We’re Screwed If We Don’t Do the Math

Biden Doesn’t Want You to Put It Together [The Rude Awakening] April 18, 2023 [WEBSITE]( | [UNSUBSCRIBE]( We’re Screwed If We Don’t Do the Math - What’s the “Rule of 72” and what does it do for you? - What number should you target for your net worth? - What’s the maximum amount you should spend on a house? External Advertisement [[BREAKING] Pentagon to Spend Billions on "Living Missile"]( Air Force Magazine calls it "transformational." The Wall Street Journal calls it one of the Pentagon's "highest priorities." National Defense Magazine reports "Eye-popping budget" for it. [This small company]( won the first contract to build them! [Get the name of the company here ]( [Click Here To Learn More]( [Sean Ring] SEAN RING Good morning from a gorgeous Asti! First, my internet is wonky. So I will reprint a piece I wrote for the Morning Reckoning last Thursday. You see, I can’t tell if you’ve read that piece. And since the Rude is my first responsibility, you deserve to get my best writing. Honestly, I wasn’t sure what to write for Thursday’s MR piece, so I just put together a few simple math formulas I use in my financial life and wrote about them. The feedback was unexpected and overwhelmingly positive. Eric V. called it “...by far the most useful piece you have written in the past two years.” Eric, I hope some of my other stuff has been useful, too… You gave my publisher Matt Insley and me a good laugh over this! H wrote, “This [4/12] Morning Reckoning is a 5* piece; supremely useful to young & old alike!” T.J. wrote, “I thought the article this morning was outstanding! Great job, Mr. Ring. I'm kind of a math geek, but even I learned a couple of things. I forwarded it to several friends...Hopefully, you will pick up a few more email subscribers.” Ellen wrote, “Thank you for today's column. I'm a PAW who's been investing for 40 years after going broke 3 times and relying on others. Anyone who thinks they've learned it all is ready to trip and fall. Your column today about 'Rules & Tools' for investing was a useful review and not offensive at all. You have a knack for simplifying complex subjects with just a few concise phrases that everyone can grasp quickly. Your columns are refreshing, direct, insightful, and easy to read. Please keep it up.” Leslie G. wrote, “Good morning! I enjoyed today's email. I didn’t know about The Net Worth Indicator, so I appreciate you sharing this. I needed to hear about the 50-30-20 Rule, as this was a refresher. This simple information is helpful. Please keep them coming. Thank you!” Thanks also to Sergio M., Mike in Jersey Shore PA(!), Jim C., Yvon, and Bill for your kind words! Let’s get to it. We’re Screwed If We Don’t Do the Math Most economists agree that there’s an inverse relationship between women’s literacy and birth rates. Economists concluded that the more women read (and are educated), the less they want children. I’ve always thought that conclusion didn’t match reality. I believe the more women can do the math, the fewer children they want (for lifestyle reasons). That is, numeracy, rather than literacy, drives decision-making. There are many examples of career women who can afford – and have – more children. Sara Blakely, Victoria Beckham, and Amy Coney Barrett come to mind. But this column isn’t about demographics. It’s about innumeracy, which we’ll define as incompetence with numbers. It’s what I think society’s big problem is. But instead of whining about the causes, symptoms, and cures of innumeracy, I will give you a few rules of thumb. You can use them to see if your decision-making changes. For my part, these simple equations and rules gave me a target. Specifically, I knew how far ahead or behind I was and how far I had to go to reach my goal. I won’t bombard you today, as the fewer and the simpler, the better. So let’s start with five simple rules to see if they change how you think. The Rule of 72 The Rule of 72 is one you’ve probably heard of. And you might be wondering why I’d even include such a rule. Well, let me first state the rule, and then we’ll talk about how to use it. For most people, the Rule of 72 tells them how long it will take to double their money if it’s invested at a constant rate of return. For example, if you’re earning 10% per year on your portfolio, it’ll take 72/10 or 7.2 years to double your portfolio. If you wanted to back out the math, assume you had a $100,000 portfolio. $100,000.00 x (1 + 0.10) ^ 7.2 = $198,622 The Rule of 72 isn’t perfect. But near enough is good enough in this case. If you’ve got a superstar financial advisor earning you 20% per year, then it’ll only take 3.6 years to double your portfolio. Now, let’s use this rule to look at inflation… something Sleepy Joe doesn’t want you to do. Historically, central banks have tried to keep interest rates around 2%. That meant a currency lost half its purchasing power in 72/2 or 36 years. You’d barely notice the loss in purchasing power, as it’d take so long to rear its ugly head. You’d probably go to the grocery store and wonder why eggs are “suddenly” double what they used to cost in 1983. We’ve all done something like that, haven’t we? But with inflation hitting 10% as it recently has, a currency loses half its value in only 72/10 or 7.2 years. Realistically speaking, let’s say Chairman Pow comes out and says, “We’d love rates to go back down to 2%, but that’s just not realistic. We’re now happy with a 4% target.” In that case, the dollar would lose half its purchasing power in 72/4 or 18 years. If you think eggs are expensive now, just you wait until 2041! The Rule of 72 is not only a great way to look at returns but also at purchasing power erosion. [New Biden Bucks Follow-Up Available Now]( Hey, it’s Jim Rickards. Since posting my original Biden Bucks presentation online, millions of people have viewed it. Snopes and the Associated Press have even attempted to “fact check” me and claim my warnings are false: [Click here to learn more]( Point being, my message has raised a storm and caused a lot of controversy. But in the time between my message and now, a lot of new developments have come to light. That’s why I’ve just released an update to my original prediction… one which will likely be even more controversial. [>> Click here now to access my new 2023 Biden Bucks follow-up](. [Click Here To Learn More]( Net Worth Indicator This is a great targeting mechanism and one I’ve regrettably only just found. It’s from The Millionaire Next Door by Thomas J. Stanley and William D. Danko. Multiply your age times your realized pretax annual household income from all sources except inheritances. Divide by ten. This, less any inherited wealth, is what your net worth should be. If you hit this number, you’re an AAW or average accumulator of wealth. According to the authors, to be considered a PAW, or prodigious accumulator of wealth, you “should” have at least twice this number. What I like about this indicator is that it’s simple to calculate. And it gives you a target. Full disclosure, I’m a UAW, which is an under-accumulator of wealth. But I won’t use this number to feel bad. What I choose to do is to think bigger and get better results. If you’re unhappy with what this number tells you, I suggest you do the same. Julian H. wrote in with this great question about the formula: I'm familiar with The Millionaire Next Door book and always wondered what's the logic behind the formula age x income / 10. Do you have any knowledge about that? In the book, there are no specifications about that, and I can't find anything valuable on the Internet. Thanks in advance. Best. Julian H. Julian, as far as I can see, this formula is produced with linear regression. That is, the authors took net worth, age, and income, and produced a line of best fit. The 50-30-20 Rule Tweaked This is a great way to allocate your monthly paycheck. And it’s super simple: - 50% of your income goes to paying your “needs.” These include rent or mortgage payments, car payments, groceries, insurance, health care, minimum debt payment, and utilities. - 30% of your income goes to paying down your debt. Once that’s done, this becomes discretionary entertainment expenses.* - 20% of your income goes to future investment. *In the original formulation, 30% go to your “wants.” That’s fine, but I think paying down your debt to zero takes priority. I couldn’t believe how fast my debt disappeared. It took about six to twelve months. But it was gone and gone for good. I’ve run a monthly credit card balance maybe once or twice in the last twenty years. And it’s thanks to this little system. 3x Rule for Buying a House Another one I love, and that would keep many rich people out of trouble, let alone those of lesser means. Never spend more than three times your gross annual income on a house. I’m in the process of buying a home right now, and I’m well within this rule. My down payment is ready and won’t empty my account, and my monthly payments are easily manageable. Far too many people only calculate what their monthly payments would be at the current rate of their mortgage. But if you’ve got an adjustable-rate mortgage, that could easily end in tears. There’s no need to overpay for a McMansion. The Normal Distribution (Bell Curve) Finally, we get to simple probabilities. [SJN] Again, this is just a rule of thumb. Nothing in finance is “normal.” But this can help you distinguish investing realism from fantasy. Let’s do an example. Let’s say Stock ABC has earned, on average, 5% per year. But that return is accomplished with a standard deviation around that 5% average of 2%. If we assume normal returns – a dangerous thing in finance, but we do it all the time – then ABC has a 68% chance of returning between 3% and 7%. It has a 95.6% chance of returning between 1% and 9%. And it has a 99.7% chance of returning between -1% and 11%. Here’s the thing, though: it certainly can crash far below a -1% return. And it may moonshot 45% on the FDA approving its new drug. But the probability of either of those scenarios happening is very low. Knowing this distribution is essential for setting your expectations as an investor and gauging what the market thinks of your potential investment. If you can adjust your thinking to being more probabilistic, you’ll be shocked at how different the world looks. Wrap Up The absolute last thing I wanted to do was to patronize you. But I also don’t want to assume you know things you may not know. So I hope, at the very worst, this was just a refresher of things you may have put on the back burner. But if there is a lot of new material here, I can’t encourage you enough to deploy this new knowledge as early and as often as you can. If this is the sort of thing you’d like to see more of, please let me know here. And if you found this the least bit unhelpful, do let me know that as well. Have an excellent rest of your week! All the best, [Sean Ring] Sean Ring Editor, Rude Awakening In Case You Missed It… The World’s About to Change “Big-Time” [Sean Ring] SEAN RING Happy Monday to you! As I promised last Friday, I’d let loose the one and only Byron King on this subject of leaks. As Byron is a former Naval officer, he’s got a level of expertise in this matter I simply don’t have. Why do I want you to read Byron’s great take? Because in times of hotheads, it’s critical to remain calm, cool, and collected. You’ll see more clearly, and, if need be, argue more logically once you read this piece. You can win a war without good soldiers and materiel… and we’re fresh out of materiel. “They” know it, and have known it, for quite some time. After all, these leaks showed up on Discord six weeks ago. It just hit out in the open last week. So grab your coffee and strap yourself in. All the best, [Sean Ring] Sean Ring Editor, Rude Awakening The World’s About to Change “Big-Time” [Sean Ring] BYRON KING By now you’re certainly aware of the recent intelligence leaks of secret and top-secret U.S. military assessments of the ongoing Russian military operation in Ukraine. If we blow through the puffery, the bottom line is that military experts in Washington all but predict that Russia is set to prevail, and Ukraine is set to lose. And what does it mean to you? Well, the world is about to change, and I mean big-time. In a minute I’ll explain why. First, let’s get to the documents. Per the Pentagon’s own documents, Ukraine’s conflict with Russia is a lost cause. By whatever means the docs escaped, in essence these leaks constitute a grim pre-mortem. Or call them an advanced autopsy on a dying political-military organism with no chance of survival. For Ukraine, things are on track to end badly, if not catastrophically. By extension the same goes for NATO, much of the rest of Europe and certainly for the U.S. and its national interests. Prepare for another U.S. debacle like previous geostrategic disasters in Vietnam (1975) and Afghanistan (2021). Except this time around, the looming Ukraine calamity will dwarf the outcomes of Saigon and Kabul. Because no country can lose a war this big, and fail this badly, without significant blowback; political, military and economic. At this point I must say something: I’m a retired U.S. Navy officer, obliged by law and regulation to state that everything here is personal opinion. I do not speak on behalf of the Navy, Department of Defense or U.S. government. Plus, I’ll add that at this stage of life I’m a humble geologist who moonlights as a newsletter writer. I have no access — zero, zippo, nada, nothing — to classified government material. Thus, everything that follows is based on my review of what’s out in the public domain. Stated another way, “I only know what I read in the newspapers.” And according to those newspapers, someone — supposedly a 21-year old Massachusetts Air National Guard member who was arrested today — photographed 50-plus pages (maybe more) of classified U.S. intelligence reports on the Russia-Ukraine conflict, dated from the end of February and early March this year, and uploaded it all on the internet. Yes, that’s illegal; but then again, this cat is way out of the bag. The data dump occurred over six weeks ago. The pilfered materials languished on an obscure website for a while, and then finally went viral on the Telegram channel. Mainstream media picked it up, to include The New York Times, which has a long, deep history as a conduit for stolen, illegally obtained classified material. Well, if the New York Times can run front page articles about it, I can opine here as well. First amendment, and all that. According to more than a few insiders — again, it’s in the newspapers — the documents are too well done to be fakes. That is, the leaked materials use all the right formats, terms and symbols, down to typeface size and font. And this level of technical precision is something that only people on the inside truly understand after years of experience. Meanwhile, the U.S. government has responded like a scalded cat. For example, with lightning speed the Defense Department and Department of Justice announced a massive investigation, and I don’t doubt for a second that they’re serious as a heart attack. They’ve already arrested the alleged leaker. A stash of super-duper, high-level stuff got out. And it’s not so much the specific information within the stolen goods. That’s important and I’ll discuss it below. But it’s also the institutional embarrassment of U.S. government people reading about their inner sanctum, wartime deliberations in those New York Times articles. These are the new Pentagon Papers. So, yeah… people are furious. I’m not surprised they identified the leaker. The fact is, counterintelligence people are as cynical as hell, smart as whips and tough as nails. They suspect everybody of being a traitor and that’s who you want. I saw this at work long ago in a couple of espionage cases, back when I served on the staff of the Chief of Naval Operations (long story, not now). Okay, so much for that; let’s get substantive. Read on to get into the meat of these leaked docs. Let’s just say it doesn’t paint a rosy picture for Ukraine. [Urgent Notice From Paradigm CIO Zach Scheidt!]( [Click here to learn more]( Hi, Zach Scheidt here… I’m the Chief Income Officer at Paradigm Press. With inflation raging (and showing no signs of coming to an end any time soon), almost everyone in America is feeling the pain in a big way. Which is why, several months ago, I set out on a big mission… my goal was to create a [complete, step-by-step plan to surviving and beating inflation]( one that anyone could take advantage of. Today, after hundreds of hours of research, I’m revealing all of my findings. [Simply click here now to see how to survive America’s deadly inflation crisis](. [Click Here To Learn More]( The Writing Is on the Wall One big surprise in the classified docs is that there are so few true surprises. There’s no smoking gun in the leaks, no “Big Reveal” such as the date, attack plan, and table of organization and equipment of the much-anticipated Ukraine spring counteroffensive that will drive the Russians into the Sea of Azov. But that’s not what these papers are about in any event. Basically, the leaked docs are daily briefing papers prepared for U.S. staff who work in what’s called J-3 (Operations), J-4 (Logistics) and J-5 (Strategy, Plans Policy). The information dates from late February and early March, so it’s already two months old, and overtaken by events. Dated or not, though, the docs present distilled, daily intel rundowns from the theater of combat; things like position maps, troop numbers, casualties, lists of weapons, and estimates of supplies with emphasis on ammunition. In terms of intelligence work, there’s little doubt that Russian analysts are comparing the U.S. numbers with what the Russians knew back then, just to see where and how things match up or diverge. The import of the docs, though, is that they verify what many people already suspected, if not the Russians who surely already know the basic numbers. And one specific item that is not shocking at all is that Ukraine is fast running out of ammunition, namely running out of anti-aircraft missiles along with artillery rounds. Hold that thought. Allow me to distill two years of study at the Naval War College into two short sentences: 1) Armies fight battles, but energy, industry and logistics win wars. 2) Modern war is industrial war, certainly when the conflict involves large nations. As we’ve seen over the past 14 months, the Ukraine conflict is a vicious struggle that devours people, equipment and supplies at prodigious rates. We’re talking about nearly a billion bullets fired; multi-millions of artillery shells downrange; tens of thousands of vehicles destroyed; hundreds of aircraft shot down; and human casualties well into the high six-figures killed and wounded. It’s a landscape of carnage over there. In war there’s no denying the critical factor of human bravery, of course. Or the need for large numbers of well-trained, motivated, physically fit individuals who are prepared to advance past the line of control into the face of their opponent. As Napoleon supposedly said “God is on the side of the army with the most battalions.” But in modern war the army that prevails is also the one with ample fuel, equipment, ammunition and a system of logistics and organization designed to blow the total heck out of the other side. Or as the late — and eminent — war correspondent Hanson {NAME} of The New York Times once noted, “God favors the nation with the most factories.” Which brings us back to those leaked documents, which tell a story of Russian forces holding an absolute, overwhelming material advantage in every respect over the forces of Ukraine. Without getting into technical weeds, consider anti-aircraft missiles. These are important to keep the other guy’s aircraft out of your airspace, lest bombers come in and blast your rear areas to smithereens. So far in the conflict, Ukraine has mainly used its old, Soviet-era systems (called BUK, and S-300) to keep Russian airplanes more or less at bay. Not always, to be sure; but generally, the Russians have kept their bombers in Russian airspace. Okay, good for Ukraine. But per those leaked docs, by early May Ukraine will be out of missiles. After that, Russian air power will move from its current position of local superiority here and there, to a new position of dominant air control if not supremacy. And this means that rear areas in Ukraine will be subject to Russian aerial bombardment at levels not seen before. So, one key takeaway from the leaked U.S. docs is that Ukraine is about to lose control over its airspace. And countries that don’t control their own airspace do not win wars. Or consider artillery shells. Obviously, these are critical to both sides in the ongoing Ukraine military operation, where artillery has (once again!) demonstrated why it is called “king of the battlefield,” if not “god of war.” Ukraine long ago used up most of its old supply of Soviet-era artillery shells (eg. 152mm and others), and then used up other supplies provided by nations that had surplus Soviet-era rounds in the munition bunkers. In this regard, Ukraine is all but out of ammo for vast numbers of its guns. But early in the conflict, the U.S., U.K. and other NATO nations began to supply Ukraine with other kinds of artillery and ammunition, such as 155mm guns and shells. And for a while, this worked for Ukraine despite daily combat losses. But now, per the leaked U.S. docs, Ukraine is running out of 155mm as well. For example, in early March Ukraine was firing under 1,000 shells (155mm) per day, with a total reserve inventory under 10,000 shells; a pittance. In essence, Ukraine is scraping the bottom of the supply barrel. For all intents, Ukraine is nearly out of 155mm ordnance. Meanwhile, per those leaked U.S. docs, in early March the Russian side fired over 20,000 artillery rounds per day and inflicted massive casualties on Ukrainian forces. News accounts claim that about 90% of Ukraine’s combat casualties are from Russian artillery, versus close quarter combat. Again, as with anti-aircraft missiles, countries that can’t bombard the other side with lots of artillery do not win wars. You see the point here, right? Modern war is industrial war. And we could list many other examples of industrial-scales of products necessary to wage war; here are just a few: Russia has ample fuel and related energy supplies; Ukraine does not. Russia produces large amounts of ammunition from a vast chemical and factory system, now running at wartime levels; Ukraine does not, and relies on deliveries (in effect, donations) of ammo from fast-depleting NATO stockpiles. Russia has hundreds of front-line combat aircraft and a fully evolved aerospace industrial base; while Ukraine has just a small handful of combat aircraft and can barely repair battle damage, let alone replace losses. Russia has a large array of drones and cruise missiles, ranging up to its unstoppable hypersonic systems; Ukraine has next to no capability to defend. I could go on, but you get the idea. This Russia-Ukraine conflict is an energy and industrial war, and Russia has enough energy and war industry to continue to fight and prevail. Meanwhile, neither the U.S. nor NATO countries possess sufficient military-industrial base to match what Russia can field on a routine basis. And after a year of emptying warehouses and funneling supplies piecemeal to Ukraine, NATO — especially the U.S. — has depleted critical reserve stocks. Plus, there’s no prospect of near-term replenishment for many items such as Javelin, Stinger, 155mm, HIMARS rounds and much more. Now, somebody leaked out just enough classified materials to inform the public about the precarious state of affairs for Ukraine, with all the attendant dangers to the U.S. and NATO when the roof caves in. Sure, many military experts already knew this, but the public didn’t because that was not part of the prevailing political narrative. No less than The New York Times picked up the ball, so to speak, and ran with it. And perhaps the ensuing discussion may begin to shift public opinion in the U.S./NATO on how much longer to support a war in which the outcome is pretty much wired. But time is wasting. Sooner or later, events on the ground in Ukraine — and perhaps neighboring nations — will unfold in their own way, based on firepower, combat and the kinetics of war, in much of which Russia has a distinct upper hand. Indeed, both sides have people in important places who have actually discussed going nuclear. This timely leak offers a critical warning. Is anybody listening? Because on the other side of this mess, one way or another we’re all going to live in a very different world. All the best, [Sean Ring] Byron King [Paradigm]( ☰ ⊗ [ARCHIVE]( [ABOUT]( [Contact Us]( © 2023 Paradigm Press, LLC. 808 Saint Paul Street, Baltimore MD 21202. By submitting your email address, you consent to Paradigm Press, LLC. delivering daily email issues and advertisements. 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