What is the real value of money?

Wednesday, 18 August 2021 — Gold Coast, Australia

[8 min read]

Dear Reader,

Money for money’s sake is a pretty hollow and meaningless pursuit.

To really appreciate and respect (as opposed to love) money, there has to be a deeper level of meaning.

Find that meaning and you’ll become a more considered and thoughtful investor.

The reason why so many Lotto winners squander their instant fortunes is they have no higher motive in life than instant gratification. When the money is gone, often their lives are poorer for having been temporarily wealthy.

To me, money is a resource to improve my family’s quality of life and the lives of those not so well off.

Therefore, when considering an investment opportunity, one of my primary considerations is: will this take me closer to or away from my goal?

If the opportunity does offer potential to improve our financial position, then you undertake an assessment on the risk versus reward trade-off and what percentage of capital you are prepared to allocate to the prospective opportunity.

In my experience, those who have lost most or all of their wealth are blinded by dollar signs.

When your sole purpose is money, it’s easy to lose sight of what really matters in this world.

If someone said to me ‘You can have $1 billion, but it comes with the cost of having a damaged-beyond-repair relationship with your children.’ I would say ‘Keep your money.’

While money is important, there are other things in life far more important to me.

The ‘everything bubble’ has delivered a windfall for many investors in shares, property, and cryptos.

History tells us this massive bubble is destined to burst…it’s just a matter of when. Tomorrow, next month, or next year?

For those who’ve seen a significant improvement in their financial position, they need to be asking themselves do I want this to be permanent or temporary?

If you want it to be more permanent, then this means taking profits, paying the taxes, sitting in cash, and watching the action from the sidelines.

None of the above sounds particularly appealing.

But losing maybe 50, 60, or 70% of your capital is far less appealing…but, as is often the case, you won’t realise that until after it’s happened. By then it’s too late.

When wealth means far more than numbers on a balance sheet, your decision-making is influenced far less by the emotions of greed and FOMO.

The real value of money is investing in our children

One of the side effects of the ‘everything bubble’ has been a growing increase in income inequality.

Studying the social and economic effects of this phenomenon makes for an interesting (and motivating) read.

In October 2016, University of Michigan professors Fabian Pfeffer and Robert Schoeni published a research paper titled ‘How Wealth Inequality Shapes Our Future’.

Life is all about the odds…which is why this statement from the research resonated with me:

‘The odds of becoming part of the wealthiest 20 percent of Americans are more than 700 percent greater if your parents were in the top 20 percent instead of the bottom.’

Staying wealthy — not falling out of the top 20% when the bubble burst — significantly increases the odds for our children’s financial future.

Retirees (and near retirees) who are knowingly or unknowingly embarking on the strategy of ‘Spending Kids’ Inheritance’ (via lifestyle options, lifetime annuities, reverse mortgages, and/or out of necessity to make ends meet) are at risk of spending themselves into the bottom 50% of household wealth.

What are the odds of their children and grandchildren repeating the same cycle? Based on the research…reasonably high.

If you needed additional incentive to permanently retain your wealth, then giving your children a 700% greater chance of being part of the top 20% should be a pretty powerful motivator.

Retained wealth means you can provide your children and/or grandchildren with better education options (emphasis added)…

‘Human capital, and education in particular, translates into more favorable outcomes in the labor market, higher income, greater wealth, and a longer life. One more year of schooling leads to roughly 10 percent higher earnings each year (Card 1999). The wealth of college graduates is three times higher than that of high school graduates (Bricker et al.2015). Life expectancy is six years higher for college graduates than for high school graduates (Rostron, Boies, and Arias 2010) and this gap is increasing (Montez and Zajacova 2013; Olshansky et al.2012).

‘Wealth allows parents to purchase a variety of resources that enhance human capital development: high-quality day care, books and learning tools at home, enrichment activities, and access to better elementary and secondary schools (Duncan and Murnane 2011).
‘The evidence is perhaps most alarming at the postsecondary level. College graduation is strongly related to parental wealth (Conley 2001). The college graduation rates of young adults whose parents are in the top 20 percent of the wealth distribution are more than 40 percentage points higher than among those whose parents are in the bottom 20 percent, and this gap has grown substantially across recent cohorts.’

The ability to access quality education tends to translate into opportunities to access higher paid employment, more wealth, and increased life expectancy. Who doesn’t want that outcome for their children?

This, for me, is what wealth is all about. Having the capital to provide access to opportunities that improve our children’s odds of success in life. Making them richer in knowledge, experiences, and social skills.

Do all children who have access to better education opportunities succeed and those that don’t fail?

No.

But we are playing the odds game, so having access to a quality education — from kindergarten to university — increases the odds in our favour.

The researchers also found informal education is just as important (emphasis added)…

‘The quantity and quality of formal education is important, but formal education is just one form of human capital. Some individuals are better than others at accumulating assets thanks to better knowledge of and skills in managing their finances (Lusardi, Michaud, and Mitchell 2013). Preferences for risk-taking and saving versus spending may also matter. Parents who have these valuable skills and qualities likely pass them on to their children (Dohmen et al 2012), although evidence suggests that the intergenerational transmission of risk preferences per se does not account for much of the intergenerational correlation in wealth (Charles and Hurst 2013).’

The knowledge learned from being a prudent and considered steward of capital can provide your children with an invaluable foundation upon which they too can build their own financial position.

And you can teach them about the true value of money.

Investing in my family is what’s helped me stay grounded in my investment choices.

Regards,

Vern Gowdie,
Editor, The Rum Rebellion

Vern is also the Editor of The Gowdie Letter and The Gowdie Advisory — investment services designed to help everyday Australians avoid the financial pitfalls of a volatile economy and make informed decisions to grow their wealth for generations to come.

Poitou, France

Our subject this week…

…how the Big Tech companies became such jackasses.

Google, Twitter, Facebook, et al raced ahead with innovations that brought them millions of customers. They provided the equivalent of an ‘open mic’, where anyone could sing any tune he wanted. Then, they sold the info to advertisers, who used it to find customers of their own.

But then, the tech companies decided to impose their own musical tastes. If they think you’re off-key, you’ll be cancelled, deplatformed, and disappeared.

It happened, famously, to Donald Trump. The ex-president is, of course, a moron. And private companies can cut him off if they want.

But if Twitter took down the accounts of every moron who can’t carry a tune, it would be out of business.

Instead, the social media companies just cut off some morons…not all of them. And therein hangs a tale…

Political business

As politics become more important, private companies become more political. That is, when a country’s elite goes mad, its private sector goes mad, too.

Just try opening a bank account.

First, there are fewer local or regional banks, the smaller ones have been less and less able to survive in the world of complex federal control.

Second, the big banks that are left act more like chartered, federal monopolies. They don’t give you a toaster anymore. They give you a grilling…

Who are you? Can you prove where you live? Where did your money come from?

And then, thanks to the Federal Reserve, you put money on deposit and the banks don’t pay you any interest.

ValuePenguin, whatever that is, tells us that the average rate of interest on savings accounts is 0.06%. At today’s inflation rate, a saver loses over 5% per year.

The big banks get their money from the Fed. They are regulated by the Office of the Comptroller of the Currency (OCC). Naturally, they lick the hand of their masters whenever it is offered.

Dutiful media

Is it any different for the media?

You may expect the banks, heavy industry, military suppliers, and Wall Street to collaborate with their biggest customer. Always and everywhere, capitalists do what they have to do. They adapt to whatever politics they confront.

In Hitler’s Germany, for example, IG Farben, Volkswagen, BMW, Siemens, Kodak — all were eager suppliers to the Nazi regime. Hugo Boss even made its uniforms.

Even in the stalags of the Third Reich and the Gulags of the Soviet Union, capitalists did the best they could with what they had to work with.

What is surprising is how eagerly the press wags its tail.

After our disgraceful defeat in Afghanistan, for example, you’d think the American press would be blasting the knuckleheads who got us into it — the generals…the think-tank war boosters…the private sector profiteers, who made billions from aiding and abetting the military’s boondoggle.

You’d think the media would be howling for the heads of them all…including retired General David Petraeus (who led US forces in Afghanistan and Iraq and subsequently headed up the CIA) and GW Bush himself.

They lied. They blundered. They wasted trillions of dollars and have the blood of thousands of people on their hands.

But if you want to understand what happened — beyond the usual ‘mistakes were made’ excuses — don’t expect to find it in the major US media.

Celebrated, not cancelled

Here’s Sri Lankan ‘social theorist’, Indi Samarajiva:

‘The American war on Afghanistan was a $2.26 trillion scam. Somebody pocketed all that money, and it certainly wasn’t the people of Afghanistan. That amount is 115 years of Afghan GDP, and it mostly went to arms dealers, the corrupt US military, and corrupt US politicians. Meanwhile the Taliban gets to keep the weapons. This wasn’t just a waste, it was a gigantic fraud.’

Shouldn’t the people responsible for this scam at least be put in prison? Better yet, shouldn’t gallows be set up on the Capitol mall…and Petraeus and Bush hung…to serve as a proper warning to the next group of warmongers?

Instead, the people responsible for the war now sit on the boards of Raytheon and Boeing. They advise the nation on ‘defence’ issues and live in their mansions in Northern Virginia…as if they have nothing to be ashamed of.

Media silence

A cop killed George Floyd, and the media went bananas.

In Afghanistan, US soldiers killed thousands. Where is the press? Where are the demands for justice? Where are the investigations — what did they know? When did they know it? And how much money did they make on the affairs?

Silence.

How come? Because the media were in on the game from the beginning.

Dan Cohen, in Behind the Headlines:

‘Imagine a country where there’s no separation between the government, the military, and the media. A lot of Americans would think of China, Russia or North Korea, but it’s a perfect description of the United States today.’

When you read the news, you may think you’re getting the lowdown from an unbiased source. Often, what you are really getting is a press release from the US government filtered through a toady ‘reporter’.

Special access

Here’s how it works…

A ‘think tank’ is created, such as the Center for a New American Security (CNAS). It takes in millions of dollars from the defence industry, oil companies, big banks, and foreign governments.

Then, it gives ‘residencies’ to reporters, from The Washington Post, for example, who follow defence issues and are granted special ‘access’ to the Pentagon.

Naturally, the reporters are very sympathetic to the defence industry…and to the government and all its works.

They are not objective observers of the Deep State’s military wing; they are part of it.

And Facebook, Twitter, and Google? What role do they play?

More to come…

Regards,

Bill Bonner,
For The Rum Rebellion