold and copper mining, so more or less betting on these two commodities. Today’s price is $14.00.
  2. GoldCorp (Nasdaq: GG) – another Canadian company, GoldCorp is essentially a smaller version of Barrick with a higher pricetag. GoldCorp estimates to mine 2.5 million ounces of gold in 2017 but claims to have plans to grow by 20% by 2021. If you want to invest in gold miners and want to spread across multiple companies, you can consider buying some of this stock. Today’s price is $13.22.
  3. BHP Billiton Limited (Nasdaq: BHP) – The world’s largest mining company. We aren’t talking gold – we are talking coal, iron, copper, potash, and petroleum. This company currently has a “average” P/E (TTM) ratio of 19, but boasts and excellent dividend of 1.72 or 4.1%. Today’s price is $42.30. Investing in this company is sort of like investing in the global economy, as the raw materials are used around the world. This company was hit by the economic slowdown of 2008, falling to $36, but then peaked in 2013 at over $94 per share. From 2011 to the end of 2015 the shares slowly slipped down to $22 per share but have since risen to their current price of $42.29.

 

 

Trump Stocks VS Hillary Stocks

Posted on by

At this point it’s safe to say that unless something extraordinary happens either we will get a Donald Trump or Hillary Clinton presidency. While I could spend volumes discussing the economic implications of either win, at this point its more important to figure out what companies will benefit or lose from each presidency so you can take a gamble or get out before its too late.

Coal/Oil

Its safe to say that fossil fuel companies would continue to get hammered under a Clinton presidency. If Clinton is anything like Obama, we should see a few more coal stocks go bankrupt like Peabody Energy (Formerly PBU) and Arch Coal (Formerly ACI). Surviving coal companies include Cloud Peak Energy (NYSE:CLD), Westmoreland Coal Company (NASDAQ:WLB), and Alliance Resource Partners, L.P. (NASDAQ:ARLP). Oil companies face regulatory difficulties under a Clinton presidency, but most should be able to survive as oil maintains current price levels. The coal industry in my opinion is a bad investment at this time due to the very cheap price of steel and the lower demand from China and the United States.

Defense

One area that will most likely benefit from a Trump presidency is the defense manufacturing companies. Companies which would produce items for the military and navy include General Dynamics (NYSE:GD), BAE Systems PLC (LON: BA), and and array of other companies. You can also invest in Mutual Funds iShares Dow Jones US Aerospace & Def (ITA) or Fidelity® Select Defense & Aerospace Portfolio (FSDAX). Over the past year ITA has returned 18% and FSDAX has yielded 14%.

Healthcare

While I’m tempted to say the healthcare industry would continue well under a Democratic president, I can’t say for sure given the very cutthroat price increases which have made them a popular industry to attack from both Democrats and Republicans. If the Democrats end up further building up Obamacare it’s quite likely the pharmaceutical industry will be volatile. The TPP agreement pushed by Obama and Clinton will make people in 3rd world countries have to pay more for medicine, which may end up furthering profits in this sector. Time will tell. I’m not going to put any recommendations here.

Gold / Silver

If you’re a gold or silver investor, then the past year has been very kind to you. Especially if you’re into gold and silver mining stocks. Helca Mining company (NYSE:HL) surged 215% YTD and almost 200% in the past year, from under $2 to $6. Barrick Gold Corporation (NYSE:ABX), Goldcorp Inc. (NYSE:GG), and Silver Wheaton Corp. (NYSE:SLW) are all big players in this market. This is one of my favorite industries to make huge profits from moderate changes in base precious metal prices. It’s hard for me to say which candidate will cause these to go up further, it’s more dependant on the Federal Reserve interest rate policy and inflation. However based on the campaign talk It seems like a Clinton presidency would be better for precious metals. It’s always a good idea to have these as part of your portfolio to some degree.

Real Estate

Donald Trump made most of his money off of real estate – it’s always good to include this in your mix of assets. As the world population expands real estate will most likely continue to climb regardless of who makes president. A recession could certainly hit prices, but only temporarily.

Conclusion

I’d get out of coal, first of all. I’d put money into defense stocks as they should outperform the market under either presidency. I’d allocate some money into precious metal if only for an insurance policy on the dollar. I’d get some cash out of this frothy market and wait for the market to tumble before the election before strategically investing in under-priced high return on equity stocks.

How Does Greece Affect the US Economy?

Posted on by

Greece in and of itself does not directly do much business with the United States. Greece does not have manufacturers that compete with the US, such as S. Korea, China, and Germany have. Greece does, however, greatly impact the European Union not only because of the size of its economy but more importantly due to the thought of a collapsing EU. The EU (European Union) was created in 1993 and has 28 member states. If Greece exits, it will raise the spectre of other economically weak countries like Italy and Spain leaving – this will shatter the Euro and send investors running for the hills. It will make the US dollar much stronger which will hurt US exports, which in turn will affect US international companies negatively. It will also hurt US tourism as it will be much more expensive for Europeans to visit the United States.

The thought of a collapsing economy and certainly the fact that Greece has stopped people from withdrawing their money from their own bank accounts may have a ripple effect across other countries in Europe and possibly the world. The 2% drop in the Dow Jones on Monday and the 2.5% drop in the Nasdaq does not bode well for an actual Grexit (The new term used to describe Greece’s exit from the Eurozone). Stock markets that are already priced too high in terms of price earnings ratio will feel more pressure to correct themselves. A falling stock market means less market capitalization in companies which is used to fund their operations, which may in turn lead to job losses. The stock crash of 1929 led the way for the Great Depression in the United States, which is an extreme example of what happens when a stock market crashes.

If a stock market crashes then confidence is lost, and the likelihood of new jobs is dampened.

 

Reading the above you might think it’s time to head for the hills, but I think that a more important and less pronounced threat is the United States debt and trade deficit which will not be helped by a European crisis. Ways to protect yourself include but are not limited to:

  • Shifting out of stocks and into cash, whose value will most likely increase relative to the rest of the world unless the Federal Reserve doesn’t increase interest rates and comes out with another stimulus package
  • Making sure that your portfolio does not include European investments

Of course, these protective measures may limit your upside potential, but will most definitely defend you against a downside. If you’re courageous enough, you can always short individual stocks. Please read my disclaimer below and have a nice day.

Investing in Silver

Posted on by

Silver is a pretty common metal in the world – it has many industrial uses due to its highly conductive and reflective properties. In fact, silver is the most thermally conductive element!

Silver also has a lustrous quality, until of course it oxidizes – this phenomenon is called tarnishing.

Silver has been used in coinage since at least 700 BC, when the Lydians used a naturally occurring silver-gold alloy to mint these coins. Concurrently, the Chinese also used silver in their coinage.

Today, silver can be invested in directly through the purchase of silver coins or bars which can be classified into bullion, collectibles, and antiques. Bullion is silver stored in a very simple form like a plain bar with a simple seal of the minting company on top. Collectible silver coins can include nationally minted coinage such as the US American Eagle, the Canadian Maple Leaf, or the Chinese Panda. These nationally minted coins are more valuable than bullion because they are easier to recognize and differentiate between genuine and fake products. That being said, the only true way to test silver is to perform an acid test, as today there are very skilled copycats which use lead and other inferior materials to create realistic looking fakes.

If you are going to invest in silver, make sure you are buying from reputable sources – I would not encourage buying from an online store that does not sell large quantities. I would also stay away from vendors on the street anywhere in the world – ensure that your seller has a brick and mortar business if you are going to buy face to face. Also, make sure not to buy silver that is overpriced – Bullion should not be selling for more than 5 percent more than the “strike price”. Strike price means the current world market price. In some countries, however, it’s hard to get around paying a large premium if the government imposes high import taxes on such goods. India, for example, has a huge import tax on gold and silver.

Silver bullion is usually sold in 1, 5, and 10 ounce pieces. This makes future transactions much easier.

If you are interested in buying collectibles, then you are effectively buying an insured piece of history. This is similar to buying collectible coins but for the vast majority of historical coins the silver/gold ones carry a much higher premium. For example, a simple old Roman coin might cost you $50-$100. A silver Roman coin will run you more like $250-$1000. I can’t claim to be an expert on the value of historical coins, but these types of investments can be a lot more risky than investing in simple bullion.

Historically, silver is not a good investment as compared to stocks or bonds. Silver will not pay you interest, it does not work to create earnings, and requires the cost of storage. However, under certain circumstances most recently the stock market crash of 2009 investing in silver or gold until the stocks dipped by 50 percent was a damn good deal.

Financial Planning 101

Posted on by

Financial planning is often necessary for people to realize their life’s goals without having to worry about being short of cash. Financial planning may be necessary to save a sinking ship of personal finances, and financial planning can be done by anyone with the willpower, organization, and intelligence to draw up and execute such a plan.

Smart financial planning doesn’t only consider how to have the most money by the time you die, but actually have the best quality life with the amount of money on hand while saving enough to avoid external risks.

The first step in a solid financial plan is making sure personal income less fixed and variable expenses is positive. If this doesn’t happen none of the other steps really make sense – if you don’t have any savings you really shouldn’t be investing in risky stocks – for example.

Tools to accomplish this include making a budget, getting a good education in order to get a good paying job, and cutting spending. A good financial planner will accommodate to the needs of his/her clients and make changes to a plan as necessary. Sometimes budgeting is unnecessary for certain individuals who have a track record of modest spending vs. their income, at these times budgeting can really be a waste of time. Other-times, however, budgeting can point out significant spending patterns that the client might not realize are eating into his savings. Having a Starbucks every day, for example, will eat into your savings. Eating out expensively every day can eat into your savings.

After making sure your budget aligns with a healthy financial future, it is the job of a financial planner to make sure that their clients are protected against the unforeseen. Do you have health insurance, do you have disability insurance, do you have a rainy day fund bank account that you do not touch unless there is an emergency? A rainy day fund typically should be six months of expenses – unless the client has a working spouse in which case that duration may be cut in half.

A rainy day fund is something that can be used if you are unexpectedly terminated from your job – the amount of such a fund is based on your fixed expenses. If you make 5,000 MYR per month and spend 3,000 then your rainy day fund will be a bit less than 18,000 MYR. I say a bit less because costs associated with getting to work can be subtracted. In the US less than 1/4 of medium income earners have at least 3 months saved based on information from bankrate.com.

Once a rainy day fund is established the fun part starts – getting saved up for kids’ educations and retirement. Choosing investment portfolio allocations along with real estate advice, along with tax advantaged strategies. In the US financial planners sometimes recommend putting money into tax advantaged 529 plans, which are based on a stock market portfolio that when cashed out for college doesn’t need to pay capital gains tax. Malaysia has something called SSPN managed by The National Higher Education Fund Corporation.

According to the SSPN website : “The National Education Savings Scheme (SSPN) is designed especially by the National Higher Education Fund Corporation to enable parents/guardians to save for the purpose of the higher education of their children.” I wont be getting into the details of this Malaysia specific scheme but if paying for your child’s education is something you’re interested into it is advertised to pay higher interest than regular bank accounts.

At the end of the road for financial planners it is time to consider how a client wishes to pass on their assets or estate to heirs or anyone/anything of their choosing. This usually involves writing a will and managing gift taxes that are in play in the client’s respective country. Luckily for Malaysians there is no death tax, for people in the US sometimes if they wish to benefit their relatives or “heirs” they will create education 529 plans for grandchildren and fund them all to the max, along with giving away money before their death up to a certain threshold. In the US as of last year the exclusion amount is 5.34 million USD.

So really the job is pretty straightforward from an outside perspective. Keep people from becoming broke throughout life – make money a non-issue so clients can enjoy life.

How To Get Out

Posted on by

The bull market that has basically defined the past six years seems to have stalled. After recording no gains for December or January it remains to be seen whether or not the market is experiencing a temporary lull or has reached a summit. With the Federal Reserve expected to raise interest rates in June, one can only expect that the market will push down further in the medium-term.

What should you do if you’re currently holding stocks but want to get out? First of all, don’t panic – you should assess your situation and deal with it accordingly. This article is catered for strategies of liquidating stock holdings so if that is not your plan then please read one of my other articles!

Scenario 1: Holding lots of short term stocks

Answer 1: If you’re holding a lot of short term stocks and want to get out, you should first determine if you have any capital gains on those stocks. If you are selling at a loss, then go ahead and sell these stocks now and make sure to record your losses in order to benefit from capital loss carry-overs in the future. If you’ve made a lot of money off of these stocks and are in a high tax bracket you can sell with the knowledge that you will be paying high tax on these gains or buy put options for these stocks that expire when you can sell these stocks as long term gains.This really only works when that date is in the near future, since put options’ price is largely influenced by a factor of time. If you have to wait six more months before selling it usually does not make sense to buy put options since the cost of those options may trade at around 20% of the stock’s price. In the case of Apple, which has gone up 20% in the past six months – it’s $115 put options trade at around $11 dollars per share, which upon purchase would cut a 20% profit into only a 10% profit, which would only benefit those who are paying more than 50% short term capital gains tax (I’d hate to live in an area where my combined federal/state/local tax is that high!).

Scenario 2: Holding lots of long term stocks

Answer 2: Sell them! You’re going to have the pay the long term capital gains someday anyway and might as well sell when you think they’re most profitable!

Scenario 3: Have no brokerage accounts, but instead have lots of money in a 401k primarily invested in stocks

Answer 3: You should be able to reallocate your money into bonds or fixed income assets. Bonds have higher returns but more risk than fixed income. Unfortunately most 401ks do not allow individual choosing of bonds, instead offer a choice of bond funds. Bond funds will fare differently dependant on the length these bonds are held for. Long term bonds will fare poorly if the Federal Reserve increases the prime interest rates since the bonds themselves are locked into a lower interest rate.

 

Cybersecurity And You

Posted on by

Cybersecurity means protection for data. It means protecting machines involved in storing data and methods of communication to keep data from being intercepted and decrypted. With the recent revelation of a massive hack of Sony Entertainment and the resulting cancellation of a multi-million dollar movie release it is more important than ever that you as an individual also keep your data secure as to avoid any theft of information or funds from your accounts. While many banks and credit card companies provide fraud protection, and will reimburse losses, some will not do so if it is determined that gross negligence has occurred. Gross negligence is extreme carelessness – read below to keep yourself from getting yourself in trouble.

1. Protect your passwords – make sure to never share your password with anyone who might be careless with it. It’s better not to write down your password. Also, try to keep your password 10 digits or more if allowed, including upper-case, lower-case, numbers, and special characters. Ensure your password is not in a dictionary! Avoid using credit cards overseas in shady areas, as some ATMs or card readers may have been hijacked and installed with secondary card readers which will read your number and security code. Do not use the same password for multiple things, for example if your registering for some reward card the website may not encrypt your password so if there is internal fraud or a data breach for that company hackers will surely try to use those credentials in more important areas such as banking.

2. Do not access unprotected wireless access points – whenever you connect to the internet through wifi make sure you know that you are connecting to a genuine hotspot. Hackers can easily set up hotspots where all data is routed through their “packet sniffing” software and they will have access to all unencrypted communications and with the right tools may be able to hack some of your encrypted data.

3. Never let someone else use your machine – if you log into a laptop and let someone else use it, they may be able to install keylogging software in less than a minute which can report keys typed to themselves without you ever seeing this program. Even if you are logging into a secure site the hackers will be able to know which website you are on along with which keys you pressed – from there it’s easy to get your password.

4. Use two factor authentication – two factor authentication usually means a password and some phrase that is generated over time semi-randomly based on a time based key. The code might be accessible through a device you keep on your keychain or sometimes emailed to you. This means just knowing the password will not allow a hacker to get into your information.

5. Set up country specific blocks – if you know you’ll never log into your computer or access your data from Nigeria or Brazil (For example), some websites allow for country specific blocking. This will not keep sophisticated hackers from using proxy servers to try to hack into your account, but should keep a few unwanteds out. You can also call your credit card company and should be able to disable all transactions from outside your home country.

With these five steps in your pocket I’m sure you will feel a bit more secure while letting your nest-egg grow.