Financial Planning

A resource forum for those interested in buying, selling, or developing a business; for questions about retirement plans; investing and basically any aspect of acquiring, keeping and increasing one's personal stash of filthy lucre.

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Re: Financial Planning

Postby Mother Theresa » 19 Oct 2010, 12:54

Interesting little article in MotleyFool UK (for some reason that's the app that I got on my iPhone) yesterday.

This Market Is On Heroin

Beware of withdrawal symptoms when the fiscal stimulus is removed.

Without wanting to put too fine a point on it, Jim Slater has been around the block a few times. Aged 81 yet still very active in the markets, this legendary British investor and financier has earned the right to call it as he sees it. . .

Slater sees the economy, particularly in the US, in a very bad place -- but the market as being kept drugged and oblivious to the fact by the authorities, who are using massive amounts of monetary easing to make sure it stays that way. . .

Slater says it's like there are two parallel universes, running side by side. He continues:

"The first one is what might be called 'the dark room'. We all know the problems. There's massive unemployment. Deleveraging at the banks is continuing. There's overcapacity. The banks aren't lending. There's underfunded pension schemes. Sovereign debt is in doubt. The American states are in deficit. And there's a bleak potential deflationary outlook."

This is the outlook that launched 1,000 bearish bloggers, and Slater quotes freely from them. In this world view, the US dollar -- the world's reserve currency and the anchor of the world's monetary system -- will inevitably collapse.

Why? Because the US is "beyond the point of no return", with embedded Federal government debt of $13 trillion, and unfunded future liabilities in Medicare, social security and similar adding up to another $50 trillion. There's a current budget deficit of over 10% of GDP, and the majority of the 50 states in the Union are near-bankrupt.

"So it's fair to say the situation isn't too good," remarks Slater dryly. "And that's the dark room."

Step in the light

Before you sell all your possessions and flee to the hills, remember there are two games in town.

The other room, the 'light room', Slater also calls 'the QE room'. Thanks to quantitative easing, he says, "it's as if everyone is on heroin."

"It's a very good analogy, because if someone is a heroin addict, it's dangerous as I understand it to withdraw the heroin too quickly. So you have to keep feeding them a little bit, and you hope to gradually unhook them.

"And that's the position that we're all in. We're used to having plenty of money sloshing around, and they are therefore all talking about -- both the Bank of England and the Fed -- about increasing the money supply. That underpins the downside -- by printing money."

Besides making cash a terrible investment, this money printing leads to the risk -- which Slater considers "substantial" -- of eventual inflation, and perhaps even hyper-inflation.

"Especially with all these doubts about currencies," he adds.

Slater's investment slate

The best we can do when faced with these two different situations says Slater is to be prepared for both the dark room and for the light room. Here's his proposed asset allocation:

20-25% in cash -- "It might be very useful if there's a real fallout."

30% in "well-chosen" small cap shares.

30% in gold shares.

5-10% in oil.

5-10% in agriculture.

http://www.fool.co.uk/news/investing/20 ... eroin.aspx

Interesting allocation. I've been keeping a larger share in cash than was historically recommended, due to fears in the last few years. But it's interesting that he goes a step further and puts money in gold, oil and agriculture. Hmmm. Maybe something to think about, though alcohol, tobacco and junk food are probably fairly safe bets too.
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Re: Financial Planning

Postby Edgar Allen » 19 Oct 2010, 15:35

Interesting view - especially as my house is sold and I am essentially sitting on cash!

What about a pooled annuity that pays a greater percentage as the pool shrinks through mortality? Or just a simple annuity linked to inflation?

The key with both is that it becomes about income not about total capital. If inflation kicks in your capital essentially erodes, but a growing income stream would allow you the opportunity to save again.

I think the catch is that we are all too young - typically these products get sold when you are in your 60s or older.
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Re: Financial Planning

Postby GuyInTaiwan » 19 Oct 2010, 21:40

Or you could invest in companies that are well run and that make great products or provide great services that people will probably always need or use. There have been financial crises before, but life has gone on for those who didn't lose their heads. The irony about this is that people didn't learn from history in the lead up to the crash, and now they haven't learnt from history since the crash. One minute, everyone's partying like it's 1999. The next, the world is going to end -- in 2012, and we're all going to be left in some Mad Max style post-apocalyptic scene being chased by leather clad motorcycle bandits. How about some level-headedness?
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Re: Financial Planning

Postby Mother Theresa » 05 Nov 2010, 06:47

Well, if the market was on heroin before, then it just scored another fix.

Stocks surged in the United States Thursday, a day after the Federal Reserve’s decision to buy more government securities to stimulate the economy.

Equities have rallied strongly since early September, partly in anticipation of action by the Federal Reserve, which announced on Wednesday that it would purchase $600 billion in Treasuries. The Dow Jones industrial average has gained more than 14 percent in the last two months while the Standard & Poor’s index is up 16 percent. . .

The markets have surged to their highest level since the Lehman Brothers bankruptcy two years ago. . .

head equity trader at the BNY ConvergEx Group, said investors in the United States followed overseas markets. After the Fed decision, the markets “pretty much had a global recovery,” he said. “The Fed is being very accommodating” . . .

http://www.nytimes.com/2010/11/05/busin ... et.html?hp

Oops, I have to go fix breakfast, but here's a better article on the Fed's latest decision and what it means.
http://www.nytimes.com/2010/11/04/busin ... f=business
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Re: Financial Planning

Postby Hartzell » 21 Nov 2010, 19:31

There has been no discussion in this thread that the Chinese currency, the RenMinBi, is seriously undervalued.

The financial officials of the Obama administration frequently point this out, and also comment that it is the source of many of the world's problems . . . . . . .
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Re: Financial Planning

Postby Nuit » 21 Nov 2010, 19:50

It's raining again here. I'm rising up like a beautiful bubble to the surface.

A wicked wind whips up the hill, a handful of hopeful words.
I was what you would call seriously strung out.
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Re: Financial Planning

Postby Edgar Allen » 21 Nov 2010, 20:58

Hartzell wrote:There has been no discussion in this thread that the Chinese currency, the RenMinBi, is seriously undervalued.

The financial officials of the Obama administration frequently point this out, and also comment that it is the source of many of the world's problems . . . . . . .


My understanding is that every time in history the Americans have forced another country to revalue their currency it has not had the intended positive effect on the US economy. Add to this the fact that most of China's exports to the US are actually sourced in China by American companies who are taking their profits in America and you'll soon realise that this is just a button for Obama to press and is not really a solution.
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Re: Financial Planning

Postby headhonchoII » 21 Nov 2010, 21:08

No use looking at history for this. The Americans seems to have given up trying to push for RMB revaluation. Instead they are using QED to stimulate markets and bring down value of USD and cause inflation, thereby reducing their debt payments and making their exports competitive. They are not admitting it but you just have to see the result that can be acheived by this to know what is the aim.
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Re: Financial Planning

Postby Enigma » 25 Nov 2011, 22:54

The best financial planning advice I ever had, I received in a high school Home economics class. A very smart teacher told me to pay yourself 10% first. I took it to heart. Thereafter, I took 10% of everything I earned and put it it savings before anyone else, other than the government got paid. Hell, I was only 17 but it started to add up. Then into a, then 8%, CD 10 year that I could add to. Doubles every 5 years or less. I kept doing it as the years progressed and the doubling rate dropped with the times. Regardless, I could count on my money doubling every 7 years.
Hell, forget all that fancy mumbo jumbo professional advice.
It worked well and still does.
It is far easier to listen and contemplate than to do.
Do it and you will be secure as long as the dollar is secure (which is a whole new and different issue)
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Financial Planning

Postby headhonchoII » 27 Nov 2011, 15:01

That doesn't work anymore due to low interest rates.
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