An Asset for the Keeping...and Nurturing!

Recently, a money manager that I otherwise greatly respect, said this rather despairing, if not delusional, statement:

"Ultimately, there may be no such thing as a safe asset anymore and investors may want to take a diversified approach to something as mundane as cash." [Emphasis added] The Rising Dollar Myth by Axel Merk.

 I know what he means, but it reminded me of the fool's remark you may have heard:


"I don't believe a word that anyone says...except my words."

An "asset" either is an asset, that is, it has value, or it isn't...and doesn't.  So whence comes this danger of assets becoming non-assets?  What makes an asset "unsafe"?  Can "cash" be a danger?  To all appearances, it seems Mr. Merk has lost trust even in his "hard currency" views.

In fact, there are two issues here that are being conflated.  The first is the curious deterioration of the value of our money and assets.  And the second is the idea of trust and its relationship to investing and society at large.  For the first issue, I have provided below links to resources that will help you understand the real cause of our economic woes.  However, I first want to address the second and more insidious problem, the idea of saying, "You can trust nothing and no one." 

Let's face it, when it seems that lying and cheating are the order of the day, even we might be tempted to deny such foundational realities as the necessity of trust.   And here I use the word "necessity" in its strict, philosophical sense, that is a condition that must be.

Indeed, trust is so fundamental to society's well being that it is easy to see that if its opposite were to rule, then society would cease to exist...at least any "society" that we would recognize or that would be worthy of the name, society.

Society-Derived from the Latin word "socius" which means ally or friend.

So is there a growing distrust and, if so, what is its cause?  Further, how do we combat it?  Or are we damned to live without allies or the ability to make alliances?

To the first query it is obvious that distrust is on the ascendancy.  Society is breaking down because we no longer trust the people and institutions we heretofore relied upon.  Even more troublesome is that this distrust is justifiable to a point.  In other words, we properly trusted, but the powers-that-be gave us ample reason to trust no more. 


The causes of this are many, varied and complex.  No single, simple answer will suffice, but in the financial world I believe the beginnings of this trouble started with the creation of our dishonest money system.  Just as you would have a healthy skepticism of your neighbors after your house was burglarized, it is natural to
have reservations about your government (or banking/financial institutions) when there is an ongoing theft  being perpetrated against your production and savings through inflation.  [For a full treatment of this scandal, I recommend The Creature From Jekyll Island.]

Similarly, just as your trust in the neighborhood would be resurrected as soon as the burglar was apprehended, I believe we can combat the growing distrust of our societal institutions by ridding ourselves of the dishonest money mechanism, the Federal Reserve.   

And for those who would say that this is whacked out, crazy talk, I can only respond that our Constitution says that our Congress has the power "to coin Money [and] regulate the Value thereof..." not some private, banking cartel.

Until that happens (and we should all join the growing movement to make it happen), we must all be on alert.  However, we should not fall prey to the temptation to go beyond "alert" and move toward distrusting everything and everyone.  For that would be the end of the very thing we truly desire: a peaceful, loving, trustworthy society. 

Instead, we must recognize the dangers around us, form plans that take into account the dishonest money system and prosper with allies worthy of the name.  We may even be called to create the enterprises into which people may place their trust.  Now who can conceive of a more noble mission than that?

Seek out good groups and companies.  Work with people you know and trust.  Oppose those who have shown themselves untrustworthy.  Be honorable in your own business dealings.

In doing this we will maintain the society and the value of the assets we work hard to produce. 

The State of Corruption

I apologize ahead of time for this somewhat "downer" blog, but today, I am fighting with my own industry and product providers about a new "interpretation of the rules" that could have deleterious effects on my clients.  If we continue to allow the "rules of today" to mean something different tomorrow, then we will soon find that we have no laws, no rules, no society and no order.  God help us if we continue on that path...

I have been inundated lately with news about rules, changes to rules, re-interpretation of rules and how-to articles for protecting oneself from all these RULES.  It is tiresome...and I am just referencing the financial world.  Lord knows what it is like in banking, medicine, education and the other fields of endeavor.

But as bad as the rules and regulations that emanate from our leviathan government are, I do not believe they are the fundamental cause of our decline.  Rather, it is the RULERS and the RULED that continue down this path that are the real culprits in the loss of our peace, prosperity and liberty.  For it is our leaders who perennially legislate, regulate and dictate all of these damnable rules.  And it is us, the falsely-obedient citizen-servant class, who either supinely accept their out-of-bounds mandates or who legalistically escape their purview...for a time...without rightfully contesting their usurpations.

Tacitus said: "The more corrupt the state, the more laws."  If he would have said, "the more corrupt the state, the more PSEUDO-laws," I would have been in 100% agreement with him.  What we suffer under today is not a proliferation of laws properly speaking, but a metastasizing of bureaucracies and errant regulations.

Proper laws establish a moral right and wrong while having a definite beginning and end.  If you are on the "wrong side of the law" you know it!  But rules, regulations and interpretations establish the will of a regulator and, while having a definite beginning, have no end in sight.  You might be on the right side of the "bureau" today, but who knows tomorrow?  It is a bit like playing a game with a guy who makes up the rules as he goes along.  We all know how frustrating that can be.

In short, the government is in a state of corruption.  But notice, Tacitus didn't say "government", he said "state", the body politic and that includes the citizenry.  We, as citizens, share in the responsibility of the corrupt state of our State.  So long as we go along with (or try to navigate through) this unjust growth of "pseudo-laws", allow the usurpation of the limits on governmental power or fail to oppose on principle each abuse of any and all citizens, then we deserve the government we get.

So what can we do?  Admittedly, solutions at any level higher than the family seem bleak.  However, we can start with our family and associate with other good families to begin to repair the cells of the body politic.  Actions we could take are:

• Restoring faith in God and reversing our faith in government or any other creature;
• "Seeking first His Kingdom" rather than anything else, especially "security";
• Getting involved in any level of government (or in other societal institutions) and standing firm against the growth in regulations, bureaus or other misguided attempts at utopia;
• Creating real communities at the local level; and
• Withdrawing from those things that lead us into the "game with the ever-changing rules."  

 As our conditions worsen, we will be called to act in more drastic ways.  Perhaps the best approach we can take at this juncture is to strengthen ourselves now, morally, physically and intellectually, so that we will have the courage, strength and knowledge to do the right thing when the time comes.

In the meantime, let's do what every society has been called upon to do when their societies became corrupt: Repent and pray!

Mortgage Myths and Real World Finance

Perhaps the most important thing to know about finance is what are the unintended consequences of a proposed course of action.  Unfortunately, these are very rarely discussed.  What is discussed, rather, are over-simplified, numerical projections often with faulty inputs to boot. Then, armed with this false information, the consumer draws erroneous conclusions...often with devastating results.  All the while the financial services industry stands by, profiting from the darkened minds of the buying public rather than correcting the faulty notions of their clients.

Now I don't want to join in the chorus of offering over-simplified or faulty projections.  And I have already written on this blog my disdain for the typical "rate of return" discussion.  Finance is more complex than that.  However, to prove my earlier assertions, I do think it will be helpful to make a comparison of two oft-debated courses of action for paying off one's home.  I believe it will be illustrative of both the poor method by which courses of action are proposed and analyzed as well as offer an insight into how real world finance and unintended consequences are the more important issues in making these type decisions.  So please pardon my use of numbers and projections.  I promise to keep them simple, accurate and easily verifiable if you choose to do so.

So first let's state the issue:  Which is better a 30-year mortgage or a 15-year mortgage?  The widely held belief (at least by the number of people I encounter holding it) is this: If you can afford it, a 15-year is better because you will have a lower interest rate, pay less in interest and get out of debt quicker.  All the answers are true, as far as they go, but not dispositive of the issue especially as it pertains to real world finance.  So let's examine the facts in greater detail.

Anyone can go to bankrate.com and find the national averages for 15 and 30 year mortgages and quickly establish that the 15-year rates are better.  As of today, 2.91% for the 15-year term and 3.66% for the 30-year term.  Score "1" for the 15-year mortgage!

Similarly, it is quite easy to run two amortization schedules and see that indeed, less interest in paid on the 15-year mortgage. I ran an imaginary $200,000 loan and found that the 15-year mortgage at 2.91% interest would result in a total cost of $247,054.24, while the 30-year loan at 3.66% interest would result in a total cost of $329,776.06.  Clearly, $47,054.24 in interest is lower than $129,776.06. Score another one for the short-term loan.

Ordinarily, this is where the analysis stops...and hence the faulty conclusion drawn.  Add to this the "fact" that you will get out of debt 15 years faster and the case is a slam dunk.  Or is it?

Not if we take a look at what actually happens to the person who takes this 15-year mortgage.  Remember the conditional statement that prefaced the argument in favor of a 15-year mortgage:  "If you can afford it...."  In fact, the short-term mortgagee is paying a note 49.8% higher than the 30-year borrower, $1,372.52 versus $916.05.  This is a $456.47 per month increase.

But that is not a problem since we assumed the person could pay the higher note.  The real question rather is: Who is more likely to have additional resources to save and invest?  If we assume that these people are of equal means (and we will assume this or the comparison will have no value), then clearly the longer term mortgagee is MORE likely to save money.  This is real world issue number one: People have limited resources and must make the resources stretch to cover multiple items.

So, let's assume that the 30-year borrower does indeed save some money, the $456.47 per month that he is not paying in mortgage expenses.  And let's assume he does this for 15 years at 5%.  How are the two borrowers positioned now?

Well, the 15-year mortgagee just got out of debt by spending $247,054.24.  Let's hope he never hit any bumps in the road and never needed cash along the way since all of his available money was going to pay off debt...and he wouldn't want to incur any others!  

But the 30-year mortgagee over that same time frame would have accumulated $122,632.43.  Yes, he would still be in debt, but throughout the first 15 years of the mortgage he would have had money available for any issue that arose as compared to his counterpart who would not have.  This is a big deal in the real world because it will keep you from getting into a cycle of debt.  That is why I advocate "becoming your own banker", but I digress.

At this point, if we compare net costs, the short term borrower is out $247,054.24, the total cost of the loan, while the long term borrower is out $42,256.57 in net costs (this total is derived from taking his total payments over 15 years, $164,889, and subtracting his accumulated side fund, $122,632.43, but we must recall that he still has outstanding debt which we will address in a moment).  

But now we are starting to see the unintended consequences and real world dilemmas and why they are so important.  In fact, if we revised the mortgage question to more accurately depict the likely outcome of the arrangements, then the "better" of the two choices begins to shift.  For example, if I proposed to you:

Which would you prefer a lesser note that allowed you to save money on the side to create an emergency fund, invest for retirement and handle all future financing needs (this is a biggie because it keeps you from incurring new debts!) OR a higher note that will keep you from saving anything, disallow an emergency fund, may propel you into new debts, but IF IT DOESN'T then you will be debt-free in half the time?  Which would you choose?

It is at this point that the 15-year mortgagee throws out their last hoorah, "But I will be able to save my entire house note after I've paid it off!"  That's true, but rarely done since they are usually further in debt or not disciplined enough to start saving the note...and wasn't the alleged point of the short-term mortgage the thrill of being "debt free" so you could spend all that money!

In any case, let's compare the claims.  So flash forward another 15 years.  The 30-year mortgagee has continued to save his $456.47 per month, but now the 15-year mortgagee got serious and started saving $1,372.52 per month over that same time period.  Both earned the same 5%.  So what are the side funds worth for each person: $382,378.35 for the long-term borrower, $368,731.89 for the short-term borrower.

It is still true that the short-term borrower experienced less costs, around $70,000 less, but the pre-paying of those costs came at a price.  And again, let's pose the mortgage question in a different way and see which one you'd opt for:

Would you rather have:

1. A 30-year note of $1,372.52 with an end value of $382,378.35? (The net effect of the 30-year mortgage); or
2. A 30-year note of $1,372.52 with an end value of $368,731.89?  (The net effect of the 15-year mortgage).

Now be honest!

But what is proposed to me repeatedly is option number "2" despite the poorer performance, the pitfalls along the way and the real world dilemmas that it presents.  But that's the power of bad financial information and the failure to address unintended consequences.

Finally, my experience tells me that the short-term borrower will never achieve even the value specified here ($368k) because they will end up in a cycle of debt that forever prevents them from "saving that house note" once the place is paid off.  On the other hand, it is quite likely that the long-term borrower will both achieve this value ($382k) and exceed it because they have appreciated the value of cash flow, began regular savings early and, if they become their own banker, managed their debt for additional savings.  

Silver Bullets, Silver Linings and Silver Savings

At the risk of being misconstrued, I will be short and to the point in this blog: There are no quick fixes to the problems plaguing our society, its government or our economic system.  Just as the sky did not fall in the morning after we re-elected the one who is arguably the worst president in American history, it is equally true that our country would not have seen a revival if we had elected the one who was arguably the worst nominee for that position.  The very idea that we should place that much hope and faith in a man is, well, blasphemous.  In short, there are no silver bullets to kill the hounds haunting our formerly fair land.

But there is a silver lining to this sad state of affairs and our realization of it.  If the problems are so big that not one of us alone could fix it, then it becomes perfectly clear that we must turn to the One who can fix it and then do our simple part in following His will. Fixing America starts with each one of us, our families and our communities.

I have built my financial planning strategies around one simple concept:  Helping to build productive, self-reliant and secure families through sound financial advice.  To me it is just applied common sense, but it does have to be "applied" and it can be tricky to maintain common sense in this increasingly complex world.  But one bit of common sense that perennially rings true to the people I counsel is that we ought always to invest some of our money in "hard assets."  I call them intrinsic worth items since the value, its worth, is IN the item rather than in a piece of paper or some other evidence of value (think of an account statement here).

Of course the most famous intrinsic worth items are gold and silver.  And it is wise to have a portion of your net worth in such things.  What to buy and how much can be debated, but one should never neglect adding to this important wealth preservation tool.

Recently I came across a simple and automated way to build up a personal, hard-currency reserve.  It is called Silver Saver and it allows you to buy silver or gold on a relatively low monthly (or weekly) allotment.  Further, you can take delivery of your metals when your account reaches certain minimums.  I recommend this since I think it is better to have physical possession of your intrinsic worth items rather than relying on being able to get them in more uncertain times.

The negatives of this program are that the premiums are a bit higher when you purchase small amounts (but you can buy larger ones and cut these down) and there are storage fees while the company houses your metal.  Still, for the ease of use and investment, I think Silver Saver is hard to beat.

Finally, and this will help offset some of the higher costs associated with this program, you can share in the profitability of Silver Saver if you share the site with others and they begin purchasing too.  And, yes, I am participating in this "profit from sharing" program, but that is not why I am recommending it.  Rather, I am hoping that all my friends and clients who have yet to take me up on investing in intrinsic worth items will finally begin doing so by taking me up on this easy and valuable program.  Check out Silver Saver by clicking on the hyperlinks above or by going here: https://silversaver.com/share/RYQZA/

Effects of a Dishonest Money System

For this month's blog, I am going to use an excerpt from the book, Money! Questions and Answers by Fr. Charles Coughlin circa 1935.  Chapter VI of this book, Effects of a Dishonest Money System, offers 15 rather chilling prophecies when looked at with the benefit of 75+ years of hindsight.  And while Fr. Coughlin was eventually smeared with the epithet "anti-Semite", I have to wonder if this slander was meted out in retaliation for his exposure of the truth.

In any case if you read his predictions with an open mind, I believe the only conclusion you can draw is that he did approach the truth with amazing accuracy.  And while I have maintained for some time that we are "slaves" to nearly unknown masters, it is good to get confirmation (see predictions 12 and 14 below) from any source.

Finally, though I originally intended to make a running commentary throughout the excerpt, I have decided to let Fr. Coughin's words be read without interruption.  Suffice it to say at the beginning that the best financial plan that any of us can hope for is one that will MITIGATE the "effects of a dishonest money system" rather than eliminate them.  To eliminate them, an honest money system is needed.  Now isn't that a radical idea?!?

Effects of a Dishonest Money System

 What will happen if the present money system is continued and if the present policies endure?
 

1. Private individuals will coin money for their own personal gain.
2. Corporations organized for production, such as automobiles, steel and textiles, will be under the domination of the private money creators.
3. The government itself will be dominated by the money plutocrats.
4. The press, dependent upon advertising received from banker-dominated corporations and commercial houses, will continue to deceive people.
5. The educational system will continue to ostracize the truths of economics from our schools.
6. An un-informed citizenry, forced to work either on the mortgage-controlled farms or in the banker-controlled industries, will receive a less-than-living annual wage.
7. Through the international manipulation of gold and money engineered by a small group of money creators living in each country, wars will continue to ensue.
8. The only prosperity which will come as a breathing spell will be that [false] prosperity enjoyed as we prepare for war and fight the war.  [Bracketed comment added].
9. The issue of non-productive bonds will continue to sap the profits of production through the process of taxation for the benefit of the creators of debt.
10. Those who now condemn loudly the danger of inflation in order to save the present money system are those who are introducing a greater flood of inflation than was ever experienced by any nation in the world.
11. The citizens, weighed down by the unbearable costs of war and depression, will be inclined to blame a democratic form of government and unwittingly relinquish the liberties already won for the bare necessities of life, which the plutocrats will allow them only at the sacrifice of liberty.
12. Dictatorship, be it that of the communist, of the fascist or of the extreme socialist, will necessarily ensue.
13. Christianity, which teaches the principles of social justice and upon which is founded the sovereignty of the Government’s right to coin and regulate the value of money, will be disavowed because Christianity will be blamed for putting war into the world instead of peace, poverty instead of prosperity and hatred instead of love. 
14. The children of future generations shall be the scape-goats whom we are forcing to bear the sins of an unintelligent money system which, anticipating their birth, already has mortgaged their life’s income.
15. Chaos in law, in government and in civilization eventually will result.

 Money! Questions and Answers, Fr. Charles Coughlin, Chapter VI, p. 143-144.