On Investing

Our economy is in the toilet. There's an incompetent puppet with his hand on the handle, when he's not out playing golf or going on million dollar "date nights." OK, enough of that.

I've been thinking on this a bit lately. You can't just spend 13 Trillion dollars you don't have and expect everything to work out. Your children (or theirs) are just not going to pay for it. They will say, "Hey, grandpa, you berkeleyed it up, I'm not paying, deal with it." Additionally, it (the bill) isn't going to wait for your grandchildren anyway. It may be a whole lot sooner than that.

Lets look at what the idiot box has been telling us is the fix: Get rid of "Bush's tax cuts for the rich." Uh-huh. Those "tax cuts for the rich" are really "tax cuts for the middle class," which would be you and me. Nothing about "stop spending money we don't have" or "stop giving 100K/yr pensions to government workers at age 45" or "stop letting the entire 3rd world come in and give them free health care" or even "stop giving foreign bankers all that money" in there at all. There are many other examples of what is wrong, like not putting a new nuclear power plant in each state ($100 billion cost if you shoot the lawyers first, 2-3 years completion time - result: total energy independence for the US (don't want a nuke in your state? No problem, you can buy electricity from someone that does, at a huge markup)) but I'll leave that out. We are already paying over 50 cents on every dollar we get in taxes of some form or other. That can't go up. You can't take 99 cents and expect us to keep working.

If you have a job, which most of us do (unemployment is 20% right now, so 80% of us out here are employed), what can you do with any extra (over living expenses) money? Canned goods and ammo not withstanding, where to put it? For many reasons, the US dollar is going to tank even worse than it has been. We've had stealth inflation for most of the past 50 years, when we haven't been having out-right US style hyperinflation (Thanks, Jimmah). If you put money in the bank, you get 0.5% interest. The real inflation rate is around 6% or better, probably closer to 10 right now. That means, you're losing 5-9+% of your money every year by just leaving it there. And that's compounded, too.

I came across a book called Crashproof 2.0 by Peter Schiff. It's a second edition to his Crashproof book. I got it used on amazon. The interesting thing about this guy is that he called our current mess 2 years before it hit. And he called it spot on. Anyone can look back and call it ("Monday morning quarterback"), he called it coming. While I don't agree with all his suggestions, he has some very good ones, I think. Briefly, I think his best suggestions are:

Get out of the US dollar. Keep your emergency fund in it of course, but otherwise, diversify out of the US market. China will stop bankrolling us. We will be forced to stop buying cheap Chinese made stuff at Wally World and HF. That will hurt the Chinese economy short term, BUT, when the Chinese figger out that they were basically giving us the stuff in exchange for IOU's with nothing backing them up and no intention to ever pay it back, and they can just keep their own stuff for themselves without the IOU's, they will recover. There will be a period where the Chinese (and other 3rd world sources we import from) will panic and crash, shortly after our crash, but they will recover very fast because they can make stuff, and we (the U.S.) can't because our bean counters and politicians dismantled our factories so we can sell each other insurance instead. Note that the various political leaders of the world decided that the way for their countries to all get out of the mess is to every one of them start exporting more than they import. Sure, everyone can export and everyone can solve their problems like that. They seem to forget that the planet is a closed economy.

Schiff suggests that eventually, when the U.S. (us peons) realize what happened and we kick out the bastards that did this to us (D's&R's), we will start to recover, and at that point, he suggests pulling the money back from overseas and buying U.S. stuff (stocks, etc.) cheap and making a lot of money. He suggests going foreign as a capital preservation tool. Most of the book is predicting (in 2005, 2006) what was going to happen (in 2007,2008-) any why, with some 2009 updates for the 2.0 edition.

Anyway, Schiff suggests to protect your wealth: foreign bank accounts, which I don't agree with for several reasons, not the least of which is the PITA factor and not having enough money to bother with it, investing in things like MERKX, a fund that invests in hard currencies (countries that don't run deficits in both trade and government expenditures, for example), foreign stocks that pay good dividends and have business models that do not sell or otherwise deal with the U.S. (when the U.S. economy tanks, they won't go down too), Canadian companies (not sure about that one, strong U.S. links, but currently a net exporter), Central/South Americans, Oz, Asia, Europe (don't like that one either, too berkeleyed up itself), and Gold/Silver. He also points out that several times in history, the Dow and the price of an ounce (Troy) of gold have been the same, and he thinks it will happen again. Think about that: Dow goes down half, gold doubles, you're almost there. Schiff also pushes his own investment company, a bit self serving, but he believes in himself and he's been right.

Now, I've also seen some signs out in 1ntr4w3b land, y0, that "something" could happen to the U.S. economy sooner rather than later. DIA options are saying a tank in the next month or two, (my reading of them predicted the last tank in June when I looked last Jan/Feb, but this tank isn't as clear cut as that one and I also couldn't figure out at the time how to profit from that reading). The Europeans are freaked out over September 16th, I think, over some bank meetings and maybe some other stuff. Bernake says "he" will do anything, even radical stuff, to keep the U.S. economy going. Specifically, he said "The Committee is prepared to provide additional monetary accommodation through unconventional measures if it proves necessary, especially if the outlook were to deteriorate significantly....” Emphasis added. That's scary and a tiny little blurb from the conference they just had in Jackson's Hole. Maybe it means nothing, maybe it means something.

I think that there is a significant chance that we could have an official devaluing of the dollar, like has been done to many other countries, including the recent past. Maybe it will go something like "banks are closed for a week while we emergently restructure our economy." Coming out of it, our 13 trillion, or 13 Thousand Billion Dollars of debt gets restructured somehow or overnight inflated away. We (you, me, the other middle class peons) will get the shaft. That ten large in your bank account will be worth five large overnight. Argentina did it. It would take maybe a week in the U.S, not over a weekend like Argentina because we're a lot bigger and more complex. Watch out for it around Christmas time, if it doesn't happen next month. Things are slow then (Christmas) anyway. I also think that just before it happens, the stock market will tank as the insiders pull any last monies out and stash them. Note that Soros, owner of the D's, is heavy into gold right now and pretty much out of the stock markets.

It might go: Tea party "radicals" take Congress back in November. Stock market crashes as "the jig is up," or "the gravy train got derailed." Crashes take a month. Read the charts. Bernanke does the "all banks closed for the week" between Christmas and New Years. The O comes on CNN with his teleprompter and tells us it will all be OK because Ben is gonna fix it under his (the teleprompter's?) direction.

So, where to put a few bucks? MERKX and its sister funds like MEAFX (Asian) take $2500 to start playing. I'd like to see something with smaller opening requirements, say in the five bill range. Stocks that you can buy with an online brokerage type account, and not have to open a foreign brokerage account with a specialty firm. The stocks should be small to mid-caps that do business almost exclusively outside the U.S. and pay a dividend and not have much debt. Foreign exchange, so much the better, but again, bought through a Schwabb or Etrade type account. Mutual funds that are exclusively outside the U.S. and in some of the economies mentioned above (Oz, Kiwiland, Asia to some extent, South America), and you can easily buy with an online brokerage account. Maybe Canadian energy companies? Energy is money. Money is energy. Any ideas?

Dr. Hess wrote: Get out of the US dollar.

While the emerging world is the place to invest and make big returns right now, We as Americans, should be investing in our own countries companies. Our way of life and the strength depends onit.

I don't buy all this doomsday crap thats going on now and I don't buy all the damn armchair quarterbacking of the economy. What would you or anyone have done differently in the after the bubble burst? There are three options, Spend like crazy, Cut taxes like crazy, or do nothing. Cutting taxes and Doing nothing were already tried at various points in our history. They didn't work.

w00ps.. I said too much.

So I'll edit this and say I do applaud Dr Hess for thinking about this stuff..

To the tea party crazies.. What would you, knowing what you know now, differently? Stopped BUSH from passing the bailouts? etc?

Only one point, the Tea Party isn't full of radicals. While some may not be as eloquent as the usual politicians if you'll do a little reading & listening instead of dismissing out of hand you'll find they are concerned about exactly the same things you are.

theres a lot of good stuff in here Hess, but a teensy little bit of tinfoilhattery i think maybe swhirled in for good measure (cant say i blame you really).

I tend to take a more macro look though. When I see large systems (political, financial, financial-itical etc) and I see a long term "blind eye" response to an obvious situation such as we have seen in the past decades with regards to our economy, I have to begin thinking they guys calling the shots know something we dont. I cant put my finger on it, but something else is going on. Maybe it truly is everyone trying to cash in and get their chips out before the fall, but I also think that theres something the power players are waiting for, and I dont mean falling off the edge of the world. Maybe Im wearing my own hat, but it just seems that they got us juuust complacent enough taking Kayden and Tristan to soccer practice and keeping our eye on the bouncing gay marriage or hanging chad ball to stop paying attention to our tax return in order to "wait out" whatever is coming. We cant be so internally focused on who's right (r vs d) etc that we are totally unable to avoid catastrophe can we?

I do think there needs to be significant feedback from us unwashed masses - everyones sick and tired, but its much easier to turn on Halo 3 than it is to write a letter to Congressman Warbucks isnt it? So we all just shake our fist at the TV and go about our day and wait for "them" to fix it - Im guilty too...woops derailing the thread...

So wat is going on that we are missing? Where do you look when you cant see the elephant in the room? Whatever it is that we are being directed away from looking at is what it is we need to be looking for...I know that sounds kinda lame and conspiracist, but I really think we need to be trying to find out what is going on big picture.

I know that carguy123. I'm actually fully supportive of their effort and have been to local rallies. I said "radicals," in quotes, as that is the perception that the MSM, under the direction of their owners/masters, wishes to project on the rest of the peons. The Tea party movement is a truly grass-roots level uprising of the American people.

4cylndrfury wrote: We cant be so internally focused on who's right (r vs d) etc that we are totally unable to avoid catastrophe can we?

Soo True...

At some point we all need to put our big girl panties on and put our shoulders to the wheel. No more of this fighting about stupid issues. No more who is not honoring America and who is(all that is doing is lining the pockets of the talking heads on TV)..

It's time for us all to work hard.

The Rs and the Ds will never stop with the polarizing issues. Get over that now. Their job as far as they are concerned is to make you think the other side is "radical". I don't believe either one of them. Until all the professional politicians are gone I won't believe anything either side says.

As far as investing, buy consumer goods. Buy shoes and cloths for the kids. You know they are going to get bigger, plan ahead now so when your dollar is worth 10 cents you already have what you need. An extra pair for yourself wouldn't hurt either. Food stuffs that will keep long term. Pay off everything you owe money on. If you own your house outright they can't throw you out of it. The only things I am investing in right now are durable goods that I will need if the world goes to hell in a hand basket. As long as the family is fed and clothed, money isn't so important. If the crap hits the rotary air mover it won't affect me too much. If it doesn't that isn't a problem either. As long as I can make food money we will be fine. This might be a little tin hatty, but it helps me sleep at night. The market could be at 1000 tomorrow and things wouldn't change at my house too much. Broke don't scare me, BTDT.

What toyman is getting at is really a return to conditions before the consumeristic, 65,000 mile throw away cars and TVs you replace before you repair BS that has stung America in the tail. Used to be that a good grocery bagging gig was more than enough cash to pay the bills and still take your best girl to the moving picture show on Friday. Now you have to cash in your 401k to get a hotdog for lunch. My wife gives me e36m3 every time I go to pull the motor out of an old drill or keep the power supply out of an old computer to use "someday when I need it". If only she knew that good salt of the earth people used to hang on to that stuff so they could maybe fix the next drill that broke etc. Consumeristic BS propogated by useless gotta keep up with the Jonses mantra....spend it all today and we will bill ya tomorrow.

A return to a more sustainable lifestyle will go a long way toward fending off the tax man when he comes looking for uncle sams cut.

ignorant wrote:

Dr. Hess wrote: Get out of the US dollar.

While the emerging world is the place to invest and make big returns right now, We as Americans, should be investing in our own countries companies. Our way of life and the strength depends onit.

Absolutely. I also think that we should be buying American made products whenever possible, even though its often the same quality for more money. Which leads to another thing that pisses me off, we need to get rid of minimum wage or just agree to stop doing business with countries that don't have similar polices to our own. How the hell are we expected to compete with China when we have to pay somebody $7.25 an hour, whereas the little boy in China doing it makes that in a week?

Also, in the interest of yourself and one other person/family only as this doesn't help the economy on the whole, start shopping at estate sales and garage sales. Good stuff that has held up, and will keep holding up, at a drastically reduced price. I bought a 200 dollar kitchen knife set for $5. Looking for lamps now. I went to stores today, the cheapest ones were still expensive and looked like they were about to fall apart

Thrift stores are awesome too.

Only problem with those is the fact that I'm way too skinny for the clothes. But I've bought some decent furniture.

I think what bugs me the most about posts and rants like this is that they come up with a Democrat President, and nothing is ever mentioned when the Republicans do the same thing.

Why now- why not 4-5 years ago? I bet Nixon was the last Repubican President who even pretended to have a ballanced budget.

When you start by proclaiming that one side is more to blame and then later blame both sides, it take a lot of crediblity away even before you start making any decent arguements.

Every time I hear a Republican tell us we are in trouble NOW, I openly wonder where they were the 8 previous years- ie- YOU are making this a politcal issue, when it's been a fiscal issue for a much longer time. Drives me nuts.

As for investment- true growth is only from paying to transform X into Y and selling it for a profit- keeping all of that money within the country. Stop bitching about unions and relaize that if you pay them, they, then, can afford YOUR product. The widget you make means nothing to the guy in China. We don't make money by betting on the value of companies. We make money by transforming raw stuff into useful stuff.

Dirt- iron ore- steel- cars. Each step adds value- the more those steps stay here, the more money we make. Every step that happens not here helps someone else.

I'm not saying buy poor quality stuff just because it's American, but do think twice to make sure what you buy might help a fellow American make engough money to buy whatever you are trying to sell.

The CEO of Intel said last week that he wouldn't build a plant in the U.S. He said it would cost him 4 Billion to build a chip plant in China and 5 Billion to build the exact same plant in the U.S. because of the government interfering and stopping him at every point. Where's that new plant going?

A very good friend of mine makes his living by shutting down U.S. manufacturing plants and shipping the production overseas to China or to Mexico. Particularly U.S. auto part supplier plants, so think about that. He doesn't make the decision to do it, he just is the hired gun who comes in after the company decides. Someone has to do it, and at least he is earning a living doing it. I asked him why the plants were being shut down, was it the labor costs or what? He said that the primary problem was government regulation, taxes and interference.

The industry I used to be in, the U.S. Merchant Marine, is the same way. It wasn't the extra costs of the U.S. sailor, unions, etc., that drove the companies to foreign flag ships. It was the massive regulations and other costs imposed by the government. There is no U.S. Merchant industry anymore, for all practical purposes.

Until we get a handle on this and put the government back as it was, it isn't going to get better. I'm all for buying U.S. and supporting our economy. Unfortunately, that isn't going to work right now. No one is going to open a new plant and hire anyone. I think Schiff is right. Protect your assets as best you can, wait for the crash, then bring your assets back and we can rebuild it (though investing in the U.S. at that time, etc.)

Oh, and alphadriver, do you remember all the talk 4-5 years ago by the then out of power D's screaming about fiscal responsibility? We can go back on the board here to 2K8 and find the D party plants like skappes-it-over crying for fiscal responsibility and how The O was going to do it. Where's that crazy talk now? All we get is "whoo-hoo, I got the credit card!! I'm going to the Mall!!"

alfadriver wrote: I think what bugs me the most about posts and rants like this is that they come up with a Democrat President, and nothing is ever mentioned when the Republicans do the same thing. Why now- why not 4-5 years ago? I bet Nixon was the last Repubican President who even pretended to have a ballanced budget.

Yep.

I'm sorry Hess, but as soon as you blame Obama and the Dems for everything, all credibility is lost. The blame lies with both parties equally.

Toyman01 wrote: Until all the professional politicians are gone I won't believe anything either side says.

as soon as they are elected they are a professional politician.

This argument does not hold water in my book. I have no problem with professional politicians that listen to their constituency.

Saddest part about the whole teaparty thing is the fact that they are getting played by big business list like us Obama freaks were in 2008. Who fund freedomworks?

Dr. Hess wrote: The CEO of Intel said last week that he wouldn't build a plant in the U.S. He said it would cost him 4 Billion to build a chip plant in China and 5 Billion to build the exact same plant in the U.S. because of the government interfering and stopping him at every point. Where's that new plant going?

Since I've been talking to some friends about global supply chain strategy I can weigh in here. The wholesale ship it overseas mentality is changing.

In the past two weeks, I've heard very high execs say "(insert southern state name) is a low cost country." The reasoning goes like this. While this state looks more expensive on the surface, It is still significantly cheaper than a northern state. Also large multinationals are finding that there are many hidden costs in purchasing parts from overseas. Long supply chains need big fuel dollars and high budgets in the quality department. The company has to go in a develop these suppliers quality wise. It is usually an expensive and painful process. Quality spills are also more costly and difficult to clean up.

The phrase in supply chain is no longer "globalization" it is now "Glocalization." A company needs to determine the proper mix of parts made overseas and in the US.

As I have said for years, The needle is swinging back (not all the way, but slightly).

Dr. Hess wrote: He said that the primary problem was government regulation, taxes and interference.

So, I now work in corporate strategy. Oh all the decisions I've ever heard or seen made none are related to this issue. NONE!.. Not one.

We use the cost per hour of work metric plus profit margin. Thats it. period, done...

Regulation/taxes/interference are benefits of moving a company overseas but NEVER the primary driver. Never!

Toyman01 wrote: If you own your house outright they can't throw you out of it.

Except that you never truly own your house. You pay 30 years for the right to rent the land from the Gov't. for the rest of your time in it.

In reply to racerfink:

I agree completely, racerfink, and have stated the same thing previously. If anyone doesn't think they just rent the land from the government, stop paying your property taxes and see what happens. However, paying off your mortgage is ONE LESS thug with a gun at your head.

In reply to Ian F:

Ian, I'm sorry that your cognitive skills have either never been developed or have been dumbed down to a point that you just look for a single thing you don't like in any argument or discussion, then ignore the whole thing. Must make for an interesting existence of going around ignoring the world. I have seen this before in the youth and it is a serious fault. You obviously never got to the part of my essay where I said "the bastards that did this to us (D's&R's)" or somehow misinterpreted it. Bush 43 had serious issues, certainly. "Nation building" was a total waste of our resources, for one thing. Continuing on with the bad policies of the Clinton administration was another. However, worst of all was the R's not doing a damn thing productive when they had both Congress and the Presidency. Trying to "get along" and play ball with everyone instead of providing true leadership was the main problem.

Anyway, I think we're getting off topic. Regardless of how we got here and who was driving or is driving now, the problem is that we are heading for a cliff. I don't think many will dispute that. The thing to do is to preserve what assets we (you, me, Tim, Margie, the GRM community, the individual people of our country) have so we can pull back in after the pop. If there is no pop/cliff and everything is just hunky-dory, well, that's OK with me, but a bit of preemptive safety net building is in order now. So, where to put smaller (~1K-ish) blocks of money to diversify? I'm not thinking too much about gold, as while I think it could go up, way up, perhaps to equal the Dow again, at $1300/oz, I just don't think it's worth it. I'm probably wrong, as if it hits 5 large/oz, I'll wish I bought some at $1300/oz. But at $1300/oz, I'm wishing I bought some at $300/oz. I mean, I spent $1400 on the last Lotus I bought. That much for a little coin? Maybe a few bucks in a gold fund like PHYS, I think, Physical Gold, whatever the symbol, trades at 1/100th spot. Not GLD, as that one is owned by Soros, owner of the D's, and there's also serious question as to if there is any actual gold behind their fund or if it's all smoke and mirrors. I dunno, but I don't want to have to find out the hard way, and GLD trades at about 1/10th spot. These gold funds I think would eventually collapse, but you could probably ride them up a good ways and bail.

Dr. Hess wrote: Not GLD, as that one is owned by Soros, owner of the D's,

and with stuff such as this.. you loose credibility..

Sorry man.. The birther trial was thrown out of court with a $20k frivolous fine. Get over it. (realized the above sentence was kinda mean. Sorry.)

Dr. Hess wrote: In reply to Ian F: Ian, I'm sorry that your cognitive skills have either never been developed or have been dumbed down to a point that you just look for a single thing you don't like in any argument or discussion, then ignore the whole thing. Must make for an interesting existence of going around ignoring the world.

I'm sorry... it's not just this thread... it's so many in the past that make your credibility on these matters hard to take seriously. You occassionally bring up some very good points... and then you go off the deep end. I cannot see the world in the same way as you do, just as you cannot see what I've seen. I wouldn't wish that upon any of you.

Im kinda on the fence...Ian makes a good point about only knowing our own individual past, and therefore having our own individual stance on the matter of current political events. I would say though that despite some rather (and I think intentionally sarcastic) off the cuff ...err...revelations (accusations??), the good doctor is still providing brain feed for thought, which is never a bad thing...devils advocate and all that. Like I said, it kinda inspires one to step back and maybe take in the bigger picture...

Hess- Yes, all of that gubmet buracracy is exactly why Ford and GM and Chrysler are building new battery plants IN the US.

And why we are building the Fiesta IN the US.

Counter question- which, exactly, regulations do you want to see go away so that we can build new plants in the US? Water quality? Air quality? Workers safety and rights? Fair trade? Which ones?

Whenever I see anyone complain about regulations- I want to know EXACTLY what they are complaining about, so we can question what regulations they will be violating when they go overseas.

Tax problems??? Major leage Red Herring. That's to just get you tea baggers riled up about our taxes, and to pretend that paying taxes is evil. When, in fact, of the major industrialized nations in the world, the US already has some of the lowest taxes. Think about what you are suggesting- COMMUNIST CHINA has lower taxes and fees than the US. Maybe we are going about this whole model wrong- we should be communist? No, I didn't think so. Or Socialist Japan, or most of the Pacific, or all of Europe? Yea, for sure, they have lower corporate taxes than the US does.

No, what Intel and the rest are looking for is an easier way to make a buck- via low wages, lower workers rights, and lower environmental standards. That's it. Taxes is a red herring, there's no doubt about it.

Just like the claim "if we raise the capitol gains tax, people will take there money off shore" - which I reply- exactly which off shore can you make billions a year AND pay lower taxes than as high as 36%? All that does is create panic in the voting masses to support people who get to pay 15% tax on a significant part of their income- on millions of "earned" money. ("earned" since most capitol gains come from gambling on a value of a stock or property).

Sorry, Doc- the sky isn't falling. Although, I'm sure we would love to get back to the Clinton days when we were reducing the deficit and shooting toward a possible surplus.... Ah, the good old days. Too bad he had to make a deal, and cut the gains taxes...

Eric

One point, as a guy who is absolutely against democrats (and mostly against republicans) - Clinton was the last guy to have a balanced budget - weird, eh? We've been running a deficit since the beginning of this country. It's always been a bad thing. I think the reason people are focusing on Obama is the deficit has risen at incredible levels, I think I read 5 billion per day. It's insane.

Oh, and back to the point, I don't think I am smart enough to be one of those guys who makes out like a bandit because I invested in wool or whatever during this upcoming crash. I think I'll be the guy who makes out OK because I know how to grow vegetables, know farmers and where to get meat, and have 3-4 weeks supply of food at my house.

Dr. Hess wrote: .....Regardless of how we got here and who was driving or is driving now, the problem is that we are heading for a cliff. I don't think many will dispute that..... .

Before the usual suspects derailed the original question, Hess asked a simple question. His reasons are expressed to address a valid concern. Where you sit -on the left or right or even somewhere in the middle- is of no concern.Whether you think the sky is falling or not isn't the question. Just very simply, where would you put some money to ride out what he believes may be the coming storm. If you don't think one is coming, and things will go on like they are, so what? Where do you invest for the future and why-that's what he's asking. If you look around, look at the economy, don't like what you see and read, where do you put your money to protect it? If you run around with a "tin foil hat"-what do you invest in for the future, no matter how long or short you may think it will be? I've been wondering the same thing. I don't think stock market is for me. I moved what little I have, and would like to keep, into " stable" funds for the short term, but I'm looking for something else for the long term and I'm not finding it. BTW, I think the main flaw in what Hess expressed is quoted above