MONEY 98 - THINGS

THIS IS MY 98^TH 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.