How you just lost money in a stock market that’s up 40% August 5, 2009
Posted by Jeff Nabers in Money, Personal Productivity, Self Directed IRA/401k.Tags: 1913, chart, collapse, crash, currency, depression, dollar, dow jones, fed, fiat, gains, history, inflation, invest, investing, investment, long run, long term, losses, rebound, recession, risk, stock market
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Headlines abound, the stock market is up 40% from its March lows!!! Let’s all celebrate. Those who spoke badly of Obama, Bernanke, and Geithner have their foots in their mouths, right?
Not even close. These types of misleading headlines are the very weaponry of a financial system that tricks you, lures you, spikes your drink, robs you blind while you’re partying, and then nurses you back to sobriety in the morning by giving you another spiked drink.
Imagine you have $100 in the stock market. You experience a 40% loss. You now have $60. And, abracadabra, the economic rescuers have juiced the market back up 40%. You now have $84. Wait a tick, how exactly do I get back to $100? Well to recover from a 40% loss, you would need a 67% gain. You see, 40% of $60 is much less than 40% of $100, so the initial 40% loss was much larger than the 40% gain that followed. For those whose livelihood involves serious math, this is very obvious. For the rest of us, it should be an “ah ha” moment that exposes the red arrow, green arrow game.
Watching and listening to the financial news networks report about the stock market is like watching a sports game. And it entertains just like a sports game. In the midst of entertaining, it lulls us into watching the red and green arrows. Oh, it’s down today a few points. Hey look, it came back up. It feels very much like watching a basketball team surrender and regain the lead in a basketball game. If they are down by 40 points, and then they score 41 uncontested points, they have the lead and they win the game!
But it doesn’t work the same in percentage points. But just wait, over the long term the losses will be recovered and there will be profit, say the “experts” whose payroll checks are signed by Wall Street. If you buy that line of baloney, you will be further tricked. Because over the long term those losses will be recovered and there will be profits… but only as measured in dollars. If you factor in how over the long term those dollars buy less stuff, you will not find a substantial long-term profit.
Today the Dow closed at $9,320. But the dollar has lost over 96% of its purchasing power since 1913. Take 96% out of today’s Dow price and you get $372. In 1913, the Dow was at about $62. So the Dow Jones Industrial Average grew from $62 to $372 (in constant 1913 dollars) over a period of 96 years. That’s an annualized rate of return of 1.88%.
This bears repeating…
The Dow Jones has returned 1.88% per year for the past 96 years
Can you still get excited about a stock market that’s up 40% since its March lows when it is still a stock market that hasn’t even been able to produce an actual 2.00% return over the long run?
Or even more important questions: Is it worth the risk of losing a big chunk of the money you worked for just to “get some action” in a market that produces less than a 2.00% return over the long run? When you are down, can you wait decades without touching your money just to get back to your break-even point?
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Jeff Nabers is author of 5 STEPS TO FREEDOM: How to Cut Your Dependence on Institutions and Escape Financial Slavery
Tool for Battling Coming Inflation February 19, 2009
Posted by Jeff Nabers in Money, Personal Enjoyment, Personal Productivity, real estate, Self Directed IRA/401k.Tags: alternative asset, alternative investment, bail, bailout, bernanke, building, congress, currency, debasement, economy, fed, federal reserve, fiat, fiscal, government, inflaiton, ira, ira llc, monetary, obama, out, paulson, policy, responsibility, rubino, schiff, self directed, solo, Solo 401k, stimulus, strategies, strategy, tax, tool, treasury, wealth
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If you’ve been following my blog, you know that I take great interest in understanding money. Why every single human who uses money on a regular basis doesn’t also share this interest is beyond me.
With trillions of dollars created by actions of Congress, the Federal Reserve, and the Treasury Department, the concern for coming inflation can only spread. This video explains why tax deferred investment vehicles are the best tool for battling inflation and can possibly even (more…)
I.O.U.S.A viewing this weekend on CNN January 9, 2009
Posted by Jeff Nabers in Health, Money, Personal Enjoyment, Personal Productivity, real estate, Self Directed IRA/401k.Tags: austrian, bailout, bank, banking, banks, bernanke, buffett, chairman, cnn, corporate, currency, david walker, debt, dollar, economics, economist, economy, fed, federal reserve, fiat, fiscal, franctional reserve, government, greenspan, i.o.u.s.a., mises, Money, nation, national, obama, responsibility, school, social security, sovereign, sovereignty, stimulus, tax, wall street
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CNN to Broadcast I.O.U.S.A. | Obama Foresees Trillion-Dollar
Deficits |
A Bipartisan Plea for Fiscal Responsibility | The Government We
Deserve
CNN to Broadcast I.O.U.S.A.
The public has spoken, and we’ve listened. In response to demand
for information about our country’s financial challenges, CNN/U.S.
will air the broadcast premiere of the acclaimed documentary
I.O.U.S.A. on on Saturday, January 10 at 2:00 p.m. EST and on
Sunday, January 11 at 3:00 p.m. EST. Accompanying the documentary
will be an unscripted panel discussion with policy leaders about
various economic solutions currently under consideration.
This exclusive televised event will air only on CNN, and will be
hosted by Ali Velshi and Christine Romans, co-anchors of CNN’s
Your $$$$$, the network’s weekend business roundtable program.
Throughout I.O.U.S.A.’s broadcast premiere, Velshi and Romans will
engage a distinguished group of panelists, including Pete
Peterson, Chairman of the Peter G. Peterson Foundation and former
U.S. Commerce Secretary; Dave Walker, President and CEO of the
Peter G. Peterson Foundation and former U.S. Comptroller General;
Alice Rivlin, noted economist and former Director of the Office of
Management and Budget; and Bill Bradley, a Managing Director of
Allen & Company and former U.S. Senator and Democratic
presidential candidate, in discussions about issues raised in the
film and their ties to current economic events.
Learn more about the film at www.IOUSAtheMovie.com. And be sure to
spread the word about the U.S. broadcast premiere!
Obama Foresees Trillion-Dollar Deficits
CNNMoney.com reported on Tuesday that when President-elect Barack
Obama takes office on January 20, he’ll inherit an economy deeper
in debt than ever.
Obama commented on the unprecedented deficit, saying, (more…)
Bail yourself out with an Unlimited® 401k October 21, 2008
Posted by Jeff Nabers in Money, Precious Metals, real estate, Self Directed IRA/401k.Tags: 401k, bank, currency, depression, economy, finance, gold, hedge, inflation, ira, meltown, real estate, recession, self directed, solo, Solo 401k, stock, wall street, wealth
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With trillions of dollars going to bailing out failing corporations, who’s going to save you?
Take a look around… you’ll probably have to save yourself. Rollover your IRA or 401k funds into an unrestricted account to open a world of possibilities without triggering any taxes. Here are some ideas…
Invest in gold silver, and other precious metals. The last 35 years is just a tiny blip in human history. The rest of the time humans have been walking this earth, gold has been used as money. We came off the gold standard in 1971 and seem to have forgotten that gold will always be valuable while paper will not. Consider buying gold, silver, platinum and other precious metals to store the value of your wealth.
Cash Flow Real Estate. With the real estate market in turmoil, find a bargain. Instead of hoping for appreciation, look for properties that provide a return-on-investment of at least 10% based on rental income, and own it forever.
Raw Land. Buy land in areas that will always have high demand. As energy prices rise, land near dowtown areas of major cities should have a bright future as urban sprawl reverses.
Foreign Currency. If you are petrified of investing, make the safest bet and keep your money in a foreign bank account in a stable currency. Try Canada or Switzerland.
Foreign Stock Markets. Many countries in Asia and South America have booming stock markets. Skip the U.S. middleman and invest directly with a broker in one of these foreign countries.
Private Companies. You can lend money to small businesses. If you find a business that is looking for investors, you may even be able to buy stock in their business. Sometimes evaluating a small, local business is much easier than a large publicly traded one.
Start your own business. You can use up to $50,000 of your retirement funds to start your own business.
Nabers Group helps individuals enter a world of never ending possibilities every day using Self Directed IRA and Solo 401k plans. Don’t let your personal economy be dragged down with the crashing banks and financial service companies. Be independent and take your finances into your own hands.
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World Markets to close? October 10, 2008
Posted by Jeff Nabers in Health, Money, Personal Enjoyment.Tags: constitution, crisi, currency, financial, gloabalization, government, invest, leader, market, Money, plan, power, retirement, stock, world
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In a Bloomberg article today, Italain Prime Minister Silvio Berlusconi said world leaders are considering the closing of world markets so they can rewrite the rules of how they work. He claims the solution can’t be for one country, but instead it must be global.
As terrorism and financial terrorism make us fearful enough to pass the Patriot Act and globalize world markets and power, a Benjamin Franklin quote comes to mind:
“Any society that would give up a little liberty to gain a little security will deserve neither and lose both.”
See the whole (more…)
Lunch at the Fed August 22, 2008
Posted by Jeff Nabers in Money, real estate, Self Directed IRA/401k.Tags: 401k, bank, bernanke, bls, cpi, currency, dollar, fed, foreign, forex, inflation, ira, Money, ppi, real estate, self directed, solo, Solo 401k, world trade center
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I recently attended a lunch discussion at the Fed building here in Denver hosted by the World Trade Center. The topic of discussion: The outlook for the U.S. Dollar.
First, a Federal Reserve senior economist gave us an overview of what Fed is and how it works. Surprisingly, he was quite direct and open about Fed’s control over increasing & decreasing the money supply by simply deciding to buy or sell “government securities” from or to its member banks. (If everyone would have grasped that statement fully, the “forecasting” of USD activity would have been unnecessary.)
The floor was then passed to Russ Root, ForEx advisor at Amegy Bank. He mentioned PPI (Producer Price Index), aka “pipeline inflation”, being around 9.2%. He made some comments about Fed chairman Bernanke currently asking Congress to consolidate & fortify Fed’s powers. I understand Fed’s job is essentially to attempt to rid America of the economic cycle, thus making all our lives recession/depression-free. Economically speaking, this is impossible when operating a system on fiat currency. So, each time a new Fed chairman gets appointed, he has failed at his task before starting it. For this reason, word of Bernanke asking for “more powers” is alarming. It’s like losing a game of blackjack and doubling your bet after each loss… throwing more money or power after a losing game is a silly thing.
Mr. Root described the situation with the dollar as “the race to the bottom”. To summarize his message, “we win”. We’ve won the race to the bottom, and his bet is on a stronger dollar over the next 18 months. Oddly enough, he didn’t explain why or how the dollar’s rebound will occur beyond the logic of “what goes down must come up”. It’s not a surprising prediction considering the venue.
Beyond my thirst for knowledge relating to fully understanding money, my reason for attending this meeting was to consider joining the World Trade Center. Contrary to common awareness, the WTC is more than just a pair of buildings that toppled in Manhattan. It’s actually an association of individuals and companies involved in international trade. This interests me because I believe there are countless strong investment opportunities outside our borders. Most of the attendees of this lunch meeting were WTC members.
One WTC member posed the question, “The 30 year bond should be at 13%. How long will these other countries keep propping us up?” His concern wasn’t exactly addressed. I mean whoever does know “how long these other countries will keep propping us up” is going to become a rich (or richer) man applying that knowledge and keeping quiet. Of course, this was really more of a comment about his concern that our financial circumstances are currently highly dependent on foreign countries. I haven’t yet decided whether to join WTC. I am primarily looking to connect with international real estate brokers who can facilitate transactions in South America and Asia. Suggestions in comments appreciated.
Does the weak dollar make foreign real estate a bad investment? August 7, 2008
Posted by Jeff Nabers in Money, real estate, Self Directed IRA/401k.Tags: collapse, currency, debasement, deflation, depression, dollar, economy, fed, foreign, inflation, international, invest, investing, investment, properties, property, protect, real estate, recession, rent, rents, wealth
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In a recent meeting with a couple of real estate investors, I was posed with the question:
Doesn’t the weak dollar eat into the profit of foreign real estate investing?
Not at all; in fact, quite the contrary. A weak dollar makes spending dollars in foreign countries disadvantageous. I ran into this a few years ago in Sweden. I went to buy a t-shirt and it cost the equivalent of $85 USD. I asked my Swedish friend if this shirt was expensive, and he replied “no”. That’s when I learned firsthand that the plummeting dollar is making international vacationing more expensive for Americans.
Spending money on foreign real estate
The same does apply to real estate purchase for personal use. If you find a beautiful property in a foreign country that you’d like to buy for personal use, it’s going to cost a lot more today than it did 5 years ago. You’re spending US dollars and you’re going to have to spend a lot more now since they are worth less thanks to inflation.
Investing money in foreign real estate
Investment into real estate is done to accomplish one or both of the following objectives:
- Produce [Rental] Income – I believe this should be the primary objective of any investment. Income is more predicable and controllable than appreciation.
- Appreciation / Capital Gains – This is the focus of most novice investors.
When investing in foreign real estate, you convert the appropriate amount of US Dollars into local currency, and you will purchase the property in local currency. Regardless of whether you receive your return on investment from #1 above, #2 above or both… you will receive it in local currency. If you buy property in Sweden, you will receive rental income in kronor (Swedish crowns) and proceeds from the sale of the property will also be in Swedish crowns.
Scenario 1. If the dollar is weak (relative to its historic value), but its value remains constant during your ownership of the Swedish property, your return-on-investment (ROI) will be unaffected by the dollar’s weakness.
Scenario 2. If the dollar is weak, and it continues to weaken during your ownership of the Swedish property, your ROI in Swedish crowns will remain unaffected, but in USD your ROI will be increased.
Scenario 3. If the dollar is weak, but it rebounds and strengthens in value during your ownership of the Swedish property, in USD your ROI will suffer. The dollar can only bounce back if the Fed completely reverses its monetary policy. In this case, interest rates will go up to 13% – 20%, and the entire US economy will essentially crash. Here there will be so many opportunities that as long as you didn’t put your entire investment portfolio into the Swedish property, riding the bear market down in short positions will more than compensate for the lessened ROI on the Swedish property.
Weakening dollar makes domestic real estate investment a bad idea
The weakened dollar has hurt real estate in the last 2 years. During this time, inflation has been at 10% – 12%, while housing values have been stagnant or even declined in some localities. This means all our homes have decreased in actual value 10%+.
If you believe interest rates will remain low and that Fed will continue its inflationary policies, investing in U.S. real estate might not carry a very good ROI. If your property is returning you 12% annually, but inflation is at 12%… you have successfully stored and protected your wealth, but you have not grown it. The continued weakening dollar will hurt domestic real estate unless real estate appreciation outpaces inflation. Using the increasing money supply as a forecaster, inflation is heading towards 16%. I don’t think real estate values (or rents) will increase by 16% per year over the next few years, so this tells me that while our inflation continues, domestic real estate investment performance [in general] will suffer.
Summary
- The weakened dollar has made spending money in foreign countries expensive for Americans.
- The weakened dollar has not affected real estate investment into foreign countries.
- Should the dollar’s weakening/debasement continue, ROI in foreign investments will increase.
- Should Fed’s monetary policy reverse, we will experience deflation and an economic collapse. In this circumstance, there will be tremendous investment opportunities for anyone who has enough liquidity to take advantage of the moving markets.
Concepts to consider
- Reduce your exposure to the US Dollar now to protect your wealth
- Keep enough liquidity to enable you to react to the possibility of coming reversal in Fed’s monetary inflationary policies
- Hold that liquidity in assets denominated in a foreign currency – preferably a currency from a country whose monetary system is generally sound and stable such as Canada or Switzerland
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