Welcome to our Friday mailbag edition!

Every week, we receive some great questions and comments from your fellow readers on our recently published essays. And every Friday, I answer as many as I can.

I’m heartened by the responses and questions you’re sending in.

When I launched Inside Wall Street just a few short months ago, I could never have imagined such an outpouring of responses from readers. I’m truly grateful.

So, let’s get straight down to it… starting with this question that is weighing heavily on reader Angeline’s mind…

I have a burning question that almost keeps me up at night.

Inflation is supposedly running at 7+%. In reality, basic everyday necessities run more along the lines of 25+%.

For example, Dollar Tree now sells everything for $1.25 – a 25% increase. I guess they didn’t get the message that it is only supposed to be a 7% increase. The FairLife milk I buy went from $3.18 to $3.98 – another 25% example. I think gasoline is up more than 25%.

And wages are not moving up here.

Inflation is rising exponentially. And it’s probably underreported. Now, the Fed is threatening to tighten.

My question is this: What is the interest rate percentage mortgages – and loans, in general – will be called or the “due on sale” clause initiated by lenders?

I am sure most are not even thinking about this possibility, since it has not been on the radar since the 1980s.

– Angeline W.

Hi Angeline, I can understand why the issue of due-on-sale clauses on your mortgage could be keeping you up at night.

For readers who might not know, a due-on-sale clause is a provision in most mortgage contracts.

It requires the borrower to repay the lender in full upon the sale or transfer of a partial or full interest in the property that secures the mortgage. (It doesn’t usually apply in cases such as transferring to a spouse, or in a will.)

Now, going back to your question, Angeline, it’s not something I would worry about right now.

See, back when interest rates were very high, lenders thought that the cost of financing a house outweighed the value of the house.

But we won’t see that happen again. Here’s why…

In 1980, the federal funds rate hit 22%. (This is the rate the Federal Reserve charges banks to borrow money.)

Now, it’s less than 1%.

We’ll never get to 1980s rates in our lifetimes. Even with the high levels of inflation we’re seeing now in the actual cost of daily necessities.

(I’ve written a few essays recently on the reasons why the Fed isn’t going to raise interest rates by much, regardless how high inflation goes. You can catch up here, here, and here.)

That’s why I’m not worried about lenders exercising the due-on-sale clause.

Remember, this is about the Fed. The last thing it wants to do is upset the markets. And markets like low rates and cheap money.

Next, my recent essays on the benefits of gold and bitcoin sparked this interesting question from Aditya…

I am not sure if economists are missing a basic point, so let me ask your opinion on this…

The global population went up from ~1.5 billion in 1900 to ~7.5 billion in 2000. Also, the life expectancy went up from ~28 years to ~70 years. That is a LOT of extra economy per year and stress on the planet, which the monetary supply has to support.

If we only had gold as money, given its hardness, the value of one gold nugget (or coin) would have to grow exponentially to enable that much extra activity (approx. 7.5*70 / 1.5*28 = 12.5 times).

Imagine I lent you 1 gold coin in 1900 and recovered it in 2000. I would be taking back 1/12.5 = 0.08 gold coins.

How would this impact the life of a farmer, who keeps getting less gold coins every year?

Basically, the number of coins has to be proportional to the volume of economic activity. How will gold or bitcoin address that if the economic volume goes up?

– Aditya

Hi Aditya, thanks for that thoughtful question about the relationship between population growth, gold, and bitcoin.

It’s true that in very different ways, gold and bitcoin have built-in scarcity properties. Technically, that could mean that if global population size grows dramatically, and the majority of the global population is engaged in financial transactions using gold or bitcoin, their prices would rise dramatically.

However, gold has been in circulation for several millennia. Its price has risen alongside explosive global population growth. And that’s without the vast majority of the world’s population ever having touched or used a single coin.

My guess is that the same thing would happen with Bitcoin if it were to ever reach a point where it was used by so much of the population.

That said, I don’t think we’ll see a world where everyone has access to, and is using gold or Bitcoin, in their regular transactions.

For that reason, those who are using it may see their holdings stretch less in terms of buying things. But that’s the case with the dollar as well. That’s because of inflation.

But as I said in my earlier essay, holding both gold and Bitcoin in your long-term investment portfolio is just the pragmatic thing to do. They both have a crucial role to play in protecting the value of your hard-earned money over time.

Now, we turn to geopolitical matters, with this question from Brian…

What is going to be the effect if Russia and China have a new alliance? China will take Taiwan. And Russia now controls 90% of the world market in high-grade neon used to burn chips.

Won’t that stall your five areas of investment?

– Brian C.

Hi Brian, thank you for that excellent question. Russia and China have been strengthening their alliance since the financial crisis of 2008. I wrote about this in my 2018 book, Collusion.

One of the entities I covered in that book was the BRICS Development Bank, also called the New Development Bank. That was created to allow Brazil, Russia, India, China, and South Africa to co-develop and fund major projects amongst themselves.

There have been currency deals and other financial forms of coordination along the way.

Regarding chips, it’s a definite concern to us, with respect to the timing of certain developments along the lines of our five investment themes. (To recap, these are New Energy, Infrastructure, Transformative Technology, Meta-Reality, and New Money. Click here for more detail.)

The U.S. is trying to establish its own domestic production facilities to meet the risk of fewer chips coming from Taiwan. Last year, President Biden signed an executive order to address the global chip shortage.

That’s one reason President Biden supports Intel’s new production plant in Ohio. Intel, the California-based tech giant, is also working to expand its operations in Europe. But this will take time.

In light of the situation in Ukraine, I wouldn’t be surprised if more federal firepower is directed in this direction.

And of course, I’ll be keeping my ears to the ground in Washington and elsewhere for insights that can help us profit when it is.

And finally, switching gears…

In a recent mailbag, Jerry S. called out the “BS” of Accredited Investor regulations.

As he put it, they “keep individuals from making the megabucks gains that JPMorgan and others make on IPOs and from venture capital outlays.”

This week, Ken M. reminds us that there are two sides to every story…

I agree with your point about accredited investors.

However, as we learned during the financial crisis, if small investors jump in and lose everything, the media will blame the evil companies for lying to them and stealing their money.

This is what happened in 2008. People with no assets were able to borrow tremendous sums to buy real estate with liar loans and 99% financing.

“Victims” were happy to take the money in the bubble. But when they lost, they cried that they had been lied to.

Ken M.

Hi Ken, thank you for your email. You make a great point about the blame game vis-a-vis smaller retail investors. I discussed the specific issue you mentioned at length in my 2008 book, It Takes a Pillage.

There was so much blaming of the little guy. And it was true that many people took on more than they could afford in mortgage structures they didn’t fully understand.

But it was equally true that mortgage brokers had incentives to keep information from them or otherwise distort it. That’s because the big banks were buying up subprime mortgages and converting them into what we now know as toxic assets.

They did this through something called leverage. That is, banks borrowed money to buy mortgages… And they repackaged them into these toxic assets.

They created a pyramid of $140 trillion of leveraged assets this way. And that pyramid relied on a smaller sum of individual mortgages.

So when some mortgages failed, it had a far greater impact on the overall system.

(Next week, I’ll show you how this worked. I’m going to publish an extract from It Takes a Pillage. In it, I explain the convoluted and opaque financial technique that led to the subprime mortgage crisis… and ultimately, to the 2008 financial crisis. So keep an eye out for that.)

We saw something similar unfold again during the Robinhood/Meme Stock hearings on Capitol Hill last year. This was in the wake of GameStop stock rising so quickly due to coordinated retail buying.

The hedge funds that had shorted the stock (bet on it falling) lost huge sums of money. The hearings recognized that these hedge funds were at fault for shorting GameStop shares.

But they also addressed the retail investor as being unaware of market risk.

As I’ll keep saying, it comes down to transparency and education. Whether it’s a loan or a stock investment, it’s important for people to understand the fine print, or the trajectory, of what they’re doing.

The problem lies in a lack of transparency at so many levels of the system. Large players use this lack of transparency to their advantage.

That has the effect of hurting smaller investors or loan borrowers. And there’s very little they can do about it.

This is what needs to be addressed and fixed.

And that’s it for this week. Thanks again to everyone who wrote in.

If I didn’t get to your question this week, look out for my response in a future Friday mailbag edition. I do my best to respond to as many of your questions and comments as I can.

And if there are any other topics you’d like me to write about, I’d love to hear from you. You can write me at [email protected].

Legacy Investment Summit

Just before I go… I wanted to let you know that next week, I’m attending and presenting at the Legacy Investment Summit in Washington, D.C.

Rogue Economics is a key part of the Legacy Research Group. It’s the publishing alliance that includes Palm Beach Research Group and Casey Research.

Legacy’s annual summit is making a welcome return after a break during the Covid-19 pandemic.

I can’t wait to meet with my fellow editors and all of the readers in attendance. I hope I’ll see some of you there – please come say hello if you’re there.

(By the way, the event is sold out. But if you’d like to attend virtually, I believe there are still some online tickets available.)

Happy investing… and have a fantastic weekend!



Nomi Prins
Editor, Inside Wall Street with Nomi Prins

Like what you’re reading? Send your thoughts to [email protected].