Math Doesn’t Lie – Why Taper Talk is Just Talk

          Stocks had a rough day on Black Friday.  Even though markets were only open for half a day, on an intraday basis the Dow Jones Industrial Average fell 1000 points.  The Industrials closed down 905 points for the day.  The S&P 500 and the NASDAQ had ugly days as well.

          In the “Positions” paid newsletter that I do for some clients and advisors, I have been suggesting that our long-term stock charts were showing weakness.  Perhaps that weakness is now arriving.

          The million-dollar question, or should I say trillion-dollar question, remains what will the Fed’s response be?  Will they continue the taper (the slowing of currency creation) or abandon that effort to attempt to prop up markets?

          I have said repeatedly that I believe any taper will be more form over substance.  I reach this conclusion for reasons that I will outline in this issue of “Portfolio Watch”.  I will examine it in more detail in the December issue of the “You May Not Know Report”.

          This dialogue has to begin with the current state of US Government finances.  Since the Fed’s currency creation is largely subsidizing the US Government’s deficit spending, if the Fed is going to eventually cease currency creation, the US Government will have to eventually balance the budget.

          There are only two ways to balance a budget – increase revenues (taxes) or reduce spending.

          No matter your political persuasion or leanings, we can all agree there is virtually no evidence that spending cuts are being seriously contemplated – quite the opposite is actually happening which is quite remarkable given the numbers I will review with you briefly.

          Let’s begin with the federal operating budget.  The screenshot below is from USDebtClock.org.

          For discussion’s sake, and ease of math, let’s assume an annual operating deficit at the federal level of $3 trillion.  Let’s take that $3 trillion and divide it by the 126 million tax returns that are filed each year with an average federal income tax liability of $9,118.  (Source:  https://www.fool.com/retirement/2016/10/31/heres-what-the-average-american-pays-in-taxes.aspx)

          Some simple math concludes that each of these taxpayers would need to increase their tax payments by 261% to balance the budget.  That means the average taxpayer would have to pay $23,809 in taxes rather than $9,118.

          But this is just to balance the budget.  It does not address paying down the debt or funding the unfunded liabilities of Social Security, Medicare and other government programs.  According to Professor Lawrence Kotlikoff, a past guest on the RLA Radio Program, the fiscal gap of the United States is more than $200 trillion.  (Source:  https://kotlikoff.net/wp-content/uploads/2019/03/The-2019-U.S.-Fiscal-Gap-Calculated-by-Laurence-Kotlikoff-and-Nils-Lehr.pdf)

          That means that to solve these fiscal issues, in addition to paying 261% more in taxes, each taxpayer would have to ante up about $1.587 million over time.  If one were to amortize that number over 30 years at 3% interest, that would require each of these taxpayers to part with another $80,292 annually FOR 30 YEARS!

          Let me attempt to put that into perspective.

          If we assume that the average taxpayer is married, filing jointly, in order to have a federal income tax liability of $9,118 in 2021, their taxable income would be $79,300.  Assuming these taxpayers took a standard deduction on their tax return, and they were younger than age 65, their adjusted gross income would be $104,400.

          Assuming a state income tax rate of 4.25% (which is the income tax rate in Michigan, the state in which I reside), current taxes paid by these taxpayers are:

Social Security/Medicare Tax    $ 7,987

Federal Income Tax                    $ 9,118

State Income Tax                       $ 3,370

Total Tax                                   $20,475

          Now, to balance the budget, total taxes paid will need to be $35,166.  But that does nothing to address the unfunded liabilities of government programs like Social Security or Medicare or to pay down the debt.

          As noted above, based on a 30-year amortization and 3% interest, each taxpayer is now on the hook for another $80,292 annually as remarkable and unbelievable as that might sound.

          Add the $80,292 to the $35,166 and one gets $115,458 or more than this household earns!

          While I’m at it, let me dispel the notion that this problem can be solved by taxing the wealthy via a wealth tax or a tax on unrealized capital gains.  Once again math trumps rhetoric.

          Total wealth of all US billionaires is a little more than $4 trillion (Source:  https://ips-dc.org/u-s-billionaire-wealth-surges-past-1-trillion-since-beginning-of-pandemic/).  Adopting the radical policy of just confiscating all the wealth of all the billionaires only funds the deficit for 1.3 years and does nothing to address the debt or the unfunded liabilities of other government programs.

          No matter how you slice it, these problems simply cannot be solved via increased taxation.

          What about cutting spending as unlikely as that seems politically at the present time?

          If you look at the numbers on the debt clock screenshot above carefully, you see that the deficit is about 41% of spending as ridiculous as that is.

          In order to balance the budget by cutting spending, ALL spending would need to be cut by 41% across the board.  That action alone would lead to a deflationary collapse.

          And, once spending was cut 41%, the debt and the unfunded liabilities of government programs would also need to be addressed.

          Taking the fiscal gap and amortizing it over 30 years at 3% interest, one quickly realizes that annual payments of more than $10 trillion are required AFTER spending has been cut by 41%!

          Take a look at this screenshot again, where can you find an additional $10 trillion BEFORE you cut spending by 41%?

          Bottom line is you can’t and there will, eventually, have to be government programs that don’t pay out all of the promised benefits.

          The recent Social Security trustees report informed us that the underfunding of Social Security reached $59.8 trillion.  That represents the gap between promised benefits and future payroll revenue and is $6.8 trillion larger than just one year ago!  (Source:  https://starkrealities.substack.com/p/social-security-steams-closer-to)

          This is just one example but suffice it to say that the fiscal gap continues to grow.

          If these problems cannot be solved via increased taxation and if cutting spending to the level it would need to be cut would lead to a deflationary depression, then policymakers and politicians are most likely to continue on their current course of action – create currency.

          As noted in the past, creating currency works until it doesn’t work.  Once confidence in a currency is lost as a result of inflation or hyperinflation, the deflationary crash occurs anyway.

          In my view, it’s never been more important to have an income plan that’s funded with some assets to help preserve assets in a deflationary environment and some assets that will help to act as an inflation hedge.

If you or someone you know could benefit from our educational materials, please have them visit our website at www.RetirementLifestyleAdvocates.com.  Our webinars, podcasts, and newsletters can be found there.

Pension Plan Problems?

          In this weekly post, I comment frequently on Federal Reserve policies largely because Fed policy is the primary driver of economic and investing conditions.

          Over the past dozen years or so, the Fed has created currency literally from thin air, a process known as quantitative easing, and has kept interest rates at artificially low levels.

          History teaches us these policies create a prosperity illusion for a while but, in the end, reality emerges and the price for such reckless policy is paid.

          An astute observer who is doing his or her own research can now see the beginning of reality emerging.  One such reality is the extremely difficult position in which pension managers now find themselves as a result of the Fed’s low-interest-rate policy.

          During this week’s RLA Radio Program, I discuss this in detail.

          There are two types of pension plans – a defined contribution plan and a defined benefit plan.  A defined contribution plan is the retirement plan with which you are probably most familiar.  One example of such a plan is a 401(k) plan.  This type of pension plan is known as a defined contribution plan because the contribution to the plan or investment in the plan is what is ‘defined’ or determined.

          For example, in a 401(k) plan, you determine the contribution, and the ultimate benefit received at retirement is dependent on the amount of the contribution and the investment results of the plan.

          The other type of retirement plan is a defined benefit plan.  This is most commonly a pension plan where the monthly benefit at retirement is defined.  The plan is then funded by the employer to an extent as to ensure that the plan can meet the monthly retirement payment obligations to the retiree.

          There are several variables that determine the level of employer funding to a defined benefit plan; the number of years until the covered employee retires, the amount of monthly retirement income the employee is to receive (usually determined by a formula involving a number of years of service and employee salary) and the investment results of the plan.

          As you might imagine, pension assets need to be invested in a way as to maximize safety as well as returns.  In a low-interest-rate environment like the one we’ve seen for the past 12 years or so, it’s exceptionally difficult for a pension fund management team to get reasonable returns and maintain safety.

          This is an adverse side effect of the Fed’s artificially low-interest-rate policy and it’s now beginning to take its toll on pensions in earnest.  So much so that some pension plans are now forced to either fund the pension plan to a greater extent to compensate for lower interest rates or subject plan assets to more investment risk.

          This past week, “The Wall Street Journal” published an article that reported the nation’s largest pension fund, CALPERS, has now decided to take more investment risk to attempt to get the pension plan closer to being more fully funded.

          The article headline and an excerpt follow (Source:  https://www.wsj.com/articles/retirement-fund-giant-calpers-votes-to-use-leverage-more-alternative-assets-11637032461?mod=Searchresults_pos2&page=1):

The board of the nation’s largest pension fund voted Monday to use borrowed money and alternative assets to meet its investment-return target, even after lowering that target just a few months ago.

The move by the $495 billion California Public Employees’ Retirement System reflects the dimming prospects for safe publicly traded investments by households and institutions alike and sets a tone for increased risk-taking by pension funds around the country.

Without changes, Calpers said its current asset mix would produce 20-year returns of 6.2%, short of both the 7% target the fund started 2021 with and the 6.8% target implemented over the summer.

“The times have changed since this portfolio was put together,” said Sterling Gunn, Calpers’ managing investment director, Trust Level Portfolio Management Implementation.

Board members voted 7 to 4 in favor of borrowing and investing an amount equivalent to 5% of the fund’s value, or about $25 billion, as part of an effort to hit the 6.8% target, which they voted not to change. The trustees also voted to increase riskier alternative investments, raising private-equity holdings to 13% from 8% and adding a 5% allocation to private debt.

Borrowing money to increase returns allowed Calpers to justify the 6.8% target while maintaining a more-balanced asset mix, concentrating less money in public equity and putting more in certain fixed-income investments, fund staff and consultants said.

A staff presentation noted, however, that the use of leverage “could result in higher losses in certain market conditions,” a possibility that raised concerns for board member Betty Yee, the California state controller.

“Ultimately the question is, does the risk outweigh the benefit?” Ms. Yee asked.

Retirement funds around the U.S. have been pushing into alternative assets such as real estate and private debt to drive up investment returns to pay for promised future benefits. Funds have hundreds of billions of dollars less than what they expect to need to pay for those benefits, even after 2021 returns hit a 30-year-record.

            Pledging pension plan assets as collateral to borrow money to invest in alternative assets after a year that has seen the prices of most every asset class reach record highs, what could go wrong?

          While my crystal ball doesn’t work any better than anyone else’s does, you don’t need to be an investment guru to see that this decision is desperation on the part of this pension to get the returns the pension needs to meet retirement payment obligations to the pension plan’s participants.

          As long as the investments in which the pension plan invests the borrowed money continue to rise to new highs, the pension management board’s decision will make them look brilliant.

          A more likely outcome in my view would be that at some point in the near future, the investments in which the borrowed money is invested will lose value and the pension will be in worse shape than it is now.

          That’s when the fund looks to the government and begins to beg for bailouts.

          Trouble is, also at some point in the fairly near future, the government will be forced to rein in spending or risk the integrity of the currency.  As Alasdair Macleod noted in his recent piece titled “Returning to Sound Money” (Source:  https://www.goldmoney.com/research/goldmoney-insights/returning-to-sound-money):

The growth in the M1 quantity since February 2020 has been without precedent exploding from $4 trillion, already a historically high level, to nearly $20 trillion this September. That is an average annualized M1 inflation of 230%. It is simply currency debasement and has yet to impact prices fully. Much of the increase has gone into the financial sector through quantitative easing, so its progress into the non-financial economy and the effects on consumer prices are delayed — but only delayed — as it will increasingly undermine the dollar’s purchasing power.

            Those are remarkable numbers when you pause and consider them.  The M1 money supply has expanded by 230% per year since February of 2020.  Given that economists are in near-universal agreement that the time lag between currency creation and the subsequent inflation is 18 months to 24 months, we haven’t begun to see the full effects of this currency creation.

          The inflation that we are now experiencing is, in my view, a preview of coming events.

          This will create a problem for pension plan investments as well as an additional problem.  Pensions that have borrowed money to invest will likely see those investments perform negatively because of inflation and those pension participants who ultimately get a monthly income from the pension will see that pension buy a lot less.

If you or someone you know could benefit from our educational materials, please have them visit our website at www.RetirementLifestyleAdvocates.com.  Our webinars, podcasts, and newsletters can be found there.

Anatomy of an Inflation

         The Federal Reserve announced a $15 billion per month taper and markets rallied.

          All markets rallied as noted in the databox above; stocks, bonds, and precious metals all moved higher.

          The Dow to Gold ratio remained in the neighborhood of 20.  I stand by the forecast of an ultimate ratio value of 1 or 2.

          In the “Headline Roundup” today, I discussed the anatomy of inflation.  Despite the fact that the Federal Reserve continues to describe the high level of inflation as transitory, it seems that it is here to stay.

          The taper announced by the Fed while leaving interest rates unchanged is, in my view, more symbolic than substantive.

          I expect that at the first sign of market distress, the Fed will reverse course and make the ‘adjustments’ they stated were possible in their taper announcement.

          Assuming I am correct, today’s discussion of the anatomy of inflation could especially relevant.  In the article, “Is the World About to Be Weimared?”, the author describes the progression of inflation or hyperinflation.  (Source: https://www.pgurus.com/is-the-world-about-to-be-weimared/#)

          The author also discusses the probable political outcome of such a hyper-inflationary event pointing to the Weimar, Germany hyperinflation and the rise of an authoritarian government.

          History points to this political outcome time after time.

          Extreme economic circumstances have the populace embracing extreme political solutions that often turn out to not be solutions at all.  That was the case in Weimar, Germany and we can all hope and pray that is not the solution presently should the current inflationary climate evolve into an environment that is hyperinflationary.

          To prevent such an outcome, it’s important to understand the inflationary cycle.  The author of the article referenced above published a chart that does a good job of explaining the cycle.

          As you’ll note from the chart, the first stage in what the author describes as the inflationary death-spiral is the development of the attitude that “deficits don’t matter”.

          This attitudinal change among the ruling class is almost necessary since government spending is out of control and balancing a budget would require significant pain and a huge amount of public sacrifice, both of which are politically unpopular.

          Here is a bit from the article (emphasis added):

“Given above is the typical scenario of how “well-meaning” governments end up causing depressions and high inflations.  Starting out in a benign commodity cycle where the monetary inflation does not directly translate into consumer price inflation, governments reach the absurd but very convenient conclusion that “deficits don’t matter”.  The Keynesian stimulus appears to work under these conditions and the governments get away scot-free from their monetary sins.  Albeit temporarily.”   

          In my view, this accurately describes the time frame from 2011 to 2019.  The Federal Reserve was creating currency and expanding the money supply, a.k.a monetary inflation, but the only apparent inflation was that of asset prices like stocks and real estate.

          More from the article (emphasis again added):

“When the payback time arrives, and it always does without exceptions, the monetary stimulus has the effect of pushing on the strings from a “growth” perspective.  The higher deficits translate into consumer price inflation while the growth seems to falter.  The currency weakens, there are greater trade deficits and the recessions and consumer price inflation both worsen.  Stagflation, Misery Index (unemployment + inflation) are some of the more commonly used phrases to describe these economic conditions and this is where the US, and perhaps the world at large is headed in the immediate future.”

          I would argue this is where we are presently.  The US just recorded the largest trade deficit in history due in large part to importing a lot more energy than just a year ago.  This from “United Press International”  (Source:  https://www.upi.com/Top_News/US/2021/11/04/trade-deficit-809-billion-imports-exports/2021636046685/):

The U.S. trade deficit reached an all-time high of $80.9 billion in September, sparked by consumer demand for computers, electric equipment, and industrial supplies, the Commerce Department said Thursday.

The Commerce Department said year-to-date, the goods and services deficit increased $158.7 billion, or 33.1%, from the same period in 2020. Exports increased by $274.1 billion or 17.4%. Imports increased by $432.8 billion or 21.1%.

            And, even using the highly manipulated Consumer Price Index measure of inflation, consumer price inflation is at levels not seen in years while economic growth is slowing.

          The next stage of the inflationary death spiral is described in the article (emphasis added):

Of course, the US Fed neither believes in the transitory nature of the CPI nor in the “strong economy” opinion that they voice in the public domain.  The only reason why the US Fed has not raised the interest rates is that they understand the inflationary death spiral that the US economy/dollar is about to enter.  Let’s say the Fed manages to hike the rates to a very nominal 1%.  That would still leave the real interest rates negative by a massive 4%.  But this 1% interest rate would deliver a devastating blow to both the housing and bond hyper-bubble markets that the US economy cannot possibly hope to recover from.

That would indeed set off a chain reaction of a recession forcing the government to step in with a big stimulus which would lead to even higher CPI.  In fact, this is exactly the same phenomenon that we have witnessed in many banana republics but perhaps for the first time, we will witness this happening to the world’s reserve currency in the years ahead. 

          In other words, once this cycle begins, it is self-feeding.

          The reality of currency creation is quite sobering when one compares the levels of currency creation by the Federal Reserve to that of Weimar, Germany.

          The chart above illustrates the amount of currency created by the Federal Reserve.  Notice in calendar year 2020, the expansion of the money supply went nearly vertical and has continued for about two years.

          The next chart below shows the level of currency creation in Weimar, Germany after World War I.  Notice the eerily similar chart patterns with the currency creation that led to hyperinflation and the destruction of the German Mark occurring largely over a two-year time frame.

          The Fed has arguably already created enough currency for a hyperinflationary outcome.

          The difference between the German Mark of Weimar, Germany, and the US Dollar of today is that the US Dollar is still used as a reserve currency. 

          It is my view that without that status, we would perhaps already be experiencing a hyperinflationary climate similar to that of Germany after World War I.

          As I noted last week, the only way to solve this problem is a balanced federal budget so currency creation is unnecessary.  Given the recent passing of a monster infrastructure spending package that adds to the level of deficit spending, we are moving in a fiscal direction that almost ensures the inflationary death spiral continues.

If you or someone you know could benefit from our educational materials, please have them visit our website at www.RetirementLifestyleAdvocates.com.  Our webinars, podcasts, and newsletters can be found there.

Corruption at the Fed?

Stocks, by my analysis, weakened even more last week.  The first four trading days of the week were negative followed by a nice rally on Friday.  Despite the rally, technicals in the stock market are breaking down by my measure.

          4 of the 11 sectors that comprise the S&P 500 turned negative over the past month.  For many months prior, all 11 market sectors have had positive momentum.  Longer-term charts have been pointing to a potential downturn for the past couple of months and given current price action, we may be on the brink of a more major decline.

          There is no shortage of market or economic news to share with you.  Each week, I look for the one or two stories that are most likely to affect you or to be of interest to you.  This week, I will begin with a story that at best suggests that there are lax rules on trading on insider information at the Fed by Fed members and at worst confirms the level of corruption that many have suspected for a very long time.

          If you missed the story, two members of the Federal Reserve Board have resigned after their trading activities were revealed in an article in “The Wall Street Journal”.  This from “The New York Post” on September 27 (Source:  https://nypost.com/2021/09/27/dallas-boston-fed-presidents-announce-resignations-following-controversial-stock-trades/):

It was a “Fed letter day” as two regional Federal Reserve presidents announced early retirements following controversial stock trades that were exposed in news reports.

Monday morning, Boston Fed President Eric Rosengren announced he would retire nine months earlier than expected, citing health reasons. Hours later, Dallas Fed President Robert Kaplan said he would retire, acknowledging his recent trading activities had become a “distraction.”

Earlier this month, filings reported in the Wall Street Journal revealed that Kaplan executed multi-million dollar trades throughout 2020. Kaplan, a former Goldman Sachs executive owns millions of dollars worth of stock in major companies including Apple, Amazon, Facebook, Delta Airlines, and Tesla.

Kaplan will step down on Oct. 8, but defended his record in a statement, “During my tenure, I have adhered to all Federal Reserve ethical standards and policies.” Rosengren will retire Thursday. Both men are 64.

Following the disclosure that Kaplan and Rosengren had been actively trading while serving at the Federal Reserve, both men vowed to sell their stock by Sept. 30 and move their money to passive investment vehicles. Despite the pledge to end any controversial trades, both men still faced criticism for perceived conflicts of interest: shaping policy the monetary policy they could benefit from.

“While my personal saving and investment transactions have complied with the Federal Reserve’s ethics rules, I have decided to address even the appearance of any conflict of interest by taking the following steps,” Rosengren said in a statement earlier this month. Rosengren’s trades had been smaller than Kaplan — in the range of tens of thousands and hundreds of thousands.

          Here are a couple of Federal Reserve Bank Presidents making stock trades while making monetary policy decisions.  While the two men predictably stated that everything they did was within the rules when one considers what former Dallas Federal Reserve Bank President Richard Fisher revealed in a CNBC interview in 2016 after he’d left the post of President.  (Source: www.cnbc.com/2016/01/06/dont-blame-china-for-the-market-sell-off-commentary.html)

“I spent 10 years (through last March) as a participant in the deliberations of the Federal Open Market Committee, setting monetary policy for the U.S. The purpose of zero interest rates engineered by the FOMC, together with the massive asset purchases of Treasuries and agency securities known as quantitative easing, was to create a wealth effect for the real economy by jump-starting the bond and equity markets.”

The impact we had expected for the economy and for the markets was achieved. By February of 2009, the Fed had purchased over $1 trillion in securities. With interest rates throughout the yield curve moving in the direction of eventually resting at the lowest levels in 239 years of history, the stock market reacted: It bottomed in the first week of March of 2009 and then rose dramatically through 2014. The addition of a third round of QE, which had the Fed buying $85 billion per month of securities to ultimately expand its balance sheet to over $4.5 trillion, juiced the markets.

            It’s interesting that Mr. Kaplan succeeded Mr. Fisher as President of the Dallas Federal Reserve in 2015.  (There was an interim President for 6 months between the tenures of Fisher and Kaplan)

            Fisher freely admitted that the Federal Reserve’s objective, while he was President of the Dallas Fed, was to jump-start the bond and equity markets.  Given that stocks have risen to all-time highs since Mr. Fisher left his post and interest rates have fallen to all-time lows, is there any reason to think that the Fed quit “jump-starting the bond and equity markets”?

            Something smells fishy?

            And, does anyone else think it’s interesting that both men agreed to sell their stock by September 30 only after they got caught?

            Ryan McMaken wrote a piece3 that was published on Mises Wire commenting on this topic (Source:  https://mises.org/wire/youll-be-shocked-learn-theres-corruption-fed).  Here are some brief excerpts although I would encourage you to read the entire article.

Fed Chairman Jerome Powell has decided the Fed ought to “review” its ethics policies after it was revealed that high-ranking personnel at the Fed were actively trading stocks even as the Fed was busy pulling the levers on monetary policy.

Specifically, Dallas Fed President Robert Kaplan made numerous trades worth $1 million or more last year. Meanwhile, Boston Fed President Eric Rosengren last year was making large trades in real estate investment trusts, possibly in the six-figure range.1

The problem here is obvious to any normal person who watches the Fed. 

The Fed is not just an instrument of monetary policy, but a regulator of financial institutions. The Fed regulates bank holding companies, foreign banks working in the US, hundreds of state member banks, and other institutions as well. This gives Fed policymakers an enormous amount of control over the fortunes of many financial institutions.

Moreover, Fed policy can be—and, these days, usually is—instrumental in pushing up stock prices and real estate prices through monetary inflation. Since the Great Recession—and arguably since the late 1980s, with the “Greenspan put”—the Fed has been instrumental in subsidizing stock prices through an implied promise that the Fed will rush to the rescue if financial markets face any real risk of falling prices. Since the Great Recession especially, the Fed’s unconventional monetary policy has meant the Fed has sucked up trillions of dollars in bonds and mortgage debt. This means both a direct subsidy of real estate investments and also—as Fed asset purchases push down interest rates—a flight to yield in the stock market.

Not surprisingly, we can see a clear correlation between the Fed’s easy money policy and a supercharged stock market.

The information available to these regulators and policymakers also provides an enormous amount of insider information not available to outsiders. So, perhaps, Fed officials should divest themselves of their stock and real estate portfolios, at the very least?

For Rosengren and Kaplan, however, this is crazy talk, since both men insisted their actions were “consistent with their respective bank’s code of conduct policies.” This may very well be true, although this only illustrates how the Federal Reserve System is soft on potential corruption within the ranks of its leadership.

After all, Rosengren and Kaplan only offered to sell their holdings after a public scandal broke out.

The position of Kaplan and Rosengren is typical for government officials—which is what Fed officials essentially are. This is also common in Congress: what matters is finding loopholes allowing the official to maximize his personal wealth, capitalizing on his ability to affect regulations and conditions that affect the prices of his investments. All that matters is that the lawyers say it’s okay.

It’s not surprising, of course, that Congress is chock-full of millionaires. The Fed’s boards aren’t exactly populated by “regular folk.”

And this may be significant in helping us understand how Fed policy has been so lopsided in favoring the ultrawealthy while imposing price inflation and a higher cost of living on people of more ordinary means. Fed policy has been extremely successful from the point of view of billionaires and hedge fund managers holding huge stock portfolios and real estate holdings. The prices just keep going up, and at rates that outpace official price inflation rates. 

But for first-time home buyers, and the many millions of American workers who own few stocks? They just face higher prices for housing, education, healthcare, and now even food. Investing is out of the question because ultralow interest rate policy makes traditional, conservative, low-risk investments (like savings accounts) basically worthless.         

            In the past, I’ve commented on the widening wealth gap is largely attributable to Federal Reserve policy.  Here we see firsthand why that is true.

            Ron Paul, when he suggested decades ago that we should end the Fed was well ahead of his time.

If you or someone you know could benefit from our educational materials, please have them visit our website at www.RetirementLifestyleAdvocates.com.  Our webinars, podcasts, and newsletters can be found there.

What Will the Next Recession Look Like?

          I have frequently commented on my belief that the economy and financial markets are extremely artificial, with asset prices rising largely due to massive levels of currency created by the Federal Reserve.

          Artificial economies and artificial markets always, eventually reverse following the basic rules of finance and economics.

          I have often quoted the late economist Hebert Stein when it comes to currency creation.  Mr. Stein stated that “if something cannot go on forever, it will stop”.  That statement is as profound as it is simplistic.

          As I’ve discussed in “Portfolio Watch” many times, currency creation will eventually cease.  It will end proactively or reactively – but it will end.

          The question is that when currency creation does stop what will the economy and financial markets look like?  How will you be affected?

          It is the answer to this question that matters.

          In this issue of “Portfolio Watch”, we will consider the answer to this question.

          John Wolfenbarger recently published a piece on this topic at Mises.org.  (Source:  https://mises.org/wire/four-reasons-next-recession-will-be-worse-last-one).  It is a well-done article.

          In his article, Wolfenbarger notes, as I did in last week’s “Portfolio Watch” that stocks are extremely overvalued.

          In last week’s issue, I noted that the increase in stock prices is very closely correlated to the Federal Reserve’s level of currency creation. 

          Wolfenbarger utilizes the most often cited market valuation metric, the “Buffet Indicator”, to make his case.

          The chart above illustrates the Buffet Indicator, a.k.a. Stock Market Capitalization to Gross Domestic Product.  Note from the comments on the chart that stocks are now 30% higher than at the tech stock bubble peak in calendar year 2000 and pushing twice as high as at the time of the financial crises.

          Wolfenbarger also rightly observes that real estate prices are also at levels that one might consider to be nosebleed levels.  Using the most commonly referenced real estate valuation indicator, one discovers that real estate values are now 27% higher than at the peak of the housing bubble in 2006.

          The point is that when the next recession hits, asset prices are more inflated than in the past significantly increasing the likelihood of a catastrophic decline in asset values.

          Couple these abnormally high asset valuation levels with the fact that the US economy has weakened over the past two decades and we have the makings of a perfect storm when the next recession hits.

          A weaker economy should not mean higher stock prices.  I’m certain that without the extreme easy money policies that the Fed has pursued over that time frame, asset prices today would be far lower than they are presently.

          Here is an excerpt from Wolfenbarger’s article:

The US economy is not as strong as it used to be. That is certainly true in the wake of the covid pandemic, but it has also been true for the past two decades. All of the taxes, regulations, and other government interventions in the economy in recent decades have created a weaker and more fragile economy that will make the next recession even worse.

The chart below of industrial production shows it is only 8 percent higher than at the 2000 peak and 1 percent lower than at the 2007 peak. It has nearly flatlined over the past two decades. That is much weaker than the 3.9 percent annual growth in industrial production from 1920 to 2000.

          Consider that for a moment.  Asset prices are at all-time highs and industrial production has declined since the financial crises.

          That’s economic math that doesn’t add up and it goes a long way to proving my point that the current environment is artificial.

          Wolfenbarger makes another excellent point in his piece.  Debt levels are also near historical highs.  Often I have discussed the relationship between asset price bubbles and easy credit.  Briefly, asset bubbles cannot exist without easy credit.  Easy credit is “bubble fuel”.

          Wolfenbarger puts it this way:

Excessive debt has been the problem with every financial crisis in history due to prior money creation out of thin air, so the next one promises to be one for the history books, given these unprecedented high debt levels. Debt liquidation and defaults will lead to deflation, as we saw in the Great Recession and even more so in the Great Depression.

          I have frequently quoted Thomas Jefferson who noted that if the American people ever allow private banks to control the issue of their currency, first by inflation then by deflation, the banks and corporations that will grow up around them will deprive the people of all property until their children wake up homeless on the very continent their fathers conquered.

          We are seeing inflation presently; extreme deflation will have to follow at some future point to purge the excess debt from the system.

          Finally, Wolfenbarger makes the point that the Fed is out of policy options.

But money created out of thin air does not create new goods and services that improve living standards. If it did, a place like Zimbabwe would be the wealthiest country in the world. However, newly created money can flow into financial assets, which helps explain why their valuation levels are so high.

The graph below shows “Austrian” money supply (AMS), the best measure of money supply that is consistent with this Austrian school of economics definition (although it no longer includes traveler’s checks, which have been discontinued in the Fed’s database due to limited use these days). AMS is up 40 percent since February 2020 and is up an astounding 225 percent since the Great Recession ended in June 2009!

This is well above the money supply growth that drove the Roaring Twenties and ultimately led to the Great Depression of the 1930s, as detailed in economist Murray N. Rothbard’s definitive history of that period, “America’s Great Depression.”          The “Revenue Sourcing” planning process hedges for inflation and deflation.  I believe it is the only way to survive the coming recession.

If you or someone you know could benefit from our educational materials, please have them visit our website at www.RetirementLifestyleAdvocates.com.  Our webinars, podcasts, and newsletters can be found there.

Dow to Gold Forecast and the Continued Decline of the Dollar

Stocks and gold both advanced last week, leaving the Dow to Gold ratio unchanged at 14.83.

As I stated last week, I continue to stand by my prediction of a Dow to Gold ratio of 2, perhaps even 1. 

That forecast which seemed radical when I made it, now seems more realistic.

The Federal Reserve policy of enormous quantities of money creation will have to eventually lead to inflation in my view should it continue at the current pace.  That will be bullish for gold;  individuals and foreign governments are already beginning to seriously question the role of the US Dollar as a world reserve currency moving ahead. 

As currencies evolve and as money is created out of thin air, the wealth gap will widen.  Beaten down economies will likely not recover as quickly as many hope.  This will likely lead to more geopolitical tensions and social unrest.

Six years ago, David Morgan, a renowned and recognized silver expert, noted that “you cannot have true peace and prosperity unless you can absolutely trust the money.”

As Patrick Heller observed in his June newsletter, “it is no accident that the relative free markets and a stable dollar tied to gold resulted in American becoming the most prosperous (and benevolent) country in the world.  This has become less true since former President, Richard Nixon, closed the gold exchange window in August of 1971.”

Mr. Heller also noted that the US Dollar as recently as one month ago was still holding up reasonably well against other world currencies although it was still trailing gold.

Over the one-month time frame ending on June 2, the US Dollar lost a lot of ground against other world currencies as well as tangible assets.

Most notably, the US Dollar was down against gold, more than 10% against platinum and palladium, and more than 20% against silver.

The chart, reprinted from Mr. Heller’s newsletter, illustrates.

The decline of the US Dollar is continuing as evidenced by the price of precious metals.  Keeping in mind that markets rarely go straight up or straight down, I would not be surprised to see a dollar rally and a metals decline given the magnitude of the decline over the past month.  However, I would view declines in metal’s prices to be countertrend at this point given current monetary policies.

Worldwide, the signs of low confidence in the US Dollar continue to emerge.

Just last week the chair of the Chinese Banking and Insurance Regulatory Commission, Guo Shuqing, delivered a warning about the US Dollar. 

While delivering a speech in Shanghai, Mr. Shuqing made four points:

One:  The US Federal Reserve is the de facto central bank of the world.  When the policy of the central bank targets its own economy without considering the spillover side effects, the Fed is very likely to “Overdraft the credit of the dollar and the US.”

Two:  The pandemic may be around for a long time.  Countries around the world keep throwing money at it with diminished impact.  Mr. Shuqing advised that countries “think twice and reserve some policy space for the future,”

Three:  Money printing will cause future economic turmoil.  There is no free lunch.  Watch out for inflation.

Four:  Financial markets (stocks) are disconnected from the real economy and these distortions are “unprecedented”.  Mr. Shuqing noted that it’s going to get “really painful’ when the policy withdrawal begins.

Mr. Shuqing concluded by saying, “Some people say ‘domestic debt is not debt’, but external debt is debt.  For the United States, even external debt is not debt.  This seems to have been the case for quite some time in the past, but can it really last for a long time in the future?”

This from a “Zero Hedge’ article on this same topic (https://www.zerohedge.com/markets/beijing-sounds-alarm-about-dollars-reserve-status) (Quote is from Mr. Shuqing):

“China cherishes the conventional monetary and fiscal policies very much. We will not engage in flooding the system, nor will we engage in deficit monetization and negative interest rates.”

It’s not the first time China vented frustration against the “exorbitant privilege” of the dollar. After the financial crisis, then-PBOC Governor Zhou Xiaochuan proposed using the SDR to replace the dollar as the main reserve currency. 

It went nowhere. But this time, China seems to be determined to enhance its reserve-currency status by avoiding unconventional policies. It won’t dislodge the dollar tomorrow, but its attractiveness is clear in the foreign flows to its bond market.

As the US Dollar continues to lose favor and alternatives are sought out and adopted, the US Dollar will lose purchasing power and the price of gold will rise in nominal terms.  That will be a key factor in getting the Dow to God ratio back to 2 or even 1.

Stephen Roach, former Chairman of Morgan Stanley Asia agrees.  This from an MSN article (Source:  https://www.msn.com/en-us/money/markets/the-dollar-will-collapse-under-a-ballooning-us-deficit-and-deglobalization-former-morgan-stanley-asia-chairman-says/ar-BB15yROf) on the topic (emphasis added).

The US dollar’s dominance faces major threats as the post-pandemic global economy emerges, Stephen Roach, former chairman at Morgan Stanley Asia, said Monday.

The currency’s strength survived attacks from President Donald Trump, a trade war, and the start of the coronavirus outbreak. Yet its winning streak has faded in recent weeks as investors prepare for record borrowing to fund trillions of fiscal and monetary stimulus. A sinking national savings rate also stands to drag on the dollar, Roach told CNBC’s “Trading Nation.”

“The US economy has been afflicted with some significant macro imbalances for a long time, namely a very low domestic savings rate and a chronic current account deficit,” he said. “These problems are going to go from bad to worse as we blow out the fiscal deficit in the years ahead.”

Looming shifts in the global manufacturing industry will create a more long-term pressure on the currency, the Yale University senior fellow added. Several experts project the US will promote domestic production and move away from increasingly complex supply chains. Roach sees such a transition taking place over the next couple of years and sealing the dollar’s fate.

“Generally, it’s a negative implication for US financial assets,” he said. “It points to the probability of higher inflation as we import more higher-cost foreign goods from overseas, and that’s negative for interest rates.”

The argument for a weaker dollar and higher gold prices is a very solid one.

Gold rising to $3000 to $5000 per ounce or more as stocks fall is not an unrealistic expectation in my view.

At the same time, the argument for much lower stock prices is also an easy argument to make given current stock valuation levels.

As I noted at the outset of this piece, I have been predicting a Dow to Gold ratio of 2, or more likely 1 for many years, now it seems that there is now a path on which we get there.

If you are not using the two-bucket approach to manage your assets, we would encourage you to begin immediately.  Economic conditions that we predicted would appear are now appearing.  This approach is outlined in my recent book “Revenue Sourcing”.

Thank you for your support of the book!  It reached #1 best-seller status in 4 Amazon categories.    

Inflation or Deflation? Sorting It Out

Stock market activity last week and the jobs report created positive economic and financial news last week.  This activity seems to support the idea of a “V-shaped” recovery, something I said last week was unlikely.  I still believe it is unlikely.

On June 5, the Bureau of Labor Statistics reported that nonfarm payroll employment grew by 2.5 million.  That reduced the unemployment rate to 13.3%.  It’s important to understand that is the headline unemployment rate and excludes those who are working part-time but want to work full time and those that have dropped out of the labor pool and are not actively seeking employment.

Nevertheless, the numbers are much better than the majority of analysts anticipated.

The Bureau of Labor Statistics did point out that there was a “misclassification error” that, when corrected, would result in the actual unemployment rate coming in about 3 percentage points higher. (Source:  https://www.washingtonpost.com/business/2020/06/05/may-2020-jobs-report-misclassification-error/)

I have been monitoring economic conditions to attempt to determine if we will see an inflationary outcome or a deflationary outcome as a result of the extreme levels of money creation and the tremendous levels of private-sector debt.

In my June newsletter “The You May Not Know Report”, I discuss the fact that today’s money is debt; money ceased being an asset with the abandonment of the gold-exchange standard in 1971. 

That being the case, when debt is paid down, money disappears from the financial system.  When borrowing slows or stops, money creation does the same.  That’s why the Federal Reserve has been printing new currency since the financial crisis but has accelerated that activity of late.

As money disappears from the financial system, it’s deflationary.

Shockingly, last month consumer credit declined the most in any month since 1943.  This is deflationary.

This from “Market Watch” (Source:  https://www.marketwatch.com/story/us-consumer-credit-plummets-in-april-as-credit-card-use-tumbles-by-record-amount-2020-06-05) (emphasis added)

Consumer borrowing declined in April by the fastest rate since 1943 as credit card use saw a record decline, according to Federal Reserve data released Friday. Total consumer credit decreased at a 19.6% rate or $68.8 billion in April. Economists have been expecting a $14 billion fall, according to Econoday. Revolving credit, like credit cards, dropped a record 64.9% in April. Nonrevolving credit, typically auto and student loans, fell 4%. The data does not include mortgage loans. The savings rate hit a record high in April as spending dropped and Americans received stimulus checks from the government.

Bottom line:  consumers are saving and not borrowing.  And, the rate at which consumers are borrowing has fallen off completely. 

The mindset of most Americans has changed to ‘keeping your powder dry’ and ‘saving for a rainy day’; good long-standing advice when it comes to finances.

The US economy is more than 70% dependent on consumer spending and this new attitude of saving and not spending and not borrowing to spend will be a drag on the economic recovery moving ahead. 

It’s my view, as I have stated, that many would-be entrepreneurs will have the same reserved posture when it comes to reinvesting in the economy.  It will be difficult to justify an investment in a new business with the threat of a future shutdown from an overreaching government.

While a bounce in the economic data as the economy opens is to be expected, it’s doubtful that a full recovery is around the corner because of this new mindset. 

Meanwhile, the Federal Reserve continues to pursue massive money printing.  The latest move by the Fed has the central bank printing currency to loan to states and municipalities that are financially distressed.

This from “Route Fifty” on June 3:  (Source:  https://www.routefifty.com/finance/2020/06/federal-reserve-lending-program-expansion-small-cities/165889/) (emphasis added):

The Federal Reserve will expand a $500 billion lending program intended to help state and local governments deal with coronavirus-related financial difficulties so that at least two cities or counties will be eligible to participate directly in the initiative in each state.

Up to this point, the Municipal Liquidity Facility was open to states, as well as counties with at least 500,000 residents and cities with at least 250,000. But some states didn’t have any local governments that reached those population thresholds. 

Governors in 20 states will gain the ability to designate at least one additional city or county to participate in the program under the updated rules, according to guidelines issued Wednesday.

Fed Chairman Jerome Powell hinted during congressional testimony in May that the central bank was considering expanding the program so it covered more local governments in states that don’t have heavily populated cities and counties.

Under the revised rules, governors in each state will also be able to tap two entities that generally depend on “operating government activities” for revenue to participate in the program. These entities might include transit agencies, airports, toll roads, or public utilities.

States previously could—and still can—borrow through the program and then transfer the money down to the local level, acting as intermediaries for local governments. But the new rules would grant more government entities direct access to the liquidity facility.

The facility was launched in order to help ensure that states and local governments can borrow at reasonable interest rates to meet their near-term liquidity and cash flow needs at a time when the coronavirus outbreak has upended the economy and undermined a range of tax revenues.

It goes without saying that the Fed will simply print the money that it will loan to states and municipalities.  That will be inflationary.

John Williams, economist, who has the website shadowstats.com (who will also be a guest on an upcoming RLA Radio program) thinks that inflation will be here sooner than later.

Mr. Williams has long been of the opinion that the US would hyperinflate the dollar to deal with unsustainable deficit spending and debt levels that are completely unmanageable.

John, in his recent newsletter update, offered these points:

 -Product shortages have begun to surface.  This tends to be inflationary. 

-Year-to-year, the M1 money supply level has increased by more than 25%.  That’s inflationary

-The Federal Reserve has dropped interest rates and reserve requirements to zero, signaling panic and a policy of unlimited money creation.  (Let that one sink in – zero reserve requirements for banks).  See chart from www.ShadowStats.com.

Text Box:

How does it make you feel knowing that your bank isn’t required to keep any reserves on hand?

This is an extreme monetary policy on which mainstream news media does not report.  But take a look at this screenshot from the Federal Reserve’s website:

Zero bank reserve requirements are inflationary as well.

I believe the two-bucket approach remains the best tactic to utilize in your portfolio from our perspective since the timing of the transition from deflation to inflation is very difficult to determine. 

Only Two Possible Economic Outcomes

Last week, I stated that we are entering a time of significant financial transition. 

While that is clear, the ultimate direction of the transition is dependent on one, vitally important fundamental question.  Will the Federal Reserve continue money creation literally from thin air indefinitely until faith in the currency is eventually lost?  Or, will the Federal Reserve stop short of that, preserving the US Dollar but allowing markets and the economy to go through a deflationary financial reset?

That is not a new question.

In 2011, in my book “Economic Consequences”, I wrote about the slippery slope of money printing and the two inevitable outcomes.  The first, money creation continues until faith in the currency is lost.  Or, the second, money creation stops, and the forces of debt excesses thrust the economy into a deflationary recession or depression.

In the 2016 book “New Retirement Rules”, I revisited these two outcomes and confirmed that we would have to experience one or the other.

Presently, it appears the Federal Reserve has no intention of slowing down or stopping the money creation. 

While the corona-virus situation has muddied the water from a financial and economic analysis perspective, money creation began again in earnest in September of 2019, a full 6-months before the corona virus restraints were implemented.

In other words, money creation in the trillions of dollars began long before anyone heard of COVID 19.

After the Great Recession of 2007-2009, the Federal Reserve began ‘temporary’ and ‘emergency’ measures of quantitative easing to assist the economy’s transition from bust to recovery.  At that time the ‘extra-ordinary’ measures taken were to create billions of dollars per month through quantitative easing.

It seemed that it worked for a while.  But it never works long term.

As I have noted many times over the past decade in books and in this publication, as time passes, more money needs to be created to get diminished results.

Beginning last September, the Federal Reserve began injecting tens of billions of dollars into the repo market, which is the overnight, intrabank lending market.  On October 7, on this blog, I reported on this and warned it was a red flag of problems to come.  I talked about it again on October 21.  You can go check it out for yourself.

Presently, in response to COVID 19, money creation is off the charts.  The Fed is printing money for the US Treasury to backstop corporate debt and is printing still more money to directly purchase junk bonds.  From March 11 to April 13, the Fed’s balance sheet has expanded from $4.31 trillion to $6.13 trillion.  That’s an eye-popping 42% increase in only one month.  (Source:  https://www.strategic-culture.org/news/2020/04/21/real-new-deal-debt-jubilee-or-green-new-deal-global-dictatorship/)

While no one knows exactly how long the Federal Reserve can print without a loss of confidence in the US Dollar causing a currency collapse, we can all acknowledge it’s not forever.

Which brings us back to the question, will they stop or won’t they?

Over the past month, I have had many conversations with many very bright economists and financial experts.  I have concluded that no one knows for sure.

So, it’s best to prepare for either outcome understanding that by doing so, one strategy will ultimately be wrong, but you have a good chance to protect yourself and even prosper.

The first outcome has the Fed put the brakes on money creation.  That leads to a deflationary depression.  As bad as that sounds, that’s the better of the two outcomes here.

Under our money system, since 1971 when the link between the US Dollar and gold was eliminated, money has been loaned into existence.  If the Federal Reserve wanted to create more money, the central bank would reduce interest rates to encourage more borrowing.  The result was more money and the illusion of prosperity.  I intentionally use the word “illusion” here since debt-fueled consumption does not ultimately lead to prosperity, rather it leads to the exact opposite.

          After the Great Recession, when interest rates were reduced to 0%, no one borrowed.  The strategy that the Fed had used for the past 35 years suddenly quit working.  Why?

          The answer is simple.

          There was too much debt.  Speaking figuratively, citizens and businesses had collectively maxed out their credit cards and couldn’t take on more debt.

          The Fed was backed into a corner. 

They had two choices, endure the deflationary recession or depression, allowing irresponsible banks to fail or bail out the banks and resort to money printing.  The Fed chose the latter and the can was kicked down the road.

          In September of last year, as noted above, the Fed again faced a similar choice although it was not widely reported.  The Fed again chose money creation.

          Now, that money creation has reached levels that seem totally ludicrous and will undoubtedly be impossible to maintain for any extended period of time.  One of the two admittedly ugly outcomes will have to soon emerge – devastating deflation or massive inflation.

          Alasdair McLeod, past guest on the RLA Radio program and highly regarded economist, reasons that, as far as money creation is concerned, it may already be too late.  In his piece titled, “Anatomy of a Fiat Currency Collapse” (Source:  https://www.goldmoney.com/research/goldmoney-insights/anatomy-of-a-fiat-currency-collapse), he concludes that some or all fiat currencies could be gone by the end of the year.

          Mr. McLeod concludes (accurately) that government inflation statistics cannot be trusted.  That’s something that we’ve discussed extensively in this publication and on RLA Radio with guest experts like Dr. Chris Martinsen and Economist John Williams.  Government inflation reporting uses ‘adjustments’ to the reported inflation rate like hedonic (pleasure) adjustments as well as weighting adjustments and substitution to arrive at an inflation number that is lower than reality.  The Chapwood Index, a private inflation index, that tracks the prices of 500 consumer items has the actual annual inflation rate at about 10% which is very close to the alternative inflation number reported by John Williams of Shadow Stats.

          Mr. McLeod’s second point in the excellent piece is that the general populace lacks a general understanding and is generally ignorant of what inflation, or an expansion of the money supply actually does.  He states, “given proclamations by central bankers that they are about to hyperinflate, ignorance of monetary matters becomes an expensive condition. When trying to understand money, credit and how they flow, the vast majority of people find themselves in an Alice in Wonderland confusion where nothing makes sense. They are setting themselves up to lose everything they possess.”

          Mr. McLeod explains that inflation comes in two phases and the first phase is coming to an end.  Worldwide, all citizens expect that their currencies will buy less in the future without actually understanding exactly how much purchasing power has already been lost.  In the case of the US Dollar, McLeod found that when measured against gold, the US Dollar has retained only 2.2% of its 1969 purchasing power. 

          At the present time, Mr. McLeod speculates, we are entering the second phase of inflation which is currency destruction. 

McLeod writes: “With the general public and virtually all the financial establishment ignorant of or blind to the inflationary situation, central banks have chosen this moment to announce unlimited monetary expansion to buy off the consequences of the coronavirus. They have committed to the virtual nationalisation of their economies, to be paid for by debauching their currencies. The process depends on public ignorance of the consequences. In all the announcements of government support for their economies and of their central banks’ monetary role, there has been virtually nothing said or written about the consequences of the monetary inflation involved.”

          It is during phase two Mr. McLeod states that the general public will wake up and become aware of the fact that the currency is collapsing.

          This collapse in purchasing power will be exacerbated by the fact that many foreign entities holding US Dollar denominated assets will find themselves in a position of needing to liquidate them due to the rapidly deteriorating economy.  And, given the artificially low interest rates presently, there is not much that is attractive about owning US Dollar assets.

          McLeod says, “On both Wall Street and Main Street, Americans are bound to become increasingly aware of the inflationary consequences. The problem for the Fed is that there is no Plan B alternative to financing by means of inflation of money and credit, particularly in an election year.”

          After a persistent and unusually protracted period of monetary inflation over the last fifty years, it is increasingly likely the public will finally understand what is happening to prices. They will then begin to realise that it is excessive quantities of money in circulation that is the reason for rising prices, and that they must dispose of currency as quickly as possible for anything they want or can barter in future for something else. Empirical evidence is that this second and final phase of monetary debasement is likely to last only a matter of months.

Once this second phase starts, it is almost impossible to stop it, because the public will have lost faith not just in the currency, but in the government establishment’s monetary and economic policies as well. It ends when an unbacked fiat currency is no longer accepted as money by the public.”

          Whether the outcome of the present situation is deflation or inflation as Mr. McLeod has described, there is a lot at stake here.

          Educate yourself.  And do it soon.  I have free resources on my company website, www.RetirementLifestyleAdvocates.com.