Author: jwithrow

I, Franklin D. Roosevelt, President of the United States of America, do declare that said national emergency still continues to exist and pursuant to said section do hereby prohibit the hoarding gold coin, gold bullion, and gold certificates within the continental United States by individuals, partnerships, associations and corporations…

All persons are hereby required to deliver on or before May 1, 1933, to a Federal Reserve Bank or a branch or agency thereof or to any member bank of the Federal Reserve System all gold coin, gold bullion, and gold certificates now owned by them or coming into their ownership on or before April 28, 1933.

This declaration was made in Executive Order 6102 on April 5, 1933.

In it, president Franklin D. Roosevelt (FDR) made private gold ownership illegal in the United States. And he required all Americans to turn in their gold in exchange for $20.67 per ounce.

Private gold ownership remained illegal in the U.S. until 1975. Since then Americans have been free to buy and sell gold coins and bars at will.

But the U.S. government has held onto all the gold it collected from Americans back in 1933. As it stands, the United States’ total gold reserve is officially 8,133.5 metric tons. That’s worth $506.3 billion at today’s gold price.

According to official central bank records, this is the largest stockpile of gold in the world. And that raises a question – why does the U.S. still hold all this gold?

After all, gold hasn’t played any role in the global financial system since 1971. That’s the year President Nixon closed the international gold window. Doing so cut the dollar’s last link to gold.

What’s more, prominent financial officials have downplayed the purpose of gold ever since then. When asked, former Fed Chair Ben Bernanke said that gold was nothing more than tradition.

Okay… so why hold it? And why do all major central banks in the world hold gold? Many central banks have been adding to their stockpiles in recent years.

I think the answer is because they know that one day they’ll need it. They will have to reintroduce gold into the system in some capacity.

Yesterday we examined a curious interaction from the Federal Reserve’s (the Fed’s) June press conference. Fed Chair Jerome Powell decided to keep rates steady in June… but he suggested two more rate hikes are likely coming.

This prompted a financial reporter to ask a good question…

The reporter pointed out that the U.S. government was on track to run annual deficits of nearly $3 trillion in the next ten years. And if that trajectory continues, federal debt will surpass $52 trillion by 2033.

He then asked Powell directly – will the Fed lower interest rates to help the U.S. Treasury finance this debt? The implication here is that lower rates would reduce the annual interest payments the Treasury must make on the national debt.

Powell’s response was direct. No. Under no circumstances.

This should force us to stop and think.

If Congress is dead-set on blowing out the budget like this… and if the Fed isn’t willing to cut rates to help keep debt service costs manageable… well, something is going to break in a big way.

That is, unless there’s a wild card. And if we think about it – gold re-monetization could be that wild card. I’ll explain…

When interest rates were effectively at zero, the U.S. government’s debt load was manageable. That is to say, the Treasury could afford to make interest payments on the debt without blowing up the budget.

But most of the national debt will need to be rolled over in the coming years. That means the current Treasury bonds are maturing, and the Treasury will need to issue new bonds to pay off the old ones. These new bonds must be issued at today’s higher interest rates.

So the problem is – how do you service the gargantuan debt as rates rise?

Gold re-monetization is a potential solution. To understand why, we have to understand how Treasuries work.

When an entity buys a Treasury bond, they are loaning money to the U.S. government. The government pays a rate of return on the bond for its duration, then it repays the entire principal balance at maturity.

As good investors, we understand the Time Value of Money principle. A dollar today is worth more than a dollar tomorrow. Specifically because the government creates new dollars from nothing every year.

So, those entities investing in Treasuries need a strong rate of return to make it worth their while. Because they know that when they get paid back at maturity, those dollars will buy less than they would have originally.

But suppose the U.S. government agrees to settle a specific portion of Treasuries in gold. That’s gold re-monetization. When investors get paid at maturity, part of that payment comes in the form of gold.

This could lend itself to a tiered system of sorts. The Treasury could sell bonds with various degrees of gold backing at corresponding rates.

For example, a 5% gold-backed bond would carry a higher rate than a 10% gold-backed bond. But both would pay lower rates than a standard U.S. Treasury bond with no gold backing.

See how this works?

Gold re-monetization would allow the Treasury to sell bonds at a lower rate than they otherwise could. In turn, this could allow the government to manage debt service costs even as rates rise.

This would also serve to attract foreign countries and central banks to Treasury investments… which is what the Treasury needs in order to sell all the bonds it needs to sell if the Fed is no longer the buyer of last resort.

Obviously this isn’t something that would make the U.S. government’s fiscal path sustainable long-term. There’s only so much gold to go around.

That said, something like this could serve as a band-aid. It could buy the U.S. Treasury some extra time.

Of course, there are tons of wild cards and unknowns in here. We can’t be sure exactly how it would all play out.

But what we can know is this: if gold re-monetization happens, the price of gold is going much higher. Now’s probably a good time to add to our stack.

-Joe Withrow

P.S. If you’re interested in building a gold into your personal investments, our flagship Finance for Freedom program will show you how. More information right here: Finance for Freedom

Looking ahead, nearly all Committee participants view it as likely that some further rate increases will be appropriate this year…

That’s Federal Reserve (Fed) Chairman Jerome Powell speaking to the financial media earlier this month.

The Fed’s Federal Open Market Committee (FOMC) decided to keep its target interest rate steady in their June meeting. But Powell didn’t want the market to get the wrong idea. The Fed won’t be cutting interest rates again any time soon.

In fact, Powell said that if the Fed does cut interest rates again in the future, those cuts will only be in proportion to a falling Consumer Price Inflation (CPI) print.

Powell explained that his Fed will keep the “real” interest rate steady. By this, Powell means that he intends to keep the Fed’s target rate a certain percentage above the rate of consumer price inflation.

This speaks to an important concept. Within a fiat monetary system – a system where governments and central banks can create money from nothing – nominal numbers don’t tell the real story. This is true when it comes to annual incomes, investment returns, and interest rates.

Continue reading “End of the Road”

We’ve been talking all things finance, investing, economics, and even moral philosophy this week – all snippets of a much longer discussion I had with Tain Nix on his Expat Phyles podcast.

That podcast is over an hour long though… and I know not everybody has that much time to spare. So I’d like to try something new today.

I’m experimenting with a video production platform that’s powered by artificial intelligence (AI). I used this platform to quickly condense our podcast discussion into a 5-minute segment of highlights. The AI decided which clips made the final cut.

Here it is:

And as a reminder, you can access the full Expats Phyles podcast at the following links. See you again Monday afternoon!

Apple Podcast Link: https://podcasts.apple.com/us/podcast/joe-withrow-a-world-class-libertarian-analyst-talks/id1686906959?i=1000617572575

YouTube Link: https://www.youtube.com/watch?v=XZ7qwTXTd0Y

-Joe Withrow

This is a situation where the narrative has made even institutional investors very wary… all of this is false. There’s this thing out there called reality. And there’s no way the world’s going to run on sunlight, solar panels, and wind power. It’s just not going to happen.

That’s my friend Tain Nix again. We were chatting on his Expat Phyles podcast last week and the conversation veered towards the investment markets. And we both agreed that energy is likely the biggest opportunity out there right now. At least when it comes to investing in the stock market. That’s thanks to the environmental, social, and governance (ESG) push of recent years.

It’s important to understand that the equity markets are constantly pricing every publicly traded stock out there based on the information that’s available. But every now and then external distortions cause the market to misprice assets. And that’s exactly what’s happened in the energy sector.

On one hand, the ESG narrative has pushed the idea that we need to put a damper on traditional energy production. As such, it’s been taboo to invest in traditional energy like oil & gas in certain circles.  

At the same time, there’s been a tremendous effort to keep a lid on the price oil and gas in recent years. 

For one, the current administration in the U.S. drained the country’s Strategic Petroleum Reserve (SPR) specifically to push down oil prices. At the same time, the Brent Crude benchmark index changed its weightings in April to artificially lower oil prices. Then there’s been heightened activity in the oil futures market that’s almost certainly been used to keep prices down. Oh, and several key oil refineries and pipelines have mysteriously blown up recently as well.

Put it all together and it’s clear that there have been immense distortions in the oil and gas markets. At some point those distortions will be ironed out… and the price of oil and gas will rise sharply. Top-tier energy stocks should do very well as this happens.

We have a similar set up with uranium right now. Uranium is the key component that powers nuclear fission reactors. But the ESG movement has demonized nuclear in recent years – despite the fact that these reactors produce no carbon emissions.

However, that trend appears to be reversing. 

Most countries have awakened to the fact that their energy costs will skyrocket if they close down their nuclear reactors. Germany learned this the hard way. German energy costs had increased by a factor of six at the height of summer last August. 

Meanwhile, Finland put a new nuclear reactor online this year. It was the first nuclear reactor to open in Europe in sixteen years. And guess what? Finland’s energy costs fells by about 75% on average. 

That’s hard to ignore. And if this becomes a trend, demand for uranium will increase significantly. That’s another great investment opportunity. 

So smart energy investments could serve as a cornerstone of a great stock portfolio for the years to come. Then a few blue chip property and casualty (P&C) insurance companies could be the other cornerstone…

If we think about it, P&C insurance is probably the best business in the world. Let’s use homeowners insurance to demonstrate why that is.

We all buy homeowners insurance just in case our house were to burn down. We have to pay premiums to the insurance company annually or semi-annually to keep our coverage in place.

But here’s the thing – our house probably won’t burn down. That means we are paying the insurance company for a future service that they likely will never have to provide.

It’s the same dynamic on the enterprise level. 

Large corporations buy P&C insurance to protect their buildings, assets, equipment, labor force, and everything else. Yet most of the time they don’t have any claims… so the insurance company gets paid without having to do anything for the money. I can’t think of any other business that enjoys this luxury.

At the same time, the insurance companies invest these premiums to earn even more money. They compound their returns year after year. 

So if we can identify the insurance companies that are good at what they do, and then if we can buy them at the right price, we’ve got an investment that will anchor our portfolio for years to come.

Simply building a portfolio around energy and P&C insurance today will set us up for strong performance for the rest of this decade. But we can take it one step further…

With the two cornerstones in place, I think it’s a good idea to sprinkle some small bleeding edge technology stocks into the portfolio. 

These are more speculations than investments. But if we can find a few companies that are doing something potentially world-changing… well, that’s how we can really juice our portfolio returns.

These are the three major investment themes on my radar for the coming decade. The Age of Paper Wealth is over… but there’s still plenty of opportunity out there if we are disciplined with our approach.

-Joe Withrow

P.S. I talked with Tain Nix about these ideas and a lot more on his Expat Phyles podcast last week. Here are the links if you would like to give it a hearing:

Apple Podcast Link: https://podcasts.apple.com/us/podcast/joe-withrow-a-world-class-libertarian-analyst-talks/id1686906959?i=1000617572575 

YouTube Link: https://www.youtube.com/watch?v=XZ7qwTXTd0

“Man, Florida drivers are nuts,” I muttered to myself as rows of Florida license plates weaved back-and-forth in front of me as we headed south on I-95.

The traffic had slowed to 45 miles per hour just south of Daytona Beach. And each Florida driver was hell-bent on breaking free. They zoomed left… then right… honking at each other with each mighty swipe of the wheel.

But they didn’t get anywhere.

They remained in the exact same spot on the road… simply alternating between being behind the car ahead in the left lane and the car ahead in the right lane.

I couldn’t help but think – this is a microcosm of the current state of humanity. We just can’t bear to sit still…

It was a sunny day in April. The first blooms of Spring were upon us. And I was on my way to meet my heroes.

My SUV was packed with stuff that might furnish a south Florida apartment. I didn’t have one yet though. Minor details.

More importantly, my head was packed with ideas that might help lift Agora’s newest publishing group from a hodge-podge collection of franchises to something more cohesive. And more profitable.

My destination was Delray Beach – an intercoastal town just north of Fort Lauderdale. That was the corporate headquarters of the Agora’s newest business. It had formed through the merger of four franchises: Bonner & Partners, Casey Research, Palm Beach Research, and Jeff Clark’s option trading service – formerly housed within Stansberry Research.

Bill Bonner was the driving force behind Bonner & Partners. And Bill’s the Godfather of the entire financial publishing industry. More on that in just a minute…

Continue reading “How I met the heroes of capitalism”

A large percentage of the people running our institutions are actually at war with reality...

That’s what my old friend Christian Nix said to me last week. I had the privilege of chatting with him on his Expat Phyles podcast… and it was a wide-ranging conversation. I’ll share it with you once the podcast is edited and published.

I met Christian – Tain, as his friends call him – five or six years ago within what used to be called the Agora network. Agora is the ancient Greek word for “gathering place” or “marketplace”.

I don’t believe that name is used to refer to the network much today, but the Agora still exists. It’s the largest financial publishing network on the planet. Except it’s decentralized.

Continue reading “On the Agora, economics, and moral philosophy”

We’ve been talking about real estate as an asset class all week. Today I’d like to wrap up our discussion by zooming out and looking at the big picture.

In every developed industrial country there is a glass ceiling of-sorts hanging over top of the middle class. This is certainly true in the U.S. Here’s what I mean…

When we add up all of the taxes across all levels of government, the average middle class person likely pays out half of their income in taxes each year.

It starts with the taxes that are typically withheld from our paychecks every two weeks. The Federal Income Tax… State Income Tax… Social Security Tax… the Medicare Tax – these taxes are each taken right out of our paycheck before we ever see the money.

Then we have to pay sales taxes on every good or service we purchase. And we pay excise taxes on things like gasoline and alcoholic beverages. We also have to pay property taxes on any real estate we own. Then we pay taxes and registration fees on our vehicles. 

These are taxes that virtually all middle class people pay – year in, year out.

Then if we happen to make any money on our investments, we’re required to pay taxes on our capital gains. Unless we defer those gains through a qualified retirement account. If that’s the case, we’ll be on the hook for normal income taxes on our money down the road.

If we were to add up the dollar amount of all these taxes each year, I bet it would equate to roughly half of our income. Which begs the question – how does one get ahead this way?

That’s the glass ceiling.

Continue reading “Shatter the Glass Ceiling with Real Estate”

Yesterday we talked about why the “nest egg” approach to retirement doesn’t work. And to illustrate, we showed how a retiree creating $70,000 a year in income from a $1 million nest egg would be completely broke in twelve to sixteen years.

A big part of the problem is that taxes eat into a significant portion of the nest egg. In our example we assumed a 15 percent tax rate. That required our retiree to sell $83,000 in assets each year just to get the $70,000 in income.

This is why I see real estate – old fashioned rental real estate – as the best vehicle for building income. It’s an incredibly tax-advantaged asset.

That’s because for every property we buy, the Internal Revenue Service (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.

So depreciation is a phantom loss. Just for tax purposes.

And that’s just one element to it.

Continue reading “Why real estate is a better way”

“A healthy nest egg can provide a solid foundation for a fulfilling retirement, allowing you to pursue your dreams and create lasting memories.”

This quote highlights the promise of the “nest egg” approach to retirement perfectly. We’re talking about the traditional model that’s been widely accepted since the early 1980s.

This approach says that we should pour our savings into financial assets to work up to this mythical retirement number.

The idea is that we build financial assets and hope our returns get us up to a big enough number that we can live comfortably in retirement. Then, we draw down our assets to create income for ourselves after we quit working.

That is to say, we sell off our stocks and funds and use that money to live on.

The problem is, this approach puts us on a see-saw. It forces us to choose between assets and income. When our assets are going up, we don’t have the income. Then when we want the income, our assets have to come down.

Plus, this model pits us squarely 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.

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

Let’s assume we work up to $1 million dollars. Just for easy numbers. We get to retirement with a million-dollar nest egg—plus, we have a little Social Security money coming in. So we say, “You know what, I want to draw $70,000 a year from my nest egg to live comfortably. That will supplement my Social Security”.

Keep in mind, to get that $70,000 we have to sell our financial assets. Which means we have to pay taxes on the proceeds.

Now, let’s assume a conservative tax rate of 15 percent. At that rate, we have to sell about $83,000 worth of assets to get our $70,000 in income for the year. The other $13,000 goes to taxes.

To keep our example here simple, let’s assume our tax rate stays the same for the rest of our life. If we run the numbers, that means we can sell $83,000 worth of assets each year for exactly twelve years. That’s it. After twelve years, we are out of money.

But wait a minute… sharp readers may point out that I’m assuming no return on investment in this example. That’s correct. But I have bad news for you – it doesn’t get much better.

Let’s suppose we can generate a consistent 4% annual return on our $1 million nest egg. If we can pull this off – without having any down years – then we’ll only have gone through about half our nest egg after ten years.

After that we’ll have seven more years to burn through the rest. By Year Sixteen we’ll only have $72,000 left. By Year Seventeen, we’re completely broke.

The following graphic shows the calculations:

To be fair, we’ll be far more comfortable with our finances for a little while in this scenario. That’s because our nest egg will produce over $20,000 a year in interest income for us for ten years.

But notice how it snowballs in the wrong direction after that. It quickly gets to the point where we can’t afford any emergencies. We can’t afford to really do anything but just try to maintain our standard of living.

To me, this makes no sense. Not when there’s a better way.

If all we are really trying to do here is make sure we have enough income to live on in retirement, why take the round-about way to income? Why not just build the income streams in our working years?

Personally, I would rather have assets and income. And I would like my income to go up when my assets go up. I want the two on the same team.

And that’s exactly what rental real estate can do for us. More on that tomorrow…

-Joe Withrow

P.S. Don’t forget that we’ll be opening the doors of our investment membership The Phoenician League very soon. This will be just the third time we’ve accepted new members since we launched last year.

If you’re interested to learn more about what we’re doing, you can do so right here: The Phoenician League Waiting List

“Ninety percent of all millionaires become so through owning real estate.” -Andrew Carnegie

We spent last week talking about building financial security and ultimately financial independence. The key here is that we need to have a system in place. As we discussed, chasing piecemeal investments is likely to keep us stuck on the treadmill.

When we talk about financial independence, we’re talking about a situation where our investments throw off enough cash flow to replace our active income. This isn’t something a 401k can do for us. So when we left off on Thursday, I suggested that rental real estate was the best vehicle to get there.

Simply put, real estate is a tried and true asset class. It’s largely timeless. The above quote from Andrew Carnegie over one hundred years ago highlights that.

I was thinking about this more over the weekend…

The early hints of summer are upon us up here in the mountains of Virginia. Green has gradually engulfed the cliffs that rise majestically above the meandering Jackson River below.

Continue reading “On real estate, cash flow, and timelessness…”