Dude, Where's My Cash?

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A few months back, we issued a report, The Primacy Of Income, declaring the end of the era of capital gains.

It’s conclusion? Wealth accumulation over the next decade will be predominantly driven by income.

Since issuing that report, developments have only served to underscore that prediction.

Recession Dead Ahead!

The data signals indicating that the US and global economies are entering recession are multiplying faster than rabbits on Viagra.

Crashing retail sales, rising layoffs, falling consumer & business confidence, slowing service-sector activity, tightening bank lending, a 3-year low on the Baltic Dry Index, falling auto sales combined with spiking auto loan delinquencies, increasing credit card default rates – these are just a small smattering of warning signs pulled from this week’s headlines.

We dived deep into these figures and their repercussions in our detailed report, You vs The Recession.

Its key takeaway is this: the unrelenting year-after-year gains across nearly all asset prices that we’ve enjoyed over the past decade are done. Moreover, they’re highly-likely to reverse into losses as the arriving global recession takes hold.

Couple that loss of appreciation with the job losses that accompany recessions, and the outlook is bleak for those looking to protect and grow their financial wealth over the coming decade.

Such conditions make investing for income (inflation-adjusting and tax-advantaged whereever possible) not just prudent, but imperative.

Dude, Where's My Cash?

Income enables investment and incremental value-creation. Without it, much less is possible.

For stark validation of this point, we only need to turn to Friday’s news announcing Amazon’s withdrawal from its plans to build a headquarters in Long Island City, Queens NY.

I’m not much of a fan of any of the parties involved in this debacle, so I’m not really sure there are any heroes in this story. But there sure are victims.

What’s unequivocal is that New York (and the people of Queens especially) just lost a gigantic long-term future revenue stream.

The deal on the table before Amazon walked away was expected to bring in $27 billion in tax revenue to New York over 25 years, generating 25,000-40,000 new jobs at an average salary of $150,000. In addition, another 1,300 construction jobs would have been created during the 15-year planned build-out.

Whether or not this was the “absolute best” deal that could have been struck, it represented a staggering economic windfall for Queens – akin to the cargo cults of WW2 when the US Navy would suddenly arrive on a remote island in the Pacific, flooding the tiny local economy with dollars.

It’s extremely unlikely Queens will ever see another opportunity like this.

And with it now gone, the community infrastructure needs the politicians were championing during the negotiations – fixing the subways, funding the schools – remain. But now there’s no river of new money to pay for them.

Without that income, so much less is now possible for the people of Queens.

Which is why as the politicians responsible for the deal’s breakage are claiming “victory” over corporate overreach, the folks who actually live and run businesses there are reacting like this:

“Amazon’s decision to withdraw its plans for our region will go down as one of the biggest debacles in New York State history, and the elected officials who are responsible for this epic disaster should be ashamed of themselves for jeopardizing thousands of jobs and billions of dollars in tax revenue and should also consider resigning.”
Kevin S. Law, president and CEO of the Long Island Association
“The reason why this is such a disaster is not only the loss of jobs, but the loss of people perceiving New York as friendly to investment in the 21st Century economy. The collateral effects of Amazon coming were always great, and now the collateral negative effects of Amazon leaving may be even greater. With Amazon coming, New York was finally recognized as the equal of Silicon Valley as a place to invest in startups and for its potential for creating more diversity in tech as a whole. Now that’s lost.”
Andrew Rasiej, board member of NY Tech Alliance and CEO of Civic Hall
“Instead [of bringing improvements to Queens, the Amazon deal] gets killed by the worst type of politics, and by a very vocal minority with no roots in this community. They weren’t from the neighborhood, and they got caught up in this movement, and on the wrong side of history."
Richard Wissak, taxi company owner
“You need jobs in this area, and they promised us jobs, and we were looking forward to them being here. And now?”
Joann Mezil, family shelter employee
All those New Yorkers -- politicians, businessowners and residents alike -- who were counting on all that could be accomplished with Amazon's $27 billion, suddenly find themselves looking at a substantially diminished future and wondering dazedly:

Investing For Income

For those looking to avoid a similar fate should portfolio losses or a pink slip suddenly threaten your financial well-being, investing for income offers some of the best protection we know of.

So, how does one get started?

Sadly, accustomed to the speculative approach marketed to us for so long by the financial industry, most investors are woefully under-educated in how to build a diversified portfolio of passive income streams (inflation-adjusting and tax-deferred whenever possible) over time.

If that sounds like you, don’t stress.

First you can read our recent report, A Primer On Investing For Inflation-Adjusting Income, in which we detail out the wide range of prevalent (and not-so-prevalent) solutions for today’s investors to consider when designing an income-generating portfolio. From bonds, to dividends (common and preferred), to real estate, to royalties – we explain each vehicle, how it can be used, and what the major benefits and risks are.

We’re not advocating that you rush to shove all your capital into income-generating assets immediately. In fact, we advise amassing dry capital while the Everything Bubble bursts in order to purchase income at much better valuations.

But we do recommend urgency in educating yourself on the science of income investing and in drawing up your target list, so that you can act intelligently and swiftly when the time is right.

To that end, we’ve launched a webinar series on Real Estate Investing, as that’s one of the most time-proven ways for building investment income. Episode #1 is free to the public, and if you have yet to watch it, it’s available below:

Episode #2, which focuses on the key steps of the real estate investment process, airs live on Saturday, February 23 @ noon ET. Registration is required to participate in that webinar (all those who register will receive a replay video of the event). To register for the webinar, click here.

This is a companion discussion topic for the original entry at https://peakprosperity.com/dude-wheres-my-cash/

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Hi Adam,
Thanks for the real estate seminar… on your recommendation I read ‘Equity Happens’ so it was nice to learn how Russ has updated his outlook since the GFC.
I am in a similar position to you, in that I rent my home. I understand that you are in this holding pattern while you wait for the everything bubble to burst, but we can not predict the future. The central banks have shown their willingness to print at the slightest whiff of deflation (e.g 2016), so what is to say they won’t continue to succeed with this until such point as rampant inflation arises? This could be many, many years away given the global deflationary forces at play (technology, millions of new workers in India etc). In the meantime, why pay thousands in rent each year (a certainty) in the hope that RE prices will fall (a possibility)?
I only ask because I am in the same situation and am considering buying (though admittedly the housing market here in Dublin is not as hot as CA… It is still below the 2006 peak).
As always, I appreciate your views.
Thanks, E

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A debacle for NYC and the people of Queens. NY state supposedly has a shortfall of 3 billion a year. Amazon was supposed to generate over a billion a year in revenue, this alone could have closed up over one third of the entire state budget. On the other hand, they were already clamoring and fighting over how to SPEND the money instead of using it to balance their books.
So, in the long run they might have ended up with an even larger shortfall with the additional revenue. This is the problem with the concept of increasing revenues…it only digs governments deeper into the debt hole.

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How true. I heard rumors of people jumping into the Long Island City real estate market thinking they would benefit. It’s a warehouse district they are trying to gentrify it seems to me. I felt sorry for the small speculators yesterday when the news came out.I feel bad for local workers who need jobs Still, as one article said recently they both got what they deserved…it was a squandered opportunity to just give amazon more breaks from our loca tax base so good riddance.

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Eannao wrote:
Hi Adam, Thanks for the real estate seminar... on your recommendation I read 'Equity Happens' so it was nice to learn how Russ has updated his outlook since the GFC. I am in a similar position to you, in that I rent my home. I understand that you are in this holding pattern while you wait for the everything bubble to burst, but we can not predict the future. The central banks have shown their willingness to print at the slightest whiff of deflation (e.g 2016), so what is to say they won't continue to succeed with this until such point as rampant inflation arises? This could be many, many years away given the global deflationary forces at play (technology, millions of new workers in India etc). In the meantime, why pay thousands in rent each year (a certainty) in the hope that RE prices will fall (a possibility)? I only ask because I am in the same situation and am considering buying (though admittedly the housing market here in Dublin is not as hot as CA.... It is still below the 2006 peak). As always, I appreciate your views. Thanks, E
Eannao, Just my 2 cents here as a reader and real estate investor; I expect a recession and a drop in real estate prices over the next 3 or 4 years. IMO it will be worth the short term wait for the opportunity to pick up some value at reduced prices. Personally, if I were renting I would not wait too long. If Im wrong and the market doesnt depreciate within a couple of years, I'd be looking to buy anyway, especially as you do not own your home now.
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The emotional revulsion of giving tax breaks to the most “valuable” company in the world and its owner, the (currently) richest man in the world prevented AOC and her ilk from seeing the overwhelming benefits to NYC. Decisions based on emotion rather than analysis rarely turn out well.
It is true that for many of the existing residents of the area it would have been a bad deal. It would have been gentrification on steroids. If you are a renter and have a job, having a bunch of high income people move in is not something good. It will increase your rent and your chances of getting one of those high paying jobs is essentially zero. You will be forced to move.
However, viewed by NYC and NY State as a whole it was a fantastic deal. Massive tax revenue for a pretty modest tax abatement (it wasn’t a cash payout). That’s another example of AOC’s total lack of economic competence. She talked about how the 3 billion should be spent on fixing the area rather than being given to Amazon. There never was 3 billion to do anything with. It was 3 billion of future tax revenue to be forgone, because there was supposed to be 27 billiion more behind it.

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If I correctly understand the Amazon business model, its immense revenues arise in part from a combination of laying waste to vast swathes of small business, cunning schemes to pay as little tax as possible, and treating its employees as expendable helots.
On this basis I find it hard to accept how any community would take such an enterprise into its bosom.
Please tell me I’m wrong and if so, how and where.

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I see a lot to like in NYC and its people, but I have nothing but contempt for all the main players in the Amazon/NYC debacle: Amazon, Dick Man Bezos, DeBlasio, AOC, Cuomo, the NYS legislature, the NYC city council, etc.
A long time ago I read a book entitled, “Games People Play.” It describes one game called, “Let’s you and him fight,” in which a third party benefits from two others engaging in interpersonal conflict (such as a father in a tough second marriage with a rebellious teenage step daughter). He gets the wife and her daughter fighting and gets the heat off of himself. Brilliant! This feels a little like that, except I didn’t contribute to getting the conflict started between Amazon and NYC/NYS. So I’m guilt-free.
I’m enjoying watching a whole cast of characters I despise fighting amongst themselves. OTOH I’m sad for the regular people of NYC who will miss out on a new revenue stream to help solve their huge municipal problems.

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As a former NYC resident, I honestly dont feel bad for any of the players involved. Not NYC, not Amazon, and certaintly not the people of NY or Queens. How do you think OAC got there? How does Cuomo the gun grabbing democrat keep getting re-elected?? How does a guy like Diblasio become mayor? If you are a New York City resident, then this is what you voted for and, obviously, this is what you want.

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I understand that this thread is in regard to the management of an investment portfolio, and that some of the information i’ve reproduced below may be considered somewhat like nailing jelly to a wall.
But we are, indeed, living in interesting times, and I do like to inform myself from where history has repeated itself, over, and over, and over again …

A cleaned up section of Transcript from the Adam Curtis documentary : - Hypernormalisation (2016)
We live in a strange time. Extraordinary events keep happening that undermine the stability of our world. Suicide bombs, waves of refugees, Donald Trump, Vladimir Putin, even Brexit. For those in control seem unable to deal with them, and no-one has any vision of a different or a better kind of future. This film will tell the story of how we got to this strange place. It is about how, over the past 40 years, politicians, financiers and technological utopians, rather than face up to the real complexities of the world, retreated. Instead, they constructed a simpler version of the world in order to hang on to power. And as this fake world grew, all of us went along with it, because the simplicity was reassuring. Even those who thought they were attacking the system - the radicals, the artists, the musicians, and our whole counterculture - actually became part of the trickery, because they, too, had retreated into this make-believe world, which is why their opposition has no effect, and nothing ever changes. But this retreat into a dream world allowed dark and destructive forces to fester and grow outside. Forces that are now returning to pierce the fragile surface of our carefully constructed fake world. The story begins in two cities at the same moment in 1975. One is New York. The other is Damascus. It was a moment when two ideas about how it might be possible to run the world without politics first took hold. In 1975, New York City was on the verge of collapse. For 30 years the politicians who ran the city had borrowed more and more money from the banks to pay for its growing services and welfare. In the early seventies, the middle classes fled from the city. The taxes they paid disappeared with them. So the banks lent the city even more money, but began to worry about the size of growing debt, and whether the city would ever be able to pay it back. Then one day in 1975, the banks just stopped. What happened that day in New York marked a radical shift in power. The banks insisted that in order to protect their loans they should be allowed to take control of the city. The city appealed to the president, but he refused to help. So a new committee was set up to manage the city finances. Out of nine members, eight of them were bankers. It was the start of an extraordinary experiment where the financial institutions took power away from the politicians, and started to run society themselves. The city had no other option. The bankers enforced what was called austerity on the city, insisting that thousands of teachers, policemen and firemen were sacked. This was a new kind of politics. The old politicians believed that a crisis was solved through negotiations and deals. The bankers had a completely different view. They were just the representatives of something that couldn't be negotiated with the logic of the market. To them there was no alternative to this system. It should run society. One of the people who did understand how to use this new power was Donald Trump. Trump realized that there was now no future in building housing for ordinary people because all the government grants had gone. He saw that there were other ways to get vast amounts of money out of the state. Trump started to buy up derelict buildings in New York, and he announced that he was going to transform them into luxury hotels and apartments. In return, he negotiated the biggest tax break in New York history, worth $160 million dollars. The city had to agree because they were desperate, and the banks, seeing a new opportunity, also started to lend him money. And Donald Trump began to transform New York into a city for the rich, while he paid practically nothing.
Finn
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Just reported this morning - the beauty of trade deals in a new globalized world. Be careful of the details - they can come back and bite you:
https://www.cbc.ca/news/politics/huawei-canada-china-fipa-1.5021033

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‘The deal on the table before Amazon walked away was expected to bring in $27 billion in tax revenue to New York over 25 years, generating 25,000-40,000 new jobs at an average salary of $150,000.’
I don’t know what the best course of action for NYC should have been, since I’m not knee deep in all the details, but I consider all the information in this sentence to likely be a wild misrepresentation at best compared to what the actual eventual outcome would likely be - unless we’re including Bezo’s stock gains and bonuses as part of the income average, perhaps. Apparently, Amazon just paid zero (actually got a rebate) in Federal taxes on $11 billion in profit - I think it’s unlikely they’ll be putting out billions per year in taxes to NYC, one jurisdiction. Possible, but suspect, IMO. Also, I expect subsidizing the multinational corp is probably really not the best use of public funds compared to providing subsidies to other more widely and equitably owned local ventures and co-ops.
I really agree with your point that it’s important to fund jobs and income, Adam. Funding a mega-corporation like Amazon that has relied on endless free Fed money to become a monopoly and is a primary conduit for burning through planetary resources via peddle-to-the-metal consumption fueled by the insane ‘endless growth’ paradigm may not be the best option available. Their near zero profit, (all reinvested or put out in bonuses and ponzi stock ramp) triple digit P/E is going to crater over the course of the 25 years under discussion. Likely better to find and support other approaches to generating sustainable income, I’d say.

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Always fun to read here the reactionary peanut gallery, turning their “economic” scrupples in-side-out to justify a leo-liberal scam. LOL. Sad to see folks here falling for it. I expected more but am not surprised that out-of-towners don’t get why the Amazon deal was not a good deal and a bunch of bull. Seriously, listen to yourself on this issue compared to others. You just accept the numbers as if they live in an alternate universe (alt-right?) Your falling over your own logic (and I pray and hope not revealing deeper biases). Ya know wad I’m say’n?
https://www.nytimes.com/2018/11/14/opinion/new-yorks-amazon-deal.html

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if I understand correctly, NYC has about eight times the average cost of living of typical America. so $150k would be like an average salary of less than $25k anywhere else. At such a salary. people couldn’t afford to live --they’d definitely need subsidies.

I don’t think the Amazon solution sounded like a help, much less a solution. What it sounded like was a distribution center subsidized by an already-foundering city.

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Always fun to read here the reactionary peanut gallery, turning their "economic" scrupples in-side-out to justify a leo-liberal scam. LOL. Sad to see folks here falling for it. I expected more but am not surprised that out-of-towners don't get why the Amazon deal was not a good deal and a bunch of bull. Seriously, listen to yourself on this issue compared to others. You just accept the numbers as if they live in an alternate universe (alt-right?) Your falling over your own logic (and I pray and hope not revealing deeper biases). Ya know wad I'm say'n?
No. I don't know what you are saying. Well, I do know that you seem to enjoy name-calling a whole lot. That's pretty clear. You also don't provide much in the way of facts at all, just your opinion, along with the name-calling. Might you work in the news business, perchance? I don't know anything about the Amazon deal at all. My mind is open to be convinced. I'd love to hear a fact-rich piece by someone who laid out the economic case as to why it was a bad idea. Case 1: Amazon comes. Things work out. Expected tax revs, giveaways, effects on community. Case 2: Amazon comes, but things aren't quite so good. Expected tax revs, giveaways, effects, etc. Case 3: Amazon doesn't come. I guess that's not the kind of work you do, though.
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Dave and Newsbuoy
I appreciate your approaching tete-a-tete. IMHO, and I am not often right, Newsbuoy is goading the discussion to look at how Amazon’s business model fits into the Peak Prosperity paradigm. I am no fan of AOC nor of Amazon’s business model. However both seem to be leveraging public fears, desires and weaknesses at the cost of leaving a trail of either burned out money value or burned out planetary resources. Neither is an acceptable alternative.

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The business model is a long way from proven, although the damage to communities is very real. Amazon has mostly been making its profits from data storage.
Many people have jumped on the Amazon bandwagon by setting up businesses to sell stuff and using Amazon to supply and sell. Many of those businesses are left with large amounts of useless unsold inventory.
If a downturn is coming that situation will only get worse. Retail is in all sorts of trouble - don’t for one moment think that the problem is just in the malls. They, at least, can drop their skyhigh rents. Amazon has massive infrastructure of automated warehouses. We don’t really know the reasons that Amazon pulled out but it may be that Amazon is taking a different view of the future.
All the talk about New York giving up on $27 billion of revenue fails to mention that the revenue stream is a forecast only. Economic forecasts do not have a good track record over 5 years - over quarter of a century such a forecast is just a reflection of the current complacency.
New York also saves on the $3 billion of subsidies to Amazon. What an incredible idea - a corporation that has cracked the $1 trillion stockmarket valuation level requires a city and its taxpayers to subsidise it on the basis of an easily broken revenue promise.
The regulators at last are taking a closer look at corporations like Amazon, Google and Facebook which have all the hallmarks of monopolies and side effects which have society wide outcomes that cannot be simply brushed away as disruption, as if disruption is always an entirely good thing.
New York may have reason to be grateful for the success of the activists.

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Eannao wrote:
I am in a similar position to you, in that I rent my home. I understand that you are in this holding pattern while you wait for the everything bubble to burst, but we can not predict the future.
I have come into a fairly serious wad of cash out of completely unexpected nowhere (proverbial rich aunt/uncle-ish story, benjis from heaven). It makes me nervous just to see it in my bank account. When I say that, I'm not kidding. After a decade here, hawking every opportunity/threat and sliding underneath the wall of worry so many times because I didn't have enough capital/things to keep me up at night? I'm stoked...*and* I sometimes now wake up at 3 am and loop on worry about the $. Which is unacceptable. I'm going to invest in RE at the first reasonable opportunity, without creating a stampede. Have a relationship with a realtor, she has the specs on what I'm looking to buy. Soon as it comes up I'm buying. Turning 0101010s into something real. I'm guessing before the end of the year, although like I said I'm not going to buy just to buy. Looking for an opportunity, but sure as shootin I'm not going sit and wait for the market to drop X% or for QEinfinity or UBI or whatever is coming after the 2020 election. Not going to get too clever and try and shoot the moon. The whole financial world feels like a small door, and too many people with lots of 010101010s. When the music stops playing, I intend to already be sitting down. So I missed out on the last 8% of the market correction. What's 8% of 010101010? I forget. I may occupy, I may rent for a little income. But my bank account will once again be safely in the low-5-digit range and I'll have a *thing* that can't be bailed in. A thing that earns money or that I can live in. And I can sleep at 3 am again. Money is weird. The more you have, the more it owns. VIVA -- Sager
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I’ve read points and counter points on the Amazon/NYC thing and I cannot find a clear villian. So I guess I’ll give both sides a pass, or cast a pox on both houses. Either or, or both.
However I am glad for the people who will be working at Amazon who now don’t have to live in NYC.
I am heavily biased against NYC, mostly because I find it unacceptably dirty (“it’s like living on the bottom of a birdcage”), overly stringent on government graft and excessive rules, a terrible housing shortage, and with a horrible infrastructure situation.
Why would anybody want to live there when there are other places that could offer lower taxes, gentler government, with newer infrastructure and room to spread?
But mostly, the Amazon story is dependent on BAU continuing forever, and for the anti-trust arm of the (in)Justice dept remaining asleep forever. Neither is a good bet IMO.
I wouldn’t take anything more than a 3 month projection at this point… :wink:

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AS a former prosecutor I find most villains to be opaque. Except the really stupid ones. Maybe it’s wrong but I’m finding a dark comedy in all this. Do we trust trillionaire Jeff? Let’s ask the wife. Do we trust a town that breast feeds the bankers. What a milky mess. Chaos theory might give us some answers. No one and nowhere to turn to. No one trusts anyone. No one can predict anything. Everyone’s lying about the numbers And yes, the biggest vertical monopoly ever constructed … in the SECOND most corrupt town.