Newsletters - Past Issues

Predicament or Problem? Market update 11 17 2021

Predicament or Problem?

It is said that problems have solutions, whereas predicaments only have outcomes. If that is true, the U.S. economy’s future and indeed our immediate way of life, awaits an outcome that the Feds can do nothing about. Ex-Federal Reserve Chief Alan Greenspan used the word conundrum on occasion, yet conundrums do have outcomes, they are just difficult ones.

The predicament we now find ourselves revolves around the subject of last week’s column about inflation, the latest one trillion dollar spending bill passed this weekend, and the six trillion or so spent during 20/21 for CoVid relief.

Deficit spending and inflation go hand in hand. There is no argument on that economic reality. The debate is not whether inflation follows massive deficit spending. It does, it is now, and everyone knows it. The question is can the Feds stop inflation if it gets out of hand. The answer is yes, they can, but that is not the predicament.

The question becomes what is the effect on the economy from using the known tools to stop inflation.

Therein lies the predicament.

If inflation begins to accelerate to unacceptable levels, and it going pretty fast now, real damage to the economy and its inhabitants will occur. The most obvious problem is people won’t be able to afford to buy the things they need. But as horrible as that is, that will be the least of our problems.

Really bad inflation, known as hyperinflation, or even approaching hyperinflation, can cause breakages in the economic system, many of which can actually stop it from predictably functioning.

The result of that is the normal economic signals that transmit what it happening in the marketplace, to those participating in it (which is anyone who has to procure anything), begin to fail, sending false or even misleading signals to all concerned, which again, is all of us.

Since markets (not just stock markets but all markets where things are sold) depend on accurate economic signals to regulate the flow of goods and services from suppliers to end users, when these signals fail, the normal flow of everything is interrupted or may even fail altogether. This can translate into empty store shelves at best, and chaos on many levels at worst.

For a recent but relatively inconvenient example of a market failure, just look at the job market, where unemployment levels are relatively high, in the midst of millions of unfilled jobs. In spite of rising prices, slowing unemployment checks and stimulus programs ending, employers still cannot find enough worker to fill staffing positions. Although a serious problem, it will pale in comparison of what will happen should we even get close to a hyperinflationary environment.

The tools to stop inflation are the same used for normal inflation, except on a much more drastic scale. The Fed would increase interest rates and likely not the quarter point increases we have seen in the past. Interest rates were increased 3% in one day in the 80’s. Experts agree an increase of this proportion would crash the economy in today’s environment. Social programs would have to be eliminated or drastically cut. Government spending would have to be significantly cut. The Fed would have its hands tied to initiate more stimulus and bailouts as this is what caused the problem so those suffering would get little help from the government. Credit and loans would likely have to be recalled in an attempt to remove cash from the system. The credit markets would likely freeze up due to the unpredictable yields of fast moving interest rates. Both government, business and individual balance sheets would explode due to rising interest rate costs to service existing debt. In essence, all hell would break loose, and the Feds, having only one tool in the proverbial toolbox (printing money) would be powerless to use it as that is what caused the problem in the first place.

Simply put, the predicament is that the very thing they would use to address the economic malady, caused the malady.

With no solution, the Feds have essentially painted themselves into a corner. Hence the statement, “print or die”, which always eventually morphs into “print and die”.

Not a happy ending I know.

This article is opinion only of Marc Cuniberti, and may not represent those of this news media and should not be construed as investment advice nor represents the opinion of any bank, investment or advisory firm. Neither Money Management Radio (“Money Matters”) nor Bay Area Process receive, control, access or monitor client funds, accounts, or portfolios. Contact: (530)559-1214 or news@moneymanagementradio.com

Approved Vantage

The Trillion Dollar coin HALLOWEEN EDITION 2021

Can a trillion dollar coin make the deficits Ghosts disappear?

With the U.S. government running a 29 trillion dollar deficit (USDEBTCLOCK.ORG), with another 157 trillion in unfunded liabilities (debts not due yet but still owed) the additional 1.9 trillion stimulus proposal (the amount changes daily) is being hotly contested in Congress. Washington desperately wants to authorize this additional spending. Opponents of the bill from both parties point to the money already spent during CoVid (about 4.5 trillion) saying another two trillion is excessive and will add even more debt to an already bloated U.S. budget. Now a U.S. default approaches, which is only compounding the problem.

Keep reading..

Where there is a will there is a way, and an idea that was originally tossed about and discarded in last decade is once again up for discussion. The idea is to mint a platinum coin with a face value of one trillion dollars, then give that to the Federal Reserve of United States, who in turn would deposit it into the U.S. Treasury. Then the Treasury Department could essentially cash the coin back at the Federal Reserve to fund one trillion dollars in additional spending. The idea is with the theoretical $1 trillion coin on deposit, the government could pay its bills without additional borrowing, making the debt ceiling a nonissue and, therefore, averting a government shutdown. Since the coin would be legal tender per the original U.S. Coinage Act, it is essentially just making change from the coin to U.S. dollars, which it could then spend.

The idea is being pushed by, among others, Professor of Economics and Nobel Prize winner in Economic Sciences, Economist Paul Krugman. In his latest article (Oct 1, 2021) entitled “Wonking Out: Biden Should Ignore the Debt Limit and Mint a $1 Trillion Coin”, Krugman suggests the coin could provide a respectable solution to the spending plan and not officially increase the deficit. Krugman also suggests the coin does not have to actually contain a trillion dollars’ worth of platinum (that would be beyond huge), but would only have to be denominated as such.

If you find yourself scratching your head and trying to put the pieces together in your mind, you’re not alone. Not only did the Treasury Department and the Federal Reserve nix the idea a few times in the last decade, the logic of it, well, defies logic.

That the coin is being seriously considered by the powers at be makes more than a few of us shake our heads.

More concerning is that the Treasury Department and the Federal Reserve for the most part, not commenting much, nor outright killing the idea like they did way back when. We have to remember different people run these institutions now, and along with many other ideological changes, what seemed impossible a few short years ago is now on the proverbial table of consideration.

Not everyone in Washington is onboard with the idea. Ex-Federal reserve chief now our Treasury Secretary, Janet Yellen, dismissed the of minting a $1 trillion coin as a last-ditch effort to help the United States pay its debt, saying the concept shouldn’t be considered seriously despite its popularity.

Like I said, where a will comes a way. I would ask why stop at a trillion? Why not stamp it 29 trillion and wipe out that nasty deficit once and for all?

Well the “for all” part is probably not going to happen. Wipe the deficit clean is like destroying a beaver dam. Get rid of it and you’ll likely find another in short order. Wipe the deficit clean and do you think they would start running it back up again?

Me thinks so.

In any case, the very concept seems ludicrous. Why bother wasting the platinum? Just print a “one trillion dollars” on a lead fishing weight and be done with it.

Many analysts and economists doubt the coin idea will ever make it out of the concept stage, but if we have learned anything in the last six years or so, don’t bet against putting anything past those that rule us. It can get a whole lot wackier before we come to our senses.

Need Medicare?

Turning 65?

You only have a limited time to sign up without penalty and with no examination.

Call me (530) 559 -1214

Vantage Notified 10 31 2021 email

The National Debt UPDATE

The Federal Reserve Building

THE NATIONAL DEBT

How much the U.S. government owes is called the National Debt and to no one’s surprise, it grows larger by the day.

Actually by the second.

For a sobering look as to just how fast and how much, check out the website www.usdebtclock.org.

Our debt is about to hit 29 trillion. This is what we spend (and are spending) that we do not take in from taxes and other revenue sources.

That stunning figure does not include our unfunded liabilities, which are debts we are on the hook for but are not yet due (like an end of the month payment at mid-month).

Unfunded liabilities can only be estimated and by estimation, they stand at 157 trillion by that same U.S. debt clock. Other figures tossed about double that. Like I said, it depends on how one figures it.

It took about 200 years for the U.S. to amass its first trillion in debt. Now we borrow that much debt every year. That is the power of compounding. It can help you when saving money but bite you in the you-know-where if you are on the borrowing end.

Just how much is a trillion?

Measured in time, 1000 seconds is about 17 minutes. Sit down for a million seconds and you can resume standing up in 11.5 days.

Repeat the same exercise for a trillion seconds and you wouldn’t be there anymore, and probably neither would anything else. A trillion seconds ticks off in 31,688 years.

Imagine that.

Well actually, I can’t.

But the over spenders can. Or maybe they can’t. Because if they could, maybe they wouldn’t spend that much.

Think again.

The current spending figures for the CoVid bailout is about 3.5 trillion dollars. Measured at a dollar a day it stands at about 110,908 years.

This does not include another 1.9 trillion in additional spending proposed in the next bill from Washington.

Do we want it to pass?

Guess that is a matter of opinion right? (And no, I am not giving mine).

Considering the amounts, we can assume it is a foregone conclusion the U.S.will never pay off its debt. With 29 trillion on the hook, it’s literally impossible. Too bad for those creditors, which by the way includes American taxpayers.

Reminding everyone about the additional unfunded liabilities, (that figure again is 157 trillion), in years that amounts to “E”, also known as error, as that is what my calculator says when I attempt to arrive at a total.

I’m not real good at carrying zeros so hence the reason I list an “E” as an answer. Whatever my calculator says, it basically should say “N” for never.

With a number so large, does it really matter how much we owe?

In the words of Former Vice President, “deficits don’t matter”.

My opinion is that “deficits don’t matter, until they do”.

If deficits don’t matter, why have deficits brought countless countries to their knees at the moment they did matter?

Better said, deficits don’t matter, until they are large enough, then they will.

The question then becomes how large can the U.S. deficit become before the “it matters” moment arrives.

No one knows. What we do know is that moment will arrive eventually. It approaches nearer and nearer with every dollar we spend.

What will happen when the “it matters”’ moment arrives?

We have countless examples throughout history to draw from:

Inflation gradually accelerates long before the “moment” arrives. Rapidly accelerating inflation will be the next canary in the coalmine. Next will follow rising interest rates, first purposely raised by the monetary authorities, then they will rise on their own uncontrollably. The public bond market will start to convulse and bond auctions (the public markets where debt is sold) will begin to fail. This occurs because interest rates are rising so fast, debt buyers will not commit funds to a fixed interest rate product because rates are rising too fast. The final straw will be lack of confidence in the currency in question, and then, basically, all hell breaks loose.

When the currency has its “Mexican Peso” moment, you can imagine how life will be. Usually governments will then attempt to make a new currency, or get a bailout from somebody. In the case of the U.S., the question becomes is any one entity big enough to bail out the largest economy on the planet?

Let’s not go there.

Turning 65?
Call me

Medicare Agent in the State of California

Update on housing! September 21 2021

Note the interesting drop off early in the year~

Home Glut or shortage?

I always get a kick out of hearing prognostications for a continued shortage in the residential housing market in Nevada County.

Not only in Nevada County mind you, but in many places in the country.

The high demand is contributing to what I call the “musical chairs” of homebuyers, brought about by a plethora of issues, which includes but are not limited to the Covid work-at-home craze, wild fire dangers and political refugees fleeing perceived party-saturated areas.

In a capitalistic system, there can be no ongoing shortage of anything unless the “thing” referred to is at zero quantity or close to it. Residential real estate has thousands of houses in existence in Grass Valley alone, let alone in the entire county.

So why are so many under the impression the housing shortage will continue?

Simply put, its the ignorance of how free markets operate and the subsequent failure of those responsible for setting the selling price of a home.

Capitalism functions on supply and demand, and the very nature of how capitalism works will eliminate shortages and excesses in short order. Ongoing shortages or excesses only exist through the failure of market participants to respond to what the capitalistic mechanism is telling them. Unfortunately, this failure may be costing homeowners big money in the process, and in some cases, tens of thousands of dollars.

A shortage of something means demand exceeds supply. In a free market, a shortage means sellers can raise prices until such a time a balance of supply and demand is reached and the so-called “shortage” is eliminated.

For a shortage to continue means those pricing the asset (homes) are failing to respond to what the `system` is telling them. Someone once asked me if I could solve the housing shortage after attending one of my real estate seminars. I answered, “yes, I could solve the shortage in one day”.

The answer?
Double the price of every home in Nevada County over the listed current market value.

Wha-la. Housing shortage solved.

In fact, by doubling the price, we could easily have a housing glut. Simply put, shortages in a free market means prices are too low for the demand environment. Shortages in free markets are usually corrected quickly by proper pricing. This means those setting prices are failing to respond to market conditions. They are mispricing homes too low.

Sale prices set too low in relation to demand will continue the perceived (and incorrectly so) the so-called shortage. Quick sales are an indicator prices could be too low.

This failure to price correctly also means sellers may not be getting top dollar for their homes and could be leaving thousands of dollars on the negotiating table.

Whereas a glut of homes means prices must drop, a shortage of homes means prices should rise. That the shortage continues means the mispricing continues. This sadly may be robbing sellers of dollars they could be due.

I always chuckle just a bit when I hear someone rave about their realtor that sold their house in 3 days. Since recent data from realtor.com suggests the median home takes about 65 days to sell, selling times less than probably means prices are too low, and perhaps way too low. Praises that a realtor sold a house in a few days is misguided and its unfortunate for sellers they do not understand market dynamics.

The question is why would those responsible for setting selling prices continue this flawed mispricing practice despite the fact that prices may be able to be raised to meet the imbalance in demand that is causing the so-called shortage?

Either those determining sale prices do not understand free market dynamics or are purposely setting prices too low to facilitate a quick sale. Considering many responsible for setting sale prices are forecasting a continued housing shortage, I would lean more toward the former than the latter. That home sellers are perhaps missing out on much higher revenues from selling their home because of a lack of understanding, or a conflict of interest brought about by a quick sale, is unfortunate.

My suggestion is if you are selling a home, to multiply the suggested selling price by 120%. You might have to wait a little longer, and argue a bit if using a realtor, but in the case of a $500,000.00 initial suggested price, is it worth the extra $100,000.00 to wait a few more weeks?

Me thinks so.

The views expressed are opinions only of Mr. Cuniberti. They do not necessarily represent those of any news media. No guarantees are made as to any claims or statements contained herein. This is not meant as investment advice. Consult a qualified professional for your investment needs. His website is www. moneymanagementradio.com. California Insurance License #0L34249. Medicare agent approved in California (530) 559 1214.

History Rhymes Update 9 11 2021

Hello Money Matters fans,

They say history never repeats but it sure can rhyme.

If that’s the case, I feel like writing some poetry today.

During the first week of February 2020, I was sent photos of an empty city in China by an acquaintance of mine, that city being the now famous metropolis of Wuhan.

As I stared at the empty airport and shopping malls of what would later become, arguably, the birthplace of CoVid-19, my mind immediately connected to the concern I had about the markets and where they were headed due to the Trump tariffs.

With the Dow close to an all-time high, rising from the Trump election in November of 2016, I was already looking for an excuse to move portfolios out of the markets. The fear, at that time, was that the tariffs imposed on China would knock China GDP (total output of the economy) down by more than a percent, and that the markets would sell off on a weaker than expected Chinese GDP number.

Seeing an empty city in the busiest country on the planet due to some virus called Corona, I went back to research the effect a similar event had on Chinese GDP.

The 2003 Severe Acute Respiratory Syndrome (SARS) event sickened about 8,000 people and had a mortality rate of 10%. SARS caused Chinese GDP to back off 1%, and back then, China was only the 5^th largest economy worldwide,

Doing a quick check at worldometers.info/coronavirus/ (an excellent site for CoVid stats), mortality rates were at 3% and the number of CoVid infections stood at 35,000. A shockwave went through me. With the Dow at or near an all-time high, with the tariffs already causing me concern as to their effect on the Wall Street, and now staring at a virus that already had ten times the infections then SARS which knocked off 1% off Chinese GDP, and China now the second largest economy in the world, I penned an article Feb 10^th, 2020 entitled “Corona Virus Effect on Markets”.

The article’s main theme was that investors were not considering the possible effect that an exploding Corona virus could have on markets.

Specifically I wrote:

“Unless Corona is soon contained, a lingering presence could rattle markets long term with severe consequences being possible” (Feb 10, 2020)

“Severe consequences” turned out to be true if not the understatement of the century.

On my subsequent Money Matters radio program I warned the same and announced I had initiated appropriate measures in stock portfolios.

Starting a few weeks after that article, in the first few days of March, the Dow began its historic 38% slide in a record shattering time of only three weeks.

Fast forward to today and I am beginning to get the same feeling as I did back then.

The similarities are striking. The Dow is again pressing up against an all-time high. Bailout packages, unemployment bonus checks, paycheck protection reimbursement programs (PPP) and other subsidy programs have ended or are ending soon. CoVid cases are spiking and in certain areas, exceeding the highest infection rates of the summer of 2020.

We are finding out that the vaccines are not the panacea we thought they were, and in the midst of a massive resurgence of the new Delta variant, much of the U.S. is reopening with a vengeance.

Theme parks are open, football stadiums will soon be packed full of fans, 700,000 motorcycles enthusiasts will soon be arriving in Sturgis for the annual motorcycle rally, and restaurants, theaters and other venues are opening up to record crowds.

Once again, I find myself looking for a reason to sell in an attempt to preserve that which the rebound in 2020 may have given us. Once again, I have installed stops (orders to sell should prices drop) in all portfolio positions.

Although such methods do not guarantee against losses, stops can help eject positions automatically if markets start down hard.

And like a bad dream that keeps coming back, Wall Street investors seem to be ignoring the possibility that once again, as CoVid revisits its assault on the human species, in its doing so, could also once again cause a severe reaction in the markets.

Keep in mind no one can predict market movements at any time and past performance does not guarantee future results. Contains the opinions of Marc Cuniberti only and should not be construed as investment advice or a solicitation to buy or sell any securities, nor represents the opinion of any bank, investment or advisory firm. Neither Money Management Radio (“Money Matters”) nor Bay Area Process receive, control, access or monitor client funds, accounts, or portfolios. California Insurance License #0L34249. Insurance services offered independently through Marc Cuniberti and not affiliated with any RIA firm or entity. (530)559-1214

Turning 65?
Call me and lets straighten out the confusion on Medicare

Life policies passing wealth to heirs tax free also to be considered

Marc (530) 559 1214

more...