Joe Withrow, Author at Zenconomics

Unlocking Passive Income Outside of Real Estate

Your real estate program is great… but buying rental properties requires a large down payment up front. Do you have any strategies to start building passive income with less money down?

This is a great question that came in a few weeks ago.

We just conducted the second launch for our investment membership The Phoenician League last month. Our big pitch is that the membership delivers a comprehensive financial training program and actionable investment opportunities.

In other words, the program provides both the knowledge and actionable ways to implement it. It’s not just another information product.

One of the biggest promises we make is around helping members work up to $10,000 a month in passive income with rental real estate. We have the connections and the property deal flow to make this process as simple and straight-forward as possible.

That said, real estate is a slow game at first. It takes a while to save up enough to acquire our first properties.

The good news is that there’s a great way to start building passive income much sooner. We call it the Income Snowball Strategy.

I have personally used this strategy to generate a 9-15% return on my cash consistently. This is how I work up to having enough money to acquire new rental properties.

What the Fed’s Announcement Last Week Tells Us About the Future

We believe, however, that events in the banking system over the past two weeks are likely to result in tighter credit conditions for households and businesses, which would in turn affect economic outcomes. It is too soon to determine the extent of these effects and therefore too soon to tell how monetary policy should respond.

As a result, we no longer state that we anticipate that ongoing rate increases will be appropriate to quell inflation. Instead, we now anticipate that some additional policy firming may be appropriate.

That’s Federal Reserve Chair Jerome Powell at the Federal Open Markets Committee (FOMC) meeting last week.

As expected, the Fed raised its target rate another 0.25%. It’s now between 4.75 and 5%.

That said, the Fed did remove its existing guidance that “ongoing rate increases” will be appropriate. Many analysts in the financial echo chamber took this to mean that the “Fed pivot” is coming.

If we remember, the Fed pivot refers to the idea that the Fed will have to end its rate-hiking campaign and get back to pouring cheap money into the system.

I don’t think that’s the case.

The Financial Echo Chamber is Wrong

Remember, every Fed tightening cycle ends in disaster and then, much more Fed easing.

That’s a tweet Zero Hedge put out back in January.

Zero Hedge is a financial news aggregation site. And it’s incredibly popular in the alternative finance space. I browse its headlines every day to keep my thumb on the pulse of what’s happening out there… and what people think about it.

Of course, Zero Hedge’s tweet here implies that the Federal Reserve (the Fed) will have to “pivot” soon. That is to say, the Fed will have to end its rate-hiking campaign and get back to pouring cheap money into the system.

This is a common theme within the financial echo chamber. And to be sure, it has historical merit.

The Fed embarked upon the path of zero-bound interest rates and funny money in 2008. This created an incredible bull market in U.S. equities. That’s because funny money always feeds speculative booms.

But the Fed did start to “tighten” in 2016. It gradually raised its target interest rate from 0.5% at the start of the year to 2.5% by December 2018.

Then the S&P 500 tanked by nearly 20%… and the Fed went back into easing mode. It quickly dropped its target rate back down to 0.5% and began funneling cheap money back into the financial system.

This stemmed the tide and allowed the S&P 500 to resume its historic bull run.

Many analysts point to this episode and say the Fed will do the same thing this time around. I think they’re missing the big picture here.

The Restoration of America’s Economy

Are we at the early stages of another financial crisis?

Last weekend featured both the second and the third largest bank collapses in American history. Then just yesterday Swiss banking giant Credit Suisse plunged 25% on concerns that it’s on the verge of collapse as well.

What’s incredible here is that Credit Suisse was founded in 1856. It’s been in operation for nearly 170 years. And I’ll add that Switzerland has been known as a banking safe haven for much of its history.

Yet Credit Suisse is teetering. And with the stock tanking yesterday, Credit Suisse shares have lost over 87% of their value in the last twenty-four months. Ouch.

Naturally this begs the question – are we watching another financial crisis unfold here? Is this 2008 all over again?

The Difference Between Bitcoin and Crypto

The root problem with conventional currency is all the trust that’s required to make it work.

The central bank must be trusted not to debase the currency… but the history of fiat currencies is full of breaches of that trust.

Then banks must be trusted to hold our money and transfer it electronically… but they lend it out in waves of credit bubbles with barely a fraction in reserve.

That’s Satoshi Nakamoto writing in an old cryptography forum back in 2009. He was explaining – quite clearly I think – the true purpose of Bitcoin. It’s to restore honest money to society.

Satoshi is the person who created Bitcoin. The name is fictitious… but the person is quite real. I have it on good authority that he was in fact a cypherpunk.

The cypherpunk movement was strong back in the 1980s and 90s.

It consisted of computer programmers who were early internet pioneers. Their calling card was that they believed in the sovereignty of the individual over the State.

The Third Largest Bank Collapse on Record Illustrates the Difference between Bitcoin and “Crypto”

I think part of what happened was that regulators wanted to send a very strong anti-crypto message. We became the poster boy because there was no insolvency based on the fundamentals. There was no real objective reason for Signature Bank to be seized…

That was former Congressman Barney Frank on CNBC. He was talking about Signature Bank’s collapse this past weekend.

If his name sounds familiar, Frank co-sponsored the Dodd-Frank Act back in 2010. That was the government’s official response to the 2008 financial crisis.

Perhaps it’s no surprise then that Frank found himself sitting on Signature Bank’s Board of Directors upon retiring from Congress.

Frank served on the board from June 17, 2015 through this past Sunday. That’s when regulators stormed in to freeze Signature Bank’s assets and prevent the bank from opening its doors on Monday.

We talked yesterday about the Silicon Valley Bank (SVB) fiasco. It’s now the second largest bank to collapse in history. And we had to ask the question – is there more to the story?

Well, Signature Bank is now on record as the third largest bank collapse in history. And there’s absolutely more to this story.

The Second Largest Bank Collapse in History… Is There More to the Story?

Cutting to the chase – we’ve got $2 million parked at SVB. We’ll find out on Monday how much we’ll be able to withdraw…

That note came to me over the weekend. It was from the founder of a start-up company who just raised $5 million in what’s called a Reg CF raise. This is the mechanism by which regular investors can invest in private companies – no accreditation necessary.

SVB refers to Silicon Valley Bank. As of last week, it was the 16^th largest bank in the United States.

This weekend it became the second largest bank to collapse in history. That’s after lines of people stormed the bank to pull their money out.

Over 2,500 venture capital (VC) firms banked at SVB. As did countless early stage private companies. By some estimates SVB did business with roughly half of all private technology companies in this country.

Imagine what those companies went through over the last several days…

As we know, FDIC insurance covers deposits up to $250,000 in the event of a bank collapse. For individuals, this is more than enough. Very few of us keep more than $250k in the bank.

But when it comes to enterprise clients – $250,000 is typically a drop in the bucket.

So half of the tech companies in this country just faced the prospect of losing most of their money. And if that were to happen, we would likely see a record number of businesses go bust at the exact same time… taking out some major VC firms and angel investors with them.

The Fed and the Treasury are at War

May you be blessed to live in interesting times.

The above line is an ancient Chinese proverb… and it absolutely applies to us. My friends, we are at an inflection point in history. Right now.

There are many reasons why that’s the case. But I’m a finance guy, so I’ll focus on the financial aspects. We’ll start with some quick background…

The Federal Reserve (the Fed) is the central bank of the United States. And it owes its existence to a piece of legislation that passed in 1913.

The story of how that legislation was crafted and pushed through is absolutely incredible. If you like mystery novels, the story of the Fed is for you. But we’ll save that for another day.

Today, the Fed claims to have a dual mandate. It’s to ensure maximum employment and price stability.

Between friends, that mandate is bunk. The Fed does neither. Nor is it supposed to.

The Fed’s true purpose is to ensure that the U.S. Treasury is forever solvent… even if it spends money that it doesn’t have.

What I Learned Working at America’s Last Great Financial Chop Shop

Let me tell you something, son. Never say you’re sorry to a potential client. Ever.

The year was 2007. I found myself in Great Falls, VA interning at a company that presented itself as a high-end investment brokerage.

That image is what attracted me to the opportunity.

Great Falls, VA is a suburb of Washington, DC. It’s consistently one of the wealthiest counties in the country on a per capita basis. And it’s surrounded by four or five of the other richest counties in the U.S.

At the time I wanted to break into the world of investment research. And that’s exactly what the broker who recruited me promised.

The reality was the exact opposite.

The inside of this operation looked like a scene from the old movie Boiler Room. It was a bit dark and dingy. And there wasn’t a computer to be found.

In fact, computers were prohibited. As were cell phones. They still wrote up trade tickets for clients by hand like the old days.

Answers to the Top Survey Questions Part Four

Today we’ve got part four of our ongoing Q&A series.

Q. How to get passive income from option strategies?

A. Great question. The best way to generate income using options is to systematically sell uncovered puts and/or covered calls.

For those not familiar with options, they represent a contract to buy or sell 100 shares of the underlying stock.

When we buy an option, we pay a premium up front, and then the value of our option contract can go up or down based on how the underlying stock moves. BUT, our option contract gradually loses value over time as it approaches expiration.

That being the case, sometimes we can lose money even though the stock moved slightly in our direction. That’s incredibly frustrating.

This is why I believe selling options is the way to go.