Welcome to our Friday mailbag edition!

I’m taking over from here on in, to answer your latest questions. (As always, write me at [email protected].)

I want to let you know how much I appreciate you taking the time to ask such terrific questions.

As you’ll see, we’ve got lots of ground to cover this week – from infrastructure… to bank earnings (which I wrote about here)… and even sleights of hand and corruption.

So let’s get right to it…

Nomi, I enjoy reading your column each week. You explain your opinion so people can connect the dots. Could you please explain how baseline budgeting used by the federal government in their yearly budgeting framework allows no cutting of government size, only an increase, each year?

– Jack R.

Jack, thanks so much for your comments. That’s an excellent question about the government’s general sleight of hand.

Basically, each year, the government agrees on its annual budget for the following year.

Any cutting from that budget is like moving the deck chairs on the Titanic. What do I mean by that?

Expenses can get shifted around to different categories – defense, transportation, unemployment costs, etc. But in the end, the overall budget only increases.

In addition to the budget, Congress can pass acts that add on to it. The CARES Act in March 2020 and the recent Infrastructure Investment and Jobs Act are good examples.

Doing all that math, the overall budget and extra costs go in one direction – up.

Nomi, when you took over the newsletter, I was intrigued. It has exceeded my expectations and I really enjoy reading it. Instead of being negative, it is very interesting and upbeat. I look forward to each issue and have even taken advantage of some of your suggestions on ETFs.

Larry K.

Larry, thanks so much for your feedback. I’m glad you’ve been able to take advantage of some of the investment suggestions.

It’s my goal to follow the money… And to show you where it’s going and what it’s doing, so you can protect and grow your wealth.

I don’t think that most people realize that they are paying $8 or $10 in “road taxes” every time they fill their car’s gas tank. This is a tax of about 10 cents per gallon on most gasoline sold in America.

This money is supposed to pay for the roads and bridges. Where is this money going that more billions have to be raised through a new infrastructure bill? Has the “Highway Trust Fund” been raided to pay for other things?

– Thomas R.

Thomas, thank you for your email – and for bringing up the topic of “road taxes.” Depending on the state, there’s even an amplified effect, like in California, where I live.

Yes, those taxes are supposed to fund road updates – as are the funds in the Highway Trust Fund. Some do, but clearly not all, and not in an optimal way.

It’s not so much that it’s been raided… But that the government has been exceptionally inefficient at directing money to road and highway projects. And at seeing those projects through.

I don’t see this inefficiency going away. But I could see that extra money kickstarting some construction that should have been done anyway.

And yes, that’s like multiple taxes on us for the same thing.

Can you please explain how “Bank earnings also benefited over the past year from lower loan demand”? I assume that loans are profitable and that returns on unused excess capital are less than the spread on loans… especially when one considers the banks’ leveraged balance sheet.

– Pierre V.

Pierre, thank you for that question.

In general, lower loan demand would translate into lower earnings from the interest on those loans.

That’s because banks make money from the spread between what they pay out on customer deposits and what they take in from the interest of loans.

In this earnings season, despite lower loan demand, the amount paid out on deposits was even lower. So the net result was a benefit.

Perhaps I should have written, “despite lower loan demand” instead of “from lower loan demand” to have made that clearer.

Corruption will destroy not only our country but all countries. You seem to be wearing rose-colored glasses! Everything is being manipulated by the elites. Why don’t you share with us who’s made all the money since this pandemic was fabricated?

– Paul S.

Paul, there is no doubt that the elite that have and create the most money have been the ones to benefit from it… And as a result, the markets are rigged.

In fact, the name of my last book is, Collusion: How Central Bankers Rigged the World.

I think showing who made all the money during this pandemic is an awesome topic for an essay. I promise I’ll dig into that and write one!

Tuesday’s article was very informative, but I, and perhaps others, would appreciate a better understanding of how buying equal amounts of the two Treasury bond ETFs with different maturities would help if the spread widens, as proposed.

– Ken W.

Hi Ken, thanks a lot for asking for clarification.

Nowadays, it’s easy for retail investors to buy and sell Treasury bonds (or Treasury Notes, as they are called in the 2- to 10-year part of the yield curve).

In my essay on Tuesday, I suggested buying the 5- to 10-Year yield curve spread. That means buying the 5-year Treasury and selling the 10-year Treasury note.

That investment would mean that 5-year Treasuries would rise in value compared to 10-year Treasuries… Or that the Federal Reserve is more likely to decrease rates again from now through five years from now, than after that.

What I described in my essay is the easiest way to put that investment on using ETFs. It’s more difficult for retail investors to invest directly in the bond market itself.

And that’s all for today! Thanks to everyone who wrote in.

If I didn’t get to your question this week, please write me at [email protected]. I’ll do my best to respond in a future Friday mailbag edition.

Happy investing, and have a fantastic weekend!



Nomi Prins
Editor, Inside Wall Street with Nomi Prins

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