₿ How Henry Ford Tried to Change Money - And Predicted Bitcoin?

What’s on the Menu 🍴

Today we’ve packed in lessons to help you think about how you define money, handle losses, and a common misconception about your retirement account.

Let’s dive right in:

• Did Henry Ford Predict Bitcoin? ₿

• Postmortem of a Losing Trade ☠️

• Why Retirement Accounts Don’t “Lock Up” Your Money 🔒

Today’s newsletter is a 5 minute read.

Did Henry Ford Predict Bitcoin? ₿

Over 100 years ago, Henry Ford proposed a new form of money that he claimed would “stop wars”.

He wanted to replace gold as the basis for currency with a system based on energy.

Ford believed that wars were primarily fought over gold, the wealth it represented, and the control it offered.

By removing gold from the equation and replacing it with a currency based on energy or other natural resources, which are more abundant and cannot be easily controlled by a few, he argued that the financial incentive for wars would significantly diminish.

Energy As Money?

He suggested using the Muscle Shoals nitrate plant, a large government-owned facility, to demonstrate his idea.

By utilizing the plant to generate energy, he aimed to show that this energy could serve as a stable and peaceful foundation for the world's currency.

He was convinced that this approach would not only prevent wars but also address unemployment and turn the South into an industrial powerhouse.

In essence, Ford's idea was to democratize wealth by basing it on something that everyone could access and benefit from—energy—rather than something like gold, which was easily monopolized by powerful bankers who could influence global affairs.

He saw this as a step towards a more peaceful and equitable world.

Does Bitcoin Fulfill Ford’s Dream?

Ford’s original idea shares some similarities with Bitcoin and today’s digital economy.

Here’s how Ford’s idea relates to Bitcoin and the modern economic landscape:

1. Decentralization: Just like Ford wanted to remove the control of currency from a few powerful bankers, Bitcoin operates on a decentralized network where no single entity has complete control over the currency. It is maintained by a network of peers (miners and nodes) rather than centralized authorities.

2. Alternative to Traditional Money: Ford proposed an alternative to gold-backed money, and Bitcoin is an alternative to government-issued (fiat) money. Both ideas introduce a new form of currency that isn't based on traditional physical wealth.

3. Elimination of Middlemen: Ford’s plan was to bypass the bankers, and Bitcoin bypasses banks and governments by allowing peer-to-peer transactions without the need for an intermediary.

4. Value Based on Agreement: Just as Ford’s energy currency would have required a consensus on its value, Bitcoin also relies on collective agreement of its users for its value. There is no physical asset backing it; its worth comes from the trust and acceptance of the people who use it.

5. Resistance to Inflation: Ford believed that an energy-based currency could be more stable and less prone to devaluation through inflation. Similarly, Bitcoin has a capped supply, which theoretically makes it resistant to inflation.

6. Technological Infrastructure: Ford's vision needed new infrastructure for energy production and distribution; Bitcoin and cryptocurrencies require technological infrastructure like the internet and blockchain technology.

Our Take

Ford's idea of an energy-backed currency and the concept of Bitcoin both challenge traditional economic models and suggest innovative alternatives.

While Ford's idea was never implemented, Bitcoin has become a successful, real-world experiment in redefining money and the means of exchange in the global economy.

Postmortem of a Losing Trade ☠️

On Tuesday, low cost airline Spirit (ticker: SAVE) saw its stock tumble 47% after a federal judge ruled that its proposed merger with Jetblue (ticker: JBLU) violated antitrust law.

This was a surprising decision to us and many investors who followed the saga over the past few months. (We wrote about the situation a few months back)

Instead of SAVE being acquired for almost $30 per share, the stock now sits well below $10 with looming questions about the company’s long term survival.

Our resident stock geek himself took a loss on a small call option position.

So what went wrong and what can we learn from it?

Let’s talk about this specific situation first.

The outcome was surprising to us for a few reasons:

1. The judge on the case was Republican appointed (pro business); he appeared to lean against the arguments from the DOJ during the trial

2. Jetblue & Spirit eliminated many routes & partnerships that would have been anticompetitive; they were also willing to make further divestitures to appease regulators

3. Spirit was known to be in financial distress. If the deal was not approved, the low cost pricing & business model of Spirit would be in jeopardy in any case

4. This was a potential combination of the 6th & 7th largest airlines in the US, but the top four maintain far larger market share

5. Larger airlines have also been allowed to consolidate in the past (AAL for example)

6. Airlines operate in a fast moving industry where competition quickly reroutes to eliminate profitable monopolistic routes

7. Jetblue would have added much higher service & comfort levels to Spirit aircraft, benefitting air travel consumers broadly

Yet in his final ruling brief, judge William Young stated that potential fare increases on ANY individual city-to-city route would result in consumer harm that justified killing the merger.

Not only was the relevant antitrust market deemed to be just one origin-destination route, there was no consideration of offsetting consumer benefit from better service or the fact that the new Jetblue could compete more effectively with the big four airlines.

It’s a staggering precedent that will reverberate in M&A cases for years.

Perversely, some analysts think it could lead to a Spirit bankruptcy, leading to a more anticompetitive industry in the end.

Moving on…

What lessons can we learn from this situation to improve our investing in the future?

Here are a few potential takeaways:

1. Any investment outcome that relies on a judge or just ONE person’s judgment is always subject to huge unpredictability (don’t get overconfident!)

2. If you don’t want to own the underlying asset if “shit hits the fan”, then should you really even hold it for a trade? Something to consider!

3. Position sizing is just as important as investment selection; high reward-to-risk situations always tempt us to size large but “staying in the game” is priority one

4. When it seems like the market is wildly mispricing something (in this case the spread between stock price & deal price) it’s usually telling us something useful

5. After a loss, it’s helpful to avoid revenge trading. Take a break, get outside, and clear the mind. There’s always other trades out there, and the immediate one is probably not the best one.

While investing losses suck, they are part of the game.

The best investors of all time aren’t perfect either.

Analyzing our mistakes and resetting our mental state is hugely important so that we can make great investing decisions in the future.

Writing postmortems on your losers helps, and we highly recommend it.

On to the next!

Why Retirement Accounts
Don’t “Lock Up” Your Money 🔒

“I don’t want to use a retirement account and lock my money up until I’m age 59.5!”

I hear this all of the time as a financial planner.

The problem is, it’s a short-sided view. For one, your money isn’t actually “locked up” or inaccessible at all.

In fact, you’re welcome to withdraw it at any time!

When people say the money is “locked up”, they’re usually talking about how you get charged a 10% penalty for withdrawing before age 59.5.

While this isn’t an ideal situation, it’s certainly not as catastrophic as some may think.

We get many penalty exceptions that help you avoid that 10% cost for withdrawing early from retirement accounts (note if the exception applies to a qualified plan, IRA, or both):

Buying a home?

Your IRA may allow you to access $10,000 of cash under the first-time homebuyer exception (it’s okay if you’ve purchased a house in the past, to be a first-time buyer in the eyes of the IRS, you just can’t have any interest in a primary home in the past 2 years).

If you have a partner, you can double up by them using the same exception in their IRA (that’s up to $20,000 for a home purchase)!

Another penalty exception that comes in handy for your IRA, is paying for medical expenses that end up being a large percentage of your income.

You can even now, thanks to the latest Secure Act 2.0 passing, get $1,000 a year out for an emergency.

Keep in mind, in any type of Roth retirement account, you’re ALWAYS able to take your original contributions out at any time (you already paid taxes on it!).

With any traditional accounts (you usually get a tax deduction for contributions to this type of account), keep in mind, you’ll owe taxes upon distributions (you would have owed them in retirement anyway).

Now, if you end up having to pay a penalty, particularly in a low income year where you had to withdraw early, having low to no income could come as an advantage as far as tax rates go.

Your average tax rate you pay on the early withdraw after taking into account your penalty, could end up being close to what you would have paid in a normal income earning year.

So, with all of the great benefits of tax-deferment, don’t let the myth that your money is “locked up” deter you.

There are strategies you can utilize to avoid early withdraw penalties (like utilizing Roth), or there is such a large list of penalty exceptions now that can help!

Delicious Bites 😋

• Elon Musk Demands at Least 25% Ownership in Tesla

• Apple to Remove Blood-Oxygen Sensor From Watch to Avoid U.S. Ban

• The spectacular failure of self-checkout technology

• AI Study Claims Human Fingerprints Aren't Actually Unique

• Solana Mobile to Sell Second Crypto Smartphone

Food For Thought 🧠

"Anyone who stops learning is old, whether at twenty or eighty.
Anyone who keeps learning stays young.”
- Henry Ford

DISCLAIMER: We are not investment advisors, and this content is for educational purposes only. We don’t offer financial, legal, or tax advice. Nothing we say is a recommendation to buy or sell any assets. Trading and investing are extremely risky, so please be careful and do your own research.