Category: simonblack

I guess none of this should surprise me anymore.

Our old friends at Wells Fargo are involved in yet another banking scandal. And this one is really bad… people wrongfully lost their homes and ended up on the street.

But before I get into the details of this particularly atrocious mishap, let’s have a quick recap of Wells’ “greatest hits.”

Back in April, Wells was hit with a $1 billion fine for selling 570,000 clients auto insurance they didn’t need and also charging mortgage borrowers erroneous fees.

By the bank’s own estimates, as many as 20,000 of those clients may have had their cars repossessed as a result of their inability to pay for the insurance Wells Fargo illegally stuck them with.

On the topic of repossessing vehicles, last November, the bank came under fire for illegally repossessing vehicles owned by members of the military.

Then in October, Wells Fargo got grilled by federal regulators after recommending investment products that were “highly likely to lose value.” The bank also pushed tons of customers into higher-fee retirement accounts that were bad for customers but more lucrative for the bank.

That same month, the bank fessed up to “erroneously” charging late fees to more than 100,000 borrowers, even though the delays were the bank’s fault.

In 2016, employees at some of Wells Fargo’s California branches got busted for selling sensitive customer info, like Social Security numbers, to identity thieves.

And in late 2016 and throughout 2017, Wells Fargo had its notorious “fake account” scandal, where its employees opened extra accounts for millions of customers so they could hit their sales goals and earn a bonus.

And then there’s the time Wells Fargo froze my account for sending a simple wire transfer.

I don’t know what else to say about Wells Fargo (and basically every other big bank) anymore… other than I’m outraged with their behavior.

Consider Wells Fargo’s latest scandal…

This week, the bank said a “computer glitch” caused 545 of its customers to lose their homes.

The “glitch,” according to papers the bank filed with the Securities and Exchange Commission, caused the bank to incorrectly deny 870 loan modifications (around 60% of which went into foreclosure).

Basically, people asked the bank to change their mortgage to make it more affordable, and requests that should have been approved weren’t… with the process taking months before the borrower got the final “no.”

Seriously?

“Oh… sorry about that. Sorry you lost your house, your family and your job. Our bad… computer glitch, you know how it goes. Real sorry.”

CBS interviewed one of the victims, a guy named Jose Aguilar.

Jose fell behind on his payments after trying to fix a black mold problem in his home. He asked Wells to change the mortgage to lower his payments. While waiting for Wells to process his request, he fell further behind until the house ultimately went into foreclosure.

He and his wife split up. He had to move into a friend’s basement with his son.

Then, three years later, he got a letter from Wells Fargo saying, wait for it:

“Dear Jose Aguilar, we made a mistake… we’re sorry.”

I’m sure Jose was relieved Wells Fargo was sorry after literally ruining his life (they did give him a $25,000 check… which obviously doesn’t come close to making up for the mistake).

Once again I’ll ask… how does anyone actually do business with Wells Fargo anymore? These people are outright criminals (if you or I committed any of the acts above, we’d be behind bars).

And it’s not just Wells Fargo. Pretty much every major bank in the world has been found guilty at some point of some type of fraud.

But people still trust these criminals with their money.

The public has been institutionalized to believe you have to hold your money with a big bank.

But in reality, you have so many other choices.

Instead of holding money in a bank account, you can earn 100x more interest buying short-term Treasury Bills. You can hold physical cash or gold.

There are options to crowdfund loans of every type.

You also don’t have to trust these banks with your retirement (in fact, I hope you don’t). They limit your investment options and saddle you with erroneous, high fees for nothing.

With a little effort, you can take control of your retirement and take your money out of the hands of the major financial institutions.

If you qualify, you can open a solo 401(k) – it’s a cheap and flexible structure that allows you contribute tens of thousands of dollars each year and invest in all kinds of assets (even real estate and private equity).

You can also borrow money from your retirement account under certain circumstances.

Self-directed IRAs are also a great option (though they’re a bit costlier and less flexible).

It’s important to understand, as always, you have options… you just have to do a little more work in order to stop the abuse from Wells Fargo and the like.

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From 2000 through 2012, the price of gold increased every year, rising from around $280 an ounce to nearly $1,700. It was an unprecedented run.

Then, in 2013, gold took a nose dive, losing over 27% of its value.

It was widely reported that the Swiss National Bank, the former bastion of monetary conservatism, lost $10 billion that year just on its gold holdings.

As you probably know, central banks hold a portion of their reserves in gold. The practice goes back to when central banks actually had to have gold on hand to trade in and out of paper money (or even trade for goods and services).

And central banks still hold reserves in gold today, even though they don’t need it to transact like they used to.

So that begs the question, did the Swiss National Bank actually lose $10 billion? It still had every ounce of gold in its vaults. And gold, after all, is money.

Plus, the SNB wasn’t holding gold to speculate…

Today, central banks hold gold as a hedge against fiat money. These are the guys with their fingers on the printing press… so they know exactly the effect they have on money.

And right now, banks are buying up gold hand over fist. Central banks currently hold 20% of all the gold ever mined—33,000 metric tons.

And JPMorgan Chase says they’ll buy another 650 tons this year and next.

Why?

Gold is for the I don’t knows.

And right now, there are a LOT of I don’t knows.

Markets have been going crazy over the past few months.

After a record bull run for stocks, we are now seeing massive volatility with the Dow regularly jumping 500+ points in a single day. Just yesterday, the Dow fell a whopping 800 points.

And there’s plenty of reasons for market to be worried today. For one, we’re 10 years in to a raging bull market… and it’ getting long in the tooth.

Plus, the Fed is raising interest rates. And when the price of money gets more expensive, people get a little tighter with it. That means it’s tougher for businesses and individuals to borrow. All things equal, higher rates mean lower prices.

Before last week, Fed Chairman Powell said rates were “well below” where they should be. And the markets reacted negatively.

Then, last week, after seeing how fragile markets were, Powell said rates are “just below” where they should be.

Just that one word difference sent markets soaring. But the joy was short lived.

There’s also the trade war with China, intensified by the Trump administration tariffs.

And then at the summit in Buenos Aries last week, China and the USA suddenly came to an agreement. They will halt the tariffs for 90 days for a three-month truce in the trade war. That sent markets soaring.

Then people read some tweet from Trump and worried the tariffs might be back on… markets dumped.

If there is one thing markets hate, it is uncertainty. And there’s plenty of uncertainty to go around today.

And while we’re seeing these late-cycle swings in the market, gold is as steady as ever…

While the DOW dips and climbs by hundreds of points, gold is still hanging out just below $1,250 an ounce. And it really hasn’t made any major moves up or down since 2013.

Yet today, an ounce of gold has about the same purchasing power as it had 1,100 years ago… talk about steady.

So while every other asset is still at or near all time highs, gold is relatively cheap.

Gold has held its ground during all this market volatility.

That is exactly how you want insurance to act. It holds steady in the face of craziness, even selling for a discount when everything else is as expensive as it ever has been.

It makes more sense to buy something cheap, that no one is excited about, while people clamber for exciting but massively overvalued stocks like Tesla and Netflix.

Since 2008 this massive monetary experiment of quantitative easing has sent stocks and assets to dizzying, unsustainable highs.

We think this experiment is coming to an end. The day of reckoning is close.

Stocks are up and down, trade wars are on and off, interest rates could keep soaring, or level off…

What do you do for the I don’t knows?

You get some cheap gold while you still can.

And by the way, while gold is on sale, silver is an even better deal.

In ancient times, the price ratio between gold and silver was about 15:1, meaning an ounce of gold was worth about 15 ounces of silver.

But over the past decades, this ratio has been closer to 50:1—an ounce of gold sold for 50 times what an ounce of silver sold for.

Today, that ratio is about 85:1.

To be fair, this could mean gold is overvalued, not that silver in undervalued.

But when gold has the same purchasing power as a millennium ago… when it has stayed steady the past seven years and grew every year of the decade before that…

It’s a safe bet that gold goes up, and silver does too, possibly even more than gold.

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Several years ago back in 2004-2006, if you had a pulse, you could borrow money from a bank to buy a house.

In fact, bank lending standards were so loose back then that there were some infamous cases of people who DIDN’T have a pulse who were still able to borrow money.

That’s right. Some banks were so irresponsible that they actually loaned money to dead people.

Of course, it turned out that lending money to dead people… or people with terrible credit who had a history of default, was a bad idea.

And the entire financial system almost blew up as a result of this reckless stupidity.

But then something even crazier happened: the Federal Reserve came in and bailed out all the banks with trillions of dollars of free money.

That was utterly nuts. Instead of being wiped out by their idiotic mistakes, the banks learned that they would always be bailed out no matter how stupid or greedy they acted.

The key lesson was that there would be zero consequences for bad behavior.

So if the Fed is going step in with a bailout every time banks screw up, why bother being conservative and responsible?

That’s why we’re seeking the same mistakes over and over again.

Instead of loaning money to dead people, banks and funds are loaning money to dead companies who perennially lose money and go deeper into debt each year.

We talk about some of the most notorious cases like WeWork and Netflix regularly in this letter… but there are countless other examples.

Even worse, banks and other financial institutions even loaned money to Argentina (a country that has defaulted EIGHT TIMES on its debt), buying government bonds that have a maturity of 100 years!

Hey, if they screw up and the investment goes bad, they’re going to be bailed out anyhow.

That’s not the way capitalism is supposed to work. Stupid decisions are supposed to be punished.

Market crashes, recessions, and economic downturns are nature’s mechanism to wipe out all the unproductive, useless businesses… and the investors who funded them… making way for new, better businesses to flourish.

But there are always bureaucrats and politicians who feel that no one should ever lose. It’s like the economic equivalent of a participation trophy… no one should go home empty handed.

And if we print enough money and put enough safety nets in place, everyone will win, nobody will lose, and we’ll all link arms and sing kumbaya.

Economist Roger E.A. Farmer, for one, doesn’t think the Fed did enough after the financial crisis 10 years ago by dropping interest rates to zero and printing trillions of dollars to bail out the economy.

Moreover, he thinks the Fed should step in and start buying stocks to prop up the stock market.

Farmer’s idea isn’t new. Several governments around the world have already started buying stocks to maintain asset prices and keep the economy going.

Japan is a notable example.

The Bank of Japan, the biggest offender to date, is a top-10 shareholder in nearly half of the companies that trade in that country’s stock market.

It hasn’t really worked. Japan can’t seem to get out of its low-growth economic morass.

But according to Farmer, this failure is because Japanese authorities haven’t bought ENOUGH stock.

Apparently he won’t be satisfied until the Japanese government owns 100% of ALL the companies in Japan.

And he wants to apply that same strategy to the US economy.

Farmer also thinks that the US government should ban investors from trading US stocks, essentially creating a government monopoly of the stock market.

What a great idea.

While we’re at it, in fact, we should also have the government start buying  houses in order to prop up the real estate market.

The government could also bail out every small business that fails to make sure no one ever loses a job. It could buy up all the automobiles and hand them out to people who need cars to get to work.

It’s genius!

In all seriousness, this lunacy is all based on the premise that recessions and corrections are bad (and should be avoided).

That’s just plain wrong.

Recessions, corrections, depressions… they’re all critical phases in the market. The whole purpose is to wash out all the excess and punish people that have been stupid.

If you don’t have consequences for stupid actions, you erase good judgment.

And that’s the greatest hazard of all… to think that you can do whatever you want and there will always be someone to bail you out if things go bad.

Not to mention, this whole idea of the government owning all the businesses and assets has already been tried before.

It was called the Soviet Union.

Lenin would be so proud.

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[Editor’s note: While Simon is traveling today, other members of the Sovereign Man team penned today’s missive.]

We’ve discussed this on and off for several years now. Civil asset forfeiture is a legal process that allows the government to seize assets and cash from citizens without any due process or judicial oversight.

You don’t even have to be charged with a crime. You are assumed guilty unless you can somehow prove your innocence.

Of course, not everyone has this ability… if you aren’t local, state, or federal law enforcement, this is called stealing, and you go to prison.

But the government is actually a bigger problem than common thieves.

A 2015 report showed that law enforcement used civil asset forfeiture to steal more from US residents than every thief, robber, and burglar in America combined.

About $4.5 BILLION worth of cash, cars, homes, and other property is taken by civil asset forfeiture each year — hundreds of millions more than common criminals steal.

And it happens at every level. Your local cop can use civil asset forfeiture just like your state trooper. And then any one of the armed agents of the US government—from the FBI to the Fish and Wildlife Service—can rob you for whatever reason they want.

This travesty continues to grow because the cops who take your stuff get to keep it. Police departments and government agencies around the country depend on civil asset forfeiture to boost their budgets.

Cops will literally keep some of the cars they take as squad cars. And they make a fortune auctioning off the houses, boats, and anything else they confiscate.

Obviously this gives cops an incentive to steal, whether or not they actually think the property was used in a crime, or acquired illegally. Remember, civil asset forfeiture adds billions every year to their bottom line.

On Wednesday, the Supreme Court heard arguments in a case of civil asset forfeiture.

Tyson Timbs was convicted of selling a small amount of drugs to an undercover police officer. He was sentenced to house arrest, and paid about $1,200 in fines.

But then police used civil asset forfeiture to take his $42,000 Land Rover which Timbs purchased with money from a life insurance policy after his father died. The money did not come from selling drugs, or any other illegal activity.

Timbs sued, and the case made its way to the Supreme Court, because every lower court in Indiana said the forfeiture was perfectly legit.

The case revolves around whether or not the seizure of the Land Rover was an excessive fine under the 8^th amendment, and whether or not this protection against excessive fines applies to state governments.

And the public got some crazy insight into the government’s position.

The Indiana Solicitor General was arguing in favor of civil asset forfeiture when Justice Stephen Breyer asked him a hypothetical.

Breyer asked, if a state needs revenue, could it force someone to forfeit their Bugatti, Mercedes, or Ferrari for speeding? Even if they were going just 5 miles per hour over the speed limit?

And the utterly appalling answer from the Indiana Solicitor General was, yes.

That’s right… the official government position is that they can steal any amount of your property in “connection” with any crime whatsoever, no matter how trivial the crime may be… even exceeding the speed limit by 5 miles per hour.

This is how overbearing and authoritarian the government has become in the land of the free.

This is how much power your local cop has… and the power only grows as you go to state, and federal officials.

If there is any solace in any of this, it is that the other Supreme Court Justices were reportedly laughing at this exchange.

The justices seemed incredulous that Indiana’s top lawyer was using such absurd assertions and flimsy reasoning in his arguments.

So, for now, we can keep our cars if we get pulled over for speeding. But that may not always be the case…

Depending on how this is ruled, it could pave the way for even more egregious abuses of power… or it could curb the practice, and reign in these thieves in uniforms.

Just understand where the government is coming from. These politicians, bureaucrats and officers think they can do whatever they want. Absolutely anything goes, with no limitation whatsoever.

And that makes it a little tough to feel like you really live in the land of the free.

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[Editor’s note: While Simon is traveling today, other members of the Sovereign Man team penned today’s missive.]

This doesn’t make front page news… But it should.

Every year, cost of living adjustments increase Social Security benefits.

Over the past decade, payouts have increased by an average of 1.66% per year, according to the Social Security Administration (SSA).

But for 2019, the increase will be 2.8% to keep pace with inflation.

Seems like a trivial difference until you realize that’s 69% higher than expected.

That amounts to about $39 extra per check for the average retiree, according to the SSA.

And with about 62 million Americans receiving Social Security, that’s an extra $2.4 billion per month… $29 billion per year.

Social Security is underfunded by $50 TRILLION. By the government’s own estimates, the Social Security fund will run out of money in 2034.

But those calculations used previous cost of living adjustments.

Keep in mind that all future cost of living adjustments will compound on top of 2019’s increase.

So even if they get back to the 1.66% average adjustments, the extra $29 billion is included in the base for future calculations.

Will Social Security really last until 2034?

Last year, they said it would last until 2035… Wrong. One year passed and insolvency came two years closer…

Before that, the Social Security Administration estimated that the funds would last until 2040… wrong again!

After Congress passed some Social Security reforms in 1983, the SSA expected the system to remain financially sound for 75 years, until 2058.

Say it with me… they were wrong.

The goal posts keep moving.

That’s strike one…

In 2006, the SSA expected the US birthrate—the number of babies each woman is expected to have in her lifetime—to be 2.01 by 2020.

Well guess what… they were WRONG. Take a sip if your playing along at home to the Social-Security-Administration-is-wrong drinking game.

The 2017 birthrate already fell to 1.8, the lowest in decades.

So just when Social Security is expected to run out of money, the fewest number of workers in decades will be entering the workforce.

Social Security depends on a ratio of 3 workers to support each retiree.

Today, there are only 2.8 workers paying into Social Security for every beneficiary collecting.

The Social Security Administration estimates that this will fall to 2 workers per retiree by 2030… surely this time their estimate is accurate…

That’s strike two.

And the economy is currently about as good as it gets.

October unemployment was 3.7% according to the Bureau of Labor Statistics. It hasn’t been this low since 1969…

There are record numbers of people in the workforce… paying into Social Security.

Yet Social Security still looks dismal, during the best economic times in decades.

What happens when a recession hits?

Or forget a recession, what happens at normal unemployment levels?

And that’s the third strike.

The Social Security Administration has been wrong on just about every projection and estimate it has made.

I’m not trying to be alarmist, but it is rather shocking that people shrug off the reality.

This data isn’t coming from me, it isn’t some wild conspiracy theory. It’s the most optimistic outlook from the Board of Trustees for Social Security.

Unfortunately, many people will do absolutely nothing with this information. It’s easier to just Instagram your way to retirement.

And these people will have their lives turned upside down—benefits cut, retirement age increased, pushed out of the system… Something has to give.

But when you see it coming, there is so much you can do.

You can take legal steps to reduce your taxes, and funnel the savings into your retirement.

Putting away an extra $1,000 per year can result in a difference of more than $100,000 when compounded over 30 years.

Or, you could establish certain self-directed IRA structures or a solo 401(k).

These dramatically increase your contribution limits and vastly expand your investment options–real estate, cryptocurrency, private equity, etc.

Or, learn how to be a better investor…

Saving an extra $2,000 per year and generating, on average, 2% more per year (i.e. 10% versus 8%), will make you an additional $610,000 over 30-years.

Just don’t let the government plan for you. They’ll give you great estimates… and as always, they will be wrong.

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By the middle of the 11th century in the town of Coventry, England, the local townspeople had spent years under the oppressive regime of their ruler, Leofric of Mercia.

Leofric taxed his people heavily… which was commonplace in the Middle Ages.

Feudal barons were extremely creative in taxing trade and commerce, demanding egregious tolls from merchants who passed through their lands and waterways.

Clive Day’s book History of Commerce describes the absurd state of taxation in Medieval Europe, counting a total of 62 toll stations on the Rhine River, 74 on the Loire River, and 77 on the Danube River, resulting in an effective tax rate that could easily exceed 60%.

Merchants paid a disproportionate amount of the tax; when King Richard I of England was raising money for the Crusades in the 12th century, the merchants numbered 0.25% of the population, but paid 25% of the tax.

Peasants also had it rough.

A typical serf owed his feudal baron three types of annual taxes– one called a ‘small head’ tax for each member of the household, a property tax, plus an additional fixed fee that was in the Baron’s discretion.

Serf’s also owed their lord a share of their crops and livestock, a certain number of days of unpaid labor, military duty in the local regiment, plus a sales tax on all goods purchased from the market.

If a peasant died without heirs, all of his belongings passed to the Baron. And even with heirs, the Baron was entitled to help himself to the departed’s property.

And of course the Baron was also frequently entitled to the right of primae noctis, in which he was allowed intercourse with a peasant’s bride on their wedding night.

(The only way out of this was for the groom to pay yet another fee to the Baron in exchange for his bride’s chastity.)

All told, it was a pretty brutal system. And the people of Coventry had it particularly bad under Leofric.

Leofric’s wife took pity on the poor Coventry townsfolk, and pleaded with her husband to cut their taxes.

He agreed– on the condition that she ride naked through the streets of Coventry on horseback to prove her devotion to the peasants.

So she did.

Her name was Lady Godiva. And the story became a popular legend for tax-oppressed peasants across Europe.

Now, the feudal system may have ended hundreds of years ago. But the concept of heavy taxation still remains.

Think about it– we’re taxed when we earn. We’re taxed when we save. We’re taxed when we spend. And we’re taxed when we die.

Even if one might believe that taxes are a necessary evil to pay for various government services, I always find it ironic that many low-tax countries provide ample services and security to their citizens.

Singapore is a notable example; it boasts one of the lowest tax rates in the world and is compulsively business-friendly.

And despite its low tax rate, the country has a strong military, enviable infrastructure, universal healthcare, low-income housing, and ZERO net debt.

On the opposite end of the spectrum, much of the developed West has almost medieval levels of taxation, yet crumbling infrastructure and debilitating debt levels.

How is this possible?

Decades of of bad decision-making.

In the Land of the Free, the US federal government hasn’t consistently run a budget surplus since Harry Truman was President.

In the 19th century the US government bought vast tracts of land like Alaska and the Louisiana Purchase, literally paying pennies per acre in 2018 money.

Today they waste countless billions on websites that don’t work, or waging pointless wars against plants.

Federal spending is so out of control that the government nearly burns through all of its tax revenue simply paying interest on the debt and mandatory entitlements like Social Security (which GROW every year).

Even in a year when the economy is growing, unemployment is low, and corporate earnings are strong, the federal budget is still in the red by more than a trillion dollars.

Just imagine what’s going to happen in the bad years that are absolutely inevitable. . .

There’s nothing that you or I can do about any of this. Voting is a pointless and demeaning exercise that doesn’t change the game… merely the players at the table.

I’ve always felt that a far better approach is to reduce your exposure to this insanity– specifically by taking legal steps to reduce the amount of money you owe in tax.

And in this day and age, no one has to ride naked through the streets anymore to legally slash your taxes.

I was just meeting with my tax advisers here in Puerto Rico yesterday– which as we have discussed before is one of the BEST deals in the world for tax.

Regardless of whether or not you’re a US citizen, you can set up a company under “Act 20”, the Export Services Act, and lock in a 4% corporate tax rate… with potentially 0% additional tax on dividends.

The business activities of the Act 20 company must qualify under the guidelines of the law… but most types of services do qualify: consulting, sales, marketing, management, etc.

My attorneys told me yesterday that a number of their clients own businesses in other countries (including the US).

Those clients then set up an Act 20 company in Puerto Rico to provide management services to the other businesses.

Those businesses then pay a management fee to the Act 20 company, essentially diverting profits from high-tax jurisdictions into Puerto Rico’s 4% corporate tax regime (with a further 0% dividend tax).

Again, this unique strategy is completely LEGAL.

But it’s probably not going to last forever.

Anyone with an existing Act 20 company is contractually grandfathered in under the current incentives.

But they may very well change the laws which would affect anyone wanting to set up one of these companies in the future.

So if you’re interested, you’ll definitely want to consider taking action soon.

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Think back to this time last year, around 2017’s Thanksgiving holiday in the US. . .

As you probably remember, BITCOIN was the dominant theme of the day, whether around the dinner table or in the news headlines.

Crypto prices had soared throughout 2017, climbing from $1,000 at the beginning of the year to around $7,500 by last November’s Thanksgiving holiday.

Then, over the course of that single weekend, Bitcoin jumped to nearly $10,000 as the buying frenzy heated up.

In a matter of days, crypto-broker Coinbase opened hundreds of thousands of new accounts during the 2017 Thanksgiving weekend.

Mobs of speculators were piling in, bidding the price up to new highs on a daily basis, until it cracked $20,000 a month later.

We started warning about this in early November last year, arguing that, while crypto represented great technology to improve the financial system, Bitcoin’s rapid price rise was “purely speculative… not sustainable demand,” and “anything that’s pure speculation is eventually going to pop.”

At the end of 2017, we told you about Saxo Bank’s prediction that Bitcoin would collapse to $1,000 in 2018.

If things keep up this way, they may be proven right.

Bitcoin peaked in early January and has declined throughout 2018 along the lines of Hemingway’s famous quote about going broke: “gradually, then suddenly.”

Over this past weekend (ironically, the 2018 Thanksgiving holiday), Bitcoin’s price fell from $6,000 to less than $4,000.

What a difference a year makes.

Last December and in early January we wrote about how this could happen, explaining that crypto prices were ‘reflexive.’

In other words, as Bitcoin’s price rose rapidly, more people wanted to buy it because they believed the price would continue rising. This created a ton of demand.

But at the same time, very few people were willing to sell. Anyone who owned Bitcoin saw that the price was rising so rapidly and figured, “Why sell today if I can sell tomorrow at a higher price?”

This mismatch of extreme demand and reduced supply caused the price to jump, which created even more demand and reduced supply.

It was all based on a belief that crypto prices would continue rising.

And as we wrote last year, it would work the same in reverse: everyone selling and few people buying causes huge price declines, which makes even more people want to sell and fewer people want to buy.

That’s exactly what we’re seeing now.

I personally know several die-hard Bitcoin fanatics who have finally capitulated and are selling out, getting whatever they can, while they can.

That’s because a lot of folks who profited from crypto’s price rise never actually cashed out.

They believed that the Bitcoin price would continue rising and made blanket assertions like “Bitcoin is going to $1 million. . .”

In the meantime, they loaded up on expensive houses, cars, boats, etc., much of it financed by debt.

Yet while the value of their crypto assets has collapsed 80% from the peak, they still have to service that debt.

So now even some true believers are selling in a panic, simply so that they won’t have to declare personal bankruptcy.

Does that mean it’s over? Are Bitcoin and its cousins headed for the historical dustbin alongside Dutch tulips and Pets.com?

There are so many worthless coins and tokens out there, and many of them are absolutely headed to zero.

Perhaps Bitcoin too. I’ve discussed a few times that Bitcoin is one of the most technologically INFERIOR cryptocurrencies, so it makes little sense that it should be the most valuable.

Personally I think there will continue to be demand for niche, utility-specific coins for things like privacy or more secure e-commerce.

The concept itself is still sound: a medium of exchange that isn’t controlled or manipulated by central bankers, that’s widely accepted across the world for online transactions with minimal costs.

That was the original idea behind Bitcoin as described in its first white paper a decade ago. And some iterative cryptocurrency may still realize that vision some day.

(This is no more far-fetched than Amazon.com gift cards being used as a form of money. . .)

As we’ve written a number of times, though, the bigger opportunity in crypto is in applying its core Distributed Ledger Technology (DLT) to the countless ways it can be used in commerce and finance.

Look at the banking system as an example: It’s almost 2019. Yet it still often takes 3-5 days to transfer money, whether it’s a domestic ACH transfer in the Land of the Free, or a cross border wire internationally.

Seriously. Are these banks loading crates of cash onto a boat and shipping money via sea freight to one another? It doesn’t make any sense.

Sending money should be as easy as sending email. And the Distributed Ledger Technology that was created around cryptocurrencies makes this possible.

Shockingly, banks are hard at work to make this a reality. It’s as if the rise of crypto finally scared them  into raising the bar and improving their services.

But there are countless other industries where these types of applications are sorely needed.

A few decades ago, entrepreneurs (and the investors who funded them) made vast fortunes applying the new technology of the consumer Internet in ways that fundamentally changed our lives– how we shop, share and store information, consume media, engage in personal relationships, etc.

That same opportunity exists today with crypto and DLT.

So from that perspective, this ride is far from over. It’s just beginning.

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Between the year 1054 and 1224, there were 83 civil wars in Russia. That’s about one civil war every two years.

Through the middle ages, feudal lords were periodically murdered in peasant revolts. When people sense too much unfairness in the system, the pitchforks come out.

Wealth and inequality have been with us for all of recorded human history, and probably before that.

Things get rocky when that gap grows large enough, or is even just perceived as large.

Invariably, this inequality gets “corrected” either by a government or an armed revolution.

Wealth is either taken by the state and redistributed, or taken by pitchfork, machete, or gun wielding mob.

We’re kind of at the point now where wealth and income inequality has once again gotten pretty pronounced.

Just a small sign of the times we discuss in today’s podcast involves a school in Great Britain that has banned expensive jackets.

The idea is to protect the feelings of kids whose families cannot afford the jackets. So in order to avoid “poverty shaming,” parents won’t be allowed to send their kids back to school after Christmas break with top brands like Canada Goose and Moncler.

So if all the students can’t afford a $900 jacket… then nobody is allowed to wear one.

Invariably, the “solutions” don’t lift the disadvantaged up, but simply drag the privileged down.

And wealth isn’t the only type of inequality. What’s next? Forcing the best athletes to carry weights, or bringing down the smart kids’ test scores?

It’s nothing new. Back in 2008, the Occupy Wall Street movement gave voice to the same feeling. Someone at the top is screwing the little guy.

Inequality is part of human nature. We are not all going to be born with the same skills, intelligence, desires, and preferences.

In today’s podcast, we get into the palpable anger over inequality that is boiling over, and the types of absurd responses we see.

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I’ve been on the ground in Puerto Rico over a month now.

And let me tell you, Puerto Rico has it all… The good, the bad, the ugly, and the amazing.

Technically, Puerto Rico is part of the US. If you drive around, you’ll see all the normal stuff from the mainland, from Cheesecake Factory to Costco. Amazon also delivers to the island. It takes a bit longer, but you’ll get what you ordered. So, it’s all quite familiar.

But there’s still plenty of bad…

There are enormous parts of the island that are horribly run down.

Puerto Rico is still reeling from a massive debt default and recovering from last year’s Hurricane Maria. And because the island doesn’t have a robust economy, the recovery is going to take a long time.

Yet despite the fact that Puerto Rico has been suffering a major economic crisis, property prices here can be shockingly expensive.

Due to last year’s hurricane damage, low-cost housing is in short supply… so prices and rents have increased quite a bit.

This is one of the reason so many locals are leaving the island—a lack of safe, clean, affordable housing, along with minimal job prospects.

At the higher end of the real estate market, prices can be completely absurd.

Right now I’m living in place called Dorado, which is a highly developed luxury enclave where tens of thousands of people live.

It’s got great schools and there’s a new Johns Hopkins hospital that’s going to be built, specializing in pediatrics and cardiology. They definitely know their target market.

Within the Dorado country club, the Ritz Carlton has a high-end residential development, where you have access to restaurants, beach clubs and golf courses

But, again, that luxury comes at a cost.

For example, someone just offered to sell me their condo… for $7 million.

That’s by far one of the most outrageously expensive deals I’ve ever been offered… and a stupid amount of money to pay for a condo… anywhere. Especially in Puerto Rico.

For that price, you could buy an amazing spot in London or New York City and still have $1 to $2 million left over.

Most of the rest of the island is still run down. And you’ve still got to deal with poor infrastructure and occasional power outages.

There are some pockets of good quality in Puerto Rico that aren’t obscenely expensive.

Condado and Isla Verde are nice neighborhood in San Juan that are popular with expats – particularly young, single guys and crypto investors who moved here to take advantage of Puerto Rico’s generous tax benefits.

You can buy a condo for a few hundred grand and actually make a reasonable return renting it out.

There’s another neighborhood, a short drive from the center of Condado, where several of our Total Access members have bought apartments in a condominium complex, called Ciudadela.

You could purchase an apartment in that area for around $200 per sq. ft. Or rent for anywhere from $1500 to $3000 a month based on the size.

It’s a well-developed (albeit small) area with its own shopping, restaurants, and residential living space, complete with a gym and 24-hour grocery store.

Overall, though, Puerto Rico doesn’t offer a lot of value in real estate… for now.

But I do expect to see real estate prices come down dramatically on the island, just as I do in the mainland and other parts of the world like Hong Kong and Australia.

Puerto Rico is battling a 10-year economic depression at a time when the global economy is poised for a downturn.

Banks here are sitting on a lot of bad loans already that they haven’t been able to liquidate due to a moratorium on foreclosures.

Once they start doing so, I think there’s going to be a substantial drop in real estate prices.

So with a little bit of patience, I think there will be solid opportunity to profit here.

Even better, the entire island is an opportunity zone– meaning you can invest in businesses or real estate in Puerto Rico and pay zero capital gains tax after 10 years.

There are a lot more details to cover about opportunity zones that I can’t get into today, but we’ve written about them before… you can check it out here.

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October can be an unforgiving month.

The terrible stock market crash that signaled the beginning of the Great Depression was in October of 1929.

The stock market crash known as Black Monday was in October of 1987.

In 1997, the Asian financial crisis sparked another stock market crash in… you guessed it—October.

And back in 2007 at the height of the giant bubble that almost brought down the entire financial system, the stock market peaked once again in… October.

It’s not that October is particular cursed. Maybe it’s just a coincidence. But I do find it strangely ominous that asset prices seemed to have peaked last month (October) and have been in decline ever since.

Real estate prices are starting to show signs of strain; more than one-third of homes for sale had a large price cut in October– the most discounting in the past eight years.

Corporate and government bonds are falling.

The S&P 500 is down 7%, and the big popular technology stocks that have been fueling the boom in stock prices for the past several years have been violently declining.

Facebook is down 36% from its peak. Apple is down 18% (and down more today on news of production cuts for iPhones). Semiconductor giant NVIDIA is down 45%.

Oh, it’s not just in the US either.

Deutsche Bank says 89% of all asset classes it tracks are negative this year – the worst year since 1901.

This is often how a big downturn begins: gradually, then suddenly. Asset prices stew and fester, slowly grinding downward for months while people maintain hope that prices will recover.

I remember spending time in Florida back in 2007 when property prices had already started declining.

All the real estate agents I met kept telling themselves ridiculous affirmations about how the market was going to come roaring back soon, and the good times would return.

Less than a year later the worst financial panic since the Great Depression had set in. And it would be years before prices would finally recover.

Remember—asset prices peaked in October 2007. But the giant financial crisis didn’t kick off for nearly a year, in September 2008.

We might be in a similar situation today; it’s possible that markets peaked last month. And we’re now in the “stew and fester” phase where prices gradually decline while people keep hope that the boom times are coming just around the corner.

And then, within a year or so, something sets off another huge crisis that pops the bubble once and for all… just like the bankruptcy of Lehman Brothers did back in 2008.

We won’t know what that event will be until after it happens.

But what we do know for sure is that the last financial crisis was caused by too much idiotic debt in the system.

Banks were lending money to legions of borrowers who had a history of not paying their debts… and then actually pretended like these toxic loans were great investments.

Today, we’re seeing the same stupid debt work its way into the corporate and government sectors.

Instead of giving million-dollar mortgages to unemployed borrowers with a history of default, investors are loaning billions of dollars to money-losing zombie businesses, or to governments that are already in debt up to their eyeballs, all while pretending these are safe, credible investments.

Total global debt back in 2008 was about $173 trillion, worth about 280% of GDP.

Today total global debt is $250 trillion, worth about 320% of GDP. It’s only gotten worse.

This is the sequel of the same movie we saw ten years ago… and it would be pretty foolish to not expect the same ending.

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