Thursday, July 4, 2013

Academic, Bureaucrat or Capitalist?

The famous Robert Kiyosaki recently published a superb book, "Why A Students Work for C Students (and B Students Work for the Government)." In it, he writes that the super-smart "A" students in school go on to become "academics" - the lawyers, doctors, professors, engineers and so forth. The "C" students - not always the most book-smart but often those who excel at sports, music or other creative endeavors, or are busy working at their part-time job - become the "capitalists" who open their own businesses or start buying rental properties. The "B" students go on to become members of the great government bureaucracy - from teachers and firefighters to folks who work at the EPA, DOD or DMV. Kiyosaki says that the A students go on to work for the C students; the business owner always has to hire a lawyer, for example.

This is certainly a simplification of the way life really is, and it tends to put vast populations of individuals into boxes. But it also has many truths, which I have seen played out time after time. Kiyosaki encourages the A and B students to become C students, and also encourages people to turn from "employee" to "investor."

Now that I have had time to really digest this book - again, it is an excellent book and I think everyone should read it - I realize that the path to being a "capitalist" and/or "investor" is not for everyone. Indeed, if our entire society went in this direction, it would be a disaster. We need a diverse population of A, B and C students to be a successful society that operates effectively.   

The key message of the book that I believe to be the most important is this: Our children are not presented the diverse choices that are available to them for the future. They continue to be taught to go to school, get good grades, get a good job at a big company with good benefits, sock money into the 401K and retire. But that is but one path. The world is changing. While this model may work for many, there are so many other choices out there. It takes financial education to know what the choices are and how they can be achieved.

When it comes to the simple fact of knowing that a person needs financial education - not just academic knowledge - there are people that "get it," and those that don't.  The ones that get it - who take the time to continue their learning and pass it on to the next generation - will be able to move from employee to investor, and set their children up to at least know that there are many choices available for his or her future. The rest - the majority - will stay where they are, and their children will follow the same path. This is not all bad. We need A and B students, they do honorable and worthy work, and we should not judge their choices any more than they should judge those of the C student.

Just know that the C student will have the edge. Take it for what it's worth.

Monday, May 13, 2013

Staying Safe in the Running of the Bulls

I read a great article this morning comparing today's bull run to the infamous fire of 1942 at the Cocoanut Grove nightclub. You can read it here:

Just yesterday I was just having a friendly Mothers Day discussion with my mom on the markets...she was saying, "I don't know why you keep saying that the market's going to crash, as far as I can tell it's going to keep going up and up." And I said that while it certainly could, the facts remain that there's nothing fundamental supporting the bull run, it's all due to the fed's QE, The Bernack is probably leaving, who knows what will happen, and so forth. Thankfully she has sell stops in place on her long positions, so she can keep enjoying the ride up without worrying too much (except for the overnight gap risk, and I'd love to have a discussion on this another day).

Back to the article posted above, I noticed how the writer laments the lack of choices people believe they have in a market like this, due to the low interest rates that the banks are paying on FDIC-insured investments. One thing he didn't mention is buying real estate secured notes. I truly believe that this is a great place to park money. Of course, like anything else you need to be smart about buying these. But there are some excellent opportunities for people to make a decent return in something secured by something real.

Something real? What do I mean by that? Isn't a CD at a bank something real? What people don't understand is that when you put money into a bank, the money's no longer's the bank's. You hold an IOU and the bank has to pay you. While this hasn't been a problem in our recent past, it is fraught with problems if the Congress gets its way and passes a bill which would make products of the shadow banking industry (everything in the banking swap casino that most of us don't really know about) insured by the FDIC, just like your bank deposit...and even worse, the swaps would have priority consideration for payback over your bank deposit. So while your bank deposit would be insured by the FDIC, you'd be in line behind the entire shadow banking industry, waiting for an underfunded FDIC to pay you back. Anyone smell a new TARP on the horizon? Yes I know it is insane, but if you don't know by now that Washington is Wall Street's prison bride, you haven't been paying attention. 

So here we are. Stocks are running up like there's no tomorrow. Just be sure that you can get out when the gettin's good. Enjoy the ride and manage the risk. And give serious consideration to other vehicles such as secured notes, so when the crash happens you don't really care because you're well protected. There are good choices out there. Get yourself educated and enjoy your life.

Thursday, March 28, 2013

Big Fat Liars

I'm sitting here a few days before Easter, biting the head off of a marshmallow Peep, thinking of Chicken Little and our current financial situation, waiting for the sky to fall...or not.

As we all know, the sky hasn't fallen yet. The fiscal cliff can was kicked down the road. Sequestration happened and life amazingly went on. The stock bubble keeps inflating. Real estate inventories are tightening. Greece is still in the Eurozone, the rest of the 'zone PIGS (Portugal, Italy, Greece and Spain) are wallowing, and Germany is left to pour on the slop. Sebelius admitted this week that Obamacare will raise insurance premiums. The latest debt ceiling crisis has been averted until May, and when that comes we wouldn't be fools for betting on another can-kick to carry us through August. And there's a new securitization kid on the block, this one the REO-to-rental scheme.

If all of this hurts your head, you're not alone. There's one common element linking all of these events together. What is it? Simple. LIES.

Seems we are dealing with a bunch of pathological liars running the world. Sure, they'll come clean once in a while when it suits their purpose (Sebelius had to come clean because insurers are ready to announce 2014 premium increases), but otherwise lying is a comfortable way to operate (REO-to-rental securitization - really?).

How does one deal with a pathological liar? If it's a spouse, get a divorce. If it's a co-worker or neighbor, avoid them. If it's a friend or lover, stop being a pathetic codependent and dump them. But what if it's your bank? Your government? Your broker? Can you avoid, divorce or dump these ingrained entities?

Sure you can, up to a point. Self-direct your investments into things you understand. Take the time to learn about Obamacare and position yourself for the best outcome. Employ a good CPA and take the steps to keep every dime in your pocket that you legally can.

There's one common element linking all of these events together. What is it? EDUCATION. Don't let it hurt your head.

Like Oprah tells us, when dealing with pathological liars it's up to you to 'take your power.' Or like the Who said, "We Won't Get Fooled Again." Get your risk management in place for whatever lies ahead.

And to all the big fat liars out there, just remember. Karma's a bitch.