Issue #2098
- WEALTHY: What "the Austrians" know that you don’t (Andrew Gordon)
- HEALTHY: An ETR staffer takes ETR’s health advice to heart (Jessica Kurrle)
- WISE: Thomas Fuller on holding onto your money
ALSO IN THIS ISSUE:
- How to make your business 12 times stronger (Michael Masterson)
- Tough financial talk from a small-business expert
- It’s Fun to Know… about bat-planes
- Add "expatiate" to your vocabulary
Confidential Report: Disillusioned Trader Opens "Money-Floodgates" to YOU…
Rob Banks Legally… With an Inside Job!
Are You Ready for a "Smash and Grab" on The World’s "Hidden" Money-Mountain?
Great! The getaway car’s leaving…
"It is much better to have your gold in the hand than in the heart."
Thomas Fuller
The Austrian Prophesy
The last thing I want to do is scare you – but it’s time to wake up and smell the souffle!
I’m talking about our puffed-up economy. With one good poke, the whole thing could tumble down and you, my friend, would be left picking up the crumbs. I’m telling you this now, because there’s still time to make changes to your portfolio. But you have to act quickly.
You’re probably thinking to yourself, "What’s the big rush? I don’t see anything out of whack."
But that’s the problem. Everyone’s having way too much fun.
Just last Tuesday, for example, my wife dragged me out to dinner because it was her birthday. (Talk about chutzpah!) She chose a trendy restaurant where the food is very good but overpriced.
We had a great time. But it amazed me that we had to wait for a table… in the middle of the week… in Baltimore, a city not known for its affluence. The place was filled to the brim with people of all ages, just out for a Tuesday night nosh on some $30 veal chops.
Is the whole freakin’ nation on ecstasy? The economy grew just 0.7 percent last quarter, for crying out loud. Does that sound to you like we’re on a roll? There’s a major disconnect, here, between a tired economy and a population that continues to spend. So, it needs to be asked…
Are we in a bubble? If we are, how big is it? Will our homes be worth a third less a year from now? Are our stock markets about to crash?
Maybe I’m out of line raising these questions. Maybe it doesn’t matter. Whatever it is we’re in, we should enjoy it while it lasts, right?
Really? Even if the whole thing falls to pieces with little advance warning?
It’s not as if it hasn’t happened before.
Nobody saw the Great Depression coming. The Japanese were living it up until the economy fell off its perch in 1991. The Asian countries were flying high in the 1990s, but hit a wall beginning July 1997 – exactly 10 years ago. And our own tech-stock bubble popped big-time in 2000.
What did all these crashes have in common? They all had fat and sassy assets fed by a period of non-inflationary growth.
Wait a minute. Isn’t growth without inflation a good thing? Isn’t that what the government, employers and employees, and Democrats and Republicans want? Isn’t that what the Fed is trying to do RIGHT NOW: keep inflation low while nurturing growth?
Yes, it is a good thing. But the economy runs in cycles for a reason. At some point, a growing and forgiving economy allows some sloppiness and silly investing to creep in. The sloppiness leads to economic inefficiency, and the frivolous investing leads to lower and uneven returns.
But when inflation isn’t a problem, governments don’t raise interest rates to stop these bubbles from growing bigger and bigger… until they burst with devastating results for the economy and people’s investments.
Assets all over the world have been increasing in value since the middle of 2003, and it’s created some wacky incongruities:
- Should a Moscow apartment overlooking the Moscva River really sell for more than an apartment in Manhattan overlooking Central Park?
- Should the stock market in India (the Sensex) really be valued higher than the U.S. Dow?
- Should a hamburger in London really cost 50 percent more than one in Delray Beach, FL?
Is it just a coincidence that the asset class that went up the most in the U.S. in the past five years – homes – is suffering from a surge of defaults from its most vulnerable group of investors: homeowners with weak credit?
The subprime mortgage crisis is just the first sign (and certainly not the last) of what happens when money gets overleveraged. Hot on its heels is the Alt-A home mortgage market (a category between prime and subprime), where defaults are also rising.
Amazingly, there’s a group of economists who have predicted the straits we’re now in. They call themselves the Austrian School – named for its Austrian-born proponents, Ludwig von Mises, Joseph Schumpeter, and Friedrich Hayek. And one of its many adherents – William White – heads the economic and monetary department of the Switzerland-based Bank of International Settlements (BIS).
In its recently released annual report, the BIS said, "There seems to be a natural tendency in markets for past successes to lead to more risk-taking, more leverage, more funding, higher prices, more collateral, and, in turn, more risk-taking… [which]… can, indeed must, eventually go into reverse if the fundamentals have been overpriced."
But besides the subprime and (looming) Alt-A crises, things have been eerily calm this year. Last year, just 0.8 percent of high-yield bonds defaulted – the lowest in modern times. And this year has seen only three defaults so far.
This, my friend, is the proverbial calm before the storm.
How calm? Psychologically, we occupy the same space right now as the rich and confident Japanese did in the 1980s. That’s when they were coming over here and buying some of our most cherished and expensive properties – like Rockefeller Center – as if they were tin trophies stocked at the Dollar Store.
They were convinced that they had unlocked the secret to unleashing incredible wealth from their tightly woven corporate economy… much like today’s hedge funds and private-equity groups are convinced that they have discovered the secret of creating enormous wealth.
As "the Austrians" put it, the Japanese economy then shifted into reverse. Some 20 trillion dollars disappeared from investors’ portfolios, and for the next 15 years the Japanese economy slumbered.
Can the same thing happen to us? I’m afraid so.
The Austrian School thinks that easy credit and investor exuberance is a dangerous combination. Its solution is to raise rates, but its advice is falling on deaf ears. The Fed would raise rates only to pour cold water on inflation. It thinks that slowing economic growth by itself will eventually deflate assets.
But the economy is expected to pick up the pace in the second half of the year. If it hasn’t yet slowed the overpricing of assets, there’s no reason to expect it will tomorrow.
As I mentioned earlier, the Fed has been attempting to encourage growth and discourage inflation – a balancing act that some observers think can be done, while others aren’t so sure. But if you want to know what the economy has in store for us, ignore that bogus act and pay attention to the only high-wire performance that matters: balancing cheap credit and asset growth.
How much longer can tens of billions of leveraged dollars be allowed to pour into our bloated assets – driving up prices, which are then turned into extravagant profits for hedge and private-equity funds at the expense of…
Yes, you guessed it, at the expense of you and me and the mutual funds we invest in.
When these reversals happen, markets unravel at astonishing speeds. Everything we own could be worth much less before we’ve had time to react. It happened to the unsuspecting Japanese investors. It’ll be no different for us.
We’re not at the tipping point yet. So right now, while there’s still time, the best thing to do is increase your gold holdings. Whatever you hold now, double it. If you don’t have any, convert 20 percent of your portfolio to gold. It’s come down in price recently, and is currently a good buy. But that’s not why we’re buying it. We’re buying it for insurance. Gold offers the best financial protection during times of crisis and crashes.
I know this is a big step to take. But I’m not exactly telling you to head for the hills. The very worst that can happen is that the Austrians are wrong and you’re stuck with a precious metal that is rising in price.
But I believe the Austrians have our number. While others are talking about the other bubble – the "it-can’t-happen-here" bubble that shields us from an increasingly toxic easy-credit environment – they are talking about the only bubble that matters.
Take heed. It can and probably will happen here unless the free-buying ways of big money change. But, unfortunately, those free-wheeling spenders are getting bigger and more powerful by the day. And we’re all going to have to pay a price for their "masters-of-the-universe" exuberance.
[Ed. Note: Andrew Gordon, ETR's Investment Director, has authored several books on energy markets, global countertrade practices, and the hot growth sectors of China and Russia. A former professor of marketing and finance, he is the editor of INCOME, a monthly financial advisory service that uncovers income-generating stocks that promise safety (first and foremost), along with much-higher-than-average profit potential.]
In the Past Five Years He Has Closed Out Dozens of Gains Like:
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Superstar Power!
If you work hard on the hiring process and fire hires who turn out to be weak, you should end up with a core group of about six superstar employees. And if you have six superstars working for you, your business is at least six times more powerful than you are. You will be able to produce products that are six times better at six times the quantity. Your sales will be six times better and your profits will too.
Having a six-superstar business is a wonderful thing. But you can get double that wonderfulness by doing one simple thing: Insist that every one of your superstars hires at least one superstar himself.
Start today by making a list of your core group and then asking them to name their top people. Challenge them to rate those second-tier superstars in terms of intelligence, tenacity, work ethic, and anything else you know of that is important in your business.
Set high standards. Tell your superstars that unless they have at least one employee who is as good as they are, they haven’t done the right thing. Explain how having them in your employ has helped you and the business grow. Tell them that good things will happen to them too, because once they have their own superstars, they can move up and on to other, greater opportunities.
Some superstars don’t need to be told to hire superstars. Some do. Don’t leave this all-important task to chance.
If top-notch talent is limited to a single level – the one directly below you – your business will never be able to reach its potential. New projects and possibilities will either fail or be put off indefinitely because your best people will work themselves into stagnation.
ETR Insider Report: A Natural Approach to Beating Depression
By Jessica Kurrle, ETR Marketing Associate
Clinical depression is something that runs in my family – and, like millions of Americans, it is something I have struggled with for much of my life. For the past 12 years, I have taken various anti-depressant medications, with varying degrees of success. At the beginning of this year, however, I decided to take a more natural approach and see how well I could do without medicine.
I have made previous, unsuccessful attempts to get off of prescription drugs. So this time, I made a vow to diligently take the following steps:
Eat a Low-Carb Diet: Blood sugar levels can have a powerful effect on mood, especially when they are constantly rising and falling. So I changed my diet to include more protein and healthy fats, and I have done my best to eliminate sweets and high-glycemic carbohydrates.
Exercise Consistently and With Intensity: There are lots of studies which have shown that consistent exercise, particularly intense exercise, can be very effective at lifting the symptoms of depression. I’m proud to say that I have been working out at least three days a week all year.
Get More Sunlight: We all know that a sunny day can lift our mood – and there’s a physiological reason for it. Because the vitamin D produced when sunlight strikes our skin can also be a powerful anti-depressant. I make sure to get a few hours of sunlight every week by walking my dog or relaxing by the pool.
Supplement With Fish Oil: In past issues of Early to Rise, Dr. Sears, Dr. Joseph Mercola, and Jon Herring have discussed the importance of omega-3 fatty acids for brain health and as a powerful preventive measure for depression. To be sure I am getting enough omega-3s, I supplement my diet every day with fish oil.
I figured that if each of these measures could help with my symptoms of depression, the combination of all four should prove even more beneficial. I have certainly found this to be the case.
Along this six-month journey of mine, there have been a few ups and downs. But for the most part, I feel great! My moods have been more stable, I am not depressed, and for the first time in a long time, I feel like I am in control of my emotions… naturally.
If you suffer from depression, you’ll have to make your own decision about medications. But I’m willing to bet that if you follow the steps I’ve outlined above, you’ll feel a lot better.
Worth Quoting: George Cloutier on Keeping Track of Your Business Finances
"Not doing financial statements honestly and accurately each month is the real killer. If you’re in school, and you get a bad report card, you know you have got to change those Ds and Fs if you want to graduate. In business, you’ve got to look at the report card and make changes if you want to succeed. But you can’t make those changes if you don’t have financial statements, or the ones you have are not accurate.
"So, don’t include receivables that you’re never going to collect, don’t fantasize about sales that are never going to happen. Look at your profit and loss and cash flow statements in the cold, hard light of day.
"Don’t make excuses; don’t deny bad news. Face the problems and figure out why you’re losing money. Either your prices are too low or your product costs are too high. Deal with that right away. Don’t implement a plan that will reduce your losses in six months, because you’ll go out of business before then."
(Source: Business Week)
It’s Fun to Know: Bat-Planes
The mechanics of bat flight have long been of interest to scientists. The bat’s unique wing structure makes it one the most maneuverable flying creatures around – and now a U.S. Air Force funded study is looking at modeling a new type of aircraft on it. Researchers believe that incorporating elements of bat wings, which consist of flexible membranes controlled by the highly refined movements of muscles and joints, would make an aircraft good at hovering, dodging obstacles, and getting through turbulence.
The project is in its early stages, but expect to see test vehicles within the next 10 years.
(Source: Discover Magazine)
A Top Business Breakthrough Known Only by a Handful of Insiders Turns Out to Be One of the Best New Ways to Make a Bundle…
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What is it? All I can tell you is that more than half of the world’s billionaires have made their money this way. You’ll have to read on to learn more about it.
Finally the cat’s out of the bag… Click here to read more…
Word to the Wise: Expatiate
To "expatiate" (ek-SPAY-shee-ate) – from the Latin for "to walk or go far and wide" – is to speak or write at great length or in considerable detail.
Example (as used by William H. Pritchard in Updike: America’s Man of Letters): "At the midday meal on fair day, a large one (meat loaf, boiled potato, broccoli), Mrs. Lucas, married to the man with the earache, expatiates on the difficulties of caring for a parakeet her daughter has unloaded upon her and which, let out of its cage for an airing, has escaped through the door suddenly opened by Mr. Lucas."
[Ed. Note: Become a more persuasive writer and speaker ... build your self-confidence and intellect ... increase your attractiveness to others ... just by spending 10 VERY enjoyable minutes a day with ETR's new Words to the Wise CD Library.]
Michael Masterson
Copyright ETR, LLC, 2007
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