What’s Next for the US Dollar?

I think the biggest question in the economic room right now is the following: “Will the USD continue to function as the world’s reserve currency for the foreseeable future?”

My answer: “Probably not.”

Why is this? It’s because recently that status has been over-abused. It’s abused every time we get further in debt, it’s abused every time we give it away through multi-billion dollar handouts overseas, and it’s abused every time the government pins the inflation problem on domestic spending instead of wasteful spending and increasing the money supply.

You see, there would be no inflation problem if more money is not printed – in fact there would be substation deflation. I argue there would even be negligible inflation if domestic needs which slightly exceed incomes were the only spending that happened.

What pushes inflation over the edge happens when billions and trillions are printed and shipped to certain parties or interests. This huge amount of cash usually first lands itself in financial institutions and defense contractors and then trickles its way down to smaller local banks and businesses after inflation has already occurred.

If the Federal Reserve lowers interest rates, I think we’ll see ballooning asset prices and a true reckoning with the start of a hyper-inflationary period.

Ways I see to protect against this:

  1. Secure more assets
  2. Invest in commodities
  3. Invest in yourself and your skills

 

In other words, a well trained craftsman in any trade will continue to provide the same utility value as he or she did before – and will ultimately be able to charge the same amount in terms of utility value regardless of denomination.

A house is a house, and is worth a house.

A bar of copper is worth a bar of copper, always.

 

I think the next reserve currency HAS to be backed by something, and the USD has enjoyed decades in the from the 1700’s to the 1970’s being backed by GOLD. And from the 1980’s it has been backed by OIL. That has somewhat fallen apart as of late, as much effort is made to re-instate the petrodollar. See https://geopoliticaleconomy.com/2023/08/10/us-saudi-arabia-sell-oil-dollars-chinese-yuan/

All of this is conjecture, but I hope you’re prepared either way.

 

Austerity for the Government and You

Painful but necessary. I’m talking about the United States Federal spending. Instead of choosing constituent classes to give free money to that comes from the wider population, it’s time now to reduce spending across the board.

Start with Foreign Spending

Starting with non-constituents, meaning foreign entities – foreign countries, organizations, etc. The Federal Government, whose job it is to represent US citizens, needs to reduce foreign aid spending.

There’s a really good website that breaks down foreign assistance by country called “ForeignAssistance.Gov” – it’s located at https://foreignassistance.gov/cd

You’ll find that four countries almost or exceeding a billion USD in US aid each year, including:

  1. Afghanistan
  2. Israel
  3. Jordan
  4. Egypt
  5. Iraq
  6. Ethiopia
  7. Yemen
  8. Columbia
  9. Nigeria
  10. Lebanon

Less USD in circulation means less spending and less inflation. Countries will learn to be self sufficient, and less needy on external income coming in to keep them going. If we’re lucky other foreign competitors will prop up these countries and deplete their own cash reserve. Regarding the Ukraine spending, the US is on track to donate almost 100 billion dollars. So far total US aid to Ukraine has been more than 68 billion. [1]

Without getting into whether the spending is “right” or “wrong”, I think it’s objectively fair to say we’re treating Ukraine better than we did the UK back in WW2. Back in WW2 at least we had the UK send us gold and create loans for the material we were sending over. A much more prudent policy that keeps American interests in view.

Domestic Spending

Social Security, Healthcare, and many branches of the Federal government spend a lot of money on non-essential workforce. Also, much of that money is spent towards pension plans that the rest of the economy does not have the luxury to have – you can check out more details about government pension eligibility here at https://www.opm.gov/retirement-center/fers-information/eligibility/. Long story short, as the size of government grows so does the residual costs. Unlike the free market, government agencies do not have to prove they are effective, as free market businesses do. They don’t even have to effectively carry out their mission, because there are no other competing agencies to compare against. At the state level, at least different states can compare their effectiveness in carrying out services against other states.

While it’s hard to simply say we need to cut Social Security and Medicare spending, or Military spending, it is a question that needs to be brought up. It’s a political landmine but I think what needs to happen is each of these behemoths need to be objectively inspected completely to ensure that wastage is kept to a minimum. I see technology and analytics as a good means of really proving out the effectiveness of these agencies each and every one.

chart government spending

US Gov. Spending 2022

Personal Spending

The US Government is probably not the only entity that needs to cut on spending. Readers should also consider cutting the fat if they can help it while staying sane.

US personal spending is a double edged sword. Without a lot of domestic spending the economy will be damaged and there will be less money in circulation. However, increased domestic spending generally tends to result in higher prices because of more demand than supply. Higher inflation is the reason the Federal Reserve increased interest rates, and further interest rate increases will harm the stock market. While technically higher interest rates were long overdue, they come at a time when the economy and it’s companies are addicted to cheap loans. You will find that many of these companies that were overly dependent on this cheap money will start to go out of business.

What Should I Do?

For those reading this, I’d encourage you all to refrain from frivolous spending and continue to focus on spending money on assets rather than liabilities. Given the volatile nature of the stock market in relation to interest rates, I’d suggest holding a healthy chunk of cash in a high yield savings account. I’m currently getting 3.3% interest on my savings account holdings, and at least 2% cash back on credit card purchases. The Citi Double cash card gives me 2% back on everything and I use an Amex card to get 5% back on groceries. Spending less by choosing carefully where to shop adds up in the long run. Walk more and try to do activities that don’t require cash that are still fun.

My best guess estimate about when the stock market and real estate market start to gain ground again is when the Federal reserve stops raising interest rates and starts lowering them again – It may be late this year or may be up to three years from now.

Citations

[1] “Aid to Ukraine Explained in Six Charts.” Aid to Ukraine Explained in Six Charts | Center for Strategic and International Studies, 9 Jan. 2023, https://www.csis.org/analysis/aid-ukraine-explained-six-charts.

Subscription Based Products are in Trouble

Some Companies Are Losing Customers as the 2022 Recession Hits

Netflix, Hulu, Spotify, and others are all in trouble. People are cancelling and holding off on discretionary goods, and accumulating cash as the recession drags on. They’re doing this because inflation is up, and the stock market is down. It’s only a matter of time before lower stock prices translate into the reality of less jobs. You see, the stock market is an Oracle of what is to come. You have the brightest minds, AI, all making decisions off of all known information. What the stock market is telling us is that bad things are in store for our economy in the future. You could argue that interest rates are a denominator when it comes to calculating stock prices – this is a correct. However the stock declines have not been the same for all sectors.

Ben Graham original formula

Some Companies Will Keep Subscribers

Now I think companies that offer tangible financial benefits to their subscribers will keep them. Amazon will keep their Prime customers, since you can easily save the cost of a subscription through a few orders without paying shipping. Another example is Apple Music, by this point folks who listen to Apple music are likely engrained in the Apple ecosystem. It would be a large pain for these Apple Fans to leave the ecosystem or start to pay for music on an ad-hoc basis. Apple pretty much has them tied for life. Costco is another good example of a company that saves members on bulk purchases, and offers high quality store brand products – in fact I wouldn’t be surprised if MORE people get subscriptions as recession hits home.

What Stocks I Prefer

If I had to make a chose between rivals, one at a time, here is my list of my winners and losers:

  1. Netflix vs Amazon – Amazon!
  2. Disney Plus vs Amazon – Amazon!
  3. Spotify vs Apple – Apple!
  4. Fitbit vs Apple – Apple!

Biden Stocks

Which stocks will benefit from a Biden presidency?

stocks up under biden

Tonight’s first Presidential debate may have a lot of people thinking about their stock portfolio. Should I sell everything? Should I buy everything? Or is there a way I can position myself to be in better shape if the incumbent loses the White House. Like you, I have no idea who is going to win but have some ideas on what stocks will benefit from a Biden presidency based on the policy changes that would occur. Let’s take a look at some losers and then winners of a Biden presidency.

Losers

Let’s start with the stocks that will be at higher risk with a Biden presidency. Trump has always advocated de-regulation and privatization of public lands for profit. This largely benefits energy companies operating in the US in the fossil fuel industry. Extracting oil and natural gas would become less profitable under a Biden presidency, so you could consider investing AGAINST Exxon Mobil (NYSE:XOM), EOG Resources (NYSE:EOG), Marathon Oil (NYSE:MRO). Buying put option spreads with expiration a few months into a Biden presidency would make sense.

Strategy

I would not naked short a dividend paying stocks because it means you have to pay the dividends to who you short the shares from, through your broker. Buying a put spread means you benefit from a declining price, but limit the price you pay to buy the put option since you are also selling a put option at a lower strike price.

Winners

Now lets take a look at some companies that will probably benefit from Biden. Biden’s policy website has it’s own page for clean energy plans, and it specifically emphasizes solar and wind technologies. I am a big fan of Vestas (OTC:VWDRY), a Danish company with operations in the United States holding the title as largest wind company in the world. I own shares of this company and it’s my preferred “green energy” stock. Another benefit of Vestas over another company involved in wind such as General Electric (NYSE: GE) is that it’s not as diversified. GE is in the business of fossil fuel power plants and a variety of different sectors which will diminish the gains experienced by green energy by the company. For that reason I do not favor buying GE at this juncture.

Tesla (NASDAQ: TSLA) will benefit from a push to move from gas/diesel automobiles to EV’s, as states like California push for EV mandates for personal and commercial vehicles. A Democratic presidency or series or presidencies would give the EPA more power to regulate and push consumers towards electric vehicles. Gasoline prices would be higher all things being equal with higher regulations on drilling and the business of oil and gas industries. Chinese competitor Nio (NYSE: NIO) will most likely rise alongside Tesla.

I own both Tesla shares and NIO shares.

Strategy

I hold VWDRY, TSLA, and NIO as long positions. Option strategies include buying call option spreads for these stocks with expiration after the election, or selling PUT options for a stike price near the money after the election.

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

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

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.

 

Tax Loss Harvesting for Dummies

It’s that time of year. Tax loss harvesting will save some thousands or even millions of dollars in capital gains taxes.

To do so it’s really simple, sell losses to offset gains or sell gains that already have corresponding losses so no tax is owed.

The way I do it is as follows:

Use a spreadsheet and create the following:

Account Short Term Profit Long Term Profit
S1 1,958.39 -2,323.39
S2 44,967.46 5,101.62
S3 229.72 44.29
F1 -2003 5423.65
Short Term Long Term
45152.57 8246.17

Where the cells in the bottom right are sums of column B and C, respectively. At this point the alarming figure should be the short term gains. At this point go through your stock portfolio and hopefully find some short term losses you can sell before end of year end to offset this gain.

Most trading platforms will split out “Long Term” and “Short Term” gains/losses, if not a long term transaction is one which is longer than one year and a short term is one year or shorter.

You’ll want to keep an eye out to make sure you don’t perform a wash sale – these types of sales are not allowed to be claimed as losses. A wash sale happens when you sell a stock for a loss and buy the same shares within a month before or after that loss sale. This is to prevent tax loss harvesting of shares which are not really meant to be sold but sold purely to tax loss harvest.

You can look up the rules on capital gains taxes and wash sales at the following websites:

https://www.irs.gov/taxtopics/tc409

https://www.sec.gov/answers/wash.htm

Younger People Not Owning Homes

Home Ownership is Fleeting

Millennials are less likely to claim home ownership by age 30 than baby boomers at the same age. A report by the Standford Center on Longevity that 48% of Baby Boomers owned homes by thirty versus 36% of Millennials.

A huge factor that plays into this figure is the number of unmarried Millennials – 55% of married Millennials own homes while only 19% of single Millennials do. The average age of marriage is rising – where in the 1950’s and 60’s the average age was 20, now the average age is 27.4 and rising according to the US Census Bureau historical marital status tables.

Other factors are increased housing costs, high student debt, and need for some workers to relocate.

Who Benefits?

The largest beneficiary, in my view, of lower home ownership is the landlord or corporation who rents out their home or apartment. As home ownership decreases, you’ll see the rise of more publicly traded REITS which take investor money, plop down new apartment units, and pay a share of the profits to their investors while driving away private investors through economy of scale price reductions. Private investors can employ a strategy involving buying, rehab/renovating, renting, and then refinancing to chain purchase multiple investment properties. As competition between private and public investors increases, the prices for properties goes up – further distancing potential first time home buyers. As long as there is a strong rental demand, the potential for cashflow means investors may buy in bulk.

Who Suffers?

Renters who pay more in rent than they otherwise would pay on a mortgage gain no principal ownership in their residence. While they may forgo having to fix home appliances and heating/plumbing they will gain nothing when they leave. Home owners with typical 30 year loans will have principal invested into their home and may be fortunate enough to have their house sell for more than it was purchased for. Historically house price appreciation is the norm, especially for homes in good locations. Depreciation of the house structure is usually offset by the appreciation of land value that the house sits on.

Renters are also at the whims of the landlord or property management company as to when their rents will go up. When I first started working my rent started at $880 in Atlanta and it went up to $1000 by the time I left 3 years later. This was not because they had improved the property – in fact the property slowly got worse. The reason they could increase rent is because demand was up – population growth and an influx of new younger workers means more people looking for rent. It is simply business.

What Should Younger People Do?

First off, everyone should choose what they want to do with their own lives. I can’t dictate that someone should study engineering rather than political science as much as I can force you to like the color orange more than brown. However, as this website aims to help people get a higher return on their money I would 100% encourage younger people to buy a home rather than rent one. I would ask them to take advantage of the historically low interest rates and get a low interest rate mortgage which limits how much the bank can increase interest rates. Pay a mortgage of equivalent value to what they’re paying in rent and look to save money and buy a rental property. Take advantage of the fact that your peers are renting and rent to them instead of from them.

 

 

Ally Financial

Ally Bank itself gives 2.1% interest rate on an online savings account, and 2.5% on annual CDs. Ally Financial Stocks pay out 68 cents per year on a $31.9 stock. Which is also 2.1%! What investing in the stock gives you, on the other hand, to increase your potential as interest rates start to rise. This isn’t a get rich quick stock, but with a 8.92 forward P/E ratio it’s a pretty good bargain that pays dividends. With Ally’s amazing interest rates for consumers, it’s only a matter of time before others start abandoning the brick and mortar banks which pay a measly 0.1% to 0.4% interest rate on their savings accounts. I bought Ally Financial and hold it as a nice dividend earning investment at $31.90 per share.

Ally Financial is divided into 5 areas:

  • Banking
  • Auto Finance
  • Home Loans
  • Invest – Self directed and managed investment products
  • Corporate Finance

ALLY 3 year chart

 

 

Google Search trend on term “ally savings bank” over time