Joe Withrow's Blog, page 3

The Master Economic Resource

We’re talking about investment themes for building consistent wealth this week.

We covered Bitcoin and gold last Thursday. And we discussed world-class insurance stocks yesterday. Today we have to talk about the master economic resource – energy.

Simply put, nothing happens without energy. Everything we see in our modern world today – and everything we use on a daily basis – is only possible because of energy.

It’s a simple thing. But if we truly ponder it, it changes our perspective.

My investment philosophy is this: I want to own energy in the most advantageous way I can. If we start there, all we need to do is figure out what form that energy should take.

Top-Tier Energy Stocks

The Environmental, Social, and Governance (ESG) movement would have us believe that we should own energy in the form of solar and windmills.

They told us that we’re rapidly moving towards a “carbon-neutral”, “net-zero emission” world. And in that world, we would reduce our dependance on fossil fuels—namely oil, natural gas, and coal.

Countless “clean energy” exchange traded funds (ETFs) popped up support this theme. ESG investing became a hot trend. And Larry Fink, CEO of investment management giant BlackRock, paraded around in media appearances proclaiming the gospel of ESG.

But then reality set in.

When it comes to energy production, energy density is everything. Energy density measures the amount of energy stored in a given fuel source per unit volume or mass.

Uranium (for nuclear power), oil, natural gas, and coal are incredibly dense fuel sources. I listed them in order of most dense to least dense.

When it comes to solar and wind power – we can’t measure their energy density. Because they aren’t fuels. Their power output depends on whether the sun is shining and the wind is blowing.

That means their power production is intermittent. It’s not constant. And even at peak production solar and wind produce far less power than our traditional fuel sources.

So it’s no surprise what happened when countries transitioned a portion of their power production to solar and wind. Energy production plummeted… which caused electricity prices to skyrocket.

In Germany, electricity costs hit an all-time high in August 2022. At the peak, power costs had risen by a factor of 10.

And it wasn’t just Germany. Denmark, Spain, Australia, California, and the United Kingdom (UK) each saw their power costs rise as a result of the ESG push.

The evidence is in.

We just can’t run our economy on solar and wind power. And people don’t like it when their power bill blows through the roof. That’s why we’re finally seeing a backlash against ESG.

The Energy Renaissance Has Begun

Last summer Larry Fink had to go on television and walk back his position. He said he was ashamed of being part of the ESG conversation. And that he didn’t want to use the term anymore.

At the same time, JP Morgan CEO Jamie Dimon began calling for greater investment in oil & gas. And we started to see a renewed focus on nuclear power as well.

If we’re serious about owning energy in the most advantageous way possible, that was our signal.

The end of ESG marked the beginning of an energy renaissance in the western world. And it’s going to be big.

We shifted an incredible amount of investment towards solar and wind in recent years. That curtailed the production and thus supply of traditional energy sources.

And that’s not an exaggeration.

According to Bloomberg, nearly $2.2 trillion poured into the development of intermittent energy from 2016 to 2023. Solar and wind power received the bulk of that investment.

A large portion of those investment dollars will flood back into traditional energy development in the years ahead. That’s the renaissance.

We can participate in it by building exposure to both the oil & gas industry as well as uranium for nuclear power production. And eventually we’ll have the opportunity to invest in companies developing nuclear fusion technology as well. But that’s still a few years into the future.

And then there’s the X-factor…

Sadly, it appears that we are on the brink of another world war. Certain factions have been trying to expand the regional proxy war in Ukraine for years. And now Israel is stirring up a larger war in the Levant.

Next-generation warfare isn’t limited to bullets and bombs. It’s probably more economic than anything else.

If we do see an escalation of war, I think we could also expect to see a rash of cyber-attacks on critical infrastructure paired with various trade embargoes. These events would disrupt the energy markets and almost certainly drive prices higher.

So there are several reasons why top-tier energy stocks stand to do quite well in years ahead.

For a deeper dive into which segments and companies within the energy sector will perform best, see our investment membership The Phoenician League. We’ve made professional research reports available with specific recommendations.

You can find the membership portal at: https://membership.phoenicianleague.com/

-Joe Withrow

P.S. Tomorrow we’ll look at how gold royalty stocks fit within an all-weather investment portfolio.

The post The Master Economic Resource appeared first on Zenconomics.

The Cornerstone of a Robust Investment Portfolio

Last week we laid out a system for building consistent wealth. Then we outlined seven different investment themes through which one could implement such a system. They are:

BitcoinGoldWorld-Class Insurance StocksTop-Tier Energy StocksGold Royalty StocksConsumer Inflation HedgesHigh-Technology Stocks

We talked about the ‘why’ for Bitcoin and gold last Thursday. Today let’s cover world-class insurance.

World-Class Insurance Stocks

World-class insurance refers to property and casualty (P&C) insurance companies. Believe it or not, this is one of the best businesses in the world.

To understand why, we have to understand the P&C business model. It sounds boring… but there’s magic hidden within the nuances.

P&C is about insuring against property damage and potential casualties. These are uncertain events that may never happen. But if they do, it could be catastrophic for the companies (or individuals) involved.

Therefore, we all buy P&C insurance.

As individuals, this is our homeowners insurance and our car insurance. On the enterprise side, large corporations need to insure their buildings, equipment, vehicles, and any other property deemed critical to business operations. They also need liability insurance to protect them from lawsuits. And then US regulations say they must also buy workers’ compensation insurance (workers’ comp) for their employees.

So insurance is a product we buy and hope we never have to use it.

And the actuarial data shows that we’ll probably get our wish. As tragic as they are, car crashes impact very few people. And it’s even less frequent that a building burns down.

So the beauty of this business model is that the insurance company gets paid on every policy before it pays any claims. Even better, it may neverhave to pay a claim for a given policy.

If our home doesn’t burn down, the insurance company gets our money without doing anything for us. Same goes if we don’t wreck our car.

This is the exact opposite dynamic from what exists in most other businesses. Most companies need to provide goods and services first. Then they get paid afterwards.

And here’s why this is so powerful…

Insurance companies get to invest the premiums they receive right away. This allows them to constantly grow what’s called “the float”. The float is the difference between premiums collected and the amount of money set aside to satisfy claims.

In other words, the insurance company doesn’t only make money by selling policies. The good companies also make money by investing policy premiums well. And they invest primarily in bonds, money market funds, and mortgages—instruments that pay a yield based on interest rates.

And that’s why the best property and casualty stocks are so attractive right now…

The Federal Reserve (the Fed) slashed its target interest rate to zero in the fourth quarter of 2008. Then it worked to keep interest rates near-zero for the next fourteen years.

This reduced the rate of return insurance companies could generate with their investments. Because yield-bearing instruments don’t produce much income when interest rates are zero.

The Fed began normalizing interest rates in 2022 – even with the world screaming at them to stop. In fact, we’ve just witnessed the fastest rate hiking cycle in the Fed’s history.

This has been a boon for the insurance industry. Suddenly their investments are paying a solid rate of return once again. And many property and casualty companies are reporting record levels of investment income as a result.

And here’s the kicker – the property and casualty industry is largely recession proof.

This industry is resilient… for a simple reason. P&C companies service needs, not wants. Their customers need their products.

Think about it this way – do we cancel our homeowners or car insurance when we want to cut our spending?

Nope. Because we can’t. It’s the same dynamic on the enterprise side.

So here we have an industry that’s set to grow its profits and its dividends in the years to come thanks to normalized interest rates. And its products will remain in high demand even during recessions. What’s not to love?

The key is to only buy the best companies at the right valuation… and then let them run. 

If we do, these world-class insurance companies will print money for us quarter after quarter. Especially if we automatically reinvest our dividends. That’s how we leverage the power of compounding interest.

For this reason I see world-class insurance stocks as the cornerstone of a robust investment portfolio.

They aren’t flashy… and they aren’t going to produce massive capital gains. But these are safe investments (when bought at the right valuation) that will compound returns for us year after year.

If you would like more guidance on how to integrate world-class insurance into your portfolio, give our investment membership The Phoenician League a look.

We offer professional analysis on several stocks in the property and casualty sector. And we help members build a bulletproof investment portfolio, step by step.

You can get more information at our membership portal right here: https://membership.phoenicianleague.com/

-Joe Withrow

P.S. Tomorrow we’ll look at our next investment theme – top-tier energy stocks.

The post The Cornerstone of a Robust Investment Portfolio appeared first on Zenconomics.

Diving into our investment themes…

Yesterday we discussed a system for building consistent wealth.

The system is rather simple. If we invest a reasonable amount of money each and every time we earn income, we’ll automatically grow our wealth and create financial security.

The big question is – what should we invest in? And to that I proposed seven different investment themes. They are:

BitcoinGoldWorld-Class Insurance StocksTop-Tier Energy StocksGold Royalty StocksConsumer Inflation HedgesHigh-Technology Stocks

Let’s talk about the ‘why’ for each of these. We’ll hit each from a high level – starting with Bitcoin and gold today.

Bitcoin

I see Bitcoin as a premier reserve asset that can also serve as independent money. In fact, Bitcoin is a payment network and a currency wrapped into one. To my knowledge that’s a first in history.

Believe it or not, bitcoins are far more scarce than gold. And that scarcity is guaranteed by open-source computer code. This makes for a transparent system.

Thus, we know exactly how many bitcoins are in circulation at any given time. We also know that there will only be 21 million bitcoins ever created. And we know that the very last bitcoin will be mined in the year 2140.

This level of transparency puts everybody on an even playing field. There are no insiders in the world of Bitcoin.

By the way – 19.7 million of those 21 million bitcoins are now in circulation. That means 94% of all the bitcoins that will ever exist are already here. We’re going to spend the next 116 years mining the last 6%. This shows us just how scarce this asset is.

Let’s quantify this for a minute…

The most recent estimates suggest that there are 341 million people in the United States today. If everyone in the US wanted to own Bitcoin, there are only enough for each person to have 0.06 bitcoins.

And that’s just in the US. The number gets much smaller when we factor in the global population.

Of course, this degree of scarcity only implies value if Bitcoin is useful. And that’s where the network design comes into play.

The Bitcoin network is not owned or controlled by any corporation, government, individual, or group of individuals. Instead, it’s governed by open-source computer code.

That means if we hold our bitcoins in a self-custody wallet, we’ll always be able to send money to anybody at any time. There’s nothing anyone can do to stop our transactions or freeze our wallets.

I see that as immensely valuable in a world where trust is fading and geopolitical tensions are as strained as they’ve been since the world wars.

So the question we have to ask is this:

In this volatile world we find ourselves in, will people (and institutions) want to hold value in an asset that’s fully under their control and no others? In an asset that’s impervious to inflation, censorship, seizure, and arbitrary restrictions?

If the answer is yes, they have only one choice. Bitcoin is the way.

I suggested back in November 2022 that Bitcoin would be worth well over $100,000 within five years. Bitcoin traded around $16,500 at the time – so such a statement may have sounded crazy.

Fast forward to today and Bitcoin is hovering around $67,000… and it’s building energy for the next surge higher.

So it’s not too late to begin accumulating.

My position is simple. The future of finance will consist of two types of people – those who own Bitcoin and those who do not.

Gold

Gold is the world’s oldest money. And there’s a liquid market for gold in every country on this planet – including here in the US. That means we can turn gold into cash almost instantly whenever we need to.

Our government has tried its best to downplay gold over the last 100 years or so… but don’t be fooled.

There’s a reason why every major central bank in the world holds gold on its balance sheet. And many central banks have been buying gold hand-over-fist in recent years.

The official records show that central banks bought 1,082 tons of gold in 2022 and 1,037 tons in 2023. Respectively, that equates to $76.4 billion and $73.2 billion worth of gold purchases at current prices.

This of course begs the question: why?

Why are the central banks loading up on gold? Is there something we should know about?

It’s still in the realm of speculation, but rumors suggest that the BRICS bloc is developing a gold-backed settlement system for world trade.

Such a system would re-monetize gold all over the world. And then all the gold on central bank balance sheets would become far more valuable overnight.

The BRICS bloc is an alliance between Brazil, Russia, India, China, South Africa, and now six other member countries. It represents about 45% of the world’s population.

We know that the BRICS countries want to launch their own financial system. Their goal is to conduct finance and trade outside of the US dollar. That’s been in the works for years now.

I haven’t seen anything confirming that the BRICS system will be gold-backed. But it would make sense. Basing their system on gold would add an element of trust and credibility.

So it looks like the central banks may be preparing for the re-monetization of gold on the world stage. That would explain their record level of gold purchases in recent years.

The bottom line is this…

Gold has been on a tear this year. It’s currently trading at an all-time high near $2,300 an ounce today… and it’s going much higher if the BRICS announce a gold-backed system.

So it’s not too late to begin accumulating – same as with Bitcoin.

To my way of thinking, Bitcoin and gold form the cornerstone of a robust asset portfolio. Next week we’ll cover our other investment themes.

-Joe Withrow

P.S. Don’t forget that the Financial Consistency Bundle is available until tomorrow at midnight Eastern. It provides all the specifics around portfolio construction – including how to buy and store Bitcoin and gold and navigate the equity markets.

More information on the bundle right here: The Phoenician League’s Financial Consistentancy Bundle

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Building a System for Consistent Wealth

We’re talking about consistent wealth this week. And as we noted, the simplest way to build consistent wealth is to buy quality assets on a regular schedule. Like clockwork.

When we left off yesterday, I promised to share with you how to create a system for this… and exactly which investments to make right now. That will be our topic for today.

I’ll start by acknowledging that everybody’s situation is different. Anything I suggest in these pages should be taken as just that – a broad suggestion. Nothing here should be considered personalized financial advice.

That said, most of us earn income on a regular schedule. The easiest way to create a system for consistent wealth is to set aside a chunk of our income for investing the moment we receive it.

This is the old pay yourself first principle. Invest a portion of your income as soon as you receive it – before you pay any bills or make any purchases.

To make this sustainable, the portion we invest has to be reasonable. It should be an amount that won’t leave us scrimping for quarters under the couch cushions at the end of the month.

At the same time, it should be a material amount. Investing five dollars every two weeks isn’t going to do much for us.

Once we have settled on our investing budget, we should spread it out evenly over several different assets. And we do this first thing every time we get paid – no matter what.

So that leaves the question: what assets should we invest in each pay period?

The answer is that it will be fluid over time. Some assets that are great investments today may not be great investments five years from now. So we have to be nimble with this strategy… but that also makes it fun.

As for today, here are the areas I think worth considering:

BitcoinGoldWorld-Class Insurance StocksTop-Tier Energy StocksGold Royalty StocksConsumer Inflation HedgesHigh-Technology Stocks

Please note that I’m omitting investment real estate and other income-producing assets here. That’s only because we can’t buy those assets in small increments.

They require a larger commitment. And we should only consider them after we’ve built a strong financial base – which is what this consistent wealth strategy will do.

Getting started, we should probably focus on just three of these investment themes during any given pay period.

For example, let’s say our investment budget is $600 per pay period. We would then put $200 into three distinct assets within any of these seven themes. We could do that for several months, and then we could shift over to three of our other themes.

In this way we would build a robust portfolio of quality assets over time. Our wealth will grow automatically… and we’ll guarantee ourselves financial security.

And as we get into it, we’ll start to get a feel for which themes we should focus on at any given time.

I listed my seven favorite themes right now based on valuations and macroeconomic trends. But over time some themes will become less attractive and new themes may rise to the top.

Tomorrow we’ll discuss each of these investment themes at a high level.

-Joe Withrow

P.S. The Financial Consistency Bundle provides a specific action plan for implementing this strategy – including exactly how to navigate the equity markets and make these investments.

We only make the bundle available a few times each year… and now is one of those times. You can get it right here until Friday at midnight.

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Consistent Wealth

Last week we talked about how consistency is the key to success.

Success usually doesn’t come from one massive accomplishment. Rather, it comes from many small accomplishments made day after day after day.

All the little accomplishments accrete. That is, they build upon one another. Then one day you wake up and realize they have compounded into something truly impressive.

The same principle applies to investing. It’s a simple thing – but I don’t think this is well understood today.

When I was a young professional, I thought investing was about hitting it big. So I was obsessed with trying to time the stock market. And I primarily invested in the riskiest stocks I could. When I found one with a good story, I would put a big chunk of my investable money into it.

Then I would start counting my gains prematurely. I would think to myself – if it doubles, I’ll turn my $10,000 into $20,000. If it triples, I’ll have $30,000. But what if it’s a ten-bagger? Then I’ll have $100,000!

Of course, it never worked out as well as I had mapped out in my head. Because that approach isn’t investing… it’s speculating.

An investor doesn’t think in terms of hitting it big. He (or she) thinks in terms of compounding money over long periods of time. That’s Einstein’s secret to wealth.

Further, investors always have an investment thesis in place for every position they hold. They know why they are holding each position. They understand the valuation and key performance metrics. And they know what signals to look for to determine when it’s time to sell.

These things are far more important than timing the market. If the valuation is good and the thesis is sound, the timing is right – regardless of what the nominal purchase price happens to be.

And that brings us back to consistency.

I’ve had far more success in building a robust asset portfolio over time than I ever did speculating. In fact, my experience is that if you’re deliberate about buying quality assets on a regular schedule, it’s impossible not to make money and build wealth.

And it all snowballs over time. Little investments add up to big pools of capital. That’s the key.

Tomorrow we’ll talk about how to create a system for this… and exactly which investments to make right now.

-Joe Withrow

P.S. If you would like to get a jump on building out your own investment system, our Financial Consistency Bundle can help. More information on the program right here.

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On History and Money – Lessons from the Allegheny Frontier

We took the kids on a field trip to the historic Homestead resort over the weekend. Here’s the view as we approached the grounds:

The Homestead rests in Hot Springs, Virginia. It’s located way up in the Allegheny mountains. The resort’s doors first opened in 1766 – back before the founding of America.

For early Americans, this was the western frontier. What lie west of the ancient Appalachian mountain range was a mystery.

The Homestead’s primary draw at the time was the surrounding hot springs for which the town was named. People believed the natural springs had healing properties. And more than a few traveled to the Homestead for a chance to bathe in them.

Thomas Jefferson was one of them.

Jefferson traveled to the Homestead in 1818. He was 75 years old and suffering from rheumatism at the time.

It’s documented that Jefferson spent three weeks at the Homestead. And he took to the hot springs three times a day to gain reprieve from his illness.

I imagine he spent considerable time browsing the resort’s eclectic library as well. Here it is:

We spent some time walking these grand halls over the weekend… and I couldn’t help but feel a sense of timelessness.

I tend to view history as linear. In my view, each generation builds upon the work of the previous.

This dynamic is clearly visible in the realm of technology.

We’ve seen an explosion of technological innovations over the last 200 years. Each major innovation increased human productivity and reduced scarcity – creating an exponential curve in human progress.

But there’s a big hole in my linear view of history.

When it comes to money, we’ve gone backwards. We regressed. Because we ignored the lessons of our forebears.

Today we use fiat currency as our money. It’s money backed by nothing except the “full faith and credit” of the issuing government.

Here in the US, our fiat currency is the US dollar. And our government has created over eight trillion new dollars from nothing over the last four years.

Basic supply and demand economics tells us that this can only do one thing – reduce the purchasing power of every dollar in circulation.

And we see this very clearly today. Consumer prices for nearly everything have skyrocketed over the last few years.

This dynamic has hollowed out the American middle class. And it’s made life very difficult for those on the lower rung of the economic ladder. The people who were living paycheck to paycheck before their groceries doubled in price now have to make some tough decisions each month.

Then on the business side, the fiat money system makes it difficult for companies to make long-term plans.

That’s because every company has input costs that go into producing their goods and services. And those input costs are certain to increase when the government creates trillions of dollars from nothing.

At the same time, the cost increases will vary across industries. But there’s no way for any company to predict what those increases will look like. That makes it nearly impossible to create forward-looking business plans.

And here’s the thing – the American founders understood this dynamic very well. Here’s what George Washington wrote to J. Bowen in a letter dated January 9, 1787:

“Paper money has had the effect in your state that it will ever have, to ruin commerce, oppress the honest, and open the door to every species of fraud and injustice.”

Washington was commenting on the fact that the Continental Congress issued its own fiat currency (Continentals) during America’s Revolutionary War.

But that currency had no economic backing. Thus it became worthless within five years’ time.

This caused tremendous hardship to those who had accepted Continentals as payment for their services. The money they thought they had could no longer buy anything.

And here’s what Jefferson had to say on the matter in a letter to Edward Carrington in 1788:

“Paper is poverty… it is only the ghost of money, and not money itself.”

So those educated on matters of economics 235 years ago knew very well that fiat money is a bane on society. Yet that’s exactly what we’re using today.

When it comes to practical personal finance, our fiat monetary system is why it’s so critical that we each create a strategic investment plan.

The fact is, it’s nearly impossible to save money when the money constantly loses purchasing power. We have to generate an after-tax return equal to the inflation rate just to stay afloat. And if we want to get ahead, we have to do even better than that.

The good news is that it’s not terribly difficult to craft an investment plan that will beat inflation.

The bad news is that following traditional retirement planning advice won’t cut it. Because that advice is designed to enrich the financial industry… not you.

If you’re ready for a solution that anyone can implement, regardless of previous knowledge and experience, check out Finance for Freedom right here: http://financeforfreedomcourse.com/mastermind

-Joe Withrow

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My Phone’s New Superpower

Start off your morning by doing that day’s most important task. And do this every single day – no exceptions.

It’s the WIN principle. What’s Important Now.

I pulled that acronym from retired college football coach Bud Foster. Bud was the Defensive Coordinator for Virginia Tech’s football program for decades. He had his players walk around carrying a beat up old lunch pail with the WIN moniker painted on it.

Bud coached in the 2000 national championship game against legendary Bobby Bowden’s Florida State program. The third quarter of that game ended with Virginia Tech up one point on vaunted Florida State. That’s how close Bud and his philosophy came to the pinnacle of the sport—though Florida State came back to win in the final quarter.

The power of this principle is in consistency.

If you do the most important thing you have to do first thing every morning, every day – that productivity will compound. Over time all those little things will add up to big things.

Darren Hardy spelled out how this works in his book The Compound Effect. It’s a timeless secret of success in any endeavor.

For years I believed the secret of this formula lie in doing your most important task first thing in the morning. But recently I’ve realized that’s not it.

It doesn’t matter when you get the most important thing done. What matters is that you get it done every single day.

The problem is, many of us find ourselves pulled in numerous directions as we get into each workday. We have a range of responsibilities… and that often means we need to collaborate with other people via emails, text messages, and phone calls.

That’s why doing our most important task in the morning is a good habit. We can get it done before other items start vying for our time and attention.

With that in mind, I just discovered a new superpower that I didn’t know my new phone had.

Yesterday I shared my notes from off the digital grid. Those notes are about what I’ve learned since ditching the iPhone for GrapehenOS – an independent operating system built with privacy in mind.

Switching to Graphene highlighted for me just how much my iPhone and its apps were tracking me. They were collecting data and insight on me and remitting it to Apple and third-party companies. It’s likely the phone was listening to my personal conversations as well.

And that’s just the iPhone. It’s documented that Google’s Android surveils users to a far greater degree.

With Graphene I don’t have to worry about any of that. I can ensure my data and my communications remain private and secure.

And then there’s the superpower…

As I was getting acclimated to the new phone, I made the decision to disable notifications for everything except a few important phone calls and messages. I hadn’t thought to do this before… but it’s been an eye-opening experience.

Previously my iPhone would buzz at me all day long… starting late in the morning. It buzzed every time I received a new email, text message, or phone call. And it buzzed whenever one of my apps had something it wanted to draw my attention to.

When the phone buzzed, I would stop what I was doing and check it right away. You know, just in case it was something urgent.

But it was never something urgent. Those buzzes were a massive productivity sink. I allowed them to disrupt my focus and concentration.

Now my phone buzzes a few times a week. Because I only permit notifications from a few important calls and messages. Nothing else.

The result is that I’m able to complete each task I work on far faster and more effectively than I could before. To me that’s a superpower.

Of course, I still make time to check my emails, messages, and phone calls. I just do so on my time – when I’m not immersed in something else.

And here’s the ironic thing – I’m addressing those items more efficiently than I was before also. Because I address them immediately… I don’t have any other tasks in limbo to jump back to.

This is a benefit I didn’t expect. And it takes the WIN principle to its logical conclusion.

-Joe Withrow

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Notes from off the Digital Grid

I went off the digital grid last week.

As I mentioned earlier this month, I’ve been exploring alternative smart phone operating systems recently. But up to this point I’ve conducted my research using a spare phone running on Wi-Fi. I kept my iPhone as my primary device.

Until last week. I ditched the iPhone and went all in GrapheneOS. Now I’m fully off the digital grid.

The transition process was a tad inconvenient. Like all Apple products, the iPhone is elegant, yet easy to use. The iOS interface becomes second nature very quickly.

But now that I’m fully acclimated to Graphene, my only regret is not taking the plunge sooner.

As a reminder, 99% of the world’s smart phones run either Apple iOS or Google’s Android. And those systems send data back to Apple and Google every four and a half minutes on average.

In other words, the operating systems report back to headquarters with information about what we’re doing on our phone. There’s no way to stop this.

Meanwhile, neither Apple’s App Store nor the Google Play marketplace provide transparency around an app’s tracking capabilities. And they require us to give each application we download a host of permissions.

GrapheneOS flips the script.

First, it provides access to several open source app stores. Each gives us a report on every app’s tracking abilities.

It probably comes as no surprise that every app I had on my iPhone came with third-party trackers attached. That means every app I had was sending data on me back to various third-party companies. And who knows what they were doing with my data from there.

Some apps only had one or two trackers attached to them. Others were even more egregious. For example, the Weather Channel app came packaged with 14 different trackers. Have a look:

And how about AccuWeather? That’s another popular weather app. And it is slightly better… AccuWeather only comes with 8 trackers.

With my new device, I’m only using apps that do not come with trackers attached. Yet I’ve lost absolutely no functionality. There’s a better alternative for everything I was using before.

And it gets even better…

Graphene allows us to choose which permissions we grant each application. If we decide that we don’t want an app to have access to our camera, our microphone, or the internet, we just deny those permissions.

To demonstrate this – here’s the weather app I’m using now:

Breezy Weather asks for access to my phone’s network, sensors, location, and notifications function. And I’m allowing it to access the network and sensors. That’s it.

The network is the internet. The app won’t fetch the weather for me if it can’t pull from the internet. And the phone’s sensors are what allow the screen to flip sideways if I turn the phone sideways also.

As for location – I don’t need real-time weather reports based on where I am. I’ll just punch in a zip code whenever I want to check the weather.

In the same way, I don’t need my weather app sending me any notifications. So I denied that permission as well.

Notice how Breezy Weather doesn’t even ask for permission to access my camera or microphone. That’s a good sign.

Meanwhile, the Weather Channel app asks for 19 different permissions and AccuWeather asks for 16. Curiously, one of the permissions they request is the ability to prevent the phone from sleeping. What’s that about?

Taking this one step further, Graphene allows users to lock down the camera, microphone, and all the phone’s sensors entirely – with just the press of a button for each. When we do this it overrides all permissions granted at the application level.

Here’s what that looks like:

Here we can see that I have my camera and microphone access locked down. I love this feature.

A few years back I was chatting with a gentleman who decided he wanted to take his kids on a camping trip. He was asking around for camping gear suggestions before he bought anything.

Magically, this guy started seeing ads for camping gear everywhere on his phone. And he thought – that’s odd. I haven’t searched for camping gear yet. How did the phone know I was interested in it?

I’ve seen other stories where people have had a similar experience. And it seems to me that there’s only one logical explanation – our phones can listen to our conversations.

That’s creepy. And this is why I ditched the iPhone for Graphene. Now I can lock down the camera and the mic and be sure that my phone is not spying on me.

Now that I’ve been onboarded for over a week, I’m most amazed by the fact that I didn’t lose any functionality by going off the digital grid.

I’m still able to do everything I was doing before… and I can do it all knowing that I’ll retain full sovereignty over my data. What’s not to like?

If you’re interested in learning more about switching to Graphene, the team at Above Phone makes it all turn-key. You can get more information at: https://abovephone.com/

-Joe Withrow

P.S. I’ve also unlocked a new super power with my off-the-grid phone. I’ll share that with you tomorrow.

The post Notes from off the Digital Grid appeared first on Zenconomics.

Bank reserves and the future…

Federal Reserve Chairman Jerome Powell spoke to the House Financial Services Committee last week.

Later in the discussions, the Basel III endgame proposal came up. The proposal pertains to bank reserve requirements for both lending and trading activities.

Interest rates get all the attention when it comes to the Federal Reserve’s (the Fed’s) monetary policy. But bank reserve requirements are just as important.

Bank reserves are simply the money that banks keep on hand to back any loans or investments they make. Greater reserves equate to less risk.

Central banks set reserve requirements as a percentage of a bank’s deposits. There are some nuances to this calculation, but since 1982 the base reserve requirement has been 10% for banks here in the United States.

That means US banks have been free to lend or invest $90 for every $100 they receive in customer deposits. They must hold the other 10% in reserves.

We call this a fractional reserve system. Because the bank’s only need to hold a fraction of their customers’ deposits in reserve.

But that changed on March 26, 2020.

In response to the Covid hysteria, the Fed reduced bank reserve requirements to zero. Which means we went from a fractional reserve to a no reserve system.

Here’s why this matters…

We talked yesterday about how interest rates send signals. Those signals help us allocate resources efficiently.

Which is to say, they help us decide which companies and projects are likely to be good investments. Then we can choose the best investments and avoid the worst.

Bank reserves play a similar role. The greater reserves a bank must hold, the more picky it must be with the loans it makes.

In this way reasonable reserve requirements also help the economy allocate resources efficiently. Because the banks must be extra careful about what they finance.

Low quality companies and projects that receive funding represent a misallocation of capital. They direct scarce resources like labor and materials to suboptimal tasks. That’s a drain on economic productivity and growth.

Economists refer to this dynamic as malinvestment. We can think of it like this…

If we want a robust economy, we need capital and talent focused on its highest and best use. Thus we hinder the economy if we finance uneconomical efforts.

What’s more, funding unviable projects can prolong bad business practices, poor management, and flawed strategies. This is what creates zombie companies. These are companies that can only survive by borrowing more and more money.

Goldman Sachs estimates that 13% of all publicly traded companies in the US today are zombie companies. The Fed puts its estimate at 10%. Artificially low interest rates and low bank reserve requirements are what keep these companies alive.

This brings us back to the Basel III endgame proposal. It would require banks with over $100 billion in assets to increase their risk-based capital requirements by roughly 16%.

Basel III would also introduce a standardized model for calculating a bank’s risk. Today each bank uses its own model.

So the proposal seeks to impose greater fiscal responsibility upon the banking system. Large banks would have to be more diligent with both the loans and the investments they make.

Paired with normalized interest rates, this would likely signal the end of the cheap money era. Only the most credible companies and projects would get financing going forward.

And then many of those zombie companies mentioned above would go under. That would free up capital for newer, more innovative companies… which would set the stage for a strong economic recovery.

The question is – will Basel III be implemented?

Fed Chair Jerome Powell told Congress last week that he expects “broad and material changes” to the proposal. But he didn’t offer any extra details on the matter.

That sets the stage for an interesting show.

On one hand, Powell’s getting pressure to cut interest rates. On the other, the big banks will pressure him not to tighten reserve requirements so much.

Yet, a return to fiscal responsibility requires real interest rates and meaningful reserves.

Stay tuned…

-Joe Withrow

P.S. For a deeper dive on what the Fed is really up to and the most important macroeconomic story of our day, please see my book Beyond the Nest Egg – How to Be Financially Independent Outside of a Broken System.

You can find it on Amazon at: https://www.amazon.com/Beyond-Nest-Egg-Financially-Independent/dp/B0CGG5G6XH

The post Bank reserves and the future… appeared first on Zenconomics.

Interest Rate Signals and a Fork in the Path

We’re talking macroeconomics this week – with a focus on the Federal Reserve (the Fed).

Yesterday I put forth the idea that Fed Chairman Jerome Powell is making monetary policy decisions with fiscal responsibility in mind. This is just a theory… and probably not a popular one.

But thus far the theory has held.

Powell clearly recognizes the need for normalized interest rates. He’s been as direct about this as a Fed Chair can be.

The fact is, an economy cannot survive on a permanent diet of cheap money and the malinvestment it fuels. We need real interest rates to help us make informed calculations about which projects we undertake and which we don’t.

This is how the market economy allocates resources effectively – as Adam Smith pointed out in his The Wealth of Nations.

Smith observed that firms and investors make decisions based on their own profits. Yet an invisible hand seems to promote efficient economic growth from their independent actions.

The key is that firms must be able to compare the expected profits of one project to another. Then they can choose to move forward with the best one. Or they can choose not to move forward at all. In so doing, they are unwittingly allocating resources efficiently on behalf of the entire economy.

Of course, the cost of money is a key factor in assessing profitability. That’s what interest rates are – the cost of borrowing money. They signal whether borrowing is cheap or expensive.

This is why suppressing interest rates is destructive. Doing so makes all kinds of projects and investments look profitable. But only because the cost of financing those projects is cheaper than it should be.

Artificially low rates prompt a wave of borrowing and spending. This creates a short-term economic boom as both firms and investors capitalize on cheap rates.

That’s how we got the idea that cutting rates is akin to stimulating the economy. But it only goes so far. As the debt builds up and the payments come due, the boom fades.

At that point the only way to stimulate any further is to print money and inject it into the economy. Which is exactly what the US government did in 2020 and 2021 with their “stimulus checks”.

But printing money only serves as stimulus for a short time. And as we saw first-hand, it leads to consumer price inflation across the board.

This brings us to a fork in the road…

If we keep pumping new money into the system, consumer prices will skyrocket. If we keep at it, we’ll wreck the economy beyond all recognition.

That’s one path forward.

But if we recognize that the jig is up, we can reverse course. We can normalize interest rates to discourage malinvestment. Then we must allow uneconomical projects and companies to fail. This will clear the way for a real economic recovery… which will ultimately save the financial system.

That’s the other path forward.

The great Austrian economist Ludwig Von Mises spelled out the dilemma in his masterpiece Human Action: A Treatise on Economics. Here’s Mises:

There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved.

It appears that Jerome Powell understands this. And he chose the path of voluntary abandonment. Of fiscal responsibility.

I say that because Powell’s held firm on his decision to normalize interest rates even with some powerful forces working against him.

Lest we forget, the United Nations (UN) tried to get Powell to abandon course all the way back in October 2022. The UN said that the Fed’s actions were reckless. And it publicly stated that all central banks needed to stop raising rates.  

Powell didn’t flinch.

I’m sure the pressure on Powell will heat up over the coming months. He’s going to face immense pressure to cut rates ahead of the upcoming election season.

This question is – will he hold firm?

And so far we’ve only discussed interest rates. Bank reserve requirements are also a key part of the Fed’s monetary policy. And Powell said something curious about bank reserves on Capitol Hill last week.

More on that tomorrow.

-Joe Withrow

P.S. For a deeper dive on what the Fed is really up to and the most important macroeconomic story of our day, please see my book Beyond the Nest Egg – How to Be Financially Independent Outside of a Broken System.

You can find it on Amazon at: https://www.amazon.com/Beyond-Nest-Egg-Financially-Independent/dp/B0CGG5G6XH

The post Interest Rate Signals and a Fork in the Path appeared first on Zenconomics.