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.
Thank you all again for writing in with your comments and questions. I want to let you know how grateful I am for your continued, thoughtful engagement.
Recently, of course, I’ve been writing to you a lot about the war in Ukraine… and how it affects us all.
I’ve focused on how geopolitical conflict affects the stock market, gold, oil, food prices, and global central bank policy.
Central to my writings is the aim to always show you how to protect yourself financially during turbulent times like these. I try to block out the “noise” you’re likely hearing and reading in the mainstream media.
Instead, I focus on the bigger, longer-term picture for your wealth. I hope you’re finding my essays valuable.
And if there are any other topics you’d like me to write about that you think you and your fellow readers would find helpful, I’d love to hear from you. You can write me at [email protected].
Now, on with today’s mailbag…
First up this week, readers react to the war in Ukraine, the media’s coverage of it, the use of sanctions by global governments in an attempt to stop Russia, and the ripple effect of those sanctions…
Dear Nomi, I truly like your investment advice and the comments regarding what war does in a conflict. I know it’s a good headliner “Russia has launched a full-scale war in Ukraine,” as reported by the popular press. Unfortunately, you are referring to propaganda, not intelligent reporting.
If Russia had launched a full-scale war against Ukraine, it would be over by now. After provoking the Bear constantly for over two decades, and now the stupid sanctions, you might note that the Bear has been very disciplined to not simply shut down the gas supplies to Europe in response.
Ukraine is far from an innocent bystander, with an appalling history of genocide and gangsterism throughout the second World War, and has not stopped since.
If your sources for investment advice are as questionable as using the gutter press for world news, I’d be running for a horoscope for investment ideas.
Thankfully, I read further into your article and was relieved to see that you indeed have intelligent advice.
– Philip H.
I agree 100% with what Philip H. had to say. The only thing I would add is corruption rules the world.
How can we place sanctions on Russia and not expect those sanctions to raise inflation worldwide?
Ukraine also supplies the world with goods. That has, or shortly will, come to a halt and deeply affect the supply chain.
All the while, the stock market takes a minor hit and you would think it would be in a free fall. I think that the metaverse world is here in reality!
– Paul S.
Hi Philip and Paul, thank you for your questions and comments. I’ll answer them together here.
The reality is that two things can result from sanctions.
One is that they can produce knock-on ramifications beyond their intended target. This is what we’ve seen in terms of the rising costs of certain commodities recently.
Since we’re part of a global, co-dependent market of raw materials, supply chains, and end products, any disruption can lead to higher prices.
This is also one of the by-products of the permanent distortion – money chasing markets, or commodity markets, more quickly than real economic growth.
The other thing sanctions can do is cause countries to find alternatives to get around the sanctions. This can disrupt flows of money or goods, and that leads to re-adjustments for both.
There’s no doubt that the situation in Ukraine is causing disruptions to many supply and money chains.
The reason the market hasn’t taken a deeper dive is also down to permanent distortion. The market is reliant on trillions of dollars’ worth of manufactured central bank money.
If that wasn’t the case, we’d see a far worse downturn. That money ultimately acts as a trampoline for markets, enabling them to remain resilient.
Next, reader Marcel J. seeks to understand the recent swings in the markets… and nails one key reason for it…
Thanks for your interesting insights. I have seen several articles published on what happens after one country invades another. It results in an immediate drop in the markets and is then followed by a recovery.
There is one explanation I have not read, and it may be part of the cause (although I do suspect it is significant).
When there is volatility in the market, speculators will use margin to juice their returns. When news of an invasion hits, the speculators may be on the wrong side of a trade.
To minimize their losses, they would sell/close their positions until the dust settles. Then, they place another trade they feel will provide a great return.
Do you feel this could explain part of the sudden drop and then recovery?
– Marcel J.
Hi Marcel, thank you for your question. Yes, this is part of the exaggerated moves we sometimes see, especially when the market falls. Speculators exit out of their positions so they can get back in at a later time.
Over time, these actions ultimately stabilize, with the markets returning to their pre-sell levels.
That’s one of the reasons we recommend investment strategies in different sectors of the market. It’s a way to ride out the choppiness of these movements.
And I hope my recent essays on how stocks, gold, and oil behave at times like these, as well as my essay on how to handle the choppiness in the markets, have been helpful.
On that subject, Brent writes with a great question about whether or not to include bonds in your investment mix…
Love your thoughts and writings very informative. Would love if you would cover bonds in retirement accounts. Are they a good idea to have in a portfolio?
– Brent B.
Hi Brent, thank you so much for your comments and suggestion to cover bonds. We recently put out a piece on the ratio of bonds to stocks that portfolio managers (including managers of retirement accounts) consider.
It depends on your individual circumstances. But I’ll give some general advice to anyone considering adding bonds to their portfolio.
Bonds have had a good run, to be sure, with the Fed having cut interest rates to zero. But there’s less upside for bonds now with rates already so low. And the Fed is moving to a period of raising rates. So it’s better to have a higher proportion of stocks relative to bonds right now.
That said, the ratio of bonds versus stocks in your portfolio also depends on how close you are to retirement. A higher ratio of 401(k) or IRA assets in bonds could make sense if you’re approaching retirement age. Or if you are a more conservative, risk-averse investor. But this could also curtail the growth of your portfolio relative to investing in stocks right now.
Next up today, with U.S. inflation hitting 7.9% and prices in the grocery stores soaring, inflation is never far from readers’ minds. And fellow Southern Californian, Dave, has strong thoughts on where the blame lies…
Hi Nomi, it’s my opinion that a MAJOR contributor to inflation is gouging. I see it everywhere here in SoCal. Price increases that are not related to the economics of fair play have gone by the wayside. This brings out the worst side of capitalism.
– Dave H.
Hi Dave, as a fellow “SoCalian,” I share your pain about high prices and taxes here – especially at the gas pumps. We have a beautiful state on so many levels, but there is a lot of excessive charging going on.
On March 3, 2020, a law was passed in California that “prohibits selling, or offering for sale, covered products at a price more than 10% greater than the price offered for that good in the 30 days prior to the declaration of an emergency.”
That law was revised on March 3, 2021. Under the 2021 Executive Order, price gouging prohibitions were removed from items such as food and consumer goods. (Price gouging restrictions still apply to medical and emergency supplies.) That’s one reason prices have gone up more here.
That said, California’s gasoline prices are consistently much higher than the national average for three big reasons: taxes, environmental laws, and location.
Drivers in California have to pay 86.55 cents per gallon in state and federal taxes and fees. The next highest state is Illinois at 78 cents. Both are well above the national average of 57.09 cents.
Switching gears, Charles has a great question about the Stock-to-Flow ratio I used to calculate one of Bitcoin’s key benefits, its hardness…
A question about the Stock-to-Flow ration for Bitcoin. Is your math really accurate? By that I mean, there are pretty good estimates of lost Bitcoin. Some were lost due to users not being able to access their coins anymore. And there’s the great story of the hard drive with thousands of Bitcoin in the dump.
There are many reasons as to why some Bitcoin is no longer accessible. Shouldn’t a true Stock-to-Flow ratio adjust for some estimate? Doesn’t that change the ratio? What are the implications of the adjusted ratio?
– Charles C.
Hi Charles. Thanks a lot for your question! Bitcoin has been around for more than a decade. And in that time, many people have lost their Bitcoins. That’s true. Your fellow reader, David L., told us about one in last week’s mailbag edition.
The problem is nobody knows for sure how many Bitcoins have been lost. And estimates vary greatly.
Let’s say we disregard one million of the 18.9 million already mined Bitcoins. So we’ll use 17.9 million as the figure for the existing stock.
As a reminder, an estimated 900 new Bitcoins are mined per day. This puts the current annual flow of Bitcoin at 328,500 (roughly 0.33 million).
This would give Bitcoin a Stock-to-Flow ratio of 54 (17.9 million ÷ 0.33 million).
Put differently, at the current rate of new supply, it would take about 54 years to equal the existing Bitcoin supply.
But I think it’s more important to focus on the big picture: there can never be more than 21 million Bitcoins.
As the new supply drops by 50% roughly every four years, due to the halving, Bitcoin is on track to become the hardest money the world has ever known. Hope this helps!
And finally for this week, Geoff H. writes from Australia about a book we talked about in these pages last week, The Creature from Jekyll Island, by G. Edward Griffin…
Hi Nomi, love your work and I’m so very glad you’re familiar with Griffin’s book, The Creature From Jekyll Island. It absolutely amazes me how so few supposed “financial experts” have read this most basic (but valuable) financial textbook. Keep up the great work!
– Geoff H.
Hi Geoff, thank you for your kind words. Griffin’s book inspired me to visit Jekyll Island when I was researching my book, All the Presidents’ Bankers, and speak with its resident historian. The Jekyll Island Club is now a resort hotel, but it preserves its historical feel. I found that fascinating.
In general, I’m inspired by authors that delve into their topics so deeply with rigorous research. It’s not easy to write a book, or to have it stand the test of time. Griffin did just that.
If readers have any other book suggestions for me and their fellow readers, I’d love you to share them with us.
That’s it for this week… Thanks to everyone who wrote in.
If I didn’t get to your question this week, look out for my responses in a future Friday mailbag edition. Or please write me at [email protected].
I’ll do my best to respond to as many of your questions and comments as I can.
Happy investing… and have a fantastic weekend!
Regards,
 |
Nomi Prins
Editor, Inside Wall Street with Nomi Prins
Like what you’re reading? Send your thoughts to [email protected].