THIS IS MY 98TH BLOG ON UNDERSTANDING MONEY TOOLS
In this blog we will touch upon several items, so I will
call it “things”.
To start out, a friend was recently talking to me about
investing money. I will tell you that times are very difficult for investing
and expecting a certain return on that investment. People invest with expectations for positive returns; that
may not be the end result. If someone promoting an investment, let’s say a
stockbroker, told you honestly that only one of three things happen you might
not invest your money. With all investments only three things “can
happen”. The investment can go up,
go down or become part of the “living dead” and go nowhere. Unfortunately, I have two of those
living dead ones myself, owning quite a bit of real estate including
development land in Wisconsin and subdivision lots around Arizona.
I was a partner in one of Arizona’s largest master planned
communities. One thing we did that
was smart, and you may learn from, was that we obtained an outside party to
secure our bank loan and operating line of credit, protecting our personal
credit, getting a better interest rate and permitting us to be able to borrow a
greater amount of money. How did
we do this? We found a couple of
extremely wealthy individuals who secured our loan with the bank for an annual
payment of 1% of the total amount of the loan. They did this as a normal course of investing money, and of
course, remained in a second position on the note with collateral of our
development.
In this case, it worked out, but then it didn’t work out. In
2008-2009 most banks called loans due and payable immediately as banks were
failing, our bank included. This in turn flooded the real estate market with
land and developments. The bank called on our corporation for payment, as well
as these two individuals. These individuals paid the bank (CITI) in full
meeting our obligations, but then eventually as no bank was lending on real
estate development we were forced to turn our development over to them. We fought the situation in court for
quite some time. Bottom line, be creative with financing and protect yourself
and your credit from the big banks and financial institutions that may ruin
your reputation.
Let’s talk stocks.
Everything around the world is crazy right now, and the stock market
going up, versus a slide down, has boggled my mind and others. I have always said that everything is
“cause and effect” and it is. The thing we don’t know is timing.
I don’t know if a quick recap helps in this, but it keeps my
mind on a direction that the inevitable will occur. Europe is in a mess with their overall economy, debt and
immigration responsibilities. If
Britain leaves the European Union the Sterling Pound will drop, as well as the
Euro. Gold will probably go
up. Many in Scotland wanted
separation from England and came to a close vote. Is de-unionizing wise? Time will tell. What is inevitable is the financial
sinking of Italy, Spain and France.
Germany holds the European Union together resting mainly on their
exports that account for 45% of their GDP. If their exports drop more than 5%, like I and others expect
because of lack of demand, Germany will sink into recession. An indication that Germans are scared
is that their bonds are now at a negative rate of interest. Unlike Americans who will take more
risk and stay in stocks, Germans seek the security of bonds. This is very tough if you are on a
fixed income and in retirement.
Here is an example of lack of demand in the market
place. Recently, I poked around
auto dealers to see if I wanted to buy or lease a new car, which I probably
could use. Let’s take Ford. The 2017 Fords are out and for sale.
However, the dealers have access to brand new, no mileage 2014’s, 2015’s, and
2016’s that haven’t sold. In Europe it is even worse. Now here is the kicker with this as a buyer. The dealers
don’t offer these dated cars at much of a reduction in price. If you buy one, let’s say a new 2014,
the moment you drive it from the dealership it becomes a “used 2014 with low
miles” and you really take a hit.
At some point will manufacturers just scrap these new cars to hold a
finite number in the market place?
I could give you several examples of many countries in deep
trouble like above and move from continent to continent. If you watch the news you already
know.
The problem is how to invest now, and no one knows. It does help if you are wealthy and
attend a lot of cocktail parties with the owners of companies to get inside
information! Watch what experts are
doing. No one I listen to expects much to happen for years; too much government
and personal debt. With all the world debt you can’t have growth, inverse
relationship between the two.
Defaults in the public and private sector are increasing. Countries are
defaulting on debt e.g. Puerto Rico, Venezuela, Brazil, Argentina and so many
more. Greece was one of the first
on the scene in Europe. As the
market place for goods has dried up, shipping continues downward. Take a look at the income statements of
Hyundai and Maersk; scary!
Ending this blog, where are some of the top people going to
make investments? This may be more sophisticated than most want to take on, but
there are index funds that can be bought to short markets. Unfortunately, some
of the best analysts are going short on world debt including US and
Europe. One of the top investors
is shorting collateralized debt obligations, another says buy gold on dips in
price around $1,000/ounce. The
reasoning is that debt is totally out of control, and just a matter of time
before payments are in default. As
we talked about the auto industry earlier, auto loans are now totaling $1.3
trillion, and defaults increasing.
I don’t see how manufacturing will ever return to this
country as manufacturing has sought out countries where labor is $3.50 an hour
or considerably less. Mexico is a
good example of a huge influx of auto companies. Labor is $3.50 per hour; brand
new plants with top robotics and the employees don’t demand the same benefits
as our labor unions do.
In technology it irritates me to see company after company
here in the US hiring HB-1 workers on visas to replace our American workers at
a lower level of pay. Even Facebook with only 6,500 employees is doing this
rather than what they should by searching for local employees first, then
county, then state, but always from the USA.
So ends another blog.
