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The Fed’s policy of perpetual dollar debasement makes it increasingly difficult for common folks to put food on the table, but new technologies present valuable solutions for the nimble. Consider the charter economy, and how it can help your family solve the dilemma of rising costs.

The charter economy is simply a “sharing” economy in which useful possessions are “rented” to others when not in use. Americans pay high real estate taxes on basements and garages, and then fill them with depreciating, non-income producing accoutrements, like cars, lawn mowers, and generators, which in most cases rarely get used. Your family is a micro economy, and this is an inefficient use of your God-given capital!

The charter economy is mutually beneficial, which means it’ll save you money when you smartly rent an item instead of buying it, and it’ll make you money when you rent an “in-demand possession” instead of storing it. This new sharing economy is booming, in part because modern technologies have solved the former hindrances of a) finding a willing lender and renter, b) negotiating a fair price, c) making payment, and d) trusting associated parties. Choose a well-established vendor with many users, lots of favorable reviews, and a strong insurance policy (for protection from damage, theft, or injury). Reputable sites include, but are not limited to, Airbnb, VRBO, Turo, Neighbor, StyleLend, Fat Llama, Spinlister, RVshare, and Boatsetter.¹

The most practical and profitable “not-in-use” items to rent include homes, cars, storage space, parking spaces, tools, bikes, snowboards, skis, surfboards, paddleboards, kayaks, RV’s, and boats. Neighbor’s site has a calculator to provide estimated income amounts on various items, and other free calculators can be found online. My own recent search for a rental garage on Aquidneck Island revealed there is zero supply available, and the going rate for a secure 12×24 space is north of $300/month!

Rules for success in the charter economy include:

1) Provide high quality photos and descriptions. When placing an ad, use clear, well-lit photos which accentuate the intended use. If renting storage space, for example, the picture should reveal the whole space, which should be clean, empty, and inviting. Offer a very detailed description of your products.

2) Treat it like a business. People want to deal with professionals, so be punctual, courteous, and kind, and offer a fair price.

3) Focus on products that are in high demand.

4) Post and encourage reviews, the more the merrier!

5) Make sure you are protected.²

Remember to appreciate and enjoy the God-given new relationships the charter economy will send your way! Shaun

“Do not lay up for yourselves treasures on earth, where moth and rust destroy and where thieves break in and steal, but lay up for yourselves treasures in heaven, where neither moth nor rust destroys and where thieves do not break in and steal.” ~Matthew 6:19-20

1,2 Retirement Millionaire, “Charter Income: America’s No. 1 Income Strategy for 2020”, August 21, 2020

The opinions voiced in this material are general, are not intended to provide specific recommendations, and do not necessarily reflect the views of LPL Financial. The economic forecasts set forth in this commentary may not develop as predicted.

Any company names noted herein are for educational purposes only and not an indication of trading intent or a solicitation of their products or services. LPL does not provide research on individual equities.

Disruptive trends are in place in the world today which are changing the social and economic experience for virtually all people everywhere. This week let’s identify a few of these primary shifts in mass behavior, not to judge the moral integrity or economic feasibility of these developments, for a sufficient number of policymakers with sufficient power and wealth have collectively determined to pursue, and ultimately implement these changes: they are going to happen. Rather, let’s simply acknowledge the trends and begin considering the financial implications of each.

Let’s face it, robots are incomparably more productive at accomplishing repetitive tasks than humans, and in today’s highly inflationary environment, productivity is paramount. Robots don’t get sick or need sleep or rest, and they don’t require benefits or over-time pay. While robotics benefits shareholders and corporate balance sheets, it threatens the human jobs it can potentially displace. Does that include yours? Might the displacement of employees caused by the advent of robotics introduce a universal basic income in America, and with it widespread dependence on government for basic subsistence? How exposed is your private wealth to such a development?

The perception that recent climate variation is caused directly and exclusively by human behavior has invigorated a powerful trend towards the development of renewable energies, including financial penalties on companies emitting an excess of “greenhouse gases”, but financial bonuses to those with the means of purchasing “carbon credits”. The (too) early abandonment of oil and gas holdings in this long transition from fossil fuels to renewable energies may have created a substantial investment opportunity short-term for the oil dinosaur, but this may ultimately be the biggest economic disruption in world history to date.

“Smart cars” were the first step towards autonomous, electric vehicles, powered by modern battery technology. I recently read America’s “car fleet cycle” runs 15+years, and that only 50% of today’s car owners intend to buy electric, so this, too, is a multi-decade trend. But might gasoline surcharges be applied, and a special license issued for gas purchases, to accelerate the trend?

Blockchain technology provides investors a new “store of value”, and allows for transactions to occur faster, cheaper, and without counter-party risk, benefits the rich are not ignoring.

The emergence of Asia is the final trend I’ll mention today, and the chart below says it all.¹

The S&P 500’s ongoing 18 month run without a 5% setback is in jeopardy, courtesy of Chinese real estate firm, Evergrande. The company is vulnerable to defaulting on an $80 billion loan payment due Thursday, should the CCP refuse to bail it out, and fear of contagion Monday delivered the U.S. averages their biggest daily decline since May.
¹
Warren Buffet once said, “Only when the tide goes out (credit market tightens) do you see who’s been swimming naked”; the Lehman-like failure of behemoth, Evergrande, could be the catalyst of such a tightening. What does this situation mean for the markets going forward, and what are investors to do?

A healthy market advancement involves the indices periodically stooping to their respective 200 day moving averages, and occasionally “correcting” with declines between 10%-20%. These are important adjustments which keep valuations ‘in-check’ and hold speculators accountable, but have been absent this market since March, 2020.² Further evidence the present market is a dangerous bubble which departed economic reality long ago is the fact America has for over a decade suffered more than $1 of new debt for every $1 of economic growth produced. A gardener who spends $5 on fertilizer to produce $4 worth of vegetables year after year would be dealt with expeditiously by a free market, yet it’s essentially what our government is, and has been, doing. The bull market in stocks is built on the foundation of money-printing and interest rate suppression, and requires both for a continuation. Proof of this assertion is the fact 25% of every corporation in America today is a “Zombie”, failing to produce sufficient revenue to meet interest payments on existing debt, and surviving only by borrowing more money at artificially low rates in an artificially ‘loose’ lending environment.

As bad as all that sounds, these disturbing facts do not mean the market party must end today. The stock market has been searching for a reason to correct, and Evergrande, along with the formality of a debt-ceiling debate, and possible Fed tapering, have finally provided a few. The euphoric sentiment which accompanies major market peaks briefly appeared in the first quarter, but subsequent bearish sentiment from institutional money managers suggests the party may yet continue. When every available investor is “all in” on stocks and “wildly bullish”, the lingering bear market will charge, but that’s not the case today. I expect the present setback in stocks will once again prove a “buy the dip” opportunity for investors starved of income and desperate for growth.

Pay no attention to the “China bashing” you’re hearing on TV; the Evergrande debacle will by no means deter, or even slow, China’s global economic domination. Look for evidence of this in the coming blog.

Think about it, Shaun.

1 Bloomberg, “Evergrande’s Total Liabilities Swell To Over $300 Billion”, August 31, 2021

[https://www.bloomberg.com/news/articles/2021-09-01/evergrande-s-falling-debt-masks-dues-swelling-over-300-billion][0]

2 CNBC, “Market’s record price action is mimicking late 1999 and it could spark a 10% to 20% correction, long-term bull Julian Emanuel warns”, August 30, 2021

[https://www.cnbc.com/2021/08/30/market-is-mimicking-1999-it-could-spark-10percent-to-20percent-correction-btig.html][1]

Securities offered through LPL Financial. Member FINRA/SIPC

The opinions voiced in this material are general, are not intended to provide specific recommendations, and do not necessarily reflect the views of LPL Financial. The economic forecasts set forth in this commentary may not develop as predicted.

All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.

There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.

Excessively indebted societies must periodically deleverage bad debt to avoid an otherwise certain social and economic downfall. Central planners have two options when managing a highly indebted economy: allow painful bear markets and recessions to deleverage the system, which is deflationary (falling prices), or attempt to control a high inflation rate while keeping real interest rates negative over a long period, such that price increases in the economy outrun government debt, thereby lowering the debt/GDP ratio, which is inflationary (rising prices). Which option will the Fed pursue at this year’s Jackson Hole Symposium, what might the official narrative be, and what does that mean for the financial markets going forward?

The Fed doesn’t directly control the U.S. markets or economy because the dollars it supplies get deposited as bank reserves. In other words, the Fed can create new dollars, but it can’t force banks to lend them, or people and businesses to borrow and spend them. For this reason, the Fed has far less power over the economy and financial markets than most people understand. What the Fed does control is psychology and policy expectation, and by controlling the narrative, it can persuade market participants to do its bidding. The Fed’s narrative has been consistent since the 2008 Financial Crisis: rates will remain low, money-printing will back-stop the economy and markets to prevent the dreaded deflationary deleveraging, and inflation will be allowed to run higher, so borrow more money, take more risk, and buy more stocks! The Fed has staked itself in the inflationary deleveraging camp.¹

In the end, the Fed’s ability to effectively manage an inflationary deleveraging of our market system depends on market participants believing the narrative. To pull that off, it must occasionally convince Mr. Market the economy is strong enough to withstand the withdrawal of the Fed’s monetary heroin. Expect a heavy dose of that ‘idea’ to circulate the news today, but do not expect essential policies to change; remember, the goal is to deleverage the system through inflation.

While the Fed’s inflation policy results in persistently high asset prices, commonly referred to as “The Wealth Effect”, in reality it is “The Illusion of Wealth Effect”, which recently played out in Venezuela, as the cost of living outpaces asset appreciation and as the dollar becomes the final release valve for the dreaded, though unavoidable, deleveraging of our highly indebted society.² Every time the market doubts the Fed’s narrative deflation will take hold, so market crashes will occur as this scenario plays out. There will also be significant unintended consequences to innocent bystanders, most notably America’s middle class.

Think about it. Shaun

“The rich rules over the poor, and the borrower is slave of the lender.” ~Proverbs 22:7

1, 2 The Stansberry Digest, Daniela Cambone’s interview with George Gammon, August 25, 2021

The opinions voiced in this material are general, are not intended to provide specific recommendations, and do not necessarily reflect the views of LPL Financial. The economic forecasts set forth in this commentary may not develop as predicted.

All investing involves risk including the possible loss of principle. No strategy insures success or protects against loss.

Asset allocation does not ensure a profit or protect against loss.

There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.

There are many reliable signals which indicate an approaching multi-year stock market peak. Early warnings include excessive speculation among novice investors, high valuations, and high levels of margin investing, signals all flashing red today. Mid warnings include weakness in small cap stocks, which appear to be rolling-over now, and in transportation stocks, which have been falling since May, as well as declining market breadth. The Advance/Decline Line shows how broadly stocks are participating in a market advancement, and is the primary gauge of market breadth.¹ The 7’Th of Bob Farrell’s 10 Rules of Investing states “Markets are strongest when they are broad, and weakest when they narrow to a handful of blue-chip names”.² Strong market breadth is critical to sustain an advancing bull market, but declining breadth, such as is occurring in some U.S. sectors (and foreign markets) today, reveals a bull market losing steam. What does this development suggest about the lifespan of the ongoing bull market? Might it reveal characteristics of the inevitable bear market to follow? How should investors prepare?

Advance/Decline Line charts for the NASDAQ, RUSSELL 3000, AND RUSSELL MICRO indexes all show declining trend-lines, while those of the DOW JONES, S&P 500, and RUSSELL 1000 seem to reveal a topping pattern.³ It’s noteworthy the trend-line for Hong Kong’s HSI, Singapore’s STI, Malaysia’s KLSE, and China’s Shanghai SE are all in free-fall,⁴ suggesting whatever market event looms is likely to be a global event.

An interesting study done in 2019 by Lowry Research on major market tops over the past 90 years revealed two consistent phenomena: the longer the major indexes advanced on deteriorating breadth, the longer it took for stocks to reach bottom from the peak, and the longer each ensuing bear market lasted. The longest divergence by far was the 24 months preceding The Crash of 1929, in which case the DOW JONES took 3 years to find bottom, and 25 years to fully recover. The shortest divergence was 1 month, and the average was 9 months.⁵ If our present case falls within the parameters of this impressive study, a) the present bull market can continue for two more years, b) but could end at any moment, and c) we are likely within 9 months of a major, multi-year peak in stocks. This is consistent with the forecast of many top investors today.

Since the divergence between falling market breadth and rising index levels has only just begun in the present cycle, there is no way to know how long the bull might run, how long the fundamental downtrend of the coming bear market might last, or how many months or years the recovery to all-time highs will require, but further indications will surface when the coming top is recognized in hindsight. Stay diversified with proper asset allocation, use proper position-sizing, incorporate a chaos hedge, carry a bigger cash position, avoid over-reacting, and dollar cost average the whole bust/recovery cycle, in what will likely be a classic and painful, yet healthy and cleansing bear market presenting wonderful opportunities to patient investors.

Think about it, Shaun.

“Markets tend to return to the mean over time. Excesses in one direction will lead to an opposite excess in the other direction. There are no new eras; excesses are never permanent. Exponential rapidly rising or falling markets usually go further than you think, but they do not correct by going sideways. The public buys the most at the top and the least at the bottom. Bear markets have three stages: sharp down, reflexive rebound and a drawn-out fundamental downtrend. When all the experts and forecasts agree, something else is going to happen. Bull markets are more fun than bear markets.” ~Bob Farrell’s Rules of Investing (Rule Numbers 1-5, 8-10)

“Give a portion to seven, or even to eight, for you know not what disaster may happen on earth.” ~Eccliastes 11:2

1,5 Lowry White Paper, “How Severe Will The Next Bear Market Be?”, April 2, 2019
2 Stock Charts, “Bob Farrell’s 10 Rules”, August 6, 2021

https://school.stockcharts.com/doku.php?id=overview:bob_farrell_10_rules

3,4 Market In Out, Stock Screener, August 6, 2021

https://www.marketinout.com/chart/market.php?breadth=advance-decline-line

Securities and advisory services offered through LPL Financial, a registered investment advisor. Member FINRA/SIPC

The opinions voiced in this material are general, are not intended to provide specific recommendations, and do not necessarily reflect the views of LPL Financial.

Dollar cost averaging requires continuous investment in securities regardless of fluctuation in price levels of such securities. An investor should consider their ability to continue purchasing through fluctuating price levels. Such a plan does not assure a profit and does not protect against loss in declining markets.

All investing involves risk including the possible loss of principle. No strategy assures success or protects against loss.

There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.

The U.S. central bank (‘the Fed’), in its attempt to maintain power and credibility while simultaneously diluting the currency faster than during WW II, is desperate to convince consumers and investors inflation is transitory and will soon moderate. The mere threat of “tapering” bond purchases, a controlled way for ‘the Fed’ to raise interest rates in an attempt to slow inflation by restricting loan growth, quickly brought Wall Street into subjection to the narrative. But with soaring producer and consumer prices, emerging dollar alternatives, and notable investors sounding the inflation alarm, what are the basic arguments, which way do the facts lean, and how can investors protect themselves in both scenarios?

The transitory inflation argument rests most securely on the “marginal utility of debt” (MUD) thesis, most notably defended by excellent economist, Lacy Hunt, of Hoisington Investment Management, which suggests the economy’s ability to grow diminishes as an excessive debt load siphons off an increasing percentage of otherwise productive capital to unproductive debt-service payments, miring the economy in disinflation.¹ Though Hunt admits a crisis of confidence in the currency, manifested in surging money velocity, or the rate at which dollars change hands, can at some point subvert the transitory inflation/MUD argument, he doesn’t believe it has, and firmly expects an imminent return to disinflationary conditions.

Rising prices are more persuasive than theories presented by well-educated economists for legendary investor, Stan Druckenmiller, Stansberry Research’s Doc Eifrig, Tradesmith’s Keith Kaplan, and many other top investors today. The persistent inflation argument suggests that when the money supply is increased without a corresponding increase in the amount of goods and services in the economy, price increases will result: since ‘the Fed’ can’t stop printing money without crashing the economy and financial markets, inflation is here to stay. Tradesmith Daily recently reported the following YOY price increases: car rentals 87%, used cars 45%, gasoline 45%, hotel rooms 17%, and fruit 7%.² Doc Eifrig recently reported a 200% jump in oil prices, 300% for lumber (since 2020), and 40% for paper, as he released his “New Era Playbook” for what he clearly sees as a lasting inflationary environment.³

The truth is both arguments are viable. Many complicated factors affect price trends, and money velocity, a largely subjective phenomenon, and therefore one difficult to perceive, will ultimately judge the matter. As top investor, Warren Buffet, astutely reveals, inflation is a hidden tax, and an inflationary environment introduces new rules to investing: 1) the purchasing power of a company’s retained earnings will be scrutinized, 2) the impact of inflation and taxes on a company’s bottom line will be examined, 3) companies with strong free cash flow will be favored, and 4) companies able to pass inflationary costs to consumers will be preferred.⁴ Yet another advantage to the purchase of great businesses, namely capital-efficient, dividend-paying, dividend- increasing, industry-dominating companies, at reasonable prices, is their resilient advantage during inflationary periods. Investors may also be wise owning an inflation/chaos hedge or two, a higher cash position than normal, and by keeping a watchful eye on positions vulnerable to persistent inflation, like high multiple tech stocks and high yield corporate bonds.

Think about it. Shaun

You’ve probably never heard of Ronald Read, but he can teach you a great deal about personal financial success. Read is an inspiring case study because, though he never made much money as a gas station attendant, mechanic, or janitor for JC Penney, he died with an estate valued at over $8 million,
¹
proving financial success is almost never about how much money you make, and almost always about what you do with the money you make.

Read grew up poor in rural Vermont, and developed a work ethic on the family farm, and by daily walking 8 miles to and from school, an ethic later reinforced while serving in the U.S. Army during World War II. As a working adult after the war, Read maximized his positive household cash flow by living well below his means, in fact, he put feet on the concept of frugality. He used safety pins to hold his coat together to avoid buying a new one, drove unsightly (but reliable) used cars, and parked blocks from work to avoid parking fees. Read’s single indulgence was breakfast daily at Brattleboro Memorial Hospital, the cheapest spot in town, but occasionally someone would offer to pay his bill thinking he lacked the funds, offers Read graciously accepted. It would be an understatement to say Ronald Read plugged financial leaks, and is believed to have lived his life free of debt. Read maintained his earned income source long after he was sufficiently wealthy to retire, which he finally did at age 76.
²

Read’s daily practice was to read the Wall Street Journal. This should have been a dead give-away to his observers, but they were taken away by his appearance. Read allocated his resources wisely by buying the stocks of companies he understood, and by diversifying his investments in great businesses at reasonable prices. He didn’t trade speculative stocks, but rather owned capital-efficient, dividend-paying companies for years, and often for decades, much like Warren Buffet. He examined his investments thoroughly, selling only with a fundamental change in one of his holdings. Read accumulated his wealth slowly over time, compounding returns by reinvesting dividends over many years. When he died at age 92 in 2014, this retired janitor was one of the richest people in town, leaving $1.2 million to the local library, and $4.8 million to the Brattleboro Memorial Hospital.
³

Perhaps Ronald Read should have enjoyed his God-given wealth a bit more than he did, but this humble man greatly exemplified applied financial principles for those eager and willing to learn. Think about it. Shaun