Joe Withrow, Author at Zenconomics

The real goal for CBDCs brings the factions into view…

Central bank digital currencies could reshape the financial system, potentially replacing traditional banking models.

This quote comes from Benoît Cœuré, Head of the Innovation Hub at the Bank for International Settlements (BIS).

If we read between the lines here, we can surmise the real purpose for the central bank digital currency (CBDC) push. We can also understand why the New York banks broke ranks with the globalist power structure. We talked about this in depth yesterday.

To make sense of the macroeconomic environment we find ourselves in, we have to understand the factions at work. And right now there are two big players.

On one hand there’s what I call the globalist power structure. On the other is the New York banking faction.

The globalist faction controls most prominent multinational organizations in the western world. These include the United Nations (U.N.), the European Central Bank (ECB), the World Economic Forum (WEF), and the BIS… to name just a few.

Plus, the globalist structure has its tentacles running throughout the U.S. political system. Joe Biden, Janet Yellen, and much of the national Democratic Party owe their allegiance to this faction. As do some high-level members of the national Republican Party.

Making Sense of the Macro

We are living through an inflection point in history.

The world is about to change… forever. And the sequence of events of the next several years will shape the new world that comes into being.

I suspect most of us already know this to be true. We can “feel” it. We’ve probably felt it for several years now.

This week we’re going to talk about what’s happening on the world stage. We’ll also talk about the major players… and what their incentives are. If we can understand the incentives, we can also get a feel for what’s coming next.

Now, I approach this matter from the macroeconomic perspective. I strive to keep my finger on the pulse of the macro. And that’s because the macro informs how we manage our finances. The two go hand-in-hand.

To make sense of the macro, we have to start with this: the world is not as simplistic as we’ve been led to believe.

Painting with a broad brush, two general worldviews have been prevalent in our society. The first is the Pollyanna worldview they taught in our high school civics classes. The second is the “it’s a big club and you ain’t in it” view. Hat tip to George Carlin who used this line in his skits.

Where generative AI is going…

Artificial intelligence would be the ultimate version of Google. The ultimate search engine that would understand everything on the Web. It would understand exactly what you wanted, and it would give you the right thing.

That’s Google co-founder Larry Page talking about artificial intelligence (AI) back in 2014.

I’m certainly no fan of Google. But I bring this quote up because it all became a reality this year. Generative AI is replacing the search engine as we speak.

For those not familiar with the technology, generative AI is artificial intelligence that produces content upon demand. It started with AI’s trained to create images and music… but the tech has gone far beyond that now.

Last November a company called OpenAI altered the course of human history by releasing a generative AI called ChatGPT. This is an AI that’s trained on an enormous amount of data. It’s now a repository for the all the accumulated knowledge that’s floating around the internet.

As such, ChatGPT can answer virtually any question we may have… about anything. But that’s not all…

The AI can write essays, emails, and advertisements. It can summarize complex theories. And it can even produce software code. Oh, and it can also have intelligent conversations with people.

ChatGPT caught the tech industry by storm last November. Since then OpenAI has released an upgraded model of ChatGPT. It’s called GPT-4.

And at least a handful of other organizations have since launched their own generative AI tools as well. It seems there’s a new one popping up every week now. Elon Musk is working on his own as we speak.

I’ve experimented with ChatGPT for several months now. It’s an incredible tool for those of us whose work requires extensive research.

It used to be that I would spend hours browsing the web and going down rabbit holes trying to piece together bits and pieces of information and historical context. Not anymore.

Jefferson’s vision, realized…

It’s important that we embrace these things not out of fear, but out of faith. So that rather than turning ourselves into armed bunkers, we can become lighthouses of hope and help when the culture becomes hopeless and helpless…

That comes from a talk Joel Salatin gave at an event called The Greater Reset last year.

The name of the event was a play on the World Economic Forum’s (WEF) “Great Reset” initiative. For those not familiar with it, the WEF suggests that we should herd all humans into small 15-minute cities where we’ll be completely cut off from nature.

Once there, we’ll have limited freedom, no privacy, and very little autonomy. “You will own nothing and be happy”, is the slogan the WEF promoted in their commercial.

Of course, the speakers at The Greater Reset promoted the exact opposite idea. Humanity is meant to be free. And economic independence is more attainable today than ever before.

On Ideas and Thieves…

Yea, well to hell with Jefferson and his gang of thieves.

That’s an email I received in response to our discussion of Thomas Jefferson’s “agrarian vision” yesterday. Clearly this individual is not a fan of Mr. Jefferson.

I very much value feedback. We all have different perspectives. And the more we can understand and consider different perspectives, the better.

So when this email came to me, I had to stop and think – why did this person feel it important to push back against my piece yesterday?

At first I thought… is this a woke thing?

I know the woke crowd has been peddling the systemic racism narrative. And they suggest that the American founders were racists unworthy of our attention because most of them owned slaves.

But Jefferson drafted legislation to ban slavery in Virginia during his stint in the Virginia House of Burgesses from 1769 to 1774. The House of Burgesses was Virginia’s legislature prior to America’s declaration of independence in 1776.

Kings and Queens of Our Own Castle

For a man’s house is his castle, et domus sua cuique est tutissimum refugium [and each man’s home is his safest refuge].

This quote comes from 17th-century English jurist Sir Edward Coke. Coke used it to emphasize the importance of individual rights and the sanctity of one’s home in English common law.

This concept had a strong influence Thomas Jefferson at the American founding.

Jefferson looked at the vast, untamed land on this continent, and he saw a tremendous opportunity. Why couldn’t everybody own a small plot of land and be kings and queens of their own castle, he thought.

This may sound like a simple thing. But it ran in stark contrast to what Jefferson saw happening across Europe.

Tax-Free Passive Income Streams

One of the beautiful things about owning real estate is that it can provide a stream of tax-free income for years to come.

That’s David Osborn talking about using real estate as a means to generate tax-free passive income streams.

Osborn is a venture capitalist and author of Miracle Morning Millionaires… and he encapsulates perfectly why real estate is the ideal investment for passive income. It’s all about putting the tax code on our side.

We’ve been talking all week about the need to rethink financial planning 101. And when we left off yesterday, we were discussing the need to build passive income streams… but in a tax-efficient manner.

Well, real estate is the way to do it. That’s right – boring, old-fashioned rental real estate.

The fact is, real estate is an incredibly tax-advantaged asset. By default, we shouldn’t owe any taxes on our rental income.

That’s because for every property we buy, the IRS says we can “depreciate” a fixed percentage of its total value every year.

In other words, we can write off a portion of the property’s value against our income every year… even though we didn’t lose the money.

It’s a phantom loss. Just for tax purposes.

And that’s just one element to it.

Putting assets, income, and taxes on the same team…

In order to retire comfortably, you must have a nest egg that is big enough to generate income to replace your paycheck. That means having enough savings to cover 25 years of retirement expenses.

That’s personal finance guru Suze Orman talking about retirement. Orman hosted her own show on CNBC from 2002 to 2015 where she offered advice on money, investing, and retirement planning.

The problem is, this approach to retirement makes no sense if we stop to think about it.

The “nest egg” approach to retirement tells us that we need to pour our savings into financial assets – stocks and funds – every time our paycheck hits. The goal is to work up to this mythical retirement number.

What’s Your Number?? Iremember old commercials promoting this idea.

In the commercials, people would be going about their life with a text bubble following them around. That bubble depicted their personal retirement number. Then the pitch was to go talk to a financial advisor who could help us get there.

But here’s the thing – this approach forces us to choose between assets and income.

Because we’re investing exclusively for capital appreciation, we don’t build passive income with this method. So when our assets are going up, we don’t have the income. Then when we do need extra income, we have to sell our assets.

And it gets worse.

The financialization of everything…

“The stock market is filled with individuals who know the price of everything, but the value of nothing.”

That’s the late Philip Fisher commenting on what he saw happening in the stock market.

Fisher is best known for his great investment book Common Stocks and Uncommon Profits. It was published in 1958. I’m told that this book had a big influence on Warren Buffett.

What Fisher pointed out so clearly is that two things set successful investors apart from the crowd. Time preference is one. The other is a focus on economic value, not financial value.

Time preference refers to the ability to delay gratification.

People with a short time preference want everything to happen soon. In the investment world, they are constantly searching for the next hot stock. And when they find it, they want it to go up right away.

Those with a long time preference think years, decades, and even generations ahead. They focus on what’s important for the long-haul. And they care little for short-term price movements. It’s all about resiliency.

Then there’s this concept of economic value versus financial value…

The year the world changed forever…

The world changed forever in 2022.

I think most of us know this to be true. We can feel it. But this next chart tells the story quite well:

Here we can see the S&P 500 and the 10-Year Treasury rate going back to 1980. The S&P 500 is the black line. And the 10-Year Treasury rate is the blue line.

We’re using the S&P 500 as a proxy for U.S. stock prices. And we’re using the 10-Year Treasury as a proxy for interest rates. And this chart makes it perfectly clear that the two are inversely correlated.

Interest rates started falling in 1982… and they fell consistently for the next forty years. Meanwhile, U.S. stocks consistently went up in value over that same time period.

But everything reversed in 2022. Rates started going up… and stock prices started to fall. We can see those moves clearly marked by the red arrows on the chart above.

When we zoom out like this, it’s no surprise that stocks fell hard when rates started to rise in 2022. But it sure caught a lot of people by surprise.

In fact, many financial analysts spent over twelve months trying to convince themselves and their clients that these moves were temporary. Just wait for the Fed to pivot, they said. Then we’ll get back to normal.

But here’s the thing – what happened from 1982 to 2022 was not normal. Nor was it organic.