America Is Bankrupt

America is not yet lost. But we are very close to the complete collapse of not only our financial system, but our entire way of life.

And It’s Far More Than A Financial Problem

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On November 9, 2016, Jon Aladin robbed Gibson’s Bakery.

He was arrested in the midst of his crime. When the police arrived, Aladin and two female accomplices were brutally kicking the store clerk, Allyn Gibson – as he lay dazed on the ground in front of the store.

According to all of the witnesses and defendants (who later pled guilty), Aladin was trying to steal two bottles of wine. When the clerk saw the bottles in Aladin’s jacket, he called the police. That’s when Aladin slapped Gibson’s cell phone out of his hand, hitting him in the face. Gibson ran Aladin out of the bakery – where his accomplices joined the melee attacking Gibson.

In the America we grew up in – during the ‘60s, ‘70s, and ‘80s – this kind of crime would have been nothing more than a routine matter for the criminal courts.  Everyone involved would have – hopefully – learned from the experience, and moved on.  In this case, Aladin, as a first-time offender, received a proverbial slap on the wrist, with a plea deal involving no jail time, a restitution payment, and a promise to behave.

Back then, this would have been the end of the story.

But in today’s world, that’s not what happened.

Aladin and his accomplices were students at the nearby, elite college, Oberlin. They were also black. Allyn, the store clerk, was not a student, and is white.

Now, that shouldn’t matter. Should it?

The average SAT score for students at Oberlin is over 1300 — meaning it only accepts the very brightest high school students in the country. It follows, surely, that every student at Oberlin knows that stealing is a crime. Likewise, they very likely know assaulting people is a very serious crime.

However… rather than, say, disciplining Aladin,  Oberlin’s Student Senate passed a resolution the day after the crime,saying that Gibson’s Bakery, and its owners (including the clerk), had “a history of racial profiling and discriminatory treatment of students and residents alike,” and demanded the college “cease all support, financial and otherwise” of the bakery.

Hundreds of students gathered in the park across the street from the bakery to protest.

Oberlin’s dean of students and other college officials joined the protesters, and in handing out flyers that accused the bakery of racism. “This is a RACIST establishment with a LONG ACCOUNT of RACIAL PROFILING.” The college bought pizza and winter gloves for the protesting students.

A later investigation would find zero evidence of any racist behavior by the owners of the bakery. Of the 40 adults who’d been arrested for shoplifting at the store over the previous five years, only six were black.

Clarence James, a black man who’d worked at Gibson’s since 2013, testified at trial on behalf of his employer, stating unequivocally that he had never seen any evidence of racial bias at the bakery. “Never. Not even a hint.”

Mr. James seemed far wiser than the brilliant students protesting his employer:

When you steal from the store, it doesn’t matter what color you are. You can be purple, blue, green; if you steal, you get caught, you get arrested.”

As we’ll see in a moment, the Oberlin intelligentsia, hell-bent on playing stupid games, ended up paying a very steep price.

Our government – and our country – is headed towards the same destination… on a larger scale.

The Big Lie

Every day, we turn on the news and encounter “anomie” – raging lawlessness that tears at the fabric of society.

Along with that anomie comes hopelessness, poverty, and despair – and a creeping fear that something is wrong. No matter how hard you work (or how high your SAT scores), there is no way to actually get ahead in America today. The system is rigged.

How you perceive that rigging depends on where you “sit” in our society.

Some African Americans, I believe, see these problems as evidence of racism.

Democrats and progressives see these problems as proof that the rich keep getting richer. (Funny, no matter how much we tax them, the rich seem to always get richer…)

And conservatives see these problems as inherent in a “big government” world: a bloated bureaucracy that takes from the hard workers and gives to the lazy folks.

All these groups see a part of the picture, but not the whole thing.

The “big lie” that’s destroying our society is inflation.

At the very root of our civilization is the ability to save, to invest, and to earn money to improve our lives. The foundation of our civil society is our economy: the ability to efficiently and safely exchange labor or capital for services or goods.

Inflation is an immoral tax, just as immoral as progressive taxation that takes from one citizen and gives to another. And, cruelly, it impacts the weakest members of society the most.

This kind of constant inflation makes a fraud out of our entire way of life. Inflation is the lie that our currency is safe. It is the lie that you can trust the banks. It is the lie that you can keep what you earn.

It is the lie that the government can protect you.

You’ve probably seen the charts below. They reveal a financial crisis of unprecedented magnitude in our country’s history. And if America’s financial system goes down, it takes the rest of the world with it. The likelihood of a global financial collapse – something akin to the Great Depression of the 1930s – is virtually assured. Only the timing of the crisis remains in question.

There’s little point in dwelling on the numbers. They are terrifying.

Our recent annual deficit (in only one year!) of over $3 trillion is equal to the total national debt of the 1980s. Our federal government hasn’t run a balanced budget in over 20 years. As a result, total federal debt is now 129% of GDP. All governments with debts of this magnitude default – all of them. Ours is no exception.

But, of course, more debt will continue to be piled on, as the federal government will never, ever stop spending.

Most people think these problems – out-of-control government spending and a currency being destroyed through inflation – are purely financial issues.  They see these facts as, in some way, distinct and separate from our everyday lives. They are not.

Inflation impacts everything in society. It is the root cause of our polarization. And, most importantly, it’s the underlying cause of the social “anomie” that we see in situations like the bakery debacle.

Where there is no firm medium of exchange, there can be no constant measure of ethics. In a society with no economic foundation, there is no moral foundation. In that environment, every criminal is the victim. And every victim is a criminal.

It took nearly six years, but eventually Oberlin’s ridiculous treatment of Gibson’s bakery was punished. The owners filed a civil lawsuit in 2017, for libel, slander, and interference with contracts. Rather than settling and apologizing, Oberlin fought the case all the way to the Supreme Court. They lost at every stage. Oberlin had to pay $36.5 million because it didn’t have the common sense to apologize for the actions of its students and to own up to its slanderous accusations.

America is not yet lost. But we are very close to the complete collapse of not only our financial system, but our entire way of life.

What to Buy When You’re Screwed

We now face a global synchronized “Minsky Moment,” in which, because of soaring inflation, the stabilizing impact of the world’s central banks is no longer available. The global economy now faces a complete reset of interest rates, sovereign debt loads, and corporate debt loads without the “cushion” of central bank largesse to soften the collapse.

The losses in the world’s bond markets are going to wreck a lot of banks, a lot of pension funds, and a lot of insurance companies. The collapse in paper currencies is going to make it very difficult (read: impossible) to rein in inflation without wiping out trillions in equity valuations.

We believe the world’s economy is on the precipice of a debt crisis unlike any that’s ever happened before. For at least the next 5-7 years, investors who flee debt and leverage, and who own high quality, unencumbered equity, will do best.

We also believe that investors will do well to divest themselves of the U.S. dollar and instead, make a long-term move towards alternative currency. In a world where overly-indebted governments around the globe issue endless new supply of fiat currency to inflate away their obligations, more and more of those currency units will flow into alternative stores of value, like Bitcoin. And if the global investment community begins diversifying even a small portion of their wealth away from traditional investments into Bitcoin, there’s simply not enough supply to meet demand at today’s prices.

Given Bitcoin’s hard supply cap at 21 million coins, a scenario where trillions of dollars flow into the asset class, the conclusion is clear – much, much higher prices.

As global central banks, including the Fed, return to their familiar playbook of cutting interest rates and expanding the money supply to deal with unsustainable global debt burdens, we see Bitcoin reaching new all-time highs and hitting $100,000… and that could be just the beginning of the next leg higher.

But instead of simply buying Bitcoin, we identified a unique investment vehicle that will offer exposure to higher prices, while also providing protection against a downside scenario where Bitcoin prices plummet. We recommended this security back in October to our paid-up Big Secret readers, and it’s now up about 32%.

There are a number of Bitcoin ETFs and funds that allow you to “buy Bitcoin” via your brokerage account, but you are always faced with potential losses if the underlying takes a hit. The opportunity we identified is the only way to profit off Bitcoin no matter whether it goes up or down.

A Bold Bitcoin Bet

Microstrategy (NASDAQ: MSTR) is the largest independent, publicly traded business intelligence and analytics company. It’s also the largest public holder of Bitcoin, and the company’s share price is highly sensitive to moves in BTC price.

The security we recommended last fall is the Microstrategy 2025 Convertible Bond (CUSIP: 594972AC5). A convertible bond is a hybrid security that acts like both debt and equity. (Next week, we’ll be including detailed analysis of this bond in The Big Secret… along with a new recommendation. )

Back in October 2022, this bond traded around $750 and at that time, we recommended that our paid readers buy below $800.

Since then, Bitcoin has surged back near $30,000 – up 70% so far this year.

The rally in the digital currency has been fueled by a declining U.S. dollar, creating investor demand for alternative stores of value. The U.S. dollar is down 11.4% from its prior peak last September, which has also boosted gold prices up towards new record highs at $2,060 per ounce.

The gains in Bitcoin have boosted the price of the MSTR convertible bond. The bonds have rallied 32% from our original recommendation price of $758 to $999 as of Thursday’s close.

When we published our original recommendation in October, Microstrategy held 129,699 Bitcoin on its balance sheet. Since then, the company has continued acquiring Bitcoin, including purchasing 3,204 Bitcoin in the fourth quarter at an average price of $17,616. As of April 4, the company owned 140,000 Bitcoin at an average cost basis of $29,803 per coin, worth $4.25 billion at Bitcoin’s current price of $30,350.

We recommend that our paid readers continue to hold Microstrategy’s 2025 Convertible Bond.

The beauty of this “Bitcoin bond” is that it provides investors with upside exposure to higher Bitcoin prices, while providing a nice margin of safety that should limit losses from declines in price. Back in October, we explained the details of how this hybrid security achieves this kind of balanced risk/reward profile, and we’ll update those details in an upcoming issue.

For now, here’s the high-level takeaway that shows our estimated risk/return of buying this Bitcoin bond versus a similar purchase in Bitcoin at current prices of around $30,000:

The MSTR bond is one of the safest options to get exposure to this unique asset. To access the full writeup on this bond – plus next week’s new recommendation – you can become a Big Secret member here.

Porter & Co.
Stevenson, MD

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