The Upside of 2025

 Many people are on edge these days. World tensions are heightened, leadership is suspect, personal and governmental debt is soaring globally, and we could be experiencing a trade war soon.

So, in this post I would like to bring up some examples of our lives these days which many seem to forget or take for granted.

A key is that entrepreneurship fosters innovation and that drives prices down over time. There is a wonderful book about this issue called SUPERABUNDANCE by Gale Pooley and Marina Tupy.

Here are some wonderful examples expressed in man-hours to make or pay for something. Their thesis is that “we buy things with money but pay for them with time.” Hard to argue with that!

In no special order, we find:

1) Air conditioning—one of the first accounts that I ever worked on was Carrier Air Conditioning. In a review session, I learned that Willis Carrier invented the air conditioner way back in 1902. At first it was used for industrial purposes in factories and upscale homes but then it jumped to hotel and stores. As a kid in a rare impossibly hot summer day in Rhode Island, it was great fun to go to an air-conditioned movie theatre. As a child, it took a Blue-collar worker up to 170 hours to earn enough to buy a room air conditioner. Now, it takes an average worker about six hours. I have often given air conditioning credit for the growth of Atlanta, Dallas, Houston, Phoenix and the entire state of Florida. Many disagree with me because they have always had it.

2) Sometime between 1440 and 1450, Gutenburg invented printing. It took weeks and sometimes months to print a book. Only the super-rich (generally royalty) could afford one. Today, books are modestly priced and thanks to Ben Franklin and Andrew Carnegie libraries make them available for free along with on-line choices.

3) In my adopted hometown of Baltimore, the Black & Decker company was founded pre-World War I. They became known for power drills. In 1946, a Black & Decker drill sold for $16.95 so an average worker had to get nearly 15 hours of compensation to purchase one. Now, an improved drill can be purchased with 45 minutes of work.

4) Bicycles—we are not talking about fancy mountain bikes or multiple gear specimens. A basic bike such as the Schwinn that I had as a kid cost 66 man-hours to buy in 1910. Today, 3-4.

So, as improvements in products and production techniques plus strong competition have made many products available to the masses. 

We have more comforts and gadgets that people 100 years ago could not have imagined. Yet, today, they are all part of a middle-class lifestyle. Think of cell phones, laptops and tablets. We can do amazing things with them and they are within reach of most of us.

When I bounced the idea of this post off a European reader of MR who comments to me frequently, he said, “Cole, so what? You Americans simply have and want a lot of “stuff” at an affordable price. Does it really enhance your life?”

I am not sure if my old contact is being spiritual or envious?

But on cold winter nights, I am very delighted to have central heating, hot showers and electricity all at an affordable price and much more reasonably than my grandparents did.

So, as tense as these times are, step back and smell the coffee from your world class brewing machine.

If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com

Troubles of the Bottom 30%

 There is no question that there is turmoil going in geo-political circles as I type, and the financial markets are engaging in a bit of roller coaster activity. So, as the airwaves are full of talking heads saying the weakness in equities is the start of a 40% downward spike OR this is currently a normal and healthy correction, another quieter but insidious force is gathering momentum.

I am referring to the growing struggles among the bottom 20-30% of American households. This past week, the media gave fair coverage to new data that showed that 6.6% of subprime borrowers (credit score under 640) are some 60 days overdue on their car loans. This is the highest number since Firth ratings began tracking this statistic in 1994. 

The Federal Reserve Bank of New York weighed in and reported that through December 2024, some 3% of subprime borrowers were 90 days past due which is the highest level since 2010 when we were beginning to emerge from the Great Recession.

The tariffs on autos and auto-parts that seem likely to kick in soon may really hurt the subprime borrowers as projections are, that if enacted as they currently stand, new car prices will increase by $4-10 thousand dollars depending on make and model. It would appear that used car prices would spike upward under that scenario.

Even prime borrowers with excellent credit are feeling a bit squeezed as .39% are 60 days past due. The average car loan payment is about $755 per month to this group.

What about credit card debt? Mark Zandi of Moody’s Analytics described the bottom third of US households as “tapped out”.

The Federal Reserve of New York concurs stating that those making only minimum payments on their credit cards are at a 12-year high. Big deal, you might say? Well, if you have a credit card balance of $8,000 at 18% and never make another charge on that account and dutifully pay the minimum amount each month it will take many years to pay off that charge. And today, many subprime borrowers are paying 21-22% interest. Also, if you may only pay minimum payments the odds are overwhelming that you will have a cash poor month here and there and add to the balance only extending the payback period. 

This appears to be happening more and more. Also, there has been an uptick in recent months on credit card balances that have been “charged off.” What this means is that the debt has been so seriously delinquent (often about six months) that the lender has given up on collection. Usually, they sell the loan to a debt collection agency for pennies on the dollar.

This is a serious issue. The person owing the money remains legally responsible for the debt. Your credit score automatically drops 100 points. More damning, this “write off” lasts on your credit report for seven years. Try to get a car loan, an apartment lease or new credit card. Difficult. You may get a new card but at a very high rate of interest so the horrible cycle may well begin again.

So, many Americans are struggling. They all cannot be dismissed as deadbeats or lazy. Many are hardworking people who are having a difficult time dealing with the current environment. With credit cards, it seems to occur after four years of running up a balance. People who only pay the minimum payment each month eventually get to a point where, with interest charges compounding, they can no longer pay the minimum.

The media does not discuss this increasingly large group of Americans who cannot manage to live within their means. If we do have a recession this year or next, their numbers will swell especially if one member of the household becomes unemployed. It is a serious issue that gets too little attention.

Despite this downbeat post, I wish all my fellow Irish Americans a Happy St. Patrick’s Day! If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com or leave a message on the blog.

The 100 Trillion Dollar Wealth Transfer

 An interesting thing happened to me a few weeks ago. A reader of MR just outside of London asked my opinion of book by Ken Costa entitled THE 100 TRILLION DOLLAR WEALTH TRANSFER (2003, Bloomsbury Continuum). By amazing coincidence, a Canadian reader from the Maritimes asked me the same question a few days later. The Brit loved the book and found it profound while the Canadian dismissed it as nonsense.

As you might expect, I came in somewhere between these two extreme positions. Hence this post.

Demographics have been a big part of my beat both personally and professionally for decades. This book, which has not gotten tremendous attention, raises issues that I found to be very interesting.

Ken Costa is a well-known investment banker in the City of London (think British Wall Street). Since his recent retirement, he has focused on intergenerational issues.

The basis thesis of the book is that Baby Boomers (born between 1946-64) will pass on 100 trillion dollars to their heirs. Some 84 trillion will come from the US, 5.5 billion pounds in the UK, and the remainder across the world.

He lumps together Millennials (born 1981-96) and Generation Z (1997-2012) and refers to them as Zennials. Somehow, Generation X (1965-80) gets short shrift.

Costa is quite the optimist, and positive reviews tend to describe the book as “hopeful.” He stresses that capitalism will not disappear but rather that the Zennials will engage in “socially energized” capitalism. There will be greater cooperation and harmony among generations. 

He defines the new capitalism as CO which is “a shift from the radical individualism of post-war generations to a prioritization of collaboration, comparison, community and collective experience.”

There will be more co-working, co-leading, co-owning, co-creating, co-investing, co-funding in this new world.

It all seems a bit too perfect to me. I agree strongly that the Zennials will overwhelmingly want to do something very strong about climate change. To a lesser but meaningful amount, they will also want more action on income and wealth inequality.

Interestingly, I ran Ken Costa’s thesis to a few acquaintances. The first was an erudite woman well into her seventies. Her response was that with the cost of elder care in the US, and people living longer these days, she doubted that many boomers would leave as much as Costa was projecting to their heirs. Candidly, I had not considered that angle.

I was floored a day later when I posed the same issue to a young entrepreneur. The independent thinker told me that some of what he said might work in Europe but, in the US, healthcare and expenses in the last few years of life would probably wipe out much of the expected seven figure inheritances. It might be true in certain provider state countries but not in the U.S.

Also, in the U.S. the first $12 million (as I type) is exempt from federal inheritance tax. And many well to do families have their wealth tied up in trusts that often eliminate that tax. Look up how few American families pay inheritance tax. It will surprise you!

One point that he does not cover is that people, particularly the affluent, are living longer lives. So, many who inherit these trillions will be in their sixties when they get their windfalls. It is hard for me to see people that mature changing their attitudes.

The book is interesting, and I recommend it BUT it strikes me as way too altruistic. As that great American philosopher Groucho Marx famously said, “When you get rich, you get Republican.”

If you would contact Don Cole directly, you may reach him at doncolemedia@gmail.com or leave a message on the blog.

How Many Million Do You Need?

 Way back in 1970, I had a summer job which largely consisted of managing state vehicle inspections. One day a fellow came in with his late model car and he breezed thru in a few minutes as his car did not need anything. I affixed the inspection sticker on his windshield, and he paid. He asked what my plans were, and I told him that I was majoring in economics in college and planned to go in to either finance or marketing. He smiled and said he was retired. I mentioned that he looked quite young. He laughed and said that had made and saved a million dollars in construction and decided to quit.

He went on to add that he lived fairly simply, and that he was content. As I look back, I realize that he was a quite unusual man. 

Now, having a million dollars has lost a lot of luster since 1970. Today, estimates are that the average American family has a net worth of $1.1 million but the super-rich pull up the average considerably. The median (50th percentile) US household has a net worth projected to be $193,000 (Federal Reserve estimate) as I type.

Today, the media is often focused on tech oligarchs who appear to have outsized economic and political influence. To me, they are nothing new. The “Robber Barons” of the 19th century had similar power and connections and an even greater share of total U.S. wealth than today’s billionaires. 

Over the years, I have often been annoyed by fabulously rich people saying that running up a huge net worth is a mean of keeping score. That tends to be with newfound wealth. They like to compare themselves to others. A truism, for sure, is the oft told comment that “old money whispers.” 

As a kid in New England, I noticed that the real generational money often drove old station wagons and wore nice clothes that may have been a bit old. Ostentatious displays were a no-no.

So, does money bring happiness? Not necessarily. Although, it does give people flexibility and reduces stress during hard times. The Zen answer often quoted is that a person is rich if “he rejoices in his portion.”

The great Ben Franklin wrote, “He does not possess wealth that ties it to possessions.” The Buddhist definition is “the greatest wealth is contentment.” 

When I first saw the Buddhist statement, I immediately thought of my acquaintance from the 1970 car inspection. The crusty construction foreman who became a builder would have dismissed the comment, but he escaped the rat race and was content with modest affluence. 

My favorite story about how much is enough involves two accomplished American novelists. Both Joseph Heller and Kurt Vonnegut were invited to a party at a very wealthy man’s summer cottage. Scanning the surroundings Vonnegut allegedly said to Heller, “Joe, does it bother you that our host makes more in one day than all your years of royalties from CATCH-22? 

Heller responded, “No, because I have something that he will never have.”

“What’s that”, asked Vonnegut. “Enough.”

If you would like to contact Don Cole directly, you can email him at doncolemedia@gmail.com or leave a message on the blog.

The Next Financial Crisis

 Over the years, I have subscribed to a number of investment advisory services. Some were fairly good and many were not worth the money. One I have kept for 35 years. When I cancel one of the dogs, it appears that the dropped newsletter sells my name, address, and e-mail to another advisory service. I understand why they do it. Both my e-mail and my conventional mailboxes fill up with solicitations.

In recent months, the forecasts are getting increasingly shrill from those who wish me to subscribe to their service. I confess that I am more confused than ever about financial markets but do not see many of these “advisers” having a steady hand on the goings on in the marketplace.

There is a sense of urgency that I have never seen in my 47 years of subscribing. Now, I understand some of it. Right now, markets seem heading toward a bubble. The PE Ratio, the CAPE ratio, and the Market Cap/GDP statistic are all near all time highs. A thinking person has to wonder if there will be a reversion to the mean. Also, treasury debt sits at $36 trillion with a certain increase in the new administration, and social security, medicare/medicaid commitments plus FDIC insurance guarantees total somewhere between $100-200 trillion in unfunded liabilities.

Here are some of the forecasts that I have received in an effort to lure me into plunking down $300-1500 per year for an analysts wisdom. I paraphrase a bit:

1) The US dollar is toast--Well, for the foreseeable future it is still functioning as the world’s reserve currency and will likely do so for the rest of my life. One painful truth is that all fiat currencies die. Sometimes the death is so gradual that people do not see it. For example, why is the British pound referred to as “the pound sterling.” For years, that is exactly what it was. It was a receipt of sorts for 16 ounces of silver. With silver hovering at $30 per ounce today, that would mean the original pound sterling if it held its purchasing power would be $480. Today, the pound is worth US $1.25. So, while the pound sterling exists as a name, it is a far cry from what it purchased 200 + years ago.

To put it in perspective, several MR readers have told me that they are fans of early 19th century author Jane Austen (aka Janettes). In some of her novels such as MANSFIELD PARK, PRIDE & PREJUDICE, AND EMMA young ladies were often pursuing well heeled bachelors with an income of 10,000 pounds per year. They were rich! Take $30 x 16 x 10,000 and you get today’s equivalent of $4.8 million per year and remember those lucky lads did not pay personal income tax.

How about our almighty US dollar? If you go back to the 1913 creation of the Federal Reserve, the dollar has lost about 97-98% of its purchasing power. Yet, it remains the world’s reserve currency and many long term contracts are written in US dollars. It will very likely remain the reserve currency for some time as most nations are printing money as loosely as the US government is.

2) Silver will be selling for $600 an ounce in two years--This one amazes me. Not only did I see it in writing, but a fellow in my foursome in a golf tournament told me the same thing. He said that he was going to get rich on silver. I gently reminded him that for silver to move that high so quickly would mean that we would be experiencing a Weimar Republic style hyper-inflation that Germany suffered through in 1923. So, the nominal dollars that he received for his silver horde would have very little purchasing power. Also, I added that along the road to $600, millions of people around the world would sell their silver flatware and jewelry (particularly in India where people have hoarded it) and would dampen a sharp run-up in price. He told me that I did not get it. I smiled. A small holding in silver may make great sense in terms of diversification but it is unlikely to be a sure fire get rich quick scheme.

3) All cash will be banned within two weeks-- Has this writer never heard of the underground economy? Does he/she know how many people are unbanked? Cash will definitely be less a factor in our economy as time goes on but it will not disappear in a fortnight.

4) The stock market will fall 80% in 2025 just as it did in the 1929-1933 period. Anything can happen but this seems a bit much in a one year time frame. Yes, equities are high in the US markets these days but millions contribute to 401ks each payday and there are billions on the sidelines waiting for a correction. The market will fluctuate but this forecast appears to be way too extreme.

Am I a bit nervous about the state of markets? You bet. Do I believe that government(s) can avert another financial crisis? No, I do not.

My reason comes from a noted economist who developed a theory that is a bit counter-intuitive but, when you think about it, makes good sense. The man was Hyman Minsky and he was a professor at Washington University in St. Louis (his graduate work was done at the prestigious University of Chicago). Professor Minsky also understood banking and served as a director and consultant to the Mark Twain Bank in St. Louis.

His basic thesis is not via some mathematical formula or complicated set of equations. In clear English he laid out his opinions. Most observers feel that things are kept in check with tight regulation. Minsky did not argue that things do not get better with stronger guardrails after a crisis or strong downturn. He wrote that things get shaky when things are going well. Lenders get looser with the quality of their customers and start to take bigger chances in order to increase profits (witness what happened in 2008 with sub-prime mortgages). So crises are inevitable especially as human nature does not change and greed tends to blind many from danger.

Today, we have geo-political tensions, runaway federal debt, domestic political tensions and uncertainty, increasing credit card debt, fewer first time home buyers, possible inflationary tariffs, and a younger generation who may never do as well as their parents. Something in the system may break in my view. When? I have no idea. So, I ignore the screamers with their exaggerated headlines to get me to subscribe, and discount the talking heads on CNBC who only see blue skies ahead.

This is a time to be defensive in my view. You can bet some unpleasant surprises will hit us. No bell will ring to tell you that it is coming. 

If you wish to contact Don Cole directly, you may reach him at doncolemedia@gmail.com or leave a message on the blog.