Maximize Capital; Minimize Crap

submitted by jwithrow.
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Journal of a Wayward Philosopher
Maximize Capital; Minimize Crap

September 20, 2016
Hot Springs, VA

He achieved success who has lived well, laughed often, and loved much;
Who has enjoyed the trust of pure women, the respect of intelligent men and the love of little children;
Who has filled his niche and accomplished his task;
Who has never lacked appreciation of Earth’s beauty or failed to express it;
Who has left the world better than he found it,
Whether an improved poppy, a perfect poem, or a rescued soul;
Who has always looked for the best in others and given them the best he had;
Whose life was an inspiration;
Whose memory a benediction…
To know that even one life has breathed easier because you have lived,
This is to have succeeded.
” – Bessie Anderson Stanley

The S&P closed out Monday at $2,139. Gold closed at $1,316 per ounce. Crude Oil closed at $43.80 per barrel, and the 10-year Treasury rate closed at 1.70%. Bitcoin is trading around $608 per BTC today.

Dear Journal,

The first leaves of Autumn have begun to fall, and each new morning is now accompanied by a light breeze. Little Maddie seems to share her father’s love of the season, as she enthusiastically gathers black walnuts from the yard to feed the squirrels.

Here, squirrel, squirrel, squirrel… I have an apricot for you!

Yeah, she calls the walnuts apricots. I am not sure where that came from.

Madison has also been debriefed on the proper way to carve a jack-o-lantern, and I test her knowledge daily.

“Maddie, what’s the first thing we have to do to make a jack-o-lantern?”

“We have to carve the top and get the gunk out!”

“And what are we going to do with the gunk?”

“We are going to throw it on mommy!”

…I think you are ready, kiddo.”pumpkin

It is truly the simple things that make this life worth living.

We spend most of our time in these journal entries and especially in the Zenconomics Report discussing complex topics within the world of money, finance, and economics, but that is only because we want to be able to enjoy the simple things. Continue reading “Maximize Capital; Minimize Crap”

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Section 3 – Maximize Capital; Minimize Crap

  • Become Money Conscious
  • Your Financial Statements
  • Master Your Finances in 30 Days
  • Financial Analysis Spreadsheet Screencast

Section 4 – Macroeconomic Trends

  • Understanding Macroeconomic Trends

Section 5 – Building Wealth

  • Asset Allocation
  • Cash
  • Precious Metals
  • Real Estate
  • Stocks
  • The Beta Investment Strategy
  • Bonds
  • Bitcoin
  • Asset Allocation Example
  • Alternative Investments

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How I Escaped the Rat-Race

submitted by jwithrow.rat-race

Journal of a Wayward Philosopher
How I Escaped the Rat-Race

May 28, 2015
Hot Springs, VA

The S&P closed out Wednesday at $2,123 – almost exactly where it was at the same time last week. Gold closed at $1,186 per ounce yesterday. Oil checked out at $57 per barrel. The 10-year Treasury rate closed at 2.13%, and bitcoin is trading around $238 per BTC.

Dear Journal,

We are back in the serene mountains of Virginia after a week spent on the gorgeous Carolina coast. Madison’s first beach trip was a success and we enjoyed five consecutive days of low 80’s with a cool breeze. Your editor even squeezed in a half-day fishing trip towards the end of the week after building up Dad points by handling Maddie’s late morning nap time indoors for the first several days so Momma could lay in the sand.

Last week I shared with you my view of the coming monetary crisis and I promised to expand upon what I have done to prepare for it and how I managed to escape the rat-race in the process.

Career is often one of the first items up for discussion when catching up with friends. You know the process: “What are you doing now? How’s that going? Do you like it?”

I find that very few friends tell me they like their job. Most say it is okay or tolerable. Some say they are miserable for one reason or another. Even the ones who say their job is tolerable express a certain sense of anxiety on Sunday afternoons as they look forward to the grind starting back up for another week.

Despite this, most people become addicted to their paycheck because they fashion their lifestyle accordingly. A couple things tend to happen when the paycheck gets bigger: the house gets bigger, the car gets nicer, and the hobbies become a little more luxurious. The problem is many of these things come with monthly payments. The big house comes with a big mortgage and strong HOA dues. The nice car comes with a big car payment and probably a satellite radio subscription. The luxury hobbies might include membership fees of various kinds: country clubs, golf courses, dinner clubs, mega-gyms, etc.

Now there is nothing wrong with any of this unless your goal is to escape the rat-race. If so, you need your paycheck to maximize capital rather than support your lifestyle. The following is the abbreviated version of how I went about maximizing capital so I could leave the rat-race in the dust.

My first step was mental: I crafted a vision of living outside the rat-race as I became more disillusioned with corporate America. I had been working in the corporate banking world for several years by this point and I had worked my way up to a comfortable salary relative to my circumstances. I was contributing the standard 3% match rate to my 401(k) and I was maxing out my self-driven IRA each year as I had been educated to do so I had a decent financial cushion to start with.

I created a spreadsheet to track my monthly expenses and pretty soon I was able to trim the fat and start saving 75% of my net income each month. I didn’t become cheap for its own sake – I still took my fiancé (now wife) out to dinner every Friday – but I did stop all frivolous spending. Though I couldn’t see far enough ahead to envision my day of liberation, I did know that I would be able to break the employment chains in the near future if I amassed a decent pool of working capital.

As my knowledge of Austrian economics grew, so did my appreciation for the precious metals. I began to make periodic trips to the local coin shop to redirect some of my monthly savings into gold and silver bullion. I didn’t originally have an asset allocation model in place so my purchases were somewhat sporadic but I did accumulate a (relatively speaking) decent precious metals base over the course of a year.

Austrian economics also helped me see how the housing bubble was being partially re-inflated by the Fed’s quantitative easing (QE) and zero interest rate policy (ZIRP). Private equity firms like Blackstone and American Homes 4 Rent (AH4R) were taking advantage of this easy money to buy up huge quantities of single family homes in the U.S. to build their rental real estate portfolios. These private equity companies were taking the Fed’s cheap credit at near-zero rates to buy middle class homes which they rented back out to the middle class with a huge profit margin built in. Now there is nothing wrong with reaping huge profits as long as they are honestly gained but there is a major problem with a system that distorts the market economy in favor of special interest groups.

I was bothered by what was going on in the housing market but I also understood that I was powerless to change it. Therefore I did the next best thing – I took advantage of the situation and sold my home to AH4R for a sizable gain. Some of that gain went to pay the real estate agent’s commission and I rolled the rest into a down payment on a 5-acre rural property at the end of a gravel road way up in the mountains which is where I reside today.

My goal for our mountain home was to make it as resilient as possible such that we could be totally self-sufficient for at least six months should hard times befall us. I don’t have room in this entry to go into the specifics, but we accomplished this by securing surplus water, food, provisions, and energy sources. The end result is that I am confident in my household’s ability to be self-sufficient for at least six months should the need arise which means our livelihood is not solely dependent upon consistent monthly income. The cost to maintain this self-sufficiency is pretty negligible after the initial purchases are made.

It took me roughly six months to complete these base self-sufficiency preparations and then it was time to hone in on my finances. I set up a spreadsheet to monitor my asset allocation model and I established the initial allocation ratios: 29.5% cash, 10% precious metals, 15% stocks, 0.5% bitcoin, and 45% real estate.

I was already in excess of my cash and real estate allocation because of my 75% savings habit and my 20% down payment on our 5-acre property so I used the excess cash outside of my IBC policy to bring the precious metals, stocks, and bitcoin allocations up to par.

All the while I was researching how to build location-independent income streams online in my spare time. There are more entrepreneurial opportunities today than ever before in modern history. Thanks to the internet anyone can reach millions of prospective customers with just the click of a button and there are very few barriers to entry. This means all you need to be an entrepreneur is a product that provides value to people in some capacity and a basic understanding of online marketing techniques. It requires very little capital to launch these types of products. More importantly, you can launch these products without needing to obtain permission from the government first in the form of certifications and licenses. In comparison, try to start a traditional brick & mortar business without government permission and see how that experience goes.

So to recap:

• I invested in my own education first by developing a strong understanding of Austrian free market economics.
• I purchased a rural 5 acre property with advantageous financing.
• I made ample water, food, energy, and provision preparations so as to be self-sufficient on this property for at least six months should the need arise.
• I shored up my asset allocation model to spread my capital across several asset classes: cash, precious metals, stocks, bitcoin, and real estate.
• I began to build location-independent income streams online.

I have an entire chapter dedicated to the specifics involved in this process in the 2nd edition of The Individual is Rising which I hope to launch later this summer. I will keep you posted as that progresses.

I will sum up this entry by repeating a common theme here at Zenconomics: life is meant to be lived.

It is up to you to make your life exciting and meaningful – no one else will do it for you. This requires a break from Modernity which emphasizes a fear & control mindset intended to put life in a box and stomp out any potential randomness before it happens. We are all conditioned to live within Modernity’s box so it is difficult to step outside and blaze your own path. But your life may depend on doing just that.

More to come,







Joe Withrow
Wayward Philosopher

For more of Joe’s thoughts on the “Great Reset” and creating diversified income streams please read “The Individual is Rising: 2nd addition” which will be available later this year. Please sign up for the notifications mailing list at

Non-intervention is Comprehensive

submitted by jwithrow.non-intervention

Journal of a Wayward Philosopher
Non-intervention is Comprehensive

February 27, 2015
Hot Springs, VA

The S&P opened at $2,110 today. Gold is checking in at $1,216 per ounce. Oil is floating around $49 per barrel. Bitcoin is up to $253 per BTC, and the 10-year Treasury rate opened at 2.02% today.

Yesterday we discussed the merits of the non-intervention philosophy specifically as it relates to natural childbirth. We realized what is true about non-intervention in childbirth is just a true about non-intervention in the rest of health care. Non-intervention is just as applicable to the fields of personal finance, economics, education, and the role of government as well. Let’s examine this in a little more detail today.

To start with, think long and hard about what you value in this life. Clear your mind and think about what’s important to you.

Notice the clutter and the conflict?

We are constantly assaulted with polarized messages on a daily basis competing for our support. Every single advertisement you see or read is designed by very skilled people to convince you that you want that particular product or service. The corporate media constantly inundates you with messages designed to drum up your support for a particular idea, policy, or position. The various institutions you are a part of (school/work/church/community service/political party/etc.) all convey different expectations for how you should live and what you should spend your time doing.

When we accept and identify with these external expectations we shift away from self-reference and end up with a piecemeal system of values and a hodgepodge of beliefs. Then we say things like:

-This religion is absolutely right and that religion is absolutely evil.

-People should spend their time doing these things but they shouldn’t be allowed to do those other things.

-Government should force everyone to comply with these policies and it should stop people from engaging in alternatives.

Why do we say these things? Because that’s what our institutions say; we substitute our own values for the values of our chosen institutions when we identify with external expectations.

The non-intervention philosophy is about getting back to what’s best for you. It’s about a self-referential reawakening. Modern society tells us that self-reference is selfish but nothing could be further from the truth. If we look within and decide it is acceptable to stand on our own values and pursue our own wants regardless of what modern culture says then we necessarily recognize that others are free to do the same. This understanding sparks a respect for non-aggression and tolerance in a world that has seemingly forgotten these ideals.

”Do unto others as you would have them do unto you.” “Love thy neighbor as thyself.” “Hurt not others.” “Live and let live.” “Laissez-faire.” Moral thinkers have come and gone throughout history and they each arrived at some variation of this same message. Let’s apply this message to our world today.

Non-intervention in personal finance is about thinking a lot but doing very little. Contrast this with mainstream personal finance which is frantic and disorganized. Jim Cramer epitomizes this on his television show where he runs around screaming “buy, buy, buy” or “sell, sell, sell”. We are sold the idea that a sophisticated financial portfolio involves moving in and out of the right stocks and that this is the key to reaching a retirement “number”. If we don’t want to do the stock picking for ourselves then we can purchase target date mutual funds that are actively managed by professionals who move in and out of stocks for us.

All of this buying and selling churns up commissions and fees and, if we follow mainstream analysis, likely gets us into stocks when they are popular and expensive and out of stocks when they are unpopular and cheap. That is to say we buy high and sell low. The rationale behind this is simple – if a stock is popular enough to warrant coverage on CNBC or in the Wall Street Journal then it is popular enough to draw a lot of attention. It would be far better to buy the stock when it is obscure, hated, and cheap then sell it to someone else if it becomes popular enough for mainstream financial publications.

When it comes to investing in equities, studies suggest it is the beta – the big picture idea – that is more important than the alpha – the individual security. In other words identifying sectors that have been beaten up but are beginning to trend higher, buying those sectors while they are cheap, and then sitting on your hands until the trend changes is the application of non-intervention in personal finance. Of course, stocks should only make up a small percentage of your asset allocation model as we have touched on numerous times here at Zenconomics.

We have also harped on the importance of non-intervention in economics on many occasions. The ‘free market’ is an incredibly complex web of exchanges created by individuals who, by acting of their own free will, engage in production and commerce. The free market sets price levels based on individual activity and these prices fluctuate in response to continued individual activity. This economic system is self-regulating and to intervene in any capacity is to distort the entire free market system.

Simply put, free markets require absolute non-intervention by definition. The moment you intervene is the moment the market ceases to be free. Somehow, however, we have accepted the idea that Ivy League graduates should be pulling strings and pushing levers to manage the economy. We put these “experts” in front of expensive computers in big government buildings and tell them to keep unemployment low and prices stable as if the economy were a simple child’s game of connect the dots. And we pretend like this is still a capitalist system.

I suspect we put up with intervention in our economy largely because our educational system conditions us to accept intervention every step of the way. Public education in the United States very clearly emphasizes invasive authoritarianism. Instead of allowing children to learn naturally by pursuing their interests, discovering their passions, and cooperating with one another, the public school system segregates children by age and lumps them into a classroom where they are told to be quiet and listen to the teacher. In school students are told what they will learn, when they will learn it, and they are permitted very little free time during the day. Then they are loaded with homework that eats up their free time after school and prevents them from pursuing their own interests. Their textbooks are homogenous, boring, and designed to be read and memorized unquestioningly. The textbooks have also been scrubbed by the Department of Education to ensure no politically incorrect material can be found on the pages. In this environment learning is seen as something to be forced on students – such is the interventionist approach.

Intervention in education promotes group-think and dependency. Non-intervention promotes self-education and self-responsibility. There is a reason why many wise and ‘successful’ people prior to the 20th century never went to school at all and it is the same reason that numerous prominent people since the 20th century dropped out of school before becoming ‘successful’ in their own way. Even Albert Einstein loathed the interventionist approach to education: ”Education is what remains after one has forgotten everything he learned in school”, said he.

Which brings us to the role of government. Regulatory democracy works hand in hand with coerced collectivism to convince people that government is some type of benevolent service organization. People have been sold the notion that the U.S. government should take care of everyone from cradle to grave, regulate all aspects of the economy, prohibit immoral or unhealthy behavior, maintain a military empire with 300 bases in 170 countries, and fight wars on poverty, drugs, and terror.

Government is more than happy to oblige by intervening in virtually every aspect of your life and the lives of those living in foreign nations that become a “strategic interest” for the military-industrial complex. The corporate news stations (CNN, MSNBC, Fox News) work diligently to promote public support for all of this government intervention and their success is nothing short of amazing. The corporate media’s marketing genius is the promotion of the left-right paradigm. These stations divide the public into a “blue” team and a “red” team and they promote the idea that the other team is the enemy. The fact is each “team” supports government intervention on a massive scale; they differ only in the prescription and distribution of this intervention.

The predictable result of all this government intervention is poverty and misery as the economy is wrecked and the currency is destroyed. F.A. Hayek pointed this out way back in 1944 in ”The Road to Serfdom” as central planning and government intervention really began to rise in popularity.

How different is this from that which is truly American? The American vision was a divergence from the mercantilist statism and bureaucratic despotism of the ancien régime. The best of the American revolutionaries envisioned a society free from politics and indeed free from any visible signs of government. They called this Liberty.

“Government is not reason; it is not eloquent; it is force”, said Washington. “Like fire, it is a dangerous servant and a fearful master.”

Sure the American experiment wasn’t perfect – there were prejudices and inconsistencies – but there was a vibrant and healthy respect for non-intervention. We would be wise to rekindle this understanding and respect.

More to come,







Joe Withrow
Wayward Philosopher

For more of Joe’s thoughts on the “Great Reset” and the paradigm shift underway please read “The Individual is Rising” which is available at The book is also available on Amazon in both paperback and Kindle editions.

How to Get Paid Up Front to Buy Stocks

submitted by jwithrow.stocks

Want to get paid up front to buy stocks you want to own at a price you specify? Selling put option contracts allows you to do just that.

Put options are a contractual agreement between two parties. The owner of the put option contract has the right to sell the designated stock to the counter-party at the agreed upon strike price at any time prior to the specified expiration date. In exchange for this right the owner of the put option must pay a market-based premium to the seller up front. Each contract is for 100 shares of the underlying stock.

For the owner, put options can serve two purposes – either as a downside hedge or as speculation. Generally speaking, the owner of the put option profits from the deal if the stock declines below the strike price.

In order to get paid up front to buy the stocks you want you simply need to “be the store” for hedgers and speculators and sell puts on stocks you would like to own. You choose the stock, the strike price, and the expiration date and you receive the premium immediately upon execution. That premium is yours to keep no matter what happens. If the stock is still above the strike price on expiration day then you walk away from the trade with pure profit. If the stock is below the strike price and the put option is exercised then you are obligated to buy 100 shares of the stock per option contract sold and the premium you were paid up front serves to reduce your cost basis in that position.

There are two basic strategies for selling put options. The first is to sell in-the-money puts on stocks you absolutely want to buy. This strategy can enable you to buy the stock at a lower price than it is trading for at the time.

Let’s use AUY as an example of this strategy (not a recommendation). AUY is currently trading at $4.48 per share. Instead of purchasing AUY at $4.48/share you could sell the February 20 5.5 Put for approximately $1.30 per share. This would obligate you to purchase 100 shares per put contract of AUY at $5.50 per share on or before February 20 and you would be paid $130 per contract up front to do so.

Now there are only two possible results. If AUY is trading above $5.50/share on February 20 then the put option expires worthless and you walk away with $130 per contract sold and you can explore selling more put options on AUY if you want. If AUY is still trading below $5.50/share on February 20 then you will be “put” the stock and you must purchase 100 shares per contract at $5.50/share. But you were already paid $1.30 per share so you would effectively be buying AUY at $4.20 per share ($5.50-1.30). Recall AUY was trading at $4.48 when you sold the put so you are buying the stock at a lower price than you could have originally.

The second strategy is to sell out-of-the-money puts on blue-chip stocks that you don’t think will dip below the strike price but you wouldn’t mind owning if they did. This is primarily a low-risk strategy for generating income and the lower premiums reflect this.

Let’s use WMT as an example of this strategy (not a recommendation). WMT is currently trading at $89.68 per share. We could sell the WMT March 20 82.5 Put for approximately $0.70 per share. In this example WMT would have to decline by roughly 8% in a little over two months for the put contract to be exercised. We walk away with $70 per contract unless that sharp decline happens.

As you can see, selling put options involves limited risk. You must keep enough cash in your brokerage account to purchase the underlying stock should the option be exercised but that is the most you can lose in each trade. If done properly, selling put options is actually less risky than buying stocks outright.

As always, be mindful of your asset allocation model before venturing into the equity markets.

Asset Allocation

submitted by jwithrow.asset-allocation

Asset allocation is a necessary tool for saving money and building capital within a fiat monetary system. Within a fiat system, the purchasing power of your currency is gradually inflated away and the value of various asset classes can fluctuate rapidly based on central bank monetary policy. Thus, it is important to have a principled yet flexible asset allocation model in place.

The concept of asset allocation is to allot a percentage of your capital to various asset classes and to maintain each allocation ratio until you deem it necessary to adjust your model. For example, a basic asset allocation model could consist of 25% cash, 25% precious metals, 25% real estate, and 25% stocks. You would then allocate your income to each asset class accordingly.

The beauty of this strategy is that you cannot be wiped out by any wild swings in the market and you will always have cash on hand with which to purchase assets when they go on sale (when the market tanks). Of course you can always add additional asset classes into your model such as bonds or bitcoin or cattle depending upon your outlook and you may need to adjust your percentages based on new analysis from time to time as well.

The Infinite Banking insurance strategy that we talk so much about here at Zenconomics and in our book works perfectly to house much of your cash allocation. An IBC policy serves to compound returns on your cash while it sits idle waiting to be put to use without sacrificing any liquidity whatsoever.

As for your precious metals allocation, you can purchase gold and silver bullion from any local coin shop or from reputable dealers online or you can purchase through companies like Hard Assets Alliance which will facilitate fully allocated domestic or international storage for you.

Of course to follow an asset allocation model you will need to save a large percentage of your income. I think 50% is a good benchmark. 75% savings is preferred. Very few people have the discipline to pull this off but those who do never have to worry about financial problems again.

If maintaining such an asset allocation model for your household sounds extremely tedious and time-consuming that’s because it is. This is the price we must pay for living under a fiat monetary regime. In a sound monetary system we would be able to build capital simply by saving money in a bank account because our money would maintain its purchasing power over time. Instead, saving money in a bank account is a losing strategy so we are all forced to become financial analysts or have our wealth systematically transferred away from us.


submitted by jwithrow.Fishing Boat

We have been hearing all about how most Americans are living paycheck to paycheck and not saving any money as justification for the brilliant (*cough*) myRA government savings plans so we felt that it would be prudent to take a deeper look at what ‘saving’ is.

You see, we don’t think that saving is about money. Money is involved, but it is not the focus. Saving is really about storing our productive efforts.

It goes back to the days of barter…

Back then the fisherman would catch extra fish in the morning and take them to the market in the afternoon to trade his extra fish with the farmer for vegetables. His wife liked to have vegetables with her fish for supper so he had to trade for vegetables instead of the painted rock that he really liked.

The fisherman had learned that fish would start to smell bad the day after being caught so he had no choice but to trade all of his extra fish every afternoon and go fishing for more again every morning.

Until the fisherman discovered gold. Then the fisherman could trade his extra fish for gold and take the next day off. The fisherman didn’t really care about amassing gold; he just figured out that gold would let him store his production so he didn’t have to go fishing every single day to feed his family. And it turned out that three day old gold smelled much better than three day old fish – this was a bonus.

So saving was born!

Somewhere along the line we forgot this and started to think that saving was about amassing money. And on top of that we started to think that money was paper and not gold. We are so forgetful!

So when saving became about money and not about production we opened the door to debt. We started to think that instead of saving we could just borrow whatever money we needed. After all, the credit money still bought stuff just like the saved money except we didn’t have to wait to use it!

But then when we had to start using our entire paycheck to pay back all of the credit money we found out that we had to be even more productive now than before we went into debt. Our plan backfired.

We didn’t learn from our smart fisherman ancestor and now we had to go fishing both in the morning and in the afternoon to have enough fish for our supper and also enough to trade for vegetables so our wife won’t get mad and also enough to give to the banker to pay him back for the credit money that bought us the really neat painted rock.

Darn painted rocks.

Forget the Interest Rate – It’s the Quantity of Interest That Matters

submitted by jwithrow.Mastering Interest

Financial success is all about understanding and mastering interest. You see, there are only three choices when it comes to financial matters:

  • Pay interest
  • Receive interest
  • Forego interest

That’s it.

All you must do to get ahead financially is to arrange your financial affairs such that more interest is coming in than going out.

It is the quantity of interest that’s important. This concept is not often discussed so most folks focus exclusively on the rate of interest instead.

3.5% for a mortgage? This is a great rate!

2.87% for a vehicle loan? We’ll take two!

.05% on a savings account? Well, we suppose something is better than nothing.

So the average person pays interest for their house and their cars and they forego interest when they buy their groceries and pursue entertainment. The interest that they do receive is negligible in comparison because they offer whatever capital they have leftover after expenses for a pittance.

So what’s the common man to do?

CNBC will say that the stock market is the only way to go.

What they will not tell you is that the stock market is ripe with risk. Getting into the stock market requires you to give up control of your capital and place it 100% at risk. All the while you have the hedge fund high frequency trading machines and the Wall Street insiders chomping at the bit to take your capital from you.

These forces are focused on the stock market every minute of every day, not just during business hours.
If you have the same amount of time and energy as well as access to the same amount of information as the insiders then you may be able to play the stock market and come out ahead in real terms.

We think that it is much more likely that you will only come out ahead in nominal terms at best if you come out ahead at all.

We think it a far better strategy to capitalize an IBC policy and then focus on employing that capital to develop sustainable sources of income.

The IBC policy ensures that your capital is generating a little bit of interest no matter what happens and your employment of that capital can be used to significantly increase the amount of interest coming in.

After all, what good is a 3.5% mortgage if you are not generating at least 3.6% in interest income consistently?

You see, interest rates are not terribly important – it is mastering the control of interest in vs. interest out that is truly the name of the game.

The Stock Market Deception

submitted by jwithrow.GW Paper Money

The stock market is comprised of numerous exchanges through which buyers and sellers can trade securities. The New York Stock Exchange is the world’s largest stock exchange followed by the NASDAQ. The Tokyo Stock Exchange and the London Stock Exchange are third and fourth in terms of market capitalization.

As we mentioned, the exchanges enable buyers and sellers to trade securities with one another.

We repeat this statement to emphasize the next one:

The exchanges are not where businesses raise capital unless an initial public offering (IPO) is taking place.

We think it is important to recognize this fact.

The vast majority of trades on a stock exchange are simply speculative – there is very little productive activity taking place. Even IPOs are usually not terribly productive as the intent is often not to raise capital for business operation but rather to enrich the owners and private investors.

So if most trades are just speculation then why do we view the stock market as a gauge of economic health? Why do we assume that the underlying economy is good when stock prices go up?

We do not assume that the economy is good when corn or oil prices go up. But corn and oil contracts are also traded on futures exchanges and there are speculators who profit when their price rises.

Conversely, why do we assume that the underlying economy is bad when stock prices go down?

Nothing real is destroyed when stock prices fall. Buildings don’t collapse. Equipment doesn’t break. Goods don’t go up in smoke. Engineers don’t lose their knowledge.

Maybe there was a time when stock prices somewhat reflected the financial health of individual companies, but those days are long gone. With mark to unicorn accounting, leveraged stock buy-backs, and all other manner of financial wizardry, CEO’s can and do manipulate stock prices regularly.

Additionally, the Federal Reserve has spent the past three decades ensuring that liquidity flows directly into the stock market so that equity prices continuously rise in unison over time.

The point is that there is a huge disconnect between the stock market and the productive sector that mainstream finance pays no attention to. In fact, mainstream finance has convinced most people that speculating in the stock market is the _only_ way to invest for retirement.

There may be a place for stocks within your asset allocation model, but it is important to recognize the stock market deception for what it is and understand the game you are playing if you do delve into the market. I would highly recommend enlisting the services of independent financial analysts if you do allocate some of your capital to the financial markets.

As we have touched on in a number of other essays here at Zenconomics, financial planning should be comprehensive and diversified according to your own unique circumstances. Simply amassing paper equities denominated in fiat currency is a very fragile plan.

As Nelson Nash says: “If you know what’s going on, you’ll know what to do.”

Be wary of the stock market deception and plan accordingly.

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