Economy

Justice for All Starts with Smaller Government

Justice for All Starts with Smaller Government 150 150 JP

While there is no greater evidence of the ineptitude of big government than the current concurrent crises, the one thing I don’t see or hear are cries to limit its power overall. Instead we just need the right people in charge! I am not hopeful that we will ever get a smaller government without an absolute collapse. That is not likely to happen in my lifetime barring some miracle where foreign governments decide not to print money when times get tough.

Good luck with that.

The larger the government, the worse off the people of that nation are — plain and simple. The reason is that there is far less value in a monopolistic entity with zero competition than one that has to compete with others. In a weird way, the guys who put the United States together figured it out. They wanted small government with limited powers at the federal level, mainly just to protect the states and leaving them to compete for citizens so to speak.

All Social Systems Need Capitalists

All Social Systems Need Capitalists 150 150 JP

It’s amazing how many people, even super smart ones, believe that socialism and communism could work — it just hasn’t been done well yet. In fact, some believe that these systems are actually the best for society as a whole.

So·cial·ism
a political and economic theory of social organization which advocates that the means of production, distribution, and exchange should be owned or regulated by the community as a whole.

The community tends to end in the state, a dictator or supreme leader who exerts power over the entire structure. Stalin, Lenin, Putin, Mao, Hitler, Chavez, Castro, Jong-il, Jong-un.

This is the trickiness of socialism. It sounds good to the layman and uninitiated, but those that have escaped it or lived through it understand this is the end result EVERY SINGLE TIME. Yet, no one wants to admit they’re wrong for thinking it could work in some fictitious book ending that has no basis in reality.

Capitalism
an economic and political system in which a country’s trade and industry are controlled by private owners for profit, rather than by the state.

Contrary to socialism, everywhere this has been implemented, the nation and its citizens have not only prospered incredibly well, but have experienced an unparalleled level of freedom. That’s the choice: freedom vs …

America has some Capitalism, responsible for the elevated standards where even people living below the poverty line have more opportunity and better lives than they would in virtually every other nation.

Keeping up with the Jones’ is what makes the emotion of our 10% poverty level or the wealth gap feel extremely negative. I get it. It has nothing to do with capitalism, because for all intents and purposes we’re not even in the top 10 when it comes to economic freedom.

The United States is a socialist country and that’s why we’re losing in so many ways at the moment. I don’t know about making it great again, but as long as government (the state) keeps getting bigger, complete socialism is inevitable.

Here’s the thing…

It doesn’t matter. Socialists need capitalists not the other way around.

Look at the most recent example of this: China. China is a socialist/communist country (same difference) that uses capitalists to fund its state agenda. They’re slick about it. Who do you think they learned it from?

What makes America great (already) is the freedom to start a business and compete in the marketplace. Even if you think the market is rigged, the ability to get started still exists.

With that in mind…

If you are thinking that Socialism is a good way for society to progress, prove it like capitalists do. It hasn’t been proven yet. Socialism has fucked up every country it touches, every single one. Whereas capitalism has raised the standard of living everywhere it goes. It’s not capitalism that’s broken in America, it’s that too much socialism has creeped in.

Socialist theory argues that the economic system would consist of an organization of production to directly satisfy economic demands and human needs, so that goods and services would be produced directly for use instead of for private profit driven by the accumulation of capital.

Capitalists don’t generate profit for the sake of capital accumulation only, but for what it means to have capital accumulated. Profit means you can keep meeting the demands of the market because you have excess capital that isn’t used up in the production of deliverables. Demands of the market typically are problems like food, energy, and shelter, etc. Profit is there when mistakes happen and savings from the past to can be deployed to survive.

Essentially, socialists are not economists or business people yet they want to do both, poorly as it might be. How would a socialist business operate? I don’t know. I don’t think many people know how to operate a business in the first place, but at least we are all free to try it. There are less than 2 million businesses in the United States with 10 or more employees generating $1 million or more. That number shrinks to just under 300,000 for businesses with 50 or more employees and $5 million in sales.

The majority of businesses are owned by one person with less than 10 employees — more than 12 million of them, not to mention the tens of millions of freelance workers who operate as an army of one. Would socialism help or hurt them or eliminate them entirely?

Where I get confused is when people talk about class divide under capitalism as if the divide doesn’t exist under socialism. It’s worse! Socialists believe the shared ownership of resources and central planning offer a more equitable distribution of goods and services. If you can’t see how that would end in dictators and fascists, learn the history because that’s what happens.

It’s funny how people who like socialism talk about how under it the country would finally be democratic. Does it matter if it’s democratic? Hitler was elected. That didn’t end too well.

Socialism purposes the collective ownership of the means of production, central planning of the economy, and the emphasis on equality and economic security with the goal of reducing class distinctions. Only it creates greater ones because the power is even more consolidated than in a capitalist system.

My absolute greatest fear is that America will embrace this evil and fully turn to it as a political and economic reality, sooner rather than later. If we do this, the world should watch out as our military power which is kept at bay today will be utilized for the wrong reasons.

History tends to repeat itself doesn’t it? Writing this as the capitol building gets stormed by protestors here in DC.

The U.S. Dollar is Garbage

The U.S. Dollar is Garbage 150 150 JP

There’s not much you can do about it. Look no further than a made up digital currency that can be mined from a Google Cloud instance. Bitcoin was $219 per coin in 2015, today it is priced at $35,000 per coin. There are a lot of bone head decisions I made in 2015. $1,000 (USD) a month put into bitcoin that year and I would have over $1 million worth today. Will the same bet pay off in the next decade? That’s for you to decide. My guess is no. But, I find it easier to find beaten up stocks than which alternative asset bandwagon to hop on next.

That said, there’s really no reason why the value of Bitcoin has to go up and up and up; however, in terms of the US dollar, it might keep going up forever. Back in 2014, I kept reading about how many VC’s were getting behind Bitcoin and it seemed likely to go higher, but the current run has been mind boggling. It has gone higher because people have been willing to trade more dollars per Bitcoin. Again, this is just as much about the destruction of the fiat currency as it is the power of the blockchain, yada yada.

Mining Bitcoin involves solving a computationally hard mathematical problems. The Bitcoin system consists of transactions (that is, transferring money between users), and these transactions are registered in a public ledger, called the blockchain. The blockchain, as the name suggests, is a linked-list of blocks of transaction data. Mining Bitcoin involves finding a valid next block, which in turn, gives you, the miner, a prize — currently, 12.5BTC for every block you find.

In 2014, with Bitcoin at $808 per, there were 12 million in circulation and 25 new coins are created every 10 minutes. Every few years the creation rate will be cut in half and Bitcoins will continue to be released for more than a hundred years. 25 new coins every 10 minutes means 2 blocks found 6 times an hour, 144 times a day, good for 3,600 Bitcoins. Fast forward to 2020 and only 1,000 Bitcoins are mined daily. That equates to roughly $29 million paid out to miners for securing the network. They’re paid for the work they do, capitalistic style as the market seems to be paying more for the harder work.

What will happen with the Securities Exchange Commission getting involved is anyone’s guess. BTC will likely be considered an asset and not a currency, just because of the sheer amount of capital that has been created out of thin air, by simply solving math problems. As far as society is concerned, the U.S. Dollar needs to keep its place in the world affairs and if BTC goes up further, the government may not have any other choice than to crack down.

Here’s a great video on how BTC actually works.

The Current U.S. Markets are Overvalued

I’m feeling a lot like Warren Buffett in 1969 when he wrote to his limited partners about the lack of good ideas. The value investor that isn’t having a hard time finding ideas today is likely fooling themselves because the money is burning a hole in their pocket. I get it. Money on the sidelines is losing value, but that seems better than continuing to chase the bubble.

Market valuations have been ridiculously high for a number of years in my analysis, but that hasn’t prevented even higher highs. The proverbial joint continues to be passed around, but the end has to be in sight. The world is drowning in debt. Global GDP is around $80 trillion. Global debt is closing in on $300 trillion. The total market capitalization of U.S. markets is $36 trillion.

This is exactly why these digital assets keep rising in value.

Debt.
Inflation.
Mistrust.

The Future is Decentralized?

The Future is Decentralized? 150 150 JP

According to Tyler Winklevoss (smart guy), Bitcoin is digital gold and Ethereum is digital oil. In fact, Ethereum seems to have the most upside potential as a global disruptor because of the decentralized application idea. A decentralized application (dapp) is an application built on a decentralized network that combines a smart contract and a frontend user interface. This is like the internet does with websites, but instead of running on a server at Godaddy, it runs on a p2p (peer-to-peer) network, the internet itself.

The internet is itself a p2p network, one that governments can still shut down or take over if necessary. So, don’t go thinking that this is the end all be all for circumventing government. Of course, the 60 year olds of today will not be running the government in 5, 10, 20 years and those that do could easily make changes to decentralization. That would be the best case scenario, actually.

Real estimates of Bitcoin ownership in the United States comes out to roughly 2 to 4 million people, which is around 20% of the total ownership; however, only around 1,000 people own 40% of the entire share of the digital asset. Ethereum has 5 million owners, but only 400 people control one-third of the tokens. To say that it would be used as a global currency would mean building government currencies on top of them. Don’t forget, every fiat currency is digital too, just not decentralized. There’s not a bureaucracy in the world that would go for that.

To me, the greatest long-term value could be in the new tech which may be built on top of the decentralized network, the dapps. The tokens/coin look like a massive bubble helping the rich get richer and the bandwagon is getting really full. That said, happy to see this digital asset made up by solving mathematical problems become as a valuable as gold. We are living in a technology driven society where people would already rather engulf their lives into their smart devices. Why not have a digital asset that could easily be replicated (and has been) replace the tangible production costs of mining gold.

Pay Your Fair Share

Pay Your Fair Share 150 150 JP

Taxation is always a huge topic on the political agenda. That alone should make you uneasy. This year’s election is no different. If Biden (probably will) wins, taxes across the board will rise with corporate taxes being jacked up the most. You wouldn’t be able to tell by how the major stock markets are trading, they seem fine, even dislocated from the broader economy.

What is a fair share?

Tax fairness is something that we do not have here in the United States. The rich are taxed more on a percentage basis across the board and burden a higher share of taxes than any other social class. Sure, Warren Buffett pays less (percentage wise) on his capital gains from investments than his secretary does on her earned income, but that comparison is truly apples to oranges.

A catch phrase employed by President Obama was the rich need to “pay their fair share” which was a great slogan to push tax and healthcare policy. The US tax code exceeds 70,000 pages. It takes Americans more than 3 billion hours a year just to comply with the tax code. It doesn’t have to be that way.

Some think that taxation is theft.

Maybe it is, maybe it isn’t. We are a nation of laws. Either way, the government commands a part of your income (at the state and federal level) and owned property (at the state and municipal level) every year. Governments are also part owner of every business in the country, at least for those that produce earnings. That may be why so many organizations try to scale without profits for so long. In any event, if you believe we live in a capitalist country, think again. There are very few parts of society that are voluntary, none that I would describe as actually capitalistic.

Taxation is why we revolted from the British.

It wasn’t taxation without representation. It was continued encroachment with new taxes. After the foundation of the United States, we didn’t have personal income taxes until the Civil War, which maxed out at 5%, and could arguably have prolonged the war. This tax was repealed in 1872, but finally came back for good in 1913 with the 16th Amendment.

Before that time, the United States Constitution specified that Congress could impose a “direct” tax only if the law apportioned that tax among the states according to each state’s census population. In other words, it would have to be paid equally by all — say $0.05 per person per state. However, the new amendment allowed Congress “to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration.”

The first permanent federal income tax was levied in 1913: the schedule consisted of seven brackets, with rates ranging from 1%, on the first $20,000 of income, to 6% on income exceeding $500,000. That raised a total of $28.3 million. Even then, it wasn’t fair, but it was low enough not to be burdensome on anyone. Fast forward 107 years and the total amount of taxes collected exceeds $3.4 trillion, 120,000x the original amount raised… and we’re not even going to get into the property tax rates, sales taxes, and other taxes that are hidden fees stripping more capital from the people who need it most.

Where is the fairness to the American people?

I still can’t tell you. This topic is right up there with abortion in terms of not having a clear cut winner. There will always be good arguments on both sides. We need government to do certain things at scale that we (the people) may not want big corporations to do. But, big corporations supply the government with many of the products and services it has to run these endeavors at scale. On the other hand, the end user is rarely protected to the extent that regulation pretends to help, and in recent times even harmed when certain organizations are not allowed to go out of business, hiding behind the guise of “too big to fail.” No company or government is too big to fail.

If we wanted to have people pay their fair share, it would be a flat tax at most and a flat fee rate at best.

Verizon doesn’t charge me less for the same exact service it provides to my neighbor with the bigger house. The reason the high earners and rich get taxed at higher rates is because they foot the bill of government. And, what do they get for doing that? Plenty. But that’s the subject of another post.

Take care.

Thoughts on Cryptocurrency

Thoughts on Cryptocurrency 150 150 JP

There are these new things in the world called crypto-currencies. You’ve probably heard about them. The most famous and valuable of them (at least right now) is bitcoin. As a collective they are very dangerous. In fact, on the back of this newly found popularity and price, there has been an abundance of scams perpetrated on buyers caught up in hype and sizzle.

However, this is exactly why investors should take flight. Because as much criticism as there has been going around the world of finance about Bitcoin, if you got in at $5, $50 or even $500, you’re very happy right now with that decision, regardless of whether or not it’s speculation and mania. If you got in at $15,000, that’s a different matter. Bitcoin and others are likely to wipe out as much wealth as they created.

The cryptocurrency (a misnomer) is priced just under $5,000 USD per coin (3:08pm EST) and many are calling the bear market for alt-coins over. Meanwhile, Twitter/Square CEO Jack Dorsey believes that bitcoin will be the world’s single currency in a decade. Really? As a collective, alt coins are dangerous.On the back of this newly found popularity and price, there has been an abundance of scams perpetrated on buyers caught up in hype and sizzle. ICO’s are hot right now, but most are illegal securities offerings at best. It would be one thing if they were exclusively available for accredited buyers with the means to risk and lose all money allocated. They’re not and we believe that people are going to get hurt.

Cryptocurrency is Counterfeit.

Despite the IRS designation as an asset, Bitcoin and others are imitation currency produced without the legal sanction of the state or government. Producing or using counterfeit money is a form of fraud or forgery. Anyone starting a cryptocurrency in the hopes of creating a better currency is committing a crime.

Calling cryptocurrencies a digital asset makes it a more likely viable long-term option. However, if the SEC or other regulatory bodies find that many companies are using these assets to sell interests in the underlying organization, the gig is up and the house of cards will fall before any foundation is placed under it, leaving the only real asset associated with this whole thing in the first place — the blockchain technology.

There are thousands of cryptos: Ethereum. Ripple. Litecoin. Dash. NEM. Monero. Zcash. And, the creators and founders have made lots of dollars because of the massive shift to using decentralized currency. All are running on the blockchain thesis, but there are other forms of IP that will emerge as more valuable than the lot of fraudulent money.

In fact, the best part about this year’sCBOE deal is that people can now make money when (not if) Bitcoin implodes. It’s also a way for the exchange to make a little money for itself on this market and if it does become a viable market long-term, it will be the leader.IT IS unlikely that these tokens/coins will go away, rather be implemented in another way or decline in popularity.

It will be interesting to see either way.

Gold is Real Money

Gold is Real Money 150 150 JP

Gold is real money. It always has been and always will be. The bitcoin / crypto currency faction may believe otherwise, but while speculation may (definitely) drive up the price of bitcoin and other cryptos, the stability of gold is exactly what makes it real money. This post will be short and is directed at the value of real money versus other assets, historically.

Average Home Price

In September 1966, the price of gold was $35 an ounce. At the same time, the price of an average home in the United States was $23,300 (median = $21,400). So for about 665 ounces of gold, you could own a home in 1966. Fast forward to 2016, with gold trading at $1,350 an ounce and the average home sells for $358,000. Do the math and you’ll see that homes are actually cheaper today than they were 50 years ago because it only takes 265 ounces of gold to buy now.

S&P 500

On this day in 1966, the S&P traded just above $80 a share, or for 2.25 ounces of gold. Today, the S&P 500 closed at an all time high of 2,187! Yet, priced in gold, that’s still just 1.62 ounces of gold. And, while the margin is much less than on home prices, it’s still a large enough difference to question your investment in the stock market all these years.

Fast Forward

As with many things financial, its all about timing/pricing. For example, 20 years ago, when the average home price was $159,000, gold was trading at $387 an ounce. That’s still 410 ounces vs today’s 265.

What about the S&P? It was traded at 665, still more expensive at 1.73 ounces of gold. Rewind to 1980, when gold topped at $675, the S&P was at 125 (0.20oz) and the average home was 76,000 (110oz), that was the time to sell gold and buy other interest producing assets, if you were using real money.

What’s the future look like? Who knows! We do believe that business leaders need to keep an eye on the price of gold to other assets and even use it as a hedge for a long term store of value.