The Rich vs The Poor

This is the hottest topic in the news lately. In the US news, they even went as far as divulging how little or no taxes was paid by the rich compared to the average American. In China, it’s no longer cool to be tagged as “Crazy Rich Asian”. Increasingly, any kind of wealth flaunting – intentional or otherwise – is being met with hostility and disdain. This is heralding the next phase in the cycle called redistribution of wealth, otherwise known as TAX INCREASE for the wealthy.

When the pandemic occurred, a lot of people lost jobs and business was severely affected. Lower employment and lower income means the government collects fewer taxes. At the same time the government needed to increase its spending because unemployment has risen. Many unemployed have inadequate savings and need financial support from the government. Government creates stimulus plan and increase spending to make up for the decrease in economy. Government budget deficit explodes because they spend more than they can earn in taxes. To fund their deficits, government need to either raise taxes or borrow money. But with incomes falling and so many unemployed where is the money going to come from, the RICH.

Since government need more money and since wealth is heavily concentrated in the hands of a small percentage of the people, government raises taxes on the wealthy which facilitates the redistribution of wealth in the economy from the Rich to the Poor. The Poor who are suffering begins to resent the wealthy people. The wealthy people being squeezed by the weak economy, falling asset prices, and higher taxes begin to resent the Poor. Guess who will win?

Taxes and the rich has been playing this cat and mouse game since the beginning of time. The rich has resources that can deal with the issue. There will be years when the rich would lose but they will figure it out and get back in the game.

In light of the current inflation and now that economies are opening up (it will be per country depending on how they dealt with COVID), brace yourself for a salary increase on your workers. The world is now experiencing a shortage of everything and that includes manpower.

In the US, there is about 6 open positions for each unemployed person.
• A McDonald’a in Illinois is offering iPhones to new employees after 6 months on the job
• A restaurant in Manhattan is offering bonuses to new employees who stayed on after 90 days
• There is a shortage of teachers because COVID has burned them out. In fact, some of them changed their professions entirely.

As per my research, 3 things are happening:
• People received more money while being unemployed (stimulus checks, unemployment benefits)
• After a sabbatical year, people don’t want to go back to their old jobs
• Some people decided to create start ups, at least, in marginalized neighborhoods from liberal cities

I’m sending this message because you might be a business owner like me and I think it’s very important to hedge or prepare for these kinds of situations. If you’re in a country that hasn’t opened up, then you’re in a much better position to prepare. 🙂

Just want to share my thoughts on what I think is coming… INFLATION.

Unfortunately, the pandemic has sped up the process because there is now a global supply constraint because the lockdowns and the government’s response to combat the worsening economic situation, is to print more money.

What’s scary about inflation is that there’s no escaping it. It’s like the sun, everybody will be affected by it.

Some thoughts on how to navigate through this inflation would be:
1. Asset Diversification
2. Country Diversification
3. Currency Diversification

Below is the exchange rate between USD vs. Philippine peso. This shows that you get more dollar for every peso you convert. Investing in the US is actually cheaper than investing in the Philippines.

All dressed up with nowhere to go

Everyone has probably experienced this at one point in their lives, especially during the pandemic lockdown. Interestingly enough, value investors are experiencing the same feeling as well. These investors have prepared for an opportunity but there has been very few or no opportunities available. I call this phenomenon, the Warren Buffet dilemma.

In Berkshire Hathaways’s 2021 annual shareholders meeting, Warren Buffet has been very vocal about the competition its facing from SPACs (Special Acquisition Companies) and private equity funds in acquiring good deals. There is a huge competition for a limited pool of target companies, which is hurting Berkshire’s efforts to deploy its $145 billion cash pile.

Just imagine, if everyone has a lot of cash sitting around and there are no good deals available, you will either spend your money on a bad deal or keep your cash and risk devaluation due to inflation.

So does this mean that there are no more deals left? Not necessarily, but it does mean that we need to do some serious work to find good deals. Just like a bargain hunter, who is motivated by getting the best deal, we should know when to look for another store if our “go-to” shop is no longer giving us a good price. As a bargain hunter, we do either or a combination of these three things: look for a new shop, buy alternative products, OR travel to another country in search for bargains.

Some final thoughts now that summer is here. Imagine you’re on the beach and inflation is like the burning sun. There is no escaping it and every minute you’re outside you’re getting sunburned. Think of your investment like a shade that can protect you from the sun. The battle right now is finding the best shade because all the shades out there are mediocre and can still leave you with a bad sunburn. Not to mention there are other people on the beach competing with you for that little shade you just set your eyes on…

The Philippine National Debt and what it means for All of Us.

Growing up in the Philippines, I first heard of the national debt when I was in grade school and I didn’t understand it. Fast forward to now and it seems most of us (including me) still don’t understand it.

Let’s take a moment to decipher and determine its implications. But first, let’s get some help from our dear friends in Rappler.

According to Rappler, the national debt reached a new high in February 2021, amounting to P10.4T, as the country borrowed more to funds the coronavirus pandemic response.

Before we make any judgments, let’s look into some facts:

1. The P10.4T debt was accumulated by various administrations, God knows when it started.
To whom do we owe this debt? 71% (P7.3T) are domestic borrowing and 29% (P3.0T) were sourced externally

The table above doesn’t give a lot of details but let’s do our best to understand it. 

Domestic borrowings (71%):

• Government securities make up 86% of the domestic borrowing. The government owes this those buyers of govt bonds. Those buyers are the country’s citizens, banks, international investors, and foreign governments.

• These borrowings are paid in Pesos.

• Which also means that whenever a country is not able to pay these borrowings, they can print more money to pay it off. Hence the growing cycle of debt continues.

External borrowings (29%):

• Direct loans make up 45% of the external borrowings. The table is not clear as to what currency direct loans are made or what it is for. 

○ Let’s make a guess and assume they are intragovernmental debt. The national government owes this to other government departments. It often funds government and citizens’ pensions. An example is the Social Security retirement account.

• External debt securities make up 55% of the external borrowings. These are foreign currency loans owed to other countries.

○ Contrary to popular belief, 80% of the foreign loans are from the US not China.

○ Looking at the table, the US debt is paid first before any other loans internationally or domestically.

Some Final Thoughts:

• Knowing your country’s Debt is important because debt is a good gauge in determining a country’s INFLATION.

• The more domestic Debt a country has, the higher the risk on inflation. Simply put, the more Peso printed to fund the government, the stronger the possible inflation. 

• The more foreign Debt a country has, also poses a  risk for inflation. Think about it, how will you pay a US dollar loan if you’re earning pesos? You will have to rely on dollar influx which comes from foreign investors and from  OFWs… or you can print more pesos and then convert to US dollars for payment (dangerous situation).

• More importantly, as we’ve seen in the table, foreign loans takes PRIORITY in getting paid because the Philippines CANNOT print foreign currencies.

• What does it all mean to you? Inflation is REAL and it’s coming fast. Hedge for inflation by currency diversification and country diversification. Take advantage while the Philippine peso is strong compared to the US Dollar.

A great way to spend Memorial Day

Since it was Memorial Day yesterday, a couple of friends and I decided to hop on a free ferry ride from Manhattan to Governor’s Island and spent the whole afternoon leisurely walking around, eating, listening to music, and when already tired, just relaxing under the shady trees and enjoying the beauty of this “ old yet ever new “hidden gem of New York.

Although it was only a 4- minute ride to the island, we felt like we were on a getaway. haha! This little oasis of NY, quiet and peaceful, offers plenty of green lawns to spread out a blanket to sit reflectively by the water as one admires its colonial-style military buildings.

What a lovely day indeed! With awesome views of the Statue of Liberty, downtown Manhattan and Jersey City from the coast of the Island, one can’t get better than these amazing, refreshing treats. Surely we’ll be back for more.

Central Park Beyond Light Shoot Out with Westcott, Sigma, ExpoImaging, Quantum Instruments, Oben, Vello, and Impact.

I was fortunate yesterday to join one of the biggest lighting workshop here in New York spearheaded by legendary wedding photographer David Ziser and Westcott Pro Photographer Erik Valind. With them ofcourse our very own renowned photographers of NY- Joey Quintero, Robert Harrington and Dave Piazza- whom they shared their expertise on the basics of image capture and lighting techniques. I arrived at Central Park’s Belvedere Castle, where the location selected for the shootout, around 12noon and went home at five in the afternoon.

Me and my newly found photog friends had a great day in the park. We were able to learn a lot of techniques in our short amount of time together. Many thanks to their major sponsors, Westcott, ExpoImaging, Oben, Vello, Quantum Flash, Impact and Sigma Lens for being polite to answer any specific questions, loan lens and gear to us and always available for tech support as needed. Thanks you guys!!! Anyway, here are some of my shots from the shootout yesterday:

Lost in New York City

NY Giants win Super Bowl XLVI over New England Patriots

This is how we roll. Great team win by the NY Giants.

One Fine Day

Can you believe it, 62 degrees Fahrenheit in Central Park in mid winter? Spring must be fast approaching. Me likey! =)