Home Trends The Best Business Show with Anthony Pompliano – Episode #2

The Best Business Show with Anthony Pompliano – Episode #2

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[Music] so [Music] oh [Music] please [Music] boys [Music] good morning good morning good morning what’s up guys bang bang welcome back to episode two of the best business show i’m here with my brothers joseph and john how do you know their names are joe and john real easy they got their names on their chairs joe and john and i are bringing you the best business show because we have one simple goal we wanted to create the show that we we wish that we had when we were learning about investing there’s a massive problem in our economy in our society where the rich are getting richer the poor are getting poorer and the biggest deciding factor is who’s educated and who is not before i forget if you’re watching this on youtube please make sure that you are hitting the like button so this trends on youtube and more people can find it make sure you subscribe to the channel so you get notifications whenever we go live had a couple of technical difficulties there but we got it figured out bear with us we’re all in this together if you’re on twitter make sure that you hit that retweet button so more people can find this all right today’s big topic is inflation the cpi numbers the consumer price index numbers came out this morning and economist missed that’s what happened the cpi number is 5.4 percent i want to walk through i’m going to go somewhat slowly here to try to my best to help explain to everybody what inflation is how it’s measured how the measurements are actually calculated why this is super super concerning so the key to start is that there are two separate measures of inflation in an economy there’s the consumer price index i’m going to read to you exactly how it is defined in terms of the calculation the consumer price index or cpi is a measure that examines the weighted average of prices of a basket of consumer goods and services such as transportation food and medical care it is calculated by taking price changes for each item in a predetermined basket of goods and averaging them changes in the cpi are used to assess price changes associated with the cost of living so what we basically are looking at is over the last 12 months what was the average change in prices of goods so that we can get a better sense for what’s happening to that cost of living now cpi includes everything from food to transportation to various other sectors some people will say well you know what there’s actually some issues when it comes to food or let’s say energy so for us to get a better sense of true inflation without those why don’t we create something known as core prices or core inflation and so core inflation is a second metric uh it’s used for the change in cost of goods and services but it does not include food and energy food and energy prices are exempt from the calculation because their prices can be too volatile or fluctuate wildly and core inflation is important because it’s used to determine the impact of rising prices of consumers income so the way to think about this is whether we’re looking at cpi or core inflation both of these metrics are up considerably over the last 12 months now inflation measures the rate of change right so what that means is if you go to the store every day and the price of something is increased that increase is unlikely to come back down right when tyson foods as we talked about yesterday increases prices seven and a half percent they’re very very unlikely to reduce their prices later in the future but inflation can come back down just meaning that there isn’t a continued acceleration of the prices so it’s the rate of change now economists spend pretty much all of their time looking at various inputs into this complex machine known as the economy and what they do is they try to take all those different inputs and figure out and forecast what they believe the inflation numbers are going to be on a month-to-month basis and so going into the month of june the thought process was based on everything that the economist could look at the inflation number the cpi number including food and gasoline or energy was going to be 4.9 percent now 4.9 ends up being a number that is high on its own so the forecast was that it was going to be much higher remember the the stated target for the federal reserve for inflation in the united states is two percent so more than double what the stated target was going to be this idea that they were going to let inflation run higher for some period of time but economists missed this forecast by 10 the actual number came in at 5.4 percent think about that for a second they forecast 4.9 but it came in actually at 5.4 percent a 10 miss if you’re constantly wrong and you miss your forecast by 10 most people get fired most people get relegated to the minor leagues right you don’t get to keep your job and keep doing it but economists miss that forecast by 10 and of course when they miss they never miss to the upside they always miss to the downside and so the miss of 10 led to that cpi of 5.4 but many people may say wait a second the cpi number of 5.4 meaning that literally the cost of these various sectors on average are up more than 5.4 or about 5.4 percent of the last 12 months what if we take out food and energy so the core inflation number well that core inflation number came in at 4.5 percent which means that if you don’t look at food you don’t look at energy you just look at the other industries and consumer goods there was still an increase of 4.5 over the last 12 months now how does that look historically well here’s the scariest part about this is that the cpi number that 5.4 it’s the highest it’s ever it’s the highest it’s been in 13 years right in 13 years this is the highest cpi number that we’ve seen what about that 4.5 number that doesn’t include food and energy that core inflation number 4.5 it’s the highest it’s been since 1991. core inflation is higher than it’s ever been in the last 30 years that’s what we’re experiencing right now and last year when the federal reserve the treasury politicians etc were all working for all of this monetary stimulus and interest rate manipulation etc the thought process was don’t worry about it inflation isn’t going to be a problem that’s what they said last year then towards the end of the year and into the beginning of 2021 they started to say inflation’s going to be transitory don’t worry about it well now we’re sitting here core inflation’s at 4.5 percent and the cpi number is at 5.4 when do we start to worry that’s the big question when is it okay to say everything is not okay how are people supposed to live in an environment where 5.4 increase in the average cost of goods over a 12-month period and by the way that 5.4 is way worse for the bottom 40 of americans and so this is a really really really bad situation now to me one of the things i always call out immediately is simply uh economic forecast is basically astrology for adults right this is a very very complex machine and there’s tons of inputs and there’s a lot of things that are happening that are overly nuanced that are high detailed uh in making these forecasts and if you’re off just a little bit on one of the inputs or you’re off just a little bit in terms of the chain reaction or the sequential nature of some of this you can be drastically off in the actual forecast that’s what we saw economists were off by 10 in terms of that cpi number and so that astrology for adults basically means we should look more directionally at the forecast rather than actually expecting them to be accurate 100 of the time because they’re rarely accurate and that’s okay it’s a highly complex machine but when the forecast starts to be 4.9 5 etc it tells us that we are experiencing insane levels of inflation 13 years this is the highest it’s been in the cpi number 30 years this is high it’s been the core inflation number and so this becomes concerning now let’s start to unpack how do we look compared to the rest of the world right there’s a chart that uh charlie billio and i’m probably pronouncing his name wrong but charlie’s a great follower on twitter he has where he basically has stack ranked all of the various um countries and in their inflation uh level i believe that there are eight different countries that have higher levels of inflation uh currently than uh the united states but those eight countries include venezuela who venezuela’s number is two thousand seven hundred and twenty percent argentina is at forty eight percent turkey’s at seventeen percent so of the eight countries that actually have worse inflation than the united states three of them have over 17 inflation and they happen to be three countries that we know the currency is failing in some form or fashion so of the other five we have saudi arabia mexico india russia and brazil those are all between 5.7 and 8.4 percent pretty much every other developed nation has lower inflation in the united states so this is not a global problem right this is a specific problem the united states is facing for the most part due to the monetary policy and fiscal policy that we have implemented over the last 12 months or so now when you start to look at things like the u.s um inflation the cpi versus maybe a euro or japan we’ve got another chart that i think we can pull up at some point that basically is going to show the u.s spiking significantly uh compared to uh the euro or japan and this all goes back to inflation that you live in is important because that’s the cost of goods but the inflation in other economies is really important as well because some of it is relative also when we start to go through even more things around what is actually driving the inflation what we can see is and i’m going to read this because i think it’s really important is here are the items that are driving up the inflation we have car rentals that are up 87 now 87 percent is some of that is just people are moving around more they’re renting cars they don’t want to take public transportation they want to travel they want to go more into the suburban areas they don’t want to sit inside of an apartment in a major metropolis right they want to actually move around maybe they want to rent a car to actually move somewhere so it’s not all just pure monetary policy but 87 is a massive massive number used cars up 45 gas up 45 laundry machines up 29 airfare up 25 moving up 17 hotels up 17 furniture up eight and a half bacon everyone’s favorite food bacon is up 8.6 8.4 and televisions are up 7.6 now when you start to look at that you start to think about okay we were in a pandemic last year so obviously there was depressed demand for some of this but when you also look at the monetary policy and the fiscal policy you can realize again the economic machine is complex it’s not just the monetary policy and fiscal policy but it’s also not just covet right all of this is creating this confluence of events that is driving what is an unsustainable uh increase in the cost of living for americans and so when you start to then break down things like used cars to me it’s absolutely nuts that we can see these charts where literally the used car prices if you look across the last 20 years or so is pretty much in a single band and then all of a sudden the used cars are exploding upwards right in in some cases 2x 3x as high as they were at previous points in history and so it gets to be this really really weird uh kind of environment now the last thing i want to talk about before uh we we kind of go through uh how inflation works and some quotes from other people is the fed balance sheet and i don’t know if we can pull up the uh actual chart of the fed balance sheet but this is insane right this balance sheet expansion if you look here this is from 2006 uh in 2008 give or take we had about 900 billion dollars on the fed balance sheet 900 billion today we have 8 trillion by the end of this year it is likely that the fed’s balance sheet will have expanded by 10x over less than 15 years right think about that for a second 900 billion dollars is now 8 trillion dollars and it’s likely that we’re going to hit 9 trillion by the end of the year so that would be a 10x from 2008 until the end of 2021. how can you do this without having a negative impact it’s really really hard to wrap your head around how the fed can continue to expand that balance sheet so aggressively yet we are told it’s transitory don’t worry about it there’s not going to be a negative impact on the everyday person well i’ve got a couple of quotes here and then we’re going to talk about this with joe and john here are four quotes that i pulled on inflation the first comes from kevin brady inflation destroys savings impedes planning and discourages investment that means less productivity and a lower standard of living true here’s one from john maynard keynes by a continuing process of inflation government can confiscate secretly and unobserved an important part of the wealth of their citizens inflation is taxation from john maynard keynes frederick august van gaak quote i do not think it is an exaggeration to say history is largely a history of inflation usually inflation’s engineered by governments for the gain of governments end quote and lastly from ray dalio there are two main drivers of asset class returns inflation and growth end quote what all of these people are highlighting is the fact that inflation drives asset prices and consumer prices so if you choose to get paid income and you take that income and you buy assets they will appreciate in price that’s why rich people aren’t complaining about this rich people are profiting off of this the rich people are creating massive wealth literally billions and billions of dollars of profits because the inflation is driving those asset prices higher the stock market is up and continues to hit all-time high after all-time high the stock market the s p 500 since march 2020 is up 100 if you put one dollar at the bottom of the market now i’m not saying that everyone timed the market perfectly nobody knew where the bottom was but if you look historically if you put a dollar in the market in march 2020 at the bottom of the market you would have two dollars today it’s insane that is insane to see that we literally have a hundred percent up from the bottom of the market right and so why is that happening well they printed trillions and trillions and trillions of dollars that’s why it’s happening because they injected liquidity they devalued the dollar asset prices went up but so did consumer prices there is no difference between a stock going up and food going up right they’re both assets that are denominated in dollars the dollar is becoming worth less and so of course the prices of everything is going up the difference is that you eat the food and you hold the stock and when you hold the stock it means that you’re richer when you eat the food it means that you spent more money and so consumption ends up leading people into a worse and worse economic situation investing ends up creating a better and better economic situation that is the whole key to personal finance is investing not consuming and so when you think about that timeless principle of investing not consuming you realize that inflation is your friend if you’re an investor and inflation is your enemy if you are a consumer and so the bottom 45 percent of americans that have no investable assets all they do is they sit in cash or they buy consumption goods right they don’t invest they’re getting hurt by this and they’re getting hurt very very significantly versus those that are investing joe what do you got for us on inflation i think inflation’s transitory ah joking [Laughter] i wanna see your face no i think it’s uh i think it’s funny right like we already strip out food and energy right and now they’re saying hey if you strip out used cars airplanes hotels furniture bacon oh yeah it’s under three percent it’s closer to the two percent that we go for uh which is really it’s a joke right so that that doesn’t make any sense um but i i think it’s just what we don’t learn in school right so we always go back to this and we talk about this all the time is when it comes to education that’s really what people need to learn um there’s billionaires all over the world no one’s complaining about this they don’t care they own assets that appreciate in value when inflation runs hot uh the bottom 45 percent of americans like you said get destroyed they don’t teach you this stuff in school and i think the the other big thing to mention that kind of got lost in the shuffle this morning uh was real wages right so any price increase that was given out over the last month or two months or three months uh was negated by the increase in consumer goods right so you may have gotten a raise at work but it’s not outpacing inflation as is right now and that’s a big deal right because uh you’re just told usually two percent two percent two percent if you get a raise every single year you’ll be in the green you’ll be fine but we’ve seen with five percent inflation in cpi ratings that’s not true yeah john what do you got i couldn’t agree more right so it’s the bottom 45 percent don’t have investable assets you saw people like bezos who got an immense amount of wealth last year all from a lot from amazon stock itself right he got paid less than 1.7 million from amazon all that wealth came from just owning assets and having inflation pushing those assets a lot higher and it just it’s affecting the bottom half of america a lot more than the thing that’s crazy to me is that it’s almost like the american people are being gaslit by the federal reserve and economist right they were being gaslit in the sense that they hoped that we forget they told us not to worry about the inflation but now inflation’s here right inflation used to be this like boogeyman it used to be this thing that oh everyone yells and screams and fear mongers about it but don’t worry about it inflation never actually becomes that high it’s at 5.4 cpi number the core inflation is at 4.5 percent these are numbers that you would expect to see in non-developing nations right or in developing nations non-developed nations this is not what you expect to see in the united states 5.4 is a number that is incomprehensible because that is the official number the unofficial numbers are worse and the bottom 40 percent of people are really really really being hurt by this now what i joe brought up which i think is a really good point the calculation of this stuff is nonsense right again i go back to this idea of like it’s astrology for adults because what ends up happening here is we basically are watching the manipulation of numbers but nobody can actually ever verify the numbers right there’s a completely opaque type uh system here and so when they say things like oh let’s measure inflation but let’s take out food and energy well i spend money on food and energy we’re going to get to a young person’s spending habits later in the show and we’re going to kind of break down exactly what they spend money on but saying that they don’t spend money on food and energy and that’s going to be a better um kind of signal for the price of uh living or cost of living is pretty ridiculous then they make it even more ridiculous oh let’s take out airplanes okay nobody’s flying anywhere no actually airline uh activity is up significantly since last year then they’re like oh let’s not take uh used cars into account okay well if everyone’s moving into places where you need cars because they’re not living in cities as much then that’s probably not going to be a smart thing but you know what you know what’s next what you can’t eat bacon well it’s got to come out yeah and look i don’t really know exactly what uh kind of the end game here is but what i do know uh is that there’s going to be continued uh manipulation of the numbers but you can’t fool the american people right and what i mean by that is you can sit there all day long on wall street you can say here’s the economic forecast here is what the actual official numbers are all this stuff the person that goes into the grocery store and goes to spend money on a daily basis they know prices are up right when they go to their local coffee shop they know prices are up when chipotle is saying that they’re going to increase all of the items on the actual menu people feel that right when tyson foods says that they’re increasing on average in q one seven and a half percent people feel that and so in some weird way it may be hard to quantify for the average american it may not be as obvious to them but may not understand the difference between core inflation uh and consumer price indexes they may not understand exactly what’s happening with money or how money works but if you go on the street right now and you ask people hey do you think that things are more expensive today almost unanimously you will hear from everyday people yes things have gotten way more expensive recently and they don’t know why and in some crazy way not knowing why the cost of consumer goods is going up is a reason why they’re not rushing to go put their money into assets that are benefiting from this as well right it’s almost a double whammy i don’t benefit on the upside and i get hit on the downside and that to me is really what we’re seeing where the rich are getting richer than the poor are getting poorer the on top of that the consumer just doesn’t really know what’s going on right so the consumer there was a survey done the other day that 11 of people expect to lose their job within the next 12 months so not only are they spending more money they just they don’t have security and i think that’s one thing that a lot of people want and it’s the financial security that they that they’re seeking so like yeah for me part of it’s easy right to say hey look the cpi number is kind of frankly right it’s not really accurate there’s a bunch of different inputs that go in that shouldn’t be counted or should be counted or etc but what’s like the advice around this right like is it hey just make sure you have investable assets is it certain assets for you like how should a normal person think about this that’s starting to invest i think that there’s three key things that people should do right and we’ve all talked about this kind of behind closed doors but the first thing is if you work at a job where uh you work either an hourly wage or even if you have a salary right the first thing you should do is you should go into work you should do it in a nice way in a polite way should bring some data with you but you should say hey inflation is running much higher than anticipated i am being paid less money than i was being paid last year sure the dollar amount is the same but my purchasing power is being eroded away and so i need a raise right and if you work an hourly job let’s say you get paid that minimum wage uh the federal minimum wage was 7.25 go in and ask for 750 775 eight dollars right anything helps but see if you can use this as an advantage or kind of a wedge to get a higher uh salary right or a higher hourly rate if you have a salary go in and say listen you’re only adjusting my salary by two percent a year inflation’s at five so i’m net loss three percent three and a half percent right now i need to make um enough money to just make up for inflation i’m not asking you to pay me more money i’m asking you to pay me the same thing you’re paying me last year right now you can go do that there’s a lot of people who i think are actually not going to say yes like your boss or your company they’re not going to say yes but i think it’s worth asking and what it will do at a minimum is it’ll show people you’re paying attention right it’ll explain to them hey this is not a dummy here that we’re dealing with and it may help later on if you ask for a bonus or whatever but that’s the type of stuff is when you have the information the data and you can go and you can actually have that conversation with your employer now all of a sudden you are at least giving yourself an option to potentially get that raise to get a bonus to do something to try to negate some of these impact right but if you don’t do anything if you never go talk to them then it doesn’t matter you’re just getting hit with five and a half percent inflation essentially uh and you know there’s nothing you can do about it so i think that’s the first thing the second thing i would do is you gotta go learn to invest right and the whole idea of investing is you can ask for the raise as a way to kind of mitigate damage but then you also want to get long and benefit just like the rich people are doing so this is the secret rich people are profiting off of this they are making so much money if you don’t own assets you’re not making any money you’re not getting anything in terms of these prices going up so if you own stocks if you own commodities if you own cryptocurrencies whatever that’s up for you to decide right we’re not here to give you kind of financial advice in terms of individual uh investments to make or assets to buy but what we do know is that it’s all up literally except for gold almost everything is up over the last 12 months right some of them are up tens of percent meaning 10 20 30 percent right i think the s p 500 over the last 12 months is up uh 37 almost 40 percent it’s up 100 since march of last year uh bitcoins up like 250 260 percent if you look at other commodities like gold etc they’ve more than doubled and so it’s just you have to get investments into your portfolio or you’re going to continue to be hurt by this and again i keep going back to it is the double whammy is no investment and getting hit by getting paid less of your purchasing power right and to me that’s the best thing somebody can do is walk in day one right now and say hey i need to get paid more money just to combat inflation and you know look if somebody watching this does that let us know how it goes right let us know how we can help um but i think that’s probably the best thing or what other ideas you guys have and that brings up a good point because i think a lot of times too we see uh billionaires criticized right and you see all the articles i just pulled up one of them here about how much billionaires made during the pandemic and and how much their wealth increased right so uh forbes had this article out two months ago at this point now elon musk his wealth increased 144 billion during the pandemic jeff bezos was 86 billion larry page 42 billion et cetera right dan gilbert mark zuckerberg all 35 to 50 billion higher since the pandemic started but i don’t think that’s something we should be criticizing right like no why is forbes putting out articles in other publications putting out articles almost shaming people for making more money while people are struggling during the paint epic right they knew something they created a business they have assets and they appreciated during a pandemic right we absolutely should be celebrating entrepreneurs in this country right if you think about jeff bezos or elon musk or any of these these are the folks who get all of kind of the headlines because they’re the richest right they’re kind of the biggest winners but if you start to look at uh small business owners for example right a lot of small business owners got hurt by the pandemic right because they were in business lines where the restaurant got shut down or whatever but there’s also a lot of small business owners that actually are drastically benefiting from this right and so it’s not just oh if you own a business all of a sudden you’re going to make money and life is good right it’s hard but we should encourage way more people to be running these small businesses and building as entrepreneurs and business owners i think if i remember the statistic correctly 50 of jobs in the united states come from small businesses right if 50 of jobs in the united states comes from small businesses we probably if we want more jobs we probably should encourage more people to start businesses right like that’s where the jobs come from they come from the business they don’t come from the government they don’t come from these other places and so i think that the other piece of this that we really have to kind of keep our our uh you know be honest about is some people don’t have the desire nor the skill set to go start a business that’s okay you can still own a piece of a business when you invest let’s say if you’re in the stock market right you can buy the s p or you can buy individual companies and that is still being an owner of a business now you may be the smallest owner right because you only own one share of the company but you still get the same benefits from investing that you would get from owning a business in terms of benefiting from the inflation that that business is kind of riding as a tailwind yeah and and the point to that is that bezos might have made 86 billion dollars during the pandemic but how many more people did he make rich through amazon stock right everyone who owned amazon stock do we know how many millionaires amazon has made for people who just held the stock my guess my guess is that there’s probably 50 000 or more 50 000 millionaires or more i’m guessing were people who bought amazon stock and because it appreciated became millionaires right and just whether that number is right or not it’s not five people right and then you start talking about how many people became millionaires inside of amazon as employees in terms of they got issued stock i mean the guy may be responsible for the creation of a hundred thousand million that’s not counting everyone that he enables to sell products on his website yeah it’s crazy it’s crazy right but somehow you know we’re talking about evil people right and uh i believe amazon’s uh hourly wage is 15 an hour right is it yeah okay so john’s confirming 15 an hour from amazon if john says it’s true then it must be true so they say that forty thousand businesses are earning at least one million dollars per year on amazon selling products forty thousand businesses are owning yes and that’s so that’s not even counting people who purchased the stock and made money on that right yeah so but let’s just say that only half of those the owner actually gets a million dollars right because that’s the top line revenue they got costs whatever right so whether it’s 25 to 50 whatever um it’s still 10 000 or more just those customers that use the platform are actually getting that but when you start to then think even about paying 15 an hour that’s double the the federal minimum wage oh and not to mention he hired 500 000 workers last year during the pandemic right so i just saw he’s going to hire another 100 000 military and like active service members as well yeah by 2020. is he gonna do that or is andy jassy gonna do that i don’t know who gets credit now right bezos will probably still keep getting credit but andy’s the one who’s gonna get the blame if anything goes wrong at this point right all right enough about inflation uh before we move on to the next topic which uh is gonna be fascinating we’ve got a first-year post-college uh kid who posted his economic breakdown everything he spends money on uh on reddit and we’re gonna break down exactly what he does and see if he’s smart or not uh don’t forget these shirts these are the day one best business show shirts everyone always says that they were there on day one oh i found that artist before everybody else i knew about that athlete when they were in high school i saw that show in the first episode or whatever we are selling these shirts through the end of july if you go to thebestbusinessshow.com thebestbusinessshow.com you can buy this shirt we also have crew neck uh sweatshirts and we have hoodies the best business show day one only through the end of july about two weeks or so if you’re here on day one we’ll know it because you got the shirt that’s the way to prove it all right let’s pull up the uh image of this kid from reddit who has his spending breakdown this is probably one of the more insane things i’ve seen somebody do you have to be it’s gonna be a little hard for folks at home to read uh but you basically have to be a psychopath to uh um to keep track of this like this john maybe walk us through who this person was and kind of where he lives and what he posted here with uh with this chart yeah so a little bit of background he’s a 24 year old male um has a girlfriend as you can see by the chart he’s got no student loans no car payment and no debt so i think it’s very important he lives about 40 miles outside of the downtown houston area and he has um he has two roommates right so if you can see the breakdown i think this kid is very unique in the sense of how much he has saved and invested over the last 12 months this this chart is spending from july 2020 to july 2021 so right as kind of the pandemic gets out of it and things start to rip again in the stock market crypto all that so we should call out a couple of important things here before everyone freaks out one the post-tax income of fifty thousand dollars means that he probably made somewhere between seventy and a hundred grand right depending on what his tax rate is we don’t know exactly i don’t know if he says what his his uh kind of salary was but post-tax income being fifty thousand it’s not like he made thirty thousand dollars right so he’s kind of in that like middle earner income he’s in texas though he’s in texas yeah so well so he doesn’t pay state income tax but still he he made somewhere let’s call it between 70 and 100 000 uh and then he also got uh five thousand dollars bonus stimulus checks and tax returns right so kind of other uh augmented income when you start to think through this also he john you said he doesn’t have a car payment because he bought a used car uh it sounds like in cash or whatever right before so he’s no car payment and then he lives with two roommates so he’s got kind of a lower cost of living than let’s say a family would have or anything like that but he saved twenty seven thousand with twenty eight thousand dollars of the fifty thousand dollars of kind of take home income so he saved over half just over fifty percent and when you start to look at what his expenses are you know he breaks it down into food he only spent forty seven hundred dollars i don’t know exactly what he was spending food on but that seems like a really low number to me do you know which one was funnier to me was that he he spent three thousand dollars on crypto and he spent 463 dollars on his girlfriend so he spent 500 bucks on the gym he spent a thousand dollars on health he spent a thousand dollars uh on apparel uh various if you start looking at things like technology traveling uh on amazon phone bill uber lyft et cetera that was about 3 700 bucks and then uh i don’t know uh donations and gifts was like 3 800 bucks 3 900 bucks to friends family girlfriend donate uh other donations patreon et cetera i would love to know uh who he’s subscribing to on patreon um and then rent was eighty four hundred dollars so he’s really starting to break it down right and it’s like what’s he what is that 8400 divided by 12 is he’s paying um you know 700 something dollars in uh in rent which is pretty low well one thing i want to point out is his amazon purchases all right uh he put a short explanation up on on his reddit and he basically said he said look i was buying five and fifty dollar items on amazon and i didn’t realize how quickly it adds up and he made the comment he said i will make sure to lower this significantly got it so he’s basically trying to get his 600 amazon purchases down the when you look at the investing what’s fascinating around there is he saved so 27 000 28 000 of that post-tax income he didn’t spend right about half his money his savings but then he said a little more than half of that he put into investing so about 25 of his post-tax income he put into investing and then another 25 give or take he put into cash savings right it’s probably more like 30 and 20 percent uh and in the investing he put um let’s see here he put about uh 50 into stocks he put about 125 or about 25 into etfs and then they put 25 into crypto somebody’s gonna have to tell them that etfs are made up of stocks but that’s a whole different uh whole different topic i think that the stock bucket probably means that those are individual stocks that he picked rather than just going into index he said he is sitting around 10 unrealized profits better spread across 13 different positions he said i’m a winner yeah well if the s p is up 37 nasdaq’s up more in the same time period are you a winner or are you lagging behind he’s a winner compared to the 45 percent of people who don’t have investable assets true true true but still i mean this is just it’s a very interesting breakdown and i think part of uh what also um you know just it makes you think through how they do it he spent 135 on haircuts last year i don’t know where you’re spending only 135 on haircuts right unless you’re literally cutting your own hair for now it was the pandemic so maybe a little lettuce coming out the back of his head a little mullet action or something but 135 haircut uh for an entire year is pretty low i think i was going to say one other thing too was that so he’s got almost 12 thousand dollars of cash savings it looks like right and based on his uh budget what he saved versus income and what he spent everything else on he spends about 2 300 a month so he’s got five months of cash reserves uh in case he needs anything so we don’t know what he did next year or what he’s gonna do next year what he’s done in the past but essentially he’s set on cash savings right he can basically leave that in a nest egg and say hey look if anything happens i’m good i can live five months off just my cash savings doing exactly what i’m doing right now so everything he earns out of this is probably just going to go in that investing category whether it’s stocks etfs crypto et cetera but i think it’s impressive right he built up a nest egg of five months in one year essentially i’m super impressed by this guy by the way right like like this to me is somebody who whether they knew what they were doing or not ended up in a great financial position uh after one year right if you said to me take anybody an individual or a family and if you look at their post-tax income and they can get to the point where over 50 of their post-tax income goes into savings whether it’s cash savings or into actual investments to grow in the future i think you got to be pretty proud of that right if you can walk away with over 50 of that post-tax income going into investments in savings and then if you look and kind of break that down more than 25 of your post-tax income is going into investing you do that year after year after year for you know two decades you’re going to be wealthy like you will become a millionaire in the united states he’s putting let’s do the math right he’s putting 16 000 a year starting when he’s you know probably 23 years old 22 23 years old he’s doing 16 000 a year if he just replicates that every single year right we’re talking about over a 10-year period he’s now got 160 000 with no appreciation in the assets right 160 000 put into the stock market or into crypto you don’t have to be a genius for that to turn into a million bucks right you just let compounding work and he’s going to end up being a millionaire and so to me that is what ultimately we want everyone to do right is to understand that he’s spending money it’s not like he’s living you know uh a life with no fun i mean he’s got things in here uh where he’s going uber he’s got video games right he’s buying clothes and shoes and accessories uh he’s got his insurance he’s got a gym membership he’s buying supplements uh all that kind of stuff but he’s still able to put 25 of his take-home income and investments like that to me is the biggest takeaway from all this what did you i mean is there something else that you guys took away from and i think it’s important to level set at some some point of like okay you’re right he doesn’t have uh an auto bill like a car bill he doesn’t have student loans he doesn’t have debt of any kind so he’s at some kind of advantage right and maybe he’s paid those off in the past we don’t know kind of his circumstance uh but i think that’s exactly the point really is right to get all that stuff paid off immediately as possible and then start accumulating well through savings and investing and all this type of stuff and you’re talking about his video games he spent 62 dollars what he bought one game [Laughter] listen there’s only one game that really matters and we all know it’s madden you two suck at it and i’m good at it so that’s all that really ends up mattering he found out what the 21 rule was real young [Laughter] you guys are idiots all right so this kid super smart uh speaking of people from an investment standpoint uh let’s talk about these plan b passports to me this is uh this is uh uh unique is what i’ll all put it as so people are getting a second passport uh many people for tax reasons right now when i say that people are getting a second passport for taxes there’s a whole bunch of nuance here that’s really important first the fastest way to increase your income is to pay less taxes there are legal uh avenues to do this where if you understand how taxes work you can drastically increase your income um and take home more money remember it’s not how much money you make it’s how much money you take home right not how much you make how much do you keep and being able to figure out how to reduce your tax bill is a very key piece of this wealthy people understand this more than almost anybody we talked yesterday about steve ballmer paying a lower tax percentage than literally the concession worker at the stadium didn’t do anything wrong he just understands how to use the tax code to his advantage that is one of the things that we’re going to talk about continuously through this show now what this article talked about is a woman uh katie anania hopefully i’m saying that correctly he’s a former professional sailboat racer uh raised in russia got a green card moved to the us in 2016 found bitcoin and all of a sudden because russia’s currency dropped 50 percent in 2016 uh in 2015 realized that it is likely that bitcoin is going to be really valuable she said quote i was smart enough to figure out that 200 in bitcoin will be worth 100k at some point i don’t think the government should have 40 percent of that end quote so she wanted to figure out a solution now everyone hates paying taxes i don’t know anybody in the world that enjoys paying taxes now there are people who don’t mind doing it right in terms of they think it’s part of their uh kind of american uh contribution to the country is it’s part of their uh kind of commitment is hey america provided me so much i’m happy to pay them uh these taxes that i legally owe them but i don’t see anybody paying the government more taxes than they owe all these people always talk about raise the taxes right if you’re so happy about paying more taxes you can just contribute more just send them a check with a little bit extra in there right why not nobody’s gonna do that right and so it’s always this thing of like uh almost virtue signaling of oh we should all pay more taxes but not you know i’m not gonna just like offer it up to them now when you look at this one of the strategies are these tax havens and so that’s exactly what this kind of plan b passport does where they help you get a tax or they help you get a passport to one of these other countries there’s a whole bunch of different countries uh that you can do it in i think there’s uh seven or eight of them antigua barb or barbados uh dominican uh granada nevis portugal saint kitts st lucia etc uh now when you go to get this passport it’s basically pay to play right pay to play can be a negative thing or it can be a way to incentivize action that’s all taxes are taxes are a way to incentivize activity right charlie munger show me the incentives i’ll show you the outcome same thing here so if you look just in the united states for a second puerto rico for example has i believe it’s a zero percent personal income tax at a four percent corporate tax rate right or maybe i have those reverse but basically almost zero to zero percent for corporate and individual uh and capital gains as well and so when you look at that you start to realize why are they doing that because they want to incentivize people to move there they want to incentivize folks that care about taxes because they’re rich that are going to invest in the area are going to spend money in the area et cetera and so taxes become an incentive tool now these countries said well you know what rather than say to american citizens hey we are part of the united states kind of dominance and and geography and you can come here with your us passport we need people to get a passport and so take st lucia as an example you can get a st lucia passport for 100k donation you can do a 250 000 purchase of government bonds or you can spend three hundred thousand dollars on real estate that’s all you got to do like literally you could just buy a piece of real estate for 300 000 you can get a st lucia passport right or you can get 100k you can make 100k donation or buy 250 000 worth of bonds that’s not that expensive in my opinion right given that most of these people are going to be ultra wealthy that are looking to do this there is a secret to this whole thing though here’s the secret in order for an american citizen to benefit from the tax regimes of these countries you have to denounce your u.s citizenship so you cannot simply just get a second passport and then now all of a sudden say oh i have a saint lucia passport i don’t owe u.s taxes the united states has one of the most overreaching tax regimes in the world right that is what the rules are right i don’t make the rules don’t be mad at me that’s just what the rules are if you’re a u.s citizen you pay taxes no matter where you live in the world to the united states government and so the only way to stop doing that is you have to denounce the u.s citizenship now a couple years ago there’s a gentleman you guys don’t even know the story i don’t think named eduardo saverin if that name rings familiar he’s one of the co-founders of facebook he denounced his u.s citizenship and he moved i believe to singapore and when he did that he had a couple of billions of dollars and i believe it was all unrealized in terms of it was in facebook stock but he was able to denounce his u.s citizen citizenship no penalty and he moved outside the united states right well they created a rule that very soon after uh i would almost call it the edwards eduardo saverin rule uh that if you denounce your u.s citizenship they tax all of your assets on the at that time was it 50 i think where they hit you with a 50 tax rate uh on all assets that you basically hand over and then you can leave right you can denounce that u.s citizenship so in order to benefit from any other tax regime in the world you have to denounce your u.s citizenship and then also pay this kind of like exit tax would you guys do it it depends right ooh you thought about it well i think it depends so one of the examples they gave in the article was essentially i forget who it was i don’t think they even mentioned the name but they were like i paid 130 to 150 000 for this service uh i’m moving to one one of the islands they mentioned and they were like it makes sense for me because it’s less than one percent of all my crypto holdings right what i’m essentially going to gain on crypto and i think when you think about it in numbers like that yeah it probably makes much more sense but my question for you is more about what would it take for you to do it where does bitcoin have to go or where do your assets have to go for you to consider doing that i would never denounce my u.s citizenship but you could move you would move to puerto rico uh puerto rico is a little bit different because i think that’s like a quality of life decision right depending on where you live uh what’s the infrastructure like what’s the security situation whatever the reason why i would never denounce my u.s citizenship has nothing to do with money right i would rather pay the money and keep the safety of the united states and keep that passport uh if you kind of think about a u.s passport in some crazy way now this isn’t exact but it’s kind of like a get out of jail card uh not for free right but get out of jail in terms of god forbid something really really bad happened to you you got kidnapped in another country or something like that u.s is going to come get you right and and i think that there’s like a an advantage to that right on top of that i think that there’s a lot of advantages that are afforded to people uh who hold us passports internationally but more importantly is there’s a lot of problems in the united states we got a lot of issues we got to deal with but that’s still the greatest country in the world right there’s no other country in the world where you can move there doesn’t matter where you come from what language you speak your religion your education the amount of money you have or anything and you can build a life of wealth happiness and and freedom yeah right and i think there’s there’s obviously things you can do within the u.s to reduce your tax bill and certain things and accounting and stuff like that but yeah i think you’re i wouldn’t give up u.s citizenship my my general take on taxes has always been uh you want to pay a reasonable amount of taxes you just don’t want to be the person who pays the highest amount of taxes right like that must mean that you’re not understanding how to use the tax law uh to your advantage but at the same time i have no problem there’s all kinds of benefits i get for paying my taxes right in terms of i drive on the roads i use infrastructure like like there’s an element of uh we should all contribute right and we should all pay kind of a fair share uh the question or the debate or controversy comes around what is the fair share how do you define fair share right and that’s where you get into politics and all this kind of nonsense but the idea that uh people want to pay zero it’s kind of like people in the stock market who are like oh i only made 200 last year i really should have made 400 it’s like hey you made 200 percent like you know don’t get greedy right what’s the saying uh kind of pigs get slaughtered right same thing here is like there are some folks who basically go out of their way and almost disrupt their life to some degree in order to pay zero percent tax to me it’s like look that seems a little crazy and you see it with a lot of the wealthy folks like you know what bomber pay you said 12 percent yeah right 75 million dollars in taxes i’m sure that if he really wanted to he has the financial means where he could go and do something else so that he could pay zero but at his you know wealth level like what’s there between zero and 12 and i think a lot of these guys are probably super comfortable with paying whatever whatever they’re required to pay right like they’re not fighting over what the requirement is it’s essentially how can i get creative and avoid some of this to maximize my money but i think the real issue comes in when you’re when you’re living in a place with high taxes and you don’t feel like the government is treating you right or you don’t feel like the resources are adequate for the amount of money you’re paying and certain things like that so california yeah i was i wasn’t gonna go straight for san francisco but but if you’re gonna go there sure i mean look that’s an obvious one that a lot of people complain about obviously right so uh that’s an easy one to pick on but i think it applies to a lot of different places and i think people moving to other parts of the country uh show that but we’ll see i think uh you’re right it it depends on your teetering on that quality of life versus your willingness to pay taxes and i think uh when people get to a certain level of wealth it doesn’t really matter how much you’re paying in taxes relative to that as long as you’re happy and your your quality of life is good and your family safe and all that stuff so i think that’s a huge component to it when you get that rich but some people do do crazy things to avoid that but i think you have to get to a certain level to be able to consider that do you want to know one of the greatest uh moves that the irs ever made was the tax withholdings right if you if you’re a traditional w-2 worker so you go to work every day you get paid you know on the 1st and the 15th of every month uh what you see is just the money that’s deposited in your bank account yeah right so you know i’ll use easy numbers but let’s say that you get paid uh five thousand dollars uh a a month right and of that five thousand dollars it should be twenty five hundred dollars on the two checks right equal payments uh but because the taxes maybe you only get eighteen hundred dollars or fifteen hundred bucks or you know whatever whatever the number actually ends up being depending on where you are all that kind of stuff that’s what just what you think every paycheck is right like to some degree you’re just like oh yeah i got my 1800 deposited in my account on the first i got 1800 deposited on uh on the 15th the tax withholding if people actually had to stroke the check they’d be like damn we paying a lot in taxes right and so i think that’s where you see entrepreneurs and and uh and now uh a lot of folks who kind of are these 1099s uh who are working in a freelance capacity or kind of a part-time capacity uh they have to contribute that there is no tax withholdings for many of them and so they see dollars out the door right it’s one thing if you just never got the dollars because then you’re just like oh i just you know i got what i got when you have to actually take the money in and then turn around and write it back out right that’s where i think people start to say wait a second that’s a big number right and the big number is all relative depending on how much you make but if you’re paying 20 or 50 taxes it’s all to you big right and so people then say well how do i get from 20 to 18 percent how do i get from 50 to 40 and that’s where you start to see i think a lot of folks who just literally there’s a psychological element of if you’re stroking a check to the irs then you feel differently about taxes than if you’re just getting hit with that withdrawal in a direct deposit one thing i want to touch on is taxes are confusing i um you just like they they do so many different refunds like i lived in two different states so i had to file two different things like i try to use one of the services this that one of my favorite quotes is from uh robert kawasaki right his book rich dad poor dad which says you pay an accountant to teach you the rules and the regulations and how to basically maneuver yourself around there you don’t pay them just to do your taxes i think that’s super super important uh he was talking about it from an investment standpoint like he was saying like basically when you when you write the check every year to your accountant don’t think of it as they’re doing your taxes you know get the the value out of it by having them tell you why they’re doing what they’re doing yeah that’s what he’s saying okay all right go ahead yeah but who is it donald um rumsfeld yeah don rumsfeld savage he would write the irs ev like pretty much every year and tell them look i don’t know if my taxes are right wrong i got accountants looking at it all this stuff but you got what you got let me let me know if it’s wrong here’s what donald rumsfeld said in this letter this is the letter from april 15 2014 but he wrote this every single year some version of this that he would send to people he said dear sir or madam i have sent in our federal income tax and our gift tax returns for 2013. as in prior years it is important for you to know that i have absolutely no idea whether our tax returns and our tax payments are accurate i say that despite the fact that i’m a college graduate and i try hard to make sure our tax returns are accurate the tax code is so complex and the forms are so complicated that i know that i cannot have any confidence that i know what is being requested and therefore i cannot and do not know and i suspect a great many americans cannot know whether or not their tax returns are accurate as in past years i’ve spent more money than i wanted to spend to hire an accounting firm to prepare our tax returns and i believe they are well qualified this note is to alert you folks that i know that i do not know whether or not my tax returns are accurate which is a sad commentary on governance in our nation’s capital if you have questions let me know and i will ask our accountants to be in touch with you to try to provide any additional information you may think you need i do hope that at some point in my lifetime and i am now in my 80s so there are not many years left the us government will simplify the u.s tax code so that those citizens who sincerely want to pay what they should are able to do it right and know that they have done it right i should add that my wife of 59 years also a college graduate has signed our joint return but she also knows that she does not know have any idea whether or not our tax payments are accurate sincerely donald rumsfeld this is what that is a perfect summary of what every american feels like when they pay their taxes i’m going to start setting that everywhere you know what we should do we should get do not pay i don’t know if you guys know uh do not pay joshua browder he basically has like a robo lawyer uh and he just has all these things you just press a button and it like does things like it fights a parking ticket it could like sue a corporation or whatever we should get him to create just press a button and then you get to send your own like rumsfeld like letter to the irs when you put in your uh tax payments just being like i’m trying but gotta help me out here like i got no clue if i’m right or not yeah i’m curious what your general opinion on is like for me i feel like there’s a general connotation against a negative connotation against tax avoidance versus tax evasion right tax vision is illegal tax avoidance is not necessarily illegal it’s just frowned upon right so when you look at a guy like we were talking about steve ballmer earlier who reduced his taxable rate to 14 last year which was less than lebron james and a concession worker at staples center what do you think about uh how people should feel about avoidance versus evasion well you have to make a very clear line in the sand evasion means is a fancy word for your break in the law right tax evasion means you are breaking the law you should not do that you will get punished either a fine or go to jail there’s case after case after case the irs loves to come track down those people tax avoidance or tax reduction simply means it’s like going to the store and saying okay there’s two shirts one store has it at full price and one has it as a discount right of course you should go to the store at the discount and buy the same shirt right same thing here is there are rules that are afforded to you it is law the reason why they create the rules is because that is what the governance of the society is and so simple things right of um let’s say you own a business and you bought a computer for your business you get to write off that business expense against the income and so if you don’t do that you’re an idiot right like you’re literally an idiot if you aren’t taking i’m not talking about super complex things where you’ve got like a myriad of different organizations they’re all moving money back and forth and trying to confuse people and and doing all that i’m talking about the basic stuff right of simply just writing off business expenses or doing things that are tax deductible right make a charitable contribution this all isn’t uh self-fulfilling either right one of the things that people may not know is that you can take 500 you can donate it to your favorite charity you get to write that off on your taxes it’s a charitable contribution and so there’s things that you can do where you’re actually doing good in the world depending on where you give the money right but for the most part you’re doing good in the world and then at the same time you’re getting some sort of tax deduction now you don’t have the 500 right so another kind of key point here is it’s not like a charitable contribution being the perfect example it’s not like oh i tricked the government now i have my 500 still like you actually did give the money to a charity right and hopefully they’re doing something good with it but you shouldn’t give the money to charity plus also pay taxes against it right that that’s why the rules are the way they are so i think that tax reduction and tax um kind of avoidance is well within the rules and i don’t i don’t know if we have the quote from uh the sports owner where he basically said that do can you see if you could pull up that uh quote from him um but i think the other piece of this is we’re not talking about huge dollars here right most of the kind of tax situation in the united states is the really really wealthy people so some people may not know this story but david tepper who’s a legendary kind of investor on wall street he now owns the carolina panthers a couple of years ago he was living in new jersey and he decided to move to florida and when he moved there was concerns that the state of new jersey would not be able to meet their budget because he paid three percent of the budget with his own personal tax contributions he made so much money while living in the state of new jersey that he was about three percent of the total new jersey budget and so when he left they were like oh shoot how are we gonna make up this three percent gap now he eventually i think moved back to new jersey a couple years later and he brought the money back with him but it was like a hundred plus million dollars in the state budget that literally one guy was contributing simply by living in the state versus not and so i think that we’ve got to remember that that’s where you get really really crazy complex things is when people are paying that much you know basically they’re paying more money in a single year in taxes than most people are going to make in their lifetime right and that’s where you start to get all kind of this nuance what’s the quote yeah so this was paul beeston who was the president of the toronto blue jays and the president of major league baseball a couple times he said under generally accepted accounting principles i could turn a 4 million profit into a 2 million loss and i could get every national accounting firm to agree with me i mean that’s that’s awesome yeah right now it’s awesome because he literally is showing it’s an education gap right the the the point that we’re going to continue to hammer home on this show is that rich people are not doing something wrong they’re not doing something bad they simply are educated and so rather than be mad at the people that are educated we should instead educate everybody else so that they have the same knowledge education is the great equalizer here he understands how to use the tax code to his advantage you should go learn the same thing you should follow the rules you should use a professional in terms of an accountant right you should make sure that they know what they’re doing as well but there’s no reason why we have to believe that the rules that are afforded to the rich are not available to everybody else it’s just that they know them they understand how to use them to their advantage and now you should be able to do the exact same thing all right before we move on to the next topic we’re going to do a q a for the last about 45 minutes or so of the show so about five six minutes we’re going to come back from a uh from a break we’re gonna do one more topic and then we’ll have a break then we’ll come back uh and we’re gonna do a q a which means that if you are on youtube watching this you’re gonna just be firing off your questions we’re gonna answer as many of them as we possibly can if you’ve got questions about finance we’re gonna do our best if you got questions about investing we’re gonna do our best if you’ve got questions about business we’re gonna do our absolute best to do it can’t promise that we got all the answers but we definitely have opinions and we will absolutely try our best to uh to help you here i wanna talk about one more topic before we move on which is an investment that i recently made and i want to talk about this not only one w

The Best Business Show with Anthony Pompliano - Episode #2

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