We’re Screwed If We Do the Math

Biden Doesn’t Want You to Put it Together [Morning Reckoning] September 05, 2023 [WEBSITE]( | [UNSUBSCRIBE]( We’re Screwed If We Do the Math - I know you’ve heard of the Rule of 72, but we’re using it differently here. - But most don’t know the math, and that’s today’s big issue. - While illiteracy is incompetence with words, innumeracy is incompetence with numbers. [A $557 credit has been applied to your account]( [Please click here to learn how to claim it.]( — Customer Service, Paradigm Press [LEARN MORE]( Baltimore, Maryland September 05, 2023 [Greg Guenthner] GREG GUENTHNER Good Morning Reader, I’m still getting back from spending time with my family for the holiday weekend. So I’m going to let Sean Ring take over for today with one of my favorite pieces he’s run. I’ll be back next week with our normal Morning Reckoning. Talk to you then! [Greg Guenthner] Greg Guenthner Contributing Editor, Morning Reckoning feedback@dailyreckoning.com [Sean Ring] SEAN RING 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 that the more women can do the math, the less children they want (for lifestyle reasons). That is, numeracy, rather than literacy, drives the decision-making. There are loads of 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’m going to 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 I think the fewer and the simpler, the better. So let’s start with five simple rules to see if they change how you think. [I need your attention immediately]( [This big announcement]( comes down on Wednesday at midnight. If you haven’t already, [click here now to see it.]( Trust me, you do not want to miss out on what’s coming. [LEARN MORE]( 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, let’s 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. 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. 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 a 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 house 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. 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 10% per year. But it’s accomplished that 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 incredibly important for setting your expectations as an investor, and for also 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 backburner. But if there is a lot of new material here, I can’t encourage 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](mailto:feedback@dailyreckoning.com). And if you found this the least bit unhelpful, do let me know that as well. All the best, [Sean Ring] Sean Ring Contributing Editor, The Morning Reckoning feedback@dailyreckoning.com X (formerly Twitter): [@seaniechaos]( [New “WiFi Crypto” Token is Going NUTS!]( Only a handful of crypto investors know about this… But there’s a tiny, affordable device… That’s paid investors real crypto – every day, with zero work… Just for having a working WiFi connection! It sounds crazy, but it’s true… And [this 3:28 video]( explains everything. [Click here to view it NOW](. [LEARN MORE]( In Case You Missed It… The Great Wealth Migration Sean Ring, Editor [Sean Ring] SEAN RING Dear Reader, Greetings from a gorgeously cool and autumnal Asti. We’ve only had a six-week summer here in Italy. It was cool until mid-June, and as I stand here typing, it’s a mere 69F (20C). The global warming nuts are having a tough time with this. The weather maps are blue and green, even in environMENTAL Germany. Though we’re still three weeks away, autumn is my favorite time of year. I get to cool down and think again. As David Landes wrote in The Wealth and Poverty of Nations: In India and other tropical countries, I have noticed farmers, industrial laborers, and in fact, all kinds of manual and office workers working in slow rhythm with long and frequent rest pauses. But in the temperate zone, I have noticed the same classes of people working in quick rhythm with great vigor and energy, and with very few rest pauses. I have known from personal experience and the experience of other tropical peoples in the temperate zone that this spectacular difference in working energy and efficiency could not be due entirely or even mainly to different levels of nutrition. Weather matters. It really matters. I noticed this when I lived in Southeast Asia's sweltering, humid air. In fact, it was one of the main reasons I wanted to get back to the West. I needed cool air to regain my intellectual and physical vigor. After a long train trip through Europe over the past two weeks, I feel I’ve finally “returned” to the West. A long walk through the Louvre will help that out. Walking through seaside Barcelona, the canals of Amsterdam, pristine Brussels, and the tight alleys of medieval Antwerp will erase the rest of the Eastern residue. Kipling once wrote: Oh, East is East, and West is West, and never the twain shall meet, Till Earth and Sky stand presently at God's great Judgment Seat; But there is neither East nor West, Border, nor Breed, nor Birth, When two strong men stand face to face, though they come from the ends of the earth! What I love about this passage is that the first two lines don’t deny the immense difference between Eastern and Western cultures. But the third and fourth lines of the poem contradict the first two, allowing that individuals of diverse cultures can easily get along, no matter where they’re from. Unfortunately, no one reads Kipling anymore, as he was an unabashed Empire lover. For if they had, they’d know he was no racist. Kipling was a realist. With this in mind, let’s tie together economics and politics to explain why governments, even Italy’s, opt for the intellectually lazy open borders strategy. Ultra-Low Rates and Ultra-High Asset Prices: Ethically Offensive I’ve written about this many times and am sorry to keep beating a dead horse. But sooner or later, we’ve got to learn that a central bank can’t keep its foot on the yield curve for years and expect good outcomes. Even if we allow for the argument that a certain amount of money-printing enables the economy to restart itself, there’s simply no excuse for keeping the spigot open for multi-year periods or, in the case of 2008-2021, over a decade. In his masterpiece, The Ethics of Money Production, Jörg Guido Hülsmann writes: The characteristic feature of fiat inflation is that it is done openly and legally. However, official approval does not diminish the pernicious effects of inflation; and it is far from removing its ethical offensiveness. Hmmm… “ethical offensiveness.” Yes, depriving prospective families of the means to have children is ethically offensive. And by that, I mean the ability to have a family in a well-priced house on a single income. I genuinely don’t think that’s too much to ask. In the old days, Dad bought a house for $50,000, Mom stayed at home until at least the third kid was in grammar school, and the family wasn’t left wanting. How people try to say we’ve “progressed” on that front is beyond me. You simply can’t progress when a couple needs both people to work and still can’t afford a down payment, let alone a house, because they’re still paying off their student loans. This is because central banks hold rates on the floor far after their stimulating effects have been extinguished. And it transfers wealth from the poor to the already wealthy in the stealthiest way possible. As a result, demographics are disastrous. Not Mass Migration, But Forced Integration And what’s the answer to this demographic disaster? Politicians think it’s mass migration. Unfortunately, politicians also think these migrants will easily fit into their new societies. This clearly isn’t the case. And while France has a terrible integration problem because they were horrific colonial overlords — see Niger and Gabon (currently) — the UK has had similar issues integrating its immigrants. This “forced integration,” as Hans-Hermann Hoppe calls it, is where the demographic project falls. As Sean Gabb writes in [Property, Freedom, & Society]( [Hoppe] regards the mass immigration of the past half-century into Western countries as an instance, not of libertarian open borders, but of “forced integration.” It is different from free trade in goods and services so far as it is not a free choice of individuals to associate as they please. Instead, it is a product of anti-discrimination laws and state welfare policies. In a democracy, politicians will have an interest in importing those most likely to vote for big government, or those most likely to lend themselves to an electoral balkanization that puts an end to the accountability of rulers to ruled. Given enough pressure by the majority, these politicians will make immigration laws that look tough. But these will lead, at best, to random acts of oppression against the sorts of immigrant who, in any rational order, might be welcomed. The policies of indiscriminate welfare that attract paupers into the country, and of political correctness and multiculturalism that prevent the majority from resisting, will continue unchecked. Hoppe wrote about this in 1999 in his now-famous essay, [On Free Immigration and Forced Integration](. Despite all this, the latest country to fall for this codswallop is my very own Italy. They Like Me! They Really Like Me! Once upon a time, Giorgia Meloni was one of the most ardent anti-migration voices in the European Union. As an opposition politician, she warned the New World Order would substitute native Italians with ethnic minorities. She even promised to put in place a naval blockade to stop migrants crossing the Mediterranean. Someone’s pants are on fire. Now that her EU colleagues have shown her some respect, Meloni has presided over a spike in irregular arrivals. She also introduced legislation that could see as many as 1.5 million new migrants arrive through legal channels. From [Politico]( Meloni is presiding over a country that is economically stagnant and in demographic decline. Over the last decade, Italy has shrunk by some 1.5 million people (more than the population of Milan). In 39 of its 107 provinces, there are more retirees than workers. It’s numbers like these that prompted Italy’s Economy Minister Giancarlo Giorgetti to warn earlier this month that no reform of the pension system would “hold up in the medium-to-long term with the birth rate numbers we have today in this country.” Meloni’s legal migration decree estimates Italy needs 833,000 new migrants over the next three years to fill in the gap in its labor force. It opens the door to 452,000 workers over the same period to fill seasonal jobs in sectors like agriculture and tourism as well as long-term positions like plumbers, electricians, care workers, and mechanics. Meet the new boss. Same as the old boss. Wrap Up It’s the same story all over the developed world. Central banks stomped on the yield curve, lowering interest rates to artificial levels. That goosed the asset market for far too long, which made housing, cars, and children too expensive. To clean up the mess, governments didn’t interfere with central banks’ stupid decisions but opened the borders to mass migration and forced integration. In a few years, Italy may be experiencing the same problems France, the UK, and the rest of the developed world face now. Where’s Kipling when you need him? All the best, [Sean Ring] Sean Ring Contributing Editor, The Morning Reckoning feedback@dailyreckoning.com X (formerly Twitter): [@seaniechaos]( Thank you for reading The Morning Reckoning! We greatly value your questions and comments. Please send all feedback to [feedback@dailyreckoning.com.](mailto:dr@dailyreckoning.com) [Greg Guenthner] [Greg Guenthner, CMT,]( is chief strategist at Forge Research Group. He has spent the better part of the past two decades developing long-term and short-term strategies with a single goal in mind: to help everyday investors generate outstanding returns and control their financial futures. Greg’s charts, analysis, and insights have appeared in Marketwatch, Forbes, Yahoo Finance, and many other financial publications. [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. To end your The Daily Reckoning e-mail subscription and associated external offers sent from The Daily Reckoning, feel free to [click here.]( Please note: the mailbox associated with this email address is not monitored, so do not reply to this message. We welcome comments or suggestions at feedback@dailyreckoning.com. This address is for feedback only. For questions about your account or to speak with customer service, [contact us here]( or call (844)-731-0984. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized financial advice. We allow the editors of our publications to recommend securities that they own themselves. However, our policy prohibits editors from exiting a personal trade while the recommendation to subscribers is open. In no circumstance may an editor sell a security before subscribers have a fair opportunity to exit. The length of time an editor must wait after subscribers have been advised to exit a play depends on the type of publication. All other employees and agents must wait 24 hours after on-line publication or 72 hours after the mailing of a printed-only publication prior to following an initial recommendation. Any investments recommended in this letter should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company. The Daily Reckoning is committed to protecting and respecting your privacy. We do not rent or share your email address. Please read our [Privacy Statement.]( If you are having trouble receiving your The Daily Reckoning subscription, you can ensure its arrival in your mailbox by [whitelisting The Daily Reckoning.](