World Reports, December 1999-January-February 2000


* THE BEST MAJOR EQUITY MARKETS NOW. Equity markets are tenuous all over the world. Some bubbles are ready to burst. Investors must take care. Even when investing in the right areas there is risk. Look at the best value major markets for stability on page two.

* PREPARE FOR TURMOIL. Emerging markets may be hit hardest by Y2K. This increases risk but also enhances potential. Calculated risks will make sense for some. See which markets are best on page four.

* Invest in the Imagination Era: Find the next Microsoft before it takes off. Page seven.

Gin clear waters spread over white powder sands. Mangrove and palm edge the shimmering sea. We loll in slow waves, warm reflected sun and watch flamingos stand like anorexia statues splendid in ruffled pink. Purple monster iguanas, a bizarre presence juxtaposed from the past, skitter near the surf reminding us that the future never stands still even in a paradise like this.

Sonesta Hotel Aruba. This is a desert isle with 83,000 residents (and many more tourists) living tidily, in happiness and harmony at the edge of South America and surrounded by the Caribbean Sea. Crime is low, one feels safe, the locals are friendly (though not particularly well-informed or reliable about what is happening on the island).

This is a beautiful place if you like dry on land, but hot, tropically humid in the air. This island is clean, neat, tidy. The Dutch (Aruba was a colony and is still politically connected with the Netherlands) have added this fastidious touch.

Merri and I visited Aruba so I could speak at my last seminar this millenium. While on the trip we took a couple of hours to visit a small island which has swimming, tennis, sports etc. We swam in the clean waters, lazed in the sun and strolled along the soft sands through the vegetation to watch the exotic wildlife such as frigates, iguanas and flamingos.

In all Aruba would seem a perfect place. The island has political stability, a good economy of agriculture (aloe vera mainly), tourism, (from the U.S., Europe and cruise ships), plus a strong financial sector. Everything seems to be here. The shops are incredibly sophisticated and offer world class shopping (jewelry, fashion, etc.) in air conditioned malls with goods from all over the globe. There is excellent weather, good tasting desalinated water and a low stress, easy going way of life.

On the surface everything seems perfect. One could be lulled into thinking that this country is a perfect place to plunck down a little money. This why in this issue I want to share with you how Aruba is a good example of the type of place and economy where one could lose everything they investment there now. Aruba offers the epitome of today’s economic order, but we are on the threshold of social and economic change that can turn our entire way of life, investing and economic order upside down. I explain why, how and what to do about this next page.

How would you like to have invested in Microsoft when it began? Even better how would you like to invest in the next Microsoft when it begins? If the past is any indication of the future, the next business leader in the next big economic wave will be even larger. I outlined how to spot the leading companies of the future at the last seminar of this millenium and want to review these ideas here with you. Traditional successes such as Aruba’s tourist industry could fall by the wayside because people will demand more than just sun, sand, sea and shopping. This island may or may not change with the times but the point is smart investors will see beyond the veil of apparent affluence and success. We will review what to look for in the future but first let’s look at the present, the equity and currency markets which look fundamentally and technically best.

We will review fundamentals as well as technical factors in this analysis because investors who rely just on momentum today are at extreme risk. We have moved to the top of a bubble and there is no common sense guide to shares today. People are pushing up prices of companies (such as Amazon.com) that have never made a profit. In any other industry if a new business moved in and swiped at a chunk of the market share by dropping prices and selling at a loss, we would say this was crazy. But the .com bubble has blinded many investors to the reality of the risks. The Internet will become a big part of our future. I believe this and am going virtual myself. For example you can receive this newsletter and courses free from this month forward at my web site Gary-Scott.com.

But we do not know how the Internet will work out. We do not know who the winners will be. The very essence of the net means that most of the initial players won’t be able to last. The net is perfect for a business like mine which offers only proprietary information, but it can be awful for firms (such as Amazon.com) who have nothing unique to sell.

Watch the Superbowl this year and you will see many .coms spending millions per minute just trying to get noticed. Throwing money around this way is not a good formula for success. Some .com winners there will be no doubt, but investing in them today is really high risk stuff so be sure to counterbalance your portfolio with some investments where the fundamentals make more sense.

Best Value Markets

Let’s start with major markets because I feel that emerging markets have an extra fundamental risk around Y2k. They will be hardest hit. The fact that the U.S. is allowing its diplomatic staff to return to the U.S. from places like Russia is a sign that the government expects the worst!

To determine which markets offer the best potential let’s look at the markets that have the best value, the best velocity, the highest yielding currency (which should help the currency stay strong) and the currency which has the highest upwards velocity.

The best value major equity markets based on relative price earnings, price-to-cash flow and yields currently are:

#1: Austria, #2: Australia, #3: Germany, #4: Hong Kong, #5: Norway.

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The major market indices with the best 39 week moving averages are:

MARKET UPWARDS VELOCITY Sweden 1.17 France 1.12 Denmark 1.10 Japan 1.09 Germany 1.08

Choosing strong markets which are denominated in strong currencies is important. For example if you invested in the U.S. market instead of the Japanese market in the last year, the Dow shares would have had to appreciate over 40% before your investment broke even in yen terms. The yen has risen from 142 yen per dollar to 101 yen per dollar almost 40%! The major market currencies with the best real return (ninety day interest rate less inflation rate) are:

CURRENCY REAL RETURN Swedish kroner 3.36% Australian dollar 3.30% British pound 3.30% Austrian schilling 3.01% U.S. dollar 3.30%

The major currencies which currently have the highest upwards velocity (the lower the velocity, the faster the currency is rising versus the greenback) are as follows:

CURRENCY VELOCITY Japanese yen .91 Canadian dollar .98 British pound .99 German mark 1.01 French franc 1.01

In addition let’s look at the major markets with the fastest falling interest rate velocity. A currency with falling interest rates will help stimulate the rise in shares of that market.

CURRENCY INTEREST RATE VELOCITY British pound .89 Japanese yen .94 U.S. dollar 1.02 Denmark 1.03 Germany 1.04

If we put all these together, here are the markets which appear most often on these lists: #1: Germany #2: Japan #3: Britain #4: Australia #5: Austria #6: Sweden

This analysis suggests that the above markets will offer the best overall opportunities now.

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Best Emerging Markets

Before we look at the best emerging markets I would like to share with you a letter I recently sent to my nephew. He is a really hard working, very successful executive for an incredibly successful medium sized firm owned 100% by one man who has built the company from scratch.

The owner is getting on in years and is about to sell shares to the employees before going public. My nephew wrote asking how he could go about borrowing as much as was possible because the company made an annual return of 26% and you could bank on a return of 22%. Here is my reply.

“As a businessman I can’t advise on whether the shares of your company are a good deal or not without a really deep analysis. Even then I don’t know enough about this type of business to make a really good assessment. What you have written sounds good. Few people know a firm as well as its employees so your strong endorsement and confidence are very good signs.

“However I also know every business has surprises in store during these times that even its employees don’t see.

“Though I can’t say much as an investment advisor, as your uncle I can tell you that the big question here is one of philosophy. This is a question every investor must answer for himself and then stick with the answer. Philosophically this is a tough question and the correct answer can only be found within your heart.

“On one hand I do not believe in borrowing more than you can really afford to lose to invest. I have seen too many investors make really bad mistakes by being over taxed. There is too little leeway for error. You mentioned your business can bank on 22%, but we are in a time of enormous change. One can never totally count on such returns and you could see a slow down or difficult years of business.

“When you carry a burden of debt, you lose your ability to stick through tough times. The need to service debt throws all types of long term logic out the door. This nation is riding a wave of boom that has lasted for 25 years. Your position reminds me of mine at age 24. I was working for a company that was growing by leaps and bounds. The company had grown from eight employees when I started to 2000 people in just three years and was going public. I had a stock option to buy 50,000 shares at a dollar a share and the shares were going public at $20 per share.

“I borrowed and borrowed to buy all I could. This was a mutual fund company that had been riding on a similar Wall Street boom (the stock market had risen continuously from 1949 to 1969). The same year I bought those shares the U.S. stock market crashed and stayed depressed for 15 years. The company I owned shares in went bankrupt and I was left penniless, deeply in debt and had to start all over again. It took me more than a decade to recover. This is not a pretty sight.

“I point this out to show that you could lose everything by borrowing too much, plus you could be stuck with the responsibility of owing investors money as well.

“This is the good reason why your firm will only lend you what you can afford to pay from your income. Your boss sounds like a wise man and it may pay to heed this discipline he has set up with good cause.

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“However on the other hand many investors who are really wealthy today became so by at some stage taking a very big, calculated risk. You are in a pretty good position to calculate the risk. My concern is that you become aware that a risk does exist. Risk always exists because we live in an unknown world. Tomorrow your boss might die or some major new law could turn your business upside down, a new competitor could rise, etc. I do not say this to discourage you but only to help you realistically examine the questions. If you accept there is risk, then you can examine the degree of risk and how much you are willing to take.

“Sit down and calculate how much you want to borrow. Then look at what would happen to your finances if you borrowed this money and your company did not make a profit for a year. How much would you lose? How would you make the payments? How would this affect your family, your job, your son, your life, etc.? How long would it take you to repay the debt? Then calculate how much extra profit you might make with the borrowed money assuming that private investors will charge you considerably more than a bank. Then ask yourself if the extra profit is worth the worry and the risk.”

Having shared these thoughts, let’s look at the emerging markets now. If Y2K problems don’t hamper these economies, they could explode upwards in the new millenium. Getting into these markets now however does offer considerable risk. And there is no way to anticipate these risks.

The emerging markets with the best value based on relative price earnings, price-to-cash flow and yield are:

#1: Brazil, #2: China, #3: Colombia, #4: Czech Republic, #5: Venezuela

The emerging markets with the current fastest rising velocities are:

MARKET VELOCITY Turkey 1.38 Greece 1.28 Africa Gold 1.20 Brazil 1.16 Argentina 1.16

The emerging market currencies with the best real return currently are: CURRENCY REAL RETURN Brazil 12 % Indonesia 11 % Poland 11 % Argentina 9.2% Colombia 9.0%

Let’s take into account that the statistics from emerging countries have proved to be far less reliable than those from major markets (which certainly are not perfect either). The emerging markets most likely to succeed today are: Brazil Argentina Colombia South African Gold

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Manage Risk

I have been a risk taking investor for many years and have learned that once in awhile fingers get burned. From this I’ve learned ways to hedge my bets. A look at the disasters I have recently experienced in Ecuador may help you manage risks better.

When I first arrived in Ecuador, I saw that the country had started to boom in 1995 along with the rest of Latin America. Then a war with Peru and various other problems devastated the economy. I felt the country was fundamentally sound and would pull through its problems so bought shares in the cement company and two of the largest banks (Pacifico and Previsora), plus put money on deposit (in US dollars paying 10% in the most profitable bank in the country (Progresso).

I was right. The market did boom and in the next 18 months prices almost doubled. At this stage I sold (and recommended that readers do the same) half my shares and pulled the money out of the country. This is one of my risk management systems…always pull back capital once profits are doubled in high risk deals. From that point on, whatever happens I have only my profits at risk. The downside to this system is that it dramatically reduces profits on the really big winners. Less conservative risk takers will let their capital and profits roll. Others will even increase their positions (something I rarely do).

In the case of Ecuador my risk management really paid off. Everything that could go wrong did. First, the country made such a disastrous choice in electing their President they had to impeach him and the temporary President was also bad. Finally they voted in a really good man to run the country but were hit by a series of natural disasters. El Nino and La Nina flooded the country for two years, ruined roads, washed away bridges and destroyed crops. An earthquake rocked the coast and trade was hurt by the European banana (Ecuador’s biggest crop) war and the shrimp crop (Ecuador’s second biggest export) was infected with white spot. Banks started to collapse.

Then two of the country’s volcanos (which had not erupted in almost 600 years) started erupting and have covered the capital of Quito with ash, shut the airport down and again created all types of havoc in general. The fourth largest city (Ambato) has been evacuated and one of the largest spas (Banos) has been shut down.

My deposit (with Progresso) was frozen for a year, then the bank went bust and was taken over by the government. This led to a series of other bank collapses and now both the shares of Pacifico and Previsora have plummeted to almost nothing. The government also defaulted on its Brady Bond obligations which is going to squeeze the country even more. In short all the investments are now worth almost nothing or are frozen and are worth only as much as the government’s guarantee. So the profits I made have been given back. With my risk management system at least my capital is still at work.

On top of all this the country now faces Y2K and it has had little time or resources to prepare for this. I am far from discouraged and believe these incredible problems there create considerable opportunity especially in Ecuadorian real estate. There will be bargains of the century over the next year and I plan to take at least one group down to look at real estate in 2000. Watch my website Gary-Scott.com for details.

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Microsoft of the Future

Having talked of the negative sides of risk, let’s look at the biggest risk we all have to face every single day, looking into the future! Let’s answer the questions we asked earlier in this report…how would you like to have invested in Microsoft when it began? Even better how would you like to invest in the next Microsoft of the future at its beginnings?

If the past is any indication of the future, the next business leader in the next big economic wave will be even larger than Microsoft has become.

One great path to enormous financial success is to spot the major waves of technology the world will use and invest in companies related to that technology before they become mainstream institutions that operate as prime movers of a new wave of technology.

In the first industrial wave the best investments (before technologies became mainstream) were in cotton mills, foundries and railways. The second wave winners were automobile manufacturing firms such as Ford. Next came communications (telephones). The fourth wave favored airplane companies (Boeing for example) and the fifth wave was computer dominated first in hardware (IBM) and then software (Microsoft). But the key has always been to invest before the technology or the companies become accepted norms. Investing in fifth wave technology or companies (such as .coms) today may be a way to maintain the value of your money but this is not the way to make really huge capital returns.

It has been said this is how Warren Buffet developed his great success. He caught a wave of corporate globalization made available by the third, fourth and fifth wave technologies (phone, plane and computer) and invested in established U.S. companies as they shifted from being American companies (with markets of about 300 million people) to being global firms (with markets of billions of people).

My best luck in investing was founded on the same principle. In 1968 I had the great fortune of having a job in Hong Kong which required me to travel the world. During these adventures I discovered dozens of ripe new markets existing outside the U.S. before most investors caught on to this fact. For the last thirty years I have mostly devoted my time helping readers discover which markets would unfold next and how to invest in them.

Today most investors are aware that life exists beyond Wall Street. There is still huge potential investing abroad, but the idea has become part of the mainstream. The big question now is what’s going to be big next? What factor will drive the sixth industrial wave?

One factor behind Merri’s and my success in spotting trends has been listening to our inner stirrings. This has helped us see what others will do in the future because our backgrounds are very similar to the baby boomer segment of the population (the richest market on earth). We had normal baby boomer parents, educations, work experience, etc. But our backgrounds had a fateful twist. We were typical until our teens. But then, by fate and circumstance, we diverted from the mainstream. I moved to Hong Kong and lived in Asia and Europe for nearly twenty years. Merri moved to Germany for advanced lingual studies, worked in Europe and then developed a business where she worked for years in Central America.

When we moved back to the U.S., we had the American baby boomer grounding but because of our formative years abroad saw things in a 7

slightly different way. We could see (feel would perhaps be a better word) how the world might change as societies all over the world would merge. Much of society’s growth has come because nations all over the globe have been learning from each other as each has become more global. Our insights have been slightly ahead of the pack because we were global early on. Our combination of U.S. and overseas experience helped us see the future differently than most! This has been valuable. Great fortunes are rarely made from making safe, time proven bets. The key to making huge increases in wealth through capital gains comes from correctly betting one’s money on what differences our future will bring.

Because the future is never guaranteed and because it unfolds in wonderfully strange and unexpected ways Merri and I have learned to (and learned how to) follow our hearts. Often we even follow our feelings when our minds don’t see why. This has been especially true over the past several years. We have watched ourselves and often wondered, why? Many of our actions, on the surface, even to us, seemed strange. Take for example the apparently illogical behaviors exhibited.

#1: I wanted to write a novel after nearly thirty years of successfully writing non fiction. (My first novel “The 65th Octave” hits book stores early next year and can be pre-ordered at barnesandnoble.com or amazon.com). This desire came at a time when my economic reports were bringing in millions of dollar a year. Shifting from a well known, market to a totally unknown, notoriously difficult area made no financial sense at all.

But we have learned to follow our hearts even when things we feel don’t make apparent sense. I took the cut in profits and wrote the novel.

#2: When our International Business and Investment Courses were at an all time peak we wanted to stop. This seemed expensive as well. But we did make the shift.

#3: The city where we lived (Naples, Florida) finally perfected itself. When Merri and I began living there, the place offered little except the beach. The location was inconvenient, our nearest airport was in Miami (two hours away). There were no good theaters, no Walmart, Kmart, no Office Depot, Home Depot, no good shopping, no decent arts or culture, no health food stores, or even a decent book store, etc. We could not even get decent bread or coffee (important to us at that time as we had moved from London where we had everything-especially good coffee and bread)! Finally the city grew up so that everything, anyone could want was available at great prices. When Naples was finally listed as one of the ten best cities in which to live by Money Magazine we felt compelled to leave!

#4: After more than a decade of work to make our historical seventeen room house an architectural delight with a perfectly designed and incredibly lush gardens, we moved to a one bedroom, one bathroom, North Carolina farmhouse (and have been deliriously happy here) on 200 + acres and even smaller accommodations (an open hut) on an 800+ acre Ecuadorian plantation neither of which can ever be totally kept up. These are wild and wooly places compared to the civilization in which we have lived.

#5: After spending most of our adult life in cities and having access to the state of the art communications we felt almost compelled to live in nature. We moved into two areas so remote that one is called the “Lost Province”. These areas are so isolated they have no garbage service, no T.V., cell phones won’t work here in North Carolina and the phone lines 8

aren’t very good. There are no phones or even electricity at the Ecuador site. The nearest store is almost a half hour away and we don’t have paved roads in either place. Both are an hour and a half to the nearest airport.

Why these incredible desires to make such substantial, seemingly illogical changes? We have waited, watched and asked ourselves, what’s up? We have enjoyed the moves, loved the peace, quiet and nature, but kept wondering what deeper force was driving us. There was some force driving us we couldn’t quite understand or put into words.

Last issue of World Reports I noted how the process of piecing this puzzle together has helped while I was speaking at a conference in Copenhagen. One of the speakers was Johan Palladan of the Copenhagen Institute for Future Studies, a think tank that operates from Denmark.

Mr. Palladan’s speech verbalized what we have been feeling and helped us understand why our actions make total financial sense.

The logic formulated from what I heard can help all of us understand what the future might bring so we can direct our investments into areas that may become the next big Microsoft-like winners.

Mr. Palladan revealed seven trends that will affect markets in the economic era ahead. These trends are:

* Trend #1: The rate of economic change will increase. * Trend #2: The rate of private consumption will grow.

* Trend #3: There will be more automation. * Trend #4: Age, sex and wealth are becoming increasingly irrelevant.

* Trend #5: There will be a shift of attitude from our brain to heart.

* Trend #6: Families will turn more and more of their responsibilities to the market place. * Trend #7: The growth in markets will be for stories, not products.

Mr. Palladan also recommended a book written by the president (Rolf Stern) of the Copenhagen Institute entitled the “Dream Society” (published by McGraw Hill). After reading this book, we can see why the moves Merri and I have made are almost perfect from an investment point of view. The book outlines a very believable scenario and shows how by following our hearts we’ve simply done what a huge market is starting to feel like doing as well. The ideas in this book verbalized what we have felt and can help us see the types of businesses that will succeed in the society ahead.

The writer is clear. These ideas are to make us think and add our own experiences to see the upcoming dimensions. However, the future is never guaranteed so what follows should be filtered by what you also feel and know. The Coming Sixth Wave-The Imagination Era

The nature of our upcoming economy and social structure will be as different as the Information Era was from the Industrial Era. In the last issue of World Reports, I outlined how each era has been highly affected by human nature and the way we react, as individuals and society as a whole. This human reactionary path was described by Abraham Maslow in his “Needs Hierarchy ” which states that humans move through six steps in life if given a chance to progress.

The first step in Maslow’s “Needs Hierarchy” is to take care of one’s physical needs, the second is to gain security. After these two levels 9

the third step is to focus on social needs before progressing to the fourth step of acknowledgement and finally to self realization. Maslow years later stated that there is perhaps a sixth step he called idealization or the need to find a purpose beyond oneself.

Let’s put this into day-to-day economic terms. A person first makes sure he or she has food, clothing and shelter. If these needs are not fulfilled, not much else matters. Someone who is cold and hungry rarely thinks too much about how they look or about the social impact of their process of getting food. Enough hunger and cold will lead people to take great physical risks to be fed and warmed.

But once the belly is full, the body warm and the larder filled, one begins to think about how to protect that food and how to stay warm. When secure and comfortable that the physical needs are and will remain satisfied we start to think about how we look, how we get along with others and how we fit into our society and family. We want to fit in! At least for awhile.

Then we want to excel, to be acknowledged, in our society or family, as being special, being good, being more than just acceptable.

When we reach a point where we have convinced others we are special and unique, we become driven to convince ourselves of this fact. We look for acknowledgement.

Finally, if we prove ourselves to ourselves, we reach a sixth level of having needs that goes beyond ourselves.

Our upcoming society will be dramatically affected by this hierarchy of nature and four other important facts. First the fact that parts of the world (industrialized society) have seen a six times increase in wealth in just one century. Today the average American is 40 times richer than ancient mankind, an amazing increase. Second most of the incredibly rich westerners are still not satisfied. Third most of the world hasn’t enjoyed this increase in wealth. Fourth most of the world, rich and poor can See the discrepancies in wealth between the rich and poor.

These facts lead to two ways of making wealth in the millenium ahead.

The first alternative is to spot new innovations and trends in rich countries and invest in them ahead of the pack. This is what Bill Gates and his cronies did in the fifth (Information) era.

The second alternative is to look at less developed nations and see from experiences gained in industrialized countries to understand what level of needs the developing populations have. This will help you see what the citizens of these poorer nations will buy next. As America and other rich countries discard old successes for even greater ones, other less developed nations will buy the older successes.

Imagination

In western society we now pretty much take the perfection of physical and security needs for granted. If we buy a new car, we expect it to run pretty much perfectly. This is true of most consumer products. Fewer and fewer consumers choose one car over another for the material qualities of getting us back and forth to work. We assume the car will take care of our physical needs. Instead we buy cars which we imagine fill more of our 10

hierarchic needs. We might buy a car to enhance our social needs (for example, a mini van may be purchased to fill the love need related to our family). Many cars are purchased to enhance acknowledgement. An expensive sports car such as a Porsche has very little utility, but establishes the fact that one is special. Such a car turns heads.

Often the car will fill multiple rolls. The luxury version of a large four wheel drive sports utility vehicle (the most popular selling vehicle today) may provide the owner with a feeling of security, may fit family needs (running the kids to ball games and classes, etc.), suggest wealth and status and emote that the owner has a rugged outdoor lifestyle.

This is the Imagination Era because the reality is that all of these additional factors (which may cost a bomb) may never be used. Few people dare push the pedal to the metal in their souped up Porsche or Bentley Turbo. Not for long at least. Nature has a way of eliminating people from the gene pool that drive highways at 140+ MPH. Many owners of SUVs never turn on the four wheel drive. (Car manufacturers acknowledge this fact by now making two wheel drive SUV models.) In many instances some features contradict themselves. Fancy, light colored easy-to-stain, leather seating isn’t compatible with the implied ability to navigate dirty woods, haul muddy dogs, etc. which an SUV offers.

I’ve watched myself go through all these phases. As a youth I had a car with four-on-the floor transmission, overhead cam engine and stripes down the side of the car. After getting into business I had many of the expensive status cars, Mercedes, BMW, Bentley, Rolls Royce. Then with five kids and a grandma I shifted to mini-vans though the whole family were not often all together in the car. I drove all that extra space because I imagined that having this vehicle was good for the family. Then I threw in a fancy two person sports car, with superb road handling capacity and wondered every time I drove it what I was doing with such a car on Florida’s straight, never-curving roads.

A Huge Rising Market

Understanding the hierarchy is important because the higher people move up the hierarchy, the more they pay for the satisfaction of their needs. Pound for pound, a Chevy Caprice is a lot more car for the dollar than a top line Porsche (The owner of the Porsche gets just two cramped seats and risks life, limb and driver’s license to use the performance.) The Porsche owner is paying for something he imagines he will get beyond a car. Speed, power, friends, romance, whatever. He is paying for some type of story.

It is the implied power, the acknowledgement, the images the buyer gets that costs the extra thousands of dollars. The owner may well get this acknowledgement too because of what others imagine. As the Information Era improved productivity, it created huge markets of wealthier consumers. These consumers have moved up the hierarchy and spend ever increasing amounts on ever less tangible goods.

Today, for example, a durable watch which keeps accurate time costs about ten bucks. Any price beyond is the cost of imagination. A diamond crusted, solid gold Rolex does not keep better time than a basic Timex. But one could well imagine it does. The owner imagines that the watch speaks of wealth, prosperity and success. The story of the watch sets its price. In the Imagination Era the story will become more important than any other feature. 11

Thoughts on Imagination Era

Here are some thoughts on the Imagination Era that can help us get a head start on selecting areas that will be the wave of the future. As you read these ideas, remember that we can be pretty sure that none of them will be totally correct. Economic forecasting and social trends are like forecasting weather. The future cannot be clearly foreseen. There are too many variables. For example there is a real chance that society will see teleportation in the next few decades (I shared statements from the U.S. Government, IBM and Hewlett Packard about the scientific evidence of this in the last issue of World Report). Imagine how this will change travel! Automobiles may cease to exist. Yet even before teleportation shifts from the science fiction to the industrial realm, a series of tapes I heard suggest it could be obsolete! These tapes were certainly way out but contained interesting information and some deep wisdom existed whatever the source. One taped question asked about sightings of UFOs. The reply given was food for thought. “Anyone who really has the capacity to visit us from such far places certainly does not need space craft. They would only use such physical objects to step down their presence so they could communicate with us.”

This made me think about the type of breakthroughs we could make in our mental capacities. We could expand our minds to such an extent (by the time innovation brings us teleportation) that we won’t need Scotty to beam us up. We won’t need space ships. We will not need a physical presence to visit other life forces and places. We may learn how to be so in touch with our minds and bodies (which are after all an integral part of the universe) that we do not need to use our five senses to understand a distant object, event or place. We will simply be able to accurately imagine it with as vivid (or more) imput as we now gain from the eyes, ears, nose, skin and tongue.

Maybe. I stretched my imagination in these last two paragraphs, and this is the point. The human mind is currently not capable of accurately imagining anything at a distance in time or space. The laws of quantum mechanics suggest we never will either. These laws suggest that the act of imagining actually alters, forms and shapes that are being imagined!

But humanity can get better at this! And we are working hard to do so. This is why I have coined this next wave as the Imagination Era. This is also why these thoughts below cannot be totally correct. The act of my writing and your reading alters what the future will be! So please read the thoughts below as a stimulus to use with the rich tapestry of your experience so you can feel how the future may be.

* Imagination Era Thought #1: The information era is ready to peak. We can still make money in Microsoft and the .coms. But the really easy big billions have now been made in the Information Era. The first industrial wave water-textiles-iron, lasted sixty years (1785-1845). The second wave steam-rail-steel, lasted 55 years (1845-1900). The third wave electricity- chemicals-internal combustion engine, lasted 50 years (1900-1950), the fourth wave petrochemicals-electronics-aviation, only 40 years 1950-1990) and the fifth wave which we are now in, digital networks-software-new media, is after a decade already near or nearing its peak. Each wave has been shorter and sharper. Each series of innovations has saturated the market faster than in the previous wave. If this wave has thirty years of life, it is already through its infancy and well into maturity.

* Imagination Era Thought #2: We can see the Imagination Era every day. Eras do not start and stop in a day. We still have textiles and foundries, railroads, airplanes, etc. New airlines and car manufacturers still begin. The sixth wave is already beginning to form. Chances are it will rise even faster and sharper than all those in the past.

* Imagination Era Thought #3: Whatever can be automated will.

* Imagination Era Thought #4: Excellence and value will be taken for granted. In the industrialized world (remember investing in emerging nations will be different) the main mode of production will be automated assembly lines turning out low cost, highly usable, dependable products. Innovations in production will take place very quickly within an industry. Whenever someone comes up with a new, better idea for a product, all competitors will upgrade to match the innovation very quickly. The value of patents and proprietary design will fall dramatically (if there are any patents left at all). There will be very little difference in utilitarian value from one competing product to the next. For example, it is understood today that most cars will run without trouble for 40,000, 80,000, even 120,000 miles. Almost any watch you buy will keep accurate, dependable time. Buy a radio or TV and you expect it to work immediately, easily and to keep working without much fuss.

* Imagination Era Thought #5: The story will reign king! People will buy products based on the story behind the product. For example consumers won’t buy the cheapest, best time keeping watch. They will buy a story behind non functional features which they imagine represents values relative to their lives. Those who imagine themselves rugged individualists will buy tough, bulky, shock proof, watches that are water resistant to 300 feet depths, even though they never plan to dive. (Swiss Army watches, for example.) Those who imagine themselves to be active sports types might choose a Rolex Yachtsman, etc.

Car buyers won’t choose value and technological superiority. They will choose a car that has a story which represents the life style they imagine. Consumers will buy on a far more emotional basis than before and the emotions will be based on their imagination, hence the name Imagination Era.

The brand will become the story. We can see this clearly by studying the history of Marlboro country. In the 1950s the tobacco firm, Phillip Morris, was an obscure British company with a pitifully small share of the American tobacco market. RJ Reynolds was king and the leading cigarette was Winston. Marlboro was a cigarette targeted for women smokers with the slogan “Mild as May” and was going nowhere. Then under new management this all changed. The new managers created a new image for the cigarette, the rugged image of the Marlboro Man. This image along with the bold red and white, crush proof box helped Phillip Morris become the world’s leading cigarette manufacturer and pushed Marlboro into the top selling cigarette in the world. This happened despite the fact that RJ Reynolds revamped Winston so the two cigarettes were literally identical in chemical composition (with the same additive additives, etc.). Where Winston could not compete was in the story, the spirit of the Marlboro Man was successfully placed in people’s imagination. Today this story is more than smoke! Marlboro country has become a brand that sells clothes, trips and many types of consumer products beyond tobacco.

While on our recent trip to Aruba as we walked through a tourist shopping mall, I came across a Caterpillar shop that sells boots and 13

clothing. Here is another brand where the story has gone beyond the original product (crawler tractors and earth moving equipment). In the Imagination Era the brand story will become more important than the product itself. Take Disney as an example. They’ve used the brand story to move from cartoons to movies to theme parks to an entire development of houses with a certain implied lifestyle. Disney’s story is one of family values and this has appealed to millions of consumers in a multitude of ways.

* Imagination Era Thought #6: Values will be as or even more important than the economic value.. Consumers will base their buying decisions on private internal values that will grow in importance. We can see this trend already developing. For example many businesses have already learned it is good business to now give part of their profits to some type of charity.

Some businesses have become their values, such as the ice cream company, Ben & Jerry. Such companies form a new corporate culture each expressing their values through the way they do business. Such firms express a set of values which states how the firm’s convictions differ from the norm. Consumers who imagine these convictions are good will buy from these firms because they feel this firm has the ecologically correct or wholesome values that match how they (the consumer) feels.

In the Imagination Era consumers will perceive these values to be of increasing importance and will increasingly follow their feelings even when their imaginings may be wrong. In the early stages of this era this may lead businesses to profess convictions that are not really felt simply to attract customers. This will be a big mistake (as I believe Bill Clinton, the Democratic Party and especially Al Gore may be about to discover). Consumers have too much access to too much information to be fooled for long.

This is why Perrier suffered greatly when it was discovered there was pollution in their process of adding carbonation to the drink. The story behind Perrier was French, fresh and naturally bubbly straight from the spring. The pollution was not the problem. The awareness that the water was not naturally carbonated destroyed the myth of its bubbly freshness and sparkle. Consumers were not buying water or even taste from Perrier. They bought the image of fresh French, naturally bubbly, mineral water.

This is also why the recent negatives the Disney empire has received (over management battles, golden parachutes and less than wholesome movies produced by Disney subsidiaries) could be great disasters to the Disney world. These events may be perceived as something less than clean, wholesome and good for the family and kids. If consumers imagine Disney as something less than a company that promotes family values, the luster of their products could be irrevocably tarnished.

The point is imagination is everything. The products, management and work force of a firm may or may not be as the public perceives. Disney may be a wholesome firm or may be a money grubbing, totally ruthless organization. Perrier may be pure or may come from cesspools. The Marlboro Man may be a rugged individualism or a complete pansy. But what affects consumers is the public image.

As investors we want to choose companies that have images that reflect true values because in this day and age the public is well informed and enlightened. Information is too readily available and this trend of 14

transparency will grow. Bill Clinton learned this the hard way. There have been many married presidents who, it has been suggested, had an extramarital involvement while in office (Roosevelt, Eisenhower, Kennedy etc.), but those were days when information could be more easily contained.

Today we also suffer a crisis of values. The image of many local community, government, religious and business leaders has been tarnished. Most consumers are cynical. Yet they also desperately want someone or something in which to believe. They are looking hard at not just what every business says but what it does. They will stick (even if it costs more and is less convenient) with businesses that act by principles they preach.

Employees are in this same position too. Recently when we were in the Charlotte airport to visit two bankers who had flown in to consult with me, I was approached by an employee from US Airways. She belonged to a group named “Chaos” and the message she handed me read:

“Chaos could be coming to US Airways. More than 1000 days have passed since US Airways flight attendants began to struggle for a new contract. We made sacrifices for the airlines in bad times. Now that US Airways is making billions we want our fair share. US Airways Chairman Stephen Wolf and CEO Rakesh Gangwal made a combined $70 million last year. And they gave other top executives 500% bonuses. But management is asking flight attendants to make more sacrifices.”

Here is a clear example of how important the values of a business are both for the customer and the employees of a firm. If the business needs sacrifices, the trimming will have to start at the top. In this example US Air’s management story of a need to cut back was not validated by their actions. Therefore the employees were not buying.

The Imagination Era will be highlighted by savage competition. We are seeing this starting to take place already. Internet companies are putting great stress on other types of retail businesses and distributors. Then these same Internet firms are competing intensely among themselves. Take for example Amazon.com which recently moved into the retail toy business. They are hot on the tail of Toys.com and Toys R Us. When Toys.com recently came up with a new way to gift wrap toys more easily so toy consumers can get their Christmas toys delivered already wrapped, Amazon.com immediately jumped on the wrapping bandwagon as well.

Several .com companies have or are developing software so that before you buy a product from one Internet firm you can first check prices from competing firms.

Soon, consumers will be so informed that no one will be able to compete on price and value. Only stories will sell and successful companies will need successful stories that last. It will become increasingly difficult for businesses (as it has for politicians) to use duplicity in the market place. (If you don’t agree ask Newt Gingrich who led the attack on President Clinton’s sexual affairs and ended up losing his job over his own similar foibles.) Values will become more valuable than value in the Imagination Era!

Big Markets

What does knowing all this mean? If we think through how consumers will react, we can start to see markets that will grow. If we understand 15

which markets will expand then we can look for companies that are providing products and services in these areas. Here are eight markets that Rolf Jensen believes will prosper which he outlined in the “Dream Society”.

Market for Adventure

Recently the Wall Street Journal featured a front page article about the Replica of Captain Cook’s ship “Endeavor”. The article told how people are paying big bucks to board the ship and live in circumstances so harsh that in days of old, sailors sometimes had to be press ganged (kidnapped) to serve. Yet men and women now sign up (and pay) to sleep in coed swaying hammocks hung so closely together they slam into each other like meat hanging in a locker. Some of the events include climbing up 120 feet on rope ladders in heaving seas and having sea sickness (the converted barge has little beam so wallows heavily in turbulent seas). The paying guests are overworked, get little sleep, are continually drenched in icy seas, are usually cold and at times actually at physical risk.

Yet this adventure tour is sold out because as the Captain points out, “We give the guests controlled excitement and risk.” It has also been pointed out that a best selling maritime adventure writer who has written several romantic books on the high seas has caused huge numbers of consumers to imagine that this is a romantic story.

Adventure markets range from professional sports to hot air ballooning to mountain climbing to diving off bridges and radio towers. The market extends far beyond these actual acts. The story is what taps the imagination of the consumer! Note that the first successful around the world balloon journey was sponsored by the watch manufacturer ‘Breitling’. This firm knows that many watch buyers are buying adventure when they buy their watch.

When people buy Nike shoes endorsed by an exciting athlete, they aren’t buying canvas, plastic and rubber. They are buying a story of adventure. Sports offer the essence of adventure intense competition, the ecstasy of success, the pain of defeat, the high stakes that separate the winners from the also-rans.

Even sports stars are becoming story brands (Michael Jordan, etc.) more than ever before. One can expect to see Michael Jordan shoes, clothes, etc. Henry Ford understood the adventure market’s impact on the car business when he said, “We race on Sunday and sell on Monday”. Today the Camel Trophy Cup is an adventure, an enormously grueling race which sells cigarettes, and much more (watches, shoes, bags and clothes).

Consumers do not even have to take risks to gain these adventures. Increasingly consumers will gravitate to sanitized (without risk) adventure. Cruise lines are becoming overbuilt and will become more competitive. The winners may become the lines which create theme boats where the guests live an era or event. There may be “Roaring Thirties Cruises”, “French Connection Boats” and “Western Pioneer Cruises”. There may be “Titanic” and “Lusitania Cruises”, etc. I would not be surprised to see a liner converted into battleships that act out battles. The guests will dress, act and live the adventure while on board.

As the Imagination Era advances, it is possible that computers will become increasingly powerful automating our emotions as they bring us sanitized adventure. We can already see this trend developing by observing some of the best selling computer games simulate Big Game 16

Hunting. With this game, virtual hunters can take trips all over the world and hunt many types of game. These games allow the enjoyment of adventure, the out of doors and the rush that has been instilled in our genes by thousands of generations of hunter-gatherer ancestors. We can hunt, track and kill. Yet we never have to step in the woods. We don’t have to get into shape. We don’t have to haul the heavy game out of the woods, figure out what to do with all the meat nor face the blood. We don’t have to put up with the rain, the cold, the leaky tent, the fatigue and the inconveniences. These also allow conservation and ecological advances taking place here. Whenever we want, wherever, night or day we can let the adventure begin!

Listen how the advertising copy reads in Cabela’s catalogue for the computer CD Rom game “Big Game Hunter”.

“From the dense forests of the Alaska Highlands to lush Georgia woodlands, this game takes the virtual hunter where they have never gone before.” Big Hunter II offers an African safari and its expansion pack the high, rugged terrain of Colorado, Alberta and the all new Kentucky region.

Imagine. If you have $19.99 and a computer the adventure can begin, just about anywhere in the world! Such is human nature, to strive and have balance in our lives. Genetically we have been programmed for 100,000 years for high risk living. The more civilization eliminates risk, the greater our desire will be to take or imagine it through adventure.

Togetherness

Another key motivator in the Imagination Era is emotional fulfillment. Many wealthy consumers have learned that just acquiring stuff is not enough. More and more things don’t satisfy much or for long. At some point our material excesses turn into junk, worthless burdens that cost us to store, clean and insure. Successful sixth wave companies will learn to attach symbols of love and togetherness to their products and services. There will be a growing business in ties that bond people together.

Coffee houses and similar places of gathering will continue to boom. Clubs will grow. Restaurants which offer a place for people to be together will thrive.

The “Dream Society” suggests that Cafes Philos, (there are about 50 in France now) clubs or cafes where a philosopher raises a question to create a discussion for all present to join, will boom around the world. This market is not just about being together, but is about being united by a common story. The root of this market is the 100,000 years of selective processing of human genetics which have favored those who belonged to packs or tribes.

Training Dogs & Making Big Bucks

Merri and I recently learned a valuable lesson about this genetic power. We have lived our entire lives together without having a pet, even though we love animals (I grew up the son of a zookeeper and we always had pets ranging from dogs and cats to bears, lions and tigers). Merri grew up with so many horses and dogs and cared so well for them that her mother (whom we used to call Ma) always said if there was such a thing as reincarnation she wanted to come back as Merri’s dog!

Yet with our busy travel schedule, we have not felt we could give an animal the attention it deserved. So when we moved to our farms, the habit

18 stuck. Then one day when we were in North Carolina at our Merrily Farms a whisp appeared as I was hoeing in our pumpkin patch. She was a puppy hound, about six months, all floppy eared, white black and tan, (pure mixed breed). She was dishelved, pitifully thin, matted hair, shivering in the cool mountain air. Her right hip was broken. Someone had beaten and dumped her, leaving her in a mess, near death. Yet she sat there, quietly watching and patiently waiting as if she didn’t have a care in the world. It seemed this was exactly where she was supposed to be. It was. Some spark touched my heart as I worked in that soft earth. I had to stop and haul her back to the farm house.

The last thing we thought we needed was a dog, especially a sick one, but the pup was there and needed our help. She had arrived on the first anniversary of the passing of Merri’s mother. And Merri’s mom had a broken right hip and ulcers (the poor puppy’s stomach was so ruined she could barely eat for weeks).

Now we’re not sure about reincarnation, but we saw the coincidences and I named the puppy, Ma. We took her in and she was so sick in the first weeks, each night as we settled her down in front of a roaring fire, we didn’t expect to see her in the morning. But Ma’s tough (just as her namesake) and she pulled through. We knew she had made it when one morning she actually woke us up and wanted to eat!

But once we pulled her through her physical suffering, we now had a bigger job. Poor Ma had obviously been abused (mostly by a large man with a beard-when a man of this description used to appear she would shriek, and cower in fear or run for her life). She needed enormous love and care to overcome her fears and rid her of the avoidance she no longer needed. She needed help. She had to be trained. We started a search for a dog trainer when felicity stepped in. To our surprise here in the middle of nowhere, just ten minutes from the farm, is a kennel owned by the well known dog trainer, John Quey. John had decided, like ourselves, to have a farm (Little Horse Creek Farm) in the “Lost Province”.

You may have seen or read the “Horse Whisperer”. John is the Dog Whisperer and the day we started Ma’s training I knew this course was about much more than just training dogs. John also teaches martial arts and admittedly does not train dogs. He trains and enlightens the dog owners teaching them how to use body language to speak to the dog.

“A dog’s brain, his makeup, his hundreds of thousands of years of genetics have never prepared him to use voice commands,” John explained. “Yet the dog’s entire being is geared up to understand your body language. Dogs sense even the most minute physical nuances you project. Dogs are pack animals. The entire history of dogs has created an animal today which has the best chance of survival if it can communicate with a pack. Your dog is part of your family and you must become the leader of the pack. Let’s learn how to communicate through your body language with the dog.”

Within six weeks Ma could sit, lie down, come on command and stay. She has learned so well, even if her favorite food or toy is put nearby she will not break from her position until given the command. Yet to give her these commands I don’t have to say a word. Words now work but I can communicate with her entirely through body language. This seems a near miracle as hounds are notoriously hard to train especially

when they begin training so late in life. Ma is so proud and feels much better about herself. She no longer cowers or is afraid. We have the beauty of a dog that obeys and we can protect her more easily if she runs into risk. And she feels so good about herself and her role in the pack.

There was no miracle though. I have simply learned how to communicate as a dog does (which I can do now) rather than try to get the dog to communicate like a human being (which she cannot do).

Imagine my surprise when shortly after these training sessions I learned how scientists claim that 80 percent of the human brain capacity is used to process visual (body rather than oral language) impressions.

This is the moment I understood why the togetherness market has such huge potential during the upcoming imagination wave. This also helped me understand why despite video conferencing, computer training and radically improved telecommunications that meetings, conferences, business schools, places where people meet, etc. are growing at a rapid rate.

People prefer (we can even say they need or are compelled) to meet face to face! Evolution has honed the most likely human to succeed into a tribal person. We have deep seated, genetically supported needs to physically spend time with the tribe!

The more proponents of technology try to cram videos, telephones, computer screens and such down our throats as the ultimate means of communication, the more we will want to get together!

This favors businesses such as theme parks (family togetherness), shopping malls (theme parks based around shopping) and educational systems where people actually get together,

Friendship

The market for friendship has to grow because technology has made society so much more mobile. I for example have lost nearly every single really good friend from school. I haven’t seen or talked to Larry, Art, Tommy or Jerry for thirty years. I imagine they still live in Portland, Oregon, but maybe not. They might all have become travellers like myself. Out of a six pack of school buddies, Steve is the only one with whom I keep in touch.

A couple of weeks ago I visited the local car mechanic (Jay Dee’s his name) with my next door neighbor Jim to have some work done on my beat up 1986 Suzuki Samari Jeep. This is the perfect farm car but often needs work (I had actually mended the problem up with a tin can but finally it had to go to the shop). Jay Dee’s garage is in a barn by his house and local people sort of collect around that barn to shoot the breeze, spit a little tobacco and talk over old times. “Remember Johnny Blevins and that time he threw you in the creek, Jay Dee,” Jim might say. “Well darn that must a been fifty years ago.” I love being with these wonderful mountain people and their easy going, friendly ways. They have such deep roots and ties so they are comfortable and at ease with their friends. They know who they are, where they are and who their friends are because they have been with them their entire lives. These people aren’t hanging around Jay Dee just to get their cars fixed. They are enjoying a ritual of friendship that has united them since they were kids. I love this! My friendships are scattered and far flung all over the world. I sometimes don’t get to see my friends for years!

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A huge segment (much of the wealthiest) of the population no longer lives where they were brought up and have lost touch with their roots. The more technology removes us from our origins, the more the market for togetherness and friendship grows.

Friendship is an extension of togetherness and can develop around many themes. For the mountain folk of North Carolina or anyone who remains rooted in their birthplace the theme is mostly “down home”. These friendships are tight and if you have ever heard the phrase “You ain’t from around here are ya, boy,” you have experienced the reverse side of this type of friendship. The implication is that with these long term, locally based friendships, the only way to be a friend is to have been there for years.

Part of the years I lived in Gloucestershire, England were spent in a tiny village named Chalford. I regularly visited a local pub there, “The Mechanics Arms”. Though I was a newcomer to the area I was accepted as an old timer because of family ties. One man in his sixties, who visited the pub every night however wasn’t quite part of the crowd. Many of the locals talked about him as the new man in town. I was surprised later to learn he had lived in Chalford for nearly thirty years! The locals would always view him as less trustworthy because he had not been born and raised there. Childhood experiences were the basis of their deepest friendships.

Many of us will never have this type of long term familiarity friendship. We have moved around too much. This creates markets for many types of new friendships. Networking is a form of business friendship. The theme of the friendship is scratch my back and perhaps I can scratch yours or we will both be better off scratching each others’ backs. Such friendships can be local, state or country wide or as mine span the globe. They can be very informal or very formal.

The market for formal friendships has already exploded. Incredible growth of support groups such as AA are a sign of the momentum in the friendship market. Such groups offer a format for formal friendships and range from disease support groups to abused support groups. Each offers an organized way to have friends. The growth of these groups is not because there are more problems than thirty years ago. The growth is because of the increasing market for friendships.

We can see this trend spreading everywhere. For example one telephone company has recognized this growing trend and has successfully built its business around the idea of calling “family and friends”.

Love

Love is an even deeper extension of togetherness and friendship. Though we often link love with romance, it is something far deeper. Love is the moving force of humanity, the world, the universe and possibly all of existence. The 14th century Sufi poet, Rumi, describes love as the spark that gives grass the animal enthusiasm.

The market for love affects multitudes of markets, jewelry, perfume, movies, music, (most songs are about love) weddings, funerals and the home.

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Living in the mountains of North Carolina and Ecuador this last year has given me insights about how the funeral market is changing. I have had a chance to attend funerals in a modern US city and in both mountains. When a neighbor’s mother passed away in North Carolina, I saw that the tradition is to dig the loved one’s grave personally and bury them in the family plot. The minister and the congregation have known the beloved their whole lives long.

In Ecuador the whole village comes out and carries their friend to the cemetery. What a reflection on how wonderfully different this is from the slick (expensive) funerals so often choreographed in our busy, modern era. Time savers such as drive through viewings, non individualized services and other efficiencies get one group out and another in as fast as possible. The car procession behind the hearse is gone. Waiting for the body to be laid to rest is eliminated. Time for the service is limited by the time until the next customer can come in. Sympathy is for sale but the service is set by market conditions not love nor the loved one’s grief.

Yet this is the way the world has been going and though we may not like this, change will remain for some time to come.

Watching what we like and don’t like is one secret in investing success. Changes bring new cultures but also counter cultures. Big banks are efficient and reduce banking costs, but also create markets for small community banks where you can still talk to your banker.

Impersonal funerals may lead to a counter market where the commercialization is taken out of this rite of death. I for example predict that books on how to bury your loved one personally will do quite well. Land in the country for family burial plots and simpler cremations followed by a country like service out of the city are the types of counter services that are likely to rise.

Smart investors spot both the trends and counter trends and can make money in both ways. So watch for ways to make money in old fashioned funerals. But watch for the modern trends to continue to.

If the world becomes a more mobile, busier, crowded place, the trend of more efficient, time saving funerals will also rise. There could be mass funerals where a group of people are buried in one service. This is not as far fetched as it may seem. This type of funeral would reduce costs and could fill needs for love and togetherness. Family members, especially those who are not from an the area could assure a well attended funeral and be together with others suffering in similar sad circumstances while reducing costs at the same time.

I use the word if because the market for love could push society in a quite different direction from the commercial trends we have seen over the past 100 years. I will review the potential of this totally different trend in a moment. First, I want to stress that the key here is we all need love. No song ever stated a truth better than the song “What the World Needs Now is Love Sweet Love, That’s the Only Thing That There’s Just too Little of”. No matter what technology brings, no matter how fast the world turns, one thing we can be sure of is that everyone will be seeking in one way or another to receive and express love.

Investors and businesses should never forget this truth! On one hand we can see that, as with the friendship market, the love market is skewing in the direction of organized love. 21

Our fast paced lives make it increasingly difficult to be together and express our love in traditional ways. As we have less time to spend in our house we will spend more making the house a symbol of family togetherness. Houses will become more than status symbols they will become love symbols (matching accessories, communal living rooms, etc.) Look at who is advertising in many, many publications and you will see ads for new modern designed, super comfort beds. This is partly created by a growing market caused by sleeplessness in an increasingly hectic, unknown and worrisome world, but is also due in part to the love market. The bed is a symbol of love, the place where couples spend time together.

Perfume and chocolate shops abound in airports so that overworked executives, forced away from home for longer than desired can easily return with these tokens of love. Expect jewelry shops to grow in airports as well.

Love is the key market for the Disney corporation, its theme parks and movies offering organized ways that parents can express love for their kids.

Film manufacturers that succeed also know that love is more important than the quality of film. People take pictures at love events (family reunions, holidays, vacations, birthdays, etc.) and want these pictures back quickly so they can affirm again and again their love.

Carry this thought along the avenues of modern technology and you can understand the phenomenon of family home pages. Millions have been posted on the web. Why would someone go to the trouble of putting their family tales and pictures into a computer? This is a modern way of saying, “See how much love we have”.

In the future psychologists may look back and talk about the movie “You Have Mail” as a harbinger of what was to come. We have moved from mail order brides to email relationships.

But make no mistake about it, these love markets are supported by the desire to meet and fall in love. Just as in “You Have Mail” the users of electronic getting together services eventually want (at some level) the virtual experience to become physical.

This also explains the explosive growth of false love, such as telephone sex and Internet and movie porn. These relationships may remain virtual porn but are still supported by the need for love. Eporn by the way is quite different than some aspects of live porn. Strip joints, etc. are often a place where buddies (men or women) get together. In this instance strip joints are a theme for togetherness. The computer on the other hand is currently a solitary instrument and the user of this type of porn is expressing a deeper need than the groups that visit the strips.

Perhaps we should examine how large a market will develop for a different type of group computer use where the group is together at one keyboard and screen rather than being at opposite ends of a computer. We can see the underlying desire for making the computer a more social instrument with the growth of computer cafes where the solitary nature of computer use is juxtaposed with the need for togetherness.

There is another far pleasanter aspect in the development of the love market which is the revival of spirituality. Humanity’s affluence has allowed us to see that logic, science and affluence don’t have all the answers we are allowed to live more in our imagination. 22

Consumers in the sixth era will place more value on intuition and beliefs that seem to defy socially accepted norms or scientific standards. They will respect their feelings more and their thought processes less. They will understand better how little their brain can really compute compared to what their entire being can know. Consumers will become more holistic and do more based on what they feel. Values will become much more important than things and processes more valuable than products.

I use the term spiritual revival instead of religious revival because there is a crisis of values in religion as well as at home, business and in politics. The wisdom of the cleric has been unmasked and we have shifted from the eras of the Church and Guru to the era of the individual.

The individual has been empowered economically and educationally by technology as has become empowered spiritually as well.

I have seen a direct analogy in these trend shifts between the worlds of finance and religion as they have moved through the various industrial eras. I call the religious era when the industrial revolution began the “Era of the Church”. The clergy were controllers of the soul and told the congregation what to do. They explained that the congregation was doomed to sin. The individual could not succeed spiritually without the Church. Members were told they would sin and were expected to stray from the flock. Only the church had the power to absolve members from these sins and bring them back to God’s grace. Many churches in this era professed to have the only way to salvation and only those who followed the church’s edicts were guaranteed to be saved from the horrible lot of the flesh. The connection to God was only available through the clergy and the Church.

In the world of money, bankers had similar powers at that time. Money was placed at the bank for low, guaranteed return. Investors did not question what bankers did with the money or how much bankers made. They just did what the banker said. When this image was threatened in the U.S. in the 30s, the government even stepped in to prop up this belief. Deposits at banks were FDIC guaranteed. The only way to stable wealth was through the bank.

As mankind became more educated a shift into the “Era of the Guru” gave individuals more responsibility for their actions and developed a more flexible, personal attitude towards spiritual growth. Beginning with Yogananda, gurus from the East became popular. The transendental meditation movement which began in the 60s attracted millions of followers. The message of these gurus was, “There are many paths to God. You should take your own unique path.” Salvation was not guaranteed but success was implied. “Everything will be okay if you follow my exact instructions.” The follower was eventually allowed to share a direct connection with God but only by following the Guru’s direction.

About the same time the world of finance began a radical change. The era of the mutual fund began to unfold and mutual fund “Gurus” began to emerge. Their message was different from that of the bank. These financial Gurus said, “There are many paths to wealth. You should take your own unique path. Nothing is guaranteed but if you follow my selections you can sincerely be rich.” The investor had a direct path to wealth and took the risk.

Now we have entered the era of the individual. A recent interview with the inventor of Hotmail gives us a clue of how this era’s spiritual development might unfold. When asked to define what he meant when he said he was a practicing Hindu he explained that Hindus select their own set of values, live by them and accept the responsibility of that action. There is potential for this type of concept to grow in the era ahead. The spiritual guru is no longer needed, though he can be of help. The master becomes a guide or a partner that helps the individual (when asked) rather than dictating a direction.

Simultaneously in the world of finance, day traders and better informed investors can now skip mutual fund managers and even stock brokers to buy and sell shares for themselves. The entire securities industry is being squeezed by the inability to charge high fees. The customer knows too much (including the fact that of the 3100 U.S. mutual funds in business for the last ten years only 21 outperformed the Dow). The average investor has access to as much data as the pro! The costs of mutual fund managers and brokers can be avoided. Instead fee based advisors (Certified Financial Planners) are becoming the leaders within the industry. The investment guru is no longer needed, though he can be of help. The investment manager becomes a guide or a partner that helps the individual (when asked) rather then dictates a direction.

There is a chance that we will see fragmentation in religion, investing and politics in the era ahead. A variety of stories will compete to attract the hearts, wallets and loyalties of people. More and more consumers will shift their buying habits, life styles and even the countries where they live based on the images they accept.

We can see this trend in U.S. politics with the formation of a new Reform Political Party originally formed by H. Ross Perot. This was a sign that more and more voters were dissatisfied with what the big parties were telling them what to do. An even deeper indication is the rise of the many militia groups across the U.S. These voters are so dissatisfied with government they consider it the enemy. Now the government is beginning to accept even these groups. A recent article in USA Today tells how the Justice Department uses the FBI to reach out and set up lines of communication with militias to let them know that the police respect the Militia’s rights to be anti-government as long as they don’t break laws.

Yet there are huge discrepancies in the beliefs of the various militia. This is the sign of the drift. We are likely to see many smaller political parties, many smaller groups each claiming sovereignty over their rights. These smaller groups will decide how they want to educate their kids (this could bring growth to religious and charter schools), how they want to take care of their health (this could bring growth to alternate health care), how to eat (diet books) and how to put their faith into practice (this could bring growth to businesses that have a moral as well as economic drive).

Yet all of these trends are ultimately driven by the individual’s need to give and receive love. Care

In the next issue of World Reports, we will continue by looking at the market for care. This is another extension of the love market. We have a need to give and receive help to and from others in the tribe and this trend will change the largest industry in the US. The heath care industry is over a trillion dollar industry and is undergoing profound changes. Few other places offer such opportunity. Until the next millenium Merri and I wish you happiness, peacefulness and very good investing!

Disaster When the Other Shoe Drops

Warren Buffet once warned against the Cinderella effect.

He said “Don’t be fooled by that Cinderella feeling you get from great returns.  Nothing sedates rationality like large doses of effortless money.  After a heady experience of that kind, normally sensible people drift into behavior akin to that of Cinderella at the ball.  They know the party must end but nevertheless hate to miss a single minute of what is one helluva party.  Therefore, the giddy participants all plan to leave just seconds before midnight. There’s a problem, though: They are dancing in a room in which the clocks have no hands.”

Cinderella may have lost a shoe when she fled the party.  We can lose much more when we rush from a crashing stock market.

There is inherent disaster building in rising markets… especially now.  Don’t wait until its too late.  Stocks, bonds and gold are all rising at the same time.  Almost everyone feels good.  We should not.  You and I should not be like most investors, because the clock of economic reckoning is ticking though no wants to see it.  Nothing rises forever and especially… not everything at the same time.

Recently the Dow Industrial and NASDAQ had record high closes.  Bitcoin has tripled this year.  Gold reached its highest price in seven months.  This rise of all asset classes is creating distortions that when corrected will set most investors back for years.

Simply put, the good time feelings are pushing prices too high.

Complacency in the markets, as the U.S. moves into the late stages of the economic growth cycle, destroys value.   Share prices will drop.  The only question is when.  Signs such as rising interest rates, declines in housing, along with lower auto and retail sales suggest that the slow down may be sooner rather than later.  The price of assets will fall.

There were a couple of  warning signals yesterday.  

Dollar weakness is a sign.

A Wall Street journal article yesterday “Dollar Gets Squeezed From All Sides” says: Greenback is down 5.6% this year, its worst two-quarter decline since 2011, as investors see more growth overseas

The dollar suffered through its worst stretch in six years during the first half of 2017, as investors turned more confident that economic recoveries around the world are gaining on or surpassing growth in the U.S.

The currency lost 1% last week against a basket of major peers tracked by The Wall Street Journal, bringing its decline for the year to 5.6%. That is the dollar’s largest two-quarter percentage decline since 2011.

A weak US dollar can draw investors out of the US and into other markets. The shift will cause a US market crash.

The 1987 Secular Cycle is near its end. 

Secular cycles in the market tend to run 30 years. History shows that markets run on recurrent patterns of change.  There are periods of expansion followed by periods of stagnation and decline.  Cyclical market cycles generally last 4 years, with bull and bear market phases lasting 1–3 years, while Secular cycles last about 30 years.  The last big shift was in 1987.

Another WSJ article yesterday “For Whom the Bell Tolls, Sell” asks: Is this a bull market or a mania? You never know for sure, except in retrospect.

You think this market’s crazy?  One day in early 1987, with Wall Street humming, a meeting after trading closed involved several cases of champagne. The Dow Jones Industrial Average had breached 2000 that day, a cause for celebration. A week and a half later, more champagne was ordered when the average passed 2100. Then again a few weeks later for 2200. Eventually my boss stopped buying bubbly when breaking records became the norm.

On Friday, Oct. 16, 1987, the average dropped 108 points. The market truly crashed the next Monday, dropping 508 points, or 22.6%. In retrospect, there had been signs all over the place.  How did everyone miss them? Well, as the old Wall Street adage goes, no one rings a bell at the top (or bottom) of the market.

Yet everyone wants to stay at the party.

No one knows when the global economic clock will strike midnight.  However, there is a way to be sure that our investments and savings will survive when the clock strikes twelve.

Here is what to do.  Choose investments based on markets instead of shares, diversify in value, rely on financial rather than economic news and keep investing simple, easy and at a low cost.

Diversify in value markets, not shares.  One strategy is to invest in country ETFs that easily provide diversified, risk-controlled investments in countries with stock markets of good value.  These ETFs provide an easy, simple and effective approach to zeroing in on value.  Little management and less guesswork is required.  The expense ratios for most ETFs are lower than those of the average mutual funds.  Plus a single country ETF provides diversification equal to investing in dozens, even hundreds of shares.

A minimum of knowledge, time, management or guesswork are required.  The investment is simply a diversified portfolio of most of the shares in a good value stock market.

 

The importance of easy, transparent and inexpensive.  Keeping investing simple is one of the most valuable, but least looked at, ways to avoid disaster.  Simple and easy investing saves time.  How much is your time worth?  Simple investing costs less and avoids fast decisions during stressful times in complex situations where we are most likely to get it wrong.

Fear, regret and greed are an investor’s chief problem.  Human nature causes  investors to sell winners too soon, and hold losers too long.

Easy to use, low cost, mathematically based habits and routines help protect against negative emotions and impulse investing.

Take control of your investing.  Make decisions based on data and discipline, not gut feelings.  The Purposeful investing Course (Pi) teaches math based, low cost ways to diversify in good value markets and in ETFs  that cover these markets.  This course is based on my 50 years of investing experience combined with wisdom gained from some of the world’s best investment managers and economic mathematical scientists.

Enjoy Repeated Wealth With Pi

Pi’s mission is to make it easy for anyone to have a strategy and tactics that maintain safety and turn market turmoil into extra profit.

One secret is to invest with a purpose beyond the immediate returns.  Another tactic is to invest so you have staying power.  This way you’ll never be caught short and have to sell depressed assets during periods of loss.  This also means you’ll have enough faith in a strategy to stick to the plan.

Lessons from Pi are based on the creation and management of a Primary Pi Model Portfolio, called the Pifolio.  There are no secrets about this portfolio except that it ignores the stories from economic news (often created by someone with vested interests) and is based on financial math that reveals deeper economic truths.

The Pifolio is a theoretical portfolio of MSCI Country Benchmark Index ETFs that cover all the good value markets using my (almost) 50 years of global experience and my study of the analysis of four mathematical investing geniuses (who also happen to be friends).

The Pifolio analysis begins with a continual research of 46 major stock markets that compares their value based on:

#1:  Current book to price

#2:  Cash flow to price

#3:  Earnings to price

#4:  Average dividend yield

#5:  Return on equity

#6:  Cash flow return.

#7:  Market history

This is a complete and continual study of almost all the developed major and emerging stock markets.

This mathematical analysis forms the basis of a Good Value Stock Market Strategy.   The analysis is rational, mathematical and does not worry about short term ups and downs.  This strategy is easy for anyone to follow and use.  Pi reveals the best value markets and provides contacts to managers and analysts and Country Index ETFs so almost anyone can create and follow their own strategy.

The course examines and regularly reports on the hows and whys of seven professionally managed portfolios so we can learn how managers find and invest in good value.  The Pifolios are:

  • Keppler Good Value Developed and Emerging Market Pifolios
  • State Street Global Advantage Emerging & Developed Market Pifolios
  • Gold & Silver Dip Pifolio
  • ENR Advisory Extra Pifolio
  • Tradestops.com Trailing Stops Pifiolio

pifolios

As you can see in this image (click to enlarge) the top performing Pifolio we are tracking is the State Street Global Advantage Pifolio is up 32.22%.  Here is the breakdown of that current Pifolio.

pifolio

Learn how to invest like a pro from the inside out.

State Street is one of the largest fund managers in the world and their Global Advantage funds invest in good value shares in good value markets.

In the updates we review each portfolio, what has been purchased and sold, why, the ramifications for high risk, medium risk and low risk investors.

As of mid-2017 my personal Pifolio is based on select ETFs in the Keppler Developed and Emerging markets. My Pifolio is invested in Country ETFs that cover seven developed and three emerging markets:

Norway
Australia
Hong Kong
Germany
Japan
Singapore
United Kingdom
Taiwan
South Korea
China

Regardless of economic news, these markets represent good value and have been chosen based on four pillars of valuation.

  • Absolute Valuation
  • Relative Valuation
  • Current versus Historic Valuation
  • Current Relative versus Relative Historic Valuation

When you subscribe to Pi, you immediately receive a 120 page basic training course that teaches the Pi Strategy.   You learn all the Pi strategies, what they are, how to use them and what each can do for you, your lifestyle and investing.

You also begin receiving regular emailed Pifiolio updates and online access to all the Pifolio updates of the last two years.  Each update examines the current activity in a Pifolio, how it is changing, why and how the changes might help your investing or not.

Included in the basic training is an additional 120 page PDF value analysis of 46 stock markets (23 developed markets and 23 emerging stock markets).  This analysis looks at the price to book, price to earnings, average yield and much more.

You also receive two special reports.

In the 1980s, a remarkable set of two economic circumstances helped anyone who spotted them become remarkably rich.  Some of my readers made enough to retire.  Others picked up 50% currency gains.  Then the cycle ended.  Warren Buffett explained the importance of this ending in a 1999 Fortune magazine interview.  He said:  Let me summarize what I’ve been saying about the stock market: I think it’s very hard to come up with a persuasive case that equities will over the next 17 years perform anything like—anything like—they’ve performed in the past 17!

I did well then, but always thought, “I should have invested more!”  Now those circumstances have come together and I am investing in them again.

The circumstances that created fortunes 30 years ago were an overvalued US market (compared to global markets) and an overvalued US dollar.  The two conditions are in place again!

30 years ago, the US dollar rose along with Wall Street.  Profits came quickly over three years.  Then the dollar dropped like a stone, by 51%  in just two years.  A repeat of this pattern is growing and could create up to 50% extra profit if we start using strong dollars to accumulate good value stock market ETFs in other currencies.

This is the most exciting opportunity I have seen since we started sending our reports on international investing ideas more than three decades ago.  The trends are so clear that I have created a short, but powerful report “Three Currency Patterns for 50% Profits or More.”   This report shows how to earn an extra 50% from currency shifts with even small investments.  I kept the report short and simple, but included links to 153 pages of  Good Value Stock Market research and Asset Allocation Analysis.

The report shows 20 good value investments and a really powerful tactic that shows the most effective and least expensive way to accumulate these bargains in large or even very small amounts (less than $5,000).  There is extra profit potential of at least 50% so the report is worth a lot.

This report sells for $29.95 but in this special offer, you receive the report, “Three Currency Patterns for 50% Profits or More” FREE when you subscribe to Pi.

Plus get the $39.95 report “The Silver Dip 2017” free.

With investors watching global stock markets bounce up and down, many missed two really important profit generating events over the last two years.  The price of silver dipped below $14 an ounce as did shares of the iShares Silver ETF (SLV).   The second event is that the silver gold ratio hit 80, compared to a ratio of 230 only two years before.

In September 2015, I prepared a special report “Silver Dip 2015” about a silver speculation, leveraged with a British pound loan, that could increase the returns in a safe portfolio by as much as eight times.  The tactics described in that report generated 62.48% profit in just nine months.

I have updated this report and added how to use the Silver Dip Strategy with platinum.   The “Silver Dip 2017” report shares the latest in a series of long term lessons gained through 40 years of speculating and investing in precious metals.  I released the 2015 report, when the gold silver ratio slipped to 80.  The ratio has corrected and that profit has been taken and now a new precious metals dip has emerged.

I have prepared a new special report “Silver Dip 2017” about a leveraged speculation that can increase the returns in a safe portfolio by as much as eight times.

You also learn from the Value Investing Seminar, our premier course, that we have been conducting for over 30 years.  Tens of thousands of delegates have paid up to $999 to attend.  Now you can join the seminar online FREE in this special offer.

This three day course is available in sessions that are 10 to 20 minutes long for easy, convenient learning.   You can listen to each session any time and as often as you desire.

The sooner you hear what I have to say about current markets, the better you’ll be able to cash in on perhaps the best investing opportunity since 1982.

seminars

Tens of thousands have paid up to $999 to attend.

This year I celebrate my 51st anniversary in the investing business and 49th year of writing about global investing.  Our reports and seminars have helped readers have better lives, with less stress yet make fortunes during up and down markets for decades.  This information is invaluable to investors large and small because even small amounts can easily be invested in the good value shares we cover in our seminar.

Stock and currency markets are cyclical.  These cycles create extra profit for value investors who invest when everyone else has the markets wrong.  One special seminar session looks at how to spot value from cycles.  Stocks rise from the cycle of war, productivity and demographics.  Cycles create recurring profits.  Economies and stock markets cycle up and down around every 15 to 20 years as shown in this graph.

stock-Charts

The effect of war cycles on the US Stock Market since 1906.

Bull and bear cycles are based on cycles of human interaction, war, technology and productivity.  Economic downturns can create war.

The chart above shows the war – stock market cycle.  Military struggles (like the Civil War, WWI, WWII and the Cold War: WW III) super charge inventiveness that creates new forms of productivity…the steam engine, the internal combustion engine,  production line processes, jet engines, TV, farming techniques, plastics, telephone, computer and lastly during the Cold War, the internet.  The military technology shifts to domestic use.  A boom is created that leads to excess.  Excess leads to correction. Correction creates an economic downturn and again to war.

Details in the online seminar include:

* How to easily buy global currencies, shares and bonds.

* Trading down and the benefits of investing in real estate in Small Town USA.  We will share why this breakout value is special and why we have been recommending good value real estate in this area since 2009.

* What’s up with gold and silver?  One session looks at my current position on gold and silver and asset protection.  We review the state of the precious metal markets and potential problems ahead for US dollars.  Learn how low interest rates eliminate  opportunity costs of diversification in precious metals and foreign currencies.

* How to improve safety and increase profit with leverage and staying power.  The seminar reveals Warren Buffett’s value investing strategy from research published at Yale University’s website.  This research shows that the stocks Buffet chooses are safe (with low beta and low volatility), cheap (value stocks with low price-to-book ratios), and high quality (stocks of companies that are profitable, stable, growing, and with high payout ratios). His big, extra profits come from leverage and staying power.  At times Buffet’s portfolio, as all value portfolios, has fallen, but he has been willing and able to wait long periods for the value to reveal itself and prices to recover.

keppler asset management chart

This chart based on a 45 year portfolio study shows that holding a diversified good value portfolio (based on a  good value strategy) for 13 month’s time, increases the probability of out performance to 70%.  However those who can hold the portfolio for five years gain a 88% probability of beating the bellwether in the market and after ten years the probability increases to 97.5%.

Time is your friend when you use a good value strategy.  The longer you can hold onto a well balanced good value portfolio, the better the odds of outstanding success.

Learn how much leverage to use.  Leverage is like medicine, the key is dose.  The best ratio is normally 1.6 to 1.  We’ll sum up the strategy; how to leverage cheap, safe, quality stocks and for what period of time based on the times and each individual’s circumstances.

Learn to plan in a way so you never run out of money.  The seminar also has a session on the importance of having and sticking to a plan.  See how success is dependent on conviction, wherewithal, and skill to operate with leverage and significant risk.  Learn a three point strategy based on my 50 years of investing experience combined with wisdom gained from some of the world’s best investment managers and economic mathematical scientists.

The online seminar also reveals  the results of a $80,000 share purchase cost test that found the least expensive way to invest in good value.  The keys to this portfolio are good value, low cost, minimal fuss and bother.  Plus a great savings of time.  Trading is minimal, usually not more than one or two shares are bought or sold in a year.  I wanted to find the very least expensive way to create and hold this portfolio so I performed this test.

I have good news about the cost of the seminar as well.   For almost three decades the seminar fee has been $799 for one or $999 for a couple. Tens of thousands paid this price, but online the seminar is $297.

In this special offer, you can get this online seminar FREE when you subscribe to our Personal investing Course.

Save $468.90 If You Act Now

Subscribe to the first year of The Personal investing Course (Pi).  The annual fee is $299, but to introduce you to this online, course that is based on real time investing, I am knocking $102 off the subscription.  Plus you receive FREE the $29.95 report “Three Currency Patterns for 50% Profits or More”, the $39.95 report “Silver Dip 2017” and our latest $297 online seminar for a total savings of $468.90.

ecuador-seminar

Triple Guarantee

Enroll in Pi.  Get the basic training, the 46 market value report, access to all the updates of the past two years, the two reports and the Value Investing Seminar right away. 

#1:  I guarantee you’ll learn ideas about investing that are unique and can reduce stress as they help you enhance your profits through slow, worry free, easy diversified investing.

If you are not totally happy, simply let me know.

#2:  I guarantee you can cancel your subscription within 60 days and I’ll refund your subscription fee in full, no questions asked.

#3:  You can keep the two reports and Value Investing Seminar as my thanks for trying.

You have nothing to lose except the fear.   You gain the ultimate form of financial security as you reduce risk and increase profit potential.

Subscribe to Pi now, get the 130 page basic training, the 120 page 46 market value analysis, access to over 100 previous Pifolio updates, the “Silver Dip 2017” and “Three Currency Patterns For 50% Profits or More” reports, and value investment seminar, plus begin receiving regular Pifolio updates throughout the year.

Subscribe to a Pi annual subscription for $197 and receive all the above.

Gary

 

 

 

 

 

 


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