This takes a bit of explaining, so here goes: On Wednesday, over on the www.peoplenomics.com side of the house, we had the start of a very interesting discussion about 2016 financial planning.
This morning, I’d like YOU to toss in your 2-cents worth in response to a very simple question:
How good are you going to be at picking THE ONE BEST INVESTMENT VEHICLE which should outperform ALL OTHERS in 2016?
I’d ask that if you have any ideas that you post a “comment” since the computer will take care of all the message handling that way and it won’t flood my inbox.
Then we can all go gold-panning through the comments section.
Think of the problem this way:
If someone came along and dropped some money on you, where would you deploy the money right now – today – so that you would have a reasonable expectation about it being there when you come to get it back a year from now?
This will be reviewed in detail – along with a big discussion of risks and left-field threats and all – in a future issue of Peoplenomics. But the raw answers are free for all. (We do a lot of free-for-alling around here…)
Since we have the evolving “discussion community” here, I figured “What the hell? Let’s see where people are willing to put their money…”
So here’s your chance.
I think it would be useful to segment this a bit…we need to talk about some basic concepts.
If someone were to lay $5,000 on me right now and say “Go Yee forth, Ure, and Profit… I’ll be back for the Profit next year…” I frankly don’t know for sure (even writing some of this while wide-awake on Wednesday afternoon) where I would deploy the money.
Peoplenomics readers know that I am expecting the government will have to crank over into hyper-inflation at some point. When they do, the price of gold (and real estate) should go back through the roof again.
But what many people forget is that one of the major functions of a depression is the destruction not only of DEBT but also of SAVINGS.
My consigliere and I get deeply into this almost every time we talk.
The reason (and we agree on this) is that DEBT is money owed to whom? SAVERS.
So when debt gets destroyed (which is what bankruptcies by the millions will do in a “good” depression, then on the other side of that realize that SAVINGS will also be destroyed.
About the only thing not perfectly clear is where to expect the transition from a deflationary plan to an inflationary approach.
What has been going on here lately is that the Fed has slowly been letting the air out. There is deflation – but it is masked by so damn much money printing that it is not terribly apparent to the (non-economic) masses just what the hell is going on.
What they read (if, right?) is that a few wild outliers like Ures truly are ranting and raving about how the Fed is printing so much money that they are effectively burying what would otherwise be “in you face” deflation.
What this means, then, is that the Fed is doing its job of meeting the “dual mandate” but THAT makes absolutely no reference to maintaining the integrity of the nation’s money.
We are on about our Fourth Money System in the US – and over the past 239 years, one of the hard realities is that the American “money” had been revalued and renamed many times.
As a newly founded country we had the Continental. But that didn’t come until after we had a kind of “dollar” that was roughly based on the Spanish dollar (1792) so if we are going to count how many “dollars” we have been through, we would count the one before the Continental.
Wikipedia then goes on about how congress set up lawful money after that…
The U.S. dollar was created by the Constitution and defined by the Coinage Act of 1792. It specified a “dollar” to be based in the Spanish milled dollar and of 371 grains and 4 sixteenths part of a grain of pure or 416 grains (27.0 g) of standard silver and an “eagle” to be 247 and 4 eighths of a grain or 270 grains (17 g) of gold (again depending on purity). The choice of the value 371 grains arose from Alexander Hamilton‘s decision to base the new American unit on the average weight of a selection of worn Spanish dollars. Hamilton got the treasury to weigh a sample of Spanish dollars and the average weight came out to be 371 grains. A new Spanish dollar was usually about 377 grains in weight, and so the new U.S. dollar was at a slight discount in relation to the Spanish dollar.
The Coinage Act of 1792 set the value of an eagle at 10 dollars, and the dollar at 1?10 eagle. It called for 90% silver alloy coins in denominations of 1, 1?2, 1?4, 1?10, and 1?20 dollars; it called for 90% gold alloy coins in denominations of 1, 1?2, 1?4, and 1?10 eagles.
Greenbacks were paper currency (printed in green on the back) issued by the United States during the American Civil War. They were in two forms: Demand Notes, issued in 1861–1862, and United States Notes issued in 1862–1865. They were legal tender by law, but were not backed by gold or silver, only the credibility of the U.S. government.
Since we are “counting out our money” this morning, this makes the Greenback #4 for the U.S. government and that’s in the short space historically of 1792 up to 1861.
I would offer that the dollar was a bit of a different thing thereafter (1865 and later) but we could quibble.
Obviously, the Dollar was NOT THE SAME as a Silver Certificate…and the Federal Reserve NOTE is nothing more than a confidence game which most people find too much work to really dig their heels in about.
But, if we can it like it is, we can enumerate as follows:
- The Spanish dollar clone
- The Continental
- The pre-Civil War dollar
- Post-Civil War dollars
- Silver Certificates
- Federal Reserve Notes
The key point to be thinking about is this: convertibility.
This is the time of the year to get some neurons firing around this topic because between now and a year from now it is a dead certainty that money will not be equally convertible from today’s values into tomorrow’s products.
It may be higher – as would be the case if the dollar actually bought you more of a specific thing. We would call this deflation because the prevailing prices of things would seem lower. Like gasoline is going through deflation here lately. On our travels last week, the cheapest gas I saw was $1.669 for unleaded up in the Dallas area on a no-brand operation.
On the other hand, when prices go UP, more often than not, the “price” of a thing isn’t going up so much as the U.S. dollar is being constantly eroded by [your] elected government.
There is an inflation calculator over at the Minneapolis Federal Reserve site that makes this simple enough to prove.
Just based on government reported inflation (watering down of money’s purchasing power) what has happened to prices since the Fed stole control of “money” from the FedGov?
$100 of goods in 1913 will cost today $2,394.74.
If I roll up by regression sleeves and see how 102 years of inflation averages out, we can see that it pencils to 3.1626% per year of baked-in-the-cake monetary inflation for the past 102 years!
Not that inflation is bad. It is one of the FEW ways that the middle class can actually build some net worth.
Still, the government method of calculation is HIGHLY suspect.
While it is true that you could get a good steak dinner for $1 in 1913, and you can get one that’s passable for $23.94 today (we can test this at the local Outback on prime rib – you buy) when it comes to the other essentials of life even this systematically understated metric blows up.
Take housing for example.
The U.S. Census says that the AVERAGE PRICE OF A HOME in 1963 was $19,300. Check the source for yourself over here.
Now look at the most recent data in that study: In 2010 it was reported at $272.900.
Now let’s flip back over to the Minneapolis Fed and see what THEY believe was going on. Thanks to the fine job they did on the calculator, we can put in both dates, the starting price and see what we would EXPECT based on Government figures, that home to be worth.
Well, don’t look now but the inflation adjustment on that 1963 average house price worked out to $137,425.07 by 2010.
HOWEVER the REAL price of housing was just about TWICE THAT amount.
So we are left with the ugly ponders here:
- Is the government inflation calculation a bald-faced lie?
- Or is the US Census lying about their average home prices.
Honestly, half a century of economic education argues that the government consistently lies about inflation.
There is a business reason they do this.
Many benefit programs (military retirement, federal employee retirement, Social Security, and yada, yada – are all indexed to the inflation reported by the government.
They go through every year making little “fudgies here and there” and hope that they won’t be caught out.
But when a serious person looks at the underlying data (we just did even though I know you’re only pretending to be serious at this hour) the reality come sparkling through like a million watt flood lamp of truth.
I’m sure with a half dozen phone calls, I could get someone in officialdumb who would be able to soft-shoe around this. But frankly, I’m not interested.
I’m sure one reason is the evolution of condos. But wait! These are smaller, lower cost homes – they should lower current prices, not double them.
Larger homes? Well, no, because size and none of that matters because the look-see here this morning is average price, not cost per square foot.
Could it be due to the arrival of lots of manufactured housing in the South? Ding-ding-ding: NO! They are cheaper and would lower the average home price.
Inclusion of new appliances? Ding-ding…No!
The kind of deviation we are talking about in the government data – which I will round off to $150,000 because we are friends will buy you 100 refrigerators per home, or three refrigerators in the average home plus a dishwasher, disposal, trash compactor, prewire cable, and two garage door openers and STILL have enough left over to live like a King & Queen in Hilo on the windward side of the Big Island for a year!!!
See how crazy all this shit is? See why I don’t like to write about it all the time?
But it’s the most important thing there is to do – help people understand who the screwers are and how to avoid becoming the screwee.
If the price of the home went up twice what the government said it did, then we should see the price of most other things going up by similar, fraudulent prices, if we just open our eyes to it.
Look at the price of a new car in 1960. It was $2,600 according to this site
USA Today says the price of a new car in 2015 was what? $33,560.
Off to the Minneapolis Fed machinery again. According to the government’s version of things, the car adjusted price should be $21,269.21.
The different is again HUGE. Either USA Today got it wrong (which I doubt) OR I’m beginning to see a pattern here called “Systemic lying in the long term so we can exploit the people and grant members of the power elite a huge benefit check!”
I can see the cost of the car gong up $2,000 more than the Fed calculated “inflation” should put it…maybe the nav system, right? OK, and $200 more for radial tires and $500 more for that Mark Levinson Sound system. (Which Lexus wants something like $2G’s for on their option list if memory is working here…)
Even in our wildest, we still find an $8,000 discrepancy between reality and the government’s self-reported numbers.
Several Readers have asked me if I really believe the numbers which we dutifully report from the mouthpieces of Gubmint.
Not no, but Hell No.
Just like we don’t believe the “budget numbers” when the CAFR numbers report real balances and those are frequency way off from the “Oh poor me crap…”
But it is what it is.
Which is why – circling back to the front question this morning – what would you buy if someone handed you a $5,000 bill and said “Go forth and make as much as you can off that in 2016… I’ll be back for the winnings next year.”
With government watering down the money’s purchasing power (debt-logging the currency) about the best investment I can think of is probably to take the money and make some investments on CraigsList.
Go out and buy a motorcycle (murdercycle) on the coldest, wettest most miserable day here in the next two weeks. Look for a solid bike and someone who needs the dough for Christmas. Negotiate hard, but don’t screw ‘em to the wall (too badly). Karma comes around.
Then hang onto the bike and sell it on the first really warm, fine riding day in April or May. Something smaller than a Gold Wing – parents like kids to start on a 350 to 650 if they have any brains at all…but that’s another topic.
It’s like when we bought our airplane: Not at the peak of airplane prices (Feb to April) but at the end of the summer flying season.
I kinda like convertibles…and maybe this year I will try flipping a Miata MX-5. I’ve made money on every Porsche I’ve owned. Buy in the miserable cold – the one that needs rubbing out and detailing….and turn me loose with the buffer and the wheel cleaner and Elaine loose with the Q-Tips and Windex. Clay the car, show-ready condition.
(Small problem: Once our car is detailed, E hates me to drive it, lol…)
And if the car comes in really good on sale day, then maybe, just maybe, you’ll be able to beat the Fed’s money-watering-down program for another year.
If not, and you’re young? Buy a damn house. Read Art of the Deal first, regardless.
And if you’re not happy with these investment schemes – put it on the line and tell us what you would buy for $5000…with the goal of having a huge return in a year. Rationale is expected, too.
Thanks in advance and….
Write when you break-even…
P.S. You can’t invest in Hillary or Trump. Trump doesn’t want your money and Hillary’s already being sold to everyone with a checkbook. For details, call Bill. I’m sure the Clinton’s will take your money.