Category: simonblack

Not too long ago I received an email offering the luxury trip of a lifetime to Iceland.

It was a package tour… and super impressive.

We would have our own private helicopters taking us all over the island for seven days. There was horseback riding, dune buggies, even racing Ferarri and Lamborghini supercars across a frozen lake.

Then I saw the price: $150,000.

I looked again thinking I had made a mistake. Sadly the number didn’t change. I looked a third time to make sure the price was in US dollars.

It was.

My immediate reaction was totally predictable. “That’s f*ing insane!” And I could prove it.

I’ve been to Iceland a few times. Beautiful country.

And when I was there I rented my own private helicopter to fly all over the island and go wherever I wanted.

(At one point when I was there in 2013 my pilot and I buzzed the location where they were shooting a ‘north of the wall’ scene from Game of Thrones.)

That was around $2,000 per day. Based on this package, it seemed they were charging around $10,000 per day.

I’ve also done the supercar race, which also runs a few thousand dollars.

And while Reykjavik is a pretty expensive place to visit, staying at the nicest hotel in the city and eating at the best restaurants wouldn’t run more than $1,500 per day, even if you were spending like a drunken sailor, i.e. irresponsible politician.

So you can see my point– the math didn’t add up.

I figured they could have offered all that stuff for $50,000. So the trip was at least $100,000 overpriced by my calculation.

On top of that, there were a number of activities that I knew I wouldn’t like, like the dune buggies.

But if I had signed up for the tour, I would have been paying for that stuff regardless. Overpaying, as it were.

Needless to say I declined.

I grew up lower-middle class. And while we never missed a meal at home, my parents constantly struggled to pay the bills.

That sense of value for money has stuck with me for decades no matter what level of success I’ve been able to achieve.

Travel is a great example. Of course I like to travel in style. But I’m always looking for a great deal.

I just bought a new Round-the-World trip, which is one of THE most cost effective ways to travel in business and first class.

When selecting a hotel, I’ll always shop around, comparing prices of different hotels, and even prices of the same hotel on different websites.

And if I’m going on vacation (which is basically never), I’ll pick and choose the activities that I want instead of pre-paying for things that I’ll skip.

This isn’t rocket science. Most people naturally do the same thing. We’re always shopping for a great deal.

Except when it comes to investing.

Conventional investment wisdom says to put your money in a low-cost index fund, like Vanguard’s S&P 500 fund.

The idea is to gain exposure to large companies that will do well over time, while also achieving instant diversification across hundreds of businesses.

Nice idea.

But in practice, index investing has now become the equivalent of the overpriced travel package.

If you break down the travel package into its constituent components, i.e. helicopter tour, supercar racing, etc., it’s easy to see how expensive each individual piece is.

Similarly, if you break down the stock index into its constituent components, you can begin to see how expensive the individual companies are.

Most investors are completely unaware, for example, of the risks they’re taking by buying the companies that comprise the index at valuations up to 200x or more…

… or that 50% of the index value is just 50 companies (so much for diversification!)

… or that roughly 50% of the index’s 2017 returns come from just FIVE companies: Google, Facebook, Amazon, Microsoft, and Apple…

… or that a full 50% of the companies in the S&P 500 index, i.e. the ‘bottom’ 250 companies, have negative returns.

Like an overpriced travel package full of activities that you would probably skip anyhow, these are companies that you would probably never buy.

But, hey, they’re part of the package, so you’ve already pre-paid for all of them, again, at record high prices.

Sometimes travel packages can make sense– if each activity is the right fit, and the individual components are priced appropriately.

And sometimes index investing can make sense as well, especially if the component companies are great businesses whose shares are reasonably priced.

But few people ever look.

The almost universal investment recommendation is to blindly buy the index, irrespective of its price or value.

You wouldn’t travel this way. You wouldn’t even buy groceries this way.

Chances are you’d probably do research. Read reviews. Look for discounts.

In my case, I’m willing to pay a travel agent who has access to better prices, or hire a local expert on the ground if I’m going somewhere unfamiliar.

Investing shouldn’t be any different.

Warren Buffet has been a particularly notable champion of index investing, telling individual investors at almost every opportunity to buy a low-cost index fund.

But Buffet himself wouldn’t do this.

With his own money, Buffet picks his own investments, carefully selecting each stock based on his own research and analysis.

That’s because he has the sophistication and expertise to do this.

But Buffet also knows that the average person probably isn’t going to lift a finger to improve his/her financial literacy even though the benefits are so obvious.

(Perhaps that’s what keeps them average.)

So the standard advice remains: buy an overpriced package at its all-time high.

In truth the world is full of incredible opportunities, and most of them are not neatly organized in some popular, expensive package.

But they’re readily accessible to anyone. As I often write, you simply need the right education, and the will to act.

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In the late 1760s and early 1770s, the government of France was in a deep panic.

They had recently suffered a disastrous and costly defeat in the Seven Years War, and the national budget was a complete mess.

France had spent most of the previous century as the world’s dominant superpower, and the government budget reflected that status.

From public hospitals to shiny monuments and museums, social programs and public works projects, overseas colonies and a huge military, France had created an enormous cost structure for itself.

Eventually the costs of maintaining the empire vastly exceeded their tax revenue.

And by the late 1760s, France hadn’t had a balanced budget in decades.

Debt was ballooning, interest payments were rising, and the government of Louis XV was desperate to do something about it.

There’s a famous story in which the Comptroller-General of Finances summoned all the government ministers to make deep budget cuts.

But no one could come up with anything substantial.

The overseas colonies were too important to cut.

And they couldn’t cut public hospitals… because too many people were now relying on them. Similarly they couldn’t cut veteran pensions either.

At the end of the session they could hardly find anything to cut that would make a meaningful difference.

All of their fancy programs and benefits had become too ingrained in society at that point; and any cut would have proven politically disastrous.

I thought of this story earlier this week when the US government released a sweeping budget proposal that aims to cut the deficit over the next ten years.

In fairness I’m always happy to see any government cutting spending.

But before uncorking the champagne bottles it’s important to understand some basic realities:

The budget slashes $3.6 trillion in spending through 2028 while proposing zero cuts to Defense, Social Security, and Medicare.

And that’s the entire point: just between those three programs, plus paying interest on the debt, the US government already spends MORE than it collects in tax revenue.

In 2016, for example, the government spent $2.87 trillion on Defense, Social Security, and Medicare, plus an additional $433 billion paying interest on the debt.

That totals over $3.3 trillion, which is more than they collected in tax revenue.

In other words, they could cut EVERYTHING ELSE in government: Homeland Security, national parks, funding for the arts, the Department of Energy. Everything.

And there would still be a budget deficit.

This is the most important thing to understand about US federal government spending: the built-in costs are so extreme that they can’t possibly make ends meet.

And the problem becomes worse each year.

Every single day, thousands of Baby Boomers join the ranks of Social Security and Medicare, which only adds to those programs’ costs.

This isn’t some black magic prediction; the Social Security office has precise data on how many people were born in 1952, 1953, 1954, etc.

So they know with a high degree of certainty how many people will be receiving benefits this year, next year, and the year after that.

The numbers just keep going up.

Point is, if they don’t cut Social Security and Medicare, nothing else in the budget really matters.

All of the cuts they’re proposing are financially trivial… it’s like showing up to the hospital with stage 3 prostate cancer and asking to get a cavity filled.

The more they delay the difficult choices, the greater the destruction becomes.

Spending will continue to exceed tax revenue, which means the debt will continue to rise (and interest payments continue to increase).

This cycle never ends.

The big, giant hope right now is that they’ll be able to engineer gravity-defying economic growth, which should theoretically increase tax revenue.

Again, this is a nice idea.

But their projections are extremely unlikely.

Looking back over the last 30-years, the average annual increase in real GDP per capita is just 1.5%.

The government’s new proposal is based on the US consistently achieving 3% growth year after year after year.

Even during the roaring 90s there were only three times in which that figure was over 3%.

So this is extremely unlikely.

But even if by some miracle the economy grows consistently by 3%, it still doesn’t address the government’s $46+ trillion problem with Social Security and Medicare.

Right now based on their own calculations, both programs are going to run out of money in a little more than a decade.

And they estimate the long-term costs of the program exceed revenue by more than $46 trillion.

(To see for yourself, refer to page 61 from the government’s own financial statements, available here. Note how the estimates get worse each year.)

Look, it’s nice to be optimistic and hope for the best. And any attempt to cut the deficit is certainly better than adding to it.

But it’s dangerous (and foolish) to presume that everything is going to work out OK just because some rosy projection says so.

The best-case scenario is that they buy themselves a little bit of time.

But the most likely result is still the same: default.

The US government has $20+ trillion in obligations to its creditors, and tens of trillions more in obligations to its citizens.

Simply put, the government has too many obligations. And their only way out is to walk away from some of them.

This means default.

Given that the US dollar and US government debt underpin the global financial system, defaulting on their creditors would likely cause a worldwide panic that would make the 2008 crisis look like an afternoon picnic.

Meanwhile, defaulting on their obligations to citizens entails deep cuts to… you guessed it… Social Security and Medicare.

The younger you are, the more you can forget about counting on these programs as you grow older.

So it’s time to start taking matters into your own hands and thinking through your own Plan B.

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Pop quiz: What country has the world’s best performing stock market?

It’s not the United States. Or Canada. Or China.

The answer is Venezuela, whose primary stock market index over the last year is up nearly SEVEN FOLD, from 11,700 last summer to a record 72,700 today.

It’s amazing that a country where people are literally starving because there’s very little food available is seeing record stock market performance.

At face value it would seem that anyone who had invested in Venezuela stocks is an absolute genius and swimming in money right now.

But remember that Venezuelan stocks are denominated in local currency.

Officially the Bolivar’s exchange rate with the US dollar is around 10:1. But due to the country’s hyperinflation, the black market rate is closer to 6,000:1.

And that black market rate is also up nearly 7-fold over the last year.

So anyone who had purchased Venezuelan stocks last summer might be up hundreds of percent if you measure performance in bolivares.

But in US dollars you’d actually be down a bit.

This is one of the hallmarks of inflation; it’s not just retail prices that increase. Asset prices rise as well.

But it’s not real wealth.

Think about it– if the value of your home increases by 2% per year, and inflation is also 2% per year, you have zero gain in prosperity.

Or another example: if stock prices increase by 10%, you then have to pay state and federal tax on your capital gains.

Maybe you have 7% left over. Then take out 2% (or more) for inflation. You’ve lost half of your gain.

Ok, still, maybe not a bad sum. But compare that return against the risk that you’re taking: is 5% worth the risk?

This is one of the most insidious effects of inflation: we put up with rising prices because we think that we are becoming more prosperous over time, even though the opposite is usually true.

Inflation is like a cancer that slowly eats away at everything– the purchasing power of your savings, your income, and even your investment performance.

And the people who engineer it have been extremely clever.

Have you ever noticed that official inflation statistics are typically reported on a MONTHLY basis?

The most recent headline from the US Department of Labor’s Consumer Price Index, for example, reads “CPI for all items rises 0.2% in April. . .”

That’s pretty masterful.

I mean, who is going to bat an eyelash at 0.2%? It’s a rounding error. No one cares.

A more intellectually honest way of reporting would be, “Prices increased 10% over the last four years.”

That’s a lot more noticeable.

They also rarely present inflation data alongside wage and salary data.

For example, the inflation report doesn’t say “prices increased by 0.2%, while wages increased by only 0.1%.”

Or more succinctly, “the average worker became less prosperous last month.”

That would be terribly inconvenient for policymakers.

But perhaps their most masterful stroke has been making people terrified of falling prices.

In economics, the dreaded ‘deflation’ is regarded as an absolutely horrific outcome.

The theory is that if prices fall by even just 1%, no one will go out and spend money.

Instead they’ll just sit on their savings and wait for prices to continue falling, and this will send the economy into a tailspin.

Deflation the most absurd fairytale in economics. And that’s saying a lot.

So rather than wanting folks to enjoy a small discount and build up a pool of savings, they’ve managed to convince everyone that a little bit of inflation is healthy and normal.

Losing 10% of your savings every few years doesn’t seem healthy or normal to me.

Instead it feels like a lot like a wealth tax.

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Enes Kanter is a Turkish citizen who plays center for the NBA’s Oklahoma City Thunder.

Like many professional athletes, Kanter has a couple of charities in his name.

His education fund provides first-year college scholarships to support selected US students – including a family’s first female child and children of law enforcement and firefighters who lost their lives on duty.

Kanter’s other charity is the Light Foundation. This one has an international bent, providing meals and clothes to needy families.

A global tour with the Light Foundation stirred up Friday’s troubles.

After traveling to a few countries, Kanter and his team flew from Indonesia to Romania. But upon landing in Romania, Kanter found his passport cancelled by the Turkish embassy.

Kanter’s crime? His political views.

Enes Kanter has long been a vocal critic of Turkey’s president, Recep Erdogan, calling him the Hitler of our century.

Although not a Hitler, Erdogan is far from an angel.

In July 2016 when facing a coup, he ordered his forces to open fire on his own people, killing 270. He had another 50,000 arrested.

Last month in the country’s constitutional referendum, Erdogan consolidated greater power by the slimmest majority – 51% of the votes, if the vote count is to be believed.

With that victory, Erdogan has near dictatorial powers, which is why he was able to unilaterally suspend Kanter’s passport.

Last week, I wrote about Venezuela. There, government-sanctioned snipers scan the streets. Its starving, desperate citizens are trapped inside the country’s borders with no way out.

To Europeans and Americans, Turkey’s crackdown and Venezuela’s hell on earth are a world away from their comfortable lives.

But in the West, symptoms of government overreach that adversely impact its citizens’ futures are everywhere.

The war on cash continues unabated.

Near-zero interest rates return nothing on retirees’ life savings.

Easy credit ensures that any entrepreneur with a bozo idea receives funding. And it fuels both our insane stock market valuations and consumer debt to all-time highs.

US regulators crank out 150, 200, sometimes 300+ pages daily.

And then there’s the ballooning national debts of the Eurozone and the US.

It would be foolish to place all your faith and confidence in only one such government.

Enes Kanter’s experience with Turkey is the latest example. It shows how susceptible citizens are to an out of control government, even when traveling beyond its borders.

Whether locked inside borders like Venezuelans or locked out of travel like Kanter, these cases highlight the importance of having a Plan B.

A savings account in a well-capitalized foreign jurisdiction, investments outside the ridiculously valued stock market (e.g. Peer to Peer lending backed by real collateral), a second residence and yes, a second passport…these are steps to ensure that no matter what, you’ll be okay.

You’re not going to be worse off because you’re holding a significant amount of, say, Hong Kong dollars.

You’re not going to curse the fact that you receive steady and safe investment returns.

And you’re not going to worry about your ability to freely travel around the world.

Oh, and if what happened to Kanter seems impossible, consider this:

On December 30, 2015 when no one was looking, the US government passed H.R. 22 (The FAST Act), which authorizes them to revoke your passport if they believe, in their sole discretion, that you owe $50,000 in taxes.

It’s important to note that they don’t actually have to prove any wrongdoing.

They can make a simple allegation. It could even be a clerical error. Then, poof, no more passport.

It’s important to have a hedge against this to ensure that your entire life and livelihood isn’t held in the hands of a single government.

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On May 31, 1866, John C. Ringling was born in Iowa to German immigrants in what felt like an extremely bleak year.

The chaos and devastation from the Civil War that had ended in 1865 were still keenly felt, and the US economy was in the midst of a deep recession

The country was still shaken from the assassination of Abraham Lincoln.

And the new President, Andrew Johnson, was embroiled in a major political crisis with Congress that would soon lead to his impeachment.

(Johnson was also a noted buffoon, once giving a speech in early 1866 to honor George Washington in which he referred to himself over 200 times and accused Congress of plotting his assassination.)

No doubt those were some of the darkest days in US history. And it would have been hard for Mr. and Mrs. Ringling to imagine a bright future for their children.

But John and four of his brothers went on to build the most successful circus empire in modern history– the Ringling Brothers and Barnum & Bailey Circus, known as the “Greatest Show on Earth.”

There were countless traveling circuses crisscrossing the United States in the 19th and early 20th centuries.

But what made the Ringling Brothers’ event so spectacular was sheer scale. They didn’t hold anything back– lions, tigers, elephants.

The Ringling brothers were also masters of efficient logistics.

Like Ray Kroc and Henry Ford, the brothers developed an assembly line approach to the construction, deconstruction, and transportation of their event so that they could swiftly move from town to town.

It was a spectacle itself simply to see their train of railway cars packed with exotic animals stretching on for more than a mile.

Their circus was considered the ultimate in entertainment back then, and John Ringling became one of the wealthiest men in America as a result of this success.

It seemed like the empire would last forever.

But it didn’t.

After peaking in the Roaring 20s, the circus took a major hit during the Great Depression that effectively bankrupted John Ringling, the sole surviving brother.

At the time of his death in 1936, in fact, Ringling only had about $5,500 in the bank (that’s after adjusting for inflation to 2017 dollars).

The circus limped along in the Depression and barely made it through World War II.

Towards the end of the War in 1944, right before they thought their luck would turn, the circus had a major accident in Hartford in which the tent caught fire, killing 167 people.

That nearly bankrupted the company a second time, and several executives went to jail for negligence.

In the decades that followed, American consumer tastes changed.

Television, movies, and music were far more interesting than circus performances, and Ringling Brothers went into terminal decline.

Fast forward to the age of Facebook and YouTube, and there simply wasn’t a whole lot left in the circus that was exotic or interesting anymore, not to mention the animal rights issues.

So yesterday, the Greatest Show on Earth held its final performance in Uniondale, New York, after 146-years in the business.

A century ago this would have seemed impossible.

The early 1900s were the absolute peak for Ringling Brothers, and no one imagined a future where consumers weren’t standing in line to buy tickets.

Candidly I find this story to be an interesting metaphor for the United States itself.

Rise from the ashes. Remarkable growth. Peak wealth and power. Bankruptcy. Gross negligence and incompetence. More bankruptcy. Terminal decline.

And just like how people viewed Ringling Brothers 100-years ago, it’s difficult for anyone to imagine a world in which the US isn’t the dominant superpower.

Instead of the Greatest Show on Earth, it’s the Greatest Country on Earth. And most of us have been programmed to believe that this primacy will last forever.

But nothing lasts. History is full of failed dominant superpowers, from the Roman Empire to the Ottoman Empire. Many no longer exist.

Their declines were almost invariably due to excessive spending, unsustainable debt, military overreach, and a society that abandoned the core values which made it wealthy and powerful to begin with.

Every successive superpower always believes that they will never suffer the same fate. And every time they’re wrong.

This time is not different.

Yes, it’s still a wonderful country with plenty of positive things going for it.

But at its core the United States still has $20 trillion in public debt (over 100% of GDP) and an additional $46.7 trillion in net, unfunded future social obligations (like Social Security and Medicare).

Plus, the government spends an appalling amount of money, far more than they collect in tax revenue.

(In 2016 their total net loss exceeded an incredible $1 TRILLION.)

Former Treasury Secretary Larry Summers summed it up when he quipped, “How long can the world’s biggest borrower remain the world’s biggest power?”

The answer is– no one knows. Maybe months. Maybe decades.

Either way, this trend is one of the biggest stories of our time. And though few people want to acknowledge it, it’s already happening.

We now regularly witness government shutdowns, debt ceiling crises, and gross government incompetence. But this is just the beginning.

The national debt is growing far faster than the economy as a whole. And, especially if interest rates continue to rise, the trend will accelerate.

It’s simple arithmetic.

So while it seems impossible now, the Greatest Country on Earth will some day have its final show as well.

That doesn’t mean the US simply disappears.

But it’s foolish to assume that the insolvency of the world’s largest superpower will forever be consequence-free.

What’s your Plan B?

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Jose Rafael Torrealba wins the award for biggest scumbag on the planet today.

Torrealba is a Venezuelan army general who was featured in a leaked audio recording that was just published yesterday.

The recording is of a meeting that took place a few weeks ago in Venezuela in which he and his fellow generals discuss how to keep the civilian population under control.

Torrealba’s solution? Use snipers against his own people.

“There will come a time when we will have to employ them [the snipers] and I want us to be ready for the moment that we have to employ them because the president will not remain at a green [preparation] phase, gentlemen.”

One general at the meeting who could not be identified voiced opposition to the plan, saying that “if we keep going with the issue of the snipers, all of us here will end up in jail.”

Apparently the obvious moral reasons for not using lethal force against your own people didn’t factor into their logic.

Torrealba indicated that he didn’t care for public perception. And even after admitting it was unconstitutional, he ordered everyone at the meeting to make preparations to use snipers.

That was back in April. Since then dozens of people have died, including a 17-year old kid who was shot in the head earlier this week.

Bear in mind that Venezuelans are literally starving; the food shortages that have plagued the country are getting worse, and people have resorted to digging through garbage cans and eating tree bark.

They’ve also taken to the streets to voice their disgust.

Naturally, the government has rolled out the full force of its military to crush any political dissent and anti-government activism.

This is a country that has some of the most abundant resources in the world– massive oil reserves, huge manufacturing capacity, abundant farmland and fresh water supplies, deep water ports, diamonds, gold, natural gas, hydropower, etc.

They have everything. Few nations on this planet are blessed with as much raw potential as Venezuela has.

In fact Venezuela should be, by far, the wealthiest, most advanced country in Latin America.

You have to work REALLY, REALLY hard to screw up something with THAT much potential.

But that’s precisely what’s happened. Frankly it’s astounding to see how much the Venezuelan government’s corruption and socialist bullshit has devastated the country.

And now they’re just flat-out killing people in order to maintain power.

It’s terrible to see so many millions of people suffering and trapped with no way out. And it truly underscores the importance of having a Plan B.

Hopefully wherever you live in the world never turns into Venezuela where murderous thugs like Torrealba are in power.

But if history is any indication, sometimes the world surprises us. Political instability, financial crises, terror attacks, etc. can change everything overnight.

Two days ago Brazil was relatively calm. Then yesterday a major political crisis struck. Within minutes the stock market and currency crashed.

Four years ago in Cyprus, everything was pretty normal. Then everyone woke up the next morning to find that their banks were insolvent and their accounts were frozen.

We unfortunately live in a world where even some of the most advanced, developed countries in the world, including the US, UK, France, Italy, Japan, etc. are buried under mountains of debt.

US government debt is now unofficially north of $20 trillion (officially it’s at $19.9 trillion, but only because of the debt ceiling nonsense…) and household debt just hit another record high.

These aren’t healthy indicators that make for a consequence-free environment.

Acknowledging obvious risks, especially big macro risks that stem from the pitiful, long-term political decisions, is a totally rational thing to do.

Look at the US retirement system–

Social Security’s Board of Trustees, which includes the Treasury Secretary of the United States, publishes a written report each year telling the world that Social Security is running out of money.

The government has completely screwed up this program, and the Trustees are candid about its dire finances.

It’s not crazy to acknowledge this obvious risk to your retirement and take basic steps to protect yourself from the consequences.

This could mean establishing a more flexible, robust retirement account where you can set aside more money and invest in more attractive asset classes.

Simply setting aside an extra $1,000 per year and boosting your returns by just 1% could mean hundreds of thousands of dollars in extra retirement savings.

So when Social Security runs out of cash, you’ll be just fine.

And if by some miracle they’re able to save the program, you’ll still be OK.

It’s hard to imagine you’ll be worse off for having a few hundred thousand dollars in extra retirement savings.

You can extend that same logic to so many other aspects of your life.

It’s hard to imagine you’ll be worse off because your savings is in a safer, better capitalized bank… or a portion of it is held in physical cash in your safe.

It’s hard to imagine you’ll be worse off for having a second citizenship, allowing you and your family the freedom to live, work, travel, and do business in another part of the world, with future generations able to inherit those same benefits.

It’s hard to imagine you’ll be worse off for taking completely legitimate steps to reduce the amount of tax that you owe.

And that’s the whole point of a Plan B: taking rational steps that make sense regardless of what happens or doesn’t happen next.

Venezuela is obviously an extreme example.

But anyone who takes an objective look at the numbers, even in the supposedly ‘wealthiest’ countries in the world, can see that there are far too many threats to your long-term wealth and prosperity to ignore.

The solutions are simple, and many of them require almost no investment… simply a little bit of education, and the will to take action.

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On September 17, 1787 on the final day of the Constitutional Convention in Philadelphia, Benjamin Franklin was approached by a woman as he walked out of Independence Hall.

“Well Doctor, what have we got– a republic, or a monarchy?” she asked.

It was a burning question on everyone’s mind: what form of government would the Constitutional delegates establish for the new country?

Franklin didn’t hesitate. “A republic– if you can keep it.”

(The exchange was noted by Maryland delegate James McHenry and included in the Records of the Federal Convention of 1787.)

Franklin’s answer spoke volumes.

The Constitutional Convention had just ended, and it had been a bitter four months as the delegates fought and argued over every single word in the draft.

Factions had developed. Some delegates wanted a federal government with absolute power. Others wanted fewer guaranteed liberties for individuals.

Franklin knew that the representative government he had worked so hard to establish was incredibly fragile, and that it could easily slip away.

It was the same fight two years later when the 1st United States Congress fought over whether or not to establish a Bill of Rights.

As one delegate wrote, “Bill of Rights– useful, but not essential.”

Once again, after months of bitter arguments, Congress finally reached a compromise in September 1789, approving ten Constitutional amendments that guaranteed certain freedoms for the people.

More than two centuries later it’s clear that most of what they worked to achieve has completely changed.

The First Amendment, which ensures that Congress can make no law restricting freedom of speech, press, religion, and peaceable assembly, has become almost a punch line.

Ironically the greatest assault on Free Speech today doesn’t even come from government, but from university students who protest against any ideas they find offensive.

Violence on university campuses is now common as students come out of their Safe Spaces to physically obstruct and violently impede controversial speakers.

Any statement that doesn’t conform to their very narrow agenda is now considered hate speech.

And it’s the students themselves who want any sign of dissent banned, and more mandatory indoctrination of their newspeak ideology.

Then there’s the Second Amendment, which guarantees “the right of the people to keep and bear arms, shall not be infringed.”

This one seems to be under fire on a regular basis, with mainstream media from Rolling Stone to Vanity Fair calling for its outright repeal.

The Third Amendment guarantees that no soldier shall be quartered in any home without the consent of the owner.

This seems almost a quaint, obsolete historical reference at this point given that the US military hasn’t had to be housed among the civilian population… ever.

So, OK, great. The Third Amendment is still in-tact.

Then there’s the Fourth Amendment, which ensures “the Right of the People to be secure in their houses, papers, and effects, against unreasonable searches and seizures, shall not be violated.”

Forget it. The federal government spends tens of billions of dollars each year to illegally spy on EVERYONE, including Americans and American allies. This one is a total joke.

The Fifth Amendment is a big one.

It ensures that no one can be held to answer for a crime, including a felony, without grand jury indictment.

This protection died a few years ago when Barack Obama signed the National Defense Authorization Act for Fiscal Year 2012, which authorized the military detention of US citizens on US soil, no due process required.

The Fifth Amendment also famously protects against self-incrimination, ensuring that an individual cannot be called as a witness against himself.

This provision is also gone, considering that legal precedent now exists for police to force you to give up your mobile phone or computer password.

The Sixth Amendment guarantees due process, that in a criminal trial, “the accused shall enjoy the right to a speedy and public trial, by an impartial jury. . .”

This is now a complete farce given the widespread use of top-secret FISA courts, military detention facilities, and drone-strike assassinations.

The Seventh Amendment guarantees the right to a jury trial if there’s a dispute over property that exceeds $20.

Now, the $20 threshold might be a little bit outdated (not that there’s any inflation!)

But considering that the government has stolen billions of dollars worth property from Americans through Civil Asset Forfeiture in recent years, all without a trial, it seems the Seventh Amendment isn’t worth the paper it’s printed on.

Then there’s the Eight Amendment, which protects against “cruel and unusual punishment.”

I thought about this one the other day when I was walking through the terminal at DFW International Airport.

A sign caught my eye that as prominent displayed on an emergency exit door, warning passers-by that opening the door was a violation of the law and subject to up to one year in prison.

I was dumbfounded. A year in prison for opening a door?

People go to jail and do hard time for smoking certain plants (but not others), failing to file tax forms, and a number of completely obscure and innocuous crimes.

There were four federal crimes when the Constitution was ratified. Today there are thousands. On any given day you and I probably commit several of them without even knowing. And each comes with absolutely insane penalties.

The reality is that you cannot even apply for a passport anymore in the Land of the Free without being threatened with fines and imprisonment.

Last were the Ninth and Tenth Amendments, which were supposed to limit the power of the federal government in favor of the states and the people.

Those went out the window a LONG time ago, especially after 9/11.

Look, don’t get me wrong: I’m not suggesting that America is some vicious, brutal dictatorship. It’s not.

But anyone who has the courage to be honest and objective can see the obvious decay.

Benjamin Franklin’s warning is coming true. And the trend is accelerating.

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There’s something completely ridiculous happening around the world right now.

We can start in the United Kingdom, where the FTSE-100 stock market index hit an all-time high yesterday of 7454.

Simultaneously the British government released statistics yesterday showing that debt judgments and bankruptcy filings across the UK soared 35% in the first quarter of 2017 to the highest level in a decade.

British consumers are on a debt binge, borrowing (and now defaulting) at record levels.

This all sounds pretty sustainable.

Across the pond in the Land of the Free, the US stock market also hit a record high yesterday.

Simultaneously, consumer credit (i.e. DEBT) in the US is also at an all-time high of $3.8 trillion.

Even more specifically, margin debt, which is the amount of money that investors borrow to buy stocks, is at an all-time high.

Think about that: investors are borrowing record amounts of money to buy stocks at all-time highs.

This sounds like a fantastic trend!

If you look deeper, the numbers become even more bizarre; let’s go back in time a few years and I’ll show you.

In 2012, Coca Cola reported $48 billion in revenue for the year, and $9 billion in profit. That was as pretty good year for Coca Cola shareholders.

For 2016, however, Coca Cola reported revenue of $41.8 billion, and $6.5 billion in profit.

So when you compare 2016 to 2012, revenue declined 13%, and profit declined 28%.

Given those dismal figures you’d think that Coke’s stock price would be a LOT lower today than it was back then.

But no.

After Coca Cola reported its 2012 earnings on February 12, 2013, its stock price was around $37.50.

When Coca Cola reported its 2016 earnings earlier this year, its stock price was $41.25. And today it’s even higher at $43.50.

Even more curious is that Coke’s 2012 report shows long-term debt of $14.7 billion. By 2016, long-term debt had more than doubled to $29.6 billion.

So Coca Cola is basically telling the world that its business is declining and they’re going deeper into debt. Yet investors continue to push the stock higher.

Makes perfect sense, right?

Now let’s look at ExxonMobil, whose 2010 annual report showed $383 billion in revenue, $30 billion in profit, and $12 billion in debt.

The company’s most recent annual report from 2016 posted $226 billion in revenue (42% decline), $7.7 billion in profit (74% decline), and $28 billion in debt (133% increase)!

Once again a rational person would think that the price of ExxonMobil’s stock (XOM) would be dramatically lower.

Wrong again. XOM is up from $78 to $83 over that period.

Then there’s Netflix, which has been one of the top-performing stocks over the last several years.

Bear in mind that Netflix actually LOSES money; it’s operating business lost nearly $1.5 billion in 2016, and the company continues to pile on more and more debt.

Earlier this month Netflix closed another $1.4 billion in debt financing, which is the third time in two years that the company has raised more than a billion in debt.

Netflix’s total long-term debt and content liabilities (the amount of money they’re legally required to pay to content owners) is approaching $20 billion, and rising.

Lose money, go into debt. Not exactly a recipe for success.

Yet curiously the stock price is at an all-time high.

Then there’s Apple, a company so hallowed and consecrated that it’s almost sacrilegious to question the business.

But if you compare Apple to its own performance just two years ago, both revenue and profit are lower.

A few weeks ago Apple reported $39.6 billion in operating cash flow for the first three months of this year.

That’s a full 25% LOWER than the $52.8 billion the company reported for the same quarter in 2015.

Over the same period, Apple’s DEBT more than DOUBLED from $40 billion to $84.5 billion.

Again, it seems obvious that Apple stock should be LOWER in 2017 than it was in 2015.

But it’s not.

Apple stock has climbed 19% in the last two years from $130 to $155, and its price is also now at an all-time high.

Something in these markets is obviously broken.

A lot of companies are posting falling revenues, falling profits, and falling operating cashflow.

Yet simultaneously the stock prices are soaring… right along with both business and consumer debt.

It doesn’t take a rocket scientist to spot the connection.

Look, I’m not suggesting that stocks are going to crash tomorrow or that this is the top of the market. No one has a crystal ball.

But it seems pretty obvious that investors who buy these asset are taking on significant risks relative to prospective returns.

Sure, maybe stocks keep rising. But the bubble could just as easily burst and cause a 40% decline.

The risk vs. reward doesn’t stack up. And it certainly seems worth considering safer assets that still provide strong returns.

At our Total Access event in Las Vegas over the weekend, we talked about a few secured lending programs which provide substantial collateral, allowing investors to generate returns of 5% to 12% with minimal risk.

In other words, investors make short-term loans that are secured by high quality, marketable, liquid assets worth 2-3 times the investment amount.

If you make a $500,000 loan, your investment is secured by $1MM to $1.5MM worth of assets over which you have legal and/or administrative custody.

These are much safer bets in my opinion, yet they still produce strong returns.

Those types of safe, lucrative opportunities are out there. They just require more work to find, and a different ethos to ALWAYS consider the risk first.

I’d prefer to make 12% with minimal risk rather than make 15% and potentially lose half of my investment.

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It’s true.

Over the weekend at an amazing, closed-door event that we held here in Las Vegas exclusively for our Total Access members, a number of us got robbed.

It happened on Saturday, which was an intense day packed with a dozen Q&A sessions with the CEOs of exciting private businesses in which we all invested.

But at the end of the day, I treated our group to live entertainment by a gentleman named Apollo Robbins.

And Apollo truly is a gentleman. Or as he fancies himself, a gentleman thief.

Apollo is a professional pickpocket, easily one of the best in the world; and his live performance is one of the most impressive I’ve ever seen.

(I’ll show you a video later– you won’t believe how good he is.)

Apollo starts out his performance by bringing someone on stage at random and pick-pocketing them, live, in front of the entire audience, without the subject ever knowing.

(We still love you Milt!)

Later he’ll go out into the audience and steal people’s wallets, glasses, watches, keys, cash, and just about anything they have in their pockets or on their person.

It’s amazing, because no one has a clue that he’s stealing from them while he’s doing it.

Think about it– this professional thief walks up to you during his live performance. You know with 100% certainty that he is going to try to steal from you.

Obviously your guard goes up instantly.

And yet somehow, even though you know he’s going to steal from you and you’re prepared for it, he still manages to lift everything from your pockets without you knowing.

How does he do it?

Apollo is a master of misdirection, which is essentially a very deliberate form of mind control.

Consider that attention– our brain’s ability to focus on something– is a scarce resource.

It absolutely is. It’s extremely difficult to concentrate on multiple things at the same time.

If you’ve ever been reading a book and found that you don’t remember anything you’ve read for the last several pages because your mind started wandering, you know what I’m talking about.

It’s why the concept of “multi-tasking” is almost impossible; our brains seldom have the ability to split its attention.

You can even try an exercise on your own.

Next time you’re doing something that requires your continuous attention– painting the house, ironing your clothes, etc., invite a friend to join you.

Have your friend ask you some relatively simple math problems while you’re performing your task.

What’s 8 times 12? What’s 22+45? Divide 108 by 9.

Every three to four math problems, your friend will announce a word. Any word. Blue. Cleveland. Rascal. It doesn’t matter, any word will do.

Then repeat the exercise several times. More math problems followed by a single word, all WHILE you are still performing your other activity.

(Try not to do it while you’re driving!)

At the end of 5-6 iterations, recite all the special words your friend told you to remember.

Can you do it?

Don’t feel bad if you get it wrong, it’s extremely difficult. Again, our brains lack the ability to focus on multiple things at the same time.

This is why I say that attention is a scarce resource.

Apollo has mastered the ability to manipulate people’s attention exactly where he wants it to be, all without anyone realizing what’s going on.

And that’s precisely the reason I invited him. We all have to deal with this sort of manipulation on a daily basis.

Government and media are both extraordinary practitioners of this craft, directing people’s attention away from what they don’t want you to see and channeling your attention on precisely what they want you to focus on.

The mainstream media in particular leads us along day after day, focusing and refocusing our attention in ways that deliberately manipulate public opinion.

The most recent episode has been the firing of former FBI Director James Comey.

The Internet erupted with nearly infinite intellectual diarrhea after the news broke; and countless hours have been wasted reading, writing, and talking about this guy.

Seriously– who cares?

Up until just a few days ago, James Comey didn’t matter to anyone on the planet outside of Donald Trump, Hillary Clinton, and handful of people in government.

It’s not like James Comey plays a prominent role in your life or mine. To the average guy, he’s less important than the cable guy.

And yet the media slammed people with practically wall-to-wall coverage of this story, shoving Comey Comey Comey down everyone’s throats.

The depth of that coverage draws our focus away from other issues (particularly long-term challenges) that are far more important, and redirects the scarce resource of attention to some trivial soap opera that’s nothing more than a clever distraction.

It’s manipulation, plain and simple.

They’re pushing you to a conclusion, opinion, or decision that they want, not one that you’ve reached on your own through objective data and truth.

And it happens across media, politics… even finance and investing.

The best way to stop it from happening is to first be aware that it’s happening… and that’s why I invited the gentleman thief to our event over the weekend.

Check it out for yourself– while we didn’t record our private session, you can watch this video one of Apollo’s other performances.

It’s well worth the time to understand how subtle misdirection can be.

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Sometimes I wonder why most of the giant mega-banks are based in New York.

They should be here in Las Vegas, the gambling capital of the world. Because that’s precisely what they’re doing with your money.

Actually it’s not even your money.

From a legal perspective, every single penny you deposit at the bank becomes THEIR money. You’re nothing more than an unsecured creditor of the bank.

And now that they legally own what used to be your money, the bank can gamble it away on whatever crazy investment fad best serves their interests.

Here’s an easy way to understand it:

Imagine you were moving and needed to rent a storage facility for a few months to store your stuff.

You rent a U-Haul and move everything into the storage unit.

The way banking works, the second you drive away, the storage company now owns your furniture. Not you.

And as the brand new owners of what used to be your furniture, the storage company can do whatever they want with it.

They can rent out the furniture to another customer, charging steep fees to let a complete stranger sit on your sofa and watch your TV.

(Naturally you’ll never see a penny of that money.)

Of course, that complete stranger might not treat your furniture all that well. He might even destroy it. No more furniture.

Often the facilities get in on the business together; one storage company will rent your furniture to another company, which rents it to another, and then another.

After a while no one actually knows where your sofa is. But it doesn’t matter because the storage companies are all making lots of money, and few people ever really ask.

Eventually their standards drop so low that they stop performing credit checks altogether when someone wants to rent furniture from them.

They’ll rent your dining room table to anyone who walks through the door, even if that person has a history of destroying other people’s furniture.

After a while, these deadbeat rental customers have destroyed so much of other people’s furniture that there’s very little remaining.

A lot of the smaller storage companies aren’t able to stay in business as a result.

But the big ones… they all get together and go to the government, claiming that they’re way too important to go bankrupt.

They demand to be bailed out and tell all the politicians that society would collapse if their businesses failed.

The government listens, and the big storage companies receive a massive taxpayer bailout.

The Federal Furniture Reserve even turns on its manufacturing operation, creating countless sofas, love seats, and dining room sets out of thin air. And they give it all to the big storage companies for free.

The big storage companies are back in business, with top management rewarding themselves with record bonuses.

Funny thing, though, their bad behavior doesn’t really change. They still rent out your furniture to other people and provide zero transparency into those specific deals.

And rather than competing to provide the best service for their customers, they get together to fix their prices and bilk the consumer even more.

Hardly a month goes by without a major scandal where some storage company was found engaging in extremely unethical behavior.

One day you decide that you’re ready to move in to your new house, so you go down to the storage facility and ask for your furniture back.

Instead, the storage facility treats you like a criminal suspect and gives you a bunch of excuses about why they can’t release “their” furniture.

And as soon as you walk out the door they file a report with the government claiming that you’ve been acting suspiciously because you had the audacity to ask for your own sofa back.

Clearly no rational person would ever trust his/her furniture to such a corrupt and absurd storage industry.

Yet as ridiculous as it sounds, that’s pretty much our banking system in a nutshell.

And we trust our life’s savings to that system… something far more important than furniture.

The storage industry would never become that rotten because it’s still a relatively free market.

If the industry were screwing its customers, a bunch of entrepreneurs would start better, more honest storage companies, driving the bad apples out of business.

That can’t really happen in the banking industry because starting a bank is almost impossible– trust me, I’ve started two of them.

I’ve had success, but it’s been one of the most time consuming, frustrating business ventures in my life.

And not enough people are doing this, so there isn’t going to be any serious competition to the mega banks anytime soon.

But there is a positive trend brewing: technology is starting to make banks obsolete.

Any basic retail function of a bank– deposits, loans, foreign exchange, funds transfers, etc. can already be done better, faster, and cheaper outside of the banking system.

You can keep funds in the blockchain, crowdfund a loan, use social networks and mobile apps to change money.

None of this requires a bank.

So, long-term, the banks are finished.

But for now, it makes sense for anyone who truly understands this scam to become your own banker, which you can do simply by holding some physical cash in a safe.

The fewer middlemen you have between you and your money, the safer you are.

And given that interest rates are still hovering near 5,000-year lows, it’s not like you’re giving up any meaningful interest.

So there’s practically no downside in taking this very simple step.

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