iBuyers Remorse Pt.2

January 4, 2020

My Dear Reader,
Over the long weekend, I treated myself to the book Maps of Meaning by Dr. Jordan Peterson, famous for his psychology works that include 12 Rules for Life and Political Correctness: The Munk Debates. What strikes me about much of his work, but Maps of Meaning itself is that it is not caught up in the anecdotes of the day or in the fad psychology of its time. Unlike most of the “name brand” psychologists like Deepak Chopra, who aim to make great generalizations in order to connect with a wide array of people with the hopes of hooking them on some sort of “coaching” (see our article on social media advertising), Peterson instead aims to look at the broader picture of the human condition and draws from an array of giants in the industry, Dostoevsky, Nietzsche, and even Aleksandr Solzhenitsyn.  While I’m not anywhere done with the piece, I find it not only enthralling but impeccably cited and well thought out.

In the chapter Maps of Experience, Dr. Peterson looks at the apparent absurdity of early sciences such as alchemy and medieval thought, and juxtaposed them to current scientific method and logic.  Using much of Carl Jung’s later work, I believe Dr. Peterson was able to reasonably conclude that while scientifically invalid, early thought and myth is not to be dismissed so easily. Peterson studied much of the same works the Jung did and came to the conclusion that meaning itself, holds more value than we previously thought in our own psychology.

At the end of the day, Dr. Peterson found, is that for humans to place a value on something, it must mean something or have meaning to us.  For instance, homeopathy has largely been discredited by the scientific community, however it still attracts many suiters and people who practice it.  This is due in large part to a lack of fulfillment in the secular world, and, as Peterson and Nietzsche both concluded, a symptom of the “problem of morality” Essentially, the secular world has cast doubt on the medieval truths and thinking and that has disrupted the meaning in people’s lives. This has led to a rise in nihilistic philosophy across the west, and has generally hurt the social cohesion that the more spiritual cultures of the east still enjoy. However, Jordan Peterson also explores social fear out of this phenomena, and that has led him to a theory on order and chaos.

The basic premise is that fear is born out of the unknown, as animals, we still need to know what feeds us, pleasures us and fights us.  That lack of knowledge can induce anxiety, and the chaos of life only compounds this fear.  Dr. Peterson concludes that a plan and a goal is the key to disrupting that fear.  His book is much more in depth than this synopsis, but we have limited space to describe this issue.  That starting point and the difference between it and your goal is known as potential.  If you have a certain number you need to make to live on per year, your action or plan to attain that goal is potential.  It’s therefore reasonable to assume that we all have unlimited potential to reach a certain goal, our only hindrance is time.  But we must also be mindful of inaction, which is the same as action. But what does all of this have to do with finance and the iBuyers? Well, we are going to go deeper in different economic factors and discover that what we thought to be true about money, may not actually be, and alternative action may be necessary.  But above all else, it is doable.

At the crux of this issue that I am going to bring up is the exposure to risk that nearly all of American families are forced to endure because of market factors beyond their control.  I’m not arguing that risk itself is the culprit, but rather unnecessary risk.  Think of the difference between jumping across a ravine and jumping off a cliff; one holds the risk of injury, but the other nearly guarantees it. I want to make it abundantly clear however, that I am not alleging any grand conspiracy, but rather, the perfect mixture of monetary policy and market factors.

It starts with low interest rates and inflation.  In an era of protracted low interest rates, many formerly secure and safe positions such as bonds and bank CDs have incredibly low interest rates to the point in which they no longer outpace inflation.  This appears to be a widely accepted fact by many well educated investors in charge of large funds.  Simon Black, owner of Sovereign Man investing, reported this development in 2018.

“According to the World Economic Forum, pension funds around the world are short around $70 TRILLION. State, federal and local pensions in the US are $7 trillion short… and a recent report by Boston College estimates 25% of private US pensions will go broke in the next decade. This is all happening because investment returns have been too low. Pension funds need to earn about 8% per year to meet their obligations. And they traditionally do that with a conservative mix of bonds and stocks. But with interest rates near the lowest levels ever, it’s impossible for pension funds to achieve that 8% with their usual tools (over the past year, they’ve only been earning around 5.5%). So they’re getting desperate, and, across the board, pensions are taking on WAY more risk in hopes of breaking even. Since 2008, public pensions have increased their allocation to risky assets by 10%. 10% may not sound like much, but it’s a huge move by these conservative funds. It translates into TRILLIONS more invested in exotic speculative investments.”

Aside from just forcing government workers into riskier positions, this means that the average investor, even if they attempt to play it conservatively, cannot rely on traditionally safe investments.  The outlook for bonds doesn’t look much brighter in the future either, and it’s clear that the market will force investors and their advisers into funds with supposedly higher returns, with much more risk, just to keep up.  In the same article, Simon Black notes:

“When stocks fell from their September highs, [in 2018] you would have expected investors to run for cover in the world’s safe-haven asset – US Treasury’s. But that’s not what happened. While stocks were plunging, Treasury’s also fell. Yields on 30-year Treasury’s increased to 3.4% from 3.22% (and yields have already more than doubled from their 2016 lows). It’s a sign that the market is worried about the US government’s ability to pay its exploding debts and that inflation is creeping back into the market.”

Along with low interest rates comes the added incentive to borrow money, as its “cheap” at very low rates, which has driven consumer debt to income ratios higher than we’ve ever seen before.  This in the long run hurts investments because there is less capital for advisors to work with, which could drive up the need for riskier investments even more.  This further compounds the issue of opportunity cost and taxation.

Because more and more investors are forced into higher risk funds and positions, they will most likely feel a greater impact from a market correction or crash.  When the market does crash, remember two things: it stops the forward momentum or compounding interest of invested dollars and adds opportunity cost to the lost potential.  Remember that the basic premise of compound interest is that every dollar you spend today could have been invested to yield more money over time. In the long run, this cuts deeper into savings accounts, which forces savvy investors into even riskier growth funds in order to potentially make up the lost ground.  On top of it all, if the funds are tax differed, than the potential gain actually increases the tax liability to the IRS and the average American is squeezed even harder.

As Voltaire wrote, “[Problems may abound] but we must tend to our garden.”  In the end the solution for all of this must be done with concerted action to reduce the fear and anxiety of the modern market and investment vehicles.  But for more on that, you can check out my course on the private reserve strategy, or my book series “Taxation Revelation”

To your creation and Potential,
Kevin Prendiville