Reality Check Q&A: Part 1
Sept. 11, 2009
I take the questions in the order in which I received them.
I received the usual response: about one per 1,000 subscribers.
Remember: this service is free. But it's worth twice what you're paying.
NEW CAREER
Age: 30
Location: Huntsville, AL
Occupation: Engineer (job) / working on becoming a math/programming teacher (calling)
Retirement date: Never, would get bored.
#1 goal in life: 1) Start a charitable foundation, St. Vincent de Paul type; 2) Teaching; 3) Real Estate Investor. Small family homes. 2-3 years away from owning my first house out-right. Would sustain goal #1.
Deadline date: By age 55.I believe my goals 1 and 3 will be unattainable due to higher interest rates coming down the pipe due to much higher inflation. Besides stock-piling gold, what steps do I take to make sure I can continue to buy houses 5 to 10 years down the road? Protect my family?
This is a coherent assessment. You have three excellent goals.
On residential real estate, go here: www.JohnSchaub.com. He shows how to buy homes in all seasons and economies. I think you should pursue this. There will always be families looking to rent. There will always be families desperate to sell. You should operate in the middle.
On teaching: if you start a day care, you can teach. A day care is a great real estate investment. Add a grade every year. Look into licensing requirements. This would mandate a career change early. I recommend it, but few men will do it.
You can hire a day care manager. She will be reasonably priced. She needs a degree in young child education. If you think about pursuing this, I can provide a free manual for you. It will let you see what you need to do.
THE EURO
Suppose the dollar collapses. What happens to the Euro?
First, they will go down together. The G20 national heads of state and central bankers made it clear last weekend that they will pursue a low interest policy. They are coordinating the fiat money program. They are going to follow the leader. We are the leader.
Their goal is to keep from getting left behind in the recovery. They think fiat money and huge government deficits are positive. They are all Keynesians. They will move as close as lock-step as they can.
No one wants his currency to get too high (bad for exports) or too low (bad for international respect).
The euro is a currency for a large trading bloc. It could function as an alternative to the dollar. But Asia is more productive. Europe is aging fast. Its non-Turkish Muslim population is at the bottom in terms of productivity and income. Europe will follow Bernanke's lead. It has already said this.
REAL ESTATE
In an economy that is experiencing inflation, or hyper-inflation, what will happen to real estate value? Would it's value sky rocket in turn with the devaluated dollar? Or in line with supply and demand, would the value be suppressed due to the lack of buyers? And as a follow up question, in preparation for possible hyper-inflation would it be better to invest in tangible goods and commodities (gold, wheat) or with the means of production (tools, productive land) of goods that would be in demand even in a hyper-inflation economy (food, clothing, shelter)?
Real estate that produces steady income will appreciate. The question is, will it stay ahead of price inflation? The #1 problem: rising mortgage rates. There will not be another bubble. The lenders are too shell shocked.
I think it i best to invest in tools of production. Buy them as you would buy houses: from distressed sellers.
Rural land? No. It's much safer to lease it. Farmers are land maniacs. Never get in a bidding war for rural land.
There will be great opportunities for buying commercial real estate a year or two from now. It will crash next year. This will go on for years. No hurry.
INVESTING
Question: What should I do with the $10k I have in a 401(k) account (not in play) that I had to move when my company stopped the plan?Your age - 39 (40 in Feb.)
Your location - Kansas City area
Your occupation - Client Services in a tiny software company
Your retirement date - ha!
Your #1 goal in life - keep a house over my wife & kids' (current & future) heads
Deadline date - death (date unknown)
With that little money at your age, it's walking-around money. Cash it in and buy American eagle gold bullion coins.
Alternatively, use it to start a side business. Something web-related would be good. Start preparing for your own non-retirement.
INVESTING
Question: What are some safe options for protecting assets against a seriously depreciating US Dollar? My thought scenario here is the dollar collapses, or nearly so due to hyperinflation. My question is specifically target towards assets that are located in accounts such as 401K and Healthcare Savings, where the penalty of withdrawal is high. My options to date appear to be. 1.) Withdraw (take the penalty hit) and buy tangible assets such as precious metals, real estate etc. 2.) Buy common stocks of solid, blue chip companies in the existing accounts. Not mutual funds that hold them. 3.) Others??
THE DOLLAR
How much time is left for the dollar as a viable currency for international trade?
For as long as there is international trade. It's falling fast. It has never fallen this fast in my lifetime. The Baltic dry index is a surrogate for physical trade. When shipping rates fall, we are in contraction. Take a look at this chart: click here.
The threat of a fall in trade is serious. The division of labor will contract. Output will contract. We will all be poorer.
But without the dollar, world trade will decline very fast. The dollar remains at the center of international trade today. To switch to something else would create massive disruptions. It will happen over time. The world's bankers and bureaucrats are trying to organize a smooth transition. It will not be smooth.