What if all Governments ban Bitcoin?

To me it’s silly to ban bitcoin, but history and other countries have shown that banning a useful money that holds its value is often the course domineering governments take to meet their ends. China and India come to mind when it comes to banning cryptocurrencies or even certain higher denominations of their paper money. However, there is a spectre that other countries that are purportedly free market will also follow suit. This hard cutoff supposedly will coincide with the release of CBDC’s, or Central Bank Digital Currencies. If we want to see how this might play out it may be worth looking to the past.

In 1933, four years into the Great Depression, FDR enacted executive order 6102 (image below) which required all persons to deliver on or before May 1, 1933, all but a small amount of gold coin, gold bullion, and gold certificates owned by them to the Federal Reserve in exchange for $20.67 per troy ounce. It would not be until 1974 that private citizens could once again own gold. The reason for this executive order was to stimulate the economy by being able to increase money supply which was at the time backed by a gold standard. By 1974, of course, the US was no longer really on a gold standard since three years earlier in 1971 Nixon permanently ceased the convertibility of the US dollar to gold by foreign countries. At that point the US had created way more dollars than it had gold to back them, and if all the dollars were redeemed for gold at their fixed price the point at which no more gold existed the financial system at the time would collapse. For those who held onto their gold either illegally or having had jewelry or numismatic coins (which were exempt from the confiscation in 1933), they would have seen the value rise tremendously – and most likely have been able to sell their gold in countries where it was not illegal to hold.

Executive Order

Executive Order 6102 banning personal possession of gold

The same goes for bitcoin in the countries that have banned it. Online it is pretty easy to find someone who would be able to transfer money if you send bitcoin, and if you have a hardware wallet and didn’t want to transact online but needed to sell bitcoin one method is to leave the country to do so.

What is interesting to me is that bitcoin and cryptos are being targeted but real estate and other assets are not – wait, that’s not true either! Certain countries are cracking down on mom and pop real estate investors by now making it harder to get investment properties. This could be in the form of bans on owning over X amount of properties, or introducing new punitive taxes to discourage buying properties as investments. Now wait a second, stocks are still available to purchase, aren’t they? Yes, they are – and if inflation is 10% per year and your stocks go up 10% a year you are effectively keeping your net worth the same until you sell and pay taxes. What about gold? In the digital age of Amazon gold and silver, in my opinion, have been overlooked as stores of value. That being said, most young people would not accept gold/silver for cash since it is so foreign to them. They’d probably value an unopened bar or chocolate more than a silver bar (see video).

Ultimately, it will be a real test of Democracy and the free market to see which countries do not ban cryptocurrencies. Buying them is not being forced on anyone, and banning them will take away the hope millions have put into get themself closer to financial security or financial freedom.

I really hope the US does not go the way of more authoritarian countries in banning the future of money for their own hyperinflating unit that gets created in the trillions without the consent of the people who earn dollars for a living.

How To Preserve Your Assets During 1970’s Style Inflation?

So times have changed, but inflation is back. In the 1970’s prices went up 10% year over year due to a few things – in my opinion OPEC and the departure from the gold standard were the biggest reasons. During that time period you would have made out quite well if you kept all your cash in energy stocks and real estate investments. You’d also make out like a bandit holding gold and silver.

During this period I think the same is true, however there’s a few differences.

  1. Energy stocks now should include “Green Energy” companies and not just comprise of typical fossil fuel producers/ refiners.
  2. I’d focus more on residential real estate instead of commercial real estate especially if the commercial REITS are heavily invested in traditional office buildings and property in large metropolises.
  3. Gold and silver now have competition – cryptocurrencies led by bitcoin and etherium. Altcoins offer large APY yields to those who risk holding them and “staking” them or participating in defi programs. Bank interest rates are still abhorrently low, and at the time of writing this the best interest you can get on a savings is basically 0.5% with Ally unless you are using some promotion or something that requires you go through hoops. Defi can easily get you closer to 20%.
  4. One sector I’m willing to keep cash in is food producing companies and food sellers. That means Lamb Weston, Conagra, Archer-Daniels Midlands for the food producers and Albertsons and Walmart for the retailers. These companies make money off of an inelastic good, and for those who took economics that means that people can’t really stop buying regardless of the price. When it comes to low level luxury goods price elasticity means that demand goes down when price goes up, and for some goods this effect is stronger than others.
  5. Another sector that sells goods that are partially inelastic is energy, that means energy companies and I’d throw in green energy companies into this mix. Fuel is needed for heating during the winter and essential transportation year round.
  6. One winner of inflation that wasn’t around during the 1970’s could be the internet and internet based businesses. As people are too poor to go out, pay for fuel, and dine out they may turn to internet based entertainment such as we saw during Covid in mid 2020.
  7. Regarding real-estate, we did see a huge surge in price in the past few years as people moved around the country with the ability to work from home and the newfound realization that their life is finite due to the pandemic – we may see real estate prices keep up with inflation or slow down a bit, I think a slowdown is more likely as homeowners feel the strain of inflation and sell-offs start to happen. This will benefit people and corporations who have the means to buy up these properties and rent them out.

What not to do:

  1. Nothing – don’t do nothing. Take action to preserve your value that you’ve worked hard to build.
  2. Bank CD – if you lock your money into these low yield fixed rate certificates of deposits you are effectively throwing your money away.
  3. Keep all your money in Consumer Discretionary and related businesses stock. That means Footlocker, Texas Roadhouse, etc.

Is inflation “transitory”

  • I don’t think so, I think it will slow down in the future but what you can buy for the dollar now will never buy you more in the future. I see inflation going up 5 to 10% for the next few years, and that is on the optimistic side.

Let’s Talk about Bitcoin Versus Gold

Bitcoin Versus Gold

The gist of this article is to explain in clear English why bitcoin has outperformed gold and makes a more viable currency. I’m not going to speculate on price movements rather the utility of the currency. If you’re an older reader pay closer attention, bitcoin is no longer just “an idea in a geek’s head”.

The Charts

BTC/USD

BTC/USD 1 Year to Jan 9, 2021

SPRD Gold Trust Price

SPRD Gold Trust Price 1 year history ending on Jan 9, 2021

Why has Bitcoin Outperformed?

So why has bitcoin outperformed gold in the past year? The charts above show bitcoin and a gold ETF side by side and as you can site bitcoin is the clear winner. My answer is in the form of a question.

“How would you use gold to buy what you buy in a given year?” How can you use gold to buy pizza, how can you use gold to order items online, and how can you use gold on the go anywhere you are?

The answers are clear, you can’t. If you do, you’ll probably lose value, for example you can give a store clerk a gold coin and he’ll pocket it and then pay from his pocket because he just ripped you off, but he won’t go through the rigamarole of checking the spot price of gold and empty out his cash register to make it a fair transaction. Regarding online orders, forget it. It’s really dangerous and stupid to be carrying gold coins with you everywhere you go.

Now pose the same question with bitcoin. Well, in some foreign countries such as Japan I can buy pizza with bitcoin. The US is still catching on so most restaurants and stores will not accept bitcoin.  Many websites accept bitcoin, a long time WordPress started accepting bitcoin and others followed such as Steam, Reddit, Microsoft, AT&T. The biggest news of all I think is that Paypal will allow spending in local currencies with bitcoin. So you go anywhere in the world, imagine being able to spend in local currencies being converted out of bitcoin and a real-time rate. Amazing right? All you need is your phone, something undoubtedly you have either in your hand or pocket right now. Good luck bringing gold overseas, even locally TSA questions people that move gold around but if you go overseas you may be subject to paying a tariff to bring in gold.

What should I do if I have Gold?

Two People Debating

If you have gold don’t worry, I think gold prices will keep going up in the medium and long term. A short term fall is most likely institutions rebalancing as they add bitcoin to their portfolio. Institutions need to have bitcoin in reserve if they offer their customers the option to buy bitcoin on their platform. Gold does have a few benefits over bitcoin, including it’s time earned reputation as a store of value. A digital coin that’s been around for a little more than 10 years is not going to replace gold as the “gold standard”, and you are protecting yourself against inflation. Gold also has the title of being anonymous. As long as people aren’t writing down serial numbers of coins or bars they trade, gold can be untraceable. Bitcoin used to have that distinction but since it uses a public ledger if folks reuse their same bitcoin addresses its possible to trace down where addresses belong using some tricky sleuthing. Also, many people are keeping bitcoin on online wallets that are hosted by companies rather than keeping it in cold storage on hard drives. That means users don’t really own the wallets they are using a service to manage a wallet that then creates sudo wallets when transactions are performed.

You’ll want to make precautions to make sure you don’t get your gold lost or stolen, gold thankfully has elemental properties that prevent it from decaying or becoming dull over time. That being said, I feel it’s value as a currency are less than bitcoin so treat it more as a hard asset investment (much like real estate except without the power to cash flow). I’m going to get to preferred investments later.

What should I do if I have Bitcoin?

If you have bitcoin congratulations, you’ve probably already made a killer profit. That being said bitcoin is still growing as a currency and most folks that are older and less technology savvy may be less likely to “catch on”. However, the great thing about bitcoin is it is a deflationary currency meaning it has a hard supply cap and the mining becomes more difficult over time. Higher demand with limited supply will lead to higher prices, however a pullback from the recent price spike is very possible. What I would do if I did not already own real estate is sell enough bitcoin to make sure you own your primary residence. If you have a lot of bitcoin I’d also sell more to buy rental properties which pay back the mortgage and then some. Throughout time mankind has had great success in making fortunes from supplying housing to folks for a price. You are doing tenants a service by providing housing at a price they are willing to pay and they do not have to buy an entire house or deal with some struggles that come with owning properties such as maintenance, taxes, insurance. I wouldn’t sell it all though because during a rising period it’s hard to be certain how high bitcoin will go. Will it stop at $50,000 or continue it’s way to $1,000,000? With a max supply of 21 million coins a 1 trillion dollar total capitalization would mean each coin is worth $47,619. Does the world place that much value on this cryptocurrency? My guess is yes, and if bitcoin pulls back to less than $20,000 I will be dollar cost average purchasing more with each paycheck.

The Paycheck Conversion Plan

I learned of this when I lived in Malaysia. The Malaysia ringgit was getting hit hard with low oil prices and political issues, lines would form around all the currency traders (which were prevalent also because of lots of tourism). Locals would exchange their hard earned ringgit for either USD (US Dollars), SGD (Singapore Dollars), or RMB (Chinese Money). The reason for this was to prevent their money losing value as fast as it would otherwise. Also because they trusted the other currencies more.

I think it’s a great painless and stress free way of purchasing something your brain construes as “expensive” over time. Kind of like getting into the ocean inch by inch rather than taking a dive. Budget yourself, how much you need for your life and how much you use for investing. Divide your investing into stocks,real estate, and crypto. Divide your crypto into Bitcoin, Etherium, Litecoin, and any other coins you deem worthy (read the white papers and do so checking on how easy these coins are to mine and what they are already used for). After you come up with that percentage multiply it by your  wages (be it bi-weekly, monthly, etc) and then set a recurring purchase transaction on a website like Coinbase (join using this link to get $10 free bitcoin for you and me) for all the coins you’ve come up in your list.

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US Debt 25 Trillion and Counting. How to Protect Yourself.

The United States is 25 trillion dollars in debt. It collects around 3.2 trillion dollars in tax revenue every year and spends 6.2 trillion dollars every year. The spending continues to go up and all the while the US is paying interest on its debt. Instead of hoarding dollars you should consider some of these other stores of value.

The US dollar is one of the strongest currencies out there, backed by the strongest military and economy the world has ever seen. That being said it is not in the interest of the United States government to have the US dollar increase in value, especially because it owes so much in the form of Treasury bonds and notes. Thankfully most debt is internal – meaning the debt is held by US entities and the Federal Reserve, however there is a lot of debt owned by foreign countries as well. This makes inflation FAVORABLE for multiple reasons – the amount owed to others decreases in real value and economic growth occurs when people use their money to make a higher return than inflation and the interest rates.

If the Federal Reserve were to increase interest rates it would strengthen the US dollar, going against the interests I mentioned above.

This is fine, you just need to know where to put your money so you aren’t affected as much by it.

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One Percentage Point Cut in Benchmark Rate, Now at 0% – 0.25%

What Happened?

Today the Federal Reserve announced it will cut the benchmark rate to between 0% and 0.25%. On top of this, the Federal Reserve has said it will proceed with $700 billion in asset purchases (quantitative easing)

This is an important milestone in that the only additional tools the Federal Reserve now has to curb further depression in the stock market and slowing of the economy due to Coronavirus is to either:

  1. Push the benchmark rate into negative territory
  2. Introduce additional quantitative easing

Focusing in on this change only, and not the other stimulus the Federal government is pursuing, indicates that there is a large amount of fear about the economy.

What should you do now based on these changes?

Refinance

If you have an existing home loan chances are very high at this point you will be able to refinance your loan for a lower interest rate (more than 1% of your current rate) which would make it financially worth the closing costs.

Figure out to do with your cash

0% benchmark rates and increased government spending through stimulus measures means your cash is at risk of devaluation.

Commodities

Consider investing in alternative forms of wealth including gold, silver, platinum, palladium, rhodium, and consider diversifying with some cryptocurrencies such as bitcoin or etherium. Last time quantitative easing was introduced and implemented gold prices more than doubled from $800/oz in 2009 to over $1800/oz in 2011. Today gold stands at $1544/oz. Gold isn’t so much a way to make huge returns rather a way to store value, but a tool nonetheless. Silver went from $10/oz to over $45/oz in 2011. Same concept applies except silver is more volatile, less expensive, and more abundant. Also silver oxidizes, unlike gold.

Equities

Consider investing in companies that can weather a Coronavirus instigated economic adjustment that are on discount after our stock market rout of the past few weeks. Don’t dump all your cash into the market immediately, but start moving money over time and pick up some bargains. Anyone who used this strategy in 2009 would be looking good today. Be careful of companies in high risk industries in the current environment. Casinos, resorts, cruise, and travel companies come to mind as high risk investments. Secondary companies that could share some of that risk include airplane manufacturers, and restaurant franchises that aren’t tuned for home delivery, and theater companies.

The no-brainer at this point is the refinance. Others are optional, and carry risk.

Buying Lasting Presents Which Appreciate in Value

Buying Gifts that Retain or Increase in Value

If you’ve ever watched the 1964 rendition of Rudolf the Red Nosed Reindeer you’ll know who Yukon Cornelius is. He’s the most famous prospector in the north, searching for silver and gold. That being said, he never finds any.

Don’t be like Yukon, buy your relatives gifts that appreciate in value! Silver coins are a nice gift because they are affordable and have a decent upside potential – and look nice!

Legos hold their value well if you don’t open the box! Video games depreciate fairly quickly, and clothes are basically worthless after they are used. Gift cards are worse than cash in that they usually have an expiration and can get lost or forgotten about. Stocks are not easy to buy for kids these days because you have to open accounts and deal with a lot of overhead in getting started. Bonds are boring.

So next time your considering buying present buy a fancy silver coin! There are a variety of designs to choose from, including Star Wars designs, battleships, pirates, and dinosaurs for the young ones.

Coins can be cool!

Recommended Websites

1.  Modern Coin Mart

https://www.moderncoinmart.com/

I like Modern Coin Mart because they have a wide variety of coins to choose from. These range from historical to modern (like the dinosaur coin), and hail from a variety of countries. You can buy directly from their website (link above) or go through eBay and buy from their eBay store. If you buy from the eBay store they are usually quick to give positive ratings to buyers – if you don’t care about ratings it may make more sense to buy directly from their website.

2. APMEX

https://www.apmex.com/

APMEX is another great website for starting your coin or bullion collecting journey. I like how their bullion includes hand poured bars (like below).

hand poured 2oz silver bar

Palladium Overtakes Gold and Platinum

What is Palladium?

The least well known precious metal is now the most valuable. Everyone knows about gold, silver, and platinum – it’s about time everyone educated themselves on palladium!

  • As of December 13, 2019 Palladium trades at $1,954.06 per ounce, compared to gold at $1,478.12 and platinum at $931.15.
  • 10 years ago Palladium traded at $363 per ounce, gold was $1118 and platinum was $1435.

Palladium is precious metal used primarily in the creation of catalytic converters – which convert harmful gas emissions into CO2 and water vapor. Without catalytic converters the noxious fumes would be released directly by motor vehicles, greatly increasing pollution and cancer rates among urban dwellings.

Where does it come from?

Mined primarily in Russia and South Africa.

A major source of palladium for new items comes from recycling of old catalytic converters (seen below). Palladium is often mined along side nickel and platinum, and unfortunately thieves have resorted to stealing these off of cars for the valuable scrap value of the metal.

Most common use of palladium is in catalytic converters

Jewelry and coinage use palladium

 

Why is it getting expensive?

Supply and demand is pushing prices up. Palladium mines are located in Russia and South Africa, and are not increasing their output of the metal but demand continues to rise. This has made recycling of the converters a necessity, and the increased price should eventually make more mining economically feasible – yet this has not yet happened.

Plop onto this combination speculation and investors buying up the metal and you have a perfect formula for a great price boost.

How do I get in?

The Fastest way is to buy a palladium ETF in your stock portfolio. The major ETF is:

PALL (Aberdeen Standard Physical Palladium Shares ETF). Below is a one year chart:

PALL 1 year performance

Slower way to invest is buy palladium coins or bullion.

Palladium 1 oz bar

Mining Stocks for 2018

The Bingham Canyon Mine in Utah, USA

The following is a list of a few mining stocks to consider coming into 2018. Some investors are eyeing mining stocks as an unappreciated sector in the past few years, and are looking to diversify their portfolio from overpriced stocks to some bargains. I have reallocated some gains from 2017 into the first option below in anticipation for a gold price increase to follow the recent commodity price increases.  Please comment below if you have any other suggestions.

  1. Barrick Gold (Nasdaq: ABX)  – the largest gold mining company in the world.  With a PE Ratio (TTM) of only 7.00 trading at $14.00 this is a steal. The dividend is weak though, so the hope would be that the gold price rises or they can cut expenses and improve efficiency. This would probably be one of your best bets on gold prices. With the US dollar starting to decline against other currencies and commodity prices starting to rise this stock is essentially a bet on gold. The expected output of gold in 2017 is 5.3 million ounces and the expected output of copper is 420 million pounds. The size of the company means it is more likely to be able to weather an extended gold price trough. Another positive is that this company has not issued more shares for the past few years, meaning they are less likely to dilute the price. The drawback to this company is that is heavily dependant on gold and copper mining, so more or less betting on these two commodities. Today’s price is $14.00.
  2. GoldCorp (Nasdaq: GG) – another Canadian company, GoldCorp is essentially a smaller version of Barrick with a higher pricetag. GoldCorp estimates to mine 2.5 million ounces of gold in 2017 but claims to have plans to grow by 20% by 2021. If you want to invest in gold miners and want to spread across multiple companies, you can consider buying some of this stock. Today’s price is $13.22.
  3. BHP Billiton Limited (Nasdaq: BHP) – The world’s largest mining company. We aren’t talking gold – we are talking coal, iron, copper, potash, and petroleum. This company currently has a “average” P/E (TTM) ratio of 19, but boasts and excellent dividend of 1.72 or 4.1%. Today’s price is $42.30. Investing in this company is sort of like investing in the global economy, as the raw materials are used around the world. This company was hit by the economic slowdown of 2008, falling to $36, but then peaked in 2013 at over $94 per share. From 2011 to the end of 2015 the shares slowly slipped down to $22 per share but have since risen to their current price of $42.29.

 

 

Trump Stocks VS Hillary Stocks

At this point it’s safe to say that unless something extraordinary happens either we will get a Donald Trump or Hillary Clinton presidency. While I could spend volumes discussing the economic implications of either win, at this point its more important to figure out what companies will benefit or lose from each presidency so you can take a gamble or get out before its too late.

Coal/Oil

Its safe to say that fossil fuel companies would continue to get hammered under a Clinton presidency. If Clinton is anything like Obama, we should see a few more coal stocks go bankrupt like Peabody Energy (Formerly PBU) and Arch Coal (Formerly ACI). Surviving coal companies include Cloud Peak Energy (NYSE:CLD), Westmoreland Coal Company (NASDAQ:WLB), and Alliance Resource Partners, L.P. (NASDAQ:ARLP). Oil companies face regulatory difficulties under a Clinton presidency, but most should be able to survive as oil maintains current price levels. The coal industry in my opinion is a bad investment at this time due to the very cheap price of steel and the lower demand from China and the United States.

Defense

One area that will most likely benefit from a Trump presidency is the defense manufacturing companies. Companies which would produce items for the military and navy include General Dynamics (NYSE:GD), BAE Systems PLC (LON: BA), and and array of other companies. You can also invest in Mutual Funds iShares Dow Jones US Aerospace & Def (ITA) or Fidelity® Select Defense & Aerospace Portfolio (FSDAX). Over the past year ITA has returned 18% and FSDAX has yielded 14%.

Healthcare

While I’m tempted to say the healthcare industry would continue well under a Democratic president, I can’t say for sure given the very cutthroat price increases which have made them a popular industry to attack from both Democrats and Republicans. If the Democrats end up further building up Obamacare it’s quite likely the pharmaceutical industry will be volatile. The TPP agreement pushed by Obama and Clinton will make people in 3rd world countries have to pay more for medicine, which may end up furthering profits in this sector. Time will tell. I’m not going to put any recommendations here.

Gold / Silver

If you’re a gold or silver investor, then the past year has been very kind to you. Especially if you’re into gold and silver mining stocks. Helca Mining company (NYSE:HL) surged 215% YTD and almost 200% in the past year, from under $2 to $6. Barrick Gold Corporation (NYSE:ABX), Goldcorp Inc. (NYSE:GG), and Silver Wheaton Corp. (NYSE:SLW) are all big players in this market. This is one of my favorite industries to make huge profits from moderate changes in base precious metal prices. It’s hard for me to say which candidate will cause these to go up further, it’s more dependant on the Federal Reserve interest rate policy and inflation. However based on the campaign talk It seems like a Clinton presidency would be better for precious metals. It’s always a good idea to have these as part of your portfolio to some degree.

Real Estate

Donald Trump made most of his money off of real estate – it’s always good to include this in your mix of assets. As the world population expands real estate will most likely continue to climb regardless of who makes president. A recession could certainly hit prices, but only temporarily.

Conclusion

I’d get out of coal, first of all. I’d put money into defense stocks as they should outperform the market under either presidency. I’d allocate some money into precious metal if only for an insurance policy on the dollar. I’d get some cash out of this frothy market and wait for the market to tumble before the election before strategically investing in under-priced high return on equity stocks.