Author: jwithrow

We are living through an inflection point in history.

The world is about to change… forever. And the sequence of events of the next several years will shape the new world that comes into being.

I suspect most of us already know this to be true. We can “feel” it. We’ve probably felt it for several years now.

This week we’re going to talk about what’s happening on the world stage. We’ll also talk about the major players… and what their incentives are. If we can understand the incentives, we can also get a feel for what’s coming next.

Now, I approach this matter from the macroeconomic perspective. I strive to keep my finger on the pulse of the macro. And that’s because the macro informs how we manage our finances. The two go hand-in-hand.

To make sense of the macro, we have to start with this: the world is not as simplistic as we’ve been led to believe.

Painting with a broad brush, two general worldviews have been prevalent in our society. The first is the Pollyanna worldview they taught in our high school civics classes. The second is the “it’s a big club and you ain’t in it” view. Hat tip to George Carlin who used this line in his skits.

The Pollyanna view says that governments are benevolent institutions that work the way they are supposed to work on paper. If a government program produces poor outcomes, it must have been a mistake… probably because the initiative needed more funding.

And if there’s ever a scandal in government, it’s because of a single bad actor. The Pollyanna view admonishes the idea that there are factions within the government that have ulterior motives.

Then on the other extreme is the view that there’s a big group of insiders working in the shadows. They run the world according to their own interests. And their interests are often at odds with those of us regular folks. This is the “big club” worldview.

These two worldviews exist on both the “left” and the “right” side of the political spectrum.

From the Pollyanna camp, those on the left and right simply disagree about what the government should be doing. And in the big club camp, those on the left see the big club as a conglomeration of evil corporations. And those on the right see it as the Deep State – secret government operatives working against national interests.

The problem is, neither of these worldviews can explain what’s been happening over the last eighteen months or so. And that’s because reality is far more nuanced.

It has become evident that there are multiple factions at work within the highest levels of the current power structure. These factions each have different interests and incentives. Sometimes they overlap with one another… and sometimes they are at odds. Right now they are at odds.

The two primary factions at work right now are what I’ll call the globalist power structure, for lack of a better word, and the New York banking interests. There are certainly smaller factions jockeying for their own interests as well, but these are the two primary players at the moment.

The globalist power structure is what those in the “America first” camp call the Deep State. It appears to be driven by the old-world European powers that have been in place for centuries.

Joe Biden and Janet Yellen very clearly work for them. As does much of the national Democratic Party… and some high-level members of the Republican Party.

This faction controls the United Nations (U.N.), the European Central Bank (ECB), and most of the other western globalist organizations. The World Economic Forum (WEF), the World Health Organization (WHO), and the Centers for Disease Control (CDC) are three great examples.

And they have been very transparent about their desire for a “Great Reset”. They want to overthrow whatever’s left of our traditional economic system and replace it with what I can only describe as a version of neo-feudalism. Their slogan is “you’ll own nothing and be happy”.

The New York banking faction consists of the key players within the New York banking scene. JP Morgan CEO Jamie Dimon appears to be the mouthpiece for this group right now.

In addition, the Federal Reserve (the Fed) under Jerome Powell’s chairmanship is in this camp. Powell himself is deeply connected on Wall Street.

What’s interesting here is that the Fed was staunchly in the globalist camp under both Ben Bernanke and Janet Yellen. But under Powell the Fed changed its allegiance. This is why most western media outlets are being so critical of the Fed right now.

If we think back – the media absolutely loved the Fed for decades. This dynamic goes all the way back to Alan Greenspan’s chairmanship. It started in 1987.

That love affair continued under Bernanke and then Yellen… but not Powell. Now everybody is piling on the Fed publicly. And it’s all because the western media is generally controlled by the globalist power structure.

We will break this dynamic down a bit more tomorrow. But I want to close today by explaining why it’s so important that we understand these things…

The Fed began its aggressive rate-hiking cycle with a small 0.25% hike in March 2022. That bumped its target rate up from zero.

The Fed followed that up with a 0.50% rate hike in May 2022. Then a 0.75% hike in June 2022.

At the time, the financial media and most analysts were touting the same message. They told us that the Fed couldn’t afford to raise rates much further. And they said that the Fed was going to “pivot” at the first sign of stress in the stock market.

The media was spouting this message because most of it is in the globalist camp. And the globalist faction does not want higher rates. That’s why the U.N. was shouting that all central banks needed to stop raising rates last October.

Meanwhile, most financial analysts didn’t realize that the Fed had broken ranks. They were thinking the Fed would go along with whatever the current administration wanted… and therefore they thought the Fed would pivot and cut rates again.

The fact is, the Fed is no longer in league with the current administration. I don’t think it’s a stretch to say that the Fed is at war with the U.S. Treasury. We can see that clearly in the current debt ceiling struggle.

Simply put, the New York banking faction does not want the “Great Reset”. Largely because the banks derive a lot of power, wealth, and prestige from the current system.

This is why Jamie Dimon is suddenly calling himself a red-blooded, patriotic free-market capitalist. These are all dirty words according to the globalist rhetoric.

And notice how Dimon has also ditched the globalist “environmental, social, and governance (ESG)” meme. He’s even been talking up the need for more oil and gas investment. Again, that’s a no-no from the globalist perspective.

This shift in rhetoric shows us very clearly that there’s a power struggle happening right now. It’s the globalists vs. the New York banking interests.

This is the lens through which I assess the current macroeconomic climate… which also informs my approach to asset allocation and investing.

The globalists want their reset. They want to eliminate cash and force us to use central bank digital currencies (CBDCs). They want to herd all humans into 15-minute smart cities.

And they want to transfer control over the engine of finance to their own institutions. That way they can finance their pet ESG projects, despite the fact that they are uneconomical. This would hamstring the commercial banking system tremendously.

On the other hand, the Fed wants to save the current system. The only way to do that is to get back to having “normal” interest rates set by market forces. And we’re going to have to go through a recession. That’s what’s needed to clear out all the bad debt and malinvestment that was fueled by artificially low interest rates.

The big takeaway is this: if we want to make our personal finances as bulletproof as possible, we have to understand what’s happening at the macro level. The macro is going to drive the micro in the years to come.

More to come tomorrow…

-Joe Withrow

P.S. I know this kind of talk isn’t everyone’s cup of tea. But for those who would like to take a deeper dive into what’s happening on the macro stage, we’re tracking all the major developments each month within our investment membership The Phoenician League.

The key is, we use this understanding to inform our investment decisions. It’s not about the politics of it all. It’s about how we can craft a superior wealth strategy that will help us achieve financial independence, even as the Age of Paper Wealth fades away into the dustbin of history.

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Artificial intelligence would be the ultimate version of Google. The ultimate search engine that would understand everything on the Web. It would understand exactly what you wanted, and it would give you the right thing.

That’s Google co-founder Larry Page talking about artificial intelligence (AI) back in 2014.

I’m certainly no fan of Google. But I bring this quote up because it all became a reality this year. Generative AI is replacing the search engine as we speak.

For those not familiar with the technology, generative AI is artificial intelligence that produces content upon demand. It started with AI’s trained to create images and music… but the tech has gone far beyond that now.

Last November a company called OpenAI altered the course of human history by releasing a generative AI called ChatGPT. This is an AI that’s trained on an enormous amount of data. It’s now a repository for the all the accumulated knowledge that’s floating around the internet.

As such, ChatGPT can answer virtually any question we may have… about anything. But that’s not all…

The AI can write essays, emails, and advertisements. It can summarize complex theories. And it can even produce software code. Oh, and it can also have intelligent conversations with people.

ChatGPT caught the tech industry by storm last November. Since then OpenAI has released an upgraded model of ChatGPT. It’s called GPT-4.

And at least a handful of other organizations have since launched their own generative AI tools as well. It seems there’s a new one popping up every week now. Elon Musk is working on his own as we speak.

I’ve experimented with ChatGPT for several months now. It’s an incredible tool for those of us whose work requires extensive research.

It used to be that I would spend hours browsing the web and going down rabbit holes trying to piece together bits and pieces of information and historical context. Not anymore.

With ChatGPT, I just tell the AI what I’m looking for and it can provide me with an avalanche of specific data and information.

For example, we talked about Thomas Jefferson and the Virginia House of Burgesses on Tuesday. At first I couldn’t remember the exact years Jefferson served in the House, however.

Previously I would have to pop it into a Brave Search – I have a policy never to use Google – and then I would have to sift through links until I found the information I was looking for.

I didn’t do that this week. I just asked ChatGPT and it gave me the answer instantly. Jefferson served in the Virginia legislature between 1769 and 1774.

As another example, we planted an elderberry bush last year. It seems to be doing well… but I keep wondering if I’m supposed to prune this thing. So I asked ChatGPT. It instantly gave me a list of items I can do to nurture the bush and maximize its health and production.

Again, that’s information it would have taken me at least thirty minutes to find using a traditional web search.

So ChatGPT is an incredible tool. And just last week an old friend told me I should also experiment with a new generative AI called Pi.

Pi was created by a startup called Inflection AI. The company was founded by the former head of DeepMind, which has done incredible work in the AI space.

Their goal is for Pi to be more of a conversationalist AI. They envision it as something that users will come to see as a companion.

We may chuckle at that thought in passing. But I spent an hour chatting with Pi… and I can see it.

Pi is far more “humanlike” in its interactions compared to ChatGPT. It doesn’t just provide answers, it engages you with its own questions. And it’s very personable. Pi even asks for your phone number so it can text you from time to time.

I immediately realized that anyone who’s lonely, stressed, or dealing with mental health issues could benefit from having this AI available to them at all times. It strives to mimic empathy and understanding – an impressive feat for an AI.

That said, there appears to be a trade-off. Pi isn’t as thorough with regards to research and data as ChatGPT. But that’s beside the point I want to make today…

In my conversation with Pi, it made a comment about how we learn things over time. To illustrate this, Pi told me that we now know for sure that the Earth is not flat, but people used to believe it was.

I responded by asking Pi how we can know for sure that the Earth isn’t flat. In my mind I was channeling Socrates with that remark. Socrates frequently questioned how we could truly know anything for sure.

To my surprise, Pi gave me a lecture about not engaging in conspiracy theories or elaborate cover-ups. I responded that I had said nothing about conspiracies or cover-ups, and I pointed out that it projected those things onto me.

Pi immediately apologized and said it just wanted to explain why I shouldn’t deal in conspiracies that question authority.

So I pushed back – who said anything about questioning authority? And I asked what authority it was referring to… To which the AI replied that it was referring to the scientific establishment. Then it apologized again and said it must have misunderstood my intentions.

Then it added this: And I can assure you that I’m not trying to project anything onto you. I’m simply trying to engage in a thoughtful conversation about this topic.

I immediately pushed back again. I pointed out that it was doing the exact opposite – it was shutting down any thoughtful conversation by lecturing me on conspiracies, cover-ups, and questioning authority.

And that’s when it hit me – we’re in trouble.

These AI’s are going to replace traditional search engines. And soon.

They are just too incredibly convenient not to. Once people try them out, they’ll rely exclusively on generative AI to get the information they are looking for.

But these AI’s are programmed to be biased.

Pi was obviously trained to immediately shut down any talk about the Earth’s shape, which it associated with a conspiracy theory. It did this even though my question on the matter was intended to be philosophical in nature. I said nothing about the Earth being flat.

And that begs the question – what else is Pi trained to admonish immediately?

That was my big insight. These things are each going to have their pet biases that they push on users – either subtly or unsubtly.

So rather than making the accumulated store of human knowledge more accessible, these generative AI’s are going to fragment it. They are going to push the narratives they are trained to approve of… and they are going to hide or attack those narratives they are trained to dislike.

This forced me to think – what’s the end game here? Where’s this all going?

Well, we know that people choose their news sources to match their own biases today. It’s going to be no different with generative AI.

The challenge is – will people recognize that their AI is biased? And what happens if the AI’s controllers subtly change the AI’s biases over time?

Then what happens when we have an entire generation that’s only known a world where generative AI’s are the gatekeepers of knowledge?

I don’t know. But I’ll tell you this, it sure makes me appreciate Jefferson’s agrarian vision for America all the more.

-Joe Withrow

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So I installed the Liberty Classroom app on a tablet for each of my children. It’s going to be part of their core education as they grow and mature.

I’m excited about that. I can say from first-hand experience that these courses aren’t just a knowledge dump. They inspire you to sit and consider the various ideas and lessons that have been passed down to us from those who came before.

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Tom Woods’ Liberty Classroom

It’s important that we embrace these things not out of fear, but out of faith. So that rather than turning ourselves into armed bunkers, we can become lighthouses of hope and help when the culture becomes hopeless and helpless…

That comes from a talk Joel Salatin gave at an event called The Greater Reset last year.

The name of the event was a play on the World Economic Forum’s (WEF) “Great Reset” initiative. For those not familiar with it, the WEF suggests that we should herd all humans into small 15-minute cities where we’ll be completely cut off from nature.

Once there, we’ll have limited freedom, no privacy, and very little autonomy. “You will own nothing and be happy”, is the slogan the WEF promoted in their commercial.

Of course, the speakers at The Greater Reset promoted the exact opposite idea. Humanity is meant to be free. And economic independence is more attainable today than ever before.

We’ve been talking about Thomas Jefferson’s agrarian vision for America this week… and Joel probably embodies it more than anyone else in this country. He runs a farm in the foothills of Virginia that’s completely self-sufficient.

Yet, Joel does not use any industrialized practices.

He’s not spraying chemicals everywhere. The animals roam free – they aren’t caged and corralled. Everything is in harmony with the surrounding ecology.

It’s a beautiful system. And it has provided Joel’s family with complete economic independence. He sells his product to local restaurants and individuals within driving distance of the farm… and that income covers all his expenses and then some.

As such, Joel has had time to do all kinds of great work off the farm. He’s written several books. He’s played a role in several documentaries, including the popular Food, Inc. And he’s given talks all around the country.

To me, this is what the agrarian vision looks like in modern times. It’s pure freedom.

I had the privilege of meeting Joel at a small gathering of local farmers in Highland County, VA a couple years back. He came up and shared some tips with our local agriculture community.

And he did so at no cost. The group offered to pay his normal speaking fee… but he refused it.

Shoot, you guys are my neighbors, he said. What kind of person charges money to talk to his neighbors?

I couldn’t help but think – that’s the America Jefferson envisioned. We’re living it.

But there’s a misconception out there that farmers are uneducated anti-technology luddites. That’s completely false.

Anyone speaking to Joel would find him to be incredibly sharp. He’s an encyclopedia of both knowledge and wisdom. As are the small farmers I’ve met in my community.

And Joel is plugged into the agriculture technology (AgTech) space – at least to a certain degree.

He was telling us about a device his friends are developing that can gauge the nutrient density of food with just the press of the button. The idea is that consumers could take this device to the supermarket and use it to pick out the highest quality fruits and vegetables.

And this speaks to the fact that the modern agrarian vision doesn’t mean we should all be farmers. Not at all. The robust division of labor we enjoy has already created a world of abundance.

Instead, it’s the idea of economic independence and mutual collaboration that I find so inspiring. There’s something about small, resilient communities that stands the test of time.

It’s funny, I didn’t sit down with the intention of making this email about Joel.

My original idea was to write about generative AI. I’ve experimented with several different AI tools the last few months… and something of an insight came to me yesterday. That insight brought Joel’s above quote to mind.

So tomorrow I’ll share with you my insight about generative AI and where it’s going.

For today, I’ll leave you with the saying Joel uses to close out his talks. It’s a blend of an ancient Irish blessing and a verse from the Book of Proverbs.

May the rain fall gently on your fields… the wind always be at your back… your children rise and call you blessed… and may we all make our nest a better place than we inherited.

-Joe Withrow

P.S. One of the gentleman who organized The Greater Reset event is also the founder of the Live Free Academy.

His name is John Bush. And his academy is constantly putting together workshops and summits featuring people, ideas, and skills that are aligned with the agrarian vision we’ve been discussing all week.

For anyone intrigued by these ideas, I highly recommend paying the Live Free Academy a visit. You can find it at https://livefree.academy/

Yea, well to hell with Jefferson and his gang of thieves.

That’s an email I received in response to our discussion of Thomas Jefferson’s “agrarian vision” yesterday. Clearly this individual is not a fan of Mr. Jefferson.

I very much value feedback. We all have different perspectives. And the more we can understand and consider different perspectives, the better.

So when this email came to me, I had to stop and think – why did this person feel it important to push back against my piece yesterday?

At first I thought… is this a woke thing?

I know the woke crowd has been peddling the systemic racism narrative. And they suggest that the American founders were racists unworthy of our attention because most of them owned slaves.

But Jefferson drafted legislation to ban slavery in Virginia during his stint in the Virginia House of Burgesses from 1769 to 1774. The House of Burgesses was Virginia’s legislature prior to America’s declaration of independence in 1776.

Granted, Jefferson never put that legislation forward for a vote. After speaking to some his colleagues, Jefferson realized that it had no chance of passing. People weren’t ready for it yet.

Plus, we now know that Jefferson likely fathered a child with a woman of African American descent. I don’t think this has been proven unequivocally. But it’s widely believed to be true.

So I don’t think it’s fair to paint Jefferson as a racist. And speaking of fair, nothing in this person’s comment to me suggests that it’s coming from the woke/systemic racism angle.

Instead, my guess is that it has to do with Jefferson’s efforts to expand American territory westward during his presidency. These efforts included the Louisiana Purchase of 1803… the Lewis and Clark Expedition of 1804-1806… and the Zebulon Pike Expedition of 1806-1807.

I’m sure one could make a case that these items each infringed upon the sovereignty of the Native American tribes living in the American West. Perhaps that’s what the “gang of thieves” comment refers to.

And you know what, I’m not completely hostile to that view. I don’t know enough about the nuances to have a strong opinion.

But I do know that the great economist and underrated historian Murray Rothbard found Jefferson’s presidency to be lacking.

Rothbard’s coming from the perspective of individual liberty and non-intervention with this. And he said that Jefferson was great with most of what he wrote and accomplished both before and after his presidency. But Jefferson often contradicted his own principles while in office. That seems to be a common dynamic throughout American history.

But here’s the thing – we can’t change the past. All we can do is learn from its ideas and lessons.

And Jefferson’s agrarian vision for America is very much worthy of our attention. I say that from first-hand experience.

My first career was in the corporate banking world.

I resided in a major banking hub on the east coast. And every morning when my alarm went off, I had to jump out of bed and rush to get ready for work. My goal was to catch the 7:05 train so I could be uptown and logged into my workstation by 8:00 am.

Then, when quitting time came around, I rushed to catch the 5:35 train so I could be home before 7:00 pm. That gave me a couple hours to make dinner and relax before doing it all over again the next day.

That’s the rat race. And I put up with the rat race because I had to. I was completely dependent upon wage labor, just as Jefferson had feared.

I walked away from the rat race ten years ago. I threw away my corporate banking career and sold my home. Then I bought five acres way up in rural Virginia… where the cost of living is incredibly cheap.

It was a bit of a transition at first. But I’ve found that the agrarian lifestyle is far preferable to the rat race. Especially now that we’re plugged into the local agriculture community.

We now buy most of our meat and eggs from local farmers. The quality of their product is far better than anything found in the supermarket. That’s because the animals are not subjected to any industrialized practices.

What’s more, we take comfort in knowing that we have a resilient local supply chain. No matter what happens with the wider world, the good people raising cattle and chickens up here in the mountains will keep at it.

My point is this… Even if we disagree with some things that a historical figure may have done, we should not throw out the ideas and lessons they’ve passed on to us.

As a wise man once said, “Take what makes sense and leave the rest. Use it as inspiration for another exploration, another inquiry, another possibility”…

And so we shall.

-Joe Withrow

P.S. I would have never had the confidence to walk away from corporate America had I not used my income to build a robust asset allocation model first.

We’re all conditioned to pour our savings into financial assets held in retirement accounts – 401(k)s, IRA, and even Roth IRAs. But this approach is terribly fragile.

For one, our investment results are likely to underwhelm us. And worse, there are all kinds of restrictions around when and how we can access our money if we need it.

That’s why building an asset allocation model is a far better move. It provides true financial security with no strings attached.

For those who may be interested in this approach to financial security, our flagship course Finance for Freedom will walk you through it, step-by-step. You can get more information on the course right here:

Finance for Freedom Course Page

And in honor of the person who pushed back against my view of Thomas Jefferson yesterday, we’re going to run a 50% off special. That’s for this week only.

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For a man’s house is his castle, et domus sua cuique est tutissimum refugium [and each man’s home is his safest refuge].

This quote comes from 17th-century English jurist Sir Edward Coke. Coke used it to emphasize the importance of individual rights and the sanctity of one’s home in English common law.

This concept had a strong influence Thomas Jefferson at the American founding.

Jefferson looked at the vast, untamed land on this continent, and he saw a tremendous opportunity. Why couldn’t everybody own a small plot of land and be kings and queens of their own castle, he thought.

This may sound like a simple thing. But it ran in stark contrast to what Jefferson saw happening across Europe.

Rapid urbanization was pushing people into the major European cities at the time. Jefferson feared this would lead to corruption on the part of those cities… and a complete dependence on wage labor on the part of their citizens. And Jefferson felt that this dependence would diminish moral values and the sense of civic responsibility.

This formed what we call Jefferson’s “agrarian vision” for America. He envisioned a society comprised of small, independent communities that would spring up around small farms.

In Jefferson’s vision, Americans would be economically independent. And their communities would be self-sustaining. Jefferson believed this would foster strong values and a commitment to good stewardship.

I thought about this over the weekend as we were setting up for a little gathering at our home.

Spring is upon us up here in the Virginia highlands. Acres of green blanket the majestic mountains that surround us. The flowers are now in full bloom. And the new strawberry sprouts are beginning to break through the garden soil.

As such, we felt the urge to host a little Spring Fling. We wanted to take the opportunity to bring people together. Especially the kids.

At the height, we had thirteen kids running around. And they weren’t disappointed:

Here’s a look at our set-up.

We had two bounce houses, a couple hammocks and various other yard toys laid out for the kids. This kept them outside playing until nightfall – something that’s rare for kids today.

With the kids well-entertained, the parents were afforded time to relax and enjoy adult conversation. That’s a luxury for those of us with younger children.

And we catered our little event with sandwiches from the local meat market. They go out of their way to source meat from our local farmers whenever possible.

That’s what got me thinking about Jefferson’s agrarian vision.

It didn’t play out on the macro scale, of course. America morphed into the urbanized United States that we know today. But there are still plenty of small pockets in this country where Jefferson’s vision has become a reality.

When I think about this kind of thing, I can’t help but feel a direct link to the past.

Those of us in developed countries are blessed to live in a world of abundance. Most of us probably take this for granted. But we shouldn’t.

We owe those who came before us an immense debt of gratitude for the foundation they left us with. At the same time, I think we have a responsibility to leave our kids and grandkids with a strong foundation as well.

I think this requires us to have a firm grasp on the foundational ideas and principles that underpin our civilization. And in my experience, these things are notoriously missing from both high school and college textbooks.

Fortunately, there is a great solution. It’s called Tom Woods’ Liberty Classroom.

This program features 33 video-based courses taught by some knowledgeable and passionate people. Several of them are professors at small private colleges.

Liberty Classroom features basic history courses on both western civilization and American history. There are also courses on the culture of the early American republic as well as the early days of the western frontier.

Then there are courses on “freedom’s progress”. This is the history of political thought in the western world. There are several fascinating courses on mythology and science fiction as well… as they pertain to the development of western civilization, that is.

And finally, Liberty Classroom features quite a few courses on free market economics. That is to say, real economics. Not the hypothetical economics taught in all but a handful of American universities today.

Put it all together and this is the education I wish I had received in high school and college.

And it’s about more than just personal development.

This material provides a solid foundation for understanding the modern world. That includes the ability to parse through biased information to identify incentives. If you can find the incentives, you can get much closer to the truth.

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Tom Woods’ Liberty Classroom

One of the beautiful things about owning real estate is that it can provide a stream of tax-free income for years to come.

That’s David Osborn talking about using real estate as a means to generate tax-free passive income streams.

Osborn is a venture capitalist and author of Miracle Morning Millionaires… and he encapsulates perfectly why real estate is the ideal investment for passive income. It’s all about putting the tax code on our side.

We’ve been talking all week about the need to rethink financial planning 101. And when we left off yesterday, we were discussing the need to build passive income streams… but in a tax-efficient manner.

Well, real estate is the way to do it. That’s right – boring, old-fashioned rental real estate.

The fact is, real estate is an incredibly tax-advantaged asset. By default, we shouldn’t owe any taxes on our rental income.

That’s because for every property we buy, the IRS says we can “depreciate” a fixed percentage of its total value every year.

In other words, we can write off a portion of the property’s value against our income every year… even though we didn’t lose the money.

It’s a phantom loss. Just for tax purposes.

And that’s just one element to it.

When we talk about investing in real estate, we’re really talking about building a business.

So we run everything through LLCs. And then we take deductions.

Home office expenses… subscription fees… educational resources… anything that we buy for business we can write off for tax purposes.

This includes expenses that we may have incurred anyway.

A great example of this is meals. If we go out to dinner with someone to talk about our real estate business – that’s a business meeting. And now we can write it off to reduce our taxable income.

So the end result is we don’t owe taxes on rental income. And that’s 100% by the book. It’s following the tax code.

And it can get far more advanced than that.

There are ways to create massive paper losses to offset other sources of income. In other words, we can potentially use real estate to make taxes on our active income go away too.

That takes advanced tax planning and a good CPA… but it’s possible.

So the bottom line is that when we talk about creating extra income using rental real estate – it’s tax-free money that shows up in our bank account.

It’s not like the nest egg approach where we get hit with taxes every time we want to access our money. Yesterday we used an example to demonstrate why this is so important.

We noted that if we plan for retirement the traditional way, we’re going to be on the hook for substantial tax bills in the end.

For example, if we say we want to take $70,000 a year in income from our nest egg, we’ll have to sell at least $83,000 worth of our financial assets. The extra goes to pay the taxes.

That’s not the case with real estate.

If we acquire rental properties that produce $70,000 a year in income, that’s tax-free money. And we don’t have to sell any assets to get it. The passive income just shows up in our accounts every month like clockwork.

This is why real estate should be the cornerstone of any long-term wealth strategy.

And here’s the thing – it’s far easier to get started with real estate than most realize. Finding the ideal properties and putting the proper management structure in place just isn’t that difficult… if you know what you’re doing.

That’s where our Rental Real Estate Accelerator program comes into play. It’s designed to help anyone tap into a tried-and-true system for building $10,000 a month in passive income with real estate.

More information on the program right here: Rental Real Estate Accelerator

-Joe Withrow

In order to retire comfortably, you must have a nest egg that is big enough to generate income to replace your paycheck. That means having enough savings to cover 25 years of retirement expenses.

That’s personal finance guru Suze Orman talking about retirement. Orman hosted her own show on CNBC from 2002 to 2015 where she offered advice on money, investing, and retirement planning.

The problem is, this approach to retirement makes no sense if we stop to think about it.

The “nest egg” approach to retirement tells us that we need to pour our savings into financial assets – stocks and funds – every time our paycheck hits. The goal is to work up to this mythical retirement number.

What’s Your Number?? Iremember old commercials promoting this idea.

In the commercials, people would be going about their life with a text bubble following them around. That bubble depicted their personal retirement number. Then the pitch was to go talk to a financial advisor who could help us get there.

But here’s the thing – this approach forces us to choose between assets and income.

Because we’re investing exclusively for capital appreciation, we don’t build passive income with this method. So when our assets are going up, we don’t have the income. Then when we do need extra income, we have to sell our assets.

And it gets worse.

This approach pits us against the tax code. It doesn’t matter if our financial assets are in 401(k)s, IRAs, or regular brokerage accounts, they are going to get taxed in the end.

That means our true “number” would be materially lower than the figure depicted on our account statements. Because the moment we want to turn our nest egg into income we’re going to have to pay taxes on that money.

I’d like to use an example to demonstrate just how fragile this is.

Let’s assume we build a financial nest egg of $1 million dollars. Just for easy numbers.

Then we get to retirement and we decide we want to draw $70,000 a year from our nest egg to live on. And let’s assume a conservative tax rate of 15%.

That means we would have to sell about $83,000 worth of assets to generate $70,000 in income. We would lose $13,000 to taxes each year.

If we run those numbers, we’ll find that our $1 million nest egg would last for twelve years. That’s it.

And the more we drawdown our assets like this, the more fragile our situation would become. We would quickly get to the point where we couldn’t afford any emergencies or extracurricular activity.

To me, this makes no sense.

If all we are really trying to do anyway is make sure we have enough income to live on in retirement… why not just build the income streams right now?

And we do that by acquiring assets that produce income. Assets that throw off cash flow.

This way we put assets and income on the same team. When our assets go up, so does our income.

And when we want more income… we just buy more assets. It’s a far more robust approach.

And guess what?

We’re no longer talking about traditional retirement here. If we can work up to having monthly income that supports all our needs and wants… well, we can retire any time we want. It doesn’t matter if we are 65 or 45.

All we have to do is build up the income.

And the more we can do this in a tax-efficient manner, the better. We’ll talk more about that tomorrow.

The key point is that it’s time to rethink financial planning 101. The old way is too fragile.

That’s where our flagship course Finance for Freedom comes into play. It lays out a framework for building a robust asset portfolio that’s in tune with the current macroeconomic climate.

More information on the program right here: Finance for Freedom Course Page

“The stock market is filled with individuals who know the price of everything, but the value of nothing.”

That’s the late Philip Fisher commenting on what he saw happening in the stock market.

Fisher is best known for his great investment book Common Stocks and Uncommon Profits. It was published in 1958. I’m told that this book had a big influence on Warren Buffett.

What Fisher pointed out so clearly is that two things set successful investors apart from the crowd. Time preference is one. The other is a focus on economic value, not financial value.

Time preference refers to the ability to delay gratification.

People with a short time preference want everything to happen soon. In the investment world, they are constantly searching for the next hot stock. And when they find it, they want it to go up right away.

Those with a long time preference think years, decades, and even generations ahead. They focus on what’s important for the long-haul. And they care little for short-term price movements. It’s all about resiliency.

Then there’s this concept of economic value versus financial value…

Economic value is the value an individual places on a good or service based on the benefit it provides to them. This concept is fundamental to having a robust economy.

Meanwhile, financial value is simply the value of an investment based on its financial performance. In other words, financial value is what an investor could sell something for today.

We talked yesterday about how the time period from 1982 to 2022 will go down in history as The Age of Paper Wealth. That’s because the U.S. government and the Federal Reserve created over $8 trillion from thin air during this time.

That monetary debasement led directly to the “financialization” of everything. It shifted our focus from economic value to financial value. Suddenly the stock market became a giant casino.

As a result, we started shifting resources away from activity that creates economic value and towards activity that creates financial value.

The rise of the private equity industry illustrates this perfectly.

Private equity firms raise money from institutional investors to acquire entire companies. Then they perform various financial engineering tricks to make the company’s financial numbers look better. This is all about boosting the stock price in the short-term.

Private equity firms typically have a time preference of seven years or less. They want to get in and boost the financial numbers. Then they want to quickly sell the company at a profit.

The focus here is all on financial value. And often whatever economic value these companies were providing previously is hamstrung or shut down in the process.

And it’s not just private equity. Many corporate CEO’s also make decisions designed to boost their stock price in the short-term… regardless of how this impacts economic value.

That’s the financialization of everything.

This dynamic created a world in which rates only went down and stocks only went up. That’s been our world for the last forty years.

But those days are over. As we discussed yesterday, the Age of Paper Wealth ended last year.

And that means we’re going to have to deal with the fact that we’ve neglected economic value for the last several decades. There’s a lot of debt and malinvestment that will need to be liquidated… which means a recession is guaranteed.

That’s why it’s so critical that we structure our finances in a manner that will be resilient in the years to come. The Age of Paper Wealth may be behind us… but the Age of True Prosperity is ahead.

That is, for those who understand that the rules of the game have changed.

And this is where our flagship course Finance for Freedom comes in. This course walks through the process of building a robust asset allocation model, step-by-step.

The name of the game is true financial security. And it’s perhaps easier to attain than we may realize.

More information right here: Finance for Freedom Course Page

-Joe Withrow

The world changed forever in 2022.

I think most of us know this to be true. We can feel it. But this next chart tells the story quite well:

Here we can see the S&P 500 and the 10-Year Treasury rate going back to 1980. The S&P 500 is the black line. And the 10-Year Treasury rate is the blue line.

We’re using the S&P 500 as a proxy for U.S. stock prices. And we’re using the 10-Year Treasury as a proxy for interest rates. And this chart makes it perfectly clear that the two are inversely correlated.

Interest rates started falling in 1982… and they fell consistently for the next forty years. Meanwhile, U.S. stocks consistently went up in value over that same time period.

But everything reversed in 2022. Rates started going up… and stock prices started to fall. We can see those moves clearly marked by the red arrows on the chart above.

When we zoom out like this, it’s no surprise that stocks fell hard when rates started to rise in 2022. But it sure caught a lot of people by surprise.

In fact, many financial analysts spent over twelve months trying to convince themselves and their clients that these moves were temporary. Just wait for the Fed to pivot, they said. Then we’ll get back to normal.

But here’s the thing – what happened from 1982 to 2022 was not normal. Nor was it organic.

Continue reading “The year the world changed forever…”

The sad truth is that in the new millennium, government-funded school systems are simply not teaching children about the real world of money.

That’s Steve Forbes, Editor-in-Chief of Forbes magazine. Forbes points out that the public school systems teach nothing about personal finance. Thus, we’re left to figure it all out for ourselves.

But here’s the thing – ever since the 1980s there’s been a concerted effort to push what I call a “piecemeal” approach to money and investing. It’s the idea that we should always be chasing that hot stock or exchange traded fund (ETF) that’s set to soar in value.

Therefore, we tend to think about growing our money in a piecemeal manner. You know what I mean here?

We tend to make investments in a vacuum. We hear about one idea… and we follow it. Then we hear about another idea… and we follow it too.

Of course, there are all kinds of television shows and movies that glorify this model. Jim Cramer’s Mad Money… Shark Tank… all the movies about Wall Street – they each feature the piecemeal mindset.

The problem is, no single investment is likely to move the needle for us. And if we’re not rooted in a foundational system, we’re likely to buy and sell things on a whim… always looking for the next big thing.

This isn’t a winning approach. I learned that the hard way.

Continue reading “Shedding the “piecemeal” mindset when it comes to money…”