Category Archives: Uncategorized

Arizona Passes Bill To End Income Taxation On Gold And Silver

https://s15-us2.ixquick.com/cgi-bin/serveimage?url=http%3A%2F%2Fwww.kitco.com%2Fnews%2F2016-05-09%2Fimages%2F0509016NC_dollars_Gold_001.jpg&sp=0129c0b6b0e488a962759a385e0c6bf5Sound money advocates scored a major victory on Wednesday, when the Arizona state senate voted 16-13 to remove all income taxation of precious metals at the state level. The measure heads to Governor Doug Ducey, who is expected to sign it into law.

Under House Bill 2014, introduced by Representative Mark Finchem (R-Tucson), Arizona taxpayers will simply back out all precious metals “gains” and “losses” reported on their federal tax returns from the calculation of their Arizona adjusted gross income (AGI).

If taxpayers own gold to protect themselves against the devaluation of America’s paper currency, they frequently end up with a “gain” when exchanging those metals back into dollars. However, this is not necessarily a real gain in terms of a gain in actual purchasing power. This “gain” is often a nominal gain because of the slow but steady devaluation of the dollar.  Yet the government nevertheless assesses a tax.

Sound Money Defense League, former presidential candidate Congressman Ron Paul, and Campaign for Liberty helped secure passage of HB 2014 because “it begins to dismantle the Federal Reserve’s monopoly on money” according to JP Cortez, an alumnus of Mises University.

Ron Paul noted, “HB 2014 is a very important and timely piece of legislation. The Federal Reserve’s failure to reignite the economy with record-low interest rates since the last crash is a sign that we may soon see the dollar’s collapse. It is therefore imperative that the law protect people’s right to use alternatives to what may soon be virtually worthless Federal Reserve Notes.” In early March, Dr. Paul appeared before the state Senate committee that was considering the proposal.

“We ought not to tax money, and that’s a good idea. It makes no sense to tax money,” Paul told the state senators. “Paper is not money, it’s a substitute for money and it’s fraud,” he added, referring to the fractional-reserve banking practiced by the Federal Reserve and other central banks.

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After the committee voted to pass the bill on to the full body of the Senate, Dr. Paul held a rally on the grounds of the state legislature, congratulating supporters of the measure and of sound money.

Paul told the crowd that “they were on the right side of history” and that even though those working to restore constitutional liberty to Arizona and all the states “had a great burden to bear,” there are “more than you know” working toward the same goal.

Referring to the bill’s elimination of capital gains taxes on gold and silver, the sponsor of the bill, State Representative Mark Finchem, said, “What the IRS has figured out at the federal level is to target inflation as a gain. They call it capital gains.”

Shortly after the vote in the state Senate, the Sound Money Defense League, an organization working to bring back gold and silver as America’s constitutional money, issued a press release announcing the good news.

“Arizona is helping lead the way in defending sound money and making it less difficult for citizens to protect themselves from the inflation and financial turmoil that flows from the abusive Federal Reserve System,” said Stefan Gleason, the organization’s director

As a reminder, in 1813 Thomas Jefferson warned, “paper money is liable to be abused, has been, is, and forever will be abused, in every country in which it is permitted.” This is also why the men who drafted the Constitution empowered Congress to mint gold and silver, sound money, and why they included not a single syllable authorizing the legislature to “surrender that critical power to a plutocracy with a penchant for printing fiat money.”

Slowly, states may be summoning back the days when money was actually worth something. At least 20 states are currently considering doing as Arizona is about to do and remove the income tax on the capital gains from the buying and selling of precious metals: some state legislatures, including Utah and Idaho, have taken steps toward eliminating income taxation on the monetary metals.  Other states are rolling back sales taxes on gold and silver or setting up precious metals depositories to help citizens save and transact in gold and silver bullion.

Source: ZeroHedge

The Way Out of Debt-Serfdom: Fanatic Frugality

Debt is serfdom, capital in all its forms is freedom.

If we accept that our financial system is nothing but a wealth-transfer mechanism from the productive elements of our economy to parasitic, neofeudal rentier-cartels and self-serving state fiefdoms, that raises a question: what do we do about it?

The typical answer seems to be: deny it, ignore it, get distracted by carefully choreographed culture wars or shrug fatalistically and put one’s shoulder to the debt-serf grindstone.

There is another response, one that very few pursue: fanatic frugality in service of financial-political independence. Debt-serfs and dependents of the state have no effective political power, as noted yesterday in It Isn’t What You Earn and Owe, It’s What You Own That Generates Income.

There are only three ways to accumulate productive capital/assets: marry someone with money, inherit money or accumulate capital/savings and invest it in productive assets. (We’ll leave out lobbying the Federal government for a fat contract or tax break, selling derivatives designed to default and the rest of the criminal financial skims and scams used so effectively by the New Nobility financial elites.)
The only way to accumulate capital to invest is to spend considerably less than you earn. For a variety of reasons, humans seem predisposed to spend more as their income rises. Thus the person making $30,000 a year imagines that if only they could earn $100,000 a year, they could save half of their net income. Yet when that happy day arrives, they generally find their expenses have risen in tandem with their income, and the anticipated ease of saving large chunks of money never materializes.
What qualifies as extreme frugality? Saving a third of one’s net income is a good start, though putting aside half of one’s net income is even better.
The lower one’s income, the more creative one has to be to save a significant percentage of one’s net income. On the plus side, the income tax burden for lower-income workers is low, so relatively little of gross income is lost to taxes.
The second half of the job is investing the accumulated capital in productive assets and/or enterprises. The root of capitalism is capital, and that includes not just financial capital (cash) but social capital (the value of one’s networks and associations) and human capital (one’s skills and experience and ability to master new knowledge and skills).
I cover these intangible forms of capital in my book Get a Job, Build a Real Career and Defy a Bewildering Economy.
Cash invested in tools and new skills and collaborative networks can leverage a relatively modest sum of cash capital into a significant income stream, something that cannot be said of financial investments in a zero-interest rate world.
Notice anything about this chart of the U.S. savings rate? How about a multi-decade decline? Yes, expenses have risen, taxes have gone up, housing is in another bubble–all these are absolutely true. That makes savings and capital even more difficult to acquire and more valuable due to its scarcity. That means we have to approach capital accumulation with even more ingenuity and creativity than was needed in the past.
https://i1.wp.com/www.oftwominds.com/photos2017/savings-rate.gif
Meanwhile, we’ve substituted debt for income. This is the core dynamic of debt-serfdom.
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As Aristotle observed, “We are what we do every day.” That is the core of fanatic frugality and the capital-accumulation mindset.

For your amusement: a few photos of everyday fanatic frugality (and dumpster-diving).

https://i0.wp.com/www.oftwominds.com/photos10/frugal-wok.jpg

https://i2.wp.com/www.oftwominds.com/photos10/frugal-food.jpg

https://i1.wp.com/www.oftwominds.com/photos10/frugal-sandal.jpg

https://i2.wp.com/www.oftwominds.com/photos10/frugal-slippers.jpg

https://i2.wp.com/www.oftwominds.com/photos10/frugal-bikeseat.jpg

The only leverage available to all is extreme frugality in service of accumulating savings that can be productively invested in building human, social and financial capital.

Debt is serfdom, capital in all its forms is freedom. Waste nothing, build some form of capital every day, seek opportunity rather than distraction.

Debt = Serfdom (April 2, 2013)

How Frugal Are You? (August 7, 2010)

By Charles Huge Smith | Of Two Minds

 

Buy One Bitcoin And Forget About It

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Summary

  • For months we have been getting messages and e-mails about Bitcoin.
  • We have long been advocate for buying the BTC dips and riding it out for the longer term.
  • We explain why we think everyone’s BTC strategy should simply be: “Buy one Bitcoin and forget about it”.

By Parke Shall

That is our simple bitcoin advice. “Buy one and forget about it for a while.” Your loss today is going to be capped at about $1400 but, as was said in Back to the Future, “if this thing hits 88 miles per hour, you’re going to see some serious s***.”

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We wanted to take the time to write a small note today about our continued thinking on bitcoin and why we think a small investment in perhaps just one bitcoin could be a prudent strategy for asset diversification for any investor.

Hopefully, our track record on the digital currency also helps our credibility today. In the past, we have advocated for buying any and all dips in the digital currency making the argument time and time again that we believed bitcoin would continue to appreciate regardless of small aberrations that have occurred along the way. For instance in December of last year, we predicted bitcoin would soar through $1200 this year.

The conclusion has generally been the same in each of our bitcoin articles: we expect demand for bitcoin to continue to rise and, with a limited supply, and we expected this demand will push the price significantly higher. This is the dynamic we have seen during the course of bitcoin’s life cycle thus far,

https://static.seekingalpha.com/uploads/2017/5/4/30605895-14939009110074322.png

Many people have been deterred from investing or purchasing bitcoin at these levels because of how much the prices has appreciated so far. This is akin to not wanting to buy a stock while it is on its way up, despite its best years possibly being ahead of it. If you didn’t buy at $700 like we advocated, then yes, you missed out on a double. But who is to say that if you don’t buy here at around $1400 you won’t miss another double? In fact, we think the reality is that an investment in bitcoin today could pay off many multiples in the future as long as, as an investor, you have patience.

We also don’t think owning gold is a bad idea either. We are not sure why this argument of gold versus bitcoin started, but we own both. We like to think of them as our “old-school” and our “new school” hedges. Gold is an “old-school” hedge because it is actually a physical asset that you can reach out and touch that has been intertwined with economics for thousands of years. It has a great track record of demand and comes in finite amounts, therefore making it a great hedge against anything and everything that is “new school” in the market, from Keynesian theory to bitcoin.

Bitcoin obviously has the biggest track for potential appreciation, we believe. While gold may not go up 10 times in the event of a catastrophe or a risk off event, it still may appreciate significantly. We believe bitcoin, on the other hand, actually has the potential to appreciate over 100 times in the future, if it holds up. By that, we mean that there is definitely a theoretical case for the asset to appreciate this much, although there is probably a cautious likelihood of it happening. In other words, and not to sound hyperbolic, Bitcoin going to $1 million may not prove to be a total impossibility.

This appreciation may occur without a catastrophe or without a risk off event. In other words, we like bitcoin not only as an investment in the financial technology and not only as an investment in a digital currency but also as an investment in a hedge against central banks and the markets.

 

To explain:

1. We know that blockchain is at the core of what makes Bitcoin tick. Companies and governments have continued to invest in blockchain, and we believe that owning Bitcoin is another way to invest in one of the earliest and possibly the most well known blockchain project out there. Therefore, an investment in Bitcoin is an investment in Blockchain.

2. Not unlike gold, people use Bitcoin because they want less government and less regulation in their lives. Buying Bitcoin is a way to, at least for now, shore up a method of transacting value outside of the “system”. Gold offers the same benefits and is tangible, which is why we like owning both gold and Bitcoin as hedges against the “system”.

We have gotten numerous questions over the last year or so about what our strategy would be if we were new to investing in bitcoin. Put simply, the strategy would be to “buy one bit coin and just leave it”. One of a couple scenarios are going to happen.

The first situation is the worst. Let’s assume bitcoin winds up going to zero eventually and is somehow either rejected as a digital currency or disproven as a financial technology. In that case, you take a 100% loss. Sorry. At least your risk was defined.

The second situation is one where bitcoin is adopted in somewhat of the same fashion as it has been adopted of recent. Its use starts to drift from outside the mainstream to inside the mainstream and the price continues to appreciate. This is a case where you’d likely see appreciation in a bitcoin that you purchased today.

Finally, the third situation. We call this the grand slam. Bitcoin is unanimously excepted as the first and only prominent digital currency. It becomes a full-scale hedge, adopted by a significant portion of the population, against central banking systems and finance as we know it today. Given the fact that only about 20 million bitcoin will be issued in total, there will be a severe dry up in supply as billions of people worldwide look to get their share of the digital currency. This is a situation where the currency could appreciate 100 times what its worth now or more. Obviously, this is the most speculative of the three situations but could be a reality if an investor has enough patience to wait it out. This type of situation could take 15 to 30 years and this is why the title of this article is “buy one bitcoin and forget about it“.

 

Again, bitcoin does not come without risk.

Relative to other assets you may hold, like stocks, options and other currencies, Bitcoin is going to be extraordinarily volatile. Due to the fact that it is easily in the digital currency’s life cycle and that it has yet to be proven on a wide scale, investors can expect significant volatility, sometimes 20%+ in one day’s time, for the capital they have invested in Bitcoin.

Also, it is an all digital currency meaning that it needs digital infrastructure to survive. In a catastrophic scenario where our infrastructure is compromised, we have no idea what would happen to bitcoin. It isn’t tangible and you can’t physically hold it, which are two of its major detracting points versus gold. However, we see buying bitcoin at $1400 as a speculative investment that could yield immense results in the future if you have the wherewithal and you have the strength to hold it over time.

By Parke Shall | Orange Peel Investments

Also see How Block Chain Will Revolutionize More Than Money

Auto Sales Puke Again: GM -6%, Ford -7.2%, Toyota -4.4%, Fiat-Chrysler -7.0%

Your job is your credit. Zero down delivers …

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Auto sales are down for the fourth consecutive month. Final numbers are not yet in, but the preliminary year-over-year totals are miserable.

Nearly every company performed worse than expected, and expectations were down across the board.

Boom Over

Reuters reports Automakers’ April U.S. Sales Drop; Wall St. Fears Boom is Over.

  • GM, the No. 1 U.S. automaker, reported a 6% decline in April sales to 244,406 vehicles.
  • Ford, the No. 2 U.S. automaker, reported a 7.2% decline in April. Ford car sales dropped 21% and trucks declined 4.2%, while SUV sales rose 1.2%.
  • Toyota reported a drop of 4.4%. Lexus sales slid 11.1%. U.S. car sales at the Japanese automaker were down 10.4%, while truck sales were up 2.1%.
  • Fiat-Chrysler reported sales were off 7%

“GM said its consumer discounts were equivalent to 11.7 percent of the transaction price. The automaker also said its inventory level rose to 100 days of supply at the end of April versus around 70 days at the end of 2016. Recent levels have worried analysts, and GM has promised inventories will be down by the end of 2017.”

Missed Estimates

Bloomberg reports Auto Sales Fall for Fourth Straight Month

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Quote of the Day

The U.S. market is plateauing, Mark LaNeve, Ford’s vice president of U.S. marketing, sales and service, said on a call with analysts and reporters.

I’m not discouraged by the number,” he said. “In this kind of industry, there’s going to be these kinds of months.”

Plateauing? Really?

I discussed complacency yesterday in Three Big Red Flags for Auto Sales.

The three red flags according to Automotive News are leasing, incentives, and inventory.  I added a fourth: complacency in the face of falling demand and rising incentives.

Effect on GDP

Auto sales make up about 20% of consumer spending. The big second quarter GDP bounce economists expect is highly unlikely, to say the least.

By Mike “Mish” Shedlock

Deja Vu: JPM Slashes Auto Loans For Their Own Book; Ramps Up ABS Issuance For The Suckers

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Back in 2007/2008, Wall Street drastically pulled back on mortgage origination for their own balance sheets while ramping up their issuance of RMBS securities.  Of course, the goal was very simple: package up all the mortgage-related nuclear waste on your balance sheet into a pretty package, tie a ribbon around it with that AAA-rating from Moody’s and sell it all to unsuspecting pension funds and insurance companies around the globe. 

Now, despite all the ‘harsh penalties’ that Obama imposed on Wall Street after the mortgage crisis, like that $1.8 billion settlement where we showed that Goldman will actually make money from their ‘punishment’, it seems as though the exact same scheme is currently underway with auto loans.  Per Bloomberg:

Both banks have grown more reluctant to make new subprime loans using money from their own balance sheets. Wells Fargo tightened its underwriting standards and slashed the volume of all loans it made to car buyers in the first quarter by 29 percent after greater numbers of borrowers fell behind on payments. JPMorgan’s consumer and community banking head Gordon Smith earlier this year said the bank had cut its new lending for subprime auto loans “dramatically.”

At the same time the firms are indirectly funding billions of dollars of the loans by helping companies like Santander Consumer USA Holdings Inc. borrow in the asset-backed securities market, essentially shunting money from bond investors to finance companies. Wall Street banks packaged more loans from finance companies into bonds in the first quarter than the same period last year, and Wells Fargo and JPMorgan remained two of the top underwriters of the securities.

Of course, with only ~$200 billion of auto ABS outstanding, compared to $9 trillion in RMBS, the auto loan market hardly represents the same “systemic risk” to the financial industry today as mortgage loans did back in 2007.  That said, deterioration in lending standards could certainly wreak havoc on consumers, investors and the auto industry which will undoubtedly have ripple effects throughout the economy.

The risks to Wall Street firms from subprime auto bonds are smaller. Big banks provide lines of credit to finance companies that make subprime loans, but these tend to be a small part of major firms’ balance sheets. The auto loan bond market is much smaller, too: there were just $192.3 billion of securities backed by auto loans, including prime and subprime, outstanding at the end of March according to the Securities Industry and Financial Markets Association, compared with around $8.9 trillion of residential mortgage bonds at the end of last year.

Banks might not get hurt much by subprime auto securities, but for investors who buy them, the risks are growing. Subprime borrowers are falling behind on their car loan payments at the highest rate since the financial crisis. General Motors Co. expects car prices to drop 7 percent this year and auto lender Ally Financial Inc. reported last month that prices fell that much during its first quarter, so the value of the loans’ collateral is dropping. Even Wells Fargo’s analysts who look at bonds backed by car loans cautioned in March that it may be a good time for investors to cut their exposure.

And while JPM and Wells are pulling back on their own auto loan underwriting, we wonder whether they’re sharing these details regarding auto loan delinquencies with new buyers of their sparkling auto ABS securities?

https://i1.wp.com/www.zerohedge.com/sites/default/files/images/user230519/imageroot/2017/03/29/2017.03.29%20-%20SubPrime%201_0.JPG

Or the fact that loss severities are also starting to rise… 

https://i2.wp.com/www.zerohedge.com/sites/default/files/images/user230519/imageroot/2017/03/29/2017.03.29%20-%20SubPrime%202_0.JPG

Oh well, losses are never possible on those highly-engineered, complex wall street structures…until they are.

Source: ZeroHedge

 

Parent Plus Student Loans: How to Screw Parents and Kids in a Single Shot

It’s easy to get student loans thanks to the aptly named “Parent Plus” program, a subprime loan trap that ensnares parents plus their college-age children. The program was enacted by Congress in the 1980s, but president Obama promoted it heavily.

The results speak for themselves: Nearly 40% of the loans are subprime. The default rate exceeds the rate for U.S. mortgages at the peak of the housing crisis.

Kids graduate from college with useless degrees, plus parents and kids are stuck with massive bills that cannot be paid back.

https://mishgea.files.wordpress.com/2017/04/subprime-student-loans.png?w=529&h=269

It’s Easy for Parents to Get College Loans—Repaying Them Is Another Story.

Student loans made through parents come from an Education Department program called Parent Plus, which has loans outstanding to more than three million Americans. The problem is the government asks almost nothing about its borrowers’ incomes, existing debts, savings, credit scores or ability to repay. Then it extends loans that are nearly impossible to extinguish in bankruptcy if borrowers fall on hard times.

https://mishgea.files.wordpress.com/2017/04/parents-plus.png?w=450&h=518

As of September 2015, more than 330,000 people, or 11% of borrowers, had gone at least a year without making a payment on a Parent Plus loan, according to the Government Accountability Office. That exceeds the default rate on U.S. mortgages at the peak of the housing crisis. More recent Education Department data show another 180,000 of the loans were at least a month delinquent as of May 2016.

“This credit is being extended on terms that specifically, willfully ignore their ability to repay,” says Toby Merrill of Harvard Law School’s Legal Services Center. “You can’t avoid that we’re targeting high-cost, high-dollar-amount loans to people who we know can’t afford to repay them.”

The number of Americans with federal student loans, including through programs for undergraduates, parents and graduate students, grew by 14 million to 42 million in the decade through last year. Overall student debt, most of it issued by the federal government, more than doubled to $1.3 trillion over that period.

The financing fueled a surge in college enrollment. Between 2005 and 2010, enrollment grew 20%, the biggest increase since the 1970s. The Obama administration supported such lending in an effort to widen access to college education.

Nearly four in 10 student loans—the vast majority of them federal ones—went to borrowers with credit scores below the subprime threshold of 620, indicating they were at the highest risk of defaulting, according to a Wall Street Journal analysis of data from credit-rating firm Equifax Inc. That figure excludes borrowers, such as many 18-year-old freshmen, who lacked scores because of shallow credit histories. By comparison, subprime mortgages peaked at nearly 20% of all mortgage originations in 2006.

Roughly eight million Americans owing $137 billion are at least 360 days delinquent on federal student loans, nearly the number of homeowners who lost their homes because of the housing crisis. More than three million others owing $88 billion have fallen at least a month behind or have been granted temporary reprieves on payments because of financial distress.

Joint Effort

In 2005, president Bush signed the bankruptcy reform act of 2005 making student loans not dischargeable in bankruptcy.

President Obama came along next and encouraged parents who had no idea what they were getting into to sign loans to put their kids through college.

Parents plus their kids are mired in debt that cannot be paid back. Thank you Congress, President Bush, and President Obama.

Surefire Way to Discharge the Loans

There is one way to get rid of these loans. Die.

Stop the Madness

Wherever government meddles, costs rise dramatically.

The solution is to stop the meddling: Stop all the loan programs, stop all the aid programs, stop insisting that everyone needs to go to college, and start accrediting programs and course offerings from places like the Khan Academy.

Not a single student aid program aided any students. Rather, escalating costs went to teachers, administrators, and their pensions as student debt piled sky high.

By Mike “Mish” Shedlock

Pittsburgh Mall Once Worth $190 Million Sells For $100

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We have frequently noted the precarious state of the U.S. mall REITs (see “Myopic Markets & The Looming Mall REITs Massacre” and “Is CMBS The Next “Shoe To Drop”? GGP Sales Suggest Commercial Real Estate Crashing“), but the epic collapse of the Galleria at Pittsburgh Mills paints a uniquely horrific outlook for mall operators.  The 1.1 million square foot mall, once valued at $190 million after being opened in 2005, sold at a foreclosure auction this morning for $100 (yes, not million…just $100).  According to CBS Pittsburgh, the mall was purchased by its lender, Wells Fargo, which credit bid it’s $143 million loan balance, which was originated in 2006, to acquire the property.

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Like many malls around the country, Pittsburgh Mills has suffered the consequences of weak traffic amid tepid demand from the struggling U.S. consumer resulting in massive tenant losses.  According to the Pittsburgh Tribune, the mall is only 55% occupied and was last appraised for $11 million back in August. 

The value of the mall has been plummeting since it opened in July 2005. Once worth $190 million, it was appraised at $11 million in August.

The mall has lost a number of key tenants over the years, including a Sears Grand store. The mall’s retail space is nearly half empty, with about 55 percent occupied.

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Of course, New York Fed President Bill Dudley laid out a very compelling case for retailers yesterday if he can just convince American homeowners to commit the same mistakes they made back in 2006 by repeatedly withdrawing all of the equity in their homes to fund meaningless shopping sprees.  So it’s probably safe to keep buying those mall REITs…after all those 3% dividend yields are amazing alternatives to Treasuries and you’re basically taking the same risk…assuming you overlook the billions of property-level debt that ranks senior to your equity position.

https://i2.wp.com/www.zerohedge.com/sites/default/files/images/user230519/imageroot/2017/01/18/2017.01.18%20-%20Mall%20REITS_0.JPG

Source: ZeroHedge