Inflation or Deflation


The very large and sudden drop in global commercial activity has dramatically reduced government revenues.

This has created fiscal shortages… everywhere… city, county, state, national… globally.

The New York Times article “Poor Countries Face a Debt Crisis ‘Unlike Anything We Have Seen” (1) points out that  emerging countries are especially troubled.

The article says: Dozens of countries that borrowed from private investors have debt payments coming due as their economies have crashed because of the coronavirus.

The president of Tanzania has called on “our rich brothers” to cancel his country’s debt. Belarus veered toward a default when a promised $600 million loan from Russia fell through. Russia couldn’t spare the money because the ruble had taken a nose-dive, along with oil and gas prices. Lebanon, troubled even before the pandemic, has embarked on its first debt restructuring. And Argentina has defaulted again — for the ninth time in its history.

inflation

Developing country debt is a global problem because the economy is global.

Developing countries owe record amounts of money to investors, governments and others outside their borders.

The pandemic is making it difficult, if not impossible, for that debt to be repaid or even serviced.  Governments are indebted for billions of dollars in interest and principal repayments.  These payments have actually risen due to weakness in the poor countries’ currencies.

More poor countries will default on their debt than have in the past four decades.  This is a problem for the world because the money was owed to richer nations and private investors around the world.   In essence, that money is gone.

Richer nations such as the U.S. have the same problem in a different way.

The basic problem is still not enough money to service and pay back debt.

Poorer nations solve the problem simply by not paying.  Richer nations print more money instead.

inflation

A New York Times article “US Debt and Corona virus” (2) explains how this works,

The article says: Last week, a bipartisan group of 60 members of the U.S. House of Representatives sent a letter to congressional leadership, raising concerns about mounting debt and deficits that have come as a result of the federal government’s response to the coronavirus pandemic.  The letter warned of “irreparable damage to our country” if nothing is done to stem the tide of red ink.

The article then reveals what it calls a deficit myth: “that America’s debt and deficits are on an unsustainable path and that we need to develop a plan to fix the problem”.

The author of this article is a proponent of Modern Monetary Theory.  He is a former chief economist for the Democrats on the Senate Budget Committee and is intimately familiar with how public finance actually works.

He does not believe that the federal government needs to manage its finances in ways that holds spending in line with revenues and avoids adding debt whenever possible.

He believes that a crucial reality is  that governments in nations that maintain control of their own currencies  such as Japan, Britain and the United States, and unlike Greece, Spain and Italy — can increase spending without needing to raise taxes or borrow currency from other countries or investors.

The way sovereign debt has been allowed to rise, while interest rates have fallen, provides some merit to this thought.

The article points out the only restraints to MMT.

That doesn’t mean they can spend without limit, but it does mean they don’t need to worry about “finding the money,” as many politicians state, when they wish to spend more. Politics aside, the only economic constraints currency-issuing states face are inflation and the availability of labor and other material resources in the real economy.

The article also included a story about a man who wanted his two teenagers to work around the house, the yard mowed, the beds made, the dishes done, the cars washed and so on. To encourage them to help out, he promised to compensate them by paying for their labor with his business cards.

“Why would we work for your business cards?” they told him. So instead of offering to compensate them for volunteering to work he demanded a payment of 30 of his business cards, each month. Failure to pay would result in a loss of privileges: no more TV, use of the swimming pool or shopping trips to the mall.

The man had essentially imposed a tax that could be paid only with his own monogrammed paper. And he was prepared to enforce it. Now the cards were worth something. Before long, the kids were tidying up their bedrooms, the kitchen and the yard to maintain the lifestyle they wanted.

This, broadly speaking, is how our monetary system works. It is true that the dollars in your pocket are, in a physical sense, just pieces of paper.

This year our government has been showing us — in practice — exactly how M.M.T. works: It committed trillions of dollars this spring that in the conventional economic sense it did not “have.” It didn’t raise taxes or borrow from China to come up with dollars to support our ailing economy. Instead, lawmakers simply voted to pass spending bills, which effectively ordered up trillions of dollars from the government’s bank, the Federal Reserve. In reality, that’s how all government spending is paid for.

This will eventually bring inflation which  is too much money and too little production.

The shift of our global economy from broadband to broadcast, to a computer driven internet linked, modality has increased productivity by a quantum leap.  This helped keep inflation in check while government deficits rose over the last two decades.

This productivity boost cannot be relied on forever.  As governments increasingly use MMT, the reality of the economic constraint, inflation, is more likely to kick in, so beware.

No one knows the limits of MMT, but when reached inflation will rise, interest rates will go up, and taxes will have to be increased to service the huge debt.  The stock market will likely weaken then, so when you invest now, be sure to invest in good value.

Gary

Coronavirus and the Stock Market Round One is Done

Coronavirus and the stock market.  Round Two is coming.

This virus and the market faced off in the spring.  The market won.  As the chart below shows, after a huge March 2020 collapse, by early June, the DJIA was back to its December 2019 level.

stock chart

The market’s back up, but history suggests that we’ll see volatility in the ten years ahead.

Here is a chart of the Dow Jones Index for the past three decades.  The .dotcom bubble burst just before the beginning of the 2000 decade.

microtrends.com

The market then went nowhere from 2000 to 2014.   Finally it started reaching new high levels.

Such decades long sideways movement after a severe correction is nothing new in the stock market.

So everything’s in order… except the pandemic.  The ravages of the coronavirus dramatically increase the unknown and this uncertainty is the greatest purveyor  of weakness that a stock market can have.

How do we maximize the return on your savings and investments during this extremely dangerous time?

For the past four and a half years, my strategy, to protect against the next stock market crash and yet gain income and appreciation from rising share prices is to invest in an equally weighted portfolio of the value based country ETFs.

We track 46 stock markets around the world in our Purposeful Investing Course to determine which markets offer the best value so we can be in a perfect position to take advantage of stock market corrections all over the world.

Since no one knows what the future will bring, investing in value makes the most long term sense.

Our Purposeful Investing Course (Pi) teaches an easy, simple and effective approach to zeroing in on value because little time, management and guesswork is required.  You are investing in a diversified portfolio of good value indices.

Sticking to math based stock market value and country ETFs eliminates the need for hours of research aimed at picking specific shares.   Investing in an index is like investing in all the major shares of the market.  You save time because all you have to do is invest in the ETF to gain the profit potential of the entire market.

To achieve this goal of diversification the Pi portfolio consists of Country Index ETFs.

Country Index ETFs are similar to an index mutual fund but are shares normally traded on a major stock exchange that tracks an index of shares in a specific country.  ETFs do not try to beat the index they represent.  The management is passive and tries to emulate the performance of the index.

A country ETF provides diversification into a basket of equities in the country covered.  The expense ratios for most ETFs are lower than those of the average mutual fund as well so such ETFs provide diversification and cost efficiency.

Here is the Pifolio I personally held at the beginning of 2019.  Now I am updating my plan to decide when it’s best to invest more.

70% is diversified into developed markets: Austria, Canada, France, Germany, Hong Kong, Italy, Japan, Norway, Singapore, Spain and the United Kingdom.

30% of the Pifolio is invested in emerging markets: Brazil, Chile, China, Colombia, the Czech Republic, South Korea, Malaysia and Taiwan.

iShares Country ETFs make it easy to invest in each of the good value markets.

The ETFs provide incredible diversification for safety.  For example, the iShares MSCI  Japan (symbol EWJ) is a Country Index ETF that tracks the investment results the Morgan Stanley Capital Index MSCI Japan Index which is composed mainly of large cap and small cap stocks traded primarily on the Tokyo Stock Exchange mainly of companies in consumer staples, financials and materials. This ETF is non-diversified outside of Japan so an investment in the ETF is an investment in hundreds of different Japanese shares.

iShares is owned by Black Rock, Inc. the world’s largest asset manager with over $4 trillion in assets under management.

There is an iShares country ETF for almost every market.

You can create your own good value strategy.

I would like to send you, on a no risk basis, a 130 page basic training course that teaches the good value strategy I use.   I call this strategy Purposeful Investing (Pi).  You learn all the Pi strategies, what they are, how to use them and what each can do for you, your lifestyle and investing.

When you subscribe to Pi, you immediately receive a 120 page basic training course that teaches the Pi Strategy.   You learn all the Pi strategies, what they are, how to use them and what each can do for you, your lifestyle and investing.

You also begin receiving regular emailed Pifiolio updates and online access to all the Pifolio updates of the last two years.  Each update examines the current activity in a Pifolio, how it is changing, why and how the changes might help your investing or not.

You also receive a 100+ page PDF value analysis of 46 stock markets (23 developed markets and 23 emerging stock markets).  This analysis looks at the price to book, price to earnings, average yield and much more.

This year I will celebrate my 52nd anniversary of global investing and writing about global investing.  Our reports and seminars have helped readers have better lives, with less stress yet make fortunes during up and down markets for decades.  This information is invaluable to investors large and small because even small amounts can easily be invested in the good value shares we cover in our seminar.

Those five decades of experience have taught me several incredibly valuable lessons.

The first lesson is that there is always something we do not know.

The second lesson is that stock market booms and busts always eventually return to value.

Third, the only sure way to succeed is to use time not timing.

Time is your friend when you use a good value strategy.  The longer you can hold onto a well balanced good value portfolio, the better the odds of outstanding success.

A 45 year portfolio study shows that holding a diversified good value portfolio (based on a  good value strategy) for 13 month’s time, increases the probability of out performance to 70%.  However those who can hold the portfolio for five years gain a 88% probability of beating the bellwether in the market and after ten years the probability increases to 97.5%.

Subscribe to the first year of The Personal investing Course (Pi).  The annual fee is $299, but during the pandemic to introduce you to this online course  I am knocking $124.50 off the subscription.

Guarantee

Enroll in Pi.  Get the basic training, the 46 market value report and access to all the updates of the past two years.

I guarantee you’ll learn ideas about investing that are unique and can reduce stress as they help you enhance your profits through slow, worry free, easy, diversified investing.

If you are not totally happy, simply let me know in the first two months for a full no fuss full refund.

You have nothing to lose except the fear.   You gain the ultimate form of financial security as you reduce risk and increase profit potential. 

Due to the COVID-19 pandemic we have cut the subscription to $174.50.  You save $124.50!

Then because this global recovery is going to take years, we’ll maintain your subscription at just $99 a year rather than $299.  Your subscription will be autorenewed in 2021 at $99, though you can cancel at any time.

Click here to subscribe to Pi at the discounted rate of $174.50

Subscribe to Pi today and you get a year’s subscription to Pi now, get the 130 page basic training, the 120 page 46 market value analysis, access to over 100 previous Pifolio updates, plus begin receiving regular Pifolio updates throughout the year.

Gary

 

(1) www.nytimes.com/2020/06/01/business/coronavirus-poor-countries-debt.html

(2) www.nytimes.com/2020/06/09/opinion/us-deficit-coronavirus.html?campaign_id=2&emc=edit_th_200610&instance_id=19251&nl=todaysheadlines&regi_id=48317279&segment_id=30516&user_id=208b2cbe62eb7b536babab791d172bc7