Happy Birthday to Carol Paul, the wife of Ron Paul. She is celebrating her 21st birthday. I wonder if Ron will take her out to the bars for a drink.

Carol Paul was born on February 29, 1936. Since February 29 only comes around every 4 years, this is her 21st birthday.

I am thankful for Carol Paul and all of her support to her husband over the years. I am glad she agreed to him running for a congressional seat. It gave Ron Paul his platform to run for president on the Republican ticket in 2008 and 2012, which led to hundreds of thousands of people becoming principled libertarians.

Carol would have been a wonderful First Lady, but for her sake, I am glad Ron did not become president. It really is a swamp. It is great he was able to use his campaigns as an educational platform.

Happy Birthday Carol Paul.

Stocks have taken a beating so far this week.  In the first two days of the trading week, the Dow lost about 2,000 points.

Luckily for Bernie Sanders, the coronavirus is taking most of the blame.  I have seen suggestions of the market pricing in a possible Sanders presidency, but most of the corporate media are blaming the virus more at this point.

Of course, there is almost always an excuse for stocks going down.  They call it a sell-off, but this isn’t quite accurate.  There are an equal number of shares bought and sold.  It’s just that the price of most stocks is lower.  Sellers are willing to sell for a lower price and buyers are less willing to buy at the old higher price.

I have no idea if this coronavirus has legs.  It may just be like any other version of the flu, except this has a special name and is getting special attention.  We don’t even know for sure if the death rate is higher than the regular flu.  There may be a lot of people who have contracted the virus that did not report it.

I suspect it will die out, especially as warmer weather hits, but I can’t be certain.  It has certainly impacted China to a great degree.  Maybe the action is in the reaction, as the Chinese government has effectively shut down business in a major city.

So I don’t think the virus is irrelevant, even when it comes to the economy.  At the same time, we don’t really know if the plunge in stocks was due primarily to the virus.  After all, stocks had been on a ridiculous run up.

The bigger question is whether this is a blip, or if it is the beginning of a recession.

Politics

I still expect Trump to blame falling stocks (should it continue) on the possibility of a Sanders presidency.

I am surprised the establishment, particularly the Democratic Party establishment, has not tried to pin blame on Bernie yet.  Maybe they figure that the Democrat voters cannot figure out that the market prices these things in, even if it is pointed out to them.  The Democrat voters obviously aren’t very smart when it comes to economics, so they may not be wrong on this point.

If stocks keep going down, Trump will have trouble on this one.  He has taken ownership of this economy, particularly the boom in stocks.  If he is going to take credit for the boom, he will have to take the blame for the bust, even though it is more a matter of previous Federal Reserve policy.

Trump will try to blame Jerome Powell. This isn’t altogether wrong, but it is for the wrong reasons.  Trump will say that he should have never raised interest rates.  The problem is the relatively easy money and low interest rates that took place for over a decade after the fall of 2008. The Fed did stop expanding its balance sheet in late 2014, but it still maintained ultra-low rates and has given an implicit guarantee that it will step in as needed at any time.

Trump will also try to blame Sanders, assuming he stays on track for the nomination.  This won’t be a tough sell to his base, but it will be a tough sell to most everyone else.

Stocks and Bonds

Long-term yields are hitting all-time lows.  The 10-year yield is now well below 1.5%.  The 30-year yield is below 2%.  The yield curve is once again inverted if you compare the 10-year yield to the 3-month yield.  It had already inverted in 2019.  The bond market is sending a strong signal for a recession.

Yields were already down before stocks plummeted this week.  There is a disconnect between stocks and bonds.  I would rather bet with the bond market, which says there is major trouble ahead.

When stocks fall, long-term yields go down.  But when stocks go up, yields have not been going up as much, if at all. This has been the pattern lately. Something is not right about this, and I am not betting on a spike in yields in the near future.  I think it will be stocks that will go down, and go down hard.  It is just a question of when, and whether this was the beginning.

Since there is not much fear of imminent significant price inflation, U.S. government bonds are seen as a safe haven.  When stocks fall, investors lock in long-term yields.

If you are considering refinancing your mortgage, I don’t know whether to tell you to do it now or wait for even lower rates.  I think it depends on your situation.  If you have a 4% rate and can reduce it to 3.25%, maybe it is better to wait, unless your lender is willing to do it for minimal closing costs.  If you have a 5% rate and can drop it to 3.25%, it is probably better to be safe and lock it in now.

Gold and Bitcoin

I like to see how the price of other assets react when stocks tumble as they just did. Gold went up like a rocket on Monday, but then it took a hard fall on Tuesday.

This tells me that Monday’s fall in stocks may really have been partially due to the fears of the virus.  Tuesday tells a different story.  Maybe stock prices were falling on Tuesday because of recession fears, as gold tends to perform poorly at the beginning of a recession.

Meanwhile, Bitcoin has sunk quite a bit this week, but I’m not sure that means anything.  It has been extremely volatile as usual. It had gotten back above $10,000 per bitcoin, but has since fallen.  I have no idea how Bitcoin will do in a recession, but I tend to think it will go down in terms of dollars.

Cash (and long-term government bonds) is still king in a recession.  People want money.  Most assets fall in price.

I think this week is a coming preview of the year ahead.

A couple of weeks ago, I wrote an article on the rise of Bernie Sanders. It was printed on the Libertarian Institute website (link or see below). Since that time, Bernie has been dominating more. It has only amplified the words I wrote below.

*******

With the rise of Bernie Sanders in the polls, the establishment is worried.  The prospect of a two-way race between Trump and Sanders in the general election has the powers-that-be out in full force.

The problem is that they don’t want to make it look too obvious with their opposition to Bernie. Many people, particularly Bernie supporters, already feel that the DNC rigged the primaries against Bernie in 2016.

Hillary Clinton obviously sought to take the nomination in 2016 (and would take it in 2020 if given the chance) because her goal is political power.  But the issue is a little more complex regarding why the establishment fears a Bernie presidency.

Bernie is disliked by the establishment for similar reasons as Trump.  They both sometimes tell the truth, particularly in regards to U.S. foreign policy.

There is a difference between the average person on the street who is a Trump hater and those within the power network of Washington DC.  Someone may hate Trump because of his brashness, his rude Tweets, and his overall arrogant demeanor.

This does not get to the core hatred from the establishment.  They don’t like Trump mostly because of his inconsistent views on foreign policy.  They want someone consistent, but not consistent in the views of someone like Ron Paul.  They want someone who will consistently uphold the U.S. empire and the military-industrial complex.

Trump sometimes tells the truth.  He sometimes makes gestures towards peace, at least rhetorically.  But even when he is siding with the regime, his truth telling can still be damaging.

For instance, he said that U.S. troops would stay in Syria to control the oil.  This is no different from previous administrations, but Trump bluntly told the truth, which the establishment doesn’t like because it can delegitimize U.S. foreign interventions.

And this is really the great thing that Trump has done on behalf of liberty.  His policies have been mostly horrible (continuing the tradition), but he is helping to delegitimize the U.S. empire.  Sometimes it is inadvertent, but we’ll take what we can get.

Of course, Trump has had some good things to say on foreign policy, particularly when he was campaigning.  He said that we were lied into war in Iraq.  He said he wanted to get along with Russia.  It must be clear that this is why the establishment doesn’t like him.  They are afraid that he may follow through on some of his rhetoric and that his rhetoric will be persuasive to the American public.

Trump Over Bernie

The establishment doesn’t hate Bernie because he has described himself as a socialist. I doubt that Wall Street is even that worried.  If stocks begin falling prior to the election, Trump will try to blame it on the prospect of a Bernie Sanders presidency.  But if stocks fall, it will be because we are in a massive bubble (which Trump described in 2016 before the bubble got bigger).

Bernie’s domestic policies do seem scary, but they are likely no bigger of a threat than any other of the presidential contenders.  We already have a disastrous healthcare system.  It’s possible Bernie could get his universal healthcare system (i.e., government healthcare), but that is still somewhat of a long shot.

In terms of spending, it really can’t get any worse than it already is.  We have one trillion dollar deficits, and this is during a supposedly prosperous period.  If anything, the Republicans in Congress may actually start caring about federal spending again if Bernie is in the White House.

The reason the establishment is against Bernie is mainly due to foreign policy.  They are afraid he might disrupt the military-industrial complex.

I don’t have a great degree of confidence that a Bernie presidency will lead to a significant change in U.S. foreign policy.  It’s certainly more likely than with a Biden or Buttigieg presidency, but we shouldn’t be fooled.

Bernie is rather weak. After having the DNC snatch the nomination from him in 2016, he endorsed the bloodthirsty Hillary Clinton, who never met a war she didn’t like.  That alone should tell you how strong Bernie will be in office.

It is also important to consider that Bernie puts little emphasis on foreign policy.  He tends to be good on the issue (relatively speaking) when asked, but he is more obsessed about taxing the top 1% than he is about stopping the bombing of innocent people in foreign countries.

Even though we don’t know for sure how a Sanders presidency would turn out, it is certain that the establishment media and the rest of the cesspool in Washington DC are trying to prevent his nomination because of the uncertainty.  He may actually follow through with some of the things he says, and they can’t take that risk.

If Bernie actually gets the nomination, I actually think the establishment may quietly side with Trump.  They would rather the devil (from their perspective) that they know.  Trump has been in office for over 3 years, and while he has done some damage rhetorically to the establishment, foreign policy has not changed much up to this point.  The wars go on.

With Bernie, there is more uncertainty.  Therefore, the military-industrial complex and the rest of the establishment may prefer Trump over Sanders.  It should not be surprising if they put someone up like Michael Bloomberg to run as an independent in the general election in order to take votes away from Bernie Sanders.  It would split the anti Trump votes.

It will largely depend on how Bernie acts if he gets the nomination.  I think he will moderate his views in the general election.  He won’t call himself a socialist when he is up on stage debating Trump.  He will come across as more reasonable, at least on domestic issues.

The big question will be his views on foreign policy.  The establishment will try to get close to him in order to control him.  If Bernie starts hiring foreign policy advisors who have been pro war in the past, then they will feel reasonably comfortable that they can control him.

It will be a different story if Bernie keeps speaking against U.S. wars and interventions. If he suggests having someone like Tulsi Gabbard as Secretary of State, then the establishment will really flip out.  They will prefer Trump at that point.  You will see the establishment media change its tune on Trump.  They won’t be outright nice to him, but they will quietly change the narrative to make Bernie look like more of a crazy person.

The good news in all of this is that we have reached a point where the deep state is not in full control. We could have a general election with two candidates who are not approved by the establishment. Regardless of how bad they may govern, this is still a positive sign for liberty.

I almost didn’t watch the Democratic debate in Nevada.  I started watching the beginning of it just to see Michael Bloomberg, and then I couldn’t stop watching.  It was probably the liveliest debate thus far.

There was something missing from it though, and I’m not talking about Tulsi Gabbard.  There was a lot of arguing and personal attacks, but there wasn’t a whole lot of debating actual issues.  When there were a few substantive issues touched on, such as healthcare, they turned into attacks against others.

It was really notable that there was no talk about foreign policy.  China may have been mentioned a few times in relation to trade, but I don’t recall hearing anything about wars or foreign interventions.

I mean, maybe it’s important to know if Bloomberg is a sexist, but I would prefer knowing whether he wants to bomb little children in Syria.

There were six candidates on stage.  I will go through each one.

Joe Biden

Sleepy Joe Biden, as Trump has called him, was just about that.  He uses up his time talking about how much time he has left. He showed a tiny bit of energy a few times, but he still has trouble putting two coherent sentences together.

I believe Biden is done.  We will probably have to wait for Super Tuesday (March 3) to confirm this, but I see the writing on the wall, and so should he.  If anything, I was surprised he lasted as the frontrunner as long as he did.

Elizabeth Warren

Pocahontas was the attack dog on Wednesday night.  She was going after everybody, but especially Bloomberg.  She was over the top at times.  She came across as slightly less phony than usual, at least at times, but I don’t know if it will be enough for her to recover.

I think she is hoping to do well enough that the establishment might turn towards her. She is trying to bridge the gap between the establishment “moderates” and the leftwing Bernie supporters. The problem is that most of the Bernie supporters don’t trust her, and for good reason.  She talks a good game about her supposedly progressive agenda, but she will probably govern more like Hillary Clinton.

She was less tough on Bernie than last time.  She was a bit critical, but she saved most of her wrath for others. Maybe she is trying to leave open the possibility for a VP spot if Bernie gets the nomination.

Warren had one nice moment in coming to the defense of Amy Klobuchar.  I don’t know if it was genuine, but it was probably the nicest thing anyone did that night on stage.

Amy Klobuchar

I’m not sure if I heard this right, but I think Klobuchar said something near the beginning, when talking about sexism, that we can help solve the problem by nominating a woman. Unfortunately, it was too politically incorrect for anyone to point out that the Democratic Party already nominated a woman in 2016.  Does anyone think that sexism was improved because of Hillary’s nomination?

I don’t like Klobuchar.  I have heard bad things about her personally, but I don’t really know if they’re true.  To me, she looks like a nervous wreck whenever she is in front of the cameras.

I actually felt a little sorry for her at one point in the debate.  Some twit from the moderator panel, with a thick Spanish accent, kept attacking Klobuchar because she didn’t know the name of the Mexican president in an interview that she did.

90% of Americans probably don’t know the name of the Mexican president.  It was probably closer to 95% before the debate.  I don’t know the name of the Mexican president, and I follow political issues to a much greater degree than most Americans. I don’t really care who the Mexican president is.  It makes almost no difference in my life.  If I hear that the Mexican president has declared all drugs to be legal, then that would get my attention.  Otherwise, I am just talking about the leader of another corrupt government.

Klobuchar was trying to deflect the question while remaining politically correct.  This is the crutch that they all walk with.  If Trump had gotten that question, he would have said something like, “I don’t care who the Mexican president is. If it’s so important to you, move to Mexico.  I’m worried about America.”

If I had been in that position, I would have started quizzing the moderator.  Can you name the Indian president?  Can you name the leader of Bangladesh?  Can you tell me the capital of Canada? Can you name two people on the city council where you live?

The moderator came across as really obnoxious.  I don’t even think Klobuchar would have offended most Latinos by firing back at her.  This was when Warren came to her defense, and the crowd seemed to appreciate it.  Klobuchar showed great weakness with this question, but it didn’t have to go that way.

She also sparred with Mayor Pete.  In response to one of the attacks against her, she said, “Not everyone is perfect like you Pete”, or something to that effect.  I thought that part was ok.

Overall, she didn’t do great because she still looked like a nervous wreck.  I doubt she will gain any more traction after her decent showing in New Hampshire, but she may stick around for a while.

Pete Buttigieg

Mayor Pete was not the likable small-town mayor this time.  He changed his role a bit.  He was the unlikable small-town mayor.  The role of attack dog just didn’t work that well for him.  I put his chances lower after this debate. For anything he lost, Warren probably gained.  Even though she was in attack mode, it came across as slightly less obnoxious with her.

The main thing Pete had going for him is that he is young and likable.  I don’t like him, but I can see where others might see him that way.  He almost seemed kind of normal as compared to the rest of them.  What he lacked in Washington DC experience, he gained with his lack of experience, if that makes sense.  There is something attractive about an outsider.  There are a lot of rumors about him having ties to the CIA, but most people don’t know that.  They just see him as a mayor from outside the swamp that is DC.

I think Mayor Pete ruined his own reputation.  He was a bit too aggressive, and he didn’t really pull it off.  I don’t count him out yet just because most everyone else is so bad, but I do take him down a notch after the debate.

Michael Bloomberg

Bloomberg got absolutely hammered by everyone.  They came out swinging, and he was not prepared to defend.  It is quite stunning that he spends hundreds of millions of dollars on commercials, yet he doesn’t come prepared for the debate.

He had trouble with all of the questions about his personal character.  He had trouble with explaining (justifying) his stop and frisk policies as New York City mayor.

On the issue of tax returns, he was only slightly better, but still bad.  Again, Trump handled this question much better, and he refused to release his tax returns.  I would just say that it’s none of your business.  But he is constrained by political correctness.

The worst moment was when Warren was hammering him on non-disclosure agreements for female employees.  Bloomberg said, “None of them accuse me of doing anything other than, maybe they didn’t like a joke I told.” 

Why would he say such a thing?  How stupid is this guy?  Did he not prepare at all?

I’m sure he is a liar like the rest of them, so why didn’t he just lie?  He could have just said that he and his team are reviewing the agreements and will release them as long as there is nothing that could potentially harm his business.  Instead, he gets caught like a deer in the headlights.  He looked incredibly weak.

The only decent moment Bloomberg had, at least from my perspective, is when he was defending capitalism against Bernie’s socialism.  This was his best moment, but it happened late in the debate.  It does not come even close to offsetting all of the damage that he took during the first half of the debate.

Bernie Sanders

Then there is Bernie. He was the shining star on the debate stage.  He did go after Bloomberg too, and Bernie tends to stay away from the personal attacks.

Bernie is still the most charismatic by far.  He also focuses on the middle class instead of getting bogged down in these petty little things.  He is certainly politically correct, but he spends more of his time showing empathy for the average person.  His solutions may be horrible, but like Trump, he knows how to connect with many people.

He is easily the frontrunner at this point.  I now put his odds around 50% against the rest of the field.  I think the only way the establishment can take this away from Bernie is if he doesn’t get a majority of delegates and they have a brokered convention where they nominate someone like Bloomberg or Hillary. I don’t think most of the Bernie people would support the Democratic nominee in the general election if that happens.

It was interesting near the end of the debate when they were asked what should happen if nobody gets a majority of delegates.  All of the candidates, except for Bernie, said that the rules should be followed, which means a brokered convention.  Bernie said it should be the one with the most votes.

This just tells you that they are trying to set something up where they have a brokered convention. They just have to make sure that Bernie doesn’t go on a big enough run where he is actually able to get a majority of delegates.

If the DNC and the establishment snatch this one away from Bernie, it is going to get really interesting.  I am no Bernie fan, but it is fun to see him driving the establishment nuts.  It is entertaining to watch the establishment squirm.  If it is Trump vs. Bernie, their collective heads might explode.  They aren’t going to know whom to criticize more.

Gross Domestic Product (GDP) is a common statistic used for measuring the growth (or contraction) of the economy in a particular area.  It is most commonly used in measuring a country’s economy.

GDP is often used to measure whether a country is in recession.  Many go by the theory that two consecutive quarters of negative GDP means a recession.

There are some libertarians who think the statistic is completely useless and only serves to mislead us.  The more – shall we say – mainstream economists pin a lot of their assumptions on GDP and its usefulness.

I suppose you could call me a moderate on this one.  I think GDP has many faults, and it can be misleading, but I don’t think it is completely useless.  You just have to consider it in context.  You have to be aware of its weaknesses.

One of the main issues with GDP is that it is largely a measure of spending. Unfortunately, this can also include government spending, which is really just a misallocation of resources. But it wouldn’t be completely accurate to ignore government spending.  When the federal government consumes $4.5 trillion worth of resources in a year, some of that money is going to end up doing some good for someone.  Even if they build a bridge to nowhere, a few people will find it useful.

It is obvious that GDP can be useful in telling us about the mood of people.  If spending is way down (and GDP with it), then it likely means there is heightened fear.  It means people are tightening their collective belts.  It means that people are trying to save or cut back on debt.

I don’t really like to use the term “contraction”, even though I used it above.  A decrease in consumer spending is a contraction from the average economist’s point of view.  But I prefer the term correction.  It is the market economy’s attempt at reallocating resources in accordance with consumer demand.  It is a liquidation phase of the malinvestment.

I think the main problem is that people misunderstand what is going on.  The so-called contraction is a correction, if it is allowed to happen.  The correction phase is quite painful, as that is the time that it becomes obvious that people were overextended in their spending.  It is the phase where unemployment tends to increase, as resources are reallocated.

But the correction isn’t really the bad part.  That is just the part where we feel the bad effects.  The bad part was the misallocation in the first place, likely due to monetary inflation and artificially low interest rates. The massive government spending is also a misallocation, but that can often sustain itself without a bust.

Judging a Household By Its Spending

Imagine you are observing your next-door neighbor.  He puts in a new swimming pool in his backyard.  He comes home one day with a brand new Porsche.  He tells you he recently joined the expensive country club down the road.

You probably think to yourself, “This guy must be doing really well financially.”

But do you really know how he is doing?  We can probably make certain assumptions, but we don’t really know how he is doing.

He might have purchased the new pool and new car by writing a check.  Maybe he got a major bonus and raise at work.  Or maybe he bought these things with debt. He may have just gotten a 10% raise at work, and he was expecting the good times to keep rolling.  Or maybe he didn’t get any raise at work and decided to just max out his credit cards, although that is not likely.

It is most likely a combination of getting a higher income and taking on some additional debt. Individuals tend to be more responsible than politicians with debt.  Individuals tend to manage it well enough that they are able to make payments without taking on more debt to finance the previous debt.

There are certain assumptions we can probably make about this neighbor with his new toys. Assuming he didn’t come into some kind of windfall, he is probably not working a job paying near the minimum wage.  Even if he is not being what we would perceive as responsible by taking on some debt, he probably has a pretty good income.  The banks aren’t going to loan this kind of money to someone making minimum wage.

If I drive into any neighborhood with multi million-dollar homes, I can assume that most of the people living there are doing well financially.  Some may be overextended, but they are still probably living really well.  Assuming the housing market doesn’t crash, they could always sell their house and move somewhere less expensive but still nice.

It is a little harder on the other end.  There are some really rich people who live in fairly modest houses.  But if you drive through a rundown area with dilapidated houses, you can assume that most of the people there are not financially well off.

I say all of this as a good analogy to GDP.  Spending does not tell us everything, but it can still be a useful measuring stick.  It can really show us trends over time.  If you don’t make much money, you are not going to be able to sustain a lifestyle of high spending.  Over the long run, spending can give you a decent picture of how someone is doing financially.  But it can be misleading at times, especially if you are spending more than you are earning or will be earning in the future.

When you look at the United States as a whole, the per capita GDP is much higher than most other countries.  But some of the spending is probably not sustainable, so we may hit a period where GDP actually goes down.  Americans will still be far richer than the people in some country in central Africa, but they may experience a decline (hopefully temporary) in living standards.  If the current consumption cannot be sustained, then this is what must happen.

The GDP in Japan for the last quarter of 2019 was negative 6.3%.  This is a sign that the previous savings can no longer sustain the current consumption.  People are finally being forced to cut back, and hopefully the government will be forced to scale back as well.

I expect a negative GDP to hit the United States in the not-too-distant future.  It is better to cut consumption now than wait until everyone else does.

CNBC recently ran an article stating that there are now a record number of 401k and IRA millionaires according to Fidelity.

Fidelity is the largest 401k provider in the United States with 27.2 million IRA and 401k accounts under its name.  Out of the 27.2 million accounts, there are 1.6% of them that now have a balance of a million dollars or more.  This comes out to approximately 441,000 accounts with a millionaire status.

The average 401k balance is $112,300, but this can be a deceiving number in many ways. First, it is an average and not the median.  The millionaire accounts will pull the average way up.  By the same token, people who had just recently started an account will bring down the average.

The other obvious thing to consider is that this is the average for those who have a retirement account.  There are about 330 million people in the United States.  There are about 128 million households.

There are some people who have retirement accounts through other companies.  There are some people who have assets outside of retirement accounts, whether it is cash in the bank, regular brokerage accounts, businesses, or other assets.

This is why it is only a small piece of the puzzle in terms of how Americans are doing overall in a quest for a comfortable retirement.

The article states that baby boomers have an average balance of $210,400, but the median amount is just $69,900.  I hope these people have other pensions and/ or assets.  Even if you take the average of just over $200,000, this is not nearly enough for most people to have a comfortable retirement, even when coupled with Social Security.

If you have $200,000 and are able to somehow squeak out a 6% annual return above inflation (which I would contend is unrealistic), that comes out to just $12,000 per year without drawing down the principal.  Most people can’t live on that amount in 3 months, let alone a year. Even factoring in Social Security, it is well below what is considered a middle class income.

And all of this comes on the heels of a major bull market in stocks over the last decade.  What will the retirement status look like for people when we hit a bear market, or even a somewhat prolonged period of stagnation?  This doesn’t even factor in the people who have absolutely no retirement savings.

401k Rich and Cash Poor

There is one other major elephant in the room when talking about 401k balances.  For most people, this money is essentially locked up until age 59 ½.

If you still work for the employer that sponsors your plan, then you probably can’t withdraw any money at all except in the form of a loan (which will then hurt your cash flow going forward).  If you are able to withdraw but you are not at the eligible age as determined by the government, then you will pay a penalty tax on top of the income taxes you owe.

The government already makes us far poorer than we should be, and it adds on to it with its retirement account rules.  The only reason that 401k accounts and IRAs exist is because we have an income tax.  They are a way to shelter some of your income from taxes.  The problem is that you get a list of rules that go along with it.

Many companies are automatically enrolling new employees into a 401k plan.  Employees must actively opt out if they don’t want to participate.  This is good in one aspect in that it gets more people to save for retirement.  It is bad in another aspect in that it reduces present cash flow.

This is why many Americans are faced with a situation where they may have tens of thousands of dollars in a retirement account, yet they are struggling to pay the bills or to take a weekend getaway with the family.  This can be the case for people with hundreds of thousands of dollars in a retirement account.  It’s possible that a few of the 401k millionaires may even be in this situation.

Someone will refer to their retirement account as “my money”, yet they don’t retain full control over it.  They are not allowed to withdraw it at all in many cases.  Meanwhile, their options for investing are limited.

This is why it is important to consider the pros and cons of investing in a 401k plan or any type of retirement account.  You have to weigh your options.

Everyone’s personal situation is different.  My general advice is that if you work for an employer that offers a 401k plan, then you should contribute just enough to get a full match of funds from your employer (assuming your employer matches at all).  In many cases, this will be a contribution of 5 or 6 percent on your part.

Beyond that, I think it is better to keep your money under your own control.  You need flexibility in life for emergencies, as well as for opportunities.

It is nice to be a 401k millionaire, but it is even nicer to be a millionaire without counting any retirement funds that you don’t fully control.

Bernie Sanders has officially won the Democratic New Hampshire primary.  Pete Buttigieg came in a close second.  Amy Klobuchar had a respectable third place.

I will have a more detailed post coming up on Bernie Sanders and the implications of him possibly getting the nomination.

First, I’ll address Andrew Yang, who received 2.8% of the vote.  He has dropped out of the presidential race.  For some reason, politicians refer to it as suspending the campaign.

Andrew Yang was at least interesting and, at times, intelligent.  A few people thought he stood a chance.  I said early on that his form of welfare was too blatant. The Democrat’s like to promote a form of welfare that equates to trickle-down economics.  They want the government to spend money by handing it to bureaucracies, which then trickles down some money to the welfare recipients after administrative costs.  Yang’s welfare was too direct and too obvious.  This could not be tolerated by the statists.

Tom Steyer (3.6%) tried to buy his way in, but even with that, he was too boring to gain any traction.  I can’t really identify one thing he stands for.  There were rumors he was dropping out, but his campaign says he is still running.  His money couldn’t buy him a personality or any ideas.

Elizabeth Warren is quickly fading, as she received 9.2% of the vote.  She had that brief surge last year, which surprised me.  She comes across as so phony to me, so I guess it took the voters a few weeks to discover that.  I put her chances very low at this point.

Joe Biden has completely imploded.  Actually, he imploded a long time ago with hair sniffing and idiotic comments.  But it took the Democratic establishment this long to realize that it probably isn’t a good idea to put him on the debate stage with Donald Trump.  He is going to have to have a very good showing in the upcoming primaries in the next few weeks.  At this point, I think he is done.  The establishment and the voters realize that there are probably better ways to challenge Trump.

Amy Klobuchar had a strong showing in New Hampshire, but I don’t think it will last.  She received 19.8%, which is a decent showing considering all of the candidates.  Still, I think she sounds like a nervous wreck and would be a complete disaster against Trump.  I don’t fault someone for not being a good speaker or sounding really nervous, but it is not the kind of trait people look for in a president.

Tulsi Gabbard received 3.3% of the vote in New Hampshire.  This is a very poor showing, especially for a state like New Hampshire where an undeclared voter can vote in the Democratic primary. It is also home to the Free State Project, which means there are many thousands of hardcore libertarians living there.

Tulsi had a nice appearance on Ron Paul’s Liberty Report last week.  Even with that, there is something lacking.  She has many good qualities, and obviously her foreign policy is by far the best of the candidates.  This is why I followed her more closely than others.  But she still doesn’t come across strong enough.

It is easy to draw comparisons between her campaign and the Ron Paul campaigns of 2008 and 2012. There are similarities, but also many differences.  There were no Tulsi Gabbard blimps.  There were no “paint the town Tulsi” events.  It is easy to see why.  Maybe I will explore this further in a future post.

I have now gone through all of the major candidates except for three.  These are the three with the best shot at the nomination at this point.

First, there is Mike Bloomberg.  I had not really taken him too seriously up to this point.  He might be the one person that I underestimated.  He was not on the New Hampshire ballot, so we don’t really know where he stands, other than from polling.

Bloomberg is spending a boatload of money on advertising.  He has said he could spend $2 billion.  I don’t think I so much underestimated Bloomberg’s ability to be likeable as much as I overestimated the intelligence of some of the Democratic voters.

This is the party that says they want to keep money out of elections.  They say that Russia interfered with the 2016 election by spending $50,000 in Facebook ads.  So along comes a guy who has not been in any debates, and he thinks he can just buy the nomination for himself with an advertisement blitz.  Maybe he is right.  It’s amazing how many people can be persuaded based on advertising and empty slogans (although it didn’t work for Steyer – see above).

Maybe I am being a little too hard on the Democrat voters.  They are desperate to beat Trump, and they have realized that Biden is a dud.  Maybe they think Bloomberg is their best hope at this point.

We have no idea how Bloomberg will do when he is actually on the ballot, but his poll numbers have risen.  Still I would put Sanders and Buttigieg ahead of him at this point.

Aside from Bloomberg, my predictions have been really accurate up to this point.  I was predicting Sanders from the leftwing and Buttigieg from the establishment to be the main contenders.  There are stories out there now that Buttigieg has ties to the CIA.  I have no idea if this is correct, but it wouldn’t surprise me.  He is certainly an establishment favorite at this point.  I think they would take anybody who is dependable (to the establishment), who comes across as likeable, and who can put together a coherent sentence.

I believe the race is between these two at this point, with Bloomberg as a possible third.

The problem for the DNC and the establishment is that all of these candidates are splitting the votes. Bernie is getting his 25%, while the rest of the crowd is splitting all of them up.  The establishment would prefer to narrow down the list so that the anti Bernie people can consolidate their votes.

With the delegate game, it isn’t clear how things will go.  Bernie could get a plurality but still fail to get the nomination. There are a lot of talks now about a brokered convention.  This is coming from the party that likes to say that Trump wasn’t really elected because he didn’t win the popular vote.  Yet, they may be faced with a situation where Bernie has the highest percentage of votes but doesn’t get the nomination.

The pro Bernie people will see through it more this time.  They will know that the nomination was stolen away from their guy.  I think there will be a decent percentage of them who really will not vote for the Democratic nominee in November 2020 if they feel this way.

If it isn’t a brokered convention where someone like Hillary steps in, then I think it is between Sanders, Buttigieg and Bloomberg.  It may take a while before we gain clarity on this.  All I know is that I like seeing the establishment squirm.

The ratio of silver to gold is currently around 88 to 1.  This means that 88 ounces of silver equal one ounce of gold.

The price of gold in terms of U.S. dollars is currently around $1,573 per ounce.  The price of silver is around $17.68 per ounce.

As explained in a recent article appearing on Schiffgold.com, “the average in the modern era has been between 40:1 and 50:1.”

In other words, if the ratio returns to what has been more normal in the past, then we should either expect the price of silver to rise as compared to gold or expect the price of silver to fall less dramatically than gold.

While I think the ratio is a useful tool, it is important to realize that there is nothing set in stone saying that the ratio has to return to these past levels.  Times do change.

While both metals have a history of being used as money, silver does not really have much of a role in today’s monetary system.  Silver is an industrial metal.  Gold can be used this way too, but gold is more unique now in that it is still held by central banks as a form of reserves.  Even though gold no longer functions as a direct form of money in most cases, it is still tied to the monetary system, at least indirectly.

Central banks hold gold.  I don’t know of central banks holding any silver.  Therefore, if there is a major loss in faith in fiat currencies in general, we could see gold do comparatively well to silver.

Gold has seen stronger gains than silver (in dollar terms) over the last several years.  I believe part of this is due to the increased demand from central banks.  Even though the Federal Reserve has not been a buyer of gold (that we know of), the U.S. government has perhaps played a role in the rise of demand for gold by foreign central banks.  When the U.S. threatens other countries and uses sanctions against foreigners, it makes them want to be less reliant on the U.S. dollar.  It is not surprising that a country like Russia would want to reduce its dollar holdings and increase its gold reserves.

Metals in a Recession

Even in the short run, I am hesitant to think that silver will do better than gold.  We already saw a mostly inverted yield curve in 2019, and the stock bubble is as big as ever.  There is a major threat of a coming recession.

Gold and silver tend not to do well in recessionary periods, especially if the recession is not accompanied by high price inflation.  This is not the 1970s, or at least not yet.

When there is an economic downturn, people turn to safety and liquidity.  If there is relatively low price inflation, then investors tend to seek safety in government bonds.  They seek liquidity in cash and cash equivalents.

This is not favorable towards gold and silver.  This is why the metals went down in the fall of 2008.  They did recover quickly after that, especially when the Fed really juiced up the digital money printing.

I don’t know what the next recession will look like for gold and silver.  I expect stocks to fall the hardest.  My best guess is that gold will fall a little bit, but then it is likely to go up big in dollar terms once the Fed gets going with its next round of major money creation.

Assuming the metals fall, at least temporarily, I think silver will take a bigger hit than gold. Therefore, for this year at least, I think it is better to be much heavier in gold than silver.  I see more downside for silver, while the upside is not much greater.

This will change if and when price inflation becomes a greater threat.  If gold starts going up 20% annually, silver could easily be going up 40% or 50% annually.

Silver has a tendency to be more dramatic than gold.  When there is a bull market in precious metals, silver will typically outperform gold.  But when the pullback comes, then silver can go down big and fast.

I am an advocate of a permanent portfolio.  I don’t see anything wrong with holding a little bit of silver, but I think it should be a tiny percentage of your portfolio.  I certainly wouldn’t advocate anything more than 5%, and even that would be high.

If you are going to speculate with silver, I just don’t think now is the time to do it. You have to wait for a genuine fear of price inflation in the near future.  This shouldn’t be based on your own fear, but rather the general mood of investors and consumers.

Again, the 1970s is a good example to look at when gold and silver ran wild.  When you think that price inflation will hit close to double digits within the next couple of years, then that is the time to buy silver.  It is also the time to buy gold, but I am assuming that you already own some gold and gold-related investments.

As I write this, there are still no results for the Iowa caucuses.  It is becoming a mainstream joke about just how bad this one was fumbled.

It may turn out to be something like the Republican Iowa caucuses of 2012.  This is when Romney supposedly won, but then it was declared later that Rick Santorum actually won.  Yet, Ron Paul actually carried most of the delegates.

If there are significant shenanigans taking place, you can expect Tulsi Gabbard or Bernie Sanders to fill the role of Ron Paul in terms of media coverage.

The media can likely safely ignore Tulsi at this point, but Bernie is too big to ignore.  He is at or near the top in national polling now for the Democratic nomination.

I am cheering for Bernie right now, given the alternatives.  The establishment hates him.  They may come to hate him more than Trump.  I will have more to say on this in the coming days.

For today, I just want to look at the implications of a rising Bernie on the economy. Let’s say that Bernie does well in the early caucuses and primaries.  Let’s say he is becoming the likely nominee of the Democratic Party.

Bernie has been open about his socialist tendencies.  He has called himself a democratic socialist.  The term “democratic” in front of “socialist” doesn’t mean much.  Some of the most tyrannical socialist dictators came to power through voting, at least initially. Either way, they obviously had some consent in order to be able to gain power.

Bernie’s brand of socialism doesn’t scare me that much.  It’s not that his policies wouldn’t be horrible.  It’s that I don’t think he has much of a chance to enact them. The Republicans in Congress would all of a sudden be concerned about government spending again if Bernie is president.  They would lie about how much they care about deficits, but at least we would be hearing the rhetoric.  We hear almost no concern about spending with Trump as president.

If Bernie gets the nomination, he would moderate his views on domestic policies. Unfortunately, he would probably also moderate his views on foreign policy.

Still, there is some fear that a Bernie presidency would bring major economic consequences. I’m not sure how much worse they could be than what is already baked in the cake, but I understand the concerns of many.

Even if Bernie isn’t actually a socialist, he wants an increase in government power.  What politician doesn’t?  But Bernie would have something of a mandate for bigger government.  He might turn the rest of the United States into California.  He might enact universal (i.e., government) healthcare.  Therefore, some people worry about the economic future of the U.S.  They should be worried now anyway, regardless of a Bernie presidency, but the current situation doesn’t get much attention.

Blame Bernie

Despite Trump’s unpopularity, he still has a decent chance of being reelected.  I have been wondering for a while now on whether the economy would hold up long enough for the November 2020 election.

We are only about 9 months away, so it doesn’t have to hold up much longer.  Still, we know how fast things can change.  Just look at 2008, which also happened right before a presidential election.

Let’s say that it is becoming apparent that Bernie will get the nomination.  A Sanders presidency is becoming more and more likely.  Then, what happens if stocks start falling?

The Trump campaign is obviously going to blame the prospect of a Bernie presidency.  They will say that the market is anticipating a Bernie presidency, and that is why stocks are falling.  Investors are scared of what he will do if he is elected.

Personally, I don’t think stocks are going to crash just because of the prospect of a Bernie presidency.  Stocks fell dramatically the day after the election in 2016.  It was unexpected, so investors weren’t sure how to react. The market has continued to go up and up since that event over 3 years ago.

I think there is a real threat of a major downturn.  The rise in stocks has been almost parabolic.  Meanwhile, long-term yields are going down, and the yield curve has partially inverted again.

Trump will keep campaigning on how great the economy is, even though I don’t think it is. He is mostly basing this on the stock market, which isn’t all that relevant to most people’s financial condition.  He will call it the Trump economy.  He will take credit for what is a bubble economy, even though he called it a bubble economy 4 years ago.  It is just a bigger bubble now.

But if Bernie keeps gaining momentum, Trump will blame Bernie for any fall in stocks. Many people will buy into this.

It is true that stocks move in anticipation of events.  They don’t always go up and down on the day that earnings are reported. They often go up or down before that, in anticipation of what earnings are projected to be.  There is a saying that you should buy the rumor and sell the news.  This is reality in stock investing, or really any investing.

If you live in a house in the middle of nowhere and then there are rumors that a luxury shopping mall will be built a mile down the road, then the value of your house may start going up right away.  The price of your house isn’t going to all of a sudden jump higher on the day that the new shopping mall opens its doors.

So, if and when Trump makes this argument, there will be something to it.  Some voters will understand that he may have a point. They may think that they are better off with Trump in there for the sake of their 401k balance.

This could have more traction for Trump than just blaming Jerome Powell at the Fed.  People can more easily understand the argument that stocks are going down because investors are preparing for a Bernie presidency.

I think stocks will go down either way, but it is a good political argument for Trump.

At least if Bernie gets elected and stocks go down (even if they were already going down), I think the prospect of his policies will take some of the blame.  It is better that socialism take the blame than capitalism.

Of course, capitalism isn’t what has caused the mess we are in now.  It is due to central bank inflation and massive government spending, which is more socialism than capitalism.  Unfortunately, not a lot of voters know that the Fed and the government are largely to blame for our financial struggles today.  Our living standards would be far higher if the size of government were much smaller.

There was a recent report issued stating that nearly 40% of Americans do not have enough money saved up to deal with an unexpected expense of $1,000 or more.  These people would have to go into debt (probably further debt) to deal with it.

In other words, a large percentage of Americans are broke.  Probably more than half of Americans don’t really have any significant liquid funds that could be used in an emergency, especially if it is something as bad as a job loss.

There is a difference between broke and poor.  Broke is a more temporary position.  It means you don’t have access to money right now.  Poor is more a way of life.  It means you have little in the way of assets and there is nothing indicating that this will change any time soon.

Most Americans somehow muddle through, even with minimal or no savings.  If something breaks, such as a car, they find a way around it. They somehow come up with the money or find an alternative.

Of course, not all Americans muddle through.  This is evident with the epidemic of homelessness, particularly in California. Most of these people have problems beyond not having a decent shelter, but you have to consider that they didn’t live this way since the day they were born.  There was a breaking point where they started living in a tent on the side of the road.

When we hear about how little in savings Americans have, there are multiple responses that can be heard.

From the political left, we will hear about how the top 1% is gaining while everyone else is losing. This isn’t completely inaccurate. The problem is that the solutions they offer are the very things that cause much of the problem in the first place.  If you want lower and middle class America to do better, then you need to drastically reduce government spending and regulation.  You also have to address the inflation coming from the central bank that disproportionately hurts those with less money.

From the political right, it is typical to hear that things aren’t that bad.  This is especially true when there is a Republican in the White House.  We will hear that this is America, the land of the free, and people can live a wonderful life with some hard work and determination.

The problem is that there are many people who do work hard who are still struggling to pay the bills.

This is somewhat typical of conservatives, although definitely not all.  Unfortunately, I also hear libertarians talk like this, and I think it does a disservice to the message of liberty.

Selling Liberty

If someone is complaining about how it’s hard to pay the monthly bills and save money, I don’t think the best libertarian response is to tell the person that they should suck it up and work harder.  Maybe this is a possible solution to their problem, but I think it is important to empathize to a certain degree.

The proper response isn’t that you should be happy you live in today’s world and not 100 years ago or 50 years ago.  This can be pointed out as a sidebar, but it shouldn’t be the main point.

It isn’t a choice of living now or 50 years ago.  I would still choose now because of the luxuries and technologies we enjoy. I want my smartphone and internet access.  But it doesn’t mean that we should just accept outrageously priced medical care and insurance. It doesn’t mean that middle class America should suffer trying to save up a few weeks worth of living expenses.

From a standpoint of selling liberty, we should empathize with someone who is working hard and struggling financially.  This is the case with many people.  The reason for this struggle is because of government.  When the federal government is spending in the neighborhood of $40,000 per year per family, this makes it rather difficult.  When you add in state and local government spending, you get near what the actual median income is in the United States.

People are being forced to live a much harder life than necessary because of the massive government spending, the central bank inflation, and the tens of thousands of pages of regulations.

This is an important point in trying to sell liberty to others.  If you want a higher standard of living, then stop supporting big government.  If government is drastically reduced, then your life, at least financially speaking, will likely be much easier.  You can have your smartphone of 2020, while still being able to take a vacation and save money for a rainy day.

Making Excuses

There is a libertarian aspect of this, but there is also a personal aspect to this.  If someone is complaining about the cost of living, it is a good opportunity to educate this person on how the government is causing the high cost of living.

But life isn’t just about selling liberty to others.  You probably want to help this person.  Therefore, just because the government is making life unnecessarily harder than it should be, it doesn’t mean we should use this as an excuse to do nothing.

You have to make optimal life choices for yourself and your family given the situation. Hopefully this is done within a moral framework.  I don’t recommend stealing someone else’s money just because the government has stolen from you.  However, I am not against trying to get money back from the government that it has stolen from you.

If you are part of the large percentage of Americans who essentially has no savings, or if you know someone in this position, you can still make changes in your life to deal with this.  The government may be a good excuse as to why you are in this position, but it shouldn’t be used as an excuse to not take action.

This is where the conservative/ libertarian tough love is useful.  If you want to save up a few thousand dollars, then work an extra job for a while on the weekend.  If you have a family, then don’t eat out for a few months and be on a strict budget when going to the grocery store.  Give up cable and Netflix for a few months.  Find some stuff around the house that you don’t use and sell it by posting an ad on social media or one of the platforms for selling used items.

In conclusion, when you see someone who is working relatively hard but struggling to keep up, you should empathize with them.  You should sell liberty by pointing out how much better their life could be without the massive intervention of the state.  At the same time, you should try to motivate them to change their situation.  You can have a good excuse up to a point, but then you still have to take action to better your own life, in spite of the situation.