Tuesday, December 21, 2021

The Money In the Bank

When one thinks of all of the money in banks all over the world, it has to be the savings of individuals.   A lot of it is retirement savings. There are a lot of people borrowing these dollars, governments, investors, stockbrokers, etc. Banks, brokerages and investment firms are the conduit for these transactions.  The whole thing almost collapsed in 2008.  Congress came to the rescue and saved the banks.  Ever wonder why?  The United States government is the biggest borrower from the banks.  If they go under, the whole system collapses.  The government would be insolvent.

Back in the 1960’s, Congress was spending so much that the Social Security Trust Fund wasn’t generating enough cash for them to borrow from.  Well, they figured a way to get access to more money by passing the IRA and 401k plan.  It sounded like a retirement savings plan.  It kind of was.  The neat thing about it is that you could not withdraw the funds until you were 65 and then you paid taxes on it.  So, if something went seriously wrong, the saver could not cash out without a severe tax penalty. This meant that there would be no panic selling on Wall Street.   This restriction allowed the government to borrow hard dollars earned today and give back inflated dollars when people retired.  This was a lag time of about 40 years.

The thing I look back to in history is the Weimar Republic of Germany in the 1920’s.  People saved for retirement and then their monetary system collapsed.  The old were hit the hardest. These were the people with savings in the bank.  These were the people who were trashed.  They lost everything.  The real thing not realized is that when you get old, you become invisible. Governments know that old people are expendable when it comes to their savings, in 10 years, they are dead and soon forgotten.  These people saved and played by the rules and then in retirement, they get shafted.  No one will get voted out of office or go to jail for this crime. Nobody right now, comprehends how bad Congress has screwed up government financing. It has been going on for years.  We are talking at least 60 years.  This isn’t a Democrat or Republican thing; it involves all of Congress.

What you have to look at is this.  All of your savings could end up as a big zero.  Just like Zimbabwe, 4 billion dollars for a cup of coffee.  The 401K has no investment advantage in today’s world. It offers a negative return on investment over a span of 40 years.

Precious metals on the other hand, were not that great when interest rates were high.  Why buy metals when you other investment could return 10-20% interest?  Parking savings into precious metals has no downside at this time.   There is no interest lost from taking possession of precious metals, in today’s world. Inflation over time, is very cruel to people saving for retirement.  Bear in mind that a person’s age defines their present perception of inflation.  To a person entering retirement, inflation has stolen their savings. When they started saving, 50 years ago, interest rates were around 5 to 9%. A million-dollar nest egg would have provided $50,000 to $90,000 in interest every year. Not in today’s world, the interest is about $10,000 per year.  This is not what was envisioned when they started their IRA.  If you’re 25 years old, an IRA appears to be a fool’s dream.  There is no reward for saving money, compound interest is no longer the “8th Wonder of the World.”

Monetary survival of your assets is your goal.  With interest rates so low, precious metals have command of the playing field.  Governments over time cannot control the value of their currency.  Real estate is often used as a good store of value that survive the curse of inflation.  The trouble is, their high visibility to be taxed, not to mention rent control.  It still has had a very good return over a timeline of 20 years.  Gold, silver and platinum are my favorites.  If you hold all three, you can play the metals market. You can trade from one market to the other.  The nice thing about precious metals is that they are not visible to the banks or to government.  That can be to your benefit if you end up in a rest home.  I have my son and wife on our bank safety deposit boxes, only two keys. So, there is no probate problem in this case.

The reality of what we are looking at in the current financial markets is rather unusual.  Probably the right word would be absurd. No one is going to save money in a bank paying 0.05 % interest.  Are investors accepting a contradiction of economic principles?  I think not.  But the problem is this, the investor doesn’t know what to expect from this sort of convoluted banking, involving our government debt. This hot mess cannot be financed by zero interest rates without savings coming from somewhere.  We could be facing the biggest banking collapse in history. 

The only plausible source of funds that I can come up with is the 401K retirement plans along with other pension plans.  The real question to ask, is who is holding on to all of these real estate loans at 2% when the interest rate jumps to say 4%? The rule of 72 states, divide the interest rate into 72 to get the time it takes to double your money.  72 divided by 2% interest, is 36 years. That’s a few years short of retirement. 72 divided by 4% interest, is 18 years, means your savings could quadruple by the time you hit retirement age. What is not sold to anyone at the present time is that at 1% interest, you wait 72 years for your funds to double.  Nobody will accept those terms if it is pointed out to them.  If everyone was to spend their paycheck now for immediate gratification; the banking system goes poof.

The economic rules are in place, and the system violates every one of them.  I'm debating now, do I buy gold or platinum?  I'm not trying to make money; I am trying to keep what I have already earned.

Merry Christmas everyone and have a Happy New Year

Jim in San Marcos

Sunday, December 12, 2021

The New Green Idiocy

The politicians in power want to get rid of gas burning cars and replace them with electric cars. Less emissions and they tout less of a carbon footprint. This doesn’t really ring true.  We have about 287 million vehicles on the road.  What happens when we go electric?  The power plants will need to triple electricity production (this is a guess on my part).  Presently we have about 540,00 electric cars on the road.

 The biggest sales incentive for electric cars, is that they are environment friendly.  They claim that you can charge a vehicle for about $13 dollars for a fill up and at a cost of 4 cents a mile. If the US went to electric cars, imagine the tax loss to the government on gasoline; 18 cents per gallon federal excise tax, 67 cents California tax, and 9% sales tax on the price, comes out to about $1.20 a gallon.

 The environmentalists talk about green earth and they miss the point.  The amount of electricity needed to supply trucks to transport goods for delivery is not even feasible using present power plant output.  The funny thing is that it involves burning more coal and natural gas to produce the power needed.

 If you look at the diagram below, coal and natural gas are 2/3's of our energy production. The people in charge want to go to wind and solar as a transition to a green earth plan.  It is a little too far-fetched to believe. The current government wind energy program allows doctors or other high earners to get a half million-dollar tax credit for investing in a wind turbine.


Diagram courtesy of Wikimedia Commons

Right now, if the Chinese wanted to attack us, they could shut down our entire communications network with one Electromagnetic Pulse Bomb. It would fry cell phones and destroy the electrical grid.  A solar flare could do the same.  Imagine the extra kick that would have, if all of our cars were electric. It reminds me of Texas, last winter, with all of the wind turbines shutting down from the snow and ice.

 The car industry as a whole, cannot produce an electric car that is profitable.  Elon Musk is not making millions on producing electric cars, but making millions on selling the government tax credits to other car companies.

Quoting Adam Schrader for the Dailymail.com Jan 31, 2021

The electric car maker recorded a net income of $721million in 2020, from a gross profit of $5.4billion.

But the company's revenues show Tesla would have noted a net loss for 2020 if it had not relied on its lucrative $1.6billion in sales of regulatory zero emission credits to other carmakers.

Regulatory credits are given by the state and federal government for contributing zero pollution to the environment. Carmakers must hold a certain number of credits or face hefty fines or have their business licenses revoked.

Tesla can bank and sell to other carmakers that need help complying with emissions regulations to avoid the heavy fines. 

 Tesla is selling for over $1,000 a share. Kind of reminds me of the South Sea bubble. 

 Energy independence makes gasoline and diesel vehicles a fail-safe form of reliable transportation in times of instability.  Just waiting in line at Costco to get gas, makes you marvel at hundreds of cars filling up each hour.  Imagine waiting 3 hours to charge your car at home (no line).  Imagine what you could be charged at a charging station for electricity. Sixty dollars an hour might be a reasonable price; waiting in line wouldn’t be a viable option.

The real concept that needs to be advanced, is using hydrogen to power our vehicles. The trouble is, there is no cash incentive to bring it to fruition. There are billions at stake building electric cars that are unprofitable to produce and at the same time very limited in their range of travel. There is a gold rush among car producers right now, for electric car emission credits from the federal government.  

Running out of electricity is not like running out of gas, but you do have to wonder why electric cars are considered better by the government.  I've always said that whatever the government wants you to do, be against it; they don't have your best interest at heart.  What do I know?