088: The dangerous, false logic of “Common Sense”

On the morning of May 18, 1927 in Bath Township, Michigan, a 55-year old municipal worker named Andrew Kehoe used a timed detonator to set off a bomb he had planted at the local school.

Kehoe was Treasurer of the School Board, so he had unfettered access to the school.

According to friends and neighbors, he was having personal issues with his wife (who he had murdered days prior) and extreme financial difficulties. He was also severely disgruntled about having lost a local election the previous autumn.

Whatever his reasons, Kehoe took out his rage on the 38 schoolchildren he killed that day.

It remains the deadliest attack on a school in US history.

Sadly, it wasn’t the first– there were numerous reports of school shootings throughout the 1800s and before.

And as we all know too well, it wouldn’t be the last.

Last week’s shooting in Florida is another tragic stain in the pages of US history. And it’s completely understandable that emotions are running high now.

People are demanding action. They want their government to “do something.”

The problem, of course, is what we’ve been talking about so far this year in our daily conversations: emotional decisions tend to be bad decisions– and that includes public policy.

We keep hearing the phrase “Common Sense Gun Laws,” for example.

And that certainly sounds reasonable. Who could possibly be against common sense?

[As an aside, I do wonder why “common sense” is only reserved for the gun control debate. Why doesn’t anyone demand common sense airport security? Or a common sense federal budget?]

But it’s never quite so simple.

Many of these “common sense” solutions are emotional reactions.

As an example, the Florida shooter in last week’s tragedy is only 19 years old. So now one of the proposals being tossed around is to have a minimum age limit to be able to purchase a firearm.

I suppose if the shooter happened to have been 70 years old, people would be talking about having a maximum age limit instead.

Yet neither of these “common sense solutions” really solves the problem.

A big part of this is because no one really knows what’s causing the problem to begin with.

We know that there are far too many people committing acts of violence in schools and other public places.

And, sure, a lot of the time they use firearms. But we’re also seeing murderous rampages with cement trucks, U-Hauls, and everyday appliances like pressure cookers.

Any of these can be turned into a weapon of mass destruction.

But the debate only focuses on firearms.

One side presupposes that more regulations and fewer guns will make everyone safer.

The other side of the debate, of course, argues that more guns and fewer regulations will make everyone safer.

The reality is that there’s no clear evidence that either side is correct.

Australia is often held up as an example of a nation that passed strict gun laws (including confiscation) in 1996 following several mass shootings.

And yes, gun violence dropped precipitously. Australia now has one of the lowest murder rates in the world.

But contrast that with Serbia, for example, which is the #2 country in the world in terms of guns per capita (the US is #1).

Serbia has a strong gun culture and fairly liberal laws. Yet its gun violence rate is incredibly low, on par with Australia’s.

There are plenty of examples in the world of places that passed strict gun laws, and violence decreased (Colombia).

Others where violence INCREASED after passing strict gun laws (Venezuela, Chicago).

Other examples of places which have LOW levels of gun violence, yet liberal laws (Serbia). And still others with LOW levels of gun violence and fairly strict laws (Chile).

The point is that you can look at the data 10,000 different ways and never really find a clear correlation. So there HAS to be something else going on.

Is it cultural? Perhaps.

Japan, for example, has extremely strict firearms laws. You can’t even own a sword without special permission.

And Japan, of course, has very limited gun violence. But this is not a violent culture to begin with.

You probably recall back in 2011 after the devastating earthquake and tsunami, Japanese people sat quietly outside of their collapsed homes and waited for authorities. No looting. No pillaging.

Contrast that with the city of Philadelphia earlier this month, where people were out rioting, looting, and setting property on fire… simply because their football team won the Super Bowl.

Perhaps there’s something about the US that has people so tightly wound they dive into violence at the first opportunity.

Maybe it’s all the medication people take. Or the crap in their food. Who knows. But it’s worth exploring the actual SOURCE of the problem rather than treating a symptom.

The larger issue, though, is that this “common sense” mantra is tied exclusively to LAWS.

Guess what? There are already laws, rules, regulations, and procedures on the books. They’re not working.

In the November 2017 mass shooting in Sutherland Springs, Texas, the shooter was able to purchase weapons because the Air Force erroneously failed to record his military court-martial.

And with the Florida shooting, the FBI had the suspect on a silver platter and did nothing.

It’s clear that the laws on the books aren’t being properly implemented. Yet the solution people want is MORE LAWS.

How about better execution? How about applying that all-important “common sense” to the way laws are carried out?

This is conspicuously missing from the debate.

There’s almost no conversation about what’s actually CAUSING the violence.

Instead, people are focused on a manifestation of that problem (guns) and demanding more laws to control that symptom even though the existing laws are being pitifully executed.

This is a pretty horrendous way to solve a problem.

[We discuss this more in today’s podcast, along with plenty of other extremely uncomfortable realities. Listen in here.]

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Bitcoin back above $10,000

Cryptocurrencies exist in dog years.

That’s how my colleague Tama Churchouse explained the rapid innovation and massive volatility in bitcoin and other cryptocurrencies.

The technology is advancing so quickly that one year in the crypto sector is like seven years anywhere else.

And the price action reflects this breakneck pace.

Bitcoin returned 1,318% in 2017. The S&P 500, for comparison, returned less than 19%.

But bitcoin’s rise comes with massive volatility…

After hitting its all-time high of nearly $20,000 on December 17, bitcoin plummeted 65% to $6,914 on February 5.

Yesterday, the price of bitcoin rose back above $10,000 – a 46% rally.

The crypto skeptics were calling for the end of bitcoin as the price plunged. The ideologues brushed it off as a natural correction.

The truth is, nothing goes up in a straight line. Bitcoin had gone beyond parabolic in 2017 – rising from $5,800 to nearly $20,000 in just over one month from November to December.

And the rise was largely driven by emotional, retail buyers. You probably heard the “reports” that bitcoin was all anyone discussed over Thanksgiving. Coinbase, the largest crypto brokerage, reportedly added 100,000 accounts over the holiday.

As you know, I don’t pay attention to bitcoin’s price.

I only pay attention to the supply/demand dynamics.

There will only ever be 21 million bitcoin in existence. So, ultimately, demand will drive the market.

And I believe demand for bitcoin and other cryptocurrencies will be higher in the future.

Going back to bitcoin existing in dog years… Who knows what technological advances we’ll see in the sector over the next decade.

Venture capitalist Marc Andreesen, the founder of the first, consumer web browser Netscape, says one of his biggest regrets was not building a native payment system into the web (instead, we just use our credit cards to buy goods online today).

Imagine the next time you saw a pair of shoes you liked online, you could simply click a button and seamlessly send a fraction of a bitcoin to pay for them (instead of going through the typical check out process and entering all of your personal and credit card info).

Andreesen tried to make that happen. The original hypertext transfer protocol (http) included a code for payments. For example, you’ve seen the 404 error code when a website isn’t found. But there’s also a code 10.4.4 402 designated as “payment required.” It never went live.

In 2015, Coinbase CEO Brian Armstrong said he’s working toward that goal…

“It would be a Chrome extension or a fork of Firefox or Chrome that would carry a balance of bitcoin inside the browser,” Armstrong told WIRED. “Then we would create some websites—or encourage the creation of them—that would bring back the 402 code.”

Armstrong gave the example of a news site that cuts off its content in the middle, then asks if you’d like to finish reading the article. With this payment system, you could simply click “OK” and it would automatically debit a small fee from your crypto wallet.

There’s also talk in the crypto world of “tokenizing everything.” It’s just a way of securitizing assets with digital tokens on the blockchain. You could own and trade portions of cash flowing real estate, art, businesses and anything else via a digital token.

It would open up markets in historically illiquid assets and assets that are difficult to title, transfer and/or divide.

Even though the technology is advancing at a rapid pace, and the implications are staggering, it’s still likely that most crypto assets will be worthless in the future.

It’s important to consider the utility of any crypto you own or are considering buying. And you must have a bias toward quality.

In my discussion with Tama, he said he believes 2018 will be the year when the crypto markets bifurcate. Participants will start paying much more attention to the quality of the assets they’re buying… the garbage will get thrown out.

I’d encourage you to listen to my full discussion with Tama. He believes now, after the pullback, is a good time to buy “blue chip” crypto assets.

You can tune in here.

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Terrified of Bitcoin, banks forced to innovate for the first time in 40+ years

Yesterday morning, several banks in Australia started rolling out a new payment system they’re calling NPP, or “New Payments Platform.”

Until now, sending a domestic funds transfer in Australia from one bank to another could take several days. It was slow and cumbersome.

With NPP, payments are nearly instantaneous.

And rather than funds transfers being restricted to the banks’ normal business hours, payments via NPP can be scheduled and sent 24/7.

You can also send money via NPP to mobile phones and email addresses. So it’s a pretty robust system.

Across the world in the United States, the domestic banking system has been working on something similar.

Domestic bank transfers in the Land of the Free typically transact through an electronic network known as ACH… another slow and cumbersome platform that often takes 2-5 days to transfer funds.

It’s pretty ridiculous that it takes more than a few minutes to transfer money. It’s 2018! It’s not like these guys have to load satchels full of cash onto horse-drawn wagons and cart them across the country.

(And even if they did, I suspect the money would reach its destination faster than with ACH…)

Starting late last year, though, US banks very slowly began to roll out something called the Real-time Payment system (RTP), which is similar to what Australian banks launched yesterday.

[That said, the banks themselves acknowledge that it could take several years to fully adopt RTP and integrate the new service with their existing online banking platforms.]

And beyond the US and Australia, there are other examples of banking systems around the world joining the 21st century and making major leaps forward in their payment system technologies.

It seems pretty clear they’re all playing catch-up with cryptocurrency.

The rapid rise of Bitcoin and other cryptocurrencies proved to the banking system that it’s possible to conduct real-time [or near-real-time] transactions, and not have to wait 2-5 days for a payment to clear.

Combined with other new technologies like Peer-to-Peer lending platforms, fundraising websites, etc., consumers are now able to perform nearly every financial transaction imaginable– deposits, loans, transfers, etc.– WITHOUT using a bank.

And it’s only getting better for consumers… which means it’s only getting worse for banks.

All of these threats from competing technologies have finally compelled the banks to innovate– literally for the FIRST TIME IN DECADES.

I’m serious.

When the CEO of the company launching RTP in the US announced the platform, he admitted that the “RTP system will be the first new payments system in the U.S. in more than 40 years.”

That’s utterly pathetic. The Internet has been around for 25 years. Even PayPal is nearly 20 years old.

Yet despite the enormous advances in technology over the past several decades, the last major innovation in bank payments was back when Saturday Night Fever was the #1 movie in America.

Banks have been sitting on their laurels for decades, enjoying their monopoly over our savings without the slightest incentive to improve.

Cryptocurrency has proven to be a major punch in the gut. The entire banking system keeled over in astonishment over Bitcoin’s rise, and they’ve been forced to come up with an answer.

And to be fair, the banks have reclaimed the advantage for now.

NPP, RTP, and all the other new protocols are faster and more efficient than most cryptocurrencies.

Bitcoin, for example, can only handle around 3-7 transactions per second. Ethereum Classic maxes at around 15 transactions per second. Litecoin isn’t much better.

By comparison, there were 25 BILLION funds transfers in 2016 using the ACH network in the US.

Based on the typical holiday schedule and the banks’ 8-hour working days, that’s an average “throughput” of roughly 3500 transactions per second.

So, now that banks have finally figured out how to conduct thousands of transactions per second in real-time, they clearly have superiority.

But that superiority is unlikely to last.

It takes banks decades to innovate. They have enormous bureaucratic hurdles to overcome. They have endless committees to appease, including the Federal Reserve’s “Faster Payments Task Force.”

And most importantly, given that most banks are still using absurdly antiquated software, any new systems they develop have to be carefully designed for backwards compatibility.

Cryptofinance and other financial technology companies have no such limitations.

As my colleague Tama mentioned in the podcast we released yesterday, the cryptocurrency space sort of exists in ‘dog years’.

Things move so quickly that one year in crypto is like 7 years for any other industry.

Right now there is almost a unified push across the crypto sector to solve the ‘scalability’ problem, i.e. to securely transact a near limitless number of transactions in real time.

Those solutions will almost undoubtedly come from technologies that you haven’t heard very much about yet.

Hashgraph and Radix, for example, are two such ventures working on extremely elegant payment solutions that break the mold of previous cryptos.

Rather than build upon standard cryptocurrency concepts like blockchain, Proof of Work, and Proof of Stake, both Hashgraph and Radix have created their own algorithms from scratch.

This is the bleeding edge of the bleeding edge of a massively disruptive sector that has existed for less than a decade.

And there are literally dozens of other companies and technologies aiming for similar heights.

Some of them will undoubtedly succeed. And still other ventures that won’t even be conceived for years will have yet more disruptive power in the future.

The banks don’t stand a chance. The future of finance absolutely belongs to crypto.

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You won’t want to miss this crypto podcast

As I write this, bitcoin is trading at $8,600.

That’s down more than 50% from the December highs of $20,000.

But is this selloff a natural correction, or something to be worried about?

That’s one of the questions I ask my guest Tama Churchouse in today’s podcast.

Tama was an investment banker for a decade, most recently with JPMorgan. Then he went on to manage a family office. And in 2013, he started buying and learning about bitcoin.

He started writing a small note to friends and family about the crypto market and it caught on. He decided to make it a full-time job.

And that’s led Tama to become one of the most connected writers/investors in the crypto space.

He actually just returned from one of the most exclusive crypto gatherings in the world… It’s called the Satoshi Roundtable. It’s invitation only and about 100 people make the cut.

The attendees are CEOs of major crypto firms and some of the core developers for major cryptos – it’s the who’s who of the industry.

Tama was invited because he serves on the board of one of the top blockchain firms in the world.

And during our discussion, he shares a few insights from what he heard in these closed-door meetings (and how these leaders in the field, many of whom are billionaires, feel about the crypto selloff).

Tama also explains why he thinks bitcoin is here to stay, but why 95% of all cryptos will ultimately be worth zero.

As you know, I’ve been writing a lot this year about avoiding big mistakes.

We discuss this in regard to crypto and Tama shares what he thinks is the easiest way to avoid making big mistakes in the sector.

And, of course, Tama and I share what we think 2018 holds for the crypto market (his view on this is great – it’s something I hadn’t heard before).

This is one of the best podcasts I’ve recorded in awhile. And I’d encourage you all to check it out.

I always tell people to learn as much as possible about crypto before buying even one cent of bitcoin. And I guarantee you’ll leave this podcast better-educated and more informed on the crypto space.

You can tune in here.

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087: You won’t want to miss this crypto podcast

As I write this, bitcoin is trading at $8,600.

That’s down more than 50% from the December highs of $20,000.

But is this selloff a natural correction, or something to be worried about?

That’s one of the questions I ask my guest Tama Churchouse in today’s podcast.

Tama was an investment banker for a decade, most recently with JPMorgan. Then he went on to manage a family office. And in 2013, he started buying and learning about bitcoin.

He started writing a small note to friends and family about the crypto market and it caught on. He decided to make it a full-time job.

And that’s led Tama to become one of the most connected writers/investors in the crypto space.

He actually just returned from one of the most exclusive crypto gatherings in the world… It’s called the Satoshi Roundtable. It’s invitation only and about 100 people make the cut.

The attendees are CEOs of major crypto firms and some of the core developers for major cryptos – it’s the who’s who of the industry.

Tama was invited because he serves on the board of one of the top blockchain firms in the world.

And during our discussion, he shares a few insights from what he heard in these closed-door meetings (and how these leaders in the field, many of whom are billionaires, feel about the crypto selloff).

Tama also explains why he thinks bitcoin is here to stay, but why 95% of all cryptos will ultimately be worth zero.

As you know, I’ve been writing a lot this year about avoiding big mistakes.

We discuss this in regard to crypto and Tama shares what he thinks is the easiest way to avoid making big mistakes in the sector.

And, of course, Tama and I share what we think 2018 holds for the crypto market (his view on this is great – it’s something I hadn’t heard before).

This is one of the best podcasts I’ve recorded in awhile. And I’d encourage you all to check it out.

I always tell people to learn as much as possible about crypto before buying even one cent of bitcoin. And I guarantee you’ll leave this podcast better-educated and more informed on the crypto space.

You can tune in here.

Source

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This may be the beginning of the Great Financial Reckoning

Less than two weeks ago, the United States Department of Treasury very quietly released its own internal projections for the federal government’s budget deficits over the next several years.

And the numbers are pretty gruesome.

In order to plug the gaps from its soaring deficits, the Treasury Department expects to borrow nearly $1 trillion this fiscal year.

Then nearly $1.1 trillion next fiscal year.

And up to $1.3 trillion the year after that.

This means that the national debt will exceed $25 trillion by September 30, 2020.

Remember, this isn’t some wild conspiracy theory. These are official government projections published by the United States Department of Treasury.

This story alone is monumental– not only does the US owe, by far, the greatest amount of debt ever accumulated by a single nation in human history, but $25 trillion is larger than the debts of every other nation in the world combined.

But there are other themes at work here that are even more important.

For example– how is it remotely possible that the federal government can burn through $1 trillion?

Everything is supposedly totally awesome in the United States. The economy is strong, unemployment is low, tax revenue is at record levels.

It’s not like they had to fight a major two front war, save the financial system from an epic crisis, or battle a severe economic depression.

It’s just been business as usual. Nothing really out of the ordinary.

And yet they’re still losing trillions of dollars.

This is pretty scary when you think about it. What’s going to happen to the US federal deficit when there actually IS a financial crisis or major recession?

And none of those possibilities are factored into their projections.

The largest problem of all, though, is that the federal government is going to have a much more difficult time borrowing the money.

For the past several years, the government has always been able to rely on the usual suspects to loan them money and buy up all the debt, namely– the Federal Reserve, the Chinese, and the Japanese.

Those three alone have loaned trillions of dollars to the US government since the end of the financial crisis.

The Federal Reserve in particular, through its “Quantitative Easing” programs, was on an all-out binge, buying up every long-dated Treasury Bond it could find, like some sort of junkie debt addict.

And both Chinese and Japanese holdings of US government debt now exceed $1 trillion each, more than double what they were before the 2008 crisis.

But now each of those three lenders is out of the game.

The Federal Reserve has formally ended its Quantitative Easing program. In other words, the Fed has said it will no longer conjure money out of thin air to buy US government debt.

The Chinese government said point blank last month that they were ‘rethinking’ their position on US government debt.

And the Japanese have their own problems at home to deal with; they need to scrap together every penny they can find to dump into their own economy.

Official data from the US Treasury Department illustrates this point– both China and Japan have slightly reduced their holdings of US government debt since last summer.

Bottom line, all three of the US government’s biggest lenders are no longer buyers of US debt.

There’s a pretty obvious conclusion here: interest rates have to rise.

It’s a simple issue of supply and demand. The supply of debt is rising. Demand is falling.

This means that the ‘price’ of debt will decrease, ergo interest rates will rise.

(Think about it like this– with so much supply and lower demand for its debt, the US government will have to pay higher interest rates in order to attract new lenders.)

Make no mistake: higher interest rates will have an enormous impact on just about EVERYTHING.

Many major asset prices tend to fall when interest rates rise.

Rising rates mean that it costs more money for companies to borrow, reducing their leverage and overall profitability. So stock prices typically fall.

It’s also important to note that, over the last several years when interest rates were basically ZERO, companies borrowed vast sums of money at almost no cost to buy back their own stock.

They were essentially using record low interest rates to artificially inflate their share prices.

Those days are rapidly coming to an end.

Property prices also tend to do poorly when interest rates rise.

Here’s a simplistic example: if you can afford the monthly mortgage payment to buy a $500,000 house when interest rates are 3%, that same monthly payment will only buy a $250,000 house when rates rise to 6%.

Rising rates mean that people won’t be able to borrow as much money to buy a home, and this typically causes property prices to fall.

Of course, higher interest rates also mean that the US government will take a major hit.

Remember that the federal government already has to borrow money just to pay interest on the money they’ve already borrowed.

So as interest rates go up, they’ll be paying even more each year in interest payments… which means they’ll have to borrow even more money to make those payments, which means they’ll be paying even more in interest payments, which means they’ll have to borrow even more, etc. etc.

It’s a pretty nasty cycle.

Finally, the broader US economy will likely take a hit with rising interest rates.

As we’ve discussed many times before, the US economy is based on consumption, not production, and it depends heavily on cheap money (i.e. lower interest rates), and cheap oil, in order to keep growing.

We’re already seeing the end of both of those, at least for now.

Both oil prices and interest rates have more than doubled from their lows, and it stands to reason that, at a minimum, interest rates will keep climbing.

So this may very well be the start of the great financial reckoning.

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Meet the world’s next central banker: Mark Zuckerberg

Within the last week, Facebook announced a ban on all advertisements about bitcoin, initial coin offerings and other cryptocurrencies.

Facebook (along with Google) virtually controls Internet advertising. So their policies have enormous influence over consumer behavior.

Banning ICO advertisements on its platform, for example, will certainly have a negative impact on the amount of money flowing into new ICO’s.

Facebook said it instituted this ban to “protect its users” from financial scams in the cryptocurrency sector. At least, that’s the “official” reason.

And in fairness, there is a ridiculous amount of fraud out there — countless scammy ICO’s and appallingly stupid tokens and coins.

But it’s also possible that Facebook’s main driver in this move goes beyond its desire to protect the well-being of its nearly 2 billion users.

It was only a month ago that Mark Zuckerberg said Facebook would study encryption and the blockchain to “see how best to use them in our services.”

And one of the speakers at the crypto conference that one of our team members attended in New York City yesterday confirmed Facebook is investing a ton of capital into blockchain right now.

It stands to reason that Facebook’s decision to ban crypto advertisements may be rooted in eliminating its own competition, i.e. Facebook may be working on its own proprietary blockchain and cryprocurrency to deploy on its own platform.

One possibility is that Facebook could adopt a similar model to Steemit – a decentralized social network that operates on the blockchain.

It’s up to Steemit’s users to police the site, not a central authority. And the platform rewards its users for good content with small amounts of cryptocurrency and penalizes users for spam and “fake news.”

This would solve a huge problem for Facebook, which has already come under fire from governments across the world for not doing enough to moderate user content including “fake news,” “hate speech,” etc.

Facebook has already hired an army of content moderators, but this is barely been able to make a dent in solving the company’s problem.

So adopting a model like Steemit ,which rewards users with specialized crypto could certainly make sense.

This wouldn’t be the company’s first foray into the arena, either.

When social games like Farmville were popular (maybe they still are, who knows), gamers could pay for e-goods with an in-game currency. Then Facebook created its own currency for people to trade in and out of Farmville and other games.

A full-blown Facebook Token is the logical next step.

Given Facebook’s worldwide dominance, its tokens would have the potential to become enormously popular, practically overnight, and used in everyday transactions in the real world.

The big hope with Bitcoin is that it may one day disrupt conventional fiat currencies. Maybe so. But Bitcoin still has a steep adoption curve before it becomes truly disruptive.

Facebook Tokens, on the other hand, would be adopted by hundreds of millions of people right from the start.

You’d be able to buy and sell products in Facebook Tokens, send money and remittances, pay contract employees overseas, and engage in all sorts of cross-border transactions.

This would essentially make Mark Zuckerberg the world’s central banker… the one person with control over the first truly global currency.

Given that he already controls the #1 media source in the world and has substantial influence over consumer behavior, launching a Facebook Token would solidify his position as the most powerful person on the planet.

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Here’s what the ‘Warren Buffet of Crypto’ told us yesterday

If you’ve been on the Internet in the past six months, you’ve no doubt seen loads of ads touting “crypto geniuses” that have found the next token that’s going to explode…

One guy in particular seems to be following me around to every website I visit, claiming to have some special insight into the “truth” about crypto.

But the truth is, nobody has a crystal ball.

Ultimately, what’s going to drive crypto prices is what drives all asset prices in the long-run – supply and demand.

Most cryptocurrencies have a fixed supply. For example, there will only be 21 million bitcoins mined. Ever. (Today there are about 17 million in circulation).

And because there’s a fixed supply, prices should be determined by long-term demand.

Every crypto expert you talk to will have his/her own opinion on which coin is going to the moon… and why. But it’s important to form your own opinion.

With crypto, the fundamental question you should ask yourself is will there be more demand or less demand in the future?

And if you believe there will be MORE demand in the future, the next question is– which coins have superior technology?

This is an important question. Every coin has different software code with different features and limitations.

For example, Bitcoin has a big limitation in that its network can only process a few transactions per second.

Compare that to Visa or Mastercard, which can process 24,000 transactions per second – nearly 10,000 times more.

One of our team members attended a crypto conference in New York City yesterday… and of course the room was filled with self-proclaimed geniuses.

But there were a few legitimate standouts who had a much more rational view.

One of them was Barry Silbert.

Silbert founded a company called SecondMarket, an exchange for private company stock, which he sold to Nasdaq in 2015. Then he founded a company called Digital Currency Group (DCG).

He’s spent the last several years learning about and investing in the sector, includindg in various cryptocurrencies, as well as crypto companies like Coindesk.

He also founded the Bitcoin Investment Trust (GBTC), which is essentially a Bitcoin ETF.

Silbert’s firm owns $600 million worth of crypto, 95% of which is in bitcoin, Ethereum Classic and Z-Cash.

He thinks over time, that bitcoin will become a form of ‘Digital Gold,’ the industry standard for storing value in crypto.

Z-cash, Silbert explained, will be the industry standard for privacy. And Ethereum Classic will be the standard for ‘smart contracts’.

More bluntly, Silbert explained that most other coins will go to zero over time. The reason is because they don’t have any functional purpose.

Now, remember that Silbert’s opinion is exactly that: his opinion.

There are plenty of other investors in the crypto space who would say something completely different. And their logic would be equally sound.

But Silbert’s point about utility is important: why should anyone own a token that doesn’t have any purpose. Look at CryptoKitties, for instance. Where’s the value?

(Or even worse, F*ckToken, which has a $2 million market cap)

This value question goes back to what I said in the beginning about demand analysis. Will there be more demand in the future for F*ckToken and CryptoKitties, or less demand?

In the long-run, demand has to be driven by some sort of utility. The coin must present some special benefit that other coins and tokens don’t have… and that people will actually NEED.

Coins and tokens that lack this important characteristic will likely fail.

And when they do, it will seem so obvious in retrospect.

This is an easily avoidable mistake… and an important point we’ve been repeating for a long time: with crypto, as with anything else, stay rational.

A decision to BUY should be based on an informed, educated analysis about future demand… not an emotional frenzy because the price is surging.

Similarly, a decision to SELL should be rational and based on the presence of new information or a different analysis, not simply because the market is in a panic.

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No. It’s not over

Last night I was checking out tickets for some upcoming travel.

I’ll be headed to Colombia soon to check on the progress of a large cannabis investment we’ve made there, then off to Miami for an event with our Total Access members.

After that it’s Puerto Rico to meet with some officials there and check out some exciting investment opportunities on the island.

And then finally back to Asia where we’re setting up a new factory for a business I recently acquired.

So you can imagine my pleasant surprise when I found a ticket for all that travel for just $2800– in business class.

That’s an unbelievable deal; just last month I had a similar itinerary that cost me more than $10,000. So I couldn’t believe my luck.

Hey, who doesn’t like a great bargain?

It’s in our nature as human beings. Whether we’re purchasing a new car, shopping at a ‘Going out of Business’ sale, or planning a vacation, we always feel great when we get a steep discount.

Except, of course, when it comes to investing.

For whatever reason, our ‘value gene’ switches off when it’s time to invest our hard earned savings.

Rather than buy the highest quality assets at the lowest possible prices, people tend to pile into expensive, popular investments that they don’t really understand.

This is clearly not a great strategy to become wealthy… or to stay that way.

I doubt anyone would feel particularly smart if they consistently bought outrageously priced, full-fare plane tickets.

But that’s exactly what people are doing when they buy stocks, bonds, property, and other assets at record highs.

To be clear, it’s not about price. It’s never about price. It’s about value, i.e. what are you receiving in return.

For example, $50,000 might seem like a lot of money to most folks, and the thought of spending that much on anything might cause someone to bristle.

But if you could buy a brand new penthouse apartment in midtown Manhattan for $50,000, you would immediately feel like you were getting tremendous value.

Conversely, $5 is a pretty trivial sum to most people. But if someone tried to sell you used toilet paper for $5, you’d probably turn them down on the spot (unless you were in Venezuela).

Value is never about how much you pay. It’s about how much you get for your money.

And when it comes to investments these days, you don’t get a whole lot.

Here’s a great example:

Mastercard is a company that’s quite popular with investors. As a business, it made around $5 billion last year in ‘Free Cash Flow’.

(Free Cash Flow essentially refers to the amount of company profit that’s available to be paid out to shareholders each year… so it’s a great way to measure return on investment.)

And, at least until a few days ago, Mastercard had an ‘enterprise value’ of about $175 billion.

In other words, if you just happened to have an extra $175 billion lying around the house, you could theoretically buy Mastercard and make it your own private company.

Suppose you actually did that… and spent $175 billion. That’s the price.

The value, i.e. what you receive in return, is $5 billion in annual free cash flow.

As a percentage of your purchase price, that $5 billion works out to be just 2.85%.

That’s a pretty flimsy return. After all, business can be quite risky. And 2.85% hardly seems sufficient to compensate for that risk.

Now consider other options.

Interest rates have surged over the past several months, so the investment returns on bonds have really started to increase.

The United States 10-year note, for example, which is widely considered ‘risk free’ by the market, was yielding as high as 2.86% yesterday afternoon.

In other words, the boring, steady, ‘risk free’ bond had a higher rate of return than a volatile, risky business.

That doesn’t make any sense. And it demonstrates how little VALUE investors are receiving.

By any objective metric, stocks have long been OVERvalued.

Investors are paying more for every $1 in corporate revenue than they ever have before… EVER.

The ratio of Enterprise Value to EBITDA (a good proxy for cash flow) for the average company in the S&P 500 is also at a record high.

The ratio of Stock Market Capitalization to GDP, i.e. the total size of the stock market relative to the size of the economy, is also at a record high.

The list goes on and on.

And of course there are countless individual examples– like Netflix.

That company consistently loses billions of dollars and racks up billions more in debt. Yet it is one of the most expensive and popular investments in the world.

On Friday, it seems the market finally woke up to this absurdity. In the past few days, the Dow Jones Industrial Average has plunged more than 1700 points.

It seems that people are finally starting to become aware that rising interest rates are going to have a serious impact on the stock market.

(Think back to the Mastercard example; why would anyone own stocks if they can get a better return with less risk in the bond market?)

This market rout may continue today.

Or, it’s possible that all the fools come rushing back in and bid stock prices back to record high levels.

The only thing we know for certain is that, as sure as night follows day, there will always be corrections and bear markets.

Nothing goes up or down in a straight line forever.

The market has had years of gains and is at the point where none of it makes sense anymore.

So it’s due for a major correction. Whether or not THIS is the big one, we can be certain that it’s coming. Plan accordingly.

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This tiny corner of Rhode Island shows us the future of Social Security

The United States Court of Appeals for the First Circuit gave us an interesting glimpse of the future last week when it ruled on an obscure case involving government pension obligations.

Ever since the mid-1990s, police officers and fire fighters in the town of Cranston, Rhode Island had been promised state pension benefits upon retirement.

But, facing critical budget shortfalls over the last several years that the Rhode Island government called “fiscal peril,” the state legislature voted to unilaterally reduce public employees’ pension benefits.

Even more, these cuts were retroactive, i.e. they didn’t just apply to new employees.

The changes were applied across the board; workers who had spent their entire careers being promised certain retirement benefits ended up having their pensions cut as well.

Even the court acknowledged that these changes “substantially reduced the value of public employee pensions provided by the Rhode Island system.”

So, naturally, a number of municipal employee unions sued.

And the case of Cranston’s police and fire fighter unions made it all the way to federal court.

The unions’ argument was that the government of Rhode Island was contractually bound to pay benefits– these benefits had been enshrined in long-standing state legislation, and they should be enforced just like any other contract.

The state government disagreed.

In their view, the legislature should be able to change laws, even retroactively, whenever it suits them.

Last week the First Circuit Court issued a final ruling and sided with the state of Rhode Island: the government has no obligation to honor its promises.

News like this will never make major headlines.

But here at Sovereign Man our team pays very close attention to these obscure court cases because they often set very dangerous precedents.

This one certainly does. Because Social Security is in even WORSE condition that the State of Rhode Island’s perilous pension system.

We talk about this a lot in our regular conversations.

According to the Board of Trustees for Social Security (which includes the US Treasury Secretary, the US Secretary for Health & Human Services, and the US Secretary of Labor), the Social Security trust funds “become depleted and unable to pay scheduled benefits in full on a timely basis in 2034.”

Once again– that’s the Treasury Secretary of the United States saying that Social Security will run out of money in 16 years.

You’d think this would be shouted from the rooftops, especially given how long it takes to save for retirement.

Yet instead the news is ignored or flat-out rejected by people who simply want to believe either that it’s not a problem, or that the government has some magical solution.

The First Circuit just showed us what the solution is: cutting benefits.

And now the government has legal precedent to do so.

They can retroactively slash whatever benefit they want in their sole discretion regardless of what legislation exists, or what promises have been made in the past.

Let’s be smart about this: the clock is ticking. Sixteen years may seem like a lifetime away, but with respect to retirement, it’s nothing.

Securing a comfortable retirement takes decades of careful planning, and a lot of folks are going to have to catch up.

Fortunately there are a lot of options available, but you’re going to have to take deliberate action.

For example, you could set up a more robust structure to help you put away even more money for retirement and invest in safer, more lucrative assets that are outside the mainstream.

A number of our readers, for example, are safely earning double-digit returns in secured, asset-backed lending deals with their properly structured IRA and 401(k) vehicles.

Here are a couple of options to consider.

This problem is completely solvable. But you’re going to have to solve it for yourself. You can’t rely on the government to fix it.

The First Circuit Court affirmed last week without a doubt that government promises aren’t worth the paper they’re printed on.

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