Three Conditions for a Free-Market Economy

DRIGGS, IDAHO – Wowee… what a start to the week…

Pfizer announced it invented a COVID-19 vaccine, and the market shuddered in relief. Since the announcement on Monday morning…

• Rolls Royce stock is up 21%

• Carnival Cruise Lines is up 21%

• AMC, the movie theater chain, is up 41%

• Kohl’s, the department store retail chain, is up 21%

• Dave & Buster’s, the restaurant and arcade chain, is up 28%

• The Cheesecake Factory, the restaurant chain, is up 21%

• And United Airlines is up 15%.

I don’t remember ever seeing such large, broad-based gains in the stock market…

Even the oil tanker stocks we own in Tom’s Portfolio, which have been falling relentlessly for months, all went up between 5% and 20%…

I love the idea that this coronavirus nightmare might soon be behind us. And I’d love to see the oil tanker stocks begin the bull market I’ve been anticipating for the last six months.

But the question today is: Assuming this COVID vaccine works, how will it affect our core thesis?

(Gold fell 5% on Monday, its biggest one-day percentage fall in seven years.)

More below…

Libertarian School in the Mountains

Greetings from the little school for libertarian kids in the Teton Mountains…

Kate and I are running an experiment. We have three kids, ages 12, 10, and 8. Instead of sending our kids to school, we educate them ourselves.

And instead of pursuing traditional educational goals, like getting good test scores and getting accepted to college, we adopted a completely different educational standard…

The primary goal of our homeschool is to raise our three kids to be humans that other humans like being around.

We focus on “soft” interpersonal skills like kindness, humor, conversation, paying attention to others, storytelling, art, music, personal development, and sound philosophy of thought.

For example, we spent five months traveling around America this summer visiting Postcards readers. We were hosted 31 times across 21 states… often for several nights in a row.

We slept in basements, guest rooms, and driveways. And we shared meals with our hosts around big tables.

It was a great experience for a number of reasons. Among those reasons, it was a great schooling in the art of being gracious guests in someone else’s home.

Porter’s “Three Conditions” for a Free-Market Economy

Right now, we’re doing a lot of work on libertarian philosophy and the ideas that founded America…

Today, we discussed Porter Stansberry’s “Three Conditions” for regulating the relationship between government and a free market economy…

1. Sound money.

2. A flat tax on all income, excluding capital gains.

3. A mandatory balanced budget.

Porter is the founder of the financial publishing company Stansberry Research, and a longtime friend of mine.

“The idea is,” says Porter, “use real money, or else you will never know what is actually happening in the economy or with the government’s spending. Money is a form of communication across the economy. When that channel is distorted, the economic costs are enormous.

“Second, we know that people will always vote for more government if they don’t have to pay for it, so get rid of progressive taxation. The most important principle in the American experiment is democracy while protecting the rights of the minority. You do that by making everyone equal in the eyes of the law.

“What’s more important than taxing everyone in the same way, and at the same rate? Yes, rich people will pay far more, but only in the same proportion.

“And finally… a government that runs generational debts is immoral. We would never leave debts for our children to settle, so why do we allow our government to do so?

“Besides, debt allows politicians to create the illusion that you can get something for nothing, via socialism. We know it’s not true, but millions still believe Social Security works… so you can see what really happens is one generation (or two) wins while multiple future generations will suffer. That’s completely immoral.

“Why exclude capital gains from income taxes? Because that’s capital that’s been invested, which means it is saved income. It was already taxed. And then it was put at risk. If successful, the dividends it generated have been taxed.

“Taxing the capital is horrible policy because it leads to double and triple taxation, and greatly retards the formation of new businesses and jobs. It’s the worst form of tax for economic growth – the very worst.

“I would also recommend setting the tax rate independently of the spending authority (Congress). Let the people choose the tax rate each year based on their own perception of how much government is needed. Then, let Congress figure out how to spend it.

“We can vote for 5 percent, 10 percent, 15 percent, etc. but if you allow Congress to set the rate and spend the money, the rate will always go up.

“Or let the president set the rate each four years, and we get to vote on the president we want. That would work, too. But you must get the rate setting away from the spenders.”

Washington’s Lack of Courage

While the kids do their homework, I study macroeconomics. And, as longtime Postcards readers know, this is my core thesis…

The U.S. government is broke, it just hasn’t admitted it yet. The only way it stays in business is if the Federal Reserve prints trillions more dollars.

Out-of-control currency printing and spending will devalue the dollar… and the entire system of paper currencies that revolve around the dollar.

Bonds and other savings instruments will have sharply negative interest rates, especially after accounting for inflation, possibly for decades to come.

Gold will hyperinflate as investors and traders flee from bonds and currencies, and into hard assets.

The stock market is in a primary bear market, but as I wrote here, it’s being temporarily held up by the greatest pulse of government-generated liquidity in history.

U.S. stimulus enriches China. China’s economy is extremely competitive. The more dollars the U.S. prints, the more international assets and resources China ends up owning. (I covered this in more detail here.)

These trends formed because of years of short-term thinking and a terrible lack of political courage in Washington.

COVID-19 has only accelerated trends that have been years in the making. Now, the vaccine may get rid of COVID. But it won’t cure the debt bubble…

– Tom Dyson

P.S. Two years ago, I went “all in” on a single trade… You see, the financial system is rotten to the core with intervention, manipulation, fake money, fake trades, fake deals, fake news, and robotic trading. The system has become very, very fragile.

The bottom line is, I don’t want to participate in this toxic mess. I want to sit on the sidelines in this one trade and get on with my life… until it’s safe to return to the financial system. It’s a trade that will play out over several years. But I have total conviction in this idea. Learn more here…

P.P.S. Here are the kids getting ready for ski season. The mountain opens in 10 days…

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

Readers support the Dyson family’s homeschool journey… give a movie suggestion… and one reader learned a lot from Tom’s urgent briefing on America’s “Great Divide”…

Reader comment: What you and your family are doing together is so beautiful! Wishing you the very best and cheering you on!

Your write up on America splitting in two is a rare gift for those of us who aren’t so savvy in the core “mysteries” and secrets of financial operations. Thank you. Finance is not my expertise or strong suit but thanks to the way you have described and explained it so clearly, I am understanding.

Reader comment: Wow, haven’t heard that name in decades. I remember watching Have Gun – Will Travel when it first came out on TV in the ’60s. Richard Boone, Paladin. I’ve loved reading your travel tales. I’ve done a bit of traveling myself when I was in the Navy. Your kids are getting a great education, learning about the real world, it’s hands on, and is the best education you can get. Best wishes, thanks for the memories.

Reader comment: For a lesson on life, I can highly recommend the DVD High Noon, a Western starring Cooper and Grace Kelly. It’s still in black and white. Very supportive of your home schooling, but do not forget Albert Einstein’s definition of the two most powerful words in the English language: compounding interest.

Reader comment: I agree with your assessment of bitcoin and don’t think you are old-fashioned. This “commodity” appears incredibly vulnerable to price manipulation. Where is the transparency? NO ONE has been able to explain to me how it’s regulated or how the supply is controlled.

Whom am I trusting? The sudden crash dives of cryptos also are unnerving. I would trust a gambling casino – where at least the cards are on the table – before I would trust these oily, slick crypto peddlers. If I am missing something, please enlighten me.

Reader comment: Maybe it is just me, but I have a hard time doing the math to figure out and use percentages. Society uses percentages all the time, like in the ads where this stock went up 930%, but a lot of people have no idea how much that would be on a $20 stock. Learning percentage math would be a good way to teach math that is used in the world.

Look forward to reading your Postcards every day. Have fun this winter. The kids will learn how people live in the cold parts of the world. They will also understand why snowbirds go to Florida (or other warm places) for the winter.

Reader comment: I so enjoy receiving your updates and how much you are enjoying your life. My wife and I had the honor of homeschooling our four kids and would do it over again in a second. If we can be of help in anything, please do not hesitate to contact us. It would be a pleasure serving you and your family. Many blessings to you all. I’m just a little bit jealous I didn’t do the same thing with my family.

Reader comment: If you plan on going skiing a lot, I concur with your reader about getting a four-wheel-drive vehicle, unless that place you reside at, and town you are near, has excellent snow plowing services. My guess is that they don’t. Here’s an option: Perhaps you can lease a vehicle? I’d get a club cab 4wd pickup – pickups are so handy, anyhow – and when you go or return from skiing you can just put the skis and gear in the back quickly, and don’t have to spend time tying down things.

Tom’s note: As always, thanks for your messages! I’ll be answering your questions in Friday’s mailbag edition of these Postcards. If you have questions you’d like me to answer in a future mailbag post, send them to [email protected]. We read every message you send us.