Investors are always looking for new ways to generate a return on their money.
But as we discussed yesterday, those who have fixated on the stock market haven’t fared too well over the last fifteen months. That’s why we’ve been talking about an alternative investment strategy all week.
We call it the Income Snowball Strategy. It’s all about creating passive income outside of the stock market.
The beauty of this strategy is that there’s no barrier to entry.
It’s not like real estate investing where we have to come up with large down payments for every property we want to buy. Instead, investors can get started with just $25. That’s it.
And that’s because this strategy utilizes what’s called ‘crowdlending’. This is a financial model that connects borrowers with investors.
In other words, crowdlending allows investors to be the bank. We can pool our money together to issue loans to qualified borrowers.
This strategy provides several advantages for retail investors. They are:
Higher Returns
Monthly Passive Income
Diversification
Supports Small Business
Crowdlending provides investors with much higher returns than normal. Certificates of deposits (CDs) and bonds just don’t compare.
As I write, a 10-year Treasury bond currently pays 3.4% interest. And according to Bankrate.com, the average 5-year CD rate in the U.S. is currently 1.2%.
Meanwhile, our suggested approach to crowdlending can generate returns between 9 and 15%. Over and over again.
That’s been our experience. And we use legitimate credit risk analysis to build a robust loan portfolio – just like the banks do.
What’s more, these returns come in the form of monthly passive income. The bigger our loan portfolio gets, the more cash flow we have coming to us each month.
This is money that we can use for anything we want. My preference is to reinvest it. But there are no restrictions whatsoever.
Building a crowdlending portfolio also helps us diversify our assets. It’s a great way to put money to work outside of the stock market.
And finally, crowdlending helps enable small businesses.
It’s a way for small businesses to access capital without going through the banking system. They like that. The banks don’t always treat small business well as it is.
So by helping fund certain loans, we are directly supporting small business ourselves. And in return, those businesses send us a small portion of their revenues each month.
Of course, the key to making it all work is proper credit risk analysis.
We need to do our due diligence and build our loan portfolio strategically. That’s how we maximize our returns with crowdlending.
Ready to learn more?
We just made our new micro-course available to the public this week. Those interested can find it right here: The Income Snowball Strategy
What on Earth am I going to do now? It will take forever to regain what I lost…
Alex had been investing heavily in the stock market since the COVID-19 hysteria hit several years ago. He found himself working remotely for the first time… and suddenly he had extra time on his hands.
Like many, Alex began tracking the stock market daily. And he stumbled upon a few Reddit threads full of investors and “day traders”. Making stock picks became a game that the group talked about daily.
Pretty soon Alex began pouring a significant portion of his paychecks into his brokerage account to make new investments.
And for nearly two years he felt like a genius. He watched his investment account grow substantially as the market soared.
But then the market started to fall in January 2022… and it seemingly went down every day. Alex watched in horror as his account began a steep decline.
He thought about selling off some of his stocks to cut his losses. But then everybody in his Reddit groups kept saying the market would rebound as soon as the “Fed pivot” happened.
The Fed pivot refers to the idea that the Federal Reserve would have to cut interest rates to stop the stock market from falling. And everybody on Reddit agreed it was coming…
But it didn’t come.
A few weeks ago Alex threw in the towel. Then he kicked himself for not getting out when his gut told him to last year.
He lost what he considers to be a ton of money by staying firm and hoping the market would soon turn around.
Alex went from feeling brilliant to deeply distressed.
On top of losing his hard-earned money, Alex also watched his living expenses skyrocket – as we all have. A simple trip to the grocery store now costs at least twice what it did not too long ago.
Sadly, this story isn’t unique.
There are countless people out there in a similar position to Alex. They got caught up in the blow-off top of history’s greatest bull market… but then they rode the elevator back down.
To me, this is a perfect example of why the Income Snowball Strategy we talked about yesterday is so timely. It’s all about generating passive income outside of the stock market.
And that’s why we just unlocked a brand new micro-course around this approach. The course covers:
The fundamentals of this alternative investment model
Strategies for maximizing returns while mitigating risks
Real-world examples and success stories
Best practices for getting started and growing your monthly passive income
This new strategy is something I think all investors would be wise to implement. If you’re interested, you can get more information right here: The Income Snowball Strategy
Your real estate program is great…but buying rental properties requires a large down payment up front. Do you have any strategies to start building passive income with less money down?
This is a great question that came in a few weeks ago.
We just conducted the second launch for our investment membership The Phoenician League last month. Our big pitch is that the membership delivers a comprehensive financial training program and actionable investment opportunities.
In other words, the program provides both the knowledge and actionable ways to implement it. It’s not just another information product.
One of the biggest promises we make is around helping members work up to $10,000 a month in passive income with rental real estate. We have the connections and the property deal flow to make this process as simple and straight-forward as possible.
That said, real estate is a slow game at first. It takes a while to save up enough to acquire our first properties.
The good news is that there’s a great way to start building passive income much sooner. We call it the Income Snowball Strategy.
I have personally used this strategy to generate a 9-15% return on my cash consistently. This is how I work up to having enough money to acquire new rental properties.
And these returns come in the form of monthly passive income. The money hits our account every single month.
So we aren’t generating capital gains in the stock market here.
That means we don’t have to worry about market crashes or investor sentiment. I see this as ideal now that the Age of Paper Wealth is over.
As such, we’ve unlocked a micro-course around this strategy. It’s short and to the point. There’s no fluff or filler whatsoever.
And the course outlines three specific strategies we can use to grow our passive income. One is conservative. One is moderate. And the last is aggressive – for those who have a higher risk tolerance.
We believe, however, that events in the banking system over the past two weeks are likely to result in tighter credit conditions for households and businesses, which would in turn affect economic outcomes. It is too soon to determine the extent of these effects and therefore too soon to tell how monetary policy should respond.
As a result, we no longer state that we anticipate that ongoing rate increases will be appropriate to quell inflation. Instead, we now anticipate that some additional policy firming may be appropriate.
That’s Federal Reserve Chair Jerome Powell at the Federal Open Markets Committee (FOMC) meeting last week.
As expected, the Fed raised its target rate another 0.25%. It’s now between 4.75 and 5%.
That said, the Fed did remove its existing guidance that “ongoing rate increases” will be appropriate. Many analysts in the financial echo chamber took this to mean that the “Fed pivot” is coming.
If we remember, the Fed pivot refers to the idea that the Fed will have to end its rate-hiking campaign and get back to pouring cheap money into the system.
I don’t think that’s the case.
To the contrary, I believe the Fed is committed to “normalizing” interest rates. There’s no other choice if they want to avoid destroying the economy and the entire monetary system.
Nothing said in last week’s meeting has changed my mind on that.
Unlike his predecessors, Powell appears to be a straight shooter. Remember, he’s not a career academic like Ben Bernanke and Janet Yellen were.
Powell is a Wall Street veteran. And he made an absolute fortune on Wall Street. His net worth is north of $100 million.
So unlike Bernanke and Yellen, Powell doesn’t need to walk the party line or cover for hidden globalist agendas. We talked about that earlier this month.
With that in mind, let’s look at what Powell said last week in response to a question about what exactly “policy firming” means. The journalist basically asked whether “firming” meant no more rate hikes.
In response, Powell suggested focusing on the words “may and some, opposed to ongoing”.
Reading between the lines here, Powell made it entirely clear that no pivot is coming.
If we see a strong credit contraction due to the liquidity crunch in the banking sector, the Fed may hold off on the next rate hike for a quarter or two. But that’s it.
The Fed is still committed to getting back to what they refer to as a “terminal” rate. This is the rate at which the Fed sees as neutral. That is to say, it’s not stimulative nor is it restrictive to the economy.
We don’t know what the Fed thinks the terminal rate is. But it’s almost certainly between 5% and 7%. And that means more rate hikes are coming.
To me, that’s a good thing. We need “normal” interest rates to get back to any semblance of fiscal sanity.
That said, this also means that the Age of Paper Wealth is over. The days of the Fed juicing the stock market with low rates and cheap money are behind us.
The bad news here is the investments that worked incredibly well during the bull run from 2009 through January 2022 will not work so well going forward.
The good news is that there are plenty of solutions.
And it all starts with fundamental asset allocation. More on that right here.
Remember, every Fed tightening cycle ends in disaster and then, much more Fed easing.
That’s a tweet Zero Hedge put out back in January.
Zero Hedge is a financial news aggregation site. And it’s incredibly popular in the alternative finance space. I browse its headlines every day to keep my thumb on the pulse of what’s happening out there… and what people think about it.
Of course, Zero Hedge’s tweet here implies that the Federal Reserve (the Fed) will have to “pivot” soon. That is to say, the Fed will have to end its rate-hiking campaign and get back to pouring cheap money into the system.
This is a common theme within the financial echo chamber. And to be sure, it has historical merit.
The Fed embarked upon the path of zero-bound interest rates and funny money in 2008. This created an incredible bull market in U.S. equities. That’s because funny money always feeds speculative booms.
But the Fed did start to “tighten” in 2016. It gradually raised its target interest rate from 0.5% at the start of the year to 2.5% by December 2018.
Then the S&P 500 tanked by nearly 20%… and the Fed went back into easing mode. It quickly dropped its target rate back down to 0.5% and began funneling cheap money back into the financial system.
This stemmed the tide and allowed the S&P 500 to resume its historic bull run.
Many analysts point to this episode and say the Fed will do the same thing this time around. I think they’re missing the big picture here.
Cheap money and excessive “stimulus” only go so far. And now we’re at the end of the road.
By raising rates aggressively, the Fed is forcing fiscal responsibility upon the economy once again. They have to.
Don’t get me wrong – I’m no fan of the Fed. Its creation in 1913 was itself a coup against free markets.
That said, those of us who have studied free market economics know very well that zero-bound interest rates and easy money policies are not sustainable. I’m surprised we managed to go this long without a major blow-up.
Ludwig Von Mises spelled out the dilemma very clearly in his great work Human Action: A Treatise on Economics. Here’s Mises:
There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved.
What Mises was saying is this…
Once you go down the path of manipulating interest rates lower and printing new money from thin air, you necessarily sow the seeds of a future crisis.
If you keep going down that same path for too long, you’ll destroy the currency and wreck the economy beyond all recognition. This is the worst-case scenario.
But if you recognize that your current trajectory is unsustainable, you can make the decision to reverse course.
This will result in a painful economic contraction. Artificially low interest rates and funny money fuel all kinds of malinvestment… and that malinvestment must be liquidated.
That’s what the necessary recession does. It clears out the bad debt and gets rid of unproductive companies.
It’s not fun to go through. But it’s far preferable to destroying the currency and the entire economy.
Most of us in the alternative financial space assumed the Fed would never reverse course. But they did. They chose Mises’ voluntary abandonment option.
The media claims that the Fed’s rate-hiking campaign is about fighting inflation. That’s not its primary purpose, however. It’s about saving the legacy financial system.
Again, this doesn’t mean the Fed is “good”. It’s simply acting in its own best interest.
But what we need to understand is that normalizing rates is the path back to a healthy economy. That’s what’s happening here.
We’re going to have to endure a recession first. That’s unavoidable.
But there’s a decent chance that we’re staring down the barrel of a new American renaissance. I never thought I’d say that two years ago. But now there’s now a path forward.
Of course, that presumes the Fed maintains its current course.
Thanks to the prominent banking collapses we discussed last week, the Fed now has all the cover it needs to stop raising rates and return to its old cheap money ways. But I don’t think it will.
We’ll get a better feel for where they stand at the Federal Open Markets Committee (FOMC) meeting this week. Stay tuned…
-Joe Withrow
P.S. The chaos within the banking sector has lit a fire under the price of gold.
As I write, gold is trading around $1,985 an ounce. It’s now up 9% on the year.
And to use trading terminology, gold’s price has “broken out” on the weekly, monthly, and quarterly charts. There are no guarantees this run will continue, of course. But such a strong technical breakout across several time horizons is typically very bullish.
That said, I don’t see gold as a trading vehicle. It’s not something we should put dollars into only hoping to get more dollars out later.
Instead, gold is real money. And there’s a good chance that we’ll see it “re-monetized” within the global financial system in the coming years. We’ll talk more on that another day.
So the best thing to do with gold is simply to accumulate it over time. I prefer to do so by purchasing one-ounce gold coins several times a year.
For anyone who would like to learn more about gold and how to buy it, check out Taggart Trading at https://southfloridabullion.com/.
This is a small firm run by a friend of mine. He provides clients with excellent personalized service that we simply can’t get at the large online dealers.
Are we at the early stages of another financial crisis?
Last weekend featured both the second and the third largest bank collapses in American history. Then just yesterday Swiss banking giant Credit Suisse plunged 25% on concerns that it’s on the verge of collapse as well.
What’s incredible here is that Credit Suisse was founded in 1856. It’s been in operation for nearly 170 years. And I’ll add that Switzerland has been known as a banking safe haven for much of its history.
Yet Credit Suisse is teetering. And with the stock tanking yesterday, Credit Suisse shares have lost over 87% of their value in the last twenty-four months. Ouch.
Naturally this begs the question – are we watching another financial crisis unfold here? Is this 2008 all over again?
Remember, the Fed represents the New York banking interests. In fact, it’s almost certainly owned by those same interests.
So the Fed’s incentive is for America to have a healthy, functioning economy. That’s how the New York banks maintain their wealth, power, and influence.
Meanwhile, the globalists have actively worked to undermine the legacy economy. Both in Europe and here in the United States. One could argue that every government policy we saw imposed upon us in response to the COVID-19 hysteria was all part of this plan.
There’s a lot of chatter out there about how the Fed “broke” the banking system by raising rates too far too fast. Perhaps that’s true. But I have a different perspective.
The Fed is forcing fiscal responsibility upon the system. That’s what’s happening right now.
Simply put, an economy needs real interest rates in order to function properly.
Interest rates are the price of money. The higher the rate, the more expensive it is to borrow money.
So when rates are high, only the most important, high quality companies and projects can get financing.
And the opposite is true as well. When rates are low, even questionable companies and projects can get financed.
We’ve been stuck in a world where interest rates have been next to zero for the better part of the last fifteen years. That’s led to the “financialization” of everything.
It’s also enabled the U.S. government to borrow over $31 trillion dollars… and largely blow it all on stupid and destructive programs.
And on the commercial banking front, funny money and zero-bound interest rates destroyed the fundamentals of risk assessment.
Instead of funding solid top-tier projects in this country, lenders poured trillions of dollars into high-flying projects that promised nothing more than a quick buck. Many banks also funded uneconomical “environmental, social, and governance” (ESG) programs in the name of political correctness.
As a result there’s an onslaught of zombie companies out there. We’re talking companies that hemorrhage money every year because they don’t do anything important.
These zombie companies have survived simply because they’ve been able to float new bonds at ridiculously low rates. In some cases less than 1%. That’s enabled them to raise more and more money to keep themselves alive.
Those days are over.
We are going to see an absolute avalanche of corporate bankruptcies in the coming years. The financial media will play it up as a tragedy and demand something be done about it.
In reality this is exactly what needs to happen.
We need to stop pouring trillions into fly-by-night operations. Then we can focus on the real economy.
We can make sure that those companies who actually do important work get the financing they need…
We can make sure that business owners and homeowners have access to capital to properly maintain their buildings, tools, and equipment…
And we can make sure that we take care of our critical infrastructure. We can fix our roads and bridges like we should have been doing all along.
You know, a friend of mine did a tour of the Rust Belt several years ago. With a few exceptions, it’s amazing how much of America has fallen into disrepair.
Our infrastructure is outdated. And once illustrious Main Streets now sit deserted and disheveled.
Many of these Main Streets feature brick and stone buildings that date back a century or more. And most were once the center of vibrant local communities.
Of course, there are a lot of contributing factors here. But economics had a big part to play in what’s happened to our country.
With near-zero interest rates, we’ve “financialized” everything. And in the process we’ve denied individuals and small businesses the ability to earn any yield on their savings.
The path back to a healthy economy requires the Fed to do exactly what it’s doing right now. It must continue to raise interest rates and then let all the zombie companies go bankrupt.
When that happens the banks will get back to doing proper risk assessment on every loan they make. They’ll have to.
And what follows will be the restoration of the American economy. Believe it or not, that’s the path we’re on right now.
So the big takeaway is this…
We’re entering into what’s going to be a chaotic transition period.
The media will likely stoke the flames of fear and worry… but we should ignore them. Getting back to normal is going to be a painful process.
-Joe Withrow
P.S. The restoration of our economy is great news. But that doesn’t mean we’re going back to the days where the U.S. stock market always goes up. Quite the opposite.
The fact is, the Age of Paper Wealth is over.
The Fed has supported the stock market by pushing interest rates lower and pumping easy money into the financial system for the last forty years. That’s why U.S. equities have been the staple of pretty much all retirement plans for decades now.
We’re entering a new era today.
Hard assets and “bearer” assets are making a comeback. They are the backbone of a strong economy.
As such, it’s time to rethink financial planning 101. We can do so right here: Finance for Freedom
The root problem with conventional currency is all the trust that’s required to make it work.
The central bank must be trusted not to debase the currency… but the history of fiat currencies is full of breaches of that trust.
Then banks must be trusted to hold our money and transfer it electronically… but they lend it out in waves of credit bubbles with barely a fraction in reserve.
That’s Satoshi Nakamoto writing in an old cryptography forum back in 2009. He was explaining – quite clearly I think – the true purpose of Bitcoin. It’s to restore honest money to society.
Satoshi is the person who created Bitcoin. The name is fictitious… but the person is quite real. I have it on good authority that he was in fact a cypherpunk.
The cypherpunk movement was strong back in the 1980s and 90s.
It consisted of computer programmers who were early internet pioneers. Their calling card was that they believed in the sovereignty of the individual over the State.
More specifically, the cypherpunks believed that all individuals should be able to interact and transact with each other freely and privately, so long as they did so without coercion or fraud.
That was the key. No coercion. No fraud.
Today there’s an entire social philosophy based on this premise. It’s called voluntarism. But that’s a story for another today.
Yesterday we talked about how the Signature Bank collapse wasn’t a collapse at all. The regulators forcibly shut it down as an attack on the crypto industry.
I certainly don’t condone such actions. I’m myself a voluntarist at heart.
At the same time, I’m not a fan of what the crypto industry has become. On the whole, the industry has strayed far from Satoshi’s vision.
Painting with a broad brush, Bitcoin’s purpose is to restore honest money to society. That’s spelled out clearly in the Satoshi quote above. And in the early days the entire crypto industry was aligned with that purpose.
As I mentioned yesterday, I’ve been plugged into the Bitcoin world since 2014.
Back then, there was Bitcoin and only a handful of other serious cryptocurrency projects.
Litecoin was one. It’s job was to be Bitcoin “light”. That is, to facilitate faster, cheaper peer-to-peer payments while Bitcoin worked to build a network effect.
Namecoin was another. It’s goal was to provide an alternative to the highly centralized DNS system. That’s because the system as it exists is largely contrary to the original vision of an open and unrestricted internet.
Ripple was around back then too. I never cared much for it. But it did have a specific purpose. That’s to modernize the way banks handle cross-border transactions.
Dogecoin was around in 2014 also. It came about entirely as a joke. It was never intended to be a real project. I guess we can say that its purpose was humor.
To my knowledge, these were the only five crypto projects running in 2014 that are still prominent today.
And notice that we didn’t mention Ethereum.
Ethereum was still in development at the time. It hadn’t launched yet.
Still, Ethereum had a specific purpose. Painting with a broad brush again, it was to be the world’s super computer.
My point is this… the digital asset industry was small and mission-driven. And with a few exceptions, the major cryptocurrencies were complimentary to one another.
This dynamic changed with Bitcoin’s incredible run in 2017. I remember it well.
In 2017, Bitcoin opened the year trading at $997 per BTC. Then it shot up to about $17,000 by December of that year.
For those of us who were around in the early days (and I wasn’t that early), this was incredible.
You see, we didn’t think about the dollar price too much back in 2014. We weren’t interested in Bitcoin because we hoped to make a return on our dollars.
Instead, we got on the Bitcoin train because we believed in honest money.
That is to say, money that can’t be created from thin air arbitrarily and unilaterally. Doing so always and everywhere debases the purchasing power of the money.
In other words, we got into Bitcoin because we saw it as a better monetary system. That was the Bitcoin vision. And it still is.
So when Bitcoin exploded in popularity in 2017, I naively thought that the world had realized what I did three years earlier. That Bitcoin was simply better money.
I was wrong.
What the world learned was that they could put their dollars into “crypto” and get an unbelievable return on their investment. Then they could sell their crypto and take even more dollars out.
Hence the term “cryptos” was born. And to this day I can’t stand it.
I can’t tell you how many people approached me in 2017 with “cryptos” schemes. I agreed to take their calls because I naively thought they saw the vision. It didn’t take thirty seconds for me to realize the folly in that.
The same thing happened again with the big crypto boom in 2021. People with schemes came out of the woodwork. But I knew better by then. I took zero calls.
So here’s what I want you to take away from this…
Bitcoin is not an investment.
If you’re looking for something where you put dollars in and then get more dollars out later, buy stocks and real estate. We have specific guidance around both in The Phoenician League.
But when it comes to Bitcoin, it’s all about accumulation. The same goes for gold.
We don’t buy Bitcoin or gold hoping to make a return on our investment. We buy them because the dollar has lost 96.7% of its purchasing power since 1913… and we know that trend’s only going to continue. Monetary debasement is baked into the current system.
Therefore, we buy Bitcoin and gold to turn our dollars into real money. Money that will protect our purchasing power for centuries.
-Joe Withrow
P.S. I gave a presentation titled Bitcoin’s True Purpose a few years ago. You can find it right here:
I think part of what happened was that regulators wanted to send a very strong anti-crypto message. We became the poster boy because there was no insolvency based on the fundamentals. There was no real objective reason for Signature Bank to be seized…
That was former Congressman Barney Frank on CNBC. He was talking about Signature Bank’s collapse this past weekend.
If his name sounds familiar, Frank co-sponsored the Dodd-Frank Act back in 2010. That was the government’s official response to the 2008 financial crisis.
Perhaps it’s no surprise then that Frank found himself sitting on Signature Bank’s Board of Directors upon retiring from Congress.
Frank served on the board from June 17, 2015 through this past Sunday. That’s when regulators stormed in to freeze Signature Bank’s assets and prevent the bank from opening its doors on Monday.
We talked yesterday about the Silicon Valley Bank (SVB) fiasco. It’s now the second largest bank to collapse in history. And we had to ask the question – is there more to the story?
Well, Signature Bank is now on record as the third largest bank collapse in history. And there’s absolutely more to this story.
Signature Bank opened its doors to the cryptocurrency industry in 2018.
That sounds like a simple thing. But it was monumental back then.
At the time, most banks refused to open deposit accounts for businesses dealing with cryptocurrency in any way.
So Signature Bank has been a favorite of the crypto industry for years now. In fact, it housed $16.5 billion in deposits just from companies in the digital asset space.
And as of its most recent regulatory filings, Signature Bank held $88.6 billion in total deposits and $110.4 billion in total assets. As Frank pointed out, the bank simply was not in financial trouble.
So why did regulators shut it down?
Clearly, it was an attack on the crypto industry – as Frank pointed out. But there’s a lot more nuance to this story.
I’ve been plugged into the world of Bitcoin since 2014.
At the time there was Bitcoin and only a handful of other cryptocurrencies. And each of them had a specific purpose. We can talk more about that tomorrow.
Fast forward to today and the “crypto” industry is something entirely different.
Don’t get me wrong. Bitcoin hasn’t changed. It’s still mission-driven.
But the industry at large became something else. It turned into a worldwide casino. And for those who were hip to the game, “crypto” could provide incredible leverage.
Many projects created their own “tokens” and sold them for dollars. Then they used those dollars to acquire other assets. Or, in the case of FTX, to pay off a bunch of politicians.
This is why I despise the term “cryptos”.
Most cryptos are a scam. Their only purpose is to vacuum up dollars for the founders.
And even many of the crypto projects that have a legitimate business model aren’t exactly in alignment with Bitcoin’s true purpose these days. That disappoints me.
And this brings us back to Signature Bank…
As FTX demonstrated, the crypto industry became essentially an extension of the Eurodollar market. And the Federal Reserve has been hellbent on draining the Eurodollar market of liquidity.
That’s what the Fed’s aggressive rate hiking campaign has been all about. Inflation was just the cover story.
This is something we cover in a lot more depth in The Phoenician League’smonthly newsletter.
To keep it simple, Eurodollars are U.S. dollar-denominated deposits held at foreign banks. They are mostly held in European banks. Hence the name.
The Eurodollar market exists outside the U.S. regulatory system. And it provides liquidity to European financial institutions and ultimately European governments. They can leverage Eurodollars to support spending programs that they favor.
So by draining the Eurodollar market, the Fed is hamstringing the globalist power structure and their “Great Reset” plans. That’s what the rate hikes are really about.
And it appears quite likely that this is what the takedown of Signature Bank was all about also.
Simply put, there’s a power struggle happening at the upper echelons of the global financial system right now.
Of course, the media will explain it all away as “normal”. That’s what they are there for.
But what’s happening today is anything but normal. We’re living through an incredible inflection point in history.
If you would like to do a deeper dive on this story, please give our investment membership The Phoenician League a look.
We’re tracking these developments in extended detail every month. And then we use this understanding to craft highly robust investment strategies.
Cutting to the chase – we’ve got $2 million parked at SVB. We’ll find out on Monday how much we’ll be able to withdraw…
That note came to me over the weekend. It was from the founder of a start-up company who just raised $5 million in what’s called a Reg CF raise. This is the mechanism by which regular investors can invest in private companies – no accreditation necessary.
SVB refers to Silicon Valley Bank. As of last week, it was the 16th largest bank in the United States.
This weekend it became the second largest bank to collapse in history. That’s after lines of people stormed the bank to pull their money out.
Over 2,500 venture capital (VC) firms banked at SVB. As did countless early stage private companies. By some estimates SVB did business with roughly half of all private technology companies in this country.
Imagine what those companies went through over the last several days…
As we know, FDIC insurance covers deposits up to $250,000 in the event of a bank collapse. For individuals, this is more than enough. Very few of us keep more than $250k in the bank.
But when it comes to enterprise clients – $250,000 is typically a drop in the bucket.
So half of the tech companies in this country just faced the prospect of losing most of their money. And if that were to happen, we would likely see a record number of businesses go bust at the exact same time… taking out some major VC firms and angel investors with them.
After a few days of panic, the U.S. government stepped in and outlined a $25 billion funding program to ensure that all SVB depositors are made whole. Uncle Sam’s not going to let the early stage tech sector go bust.
But the question is – what happens from here?
Is the banking system in trouble? Will the Fed have to stop raising rates?
The answer to that first question is no.
SVB simply got caught with what’s called a duration mismatch in the banking world. The bank had a large portion of its reserves in long-term U.S. Treasury bonds and mortgage-backed securities.
Now, the value of a bond moves inverse to interest rates. When rates go up, bond values go down.
And that’s what triggered an old-fashioned bank run at SVB. The value of its bond portfolio had declined dramatically… which raised questions about its financial health.
What’s interesting here though is that SVB planned to hold those bonds to maturity. And when a bond matures, investors get their original investment back. No matter what.
So the fact that SVB’s bond portfolio had declined in value shouldn’t have been such a big deal. It was largely just a paper loss. The bank held those bonds for the yield they provided… and that’s it. They weren’t going to sell those assets at a loss.
This begs the question then – what triggered the bank run? What prompted SVB’s depositors to rush to pull their capital out?
Most of us aren’t analyzing our bank’s financial statements every day… so it stands to reason that somebody must have triggered concerns around SVB.
I’ve heard rumors that JP Morgan CEO Jamie Dimon may be behind all this. This is unsubstantiated, but word is that he urged some top enterprise clients to pull their money out of SVB.
And to be sure, JP Morgan is going to be a beneficiary here. Many tech companies will move their deposits to the iconic bank. That includes the founder I mentioned above. The one who had $2 million parked at SVB.
So this begs another question – is there a bigger game afoot here?
Interestingly, the Federal Reserve and the Treasury are on opposite ends of this schism. The Treasury supports the globalist initiative. Meanwhile, the Fed supports the New York banking scene.
So I can’t help but wonder… was this just another shot fired in the war between the Fed and the Treasury?
We’ll see. This certainly shines the spotlight on the Fed’s upcoming meeting later this month.
Many are pointing to SVB and saying that this will force the Fed to stop raising rates. Some think this paves the way for the Fed to “pivot” and cut rates again.
Color me skeptical.
If I’m right about the ongoing battle for monetary supremacy, we’ll likely see the Fed continue along its chosen path. That would include another 25 basis point rate hike later this month… accompanied by “hawkish” talk around future rate hikes.
And if that is in fact what happens, it will be the strongest confirmation yet that the days of low rates and easy money are over. Which means the Age of Paper Wealth has come to an end.
If that’s the case, we’re in uncharted waters here.
Nobody under age sixty has been an adult in a world where rates didn’t consistently go down over time. And how we manage our finances when rates are going down is dramatically different from how we handle our money when rates are rising.
Fortunately, there’s a simple solution. Learn more right here:
The above line is an ancient Chinese proverb… and it absolutely applies to us. My friends, we are at an inflection point in history. Right now.
There are many reasons why that’s the case. But I’m a finance guy, so I’ll focus on the financial aspects. We’ll start with some quick background…
The Federal Reserve (the Fed) is the central bank of the United States. And it owes its existence to a piece of legislation that passed in 1913.
The story of how that legislation was crafted and pushed through is absolutely incredible. If you like mystery novels, the story of the Fed is for you. But we’ll save that for another day.
Today, the Fed claims to have a dual mandate. It’s to ensure maximum employment and price stability.
Between friends, that mandate is bunk. The Fed does neither. Nor is it supposed to.
The Fed’s true purpose is to ensure that the U.S. Treasury is forever solvent… even if it spends money that it doesn’t have.
In other words, the Fed’s job is to print money to cover the U.S. government’s excessive spending. We call this “debt monetization”.
But there’s a new wind blowing out in front of the Eccles building. And it seems the Fed has made a conscious decision to break from the Treasury.
Fed Chair Jerome Powell was on Capitol Hill this week. And he made it abundantly clear that the Fed is no longer going to cover for the Treasury’s malfeasance.
Check out Powell’s exchange with Senator Lummis:
As we can see, Powell made it very clear that the Fed is not going to keep interest rates low just to help the U.S. Treasury service the national debt.
Sure, he paid lip service to the dual mandate. He has to. But the big takeaway is that the Fed\’s not going to support the deficit by keeping rates low.
I know this confused many analysts. It would have confused me a year ago as well.
After all, Powell succeeded Janet Yellen as Fed Chair. And Yellen happens to be the head of the U.S. Treasury now. Aren’t they on the same team?
The answer is no.
The fact is, there’s a power struggle happening in this country right now. This has become apparent over the last twelve months… at least for those who cared to read between the lines and analyze incentives.
Yellen is aligned with what we’ll call the globalist power structure. It seeks to reorganize our society per the World Economic Forum’s “stakeholder capitalism” model.
It’s intended to sound like a friendlier version of capitalism. But in reality stakeholder capitalism is more akin to a grotesque neo-feudalism.
That’s because the “stakeholders” in their vision will control all aspects of money, finance, and energy production.
This necessarily requires the commercial banking system to be diluted or discarded. And it takes all decision-making authority and places it in the hands of the stakeholders. The rest of us are expected to fall in line and accept their edicts.
Meanwhile, Powell is aligned with the New York banking interests. They have been prominent for over a century now. This is the power structure that helped get the Fed established in the first place.
This faction wants to maintain the American status-quo as it currently exists. In fact, their power, wealth, and influence depend on it.
There’s very clear evidence that these two factions have been battling it out for at least twelve months now… maybe longer. Except everything’s happening just under the surface. Most are unaware that anything like this is afoot.
And with Powell’s overt comments on Capitol Hill this week, it’s clear the battle is ramping up. This is the first time Powell publicly admitted that the Fed has broken ranks with the Treasury and the globalist narrative.
So things are about to get especially interesting. And this all has major implications with regards to money and investing.
First of all, understanding what’s happening at the macroeconomic level enables us to make intelligent decisions when it comes to our investments.
Most of the financial world has been stuck in this echo chamber where they are repeating the same thing to each other. They all agree that Powell is raising rates in the present to fight inflation… and that he will “pivot” and cut them again when inflation subsides.
That’s not what’s happening here.
The Fed isn’t raising rates to fight inflation. It’s raising rates to fight the globalist power structure… and to preserve the power and prestige of the New York banking scene.
That’s a deep rabbit hole. And we cover it in a lot more detail in The Phoenician League’s monthly newsletter.
But for investors, the takeaway is this: the days of low rates and easy money are over. The Fed will not support the stock market anymore.
In other words, the Age of Paper Wealth has ended.
And that means what’s worked well for the last several decades won’t work so well going forward. It’s time for a new approach…
-Joe Withrow
P.S. If the battle between the Fed and the Treasury piques your interest, we are actively tracking this story every month in The Phoenician League’s monthly newsletter.
We’ve already spilled tons of ink on the subject – about ten thousand words to be precise. And we’ll continue to do so going forward.
Simply put, this is the most important macroeconomic story of our day. Yet, very few people even know what’s happening… let alone understand it.
In The Phoenician League, we also talk extensively about how to position our investments in response to the major changes that are afoot right now.
This includes robust asset allocation and an intense focus on building passive income streams. And we have specific investment suggestions and a systematic process for going about this.
The Phoenician League only opens its doors to new members a few times each year. And our recent enrollment period ended last Saturday.
That said, we can still accommodate a few new members in the current cohort. So I’m going to make an exception and extend one final opportunity to join our network at a discounted price.
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You can use coupon code member25 at the checkout page to take 25% off of our membership rate. This will be the very last time we extend this discounted offer.
