Trust holds the global society together and deficits are a solvent that unbinds this glue.
The headline of a recent Washington Post article read “U.S. budget deficit breached $3.1 trillion in 2020 as pandemic slammed economy” (1).
I was started to think “Ho Hum. There are always deficits”.
Then I remembered a quote by Thomas Paine, “A long habit of not thinking a thing wrong, gives it a superficial appearance of being right”.
Thomas Paine authored Common Sense (1776) and The American Crisis (1776–1783), the two most influential pamphlets at the start of the American Revolution These missives helped inspire colonists to declare independence from Great Britain. Virtually every rebel (aka American patriot) read (or listened to a reading of) Common Sense.
Maybe we should be reading Paine now?
The Washington Post article says: New White House data show how a huge surge in spending to confront the economic fallout fueled a historic increase in debt.
The government traditionally runs some sort of budget deficit, and it finances the gap between taxes and spending by issuing debt. Interest rates are low, which has made it relatively inexpensive to issue debt. But the debt totals have risen markedly during the Trump administration, even before the pandemic, upending his 2016 campaign vow to completely eliminate the debt over eight years. The debt when Trump entered office was about $14.4 trillion. It now stands at around $21 trillion.
In other words, hundreds of years of accumulated US debt has increased 50% in just the last four years.
The article continues: The previous highest deficit recorded was in 2009, when it came in at $1.4 trillion. That is less than half this year′s tally.
Despite the increase of the deficit, economists and lawmakers from both sides of the political aisle have clamored for more government spending. The unemployment rate fell from 14.7 percent in April to 7.9 percent in September, but tens of millions of Americans remain out of work and elevated jobless claims have persisted. A federal unemployment benefit for millions has expired, and economists warn that the recovery could be stalled or set back by prematurely ending government aid programs.
We have become so accustomed to ever larger deficits that they seem OK.
But are they?
Yuval Noah Harari explains in is book “Sapiens” how large numbers of strangers can cooperate successfully by believing in common myths. He says, “Any large-scale human cooperation – whether a modern state, a medieval church, an ancient city or an archaic tribe – is rooted in common myths that exist only in people’s collective imagination.”
Then Harai goes on to explain that money is the most universal and most efficient myth ever devised.
There is an explanation in Sapiens of why deficits keep growing as well. “One of history’s fews iron laws is that luxuries tend to become necessities and to spawn new obligations. Once people get used to a certain luxury, they take it for granted. Then they begin to count on it. Finally they reach a point where they can’t live without it.
Money is humanity’s myth that keeps everything in balance. Money is the discipline that stops any of us from consuming more than we produce.
The medium is far from perfect, that’s for sure, but it has worked for millennia… as long as there is a discipline of rarity. Rarity balanced with productivity allows humans to trust one another to exchange and trade even with those we do not know, even if they are as far away, even on the other side of the world.
The keys words are trust due to discipline and if the discipline is only as strong as some eager-to-be-elected, politician’s word, then the faith cannot be very strong.
For more than 30 years, I was able to accurately predict the strength of one currency versus another based on each currency’s interest rate, it’s national debt and deficit.
A decade or so ago, this calculation stopped working. For years, I thought “this discipline will return”. Then I began to doubt. “Maybe debts and deficits don’t matter anymore”.
Then I remembered Paine’s words, “A long habit of not thinking a thing wrong, gives it a superficial appearance of being right”.
Have we become complacent?
When something in life slips out of balance, we take notice and maybe even complain for a while. Then we get used to it and even take it for granted. We should not do this in our core beliefs. Compromise in a properly held belief is not a good thing.
The deficit in deficits is that debts are piling up that can never be repaid.
This is not just an American problem, but since the US dollar is the root of the global financial system, what happens with the greenback has extra importance.
The website visualcapitalst.com shows us how things start to get dodgy when numbers get beyond the millions. We don’t really have any intuition, tactile familiarity, or comprehension of what they mean.
One million seconds = 12 days
One billion seconds = 32 years
One trillion seconds = 32,000 years
The site shows what $1million looks like in stacks of $100 bills.
Here’s 20 trillion dollars.
The national debt website (3) shows how much that means you and I each owe.
Begin to prepare for inflation.
Coronavirus and the Stock Market Round TwoCoronavirus and the stock market. Round Two is coming.
This virus and the market faced off in the spring. The market won. As the chart below shows, after a huge March 2020 collapse,the DJIA is almost back to its December 2019 level.
The market’s back up, but history suggests that we’ll see volatility in the ten years ahead.
Here is a chart of the Dow Jones Index for the past three decades. The .dotcom bubble burst just before the beginning of the 2000 decade.
The market then went nowhere from 2000 to 2014. Finally it started reaching new high levels.
Such decades long sideways movement after a severe correction is nothing new in the stock market.
So everything’s in order… except the pandemic. The ravages of the coronavirus dramatically increase the unknown and this uncertainty is the greatest purveyor of weakness that a stock market can have.
Such delays have profound implications for older generations who may need to cash in equities for income. How do we maximize the return on your savings and investments during this extremely dangerous time?
For the past five years, my strategy, to protect against the next stock market crash and yet gain income and appreciation from rising share prices is to invest in an equally weighted portfolio of the value based country ETFs.
We track 46 stock markets around the world in our Purposeful Investing Course (Pi) to determine which markets offer the best value so we can be in a perfect position to take advantage of stock market corrections all over the world.
Since no one knows what the future will bring, investing in value makes the most long term sense.
Our Purposeful Investing Course (Pi) teaches an easy, simple and effective approach to zeroing in on value because little time, management and guesswork is required. You are investing in a diversified portfolio of good value indices.
Sticking to math based stock market value and country ETFs eliminates the need for hours of research aimed at picking specific shares. Investing in an index is like investing in all the major shares of the market. You save time because all you have to do is invest in the ETF to gain the profit potential of the entire market.
To achieve this goal of diversification the Pi portfolio consists of Country Index ETFs.
Country Index ETFs are similar to an index mutual fund but are shares normally traded on a major stock exchange that tracks an index of shares in a specific country. ETFs do not try to beat the index they represent. The management is passive and tries to emulate the performance of the index.
A country ETF provides diversification into a basket of equities in the country covered. The expense ratios for most ETFs are lower than those of the average mutual fund as well so such ETFs provide diversification and cost efficiency.
Here is the Pifolio I personally held at the beginning of 2019. Now I am updating my plan to decide when it’s best to invest more.
70% is diversified into developed markets: Austria, Canada, China, France, Germany, Hong Kong, Italy, Japan, Norway, Singapore, Spain and the United Kingdom.
30% of the Pifolio is invested in emerging markets: Brazil, Chile, Colombia, South Korea, Malaysia and Taiwan.
iShares Country ETFs make it easy to invest in each of the good value markets.
The ETFs provide incredible diversification for safety. For example, the iShares MSCI Japan (symbol EWJ) is a Country Index ETF that tracks the investment results the Morgan Stanley Capital Index MSCI Japan Index which is composed mainly of large cap and small cap stocks traded primarily on the Tokyo Stock Exchange mainly of companies in consumer staples, financials and materials. This ETF is non-diversified outside of Japan so an investment in the ETF is an investment in hundreds of different Japanese shares.
iShares is owned by Black Rock, Inc. the world’s largest asset manager with over $4 trillion in assets under management.
There is an iShares country ETF for almost every market.
You can create your own good value strategy.
I would like to send you, on a no risk basis, a 130 page basic training course that teaches the good value strategy I use. I call this strategy Purposeful Investing (Pi). You learn all the Pi strategies, what they are, how to use them and what each can do for you, your lifestyle and investing.
When you subscribe to Pi, you immediately receive a 120 page basic training course that teaches the Pi Strategy. You learn all the Pi strategies, what they are, how to use them and what each can do for you, your lifestyle and investing.
You also begin receiving regular emailed Pifiolio updates and online access to all the Pifolio updates of the last two years. Each update examines the current activity in a Pifolio, how it is changing, why and how the changes might help your investing or not.
You also receive a 100+ page PDF value analysis of 46 stock markets (23 developed markets and 23 emerging stock markets). This analysis looks at the price to book, price to earnings, average yield and much more.
This year I will celebrate my 52nd anniversary of global investing and writing about global investing. Our reports and seminars have helped readers have better lives, with less stress yet make fortunes during up and down markets for decades. This information is invaluable to investors large and small because even small amounts can easily be invested in the good value shares we cover in our seminar.
Those five decades of experience have taught me several incredibly valuable lessons.
The first lesson is that there is always something we do not know.
The second lesson is that stock market booms and busts always eventually return to value.
Third, the only sure way to succeed is to use time not timing.
Time is your friend when you use a good value strategy. The longer you can hold onto a well balanced good value portfolio, the better the odds of outstanding success.
A 45 year portfolio study shows that holding a diversified good value portfolio (based on a good value strategy) for 13 month’s time, increases the probability of out performance to 70%. However those who can hold the portfolio for five years gain a 88% probability of beating the bellwether in the market and after ten years the probability increases to 97.5%.
Subscribe to the first year of The Personal investing Course (Pi). The annual fee is $299, but during the pandemic to introduce you to this online course I am knocking $124.50 off the subscription.
Enroll in Pi. Get the basic training, the 46 market value report and access to all the updates of the past two years.
I guarantee you’ll learn ideas about investing that are unique and can reduce stress as they help you enhance your profits through slow, worry free, easy, diversified investing.
If you are not totally happy, simply let me know in the first two months for a full no fuss full refund.
You have nothing to lose except the fear. You gain the ultimate form of financial security as you reduce risk and increase profit potential.
Due to the COVID-19 pandemic we have cut the subscription to $174.50. You save $124.50!
Then because this global recovery is going to take years, we’ll maintain your subscription at just $99 a year rather than $299. Your subscription will be autorenewed in 2021 at $99, though you can cancel at any time.
Subscribe to Pi today and you get a year’s subscription to Pi now, get the 130 page basic training, the 120 page 46 market value analysis, access to over 100 previous Pifolio updates, plus begin receiving regular Pifolio updates throughout the year.