The headline isn’t as dramatic as the plot-theme of dystopian novels such as George Orwell’s “1984” or Aldous Huxley’s “Brave New World,” but the consequences could be just as dire.
The headline I am referring to is news that the national debt has just hit $22 trillion for the first time, setting a new record. Oh, and just in case you were wondering, that debt figure works out to approximately $66,000 for every man, woman and child in America.
The self-inflicted wound of a near-unthinkable debt burden is bad enough, but things get worse when you look at the destructive trajectory of debt that literally could collapse the free world.
In a great piece on the facts of the debt issue, Eric Boehm writes at Reason.com about the pernicious trajectory of that debt in the years to come:
“Look a few more years into the future and things really start to accelerate. Unlike a decade ago, when the so-called Great Recession (and the questionable federal policies crafted in response to it) caused deficits to spike, the current increase is not a short-term problem that will be solved as soon as the economy rights itself. Instead, we’re now at the beginning of a long upwards climb that has no end in sight — unless significant policy changes are enacted.”
Boehm goes on to present a chart of Congressional Budget Office (CBO) projections that show the national debt set to grow sharply relative to America’s gross domestic product (GDP) over the next few decades.
Here is the frighteningly dystopian chart based on CBO data, as compiled by the nonpartisan Committee for a Responsible Federal Budget (CRFB), in a recent paper.
As Boehm explains, under current tax law structure, the one that calls for the expiration of the 2017 tax cuts in 2025, the national debt will double from 78 percent of GDP this year to 160 percent of GDP by 2050. That number would soar to 360 percent of GDP by the end of the CBO’s 75-year projection window in 2093.
There is, however, an “alternative fiscal scenario,” as Boehm points out, and that assumes current policies (i.e. the current tax rates) are kept in place. If that is the case, then the debt would spike to 225 percent of GDP by 2050 and would surge to 600 percent of GDP by 2093.
Now, you don’t have to be one of the world’s most influential living economists like my friend Dr. Mark Skousen to figure out that these debt levels are simply unsustainable and unserviceable no matter how much government theft occurs from citizens. Yet there is absolutely no sense of urgency, or even a mention, from the political class. Now, I am a big supporter of tax cuts in general, and I supported President Trump’s 2017 tax cuts. They didn’t go far enough, in my opinion, but they were a good start.
Yet what the president failed to address at all is the national debt, and for all of the things the president mentioned in the recent State of the Union, there wasn’t one mention of the burgeoning debt, or how to corral it. Moreover, there is no attempt to cut spending on anything.
Sadly, the issue isn’t even on the radar in the administration. And as Boehm points out, “Mick Mulvaney, the president’s acting chief of staff and a former congressional budget hawk, now says ‘nobody cares’ about the debt.”
Well, maybe that’s true. Maybe most people don’t care about it, but I want The Deep Woods readers to care about it, because it’s a ticking time bomb waiting to destroy your economic freedom.
So, what should you do about this debt bomb in your portfolio?
Well, the short answer is, paradoxically, not much, yet. I say that, because if you are investing smartly, you are following the wider trends in the stock market on a more intermediate term than the debt debacle appears to be.
That means you shouldn’t make decisions with your money now, i.e. you shouldn’t put your money in the mattress just because a debt bubble could burst in the coming decades.
Yes, you should be aware of the threat, but you shouldn’t be acting on that threat now as it will only prevent you from investing in great companies that continue to grow earnings, innovate and create wealth for shareholders. And, not investing now will only keep you from becoming more fiscally fit if and when that debt storm finally hits U.S. shores.
The other thing you should do is read and follow the advice of smart people in the business who enjoy helping you make money. I am proud to consider myself one of those people, and at the risk of appearing arrogant, I think everyone should subscribe to my newsletter advisory services.
I also think you should read and listen to what other voices have to say on the topic of how to preserve and grow your money.
That’s why I am happy to tell you about an upcoming webinar that I will be attending that’s being hosted by my friend Rich Checkan, president and COO of Asset Strategies International (ASI). Rich also is a former U.S. Army officer, West Point graduate, and all-around “big brain” when it comes to the topics of gold and precious metals investing.
In fact, Rich is my go-to guy for all things related to metals, and I strongly recommend ASI if you want to own physical gold, silver and other precious metals.
The webinar is taking place live, next Wednesday, Feb. 20, at 8 p.m. EST. In it, Rich and fellow investment expert Chris Blasi will be discussing recent news events that have heightened investor uncertainty.
Worries over that aforementioned national debt, the Fed’s “pause” in quantitative tightening, trade wars, a dysfunctional political climate and a slowing global economy all will be topics on the agenda. And of course, we’ll find out what strategies Rich and Chris recommend to help investors deal with that uncertainty.
I strongly recommend checking this webinar out along with me, as I always look forward to hearing the smart opinions of my friend Rich and company.
ETF Talk: Putting a Hedge on Developed Market Equities
The Xtrackers MSCI EAFE Hedged Equity ETF (DBEF) is an exchange-traded fund (ETF) that tracks an index of developed-market equities outside of the United States and Canada.
In some ways, it is similar to the EFA exchange-traded fund as they both use the MSCI EAFE index and share the same focus on large-cap companies, while steering clear of equities in Canada. However, a major difference between the two ETFs is that DBEF uses a currency hedge to provide access to local equity returns without the perils that come from currency fluctuations.
The presence of the currency hedge also matters when comparing this ETF’s performance to the sector benchmark and un-hedged competitors, especially when there are large movements in the exchange rate between the U.S. dollar and the yen, euro and pound sterling.
Thus, it is good that this ETF is relatively insulated from shocks in the global money market, especially the ones that revolve around the uncertainty around Brexit and the impact that it will have on the values of the pound sterling and the European economy.
The top 10 countries that this ETF is invested in include Japan, 25.02%; the United Kingdom, 17.29%; France, 10.82%; Germany, 8.81%; Switzerland, 8.66%; Australia, 6.82%; Hong Kong, 3.63%; Netherlands, 3.24%; Spain, 3.11%; and Italy, 2.21%.
Some of this fund’s top holdings include Nestle (OTCMKTS: NSRGY), Novartis (NYSE: NVS), Roche Holding Ltd. (OTCMKTS: RHHBY), HSBC Holdings Plc. (NYSE: HBSC), Royal Dutch Shell Plc (NYSE: RDS.A), Toyota Motor Corp. (NYSE: TM) and BP p.l.c. (NYSE: BP).
Chart courtesy of StockCharts.com.
The only problem is that when you get interested in foreign market equities, you also must become intertwined with their economies. Not all the countries that are represented in this ETF are doing very well. Not only is Great Britain still trying to find a way out of the European Union, the Italian and Spanish economies are not doing very well either. These factors could influence the value of this ETF later on down the road.
The fund currently has $4.86 billion assets under management, a $63.03 million average daily volume and an average spread of 0.03%. It also has an expense ratio of 0.35%, meaning that it is slightly more expensive to hold in comparison to other exchange-traded funds.
In short, while DBEF does have several advantages over some of its peer funds, its risks are not zero. Interested investors always should do their due diligence and decide whether the fund is suitable for their portfolios.
As always, I am happy to answer any of your questions about ETFs, so do not hesitate to send me an email. You just may see your question answered in a future ETF Talk.
How to Invest in Tomorrow’s Biggest Cannabis Grower Today
It is the most important political concept, and perhaps the most important human concept, ever. Yet what does freedom really mean?
Well, as one famous song puts it: Freedom’s just another word for nothing left to lose.
Now, as much as I love country legend Kris Kristofferson’s music, I must disagree with him on his famous, “Me and Bobby McGee” lyric.
Perhaps a better lyric to reference on the freedom front, and particularly with respect to the focus of this week’s issue, is one from singer/songwriter Ben Harper and his great tune, “Burn One Down.”
My choice is what I choose to do
And if I’m causing no harm
It shouldn’t bother you
Your choice is who you choose to be
And if you’re causing no harm
Then you’re alright with me…
In my view, there’s nothing more important than the possession of personal freedom, and by that, I mean having autonomy over your own physical body. And what reflects more freedom and personal autonomy than the right to ingest whatever substances you choose?
The principle of freedom is quite simple here: Either you have the right to your own body and your own life, or you don’t.
And, as long as your choices don’t infringe upon the rights of others, then nobody should have the right (especially not a government) to dictate to you those choices. Fortunately, the world has become at least slightly more freedom oriented over the past decade, and that’s especially true in the realm of recreational and medical marijuana use.
As you likely know, seemingly every election cycle brings news of more and more states and municipalities either decriminalizing recreational marijuana use or legalizing the medical use of marijuana and its cannabis extracts. One of the reasons for this new, and in my view unstoppable, wave of cannabis freedom is the changing societal attitudes toward this substance.
Gone are the ridiculous “Reefer Madness” days of old that predicted both personal and societal devastation with just one puff of the pernicious plant. Today, even conservative baby boomers realize that all the scare tactics and misguided accusations of a deadly “gateway drug” that leads to devastation rightly is identified as a myth.
The reason why these myths have evaporated into the cultural ether is because just about all the boomers I know either tried recreational marijuana themselves or knows someone who is a casual or even a chronic user of the substance. And to perhaps no one’s surprise, nearly every one of these people are productive members of society with solid professions, families, a mortgage, pets and all of the other commitments of modern American life.
Of course, I am not denying here that there are some negative effects associated with the abuse of marijuana. Yet there’s far more damage done to individuals via abuse of other substances such as alcohol, tobacco, prescription drugs and high-sugar junk foods. But to be consistent, I don’t want the government restricting the adult use of any of these products either, because freedom means you own your own life. And with that freedom comes the requirement to either act responsibly, or to act self-destructively.
The choice is, and should be, yours to make. And the responsibility for your own life is yours to assume.
And that brings us to another responsibility we take seriously in The Deep Woods and especially in my investment advisory newsletters. That responsibility is to invest our money properly in the stocks and sectors that offer up the best possible chances for success.
Earlier this month, I traveled some 7,000-plus miles round trip to South America to investigate one company operating in the sector in question today — the medical marijuana space.
My journey took me to the outskirts of Medellin, Colombia, and into the heart of its many agricultural plantations. Here I was conducting some literal “boots on the ground” research on a company that’s at the cutting edge in terms of producing the highest-quality, lowest-cost yields in one of the world’s fastest-growing commodities.
To say that what I witnessed on my visit was extremely impressive would be the height of understatement and not at all what I had visualized it to be prior to my visit.
Let’s start with the climate. To grow plants efficiently, you have to either spend a lot of money on inside growing facilities and equipment (lights, power, water) or, if you’re geographically blessed, you can have Mother Nature take care of that for you at a fraction of the cost.
In Colombia, the cannabis plantation is blessed with natural sunlight in what’s known as 12 hours light to 12 hours dark cycle, year-round. That means the plants drink in just the right amount of sunlight each day. There also are the perpetual spring-like temperatures in the region that are perfectly suited to crop growth.
I found out during my trip that Medellin is known as “La Ciudad de la Eterna Primavera,” which translates into the “City of the Eternal Spring.” Picture spring-like conditions with sunshine and moderate temperatures in the mid-70s all year long, and it’s no wonder why Colombia is the world’s second-largest producer of cut flowers, the third-largest coffee exporter and the fifth-largest exporter of bananas.
Soon, Colombia could be one of the world’s top producers of medical cannabis and its cannabidiol extracts, also known as CBD.
I have first-hand experience with CBD, as I use the non-psychoactive extracts to improve athletic performance, reduce systemic inflammation, heal and repair sore muscles and joints faster after a hard workout and as a general promoter of physical well-being.
Some of the most common health benefits associated with CBD use are pain relief, reduction of anxiety and depression, the alleviation of cancer-related symptoms, enhanced neurological health and increased cardiac-related health including the ability to lower blood pressure.
The market for medical CBD is projected to be enormous over the next several years. The following chart from the website Statista shows the total U.S. consumer sales of CBD (in millions of U.S. dollars) from 2014 to 2016.
The chart also estimates the future upward-trending growth curve until 2022, in millions of U.S. dollars. It is estimated that in the year 2020, CBD consumer sales will total around $1.15 billion — and that is just in the United States. Add the rest of the world’s similarly increasing CBD demand and we get an astounding growth opportunity that is sure to translate into the bottom line for the right CBD producer.
Of course, the question for investors is how best to get exposure to this burgeoning industry. My answer is that you invest in a company that’s producing the highest quality CBD products at the lowest possible cost and one that has the ability to scale up to meet that burgeoning demand.
I believe I’ve found such as company during my South American journey.
In fact, it IPO’d just recently, and the share price popped on some big news.
So, I’m going to give you the name of the company right here, along with a special arrangement I’ve put together to get the full research I’ve just published.
The Best Lines of the Night
“Here, in the United States, we are alarmed by new calls to adopt socialism in our country. America was founded on liberty and independence — not government coercion, domination, and control. We are born free, and we will stay free… Tonight, we renew our resolve that America will never be a socialist country.”
–President Donald Trump, SOTU, February 5, 2019
By far the best lines in the latest State of the Union speech were President Trump’s unequivocal disavowal of the socialist creep emanating from the left. What I loved about the president’s words were that he identified liberty and independence from government as an individual’s birthright.
Say what you want about the president’s many flaws, but it is these moments of principled virtue that freedom-loving Americans can and should embrace. Because it is only in the principled defense of liberty that the essence of America will survive — and prevail.
Wisdom about money, investing and life can be found anywhere. If you have a good quote that you’d like me to share with your fellow readers, send it to me, along with any comments, questions and suggestions you have about my newsletters, seminars or anything else. Click here to ask Jim.
In the name of the best within us,