Sunday, September 27, 2020

No. It’s not over

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by Simon Black, Sovereign Man:

Last night I was checking out tickets for some upcoming travel.

I’ll be headed to Colombia soon to check on the progress of a large cannabis investment we’ve made there, then off to Miami for an event with our Total Access members.

After that it’s Puerto Rico to meet with some officials there and check out some exciting investment opportunities on the island.

And then finally back to Asia where we’re setting up a new factory for a business I recently acquired.

So you can imagine my pleasant surprise when I found a ticket for all that travel for just $2800– in business class.

That’s an unbelievable deal; just last month I had a similar itinerary that cost me more than $10,000. So I couldn’t believe my luck.

Hey, who doesn’t like a great bargain?

It’s in our nature as human beings. Whether we’re purchasing a new car, shopping at a ‘Going out of Business’ sale, or planning a vacation, we always feel great when we get a steep discount.

Except, of course, when it comes to investing.

For whatever reason, our ‘value gene’ switches off when it’s time to invest our hard earned savings.

Rather than buy the highest quality assets at the lowest possible prices, people tend to pile into expensive, popular investments that they don’t really understand.

This is clearly not a great strategy to become wealthy… or to stay that way.

I doubt anyone would feel particularly smart if they consistently bought outrageously priced, full-fare plane tickets.

But that’s exactly what people are doing when they buy stocks, bonds, property, and other assets at record highs.

To be clear, it’s not about price. It’s never about price. It’s about value, i.e. what are you receiving in return.

For example, $50,000 might seem like a lot of money to most folks, and the thought of spending that much on anything might cause someone to bristle.

But if you could buy a brand new penthouse apartment in midtown Manhattan for $50,000, you would immediately feel like you were getting tremendous value.

Conversely, $5 is a pretty trivial sum to most people. But if someone tried to sell you used toilet paper for $5, you’d probably turn them down on the spot (unless you were in Venezuela).

Value is never about how much you pay. It’s about how much you get for your money.

And when it comes to investments these days, you don’t get a whole lot.

Here’s a great example:

Mastercard is a company that’s quite popular with investors. As a business, it made around $5 billion last year in ‘Free Cash Flow’.

(Free Cash Flow essentially refers to the amount of company profit that’s available to be paid out to shareholders each year… so it’s a great way to measure return on investment.)

And, at least until a few days ago, Mastercard had an ‘enterprise value’ of about $175 billion.

In other words, if you just happened to have an extra $175 billion lying around the house, you could theoretically buy Mastercard and make it your own private company.

Suppose you actually did that… and spent $175 billion. That’s the price.

The value, i.e. what you receive in return, is $5 billion in annual free cash flow.

As a percentage of your purchase price, that $5 billion works out to be just 2.85%.

That’s a pretty flimsy return. After all, business can be quite risky. And 2.85% hardly seems sufficient to compensate for that risk.

Now consider other options.

Interest rates have surged over the past several months, so the investment returns on bonds have really started to increase.

The United States 10-year note, for example, which is widely considered ‘risk free’ by the market, was yielding as high as 2.86% yesterday afternoon.

In other words, the boring, steady, ‘risk free’ bond had a higher rate of return than a volatile, risky business.

That doesn’t make any sense. And it demonstrates how little VALUE investors are receiving.

By any objective metric, stocks have long been OVERvalued.

Read More @ SovereignMan.com

“He Who Has the Gold Makes the Rules” and Russia Is Getting the Gold

from SchiffGold:

Remember the golden rule: He who has the gold makes the rules.”

And the Russians have the gold. Or at least they are in the process of getting it.

The saying apparently originated in the Wizard of Id comic strip. And while it may have comical origins, it nevertheless rings true. At least it must in the minds of the Russians because they are buying a lot of gold.

According to the World Gold Council, Russian gold reserves increased 224 tons in 2017. It marked the third consecutive year of plus-200 ton growth, and Russia’s gold holdings have topped 1,800 tons. To put that into perspective, between 2000 and 2007, the Russian central bank held just 400 tons of gold.

Only a few central banks are piling up gold right now. Official gold reserves worldwide grew by 371 tons. The biggest purchasers of the yellow metal last year were Russia, Turkey, and Kazakhstan. And the Russians bought more gold than all other countries combined. Last year’s buying spree made Russia the sixth largest holder of gold in the world. And the Russians have almost caught up with the Chinese, at least based on China’s official numbers. (Many analysts think the Chinese have much more gold than they reveal publicly.)

Gold bullion now accounts for 17% of Russia’s total foreign reserve assets. That compares with China’s gold stores, which account for about 2.5% of its reserves.

As we reported last December, Russia’s growing gold hoard is helping the country establish economic and political stability and independence. And as Markets and Money writer Shae Russel noted, we shouldn’t ignore Russias growing hoard of gold.

Even though the precious metal isn’t at the center of the financial system today, gold still equals power.”

So, why do the Russians want gold? There are certainly a number of reasons. But chief among them – Putin wants to get away from the dollar and the euro. He wants monetary independence. Gold offers him that. As Macquarie Group metals analyst Matthew Turner told Bloomberg gold is as geopolitics-proof an investment as any in the age of sanctions.

Gold is an asset that is independent of any government and, in effect, given what is usually held in reserves, any western government. This might appeal given Russia has faced financial sanctions.”

Read More @ SchiffGold.com

Many of the World’s Best Investors Made Their Fortunes This Way… And You Can Too

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from Nick Giambruno, International Man:

Justin Spittler: Nick, your advisory is called Crisis Investing. Could you explain what “crisis investing” is?

Nick Giambruno: Crisis investing is basically buying elite companies in beaten-up countries or industries. When there’s a crisis, most people only see danger. But it’s actually an opportunity. A crisis often allows you to buy a dollar’s worth of assets for a dime… or less.

Many of the world’s greatest investors have made their fortunes this way… but anyone can do it. You don’t need be rich or well-connected. You don’t even need to travel to do it.

In fact, if you have a regular brokerage account—and the courage to buy when others are fearful—you’re all set.

The courage part is key. You can’t be a successful crisis investor if you’re not willing to go against the crowd.

Baron Rothschild was correct when he said “the time to buy is when there’s blood in the streets.”

Warren Buffett struck a similar tone when he said “you want to be greedy when others are fearful and fearful when others are greedy.”

Likewise for legendary investor John Templeton: “The time of maximum pessimism is the best time to buy.”

These statements perfectly capture the essence of crisis investing.

Crisis investing is how these investors became some of the richest men to ever walk the earth.

Justin Spittler: Fascinating. What drew you to this unconventional strategy?

Nick Giambruno: I’m a contrarian by nature. I zig when others zag.

So naturally, I buy assets most people hate. Some of my close friends and family think I’m crazy for doing this… but that usually means I’m on to something. After all, it wouldn’t be crisis investing if I were going with the crowd.

I was also inspired by Doug Casey.

Doug is one of the world’s most successful crisis investors. He literally wrote the book on it. His book, Crisis Investing, was a New York Times bestseller for 34 weeks. He has also hit numerous “home runs” investing in crisis markets.

Doug is my friend and mentor. Over the years, he’s helped me hone this profitable investing strategy.

The name of my advisory, Crisis Investing, is a nod to Doug and the roots of Casey Research.

Justin Spittler: It pays to learn from the best. You often call crisis investing “the most powerful wealth-building secret in investing.” Can you explain why?

Nick Giambruno: Because crisis investing can allow you to make five or 10 times your money on safe investments.

It’s somewhat counterintuitive. Most folks think you need to take big risks to make big returns.

I see things differently. I think risk is largely a function of price. The higher the price, the riskier the asset.

Right now, US stocks are trading near all-time highs. I consider them very risky. Bonds are even riskier. And real estate in places like Vancouver and London are in a super bubble.

If an asset is really expensive, it usually means you’re late to the party. You should avoid expensive stuff if you want big gains.

I prefer situations where everyone else has thrown in the towel… where the sellers are begging for a buyer.

That’s when you can buy high-quality companies dirt cheap. It’s low risk, high reward. What could be better?

The best investors in the world understand you make a lot of money buying cheap assets, not expensive ones.

Take Templeton. He’s considered one of the greatest stock pickers of the last century.

In 1939, he made a fortune betting against the crowd.

At the time, millions of Americans were in poverty due to the Great Depression. Nazi Germany had just invaded Poland to kick off World War II.

There was an incredible amount of fear in the world. Templeton, then just a recent college grad, saw an opportunity. He invested $10,000, the equivalent of $167,000 today, in US stocks.

Four years later, Templeton sold his portfolio for a 300% gain.

Read More @ InternationalMan.com

Future U.S. Oil Production Will Collapse Just As Quickly As It Increased

by Steve St. Angelo, SRSrocco:

While U.S. oil production reached a new peak of 10.25 million barrels per day, the higher it goes, the more breathtaking will be the inevitable collapse.  Thus, as the mainstream media touts the glorious new record in U.S. production that has both surpassed its previous peak in 1970 and Saudi Arabia’s current oil production, it’s a bittersweet victory.

Why?  There are two critical reasons the current record level of U.S. oil production won’t last and is also, a house of cards.  First of all, oil production profiles tend to be somewhat symmetrical.  They rise and fall in the same manner.  While this doesn’t happen in every country or every oil field, we do see similar patterns.  For example, this similar trend is taking place in both Argentina and Norway:

Here we can see that oil production increased, peaked and declined in a similar pattern in both Argentina and Norway.  However, many countries had their domestic oil industries impacted by wars, geopolitical events, and or enhanced oil recovery techniques that have resulted in altered production profiles.  Regardless, the United States experienced a symmetrical oil production profile from 1930 to 2007:

As we can see in the chart, U.S. oil production from 1930 to 2007 increased and then declined in the same fashion.  On the other hand, the new Shale Oil Production trend is much different.  What took 23 years for U.S. oil production to double from 5 million barrels per day (mbd) in 1947 to a peak of nearly 10 mbd in 1970, was accomplished in less than a decade with the new shale oil industry.  Total U.S. oil production doubled from 5 mbd in 2009 to over 10 mbd currently.

For those Americans or delusional individuals who believe the U.S. oil industry will be able to continue producing a record amount of oil for the next several decades, you have no idea about the financial carnage taking place in the U.S. shale oil industry.  This leads me to the second reason.  The U.S. Shale Industry hasn’t made any money producing oil since the industry took off in 2008.  And it’s even worse than that.  Not only have they not made any money, but they have also spent a lot of investor money (most that will never be returned) and added a massive amount of debt to their balance sheets.

Read More @ SRSrocco.com

Epochal Stock Market Flash Crash Reconnects Stocks and Bonds, Portends End of Fake Recovery

by David Haggith, The Great Recession Blog:

It took sixteen months to build the exceptionally steep Trump Rally, and just one week to eliminate a quarter of it. While I wouldn’t call that jolting reversal a stock-market crash in the ordinary sense, the largest one-day point fall in the history of the market (by far) certainly marks a massive change in market conditions. From this point forward, it won’t be the same market it was.

Those who are critical of my belief that the US stock market would crash by January 2018, may try to dodge the significance of these tumbling days by saying that eleven-hundred-plus points aint what it used to be. While true, I’d point out that, even on a percentage basis, the Dow hasn’t fallen this much in one day since the belly of the Great Recession. That, being one of our greatest economic collapses in history, is a pretty low benchmark to match up to.

My detractors could crow that this was all the robo-trading algorithms’ fault, but I’d just say, “I told you so.” I have often written that one of the great perils of this present stock market is that no one really knows how those algos work if they suddenly get crammed in reverse and try to start bidding the market down, instead of bidding it up. I’ve said throughout my predictions of the coming global Epocalypse that I suspected the robo-traders would play a major role because they are a massive accelerant to any action. Hopefully, the market brains have them all unplugged now so they can put irrational people back in charge, but I’m certain they don’t.

As for my statements that I believed the stock market would likely crash in January, 2018, though (I gave myself a buffer until mid year when betting my blog on economic collapse), this great disruption, which quickly shattered the fatuous market confidence of the entire world, did begin in January. (No crash, of course, happens entirely in one day nor rarely all in one week. I’ve also said the Trump Tax Cuts do create extraordinary levity that should help lift the market back up, and that novel lift is why I gave myself a buffer until mid year. It looks, however, like my blog will be hanging around awhile longer.)

Bonds bust out of bondage

I’d also note to any crows on the wire that pretty well all commentators are agreeing that the stock market’s rocket-ride downhill in the last few days has been due primarily to bond interest rising. That, also, is exactly what I have said many, many times would precipate our economic collapse when it happens (and certainly any stock-market crash that plays into that).

I’ve not been sure whether the bond market would crash first, but my central thesis has always been that a rise in bond interest will be our undoing because the entire recovery was built over a cavern of debt that is continually caving in from the sides and falling away at the bottom. The abyss is, in other words, getting unstoppably larger at a frightening rate … if you’re paying attention and not maintaining delusions and denial by being dismissive. And that is exactly where the last week is a revelation of the coming collapse. That is its significance — not how far it the market has fallen nor even how it surprised so many, but all the reasons for which it fell and the exact timing of the fall, as I’ll lay out below.

Even one of the big Fedheads admitted today (Tuesday as I’m writing this) that this market gyration is largely due to the Fed’s movements: “Fed’s Bullard Calls Market Rout ‘Most Predicted Selloff’ Ever.” That’s both the cause and the timing part.

Now that the event has happened, there is not a lot of disagreement on the primary cause, but what I find remarkably telling is how minuscule the trigger turned out to be. There are certainly other dynamics and secondary causes involved than just the little bump in long-term bond interest, but that little bump created an avalanche that went all the way around the world for several days … and may continue to reverberate in the days ahead.

I’ve explained in my predictions of this event why bond interest, which has long been held in a narrow and low band, would break out, when it would rise (maybe late 2017 but most likely January), and why that would be such a disaster when it happened. So, when all of those things do, in fact, precisely line up … all over the world … in an event like this, maybe people should take note. Detractors could call one or two matches in how things played out a coincidence, but when everything matches, it is their criticism that seems stretched.

So, to lay out the precise details for the crows, let me note that the interest spike that has everyone riveted happened on the long-end bonds, which is where I said it would — the tens and thirties. And I’d note that the blip upward in interest that triggered this obvious panic was an even smaller blip than I thought it would take to get things sliding, which shows markets are even more rickety than I’ve indicated, in spite of the fact that many people have been claiming for years that the markets are stable and resilient. (Resilient to other shocks, maybe, but not at all to interest increases in long-term bonds. We haven’t even hit 3% on the ten-year yet! The big interest moves will come later in the year, which is why I felt safely hedged with a mid-year bet. What we see happening in global markets now is mostly speculation in anticipation of what is coming — a beginning attempt to figure it out and price it in.)

Then I’d note that the sudden rise in bond rates happened for the very reason I said it would happen — as a reaction to the Fed’s Great Unwind in that the slide began in the first week the Fed finally got serious about its balance-sheet reduction and actually unwound the amount it has been promising it would (but which it had not done until last week). Proving that this was not an anomaly, a similar interest bump happened again on shorter-term debt with today’s treasury auction where the three-year yield moved up to the highest its been since 2007 (2.28%)!

Blip or Kaboom?

While today was volatile, the market did seem to be catching its balance. Maybe the Fed has let it fall as far as the Fed is comfortable with, and is now sending in the plunge-protection team — their fellow central banksters who buy US stocks directly (like the Swiss National Bank) as well as the members of their own cartel, whom they lead with nudges in futures. As of Tuesday evening, however, futures and foreign markets are still pointing the way to hell.

Monday was, in the very least, a game-changer for the stock market for months to come. It will be a different market when it does begin to rise again. Here’s a good summation from someone else of what happened:

“While the roots and drivers [of the selloff] are sure to be discussed for days, it looks to emanate from a perfect storm of reasons including, but not restricted to, a strong 2017 rally extending into January, low volatility, low interest rates, over-optimism and complacency, over-leverage and financial engineering, all coming to a head as investors react to the possibility of higher/faster interest rates rises with bond yields creeping higher to jeopardize the current market situation,” said Mike van Dulken, head of research at Accendo Markets, in a note. (MarketWatch)

Yes, fundamentally, a lot of flaws are built in to how the markets operate in a “financially engineered” manner, but it blew for the simple reason that interest rates nudged upward at the end of January as soon as the Federal Reserve got serious about its quantitative squeezing. That strongly supports my central thesis of this blog that this economy, built on caverns of debt and riddled with market design flaws, is too fragile to absorb any reduction in the Fed’s balance sheet. And that’s why I was able to time when the first crash would be likely to hit. It’s simple: When is the Fed scheduled to start getting serious in its Great Unwind? January. What week did they actually do it in? The last week of January. Kaboom!

The Fed cannot ever unwind. It will try because it believes it can, but kaboom! We’ll find ways to recover from this first shock over what happens to interest when they stop rolling over government debt. The government will adapt. It will find other buyers. But the cost will go up. And the kabooms will keep happening. I’ve always maintained that the failure of the recovery is baked in by design and will show when the Fed’s artificial life support is actually withdrawn. (Whether it is there by intentional design or design flaw, I’ll leave up to one’s conspiratorial imagination, as it doesn’t matter to me; both get you to the same place: kaboom!)

Some bigger voices than mine are saying the same thing:

Carl Icahn says he expects stock markets to bounce back after the massive sell-off Friday and Monday, while warning that current market volatility is a harbinger of things to come…. The volatility of recent weeks is cause for concern, Icahn said, adding thathe doesn’t remember a two-week period as turbulent as this one. He said the problem is that too much money is flowing into the index funds, where investors don’t know what they’re actually investing in. “Passive investing is the bubble right now, and that’s a great danger,” he said. Eventually, that will implode and could lead to a crisis bigger than in 2009, he added. “When you start using the market as a casino, that’s a huge mistake,” Icahn said. (“Carl Icahn Says Market Turn Is ‘Rumbling’ of Earthquake Ahead“)

The fact that the market has completed its de-evolution into a casino, rather than a place to buy ownership in a company, is part of the rickety framework I’ve described for our economy — part of what makes it easy to shove over with a nudge in interest because the entire economy has been made utterly dependent on low interest.

Global stock rout

After witnessing Wall Street’s carnage on Monday, European stocks closed Tuesday at five-month lows. The Stoxx 600 logged its largest one-day percentage drop in twenty months. Hong Kong got a King-Kong-sized kink on the head. I write of global economic collapse, and this event certainly showed how instantaneous global contagion is across market classes and nations — bonds, stock, even some commodities, got clobbered almost everywhere.

Nevertheless, those who are starting to get it still don’t get it:

Read More @ TheGreatRecessionBlog.info

Who Was Selling Stocks Last Week Before the Monday Rout?

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by Wolf Richter, Wolf Street:

And who was buying? Answers emerge.

The S&P 500 index hit an all-time high on January 26, which was a Friday. The following week, it started to fall, including a messy 2.1% selloff on Friday that brought the weekly loss to 3.8%, the worst such decline since the selloff that ended on February 7, 2016. So who were the net sellers of stocks during that week just before the 4.1% plunge on Monday? And who was buying just before the plunge?

The smart money:

Hedge funds were the biggest net sellers during that week, according to BofA Merrill Lynch analysts, cited by Bloomberg. The data was based on account activities by clients of BAML. During the week, four of BAML’s client categories sold a net of $3.6 billion in stocks, the most since early June 2016 as Britain’s Brexit vote had been approaching:

  • Hedge funds disposed of nearly $2 billion in shares during that week, or about 55% of the total. This was up from the four-week average of about $300 million in net sales.
  • Institutional investors disposed of $1.3 billion, or about 35% of the total. But they were already heavy sellers averaging $1.2 billion in disposals over the prior four weeks.
  • Retail investors unloaded about $300 million, up from the four-week average of about $200 million.

The dumb money:

But one BAML client category was a net buyer just before the Monday plunge: corporations buying back their own shares. They have fueled the stock market boom over the past few years. They represent the relentless bid. Their purpose is to buy high to push share prices even higher. These BAML clients purchased about $600 million of their own shares just before the plunge.

These corporate share buybacks last week are particularly interesting in that companies are now reporting their Q4 earnings, and they enter into a pre-announcement quiet-period during which share-buybacks are also restricted. This might explain why buybacks during that week were down slightly from the four-week average.

BAML’s corporate clients were the only client category that did not dump shares over the past four weeks, and the four-week average shows net purchases of about $700 million.

Then Monday happened. And whatever hedge funds and institutional investors were doing, retail investors were trying to access their accounts in such large numbers that they ran into outages or slowdowns at a number of online brokers, mutual fund firms, and fintech robo-advisers, at least briefly. They included Charles Schwab, TD Ameritrade, Vanguard Group – whose clients might have experienced “sporadic difficulty” according to a spokeswoman – T. Rowe Price, Wealthfront, and Betterment.

And who else was selling?

Equity ETF holders. For example, they yanked a record $17.4 billion out of the largest ETF, the SPDR S&P 500 ETF, over the four-day trading days from February 1 through February 6. According to Bloomberg, this beat the prior record for a four-day period, September 25 – 28, 2007, when investors had yanked out $16 billion.

On just the day of February 6 – which was an enormously volatile day, with stocks surging, plunging, and surging again – investors removed $8 billion from the SPDR S&P 500 ETF. According to Bloomberg, that day was the third-largest single-day withdrawal since the Financial Crisis.

Read More @ WolfStreet.com

Is Washington Nuts? Increasing Spending AND Cutting Taxes Will EXPLODE The Size Of The National Debt

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by Michael Snyder, The Economic Collapse Blog:

Our national debt is rapidly approaching 21 trillion dollars, and yet Congress wants to follow up a large tax cut bill with a massive increase in federal spending.  This is absolute madness, and it is going to make our long-term financial problems as a nation far worse.  After passing the tax bill, the appropriate thing to do would have been to cut federal spending.  Yes, that would have not been a positive thing for the economy in the short-term, but we must start addressing our long-term priorities.  If we do not do something about this exploding national debt, it could potentially destroy our republic all by itself.

Earlier today, I was absolutely horrified when I learned of a budget deal in the Senate that would increase federal spending by about 200 billion dollars in each of the next two years…

The Senate’s Republican and Democratic leaders unveiled a sweeping two-year budget agreement on Wednesday that would increase federal spending by hundreds of billions of dollars on domestic and defense programs alike.

That deal would eliminate strict budget caps, set in 2011 to reduce the federal deficit, and would allow Congress to spend about $200 billion more in the current fiscal year and in fiscal year 2019.

Seriously?

Our federal debt is going to hit 21 trillion dollars some time this year, and they want to throw hundreds of billions of dollars more spending on top of what we are already doing?

This alone is why we need true conservatives all over the nation to run for Congress.  Our endless greed is literally destroying the bright future that our children and our grandchildren were supposed to have.

I don’t know if I even have the words to describe how foolish our leaders are being.  If interest rates on government debt were to return to their long-term averages, the game would already be over.  We should be desperately attempting to get our financial house in order, but instead we are spending money as if tomorrow will never come.

But tomorrow always arrives, and a day of reckoning is fast approaching.

Fortunately, there are some members of Congress that seem to understand that we cannot keep spending money that we do not have.  The following comes from USA Today

Rep.  Mark Meadows, R-N.C., who chairs the hard-line House Freedom Caucus, wants to see what comes back from the Senate, said his spokesman Ben Williamson.

“But if the numbers are as high as we’re hearing, Rep. Meadows does not support the budget deal,” Williamson said.

Rep. Mo Brooks, R-Ala., said “this spending bill is a debt junkie’s dream… I’m not only a ‘no.’ I’m a ‘hell no.’”

As a member of Congress, I would always be a resounding “no” vote on these sorts of absurd budget deals.

Whatever happened to all of the strong fiscal conservatives that we sent to Congress during the days of the Tea Party movement?  So many of them seem to have been enveloped by the swamp and are now doing whatever party leadership tells them to do.

Sadly, most Americans don’t even seem to understand that we have been adding more than a trillion dollars a year to the national debt since Barack Obama first entered the White House.  The following is an extended excerpt from one of my previous articles

When Barack Obama entered the White House, the U.S. national debt was just over 10.6 trillion dollars, and when he left the White House 8 years later it was sitting just shy of 20 trillion dollars.

So during those 8 years more than 9 trillion dollars was added to the national debt. But for purposes of this example we will round down to an even 9 trillion dollars.

When you divide 9 trillion dollars by 8, you get an average of 1.125 trillion dollars that was added to the national debt per year during the Obama era.

Dividing that figure by 365, you find that an average of $3,082,191,780 was added to the national debt every single day during the Obama administration.

And since there are 24 hours in a day, that means that an average of $128,424,657 was stolen from our children and our grandchildren every single hour of every single day while Barack Obama was president.

Under President Trump, we should be dramatically reducing federal spending and the size of the federal government.

Read More @ TheEconomicCollapseBlog.com