- Porter's Daily Journal
- Posts
- The Deadliest Government Illusion
The Deadliest Government Illusion
Porter's Journal Issue #15, Volume #1
Porter Stansberry
October 12, 2024
And How It Could Destroy Your Portfolio
Table of Contents
Three Things You Need To Know Now:
1. Signs of stagflation, as inflation reignites and employment weakens. The consensus following the Fed’s 50 basis point rate cut widely proclaimed a “soft landing” and “victory over inflation,” but the latest data reveals no such thing. Yesterday’s reading for September core CPI, the Fed’s preferred inflation gauge, broke out to an 18-month high of 3.3% and well above the Fed’s 2% target inflation rate. The lone bright spot in the inflation report was a 1.9% drop in energy prices. But with the price of oil up over 10% so far in October, the benefit of lower energy prices will likely prove short-lived. Meanwhile, weekly jobless claims jumped to a 14-month high of 258,000. That was an increase of 33,000 over the prior week, and well above economist forecasts of 230,000. Don’t be surprised when the preliminary reading for the September jobs numbers get revised sharply lower, presenting the Fed with a toxic stagflationary brew of sticky inflation and a weak labor market.
2. Bazooka Part II for China. It’s a different story in China. On Saturday, the country’s finance minister is set to hold a press conference at which he’s expected to announce additional fiscal stimulus policies. If he delivers as anticipated, it will be the second round of “bazooka” liquidity, the first being the September 24 announcement of a massive economic stimulus plan that included interest rate cuts, liquidity infusions for the stock market, reduced bank cash reserve requirements, and less stringent property purchase rules. China’s stock market rose 22% over 14 days after the first round – and then fell 8% as investors waited on a follow through. The government of Xi Jinping is determined to stabilize the economy, and to head off – this is a problem we don’t have here in America – creeping deflation… China’s inflation rate has fallen from 2.8% in September 2022 to 0.6% as of August of this year. One thing you can count on, even in authoritarian China: Politicians won’t shy away from printing more money… no matter the long-term consequences (see below).
3. Small business sales are suffering. While stock markets continue to rise… American businesses tell a different story. The rate of bankruptcies among large corporations – defined as businesses with $100 million or more in assets – continues rising. Default rates among this group have risen 8% so far this year, and are now 43% above the average from 2005 to 2023. Meanwhile, small businesses are feeling the pressure from sluggish sales. The latest data from the National Federation of Independent Business (“NFIB”) revealed that 17% of small firms suffered a decline in sales for the month of September. That’s the highest reading since the COVID-19 pandemic, and only matched during the depths of the Great Financial Crisis.
And one more thing…
The gold-silver ratio shows the number of ounces of silver it takes to buy one ounce of gold – and is finance’s oldest exchange rate. At 84.5 right now, it’s well above the 50-year average of 62.7 – which means that, as measured in gold, silver is close to an all-time cheap level. So in order for the gold-silver ratio to move toward its historical average, either the price of gold needs to decline (which we think is highly unlikely)… or the price of silver will need to rise (it would be a 35% move in silver for the gold-silver ratio to move back to historical levels… assuming that gold doesn’t budge a dollar). In short: Look for silver to be one of the best-performing commodities of 2025.
Signs of a top…
Cash, of course, is what investors use to buy stocks… and the less cash they have, the less buying power. The graph above shows cash held by investors (not including banks) as a percentage of total holdings. At around 32% today, cash levels are at multi-decade lows… which is only bad news for future demand for equities.
The Deadliest Government Illusion
Everything the government tells you is a lie.
Everything.
They are lies that are designed to destroy you. That’s not a flaw. That’s a feature. The winners are elites who’ve bought and paid for the manipulations. This isn’t an exaggeration.
Remember these whoppers?
“This vaccine is safe and effective”
“You can keep your doctor”
“Fannie Mae is well-capitalized”
“Two weeks to slow the spread”
“Iraq has weapons of mass destruction”
“A high-carb diet is good for you”
“Fluoride is safe”
If you believed any of those things, if you relied on those statements, you – your health, your finances, or even your life – were destroyed.
And, of course, this is only a tiny sample of the lies they’ve told. (Please, send me your favorite government lie to [email protected].)
Simple fact: the lies won’t ever stop, no matter who we elect next month.
And the most important lie they are telling right now is about our economy.
It’s a lie that virtually every American believes. And, as a result, virtually every American is about to lose 50% to 75% of their wealth – or more.
Important: it doesn’t matter whether we elect either Kamala or Trump.
Neither candidate can ever tell the truth about this issue. If they did, the government would face an enormous financial crisis – immediately.
But, if you don’t understand this lie, you’ll be absolutely gutted, financially.
Here’s the lie. Does this sound familiar?
“Inflation is contained”
“Inflation is transitory”
“Inflation was caused by COVID supply disruptions”
Or, my favorite:
“The Inflation Reduction Act has reduced inflation and created a booming economy”
None of that is true. It’s all just another huge government illusion.
What is true is that by creating the largest wave of immigration in U.S. history and by expanding the government’s employment rolls to new record levels (785,000 new government jobs in the last month!), the government is creating the illusion of a strong economy.
But all of this is being fueled by the largest accumulation of debt in the history of the world: America is adding $1 trillion to its government debt every 100 days.
Our government’s spending and its manipulation of our economy is completely out of control. As soon as this election is over, these incredible excesses will set off a hyper-inflationary spiral that will see American’s savings and purchasing power decline by another 50% to 70% almost overnight.
This will absolutely happen.
Every economist knows it.
And because the government controls the banks, the media, the credit-rating agencies, and most colleges – all the places economists work – not a single one of them will speak on the record about what’s about to happen.
Doubt me? Just look at the price of gold. It’s recently doubled as more and more of the elite begin to protect themselves from the massive devaluation of the dollar that’s going to happen.
Most people don’t understand that the money they hold in their hands is completely an illusion. It’s an illusion that will kill you. It’s an illusion that the government knows will kill you.
But, if you’ve ever tried to explain this illusion to a “normie,” you know it’s virtually impossible. The government’s monetary illusion is so strong that virtually everyone believes that the government’s worthless paper is safer than real tangible forms of money, like gold, for example.
I’ve written the below to demonstrate to every American exactly how the government’s monetary illusion destroys wages and savings. There’s zero economic jargon. And you can verify all of my math readily because I’m using something every American has seen before (and many of us have driven before), Ford’s ubiquitous F-150 pickup truck!
About 50 years ago, in 1973, Ford Motor (F) launched a new version of its F-series of pickup trucks. Called the Dentside (because of a long styling indent down the side of the vehicle), this generation of F-series trucks offered a slew of innovations: a wider, flatter bed; the first extended cab design; and, most importantly, the first F-150 model. The F-150 was designed for a higher payload capacity, making it both a personal vehicle and a capable work vehicle. As you probably know, the F-150 is the most popular passenger vehicle of all time. More than 41 million (!) F-series trucks have been sold.
So, here’s an interesting question.
Capitalism is supposed to create greater productivity, as entrepreneurs compete for market share by ruthlessly cutting costs and investing in innovations to lower the cost of production. There’s hardly a more globally competitive market than autos. And Ford is one of the world’s leading research-and-development (R&D) companies. It spends almost $10 billion per year on R&D.
Surely then, over the last 50 years, the real price of the Ford F-150 has gotten vastly less expensive. If our free-market system works, that is exactly what you should expect to see. Innovation and capital investments should have driven down the cost of owning a truck, expanding its market, and driving up units sold, while unit costs decline.
So, has that happened?
In 1973, the manufacturer’s suggested retail price (“MSRP”) of an F-series truck was $2,800. Let’s assume with some options (and the undercarriage protection that dealer pushed on your wife) the actual retail cost was $3,000.
The median individual income in the U.S. in 1973 was $6,795. The median family income was $12,000. And the average weekly wage was $130. So, putting these figures into F-150 units:
The Cost to Buy a Ford F-150 in 1973
The average American worker was earning 2.2 F-150s every year
The average American household was earning 3 F-150s each year
The average American had to spend 20 weeks at work to buy a new F-150 (38% of his working year)
Contrary to what we would expect to see in a free market with sound money, rather than prices going down, prices have soared. Why?
As you’ll see, it’s not because Ford hasn’t done a great job and driven down the real price of their trucks.
It’s because the money you hold in your hand isn’t actually money. It’s an illusion.
The dollar is an illusion that’s pure “vapor.” It’s far less tangible than Bitcoin, for example, despite the fact that most people consider Bitcoin to be a dangerous (and volatile) abstraction.
If you believe that the dollar is safe and Bitcoin is dangerous, you’re about to be destroyed. You still believe in the illusion.
And there might not be any way to get you to wake up. But I’ve got to try.
The dollar is an illusion because on August 15, 1971, U.S. President Richard Nixon repudiated our government’s debts by refusing to settle our trade deficits in gold, as we’d promised our foreign creditors after World War II.
Turning the dollar into a “fiat” paper currency meant that the government’s budgets could be financed by the central bank (the Federal Reserve) without any limit. That, of course, has unleashed massive government spending, including direct transfer payments to build a base of dependency, endless wars, more control over the media and our personal lives, and, most notably, never-ending inflation.
How much better has the government’s enormous and never-ending growth made our lives?
Let’s find out, using the reliable old Ford F-150.
It doesn’t cost $3,000 anymore. While economic theory says its price should have gone down in price over time, thanks to the government’s endless deficit spending and its paper money, a new F-150 costs $40,000 (that’s 13x more than 50 years ago).
Today the median individual income in the U.S. is $60,000. The median family income is $77,000. And the average weekly wage (for men) is $1,227. So, putting these figures into F-150 units:
The Cost to Buy a Ford F-150 in 2024
The average American worker now earns 1.5 F-150s every year
The average American household now earns 1.9 F-150s each year
The average American has to spend 32 weeks at work to buy a new F-150 (61% of his working year)
And that is what’s called inflation.
Here’s the worst part.
Nothing is going to change. The government is going to continue to lie – whether about wars, or about COVID, or about how they can solve “structural” racism, or about global trade.
Meanwhile, the simple plain truth is, the government and each of the presidential candidates are going to say whatever it takes to bamboozle the American people into paying more taxes and voting for more government.
And, as a result, we are all going to get a lot poorer.
One example: there is absolutely no difference, economically for the country, between a tax or a tariff. Both taxes and tariffs are applied to certain goods and those taxes are not actually paid by the manufacturers. They are – and always will be – passed along to the consumer. You will pay for both, I promise.
The only difference between a tax and a tariff is the grift that’s used to explain why one or the other is different or better. All obvious lies. But no one in the media – and no economist – will tell the plain truth about these matters.
Here’s what you must understand: all government spending, whether it’s paid for in taxes that are collected, paid for in money that’s printed, or paid for by borrowing, reduces the standard of living because the government doesn’t produce anything.
You can do this analysis for yourself: where government spending is low, wealth flourishes. This correlates across all types of governments. And it explains how, for example, Singapore became one of the wealthiest places in the world. Singapore’s per-capita GDP is more than twice Britain’s, its former colonial master. That’s despite starting from scratch after being devastated by the Japanese in World War II. It explains how Ireland, in only one generation, went from being the poorest country in Western Europe to being the wealthiest. It also explains why the Soviet Union and China couldn’t even feed their own people, resulting in the deaths of hundreds of millions.
What I see in America today is a country on the cusp of a major collapse in our standard of living. You should always ignore the government’s ridiculously manipulated data and look at real-world indications, like the price of a Ford F-150 pickup truck. Like the price of gold. And at standards that are universally used to measure the quality of a society, like life expectancy, infant mortality, and electrical usage per capita.
By all of these real-world measures, America is becoming a third-world country.
Life expectancy is in free fall in the U.S. even as it rebounds around the world, post-COVID. “Life expectancy in America has declined for an unprecedented second year in a row to 76 years,” reported NPR (yes, NPR!) in 2023. Even more depressing, pediatric mortality is also rising.
Infant mortality is also rising, to 5.6 deaths per 1,000 live births, up 60% (!) since 2021 when the rate was 3.5 per 1,000 live births.
And… most shockingly… electricity consumption per capita (which is the best real-world measure of a country’s wealth) has fallen virtually every year since 1980 and, by 2020, had reached the same level as 1964.
In real terms, our country has been getting poorer for decades.
Here’s one last data point to help you see through the illusion.
If you had paid for that F-150 in gold in 1973, it would have cost you 30 ounces of gold. Today gold is trading at $2,600 per ounce, so 30 ounces would be $78,000. That’s almost two new F-150s.
Does that mean gold has become overvalued? No, it means that Ford – with all of the money it has spent on R&D and capital investments – has made the F-150 much more affordable, in real money terms.
Ford’s productivity has grown enormously. It’s making far better vehicles with less energy, which means it can sell them for less, in real terms.
The problem isn’t with Ford. The problem is our money.
Our purchasing power used to track directly in line with gains to productivity – because our money was backed with gold, which meant the government couldn’t just print it.
Today, there’s no such thing as lower prices – ever. That means all of our economy’s gains to productivity are constantly inflated away by the government’s phony money.
You believe you’re working for money. But you’re not. You’re holding an illusion.
How can you protect yourself… your family… and your assets? A start: Watch this video. Yes, we have a sales pitch at the end – but even (especially!) if you’re already a paid-up subscriber (or a Partner Pass member), you’ll get a lot out of our presentation. We can’t stop America’s destruction, but we can make people aware of what’s happening – and show them how to protect themselves.
Good investing,
Porter Stansberry
Stevenson, MD
P.S. An interesting fact that most people have forgotten. You couldn’t have paid for that 1973 Ford F-150 by selling gold to pay for it. Why not? Because private ownership of gold was illegal until December 31, 1974.
On April 5, 1933, President Franklin D. Roosevelt (the Donald Trump of his era) signed executive order 6102, which banned individuals from owning gold bullion. The government didn’t want any competition for its monetary illusion. Don’t be surprised when the government decides to outlaw Bitcoin or even gold. They will do whatever it takes to hold on to their monetary power. Just watch.
P.P.S. In addition to watching our video… one of the best ways to protect your portfolio is to invest in high-quality companies at the right price.
I nearly gave my team a coronary when, just before last month’s Porter & Co. annual conference, I insisted on getting Pieter Slegers, the young Belgian man who writes Compounding Quality, to speak. And I’m glad I did.
Pieter focuses on exceptionally high-caliber companies that have big moats and trade at a reasonable price… which, well, is precisely what I do too.
I only recently discovered Pieter and Compounding Quality. And I don’t think I’ve ever seen someone whose work I’m willing to so wholeheartedly endorse so quickly.
Pieter is one of a kind. While he’s still a young man, he’s got the insight (and performance) of an investor with decades of experience, and I believe that following his ideas could make you a lot of money (see here – scroll down – to see Pieter’s analysis of Nvidia… and here to learn about companies that he’d be prepared to own for the next 50 years.
To find out more about Compounding Quality, and get the full portfolio and all of Pieter’s ongoing analysis and recommendations, check out the special offer Pieter has put together exclusively for Porter & Co. It’s a fantastic deal: You’ll receive the Founding Partner package for the price of an annual membership (on the web page link, just select the “Annual” choice, and Pieter will manually upgrade you.)