Rich On Money

Or will this be you, hanging out at the beach?

It’s strange how things happen. Remember the old line about if you want to make God laugh, “Make Plans”. It may be funny, but fun isn’t the state for tens of millions of Americas who have planned their retirements for the last 20 years and now realize that much of the value they have built up in their portfolios have now been destroyed by the chaos created by the federal government.

We have now experienced the lost decade. The Dow Jones was 11700 in 2000, and today closed at 11153, which means no progress in ten years. Who’s kidding who as they say? Real estate prices peaked back in 2005, and certain real estate sectors are in a depression in this country. We are at 9% plus unemployment, a number not seen in decades, and America is continuing to lose millions of manufacturing jobs to China. Are we going to go back to making license plates for cars?

Now when you put it all together and think about how people planned for retirement in this country, you can imagine the quandary they are in. My thoughts and recommendations are always simple. We are simply not through ringing out the excesses that we built into the system over a 50 year period. Let’s just cover the last 20 years. We have basically done away with the work ethic in this country and built a society leaning towards England’s social system.

England once the most powerful country in the world is no longer on the short list of powers. They lost their work ethic, and they lost their place on the list. Our defense spending is indefensible. Communism is gone, and so should overspending on defense. When Bill Clinton left office it was $300 plus billion per year. Now that we are fighting Moslems in caves, it’s close to $700 billion with the generals clamoring for more. The battle cry of any musician is “I need more gear” (amplifiers, keyboards, speakers).  For a general, it’s I need more planes, bombs, ammunition. Give it a rest; we spend almost as much on defense as the rest of the world combined. What else do you need to know?

The revenues of the country are about $2 trillion a year with government spending at over $3 trillion a year (actually about 3.3), giving us a greater than a one trillion dollar annual deficit, and the government refuses to cut spending, saying it’s all right to borrow long to pay current expenses. My answer is SURE.

What about Retirement? 

Here’s what you can expect. The government will have to create a big round of inflation. We did this during the Vietnam War in order to help control the debt. Both Johnson and Nixon experienced the inflation. Houses doubled in price during this period, but the value of the dollar declined big time so it was a wash. For bonds it was not a wash though, because bondholders were paid back with cheaper money. This must happen here too, and it will happen relatively shortly. 

The government always pulls the same trick. Cheapen the currency, and pay back the debt holders with that cheap money. For you, this means you must own assets that are pegged to inflation. Gold and other commodities will do that. Really smartly run companies with brilliant management teams with the flexibility to morph and change their business models will make you a killing on the upside.  Always have some cash around. There will be intermediate buying opportunities in special situations that will make you a fortune as well. Think like Warren Buffett. If you trade, you will get killed. Just stand at the plate and wait for your pitch, and then swing for the fences. You can stand at the plate all day just waiting for the right pitch. Good luck.