Why? Because buying shares of a company is not the same as shopping at Wal-Mart. If you want to acheive financial security you need to start thinking like smart investors do. 99% of the time, the company’s stock is priced fairly for what the market sees as its value. The cheaper the stock, the higher the likely hood is that the company will go bankrupt and you’ll lose all your money. In 2009 companies like Sprint, Citigroup and yes even AIG looked tempting, but recall how it went from there. Control your emotions and think rationally about it. At one time, these once great companies were "on sale" but remember there is a reason for it all. I don’t want to invest my nest egg in companies like this. Chances are good that these companies will take a long time to recover. The same was true not too long ago. Companies like Cisco and Lucent were exploding to higher highs every day. Once a $100 stock 9 years ago, Cisco now trades around $20. Lucent was another superstar of it’s time, flying into the $70 per share range, only to fall to $1. Yes, $1! It rallied to $3 and was bought by another company. These companies never recovered which is not uncommon. They are called penny stocks for a reason. It’s because they are cheap and don’t have much value. Fund managers don’t bother with these stocks so you shouldn’t either. The government is pondering getting rid of the penny.. Maybe we should consider getting rid of our penny stocks too. How do you become rich? Not by betting on cheap stocks!
All eyes are on Germany. On September 12th, The German Federal Court will decide if the EU bailouts are constitutional. Everyone is waiting to see what will happen. I suspect they will rule the bailouts are unconstitutional and trigger a massive market selloff. This will confirm that there will be no money for a 3rd Greek bailout or to save Italy and Spain. Defaults will start to happen and money will disappear faster than Bernanke can drop it from helicopters. You see, Germany is the only country that can actually bail them out and everyone knows it. The problem is that almost 80% of the German public is against it because they either remember or have heard stories of Weimar Germany and bailouts at these levels most likely will result in hyper-inflation, something they remember all too well and which gave birth to the Nazi party. If for some reason they deem the bailouts constitutional, expect inflation to take hold. The problem with this is that Germany only has so much to lend and will eventually end up in danger of defaulting themselves at some point. I believe that while we don’t know what will ultimately happen on Sept. 12, we can confirm that this is a check mate situation. Neither outcome will be pleasant, it’s just a matter of which one will be the one that ends up in the history books. I’m preparing my subscribers to prosper in either environment. It could be an exciting end to the year for those prepared.
Yes this is a blog about financial independence and I’m talking about starting a garden. The health benefits are obvious, fresh food with fewer pesticides and more nutrients but have you ever thought about it from a financial perspective? I believe that inflation will really affect food prices in the coming years. Food costs are a major expense along with gasoline for almost every household. The best way to combat rising food prices is to grow the food yourself. Make a list of common fruits, vegetables and nuts you eat. You can then research what grows best in your area. Many fruit and nut trees are available in dwarf sizes that can be grown in your backyard. You can grow lots of food on ΒΌ acre of land and even less. If you grow more than you need you can either freeze it, can it or sell it at a farm market. Starting a garden does take a lot of time and effort to get up and running but you’ll see how much you can save by growing your own produce and learning to cook meals from scratch using the things you’ve grown. In addition, you can cut out many of the processed foods you eat that contain preservatives and lack the nutrients of fresh produce. Depending on how much you can grow and how efficient you are at making meals from your produce, I expect you could save 40-70% on your food bill while improving your health. If you choose to follow my advice, study the intensive agriculture method which yields many times more pounds of food than commercial agriculture in less space. If you decide to grow organic produce and sell it at a farm market, you will likely even make a profit from your garden even after you feed yourself from it.
America is unique in the world as a nation with a culture of super consumerism. This makes it very difficult to acheive financial independence.I sometimes can’t believe the lengths people will go through to get what they want. The savings rate in the US is laughable. Compared to other countries, the US boasts one of the lowest savings rates in the world. This combined with the fact that debt and credit are out of control is a recipe for disaster. Within the next decade, people will be forced to change against their will. Americans can no longer be reckless spenders and macro economic fundamentals will force them to change. At some point you have to ask yourself why you need two large flat screen HDTV’s, a laptop, desktop computer and tablet, an Acura and the largest house you can afford on your salary. In addition, the pressure to maintain this lifestyle can cause tremendous stress which can affect your health and even shorten your life. Why do people find it necessary to look like everybody else and have what they have? We’re teaching our children that owning two or three iPods because they want different colors to match their outfits is ok. Young women grow up and want expensive engagement rings, expensive weddings and are terrified if their date uses a coupon at a fancy restaurant because it’s seen as a sign of being cheap and not being able to provide for her. This is insanity! Being rich and financially free isn’t about having more or better stuff than another person, it’s about not having to worry about personal finances. Living a life of competition with others over salary, cars, houses and things will not get you there but will instead lead you down the path of debt and depression. Instead, learn to live without. This doesn’t mean not having any of these things but it does require you to be smart with your money. Buy a Chevy or Ford instead of a luxury car. Buy a smaller house and leave some room in your budget for piece of mind. Own one computer and find a way to share it with others. Use coupons and buy items on sale or used. Contrary to the marketing we see everyday; the amount of money or things you own do not reflect happiness. In the next decade two types of Americans will emerge. One will spend the rest of their life trying to dig out of a hole and barely scrape by probably never retiring. The other will have savings, own assets (gold, real estate, antiques) and buy lots of stuff on discount from people in the first group. Which group will you be part of? The choice to change is up to you and only you can change yourself but for those that become part of the second group, the future is bright and the path to financial freedom a reality.
The media is scaring the crap out of people about what would happen if we went over the cliff. I believe we should be encouraging it. We should be sprinting towards the cliff to make sure we get a good jump. The sooner we default and reset the economy, the better. Deflation and defaults are natural occurrences in economies that are out of control with debt. For some reason in modern history, we’re taught it’s bad. In addition we have a Fed chairman who spent his whole academic career studying The Great Depression and came to the conclusion that the Fed didn’t use all of its tools to make it better faster. All this from a guy who lives in the fantasy land of academia with no real hands on experience. When an economy defaults and rebases its currency, there’s pain for a few years but eventually things get back to normal. Debt is cut and investors are able to move on. Savers are rewarded while people living on credit get a fresh start towards financial security. Recent defaults include Argentina, Zimbabwe and Germany twice. All of these countries still exist today and made it through the default. The alternative is to create an unsustainable economy where the middle class disappears. The ultimate solution for the US will also be a default. The reason I say this is because politicians are not willing to do what it really takes which is massive spending cuts in government programs combined with heavy tax increases for at least a decade. Americans won’t even listen to this because we’re so spoiled. The problem is that we’re trading pain now for worse pain later. It’s like knowing you have cancer but refusing to treat it until later. The problem is simple; we are spending more than we’re bringing in. Many Americans are very familiar with this situation. There are three solutions:
1. Decrease spending so you have more income than expenses 2. Increase income over current expenses 3. A combination of 1 and 2
When you look at the solutions your heart sinks because this is what they’ve been debating for the last 2 to 3 years only to put it off for next year. It’s hard to tell what solution they will ultimately choose but the outcome will be the same. People will be forced to cut spending and cut debt while the economy resets.
Ben Bernanke has announced some pretty drastic measures recently with QE3 ($85 billion per month) in September and just last week QE4 ($45 billion per month). The Fed will buy a total of $130 billion per month in treasury bonds and mortgage backed securities under these programs which will now run indefinitely until unemployment goes below 6.5%, which begs the question what if unemployment doesn’t reach that level for many years. This is very possible under current market conditions. After throwing everything at the problem, the economy is still weakening. So instead of doing something different, we continue to implement the same programs repeatedly. It’s difficult to acheive financial freedom in an environment like this. The ECRI has already stated that the US economy entered a recession again in September. The problem with quantative easing is that to artificially keep rates low, we must create inflation. This is because we’re artificially buying the bonds and mortgage backed securities. The real worrisome part of this is we have to do this because there are not enough private buyers. This is because private buyers are worried about getting repaid on their investment. That’s right, private buyers are starting to question if the US can pay them back! Not to mention our bond rating was recently cut and is likely to be downgraded again by the major ratings agencies. We’ve already seen the effects of QE1 and QE2 with rising food and gas prices. Other assets that have increased are oil, gold, silver and many other commodities and natural resources. This is driving the price of everything up. The recently announced QE3 and QE4 programs will eventually produce the same results. Expect more inflation in the next year. In fact, eventually we could see hyperinflation take hold. I really believe that 2013 will be another year that proves to be more financially difficult than the last. This has been the case since the start of the crisis in 2008. I personally don’t think the US economy will recover until 2022. There are just too many problems to overcome. The government is broke at a time when more and more people are requiring government assistance. Food stamps are at an all time high, unemployment benefits have expired for many and now they’re running out of money. The problem is that the Fed who runs our monetary policy is insane. They keep doing the same thing and expecting a different outcome. They have already thrown everything and the kitchen sink at the problem with no major improvement. Yes, they keep things moving but at what cost. Someone is footing the bill and it’s not the Fed, it’s us. Eventually taxes will have to increase to pay for all of this spending. More taxing at a time when we’re seeing major inflation in everyday items (food, gas, and energy) will be devastating for many. The greatest wealth transfer in history is upon us. For those that are prepared, lives will be transformed.
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AuthorJamie has an MBA from Rutgers University and a Professional Certificate in Real Estate Finance, Investment and Development from NYU. He's traded stocks since he was 13 and bought his first property within a year of graduating college. He also flipped properties and got out before the 2008 mortgage meltdown because he was able to see the market turning before it happened. He's started two companies and also has experience in investing in antiques, collectibles, gold, silver and trading futures. ArchivesCategories |