April 29, 2011

America agrees to lower its currency…and here’s my tirade.

While today most of you are distracted by the Royal Wedding, Obama’s birth certificate, and all other nonsense that has absolutely nothing to do with yourself or your personal financial well-being...notwithstanding, I would think more of you should be concerned about how fast your dollar power is decreasing and why. Or perhaps you should be concerned about why 50% of Americans will not retire and about what choices do you need to make today – about how you can stay out of this statistic…instead of focusing on the latest people entertainment news or the NFL draft.

For those of you that continued reading…and did not immediately get sidetracked and google “The Royal Wedding” or “NFL Draft” because it’s mentioned it in this blog…Read On.

Our government agreed to purposely devalue the dollar’s strength after signing an agreement called the “Plaza Accord” (click here to see document) back in 1985. After a 51% decline in the value of the dollar, Congress tried to quickly resolve this rapid decline of our dollar’s value two years later by signing the “Louvre Accord” in 1987. However, this failed to work after 8 months of the agreement being signed due to the fact that some countries kept raising their interest rates, raised tariffs on trade, etc... Eventually, we get to where we are today…with floating interest rates….where the global market determines the “value” of a currency. This fluctuating rate (or fluctuating dollar value) is determined by a few factors – but the main factor is the market’s assessment of a nation’s debt levels and their ability to repay those debts. As you may know – the US is the largest debtor. And as we constantly push up our debt ceiling – it becomes increasingly unlikely that we are capable of repaying our debts…let alone just paying the interest payments on it. So as the US debts increase – the global market becomes increasingly wary of loaning us more money…without a higher interest payment and/or strings attached of course. Look at the interest rates on Greece’s debt…how about Portugal…Spain…Yugoslavia…?

Have you ever noticed how hard it is for you to save up those extra pennies of yours? How difficult it is to store away just 10% of your pre-taxed income in some type of retirement (or advanced savings) plan? Or maybe you’ve noticed how expensive education has become? Or how you can’t get out of that revolving 20% interest rate on your credit card debt? What about the reasons why can’t you pay off that car note in less than 5, 6, 7, or 8 years?

What can you do to protect yourself? How do you avoid constantly losing money in your 401k, IRA, 529, 403b, Roth, etc. every time the stock market crashes?  You must diversify and have multiple streams of income ( I know, for those of you who read my blogs, that I sound  like a broken record player or a skipping cd - but it's true!).  Work hard, make money, and invest it into land, real-estate, commodities, and yes, put a little in the stock market too.  This completes your portfolio of investments - one can't have all his/her eggs in one basket...so why invest in ONLY the stock market via your employer-sponsored retirement plan and not something else?  Why not own some physical real estate property as well?  Why not own some physical gold and silver coins that you can keep in a vault just in case something happens?  And, last but not least, also add entrepreneurship to your portfolio....to be successful nowadays, Americans need to be able to sell and have their own business.  Or at the very least, have a part-time job in addition to your full time day job.

Less dependence on the government will make America a stronger country...!  We don't necessarily need our government for retirement or even for healthcare for that matter.  It's nice to have a government supplement our productivity - but I believe most people are capable to be self-efficient.


April 24, 2011

Gas prices skyrocket...and so does speculation.

Have you noticed the big changes at the pump?  Or a decrease in your discretionary income because the cost for a gallon of gasoline is going up?  Some speculators say that we can expect to see $5 - $6/gallon this summer given that it is "driving season" and also hurricane season.  Some say prices are going up due to the Feds are pumping printing billions of dollars to prop up our economy to weaken the dollar and drive prices up.  Or maybe it's because of a war within a small country in Africa, that supplies less than 2% of the world's oil supply?  While these situations might affect the price of oil somewhat - I don't believe that we will see anything close to $5/gallon for gas...or at least not for long...and here are my reasons why:

  1.  There is ample supply of oil on the market. 
Economics 101 tells us that whenever supply outpaces demand, there will be a significant drop in prices to reflect the high supply and low demand.  Because we have a lot of oil supply, the current price or any future speculative price of $5/gallon must quickly decrease.  In 2008, people became frantic when gas hit $4/gallon and started trading their SUVs and trucks in for very expensive hybrids and the Toyota Prius.  Obviously, there wasn't a "supply" issue then, and there isn't one now.  How quickly we forget!  For those of you who remember - "they" predicted the same $5/gallon for gas then in 2008, just like they're doing now.  In 2009, average cost for a gallon of gas fell from $4/gallon to just $1.85/gallon.

   2.  Unemployment is still too high and the US economy is still weak

The US economy is the largest in the world and consumes the most oil in the world.  In other words, we're the oil producer's #1 customer.  If our economy is in a recession, which means we're not buying as much oil, then oil producers are not happy.  They want our economy strong and unemployment low.  When the US is strong and people are driving to work everyday - the more gas/oil we consume.  Typically, when oil reaches $130/barrel, the US economy is heading for a recession because things become too expensive for us at this level.  The cost of food, utilities, clothing, and everything else skyrockets as gas prices escalates...causing our economy to tumble.  As of this writing - oil prices are currently at $112/barrel.

   3.  Financial speculation/Derivatives

Financial speculation tends to create fear and/or greed (or "noise") in the markets and usually gets the masses frantic enough to do stupid things in reaction to this fear and greed.  For example, consider in 2005-2007 when people were jumping to get into real estate by any means necessary (even if they had no money) because they thought "the prices are just going to go higher".  Only to be stuck in foreclosure, bankruptcy, or constantly fighting adjustable rates in 2008.  Remember how quick financing was available back then?  But today, it's very difficult to get financing for anything in real estate.

The same speculation is going on within the oil markets to some degree...where you have investors (institutional and individual) running to invest in oil at these high prices because "it's only going to go higher".  Timing is everything, folks.  Buying commodities or stocks just because the price is going up is ridiculous.  Warren Buffet said it best - "Buy when people are cautious...sell when people are greedy." 

These are my reasons as to why the current high gas prices aren't sustainable because of the ample supply, the current unemployment rate, and just plain old speculation in the markets. So don't get too panicky because of the current prices just yet.  Do what you can to survive....carpool, telecommute, walk, ride a bike, etc.  Prices will soon turn for the better.


April 19, 2011

US downgraded by Standard & Poors

Interesting article - it looks to downplay the downgrade of the US debt levels.  However, I think it is a very serious issue.



April 17, 2011

How should we save for our kid's college?

A couple of weeks ago, Mysha, my wife, asks me about what would be the best route to pay for our daughter's college expenses.  Considering that college tuition has been consistently rising twice the rate of inflation, by the time our kid reaches college age, it might be a real challenge for her to fund her own education...even with scholarships, pell grants, and whatever else she manages to scrap together on her own. 
She asked me if I thought that getting a 529 plan would be a good idea and/or if we should start now to put money away for her education....considering that we probably would have too much income ourselves for her to qualify for enough money in the form of grants that would put a dent in her tuition.  Plus, scholarships today are offering less money and most only cover books or 1/3 of the cost to attend college.

So what do we do?  What would the average millinoaire next door do?  Well, I like 529 plans specifically for the reason that my contributions are probably state tax-free and my investments are able to grow tax free.  This allows me to shield some of my income from Uncle Sam - and use the money for my daugther's tuition.  Not bad!

At the same time, 529 plans are also tied to the stock market - which means that they're at risk when there are downturns or detrimental events in the global market.  This is a big deal considering that having a $100K 529 plan could easily lose just about everything you saved for your little one's college tuition.  Just this past recession has left individuals with a huge loss in their college tuition and retirement plans.

Nevertheless, I'm more in favor of investing in my own company and/or real estate instead of giving money to Wall Street via a 529 plan and hope that they do the right thing by me so that I'll have funds for my daughter's college.  I can provide a constant stream of income for my daughter if I'm even moderately successful as an entrepreneur or real estate investor. 

It's a risky strategy - but so is solely relying on the stock market to fund your college or retirement.  Investing my money directly into my own company for growth and expansion between now and when my kid goes to college should provide a good return.  Also, buying a few rental properties would also provide some constant flow of income for my daughter while she attends school, so that she doesn't have to worry about how she's going to finance her education.

Do I take a risk on myself and finance my daughter's education?  Or do I let the bankers on Wall Street put my money at risk?  I think I'll rely on myself.


April 10, 2011

Business Rx: Advice from seasoned entrepreneurs - The Washington Post

Business Rx: Advice from seasoned entrepreneurs - The Washington Post: "Business Rx: Advice from seasoned entrepreneurs"

Here's an article that I thought was very interesting.

Entrepreneurship is necessary in your income portfolio. Having multiple streams of income is vital for anyone seeking to retire early and live comfortably in their "golden years". Here's some advice from the "pros" in getting started and how to stay in business.


April 6, 2011

Gold, silver futures rise on inflation fears Metals Stocks - MarketWatch

Gold, silver futures rise on inflation fears Metals Stocks - MarketWatch: "Gold gains, silver up 2% on inflation fears Silver settles at 31-year high" Interesting article... The Feds printing money causes the dollar t0 depreciate, not to mention our government incessant spending and our increasing deficits also causes the global market to lose "faith" in our ability to repay our debts. No wonder metals are seeing new highs!  But eventually this "bubble" will come back down to earth....


April 4, 2011

Just a quick thought of mine...

Just a quick thought of mine….

I’m still a strong advocate for introducing commodity indices to your portfolio in the coming years ahead…in addition to allocating at least 5-10% of your wealth to physical commodities (i.e., gold and silver coins) to have in your possession just in case. The way the Feds are debasing our currency is detrimental to our financial well-being long term.  What I find interesting is during the down-turn we have several individuals rushing to the “safety” of higher education..... Most of these students are a direct product of the recession, meaning they’ve been laid off, or they’re underemployed and need to increase their skills in hopes of making more money. Unfortunately, these individuals are also desperate for loans to fund their educational aspirations – even at a time when tuition is steadily increasing at twice the rate of inflation.

People considering taking out a loan for higher education should ask these questions: Is it worth going to college if I have to take out a large amount of student loans – at a time when unemployment is high? What is the likelihood that I’ll graduate with a job in hand? Are these jobs being currently offered in my city or state? Will I have to move to the city or state offering the jobs? What other alternatives are there besides taking on debt that I’ll have to repay back?

There’s nothing worse to a country and a community that has college graduates who can’t find a job – therefore, becoming somewhat unemployable as their skill set wanes.

We just got out of the mortgage mess that was a result of failures within the private and public sectors and also the Feds guaranteeing every mortgage signed over to some people that should’ve never been anywhere near a house in the first place. Remember when government sponsored entities (GSE) like Fannie Mae and Freddie Mac failed the American people and needed to be bailed out??? I can see the potential for this to also happen in the educational industry – where you have several individuals seeking education and need loans for education and once again, another GSE called Sallie Mae (although they claim to be a private enterprise now) is in place buying up all of the student loans out there. Sallie Mae just purchased $27Billion of Federal student loans from Citigroup in 2010. Déjà vu?