Category: simonblack

Puerto Rico won’t repay any of its $72 billion of debt until 2022…

The US territory declared bankruptcy last May. A combination of a shrinking population, bloated pensions and a job crisis (in 2006, the US government repealed tax incentives that attracted manufacturers to the island) caused Puerto Rico to go broke.

Even in its fragile economic state, PR was planning on paying creditors $3.6 billion through 2022.

Then Hurricane Irma and Maria destroyed the island last September.

In addition to the physical damage, the storm also accelerated the island’s population shrinkage… before the storm, Puerto Rico estimated it would lose 0.2% of its population of 3.4 million each year over the next five years. Now, the government projects its population will shrink by 7.7% (more than a quarter million people) just in 2018.

Today, four months after the storm, 450,000 Puerto Ricans (roughly 15% of the population) are still without power.

Yesterday, facing a $2-$3 billion budget shortfall, Governor Ricardo Rosselló announced the island would pay back zero debt over the next five years.

Despite the horrible situation, I remained bullish on Puerto Rico’s future. Because the island has one of the greatest tax incentives I’ve ever seen for Americans – Act 20 and Act 22 – which would continue to attract new businesses and residents.

I’ve written plenty about Act 20 and 22 in Notes (you can read a more complete definition here).

In short, Act 20 (the export services act) allows certain businesses to domicile in Puerto Rico and pay a 4% corporate tax rate.

Act 22 (for individual investors) allows Puerto Rican residents to pay zero tax on investment gains.

You could move your business to PR (without relocating yourself) and let your profits build up minus the miniscule, 4% tax. Then, when you’re ready to pay yourself a large dividend, you would simply move to PR long enough to become a resident (for about a year), pay yourself a dividend… and pay ZERO tax.

As soon as you received the payment, you could move wherever you wanted.

For Americans, who are taxed on their global income, this was the single-best way to drastically reduce taxes I’d ever seen – and it was written into US tax law.

But Trump’s tax plan may deal Puerto Rico a financial blow during its weakest time…

Act 20 and 22 remain. And while Puerto Rico’s tax incentives are still attractive, it will be more difficult for many Americans to take full advantage.

First, the new US corporate tax rate is 21% under the new law (down from 35%)… so the tax savings you’d enjoy in Puerto Rico are relatively less attractive based on that alone.

But the real sticking point is the new “global intangible low-taxed income” (GILTI tax). The GILTI tax essentially says you pay an effective tax rate of 10.5% on money you earn in a foreign corporation.

Even though Puerto Rico is a US territory, under the new tax plan, it’s considered a foreign country for GILTI tax purposes.

And because you need to hold a Puerto Rican company in your own name, as an individual, in order to take advantage of Act 20, the GILTI tax is a full 21% – bringing the effective rate to around 24% (4% of the income goes to Puerto Rico and the remaining 96% is taxed by the IRS at 21%).

You can still take full advantage of Act 20 and Act 22 (letting your money compound minus a 4% corporate tax, then paying yourself a dividend and paying 0% tax). But you actually have to reside in Puerto Rico the entire time.

Governor Rosselló believes the US government will change the rules for Puerto Rico to aid in the island’s recovery. But, for now, that’s how my personal attorney and I read it. We’ve spent countless hours analyzing the new tax bill (I actually read all 1,097 pages).

But don’t worry.

Again, you can still enjoy massive tax savings in Puerto Rico if you move to the island.

The tax bill also presents lots of other opportunities for business owners to cut their taxes to the bone.

In the latest Sovereign Man: Confidential (published today), I explain what I think is the single-best way for some Americans to reduce their taxes and indefinitely defer paying taxes on their income (while still using that money to buy property, assets, stocks, even crypto).

You can let the gains on these assets compound tax free… then pay yourself a dividend whenever the time is right (and be taxed at normal, dividend rates).

You can learn more about Sovereign Man: Confidential here.

My attorney and I are still analyzing the new tax bill. And I’ll continue to provide SMC readers with the best, new structures and strategies to reduce their tax bill.

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The year was 1720. And one of the smartest people to have ever lived had just made one of the dumbest financial mistakes imaginable.

Sir Isaac Newton was a genius in every sense of the word.

He practically invented the science and mathematics that is at the foundation of nearly every bit of modern technology that we enjoy today.

Newton was such an intellectual superhero that even Albert Einstein idolized him.

In fact Einstein wrote in a 1919 paper that “[Newton’s] clear and wide ideas will forever retain their significance as the foundation on which our modern conceptions of physics have been built.”

Yet Newton was a complete moron when it came to investing.

During his lifetime, the British Empire was becoming a major superpower and had colonies all over the world.

With so much new international trade under its control, Britain’s prosperity soared.

A handful of companies like the East India Company provided opportunities for investors to share in that prosperity. But the public was always clamoring for more.

So in the early 1700s, the British government chartered a new company– the South Sea Company– and awarded it a total monopoly on British trade in South America.

It seemed like a veritable goldmine, and investors clamored to buy shares.

Isaac Newton was one of those investors.

And initially it was a fantastic investment; Newton bought in early 1720, and within a few months he’d doubled his money. So he sold his entire stake.

Then something interesting happened.

The South Sea Company’s share price kept climbing… higher and higher.

In fact, almost right after Newton sold out, the South Sea Company’s share price climbed exponentially, reaching a peak of nearly GBP 1,000 by mid-1720.

(That would be worth nearly $300,000 today.)

Newton felt like a total buffoon for sitting on the sidelines while all of his colleagues were still makings tons of money in the stock.

So he got back in.

And, anxious to make back the profits he’d missed out on, Newton doubled down, investing an even bigger amount in the shares.

You know what happens next–

The South Sea Company turned out to be a complete bust. It turns out that Britain never really developed much trade with South America.

Yet the company had blown through most of the money, and there was nothing left for the shareholders. So the stock price quickly crashed.

Newton was broke. He lost his life savings, just seven years before his death.

Now, I’ve told this story a few times in this letter… because it’s so powerful.

Even one of the smartest people who ever lived made a terrible and completely avoidable mistake because he was driven by emotion instead of reason.

This has very much the case with cryptocurrencies over the past several months.

The prices of nearly every token and cryptocurrency have soared, and investors have clamored to chase their share of the easy profits.

Our advice in this column has always been to stay rational. Understand what you’re buying. And why.

Conduct your own independent supply and demand analysis, determining for yourself whether you think there will be MORE demand, or LESS demand, for that particular cryptocurrency in the future.

Think about the risks. Invest only what you can afford to lose.

It’s all simple but important advice.

But what I really wanted to talk about today was SELLING.

Over the past two weeks, Bitcoin has dropped from $17,700 a coin to as low as $9,600 (a 45% loss). It’s now recovered to around $10,200 as I write this letter.

Within the last three weeks, the price of Ripple collapsed 63% from nearly $3 to just over $1; it’s now around $1.25.

No doubt a lot of people are panicking. And when investors panic, they sell.

Just like people tend to buy assets that are rising in price, we tend to sell assets that are falling in price.

What I wanted to stress today is that the same lessons should apply, i.e. don’t sell because of an emotional panic.

Sell because you have a rational reason.

If you purchased cryptocurrency because you studied the market and formed a long-term view, ask yourself a question– has anything changed?

Sure, the price of Bitcoin (or Ether, etc.) has fallen. A lot.

But does that mean your analysis was wrong? Is there any new information today that didn’t exist two weeks ago about the future of cryptocurrency?

Maybe. Maybe not. But it’s worth asking yourself those questions before selling.

Sometimes the price of an asset collapses because there really is new information.

In September 2008, for example, the stock price of investment bank Lehman Brothers collapsed… because the market learned that the Lehman was insolvent.

This was critical new information, and a great reason to sell.

But often times investors hit the sell button simply because other people are selling.

So, once again, consider– if your cryptocurrency purchase was based on a sound analysis, is there any new information that suggests your analysis was wrong?

Or are you itching to sell simply because other people are panicking?

Again– I’m not suggesting you hold. Or sell. Or buy.

I’m suggesting that you be sure in your reasons for taking any action. After all, it’s your savings at stake.

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Back in 2013 I had an idea for a movie.

The basic premise was that some unknown domestic terrorist group executes an attack on the United States government by blowing up the Capitol during the President’s State of the Union Address.

It’s a little silly, but I even wrote a small treatment for it, including this scene–

ATTACKER speeds off to a parking garage where he ditches the bike, takes off his black motorcycle attire and helmet, revealing a three-piece suit. He drops the motorcycle stuff in a steel waste bin along with an incendiary grenade, lighting the contents on fire, then casually pulls the fire alarm. You never see his face.

After the attack is perpetrated, the US is effectively left without a government given that nearly every member of Congress, the President, Vice President, most of the cabinet, the Joint Chiefs, and the Supreme Court was all in that building.

The only guy who survives is the ‘designated survivor,’ some member of the President’s cabinet who’s supposed to head up a new government.

I never did anything with the treatment because I couldn’t quite figure out how I wanted the story to end. So it sat on my computer for years collecting digital dust.

A few years later I stumbled across a popular new TV show starring Kiefer Sutherland called Designated Survivor.

It had the same premise– terrorists blow up the Capitol building during the State of the Union address, effectively destroying the entire government.

Sutherland’s character is some low-ranking cabinet secretary who was the designated survivor, and he is urgently sworn in as President during the first episode.

The show is a bit of an action thriller as they try to uncover the plot of who these domestic terrorists are.

And that was the big difference.

My version of the idea back in 2013 was as a dark comedy.

I know that probably sounds horrible… but my main thinking was to showcase how utterly useless and ridiculous most of the government’s bureaucratic functions are.

My premise was that, after the attack, there would be an initial panic. The stock market would crash and citizens would freak out.

But after a bit of time they’d realize, “Wait a minute, the world didn’t come to an end.”

The grocery stores still had food on the shelves, the gas stations still had fuel, the power companies were still pumping out electricity, Apple was still making iPhones.

Nothing really changed. The Armageddon that everyone was anticipating never materialized.

More importantly, the LACK of government forced people to take on certain responsibilities for themselves.

Without the SEC to lull investors into an absurd false sense of security that financial markets were ‘safe’, people actually had to start doing real due diligence on their investments.

Without the USDA letting the Big Food companies sell everyone poison like High Fructose Corn Syrup while the government tells us that it’s all safe, people actually start paying attention to what they eat.

There’s no FDA to squash potentially life-saving cancer treatments, no FEMA to bungle emergency relief efforts, no Department of Education to turn the youth of a nation that was once self-reliant and entrepreneurial into a bunch of dumbed-down serfs.

Meanwhile, at least in my version of the story, the guy who was the designated survivor was a total buffoon.

Not that the character was stupid… but just so out of touch that, once he became President, his priorities were all about trying to re-assert mindless bureaucracy.

The script would work in real life examples of government waste that the new President would champion– like the $30,000 that the federal government really spent last year on a production of Shakespeare’s Hamlet… starring dogs instead of humans.

Anyhow, you get the idea.

I was thinking about this a lot over the weekend now that the US government has once again shut down.

Aside from being an utter embarrassment, though, the shutdown isn’t totally dissimilar to my version of the story.

There’s been all sorts of fear surrounding the possibility of a shutdown. And now that it’s here, it turns out there’s not really much of a major impact.

There’s still food on the shelves and gas at the pumps. The economy is still functioning.

There are simply fewer people to slow it all down.

And let’s be honest– it’s not a complete government shutdown. Any function deemed ‘essential’ is still at work, including the military, federal courts, air traffic control, etc.

Social Security recipients will keep receiving their benefits too.

But any government function deemed ‘nonessential’ has been shut down… which raises an interesting question:

Why does the government do anything that’s non-essential to begin with?

Every single function they take on sucks resources out of the economy. They squander and waste the majority of those resources, then end up giving people a $2 billion website that doesn’t work.

Clearly this is a government in need of serious downsizing.

Any other organization in the world with a history of such gargantuan waste would be forced to strip itself down to its core and limit itself to only the most essential functions.

Sadly, though, the public attention seems to be focused on how terrible this shutdown is and how these politicians need to come together to reopen the government.

Are you kidding me? This is a gift. Keep it closed.

The last time the government shut down in October 2013, the US economy posted its highest quarterly GDP growth in years.

And when the economy shut down TWICE in the fourth quarter of 1995, the US economy posted a whopping 7.2% growth rate in the following quarter.

The evidence is pretty clear– the longer these politicians bicker and argue, the better off everyone else will be.

Here’s to hoping they keep their doors closed for a very, very long time.

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In today’s podcast, I talk with our Chief Investment Strategist, Tim Staermose, about the global economy.

We’re in the midst of one of the longest economic expansions in history. Most assets are trading at all-time highs. Meanwhile, debt is also at all-time highs.

But we don’t have a crystal ball… this boom could easily continue for longer than anyone expects.

However, Tim notes the US economy largely runs on cheap money and cheap oil. And right now, both interest rates and oil prices are on the rise.

Most people aren’t talking about it, but oil prices have jumped 50% in the past seven months.

And that means, sooner or later, people will be spending more money at the pump and more money on debt payments – which leaves less money for everything else.

But if you look hard enough, you can still find value in today’s market.

In this podcast, Tim shares the one sector where he’s personally investing.

You can tune in here.

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I’ve been thinking a lot about death lately…

A very good friend of mine, who is also an executive at the agricultural company I founded here in Chile, was in a terrible accident with his family.

We’re very fortunate today because it looks like everybody is out of the danger zone.

There were some intense moments as this played out. And it led to the inevitable discussion with next of kin.

I realized these people were still in shock as they had to start thinking about what’s next.

And it was at that moment that I realized they were totally unprepared for what was going to happen.

This year, we’ve been talking a lot about avoidable mistakes. I’ve been writing about this so much because I’ve been thinking about it so much, mostly because of this unfortunate event.

It’s difficult to even think about it. But we’re all going to die. There’s no escaping it.

So it makes sense to be prepared. But in reality, most people just aren’t.

Whether it’s because we don’t want to think about it, or we just prioritize other things, most people don’t have any plans for what happens if (or really, when) they die.

But if we don’t take care of this now, when the moment actually comes, the consequences for the loved ones you leave behind are severe.

You’re talking about potentially losing enormous sums of money and causing your loved ones lots of pain and hardships.

Maybe you have a multi-million dollar baseball card collection stuffed in a safety-deposit box (or gold coins)… And if nobody knows they exist, they’ll disappear when you’re gone.

You also have to worry about the state, which can feast itself on your assets.

They will chase you into your death to tax you even then. You are no longer on this earth, but the government will still tax you.

The new tax plan in the US doubled the estate tax exemption from $5.5 million for individuals and $11 million for couples to $11 million and $22 million, respectively. So, on a federal level, it won’t affect many people (though I’m sure some of you will still qualify).

But at the state level within the US, estate and inheritance tax thresholds for inheritance tax can kick in at much lower levels (sometimes only a couple hundred dollars).

Other jurisdictions, including some US states, have rules called “forced heirship.” They force you to bequeath certain assets to heirs of the state’s choosing, not your own.

Louisiana, for example, has forced heirship rules. Let’s say you live in Louisiana and you’ve had a falling out with your family and you decide to bequeath your wealth to a single charity. The state can step in and say “no, we won’t allow that.”

It gives you a sense of how the government views you…

It’s not actually your property. They just let you use it until you pass on. And when you die, they carve it up as they see fit and take whatever they feel is their fair share.

Chile, where I am now, also has forced heirship.

If you ignore estate planning, you’ll also saddle your loved ones with probate – a painful legal process. When there are real assets up for grabs, you can face lengthy legal proceedings and fights.

So, if you ignore this important issue, you could end up paying huge taxes, having your property taken away from you (or your heirs) and subject your loved ones to lots of legal battles and costs.

But it’s one of the most easily avoidable mistakes ever.

There are some simple steps you can take, right now, to prevent this from happening.

The risk of faulty planning isn’t even a true risk… risk only occurs when there’s uncertainty involved.

But there’s 100% certainty that this will happen to all of us. So it’s smart to make the appropriate plans.

I like to think of estate planning in four pieces. But today, we’ll only discuss one of those – Knowledge.

A lot of what we discuss with having a Plan B involves holding various assets offshore. And some of these may not be very public assets, like an anonymous safety deposit box somewhere. But if your family or loved ones (or some appointee) doesn’t know these assets exist (like our baseball card example from earlier), those assets will disappear when you’re gone.

Or consider your basic checking account.

Did you know most jurisdictions have dormant bank account rules?

This means if an account has zero activity for some period of time, the bank is legally obligated to declare the account dormant. And if a certain period of time passes without the account being unfrozen (sometimes it’s only a matter of months), then all the contents of the account passes to the state.

But it’s an easy fix… just make a list.

Once a year, make a list of all your assets, account numbers, etc. And put all of that data into a centralized place. Include any points of contact (like brokers or lawyers) and any login info your family will need to access these accounts.

Here are some of the assets you should include:

– Checking and savings accounts
– Brokerage accounts
– Real estate
– Cash, gold and crypto
– Insurance policies
– Bills
– Important Documents (birth certificates, marriage certificates)
– Wills/estate plans

Just by listing these assets and telling your family about them, you can avoid a massive, financial mistake in the case of your untimely passing.

It’s an uncomfortable conversation to have. But take advantage of the new year to get started.

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There’s a really unique investment company in Europe you ought to know about… because they are insanely profitable.

In fact, a few days ago the company announced that they expect to report an annual profit of $55 BILLION for 2017.

That’s more money than Apple makes… which makes this European group THE most profitable company in the world.

Its stock price has more than QUINTUPLED in the past three years, and nearly tripled in the last nine months.

Those are practically cryptocurrency returns. And it crushes the stock performance of Apple, Amazon, etc.

What’s even more impressive is that, while Apple and other highly profitable companies like Berkshire Hathaway, PetroChina, and JP Morgan Chase often have tens of thousands of employees or more, these guys only have around 800.

It’s an absolutely amazing business… But I haven’t even told you the best part yet.

They have a LEGAL monopoly on their product.

Literally ZERO other companies are allowed to compete with them. So they have a lock on the entire market. It’s extraordinary.

You might not be familiar with the company… but you’ve undoubtedly heard of its product.

It’s the Swiss franc.

And the company is Swiss National Bank (SNB), i.e. the central bank of Switzerland.

Yes, the Swiss National Bank is actually a publicly traded company, just like Apple or General Electric; it’s listed on the stock market in Switzerland under the ticker symbol SNBN.

And yes, the SNB really is the most profitable publicly-traded company in the world. The chairman of the bank expects they made $55 BILLION in 2017.

To put that number in context, $55 billion is equal to roughly 8% of the entire Swiss economy.

The equivalent amount in the United States would be $1.5 TRILLION. So, yeah, it’s a lot.

You might be wondering– how is it possible that a central bank made such a staggering sum of money?

It’s an easy, four-step strategy.

Step 1: Obtain a monopoly on the currency.

Ensure that you, and you alone, have the authority to conjure as much money as you want out of thin air, and that everyone else in the country is required to use it.

Step 2: Print countless amounts of money to inflate asset prices

Like most central banks, the Swiss National Bank ballooned its balance sheet after the financial crisis kicked off in 2008, growing its size EIGHT TIMES from roughly 100 billion francs to over 800 billion.

In other words, they conjured hundreds of billions of francs out of thin air– an amount that’s larger than the size of the entire Swiss economy.

Eventually the money they printed started circulating into the economy… and making its way into financial markets.

And as you can imagine, when an enormous tidal wave of cash starts flooding into stock or bond markets, asset prices tend to rise.

Step 3: Keep cutting interest rates… until they’re NEGATIVE

Just to make extra sure that businesses and individuals in Switzerland would actually spend the hundreds of billions of francs that had just been printed, the SNB adopted a NEGATIVE interest rate policy in 2015.

This meant that banks, corporations, and individuals all had to PAY in order to save their money.

So naturally people started parking their capital elsewhere. They started buying bonds. Stocks. Anything they could get their hands on that wouldn’t charge them interest.

This increase in demand continued to push up asset prices.

Step 4: Buy assets… then continue inflating asset prices.

All the while, the SNB was buying up assets. Stocks. Bonds. They even own roughly $85 billion of US companies like Apple, Microsoft, Coca Cola, and Visa.

So, the more stock and bond prices rose, the more money the SNB made.

Essentially the SNB raked in ENORMOUS investment profits because they printed hundreds of billions of francs, which inflated the prices of assets that they themselves were buying.

Pretty amazing.

And today, because of those artificial investment gains that they engineered for themselves, the SNB is now the most profitable company in the world.

Oh, and just so you know the other half of the story, while the central bank is raking in record profits, total debt in Switzerland has skyrocketed.

As an example, household debt in Switzerland as a percentage of GDP is now one of the highest in the world.

This is a testament to the absurdity of our modern day monetary system… a system in which unelected central banks are awarded dictatorial control of the money supply, and consequently enormous power over our lives.

With a monetary system like this, it’s easy to understand why there’s so much interest in decentralized cryptocurrencies…

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Over the weekend, the New York Times published a satirical article entitled “Everyone is Getting Hilariously Rich and You’re Not.”

That headline perfectly encapsulates the ‘Fear of Missing Out’, or FOMO, that’s so pervasive in cryptocurrency right now.

Just about everyone either knows, or has heard of someone, who’s made an absolute fortune in crypto.

And this plays perfectly to one of the darkest and most basic of human emotions: envy.

The article humorously showcases several Bitcoin (and other cryptocurrency) millionaires, poking fun at the subculture dominated by free-spending millennial 20-somethings who act as if they’re the second coming of capitalism.

A few quotes from the article will give you a sense of it:

“Sometimes I think about what would happen to the future if a bomb went off at one of our meetings. . . [That] bomb would set back civilization for years.”

“[H]is main hobbies were reading 4chan and buying vintage pornography, passions that exposed him to cryptocurrency.”

“He said his holdings are into double-digit millions but wouldn’t give specifics other than to say he’d quit his job and is starting a hedge fund.”

“They talk about buying Lamborghinis, the single acceptable way to spend money in the Ethereum cryptocurrency community.”

“The [ethereum cryptocurrency’s] founder frequently appears in fan art as Jesus with a Lamborghini.”

“And he wears a solid gold Bitcoin “B” necklace encrusted with diamonds that he had made.”

“When I meet people in the normal world now, I get bored.”

“He pointed to his outfit — a long white fake mink coat, gold-heeled shoes — and said, “It’s gold, right? It’s gold.”

Anyhow, you get the idea.

Clearly the author went out of her way to cherry-pick some of the wealthiest crypto millionaires and make her subjects appear juvenile and narcissistic…

This is a gross generalization.

But the perception is still there– it seems like everyone ELSE is spending like drunken sailors from all the money they’ve made in crypto… money that you’re NOT making.

Which brings us back to FOMO– fear of missing out. Or more importantly, what I call “Fear of Missing Out… AGAIN.”

Everybody knows that Bitcoin and Ether went to the moon. And by God they’re not going to miss out on the next one.

So perhaps the most troubling story from the article was of a 56-year old janitor who cleans the seats at the local Cinemark movie theater.

She’s now basically dumped her life’s savings into crypto, rationalizing her decision by saying “something is telling me I can trust this generation.”

Clearly that ‘something’ is her fear of missing out… again. She’s spending time with all of these people who are younger than her kids but have more money than she can dream of.

Between her envy and FOMO, she’s made a monumental financial decision driven by two extremely powerful emotions.

Even some of the wealthy crypto speculators show signs of extreme FOMO.

As a community there seems to be intense peer pressure to NOT sell… to hold one’s crypto holdings until the price reaches some mythical height.

As one young man who allegedly made hundreds of millions of dollars in crypto told the reporter, “All I know is the price of Ether is going to go up.”

Eh… according to your crystal ball?

With such prodigious gains, the rational thing to do would be to take a LOT of money off the table and lock in those profits.

But, hey… FOMO. If the price goes up 10x from here, they’ll miss out on those gains.

So, driven by some irrational belief that they can predict the future, they’re not selling.

That decision-making is as emotional as ‘something is telling me I can trust this generation.’

The lesson I want to highlight again is that emotional decisions tend to be bad decisions.

And these bad decisions often lead to painful outcomes that could have been easily avoided.

Again, I’m not suggesting to NOT buy crypto. Or to sell it.

[In full disclosure, I was a very early adopter of Bitcoin and recently sold roughly $100,000 worth primarily because I found a more productive investment for that capital in the sector. But I still own plenty of crypto and plan on holding the rest until another opportunity arises.]

The main idea is to establish and follow simple rules for yourself: don’t gamble with your savings. You worked long and hard to earn it.

Always make efforts to fully understand anything that you’re investing in… especially the risks.

Be able to make multiple arguments simultaneous, i.e. make the case FOR and AGAINST the investment. Understand both sides.

And most importantly, once you make a decision, only invest whatever amount of money you can literally afford to set on fire.

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In today’s podcast, we discuss the recent crypto meltdown (led by Ripple) and how it plays into our recent theme of avoiding huge mistakes.

Here’s the thing about big mistakes… they’re usually obvious and avoidable.

Like when the Social Security Board of Trustees told the world in its 2017 report that the “Trust Fund reserves will be depleted by 2035”… and that an “immediate and permanent reduction” in benefits to all current and future Social Security recipients is a reality.

The government is telling you Social Security is running out of money. What are you doing about it?

Likewise this morning, when Bloomberg reported China (the world’s largest foreign holder of US Treasurys) is considering slowing or halting purchases of US government debt.

This would have potentially catastrophic financial implications… and it’s been a worry for a long time.

But most people simply ignore the possibility.

You can tune in here to learn about some of the big problems that are coming down the pipe and some simple steps you can take to prepare for them.

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We’ve all heard the term “Kodak Moment.”

It’s a popularized phrase to describe a picture-perfect moment – one that should be forever captured on Kodak film.

Like Kleenex tissue, Kodak was once so large and popular, the company worked its way into basic lexicon.

Kodak was founded in 1880 by a man named George Eastman. He started producing dry plates (a new type of photographic plate that reduced the cost of photography) in Rochester, New York.

Eventually the company adopted the razor and blades strategy of selling inexpensive cameras and making big margins on the consumables – paper, film and chemicals.

It’s hard to believe now, but Kodak was the innovator of its day. By 1976, the company accounted for 90% of film and 85% of camera sales in America. It was known as “The Great Yellow Father.”

Until the 1990’s, it was considered one of the five most valuable brands in the world (today, those brands are Apple, Google, Microsoft, Coca-Cola and Amazon).

And Kodak was actually the first company to introduce the digital camera, back in 1975.

A 24-year old employee named Steve Sasson was tasked exploring practical uses for Kodak’s newly-invented charged coupled device (C.C.D.) – a sensor that took an incoming, two-dimensional light pattern and converted it into an electrical sensor.

Though the job sounds high-tech, especially for 1970’s standards, it wasn’t a glamorous gig.

Sasson’s invention took 50 milliseconds to capture an image and 23 seconds to record it to a tape. He would take the cassette tape out and hand it to his assistant, who would put it in the playback unit… 30 seconds later, you got a 100 pixel by 100 pixel black and white image.

Sasson promised Kodak’s executives the processing time would decrease as technology improved (remember… this was 1975).

But Kodak killed the product, fearing it would cannibalize its film business. Not to mention, the company didn’t believe anyone would ever want a digital camera…

“They were convinced that no one would ever want to look at their pictures on a television set,” Sasson told the New York Times. “Print had been with us for over 100 years, no one was complaining about prints, they were very inexpensive, and so why would anyone want to look at their picture on a television set?”

We know how the story played out…

Digital photography killed the film business. Kodak entered the digital camera business, but those became a low-margin commodity (which were soon replaced by smart phones).

Kodak went from peak revenues of $16 billion in 1996 to bankrupt in January 2012.

The company emerged from bankruptcy in 2013 as Eastman Kodak – a company focusing on business technology and printing solutions.

And yesterday, Eastman Kodak (KODK) returned as a Wall Street darling.

Shares of the 130-year old company soared 120% after it announced it’s adopting blockchain technology and creating its own digital currency – the KodakCoin. It’s up another 75% as I write this.

The platform, called KodakOne, says it’s a “new economy” for photographers to license their work and get paid.

Kodak isn’t the only publicly traded company to mention blockchain or crypto and see its shares soar…

Last month, Long Island Iced Tea Corp. – a beverage company – changed its name to Long Blockchain Corp. and saw its shares nearly triple in a day. The company was facing a potential Nasdaq delisting unless its market value rose above $35 million for 10 business days in a row (the blockchain stunt achieved that goal).

Then, last week the company said it was buying 1,000 bitcoin mining machines and offering as many as 1.6 million shares to raise capital… while continuing to make its juices, lemonades and teas.

Yesterday Long Blockchain Corp. announced it was halting its plans to raise capital, though it will still evaluate “multiple specific opportunities” in blockchain.

Also last week, the Securities and Exchange Commission (SEC) halted trading in Hong-Kong based UBI Blockchain Internet (formerly known as JA Energy)… the company’s stock price soared from $9 on December 11 to $87 on December 18 – even though it has no revenue and provided a disconnected phone number in its regulatory filings

Even the SEC is getting in on the joke…

The Fort Worth, Texas branch of the SEC recently tweeted “We’re contemplating adding ‘Blockchain’ to our name so we’ll increase our followers by 70,000 percent.”

This type of market behavior is pure madness… struggling lemonade companies are getting into cryptocurrencies. And the market is rewarding them.

Same with UBI Blockchain Internet, which appears to be an outright fraud.

Comparisons to the tech bubble abound – when companies with zero tech focus would add “dot com” to their name and see their shares soar.

I’ve been writing this year about avoiding major mistakes that can cripple your wealth (including this piece urging caution about Ripple just before it plunged in price.)

And once, again, I’d urge caution in the crypto space. I’m not saying you shouldn’t buy any. Nor should you necessarily sell if you’re sitting on big gains.

But now probably isn’t the time to go all in. Money today is acting completely irrationally in regards to bitcoin and other cryptocurrencies.

Kodak, a textbook case study in how to fail with technology, is launching its own blockchain and coin. Lemonade companies are mining crypto. Paris Hilton and Jamie Foxx are promoting initial coin offerings.

It’s a circus. And most of these hair-brained schemes will fail.

Remember, any successful investment has to be based on something real – property, cashflow, an underlying technology.

Investments based on nothing but hype are HUGE mistakes. And that’s what we’re seeing in the crypto space.

Luckily, they’re easy to avoid.

Source

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On a deep, dark evening last June in the spectacularly celestial deserts of northern Chile, scientists made a phenomenal discovery.

It was a supernova… one that they named ASASSN-15lh.

This wasn’t just any supernova. It was the BIGGEST and BRIGHTEST supernova ever recorded.

Supernovas are exploding stars whose ejected mass and energy can create a light show so brilliant that they can sometimes be seen with the naked eye in our own night sky.

At its most luminous, ASASSN-15lh was over 500 BILLION times brighter than our own sun, and FAR greater than the previous record holder.

This is so bright that, according to one of the lead researchers, if it had been located within our own galaxy there would have been no darkness on earth for weeks.

Fortunately for us, ASASSN-15lh was from a galaxy far, far away– 3.8 BILLION light years away. So its intensity didn’t have much of an effect on Planet Earth.

Of course, such a prodigious distance also means that ASASSN-15lh actually went supernova 3.8 billion years ago.

The star was so far away from our planet that it took billions of years for the light from the supernova to reach us.

It’s mind boggling to think about. But in a way, the same can be said of many of the financial risks that we face.

Consider the exploding star of Social Security, one of the largest and most important pension programs in the world.

Literally tens of millions of people depend on it.

The Social Security Administration itself reports that 62% of recipients rely on the program for at least HALF of their income.

And further research by the Center on Budget and Policy Priorities (CBPP) shows that, without Social Security, 22.1 million Americans would fall below the poverty line.

Needless to say, major cuts to the program would have nuclear effects.

And yet, year after year, the Social Security Board of Trustees publishes an annual report that describes the program’s terminal financial challenges in excruciating detail.

They mince no words in plainly stating that Social Security pays out far too much money, and takes in far too little.

According to the 2017 Trustees report, “Trust Fund reserves become depleted in 2035.”

They’re practically giving us a date that we can circle on a calendar and mark “End of Social Security.”

The Trustees go on to lightly propose solutions, including an “immediate and permanent reduction” in benefits to all current and future Social Security recipients.”

And in case you’re wondering who these whack-job Trustees are, they include the Treasury Secretary of the United States, the Secretary of Health and Human Services, and the Secretary of Labor.

These aren’t just random people.

We’re talking about politicians at the highest levels of government who are telling us that Social Security is running out of money… and calling for an immediate and permanent cut in benefits.

Given the tens of millions of people who depend on the program, the consequences of either scenario would be catastrophic.

Sadly, this is not a new problem. The Trustees have been screaming for years that Social Security’s finances are unsustainable.

Yet year after year, the problem was ignored… which brings the end-game one year closer, and the ultimate solution that much more painful.

That’s what makes Social Security a gigantic supernova.

The star exploded years ago. But it will take until 2035 for everyone to realize it… though frankly it could be sooner than that.

People are living longer than ever before– the average life expectancy in the US is a full EIGHTEEN YEARS longer than it was when Social Security was conceived back in the 1930s.

This means that Social Security will have to pay out more money to more recipients for much longer than they’ve ever had to pay before.

This will be an enormous cost to the program.

Simultaneously, despite all the celebration of the low unemployment rate in the US, the Labor Force Participation Rate is still near a multi-decade low.

This means that there are fewer people in the work force who are actually paying in to the Social Security System.

According to its own projections, Social Security requires 3 employed workers to support one retiree.

And they watch this worker-to-beneficiary ratio very closely.

In 2010 it dipped below 3 for the first time, and in 2013 hit 2.8. The Trustees’ projections show it will continue to fall, to as low as 2.2.

So if you look at the big picture, a growing number of beneficiaries is being supported by a declining number of workers.

This isn’t rocket science– it’s pretty obvious what’s going to happen.

Yet the collective response is to simply ignore the problem… or outright refuse to believe it, as if this is some crazy conspiracy theory.

This isn’t a theory.

It’s simple arithmetic based on government data, backed by the same conclusions reached by the Treasury Secretary of the United States.

Now, the bad news is that none of us can actually fix Social Security.

And we sure as heck can’t convince someone to prepare for a problem that they refuse to acknowledge.

But we can easily do something about it ourselves.

After all, this is one of those MAJOR problems we’ve been talking about– and one that can easily be avoided.

The good news is that many of the solutions haven’t changed with the new tax law.

You can still establish, for example, certain self-directed IRA structures or a solo 401(k).

These structures not only dramatically increase your contribution limits (to more than $50,000 annually), but also vastly expand the universe of investment options– real estate, cryptocurrency, private equity, etc.

So ultimately you could save more, and earn more, for your retirement.

The Social Security star has already exploded. But it will take the light another 15+ years to reach us.

That’s plenty of time to prepare for anyone with the right education and the will to act.

Source

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