CHISWICK, WEST LONDON – Greetings from my childhood home…
It’s time for our Friday mailbag edition, where I answer the latest questions you’ve sent in. (As always, please keep your questions and comments coming at [email protected]. I read every note you send us.)
This week, readers want to know: Is America going the way of Japan, with an ever-rising debt load? What is the best book to learn more about our “Income for Life” whole-life insurance policies? And finally, what will happen to the markets when the debt bubble pops?
All this and more below, so let’s dive in…
Reader question: Forgive me if I’m front-running your next “hero trade,” but since it’s based on an “epic debt bubble” a question comes to mind. The U.S. debt is now 135% of GDP. Japan’s debt is now 250% of GDP. What is to stop the U.S. from simply becoming Japan? As always, thank you and keep up the good work.
This is something I’ve thought about a lot. (If you’re just joining us, please see the June 16 Postcard to catch up on the new “hero trade” I’m considering.)
My conclusion is, Japan is in a totally different position than the United States. The reason is, Japan has a current account surplus, which means Japan exports more than it imports… which means it earns more foreign currency than it spends… which means Japan is a nation rich in income.
Also, Japan has a positive net international investment position, which means Japan owns more assets abroad than foreigners own assets in Japan. If it ran out of income to finance its debts, it could sell overseas assets.
In other words, Japan can afford its debt. The U.S., on the other hand, has the largest current account deficit in the world. That means it imports more than it exports, which means it’s externally funded.
Also, foreigners own far more American assets than Americans own foreign assets. In other words, the U.S. is a consumer, not a producer, and relies on foreigners purchasing U.S. assets to survive.
In my opinion, the U.S.’s finances have much more in common with countries like Zimbabwe or Argentina.
Now, none of this means the debt bubble is about to collapse. But I find myself more and more drawn to betting that the stock market is fully valued. And that the smart thing to do – if anything – is bet the next big move is to the downside.
Reader question: Many market commentators have said that the interdependent world financial system is based on debt. This system will last only so long as there is a belief that the debt can be managed. You and others believe that the current stock market is supported by a huge debt bubble.
Do you believe that when the bubble pops the resulting carnage to the world financial system will cause a huge decline in all markets and a possible collapse of most of the world’s central banks?
Yes, I believe that the prices of financial assets like bonds, stocks, real estate, and the reputations of central banks have ALL become overpriced and overvalued.
If they stopped using quantitative easing (QE) and let the free market set interest rates, there would be massive adjustments in the prices of most financial assets and in the reputation of the central banks.
So what will stop them using QE and manipulating interest rates lower? Inflation and popular uprising against inequality…
Reader question: In one of the books I purchased (I believe that you were connected with) in the past, I read about the best whole-life insurance. Might you know which book it was? If not, how can I find an excellent/above-average one? I am older and do not have a lot but would like to start a policy. Thank you in advance.
My favorite book on the subject is Becoming Your Own Banker by Nelson Nash.
And for more on whole-life insurance, you can also check out my Income for Life course.
Income for Life is one of the world’s most powerful wealth-building accounts. These insurance policies just grind away, year after year, compounding our savings tax-free… and offering us liquidity whenever we need it.
Yet most people still don’t know about them – which is why I developed a course about this. It explains everything you need to know about these Income for Life accounts… and how to get started quickly and easily, right from your home computer.
If you’re a Tom’s Portfolio subscriber, you can access your Income for Life course right here. If you’re not a paid-up subscriber yet, watch this to learn more.
Reader question: Is there any place where I can find just the financial/strategy questions and comments, without the daily life descriptions? Don’t get me wrong, I think what Tom is doing is commendable, and I admire what he is doing. (I’m a past Palm Beach Letter subscriber, before Teeka Tiwari took the helm of that publication).
I have a massive amount of information to read and webcasts to watch. Distilling the posting into a separate financial/investments area would save time and I wouldn’t miss Tom’s insights.
I try to separate the financial commentary from the lifestyle commentary in each postcard, but otherwise, you’ll just have to open each email.
Anyway, nothing much new is happening in the financial markets. We’re in the final stage of a giant credit bubble, and we’re sitting on the sidelines in gold waiting for it to pop.
That said, we did just reach an important turning point in the inflation narrative. But thanks to our agnostic investment strategy – built around a portfolio of gold, silver, and steel – we’re well-positioned to ride out any environment.
Now, I’m not saying the inflation narrative has peaked forever. Long term, I still believe we’re in for higher inflation. But over the short term, we may be headed for an environment where inflation rises more slowly or, temporarily, even ends altogether.
I just released our latest quarterly update for Tom’s Portfolio subscribers, with more details on this. I broke down my three-month outlook and what this change in the inflation narrative means for our investment strategy.
If you’re a paid-up Tom’s Portfolio subscriber, read it here. If you’re not paid-up yet, learn more about a subscription right here.
Reader question: I love your lifestyle!! I always read all your emails. It almost seems like I know the two of you and your three beautiful children! You told us a while ago that you weren’t born in England. Can you please tell us where ?
I was born in Johannesburg, South Africa.
Reader question: My question is this: How do you generate income to pay for your everyday expenses? Do you sell a small portion of your assets every month to pay for groceries, gasoline, etc.? Or do you sell out-of-the-money puts on your investments? Or do you take money from your life insurance policy?
We aren’t selling any out-of-the-money puts. And our investments don’t generate any income.
As I wrote in last Friday’s mailbag, income investing is a very dangerous endeavor right now. Interest rates are too low, and I expect them to rise long-term. Add to that the fact that we’re in a massive debt bubble, and it’s just not a good time to be an income investor.
Instead, I receive a salary for writing these Postcards. Then we sell a small portion of our assets whenever we have to, to make ends meet.
And that’s all we have time for today! As always, don’t hesitate to send me your questions and comments to [email protected].
I love reading your notes, and I’ll respond to as many as I can in future Friday mailbag editions.
– Tom Dyson
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