Why I’ve Built a “Dark Future Portfolio”
I popped over to the U.S. for the weekend. Flew home to see my daughter graduate high school. Was a nice affair.
What wasn’t so nice: Returning to the New Orleans airport and having to stop to fill the rental car with gas.
Good goobily goo!
Even at one of those low-cost, no-name gas stations I had to pay nearly $5 per gallon.
Over the weekend, I ducked into a supermarket to buy a box of smores Pop Tarts to take back to Prague. Eight bucks. For Pop Tarts!!
It’s hard to be an American family these days—all these crazy costs.
Lots of folks I heard were blaming Joe Biden…which is sort of like blaming a butterfly in China for a hurricane in the Atlantic. Not that I don’t understand this blame game. The person in charge at the moment takes the heat, even though the pyromaniacs responsible for this fire lit it years ago.
I could run down a long list of names going back to at least the Reagan administration that directly led us to where we are today. That’s when America’s view of debt began to change for the worse.
Remember that Dick Cheney guy? He told us in 2002 that “deficits don’t matter.”
Turns out he was wrong.
Because now, 20 years after Cheney’s bit of propaganda, years’ and decades’ worth of deficits have conspired to put America in a bit of a pickle…which is a dry way of saying that the Federal Reserve has no logical way to navigate this war on inflation that it’s now waging.
Jimmy Carter’s administration tried to stem the runaway inflation of the 1970s by dreaming up the limp “Whip Inflation Now” meme. That failed to gain any traction.
Not until Fed Chair Paul Volcker stepped in did inflation wither. But that required he pull out the big guns and balloon interest rates to 20% from about 6.5% in an exceptionally short, two-year period.
Alas, our modern Fed doesn’t have that kind of bazooka. It has a Nerf Super Soaker, at best.
Just recently Jerome Powell, the top dog at the Fed these days, insisted that his band of G-men and G-women will do all that’s necessary to whip inflation now. He will raise rates till the cows come home and bend inflation to his will.
It’s kinda adorable watching the Fed make such declarations—sort of like watching a toothless baby tackle some beef jerky.
Let’s put some numbers to this to put the Fed’s challenge into context.
America today has more than $30 trillion in debt. I won’t belabor that point other than to note that it’s a number much too large for Uncle Sam to ever pay off. Default and/or high inflation is the likely result.
But the real challenge is that interest rates don’t rise in a vacuum.
Every little (or big) rate hike hits the government’s wallet. Uncle Sam’s gotta pull out another credit card to pay the higher interest payments racking up on all his other credit cards. That is not a zero-sum game. At some point, the government is just printing money to service its debt payments.
That necessarily takes money out of the economy. In econo-lingo, Uncle Sam’s debt payments “crowd out” his ability to spend on items that are actually useful to the citizenry and which grow the economy.
Debt doesn’t grow the economy…it does nothing to help you and me.
Last year, before the Fed started pushing rates higher, the non-partisan bureaucrats inside the Congressional Budget Office calculated that Uncle Sam’s interest payments will triple to $910 billion by 2031, from a projected $306 billion this year. But inflation has been higher than the CBO projected. Fed rate hikes are also happening sooner than the CBO projected, and at a faster pace.
All is looking increasingly dour.
Under its now-outdated assumptions, the CBO calculated that by 2050, interest payments will account for half—half!—the U.S. budget. They will outstrip every other line-item including Social Security, Medicare, and discretionary spending.
I mean, 2031 and 2050 seem like they’re still eons away. Surely, something will be done by then to address this guillotine dangling over us and held aloft by a strip of dry-rotting duct tape.
But these years just roll by so quickly.
Worse, every Congress for the last 20-plus years has kicked the panhandler’s can down the road, always assuming some other Congress will step up to address the issue.
I see no reason why any future Congress would suddenly have a change of heart. The solution to the problem—extreme austerity and/or restructuring Sammy’s debt—would cause a world of hurt on you and me…i.e. voters. And voters in a world of hurt like to return some of that pain to D.C. in the form of throwin’ the bums out…and the bums hate to be thrown out of such cushy jobs.
So, they do nothing—and will do nothing—to cause that kind of pain on those who keep them employed.
Which means it’s up to me and you to do what we can to reduce the pain of this economic, financial, monetary disaster in the making.
This is precisely why I continue to buy physical gold and hold it personally. It’s why the largest of my retirement accounts is nearly 50% invested in Swiss francs, with the bulk of the rest of the account in inflation-protected bonds and a large-cap gold stock.
Strange as this sounds, I’m not looking to grow my largest retirement account. I’m looking to keep it 100% invested in what I call my “Dark Future Portfolio.” I want assurance that my money will maintain real value relative to what’s on the horizon. I can think of nothing better than francs and gold and bonds that track inflation.
To grow my wealth, I am relying primarily on crypto and non-fungible tokens (unique, one-of-a-kind crypto projects used in everything from digital art to gaming to a variety of consumer and business services).
I’d advise keeping investments in this space to no more than 5% of your overall portfolio, because crypto is so volatile.
Yet, crypto/NFTs are also the future of just about everything, so I will gladly own those assets, confident their value—despite vicious volatility—will rise exponentially over the remainder of this decade and beyond.
I’m not saying you should follow my lead. Everyone has their own tolerance for risk. But this is my investment barbell: extreme safety on one end…crazy volatility on the other.
Oddly, they balance each other out.