Littlejohn Financial

How the Middle Class Can Fight Back

Financial Podcast by Financial Advisors

In a time where everything costs more, taxes are a burden and wage growth might not feel adequate, how do we fight back? This episode breaks down practical ways the middle class can stretch the dollar and make smart money moves.

Episode Highlights:

  • The potential investment value of firearms and ammunition, and the challenges the middle class faces in ascending to wealth.
  • Impact of COVID-19 on global supply chains, the shift in manufacturing from China to other regions for resilience and national security, and the role of geopolitical tensions and media narratives on financial markets.
  • Insights into economic cycles, the possibility of inflation or deflation, the role of the Federal Reserve and the complexity of managing government debt and interest rates.
  • Strategies for wealth accumulation through asset allocation, the importance of investing in appreciating assets and balancing spending on life-enriching experiences with saving for financial growth.
  • Principles of scarcity and leverage as they apply to economics, including the high market value of professional athletes due to their unique skills and limited supply and the strategic moves in industries such as semiconductor manufacturing.
  • An understanding of how tax implications affect different income streams and the advantages of certain types of income such as long term capital gains, real estate and passive income over earned income.

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TRANSCRIPT

 

00:00:00 Here’s the interesting thing about buying into, like the stock market. Okay? Now, admittedly–

 

00:00:05 This is what I tell my wife whenever I buy a new gun, honey, it’s an asset. 

 

00:00:09 Well, and the crazy thing is that guns have historically appreciated in value. Unless they are abused, they typically hold their value or even go up. 

 

00:00:16 Interestingly enough, even ammo. You watch ammo prices continually jump, jump, jump. 

 

00:00:21 Yeah. You know when ammo prices drop though? After you shoot it. It’s really not worth as much. 

 

00:00:27 Just hold on to it.

 

00:00:36 All right. It is that time of the week, the time where we complain about the inter music and get started with the True Wealth Radio Show. I’m your host, Dave Littlejohn. In studio today with me.

 

00:00:45 Matt Dickson. 

 

00:00:46 Right. Because we’re like, how did we pick that one? 

 

00:00:49 Well, we didn’t. So we just move on and–

 

00:00:52 Right. 

 

00:00:53 We love it. 

 

00:00:53 What song should we move toward? Can we pull the audio? I want everybody that’s listening to throw, especially if you’re watching this as a YouTube like thing. Go put the comments in there. We need some intro music. What should we try? Okay, so anyway, but this is not the show, this is not the True Wealth music program. We’re not gonna do that. True Wealth Radio Show today. The topic of the day. Huh?

 

00:01:18 Are we talking about wealth? 

 

00:01:19 We are, no, so this is–

 

00:01:20 True wealth? Artificial wealth? 

 

00:01:22 Maybe. 

 

00:01:22 What type of wealth? 

 

00:01:23 Well, today we’re gonna talk about being in the middle class and trying to break out of the middle class into the wealth class.

 

00:01:30 Okay. 

 

00:01:31 Okay? Because–

 

00:01:32 These tricks and everything in between. 

 

00:01:34 Well, there’ll be a little bit of that. What did we say? It was kind of, I will call it mildly obnoxious, but like, right? Unfortunately, the middle class often gets–

 

00:01:45 Pinched. 

 

00:01:46 The middle finger. 

 

00:01:47 Yeah. 

 

00:01:47 Right? 

 

00:01:48 No, it’s true. 

 

00:01:49 The middle class gets the middle finger. 

 

00:01:50 And every politician is gonna look at you and say, I got a plan to help you out. 

 

00:01:54 Well, they have to.

 

00:01:55 Yep. 

 

00:01:55 Right, and they have to because otherwise somebody else will say that. 

 

00:01:59 But is that the reality? Are they actually helping us out? 

 

00:02:01 You know, this is, well, let me ask the question another way.

 

00:02:04 Okay. 

 

00:02:05 When was the last time you got 535 people in a room and you came out with the best decision possible? 

 

00:02:10 Very, very rarely. 

 

00:02:11 Right, if you got a decision at all, right? 

 

00:02:14 And that’s how government works. You get a bunch of people in a room, no one can agree on anything, and your results are so poor. 

 

00:02:19 And then you think to yourself, this is the cynical part of me, wait a minute. How do we get anything done at all? There’s 535 people, right? Like some of you guys in the community are like, yeah, I have an HOA with a hundred people in it. We can’t even determine how tall the fence can be. 

 

00:02:31 And it’s probably a good reason for the government being the way that it is. 

 

00:02:36 Yeah, but think about this for a minute. Nobody can agree and yet we still get stuff done. Right? Cause like, what did we just see happen? 

 

00:02:43 $95 billion walked out the door today. 

 

00:02:46 $95 billion. We did some math because we’re numbers people, right? 

 

00:02:50 Yeah.

 

00:02:50 And so we just looked around and said, hey, first of all, this is where ChatGPT is novel, right? Hey, what’s the median income in the United States right now?

 

00:02:58 What was it like? 

 

00:02:59 Like 68,700. 

 

00:03:00 Sure. 

 

00:03:01 Right? And so we said, oh, okay, well, if you had $68,700 of income, how many people does it take to pay $95 billion? 

 

00:03:12 Wasn’t it like 2% of the US population? 

 

00:03:15 It was more than that. It was like 2.37% or something. It was wild. And so–

 

00:03:22 Yeah, that number basically means that 2% of our–

 

00:03:25 The 2 ½%. Well that’s 2 ½% of the IRS revenue for the year. 

 

00:03:28 Right. Gave away their entire paycheck for the entire year. 

 

00:03:32 And keep in mind–

 

00:03:32 On one financial–

 

00:03:33 The IRS isn’t just… So that is true, right? We were like, well, if you just took all of their income.

 

00:03:40 Right, all of it.

 

00:03:40 Then like, we had like 3% of the population just lost their income for the year to push this money out to, like Ukraine and elsewhere. 

 

00:03:49 Right. 

 

00:03:50 So now somebody somewhere in the Congress had to go like, well, how can this be a good idea? 

 

00:03:55 Probably a lot of them. 

 

00:03:56 Right. 

 

00:03:57 Yeah. 

 

00:03:57 And the answer was because there was compromises where they may have gotten stuff. 

 

00:04:02 Yeah. 

 

00:04:02 Right. Oh, well some of the money came back to where my constituents are, so I can tell them how great I am. And what happens is–

 

00:04:11 Someone got bought off basically. 

 

00:04:12 Enough people got bought off. That’s the way I would phrase it. Enough people got bought off that this happens. And then people think they scratch their head and they go, well, why is it that we keep getting massive government debt and we keep overspending? Well, which part is the incentive to not do it? 

 

00:04:31 Bingo. That’s the biggest piece. Why would you not do something? You’re in government to do things and you got to appease people and how do you make people smile? You give them money. Somehow or another. 

 

00:04:45 Right. The question though is becoming, and so we also flirted around with this concept. Like Matt?

 

00:04:50 Yeah.

 

00:04:51 You know, it gets thrown around, I don’t know if our listeners hear about this much, the concept of modern monetary theory. 

 

00:04:57 Right. 

 

00:04:58 Right?

 

00:04:58 Yeah, it’s this theory that kind of looks at, how does money come into the system? And what are the certain ways that we either constrict that money flow or open it up? And what are the choke points and how does that money move through the system and how does it affect you? 

 

00:05:15 Well, here’s what will blow everybody’s mind. If you’re unfamiliar, right, I’m going to try to distill this down to a couple sentences. It won’t be fully adequate, but whatever, that’s the radios for, right? So it’s the idea that the government, because it creates its own currency, can control things like inflation. And the government’s not being financed by the taxpayer, but by money creation. And the taxpayer is a mechanism to control inflation. So you raise and lower taxes to influence inflation, and the government can kind of print money to conjure for its needs. Now, this to me really does seem counterintuitive and counterproductive. Those that are out there swearing like, no, no, it can work. You get fringy conspiracy theories that spin off of this concept. ‘Cause we all look at this and go, well, I have to have something of value in order to trade for something else of value, right? 

 

00:06:13 That’s how it works for us. 

 

00:06:14 So how is it that the government can simply create something, say it has value, and then go use it to trade? Yeah, I had the same response of like, and why I have to interrupt Matt, because like when you give the silent nod and the confused look on the radio, that works great on video. 

 

00:06:32 For you, yeah. 

 

00:06:33 But on radio, you guys are like, what? What happened? 

 

00:06:37 Yeah, because there’s–

 

00:06:38 We all had the dumb look. 

 

00:06:39 Right, because there’s no good answer for it. 

 

00:06:42 Yeah, and so to me, sometimes the joke is also called magic monetary theory. Like, oh, we could just conjure it and it’ll be okay. I prefer to think of it more like, we have a really massive, massive program with a lot of people vested in it.

 

00:06:59 Right. Well the whole world is based in a way around the US dollar in a big way. 

 

00:07:04 Oh, it’s deep.

 

00:07:06 Right? 

 

00:07:06 And so like the rest of the world is kind of, they’ll complain and squawk and I don’t blame them when they’re going, You can’t just print money like this. So what? The rest of the world will print some money, too. They’re like, we’ll better do it too. So it’s kind of all in lockstep. 

 

00:07:18 Yep.

 

00:07:18 That’s part of it Right, and that’s sort of globalism 101 is can we get all of our monetary policy to sort of move in lockstep. 

 

00:07:24 Right. 

 

00:07:25 But the modern monetary theory is, best I can tell, right? And I’m just some chucklehead on the radio, but as best I can tell, it works best in a fairly protectionist closed cell environment, meaning you don’t really do business with the rest of the world. You get your own people in the ecosystem, you get everybody pedaling on the bikes together and you just kind of keep it in your own feedback loop. But what happens when there’s other countries and other currencies? Well, you got to keep it stable enough that you don’t upset that relationship. 

 

00:07:55 Right, because you want them to still use your currency. 

 

00:07:58 Yeah, or you want your currency to still have some semblance of value there. Otherwise, you end up getting these intermediate things. This is a new thing for me, right? The idea, like I’ve never been a gold guy, and I’m still not running around saying, go buy gold, go buy gold, but I will entertain this concept. Like, let’s say you’re China and you go, you know what, we’re sick and tired of the US dollar being the, you know, air quotes, king dollar, right? So what are we gonna do? We’re gonna get other people around us to kind of agree to our own currency pool and our own central bank. We’re not gonna use dollars anymore. And you know, well, how are you gonna get dollars? So, well, that’s easy. We’re gonna start buying up gold and getting a hold of all the gold we can. 

 

00:08:36 With the dollars that they earn? 

 

00:08:38 Not necessarily with dollars. See, here’s the thing, just like oil and dollars and lots of commodities. Commodities sort of have a representative value because they have a use, or they’re doing, they’re like a stability, like gold is tangible, right? It’s really tough to fake gold. 

 

00:08:56 Yep.

 

00:08:57 It just is. So if gold is tangible, they can come along and say, well, this, whatever currency they’ve created, we can get this much gold with this currency. Oh, well, that’s interesting because you can get this much gold with this many dollars. Well, now you have sort of a proxy to determine how you could trade dollars with your currency. 

 

00:09:15 Right, because if the dollar is really strong, you can exchange, you know. 

 

00:09:20 You can buy gold and then walk in with the gold and exchange it for the other currency. So you can still get there. 

 

00:09:25 Or it can go the other way around. 

 

00:09:27 Right, but gold is a stabilizer in this case. 

 

00:09:30 Yeah. 

 

00:09:30 That’s the idea, right? 

 

00:09:32 And I think we’ve kind of seen that. You use that as an example, but gold prices have really gone up. 

 

00:09:38 Yeah, and you know, it was like, well, it’s an inflation hedge. And you go, well, why does that matter? Well, it matters if the rest of the world is getting frustrated enough with the money printing in the US that they start trying to move away from US dollar as the reserve currency. 

 

00:09:54 Right. 

 

00:09:54 And we’ve talked about this for years and it’s probably going to take a while to get there, but I think the rest of the world’s kind of on its way. 

 

00:10:01 Well, and you know, you start thinking, bigger picture, maybe a little conspiracy theory sprinkled in. Why would that make sense? China keeps talking about invading Taiwan. And the US keeps saying, well, if you do that, we’ll go to war with you. And we’re already at ends with Russia because–

 

00:10:18 Well, and either way– 

 

00:10:20 Russia invaded Ukraine.

 

00:10:20 Sort of a Cold War with China. Side note, right? 

 

00:10:22 It is.

 

00:10:23 Because what’s happening? We are now saying things like Taiwan semiconductor. 

 

00:10:27 Right. 

 

00:10:27 Listen to the name again. Taiwan semiconductor. 

 

00:10:30 Right. 

 

00:10:31 They’re building massive plants in the United States. 

 

00:10:35 Right. And it’s being funded by the Biden administration. 

 

00:10:38 By the US taxpayers supplementing this to serious money, right? Serious coin. 

 

00:10:44 Billions. 

 

00:10:44 Which evidently is fine because we can print it. Right? 

 

00:10:47 Sure. 

 

00:10:47 It’s not because, modern monetary theory, we can just print the money, it’s fine. 

 

00:10:51 In a way it makes sense. National security, you gotta have the chips if you want the infrastructure. 

 

00:10:56 It does make sense if you are moving more towards the, I mean, it’s funny because it’s the opposite of the globalist agenda.

 

00:11:01 Instead of the globalist. Yeah.

 

00:11:03 It’s like, well, you doing this is the opposite of globalism. You’re trying to bring the resources back. 

 

00:11:07 That nationalism thing is kind of exploding at the moment and we are seeing it. You look at iPhone sales in China, plummeting. 

 

00:11:14 Plummeting and look at what’s going on in India, skyrocketing. 

 

00:11:18 Where is most of our trade now? Mexico, not China. Everything is full.

 

00:11:23 Import export. I think there’s still a lot of volume. We still trade with China and we still trade elsewhere too. But Mexico is now a ton. 

 

00:11:31 Yeah. Mexico has kind of taken over as the leader there. So you look at it, what’s shaping up on a world scale? We’re kind of severing ties and Russia and China have really aligned and–

 

00:11:47 Yeah, and–

 

00:11:49 It’s changing. 

 

00:11:50 It’s definitely in flux, right? Whether or not we’re severing ties, I think there’s a certain amount of threat, but there’s also a certain amount of like, we really got exposed to something. You know, this is interesting enough we should keep talking about. I just realized. So we’re running kind of long on this one. I want to talk about, like, what did we learn the hard way about China? Right? And now what responses are we starting to see? If you’re like, and then it all kind of plays in like, how’s this gonna fit together? 

 

00:12:19 But bringing it back to the middle class. 

 

00:12:20 Yeah, back to the middle class, but we learned something about China that has influenced our behavior ever since. 

 

00:12:26 Okay. 

 

00:12:27 Right? What was going on with China? What did we learn? We really learned this during COVID, right? We learned we really, really, really depend on China a lot for stuff. 

 

00:12:36 And we couldn’t count on them for a long time. 

 

00:12:39 And so–

 

00:12:39 They had their lockdowns outside of where we were locking people down. 

 

00:12:43 And you look at the economic ramifications. One of the areas that we see it most acutely is vehicles. 

 

00:12:49 Well–

 

00:12:49 Right? 

 

00:12:50 Yeah. You broke our supply chains. We didn’t get the stuff. It caused a lot of inflation. 

 

00:12:55 Well, and I’m gonna, I’m just gonna say this, right? I’m not gonna say you broke. I mean we probably did, right? In the end, it comes out.

 

00:13:03 It was both of us. 

 

00:13:04 Well, like COVID really does appear to have originated in China, like it really seems to. It actually looks like it probably came out of a lab. It was probably like, oopsie, that one’s supposed to happen. 

 

00:13:14 Right. 

 

00:13:14 Probably not, but it did. 

 

00:13:16 But it sent the world into turmoil. 

 

00:13:18 And that’s the thing, I don’t need to throw rocks. I mean, in the end, there’s so many things we could have done different and better. 

 

00:13:24 Sure. 

 

00:13:25 Especially around the kids. That one just, like, don’t forget that. Please don’t, like become so naive that like, oh, well, you know what? I can’t remember what happened yesterday. I can’t remember what I had for breakfast this morning. I have to make those decisions looking forward, but I have no memory, right? 

 

00:13:40 But the reality is the world looks a lot different–

 

00:13:43 Totally.

 

00:13:43 Since COVID. 

 

00:13:44 But what did we learn? China had certain things they did that was substantial. One of them, chip technology. A lot of the electronics manufacture. 

 

00:13:55 They have developed. Right. Yeah. I mean, you look at it.

 

00:13:57 They look at a ton. I mean, they were doing a lot of manufacturing and assembly for like Apple, Intel, like major suppliers of the computer market. You think about Nvidia and how big it is. They’re still getting some of their stuff from Taiwan’s semiconductor. 

 

00:14:10 Yeah. 

 

00:14:11 Right. So like, it’s just really interesting to see the way the markets work. But there was another one that we didn’t realize, it was drug manufacturing. Tons of manufacturing with that was one of them, too. You go, wait a second. We have significant things that we are like over dependent on China. 70, 80% of the supply came from China. And so you are seeing sort of an attempt to bring some of that back within our borders because it is good for national security. 

 

00:14:40 Some of it in our borders, some of it south of the border, a lot of it south of the border. 

 

00:14:45 Well.

 

00:14:45 Because you look at it in 2023, we saw, 20% downturn in the number of exported goods to the United States from China. Who filled that gap? Mexico did. 

 

00:14:57 Right, right. And my larger point–

 

00:14:58 Twenty percent. 

 

00:15:00 I think we’re making two different points at the same time. 

 

00:15:02 We are. 

 

00:15:02 Both of which are valid. One of them is like, look at the change in trade. And I’m saying just mechanically, I don’t know that we were, it was so much about like, all right, screw China, we’re gonna do something different. 

 

00:15:12 No. 

 

00:15:13 It was more like, hey–

 

00:15:15 We had to fill the gaps. 

 

00:15:16 Well, and just like–

 

00:15:17 That’s what it was. 

 

00:15:18 Let me give you a real life example, okay? Data centers, okay? Oh, you have to backup data. Great, we do that. But the really big guys, they have multiple data centers in different locations. It’s not like when we put a backup in a drawer and we keep the backup on file. It’s like we have a data center that backs up a data center in a whole different region. 

 

00:15:41 Right.

 

00:15:41 Okay. And that’s what we didn’t really have. Everything was in China. When that went offline, we were in trouble. We just didn’t have redundancy. 

 

00:15:49 I mean, we’ve all seen it. It’s on the news. You know, terms like national security crisis. Look at our 5G networks. There were bills passed where we couldn’t import certain pieces from China to build that infrastructure. 

 

00:16:04 Well and maybe for the right reasons, if you remember why they were, because there were security hacks that were built into the systems where China could potentially exploit the networks. 

 

00:16:13 Yeah. 

 

00:16:13 Okay, so there you go. And it’s funny. 

 

00:16:16 But it goes both ways. 

 

00:16:16 Oh, yeah. 

 

00:16:18 China passes laws that say, you know, their government officials can’t use an iPhone, well, duh, iPhone sales are going to drop. The regulations are swinging both ways. China wants to put sanctions on the US in certain areas. We’re sanctioning China in certain ways. What do you expect to happen? 

 

00:16:36 Yeah. Well, and it’s funny because somebody else made this really valid point. You may not even hear about it, right? Because the mainstream sources we have, tell us what they’re going to tell us about. 

 

00:16:48 Yep.

 

00:16:49 Not the, you know, you have to really look hard to find some of this stuff. 

 

00:16:52 You do. 

 

00:16:53 And then it’s, and the crazy thing is sometimes it sounds really fringe or conspiratorial. And then six months later, you discover not conspiratorial. In fact, may have been intentionally suppressed. 

 

00:17:03 Yep.

 

00:17:03 I hate to sound this way, but I get super jaded. Every now and then I hear, like big name stocks. I’m not gonna mention names, Boeing, but they, you know, there’s rumors that people are shorting the stock. And then you go around and look and like, well, that’s interesting. All we get is bad news.

 

00:17:18 Yeah. 

 

00:17:19 Like that’s all we get. 

 

00:17:19 Same thing with Tesla. 

 

00:17:20 And then at what point do you start getting good news again? Because, like follow the stock price and the news and people could say, well, duh, it’s bad news so the stock price goes down. But at what point might it be, and hint conspiracy, that there’s a campaign to target to drive a price down? 

 

00:17:37 Right. We’ll think of how many big institutions are like, can you imagine if we could get this huge stock at a fraction of the price that it’s trading at currently? Sure, hit it with the bad news. Let the media take a, you know, take its licks out on this thing. 

 

00:17:53 We can’t even prove it right now. 

 

00:17:54 No.

 

00:17:55 These are all just theories and rumors, okay? Well.

 

00:17:58 Until they’re not. 

 

00:17:58 And PS, this is why long-term investing tends to work out easier than short-term trading. Short-term trading’s really hard. 

 

00:18:06 Because you could buy a company that’s actually doing great, but it’s just caught up in a negative scrum and the share price falls and nothing has actually changed at that company. 

 

00:18:17 Right. 

 

00:18:18 And you’re like, I bought a terrible company. Did you or did you just buy it at the wrong time? 

 

00:18:22 Yeah, you bought it in the time where everybody was under attack. 

 

00:18:25 Yeah. Hence the long term and–

 

00:18:26 Hence the long term. So, yeah, we, now we say this a lot. We liked… we can love companies. We try not to love stocks. They need to do their job. So, but it all depends on your sort of your mission profile and what you’re designing things to do. 

 

00:18:39 Right. 

 

00:18:40 There are traders out there, too. Our firm isn’t one of them, not with any regularity, but that’s not to say we haven’t bought something, had a really good short term move, and we just cashed out full of the money and put it in our pocket. 

 

00:18:54 I’ve seen that happen with us. It wasn’t our goal, right? But if you buy something and then tomorrow it’s worth 20% more, and you’re like, well that’s overbought. 

 

00:19:04 If you bought, Tesla this morning, you feel really good right now, because aftermarket it’s trading up like 10%. 

 

00:19:09 Right.

 

00:19:10 Okay. 

 

00:19:10 Did anything really change with the company? 

 

00:19:13 Well, they came out and announced they’re going to start trying to bring lower cost vehicles to market. 

 

00:19:18 Yeah, a news article. Now the company is worth 10% more in a fraction. 

 

00:19:23 Right. And this is why I often say the price today is not necessarily a reflection of the value you will receive provided you don’t have to sell today. 

 

00:19:34 Correct. 

 

00:19:35 Right? You got time. 

 

00:19:37 Hopefully. Oh, you jinx, you owe me a coke. I’ll give, yeah. 

 

00:19:42 Right. All right. I owe you coke. [We’re going to go]. 

 

00:19:44 There you go.

 

00:19:45 Okay, so let’s get back to this concept of the middle class. So we’ve kind of established that things are all over the board and that, you know, we’ve talked about some of the things that are going on globally. So I want to propose to you that there’s a handful of scenarios that we’re looking at out there. And what might this mean for people? So we’re going to try to bring this from like the 60,000 foot level down to closer to ground level where it means something to you. So Matt, let’s consider two different scenarios. 

 

00:20:12 All right.

 

00:20:12 One of them where the economic cycle we’re in ends up turning in such a way that we see, and we’re just gonna talk about here in the US, we’re not talking about global, right?

 

00:20:24 Okay.

 

00:20:24 But we see a deflationary cycle, right? Asset prices start to drop. Ooh.

 

00:20:30 Okay. Sounds like a buying opportunity. 

 

00:20:32 Okay, well then let’s talk about the other situation. We’ll come back to it. Cause the other one is what if we saw, continued inflationary cycle? So first let me just, like, I’m not gonna hold you to this one because none of us could predict the future. Otherwise you better tell me the lotto numbers too. That’s all I’m saying. But–

 

00:20:50 Seven, 12. 

 

00:20:53 Which one do you think is more likely, a deflationary cycle or an inflationary cycle? 

 

00:20:56 Probably the inflationary cycle. A lot of things have to kind of go wrong in order for you to see deflation. 

 

00:21:02 Can you give me just like, like a super–

 

00:21:05 Deflation, your money is worth less than it is today. 

 

00:21:07 Well so what would have to happen for a deflation cycle? 

 

00:21:10 I mean, there’s a bunch of different scenarios that could play out. 

 

00:21:16 Yeah, like a bunch of defaults in debt, stuff like that. 

 

00:21:19 I’m trying to describe this in an easy way on radio. We talk about stagflation. Do you wanna try and describe that? You’ll do a better job than me. Don’t know if I will, but–  

 

00:21:27 Stagflation, the idea that we have, inflation is persistent.

 

00:21:30 For too long, yeah.

 

00:21:31 But unemployment remains high. 

 

00:21:35 Right.

 

00:21:35 Right. So typically high unemployment, you would expect that there would be a reduction in demand and that would start to bring the prices back down. 

 

00:21:41 And when you say that if stagflation goes on too long, you could start to experience a deflationary environment. 

 

00:21:47 Yeah. Well, in theory, stagflation leads to a recession cycle.

 

00:21:52 Right.

 

00:21:52 Right. Like at some point, it just breaks. 

 

00:21:53 And recession for too long. 

 

00:21:56 Yeah, recession can, well, it can become depression, but we think of, so there’s, what do we have? There’s recessions, which is the formal, you’ve got more than two successive quarters, or you have to have six successive quarters of contraction. But, so–

 

00:22:11 I think it’s two, right? Yeah. 

 

00:22:12 I think so too. 

 

00:22:13 More than two quarters. 

 

00:22:14 Two sequential quarters of declining GDP, or negative GDP, so not just less–

 

00:22:20 Declining but– 

 

00:22:22 Negative GDP. 

 

00:22:21 Literally negative, yeah. 

 

00:22:23 And that becomes a recession. So, you get a recession that extends far enough and asset prices start to drop. 

 

00:22:31 Here’s why I don’t think, because your original question is, which one’s more likely? I look at this and I say, all right, the Fed has a job to do, right? And it’s to keep inflation in check. And so far we’ve seen that they have the ability–

 

00:22:46 It’s a dual mandate. So they’re also supposed to keep unemployment around five percent. 

 

00:22:49 And unemployment, right. So I look at this and I say, well, they have changed rates, rates are higher. They’re doing what they can do on that front. But I also look at this and say, when, you know, go back to 2008, when stuff really hit the fan, we started to see in the years following that, quantitative easing. And they wanted to stimulate the economy. And I’m like, if you have the printing press and the Fed is able to manipulate things, why would they let a deflationary environment occur? They might let stagflation happen. We might start to see some hard economic times, but I think that the Fed would step in and make changes before you start to get into a deflationary thing. 

 

00:23:34 Well, I think you’re right, but I think there’s some other things that they’re actually shooting for or may have to shoot for, right? Because the Fed doesn’t wanna hold interest rates that high because–

 

00:23:44 No.

 

00:23:45 Really it’s a significant problem, the debt service cost for our federal government.

 

00:23:50 Yes.

 

00:23:51 Problem is our federal government’s not all that similar to the consumer, right? Oh, prices are down. I’m gonna borrow money and pay more for a house. 

 

00:23:58 Well.

 

00:23:59 I have a 3% mortgage. I’m gonna go nuts. 

 

00:24:01 There’s inflation going on. Let’s write a blank check for $95 billion. Like they’re not responsible. 

 

00:24:08 Yeah, and this, by the way, so my simple theory on this is it’s because they don’t really know, right? I think a lot of people that we elect, they’re not economic geniuses. 

 

00:24:20 No.

 

00:24:22 They’re not trained for this kind of stuff.

 

00:24:24 They’re good at public speaking and buying the vote. That’s who you’re electing. 

 

00:24:28 It’s not that they’re not trying. It’s that, again, 535 people of really varying skill set and competence and they have competing interests. 

 

00:24:37 And let me ask you this. How many of these people that we’re electing are prior successful business owners even? 

 

00:24:44 Yeah. 

 

00:24:44 Right? And because most of the time, those people just stay in business where the money’s at. There’s not a ton of money in politics. 

 

00:24:51 Oh, I mean, there is after a while. 

 

00:24:53 There is that you can–

 

00:24:54 Why do people go into these positions? They come out as billionaires. 

 

00:24:57 Right. But most of the time, that private business, if you’re that successful, you’re going to make more there than taking an elected spot making a hundred and something thousand dollars a year. Unless, you know, you’re really, really deep into the political scheme. Yeah, sure. Then you’re able to manipulate the system. But most politicians probably aren’t that smart. 

 

00:25:18 I think a lot of folks, well, and again, it’s not to throw rocks and say, you’re stupid, but it’s to say, this is really complex stuff. And even the policymakers don’t agree on it, right? Go read the Fed minutes. It’s like, there’s dissension in the meetings. Like people agree. 

 

00:25:33 Absolutely. 

 

00:25:34 Right? So this stuff is, it’s hard. That’s the problem, right? It’s really hard to predict the behavior of billions of people across the globe. 

 

00:25:43 Right.

 

00:25:44 Cause we have competing interests. 

 

00:25:45 But–

 

00:25:46 Here’s the last thing I’m going to add. All of the stuff we’ve been talking about so far, with the federal government probably really struggling to finance the interest. I don’t know how we keep them from overspending, but they really would like to see rates go back down. In order to do that, we got to throw a wet blanket on this economy so the rates can come back down, or we have to weaken the dollar. 

 

00:26:06 You hear that people just quit spending so much money.

 

00:26:09 That’s happening. That’s it. We’re starting to see that. My understanding and I need to check the data from reliable sources. But the rumor has it that we’re starting to see shipping slow down and that trucking companies are seeing reductions. 

 

00:26:23 We know it’s getting more expensive. You have a war breakout in the Middle East and you have the Houthis in Yemen lobbing some missiles and overtaking ships. Yeah, we’re rerouting ships below the southern point in Africa. 

 

00:26:38 Cape of Good Hope. 

 

00:26:39 Yeah. 

 

00:26:40 The southern tip of Africa. 

 

00:26:41 So, we were gonna talk about ways that the middle class can kind of expand and do better when they’re getting kind of squeezed the hardest. 

 

00:26:52 Right. 

 

00:26:53 So, did you want to maybe give us, like some low-hanging fruit? Some ideas on how? 

 

00:26:59 Well, you know, we’re always trading back and forth. Well, do you want to do that, Matt? 

 

00:27:04 No, I’m letting you start out and then I’m gonna–

 

00:27:06  I think that, so this is not an original thought for me, but it’s one that bears repeating. Okay. And that is that wealth, wealthy people buy assets and the middle class buys products. 

 

00:27:18 Sure. 

 

00:27:19 And I want you to just kind of think about that. The thing about assets that’s interesting is they adjust with the times. Okay. So think about, like after the Civil War, we have the Confederacy had its own currency. And they lost the war and the currency became worthless. 

 

00:27:39 Right.

 

00:27:40 Okay. Well, all of the physical, tangible property, that’s what you get, physica-ble, when you try to put those two words together too fast. Physical and tangible. So real property got repatriated back into a dollar value for the US again. So like plantations in the South didn’t instantly become worthless because the Confederate dollar was worthless, right? 

 

00:28:06 Yeah.

 

00:28:07 They had to be repriced in dollars because assets still exist even if the currency fails. But remember, currency is just a placeholder of value that we agree to exchange with. So if that placeholder of value disappears, then you’re just not gonna trust that currency. You’ll have to get some, but if you still have assets, those are real. 

 

00:28:26 David, you’re making me feel better, right? Because, so I’ll just clue you in. 

 

00:28:30 Okay.

 

00:28:31 Lately, I’ve started this trend where I am spending less, right? Like I’ve eliminated some stuff that I didn’t really have to spend money on. Right. Like you have your TV package. I don’t really watch TV. I cut that. I saved about $100 a month. There are a bunch of things that I’m not spending money on. I’m saving money with the thought of buying assets. So I think what you’re saying is really aligning with what I’m doing personally where it’s like, I wanna have cash on hand for if things roll over and stuff starts to get cheap, I wanna be able to buy stuff that appreciates. And so I think you’re making–

 

00:29:09 Right, things that hold value and increase over time. 

 

00:29:12 Right.

 

00:29:13 And so–

 

00:29:13 But it’s hard, it’s a trap. The middle class doesn’t wanna hear it, right? Because if you can go buy something that’s fun, you’d rather do that. 

 

00:29:20 Right, and I don’t wanna throw the baby out to the bathwater on this advice, right? I don’t wanna say don’t take a vacation, right? Because experiences have value for, in the human aspect, right? If you look back on your life, we know that the sweater that you got or whatever, pick the toy, the stereo is cool at the time, but you quickly become accustomed to it. It’s something known as hedonic adaptation, right? 

 

00:29:48 Okay.

 

00:29:49 And so you become accustomed to that thing, whereas a memory of something tends to get better with time. In fact, you can think of lousy vacations and mostly what you remember is not the terrible trip there or the terrible trip back or all the things that went wrong, but the handful of things that weren’t that bad. You know it wasn’t great, but we really, the memory of the terrible fades, the memory of the good stuff gets stronger with time. And so the human experiences are really powerful. Okay? 

 

00:30:18 Yeah. 

 

00:30:19 So I’m not trying to say that’s a bad idea. But what I am trying to say is that a lot of folks, especially you get in the credit card trap, you start buying stuff that doesn’t hold value, right? It becomes garage sale fodder. 

 

00:30:33 Right. 

 

00:30:33 Okay. So, you buy stuff that becomes crap and that’s what it’s worth, okay? Versus buying assets. Now, here’s the interesting thing about buying into, like the stock market, okay? Now, admittedly–

 

00:30:46 This is what I tell my wife whenever I buy a new gun, honey, it’s an asset. 

 

00:30:50 Well, and the crazy thing is that guns have historically appreciated in value. Unless they are abused, they typically hold their value or even go up. 

 

00:30:57 Interestingly enough, even ammo, you watch ammo prices continually jump, jump, jump. 

 

00:31:02 Yeah. You know, when ammo prices drop, though, after you shoot it, it’s really not worth much. 

 

00:31:09 Just hold on to it. 

 

00:31:11 So at that, which point, well, it’s an inert, dangerous object. So I want you to think about it. 

 

00:31:18 I love to just throw you on, little side. 

 

00:31:21 I know he’s always going. So the stock market though, okay, what did we see over the last few years? Right after COVID, right? Money printing happens. So at first money printing drives everything up, right? Stock market, well, first everything drops in fear and then the money printing starts and it drives, lifts everything up, okay? Even though we didn’t have economic activity, we had new money in the system. 

 

00:31:46 And the stimulus money, yeah.

 

00:31:47 Right. And the stimulus money got there faster than the inflation registered, right? But then the inflation followed suit. So first assets shoot up, inflation starts hammering things. 

 

00:31:56 Well, no, first assets went down on the fear trend. 

 

00:31:58 On the fear, but by the end of 2020, the markets had recovered. 2021, the markets go way up during money print. 2022, the markets pull way back as the printing ends. 

 

00:32:09 Right, and then 2023. 

 

00:32:10 And then in 2023, inflation is still persistent to this day. Rates are much higher. And yet markets have recovered their all time highs. And you’d think, well, shouldn’t they be going down because of inflation? No, they don’t. They go down initially with inflation and then they reprice to the new values. 

 

00:32:27 Right. But it makes sense when you think about it. If your XYZ widget costs $20 and now inflation hits and it’s worth 30, your stocks have to reprice too. The company is worth more. The products sell for more. There’s more money in the system. Inflate the value of the company. 

 

00:32:47 Well, and the transition is like, oh, we have to start paying people more, our expenses go up, the bottom line fluctuates. And so during that gyration, the prices may go down or simply get volatile. But yes, that’s why long-term, even for the middle class, they go, look, the problem with the middle class is most people earn income. And from the IRS perspective, income is the highest taxed. That’s the highest tax rate is your income. 

 

00:33:12 Like even capital, like long-term capital gains. 

 

00:33:15 Yeah. 

 

00:33:16 Lower.

 

00:33:16 Because yeah, long-term capital gains are more favorable. Real estate has depreciation and other things that are more favorable. Passive income is more favorable, right? Passive income, you don’t pay the employment tax on it. Right? 

 

00:33:28 Right. 

 

00:33:29 So that’s more favorable. So the least favorable income is earned income. That’s the issue, right? So when you start to take income and defer taxes on it and buy assets at the same time, you are in fact, at least in theory, improving the value. Okay? So that’s one of the things that you say. And generically, you know, everybody’s circumstance is different. We can’t give advice on air, but I can tell you, buying assets tends to work out. 

 

00:34:00 Unless you suck at buying assets and you buy stuff that’s overvalued. 

 

00:34:03 Yeah. Or you only buy or you buy emotionally and sell emotionally. So you buy when things are high because you think that feels good at that time. And when it’s low, you freak out and sell. And so you do the opposite of what you need to do. 

 

00:34:15 If you’re not disciplined, yeah. 

 

00:34:16 Right. And so that’s why there’s ways to go about this, to improve your strategy outcomes. But, you know, we digress. We’re still back to buy the assets. But it’s also why, like owning real estate tends to be the way wealthy people accumulate wealth, right? If you think about it, there’s only two things that people do to accumulate massive amounts of wealth. What are the two things that you can do to be more profitable, right? It’s not a secret if you’ve listened to the show for a long time, scarcity and leverage. 

 

00:34:45 Oh, I was gonna say sell your soul. 

 

00:34:47 Yeah, so it’s like that. Scarcity, remember, that’s the idea that you can do something nobody else can. Professional athletes are a good example, right? They get paid because they do the things that nobody else can. And they do, and  it’s something people want to watch. So, right? So you, but they also are doing something that kind of parlays into the other, leverage. The idea of leverage is that you are making effort off of somebody else’s effort too. Leverage is the idea that if you, or the one-too-many relationship, right? I can do the work one time and many, many people buy it. Okay. The thing about the modern day trades, and this is, they make a really good living, but you have to do the trade and the service happens one at a time. You’re fixing one AC unit at a time or one plumbing job at a time, one electrical job at a time versus being able to be playing a basketball game. One game, but 40,000 people are watching it and advertisers are getting a little piece of each of the 40,000 eyeballs. Right. And so they’re leveraging that up and you’re getting paid a lot for doing a scarce thing that lots of people want to see. 

 

00:35:51 Yeah. 

 

00:35:51 Right. So that’s the thing is, can you get a small piece of something a million times, or do you get one piece that’s worth a million? I don’t know. But those are the two pathways here. So it comes into play for the middle class too, by the way. Because we think about how, we’re talking about buying assets. The other thing is, start to get a handle on, tax code. And I really encourage people to look into operating, even if it’s a side hustle, looking at your, running your own business, because it enables you to use the tax code more, right? And the IRS is very clear that they preference businesses and they preference real estate ownership. 

 

00:36:33 But that makes sense because they want to incentivize people to start a business because if that business gets up, it gets going and is making money. Guess what? They make more tax revenue. 

 

00:36:44 Yeah. And so, well, and it’s economically useful for them. But consider that–

 

00:36:49 Well, you want soaring GDP. 

 

00:36:50 Right. 

 

00:36:52 You want products to be produced. 

 

00:36:53 But here’s an interesting example, okay? Let’s say, like kind of a real life example. You’re in a service business and you are trying to convince somebody to become a customer. So you take them out to lunch to talk business. You buy lunch, okay? That lunch is a business expense right now. Okay, now I’m not telling you how to do your taxes, but I’m just telling you, think about the idea that because we are conducting business together, we can write that lunch off as an operation of business. You have to do the proper documentation for it. But when you write that off, if your business earns $100, but $50 was spent on a lunch, then the business deducts the $50 from the gross earnings of 100. What’s left? There’s $50 left. That’s what the IRS sees as the profit. So the taxes on the $50 that’s left, not the hundred dollars that walked in the door, it’s what’s left after the business has to expense out the operating components, right? So that’s the big issue at play here is that businesses buy stuff that they need, okay? But oftentimes, a lot of your life is at work, right? And so–

 

00:38:04 It’s true.

 

00:38:05 A lot of your life, like if you were gonna eat lunch anyway, and you can have a working lunch, now you just, you didn’t have to take that money, pay taxes on it, and then buy lunch afterwards. You got to use the money before it was taxed to buy lunch. It stretches the dollar further, right? More mileage with the existing money, right? And so I encourage all people, like the middle class, it gets squeezed a lot because there’s no way to write off additional taxes. The harder you work, the more incremental dollars show up. And a lot of taxes are regressive in nature, okay? And I’m not really throwing rocks at that per se, except there’s things that we forget are taxes. Right? Oh, you gotta get your vehicle registered. And you gotta pay for all the cell phone fees and stuff, like all those little things that get added up. Every gallon of gas has, you know, like most people use about the same amount, gallons of gas, whether they’re wealthy or not. But the gas tax is built in, it’s flat relative to the tax. 

 

00:38:59 Yeah.

 

00:38:59 And you can argue both ways. Well, we use the same amount. Why should we be taxed different? I agree. But keep in mind that we have a progressive tax scale for income. The more money you earn, the more your taxes go up. This, by the way, is why really wealthy people oftentimes don’t take incomes. This will mess with people’s heads, but like if you’re Elon Musk, you got a whole bunch of company stock, you go to a bank, pledge of this collateral, you take a loan out and you gotta pay interest on it, but you’ve got stock that’s appreciating at a faster rate than the interest rate the bank charges you. And so you don’t have to pay taxes on a loan. That’s not income. So you go put $100 million of Tesla stock in a bank, take 100 million out, and you got $100 million in your pocket. Gotta pay the interest on it, and you gotta pay it back at some point, right? But you could actually take that $100 million and go invest in an asset that grows it from 100 million to 150 million, pay the bank back, and keep the $40,000, or 40 million, like, you pay 10 million in interest, keep $40 million as a capital gain instead of income tax. Cheaper taxes. 

 

00:40:10 Ingenious. 

 

00:40:13 Right? So that’s how wealthy people generate wealth. Now, here’s what I will tell you. There may not be a magic silver bullet for everybody out there, but there may be some things that you are not doing, okay? And this is part of where financial advisors can bring some value to the table, okay? So if you’re not working with somebody, it may be worth doing some interviews and talking to somebody or at least doing your homework to find out. Are there more things I could do to save money on taxes and push my dollars further? How do they reach us, Matt? If they don’t have somebody and they wanna talk to us. 

 

00:40:45 Yeah, give us a call, 541-375-0898, or just go to the website and chat us, Little John Financial. So, yeah. 

 

00:40:53 Yep, if you go to littlejohnfs.com, and you can also text that number that Matt gave you. 

 

00:40:58 Yeah, 541-375-0898. 

 

00:40:59 All of those are good ways. it’s not gonna cost you anything, right? To find out. And again, if it’s not us, it doesn’t have to be us. Find somebody that you like, somebody you trust, somebody you can work with, if you’re not gonna do it yourself. But look, we’re out of time for now. So if you got future questions, put them in the comments or send them to info@littlejohnfs.com. But we gotta run. I’m Dave Littlejohn. 

 

00:41:20 And Matt Dickson. 

 

00:41:21 Thanks for tuning in to True Wealth on News Radio 93.9 FM and 1240 KQEN.

 

 

 

 

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