Financial Fundamentals from Farmers to Fractured Timing


Worried about running out of money?  Think instead about running out of purchasing power.  Low interest rates and risky markets combined with inflation for foods and service are robbing our standards of living.   See how to protect against this loss by understanding a most basic economic fundamental.

silver

Silver protects purchasing power. So does replacing farmers.

One of the sessions in our Value Investing Seminar looks at an energy shortage more important than oil… farmers.  The modern economy has grown and expanded on farmers as fuel… defunct farmers that is.

The fastest way business has increased productivity in an economy has been to take farmers from the field and put them in a factory.  This requires little education and a subsistence farmer does not have to earn much to be better off than before.  They greatly increase their productivity at very little cost.

The factory trained farmer helps keep labor costs in manufacturing low.

The economy has become increasingly global due to this fact, because shipping is more inexpensive than labor.   Poor Chinese farmers can make as good a shoe as a rich western factory worker… for much less.  A poor Mexican farmer can grow as good a tomato as a wealthy US farmer… for less.   A poor Vietnamese farmer can make a shirt for less than a Chinese worker, etc.

China, one of the great sources of poor farmers, is running out of farmers to take from the field.  Chinese farmers, already in factories, want more.

A shortage of farmers and the nature of all expansions has caused China’s economy to slow down.  The slowdown has created havoc in China’s stock market.  The havoc has created fear in other stock markets around the world.

There is one more complication added to this human energy drought.  Economies always shift from manufacturing to service economies as they evolve.  As people become richer, they soon have enough things.  Demand shifts from goods to services and most services cannot be as easily exported across even short distances.  Can you imagine flying in a Chinese therapist just to give you a massage, or getting an Brazilian server to come up for the evening to serve your meal?

Another way businesses keep labor costs low is by hiring part time workers (without benefits) manipulating their work schedules.  We are seeing a worker revolution taking place that is changing this fact.

A recent news story tells how Gap said it would soon end the practice of on-call scheduling, which requires workers to call in before a shift to see if they are needed.  Gap is just one of numerous firms that will give employees longer notice of worker’s schedules.

Abercrombie & Fitch, Starbucks and Victoria’s Secret have all promised to end on-call scheduling due to strong public and regulatory pressure to get the companies to change.

Employee suppression is still widespread, but practices are crumbling in many ways.  Municipalities such as Seattle and even New York State have passed laws (or announced they will) creating a $15 an hour minimum wage.

New York’s governor, Cuomo, said “Raising the minimum wage to $15 an hour will bring fairness to 2.2 million working New Yorkers,” adding that $15 an hour “will be the highest statewide rate in the nation and will herald a new economic contract with America, and it’s about time.”

Hopefully these changes will help improve the well being of everyone, but be aware, the shortage of farmers and the increase in service worker wages will mean higher prices for you and me.

The way to overcome an increased cost of living is to gain from an understanding of these economic fundamentals.   If minimum wages rise and the cost of living balloons, this can be good for all, if our investments grow as well.   If we are aware of why prices are rising we can spot opportunity in change.  For example, rising service costs must mean that taxi drivers will earn more.  Taxi fares will have to rise.  An understanding of this fact can help us see that business models such as Uber Transportation make sense.

Understanding that higher wages for maids and receptionists mean hotels rates must rise, leads us to see the value in a business model like AIRBNB.

Airbnb is reportedly worth an estimated $13 billion, making it worth more than well-known hotel chains Wyndham (WYN), Holiday Inn, InterContinental Hotels (IHG), and Hyatt (H).

There may be potential in the IPO when AIRBNB goes public but this model offers opportunity in other ways.  For example Merri and I have three cabins on our farm we use occasionally when we conduct seminars.  Otherwise they stand empty.   We posted them on AIRBNB and they have been earning thousands of extra income.  See one example with our Blackberry cabin.

You do not have to have a farm and cabins to use this technology either.  AIRBNB has many individual rooms listed.

Another example of technology that replaces farm labor is Uber Transportation.

The taxi business in many places relies on importing low cost labor from abroad.  This is why so many New York taxi drivers barely speak English.  Uber and other similar apps threaten the taxi businesses.   Uber is making billions and has picked up private investment backing, but has not yet gone public.  Waiting for their IPO may bring profit but there are other ways to cash in, when you understand the underlying economic fundamentals.

Uber and other similar apps threaten taxi businesses.   If you think Uber is a good model that will grow short shares of Medallion Financial Corp. (symbol TAXI).
Medallion Financial Corp. finances the purchase of New York City Taxi medallions.  The city limits the number of the medallions (the license to operate) so they are expensive, about a million dollars each.  If the demand for taxis grow, the medallion’s value rises.  If Uber reduces the demand for taxis, the value and cost of medallions will fall as will the amount of loans that TAXI makes. If you like UBER, sell shares in TAXI short. If you think UBER and similar businesses will fail in New York, buy shares in TAXI if they are available at good value.

The underlying economic fundamental of AIRBNB and UBER are both the same.  Hotels and taxis depend on low cost labor.  Drivers, receptionists, maids, are often indirectly imported off farms abroad.  As this source of labor dries up, computer technology is helping middle class individuals, who need extra income to keep up with inflation, to use their cars  and their structures to replace taxi drivers and hotel staff who previously came from the farm.

The basic economic fundamental that brings increased wealth to everyone is more supply and more demand.  Science and technology have helped mankind achieve these basic fundamentals.  Improved medical science and food raising technology have allowed the global population to grow.  Modern transportation makes it possible for many poor to earn by serving rich who live thousands of miles distant.  More people with more productivity create more supply as they earn and spend more.  This creates more demand.

Understanding these shifts that technology brings, helps us learn how to earn more from this positive economic evolution.

Gary

Gain From Election Volatility

Here we are again… another election on its way… all the robo calls from politicians… the dirty tricks and the innumerable amounts of nonsense this vital process brings.

However America’s politics turn out, one thing is sure.  There will be volatility in stock markets during the election process.

The first reason markets will bounce has nothing to do with politics or policies.   A market correction is due regardless of the party or the person in office.

Second the new politics has created an uncertain era.  Everyone has been shaken over the past three years whether they are pleased with the government or not.

Nothing frightens markets like uncertainty.

Third if we see rising interest rates, this will push markets down.

Despite these pitfalls, there is a way to profit using the strong US dollar and undervalue non dollar stock markets to pick up good value shares.

During nearly five decades of global investing I have noticed found that good value strategies are the best way to profit long term, through good politics and bad.  The steps to take are simple.

The first tactic is to seek safety before profit.

We can look at Warren Buffett’s investing strategy as an example.  Buffett success is talked about a lot, but rarely does anyone explain how he make so much money.  That was the fact until some researchers really stripped his operation bare.  They looked at everything and learned the deepest of Buffett’s wealth management secrets.  Fortunately they published all in a research paper at Yale University’s website. that reveals important truths about extending wealth.

This research shows that the stocks Buffett 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).

The second tactic is to maintain staying power.  At times Buffet’s portfolio has fallen, but he has been willing and able to wait long periods for the value to reveal itself and prices to recover.

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 outperformance 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.

The Buffett strategy integrates time and value for safety and profit.

A third tactic is using limited leveraging, tactic in the strategy boosts profit.  Buffett leverages his portfolio at a ratio of approximately 1.6 to 1.   The Yale published research paper shows the leveraging methods used by Warren Buffett to amass his $50 billion fortune.  The researchers found that the returns from Buffett’s investment company, Berkshire Hathaway, far outweighed those achieved by any rival that has operated for 30 years or more.  The research shows that neither luck nor magic are involved.  Instead, the paper shows that Buffet’s success hinges on using leverage at the rate of 1.6.

To sum up the strategy, Buffet uses limited leverage to invest in large purchases of “cheap, safe, quality stocks”.  He limits leverage so he can hold on for very long periods of time, surviving rough periods where others might have been forced into a fire sale or a career shift.

Stated in another way buffet uses logic (buy good value) to have the conviction, wherewithal, and skill to invest with leverage over many decades.

What do we do when we are not Warren Buffett?

May I introduce the Purposeful Investing Course (Pi) for those who want to invest like Warren Buffet, but know they are not.  This course is based on my 50 plus years of investing experience combined with wisdom gained from some of the world’s best investment managers and economic mathematical scientists.

Enjoy Extending Wealth

Pi’s mission is to make it easy for anyone to create a three point strategy, like Buffett’s even though they do not have a lot of time for or knowledge about investing.

Pi reveals investing secrets and the sciences that make investing easy, safer, less time consuming and increases the chances of profit.

One secret is to invest with a purpose beyond the cash.  One tactic as mentioned is staying power.  This means not being caught short and having to sell during a period of loss.  This also means having enough faith in a strategy that we stick to the plan.  When we invest with purpose, doing what we love, we enjoy the process more and are more likely to hold on during down times, when most poor investors panic and sell.

Slow, Worry Free, Good Value Investing

Stress, worry and fear are three of an investor’s worst enemies.  They create the Behavior Gap, a trait exhibited by most investors, that causes them to underperform any market sector they choose.  The behavior gap is created by natural human responses to fear.   Pi helps create profitable strategies that avoid losses from this gap.

Spanning the Behavior Gap

Behavior gaps are among the biggest reasons why so many investors fail.  Human evolution makes fear the second most powerful motivator.  (Greed is the third.)  Fear creates investment losses due to behavior gaps.  Fear motivates us more strongly than desire.  By nature investors are risk adverse.

Winning investors though embrace risk because they have a plan based on good value.

Purpose is the most powerful motivator,  stronger than fear and greed, so a strategy with purpose is the most powerful of all.

Combine your needs and capabilities with good value secrets and the math to back up your value selections through the Pifolio – The Pi Model Portfolio

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 (often created by someone with vested interests) and is based entirely on good math.

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 (and friends).

The Pifolio analysis begins with a continual research of international 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

We follow this research of a brilliant mathematician and have tracked this analysis for over 20 years.    This is a complete and continual study of international major and emerging stock markets.

This 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.

A country ETF provides diversification and cost efficiency by spreading one simple, even small investment into a basket of equities in a good value stock market.  The costs are low and this type of ETF is one of the hardest for institutions to cheat.  Expense ratios for most ETFs are lower than those of the average mutual fund.

Little knowledge, time, management or guesswork are required.  The investment is simply a diversified portfolio of good value indices.  Investments in an index are like investments in all the shares of a good value market.

Pi matches this mathematical certainty with my fifty years of experience. This opens insights to numerous long term cycles that most investors miss because they have not been investing long enough to see them.

For example 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!  There are currently ten good value (non US) developed markets,  plus 10 good value emerging markets.

Pi shows how to easily create a diversified, worry free portfolio in some of these good value markets using Country Index ETFs.

The current strength of the US dollar is a second remarkable similarity to 30 years ago.   The 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.  There is so much more to write and 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 you’ll receive the report “Three Currency Patterns For 50% Profits or More” FREE when you subscribe to Pi.

Leverage

Pi also explains when leverage provides extra potential without undo risk.  For example in 1986 I issued a report called “The Silver Dip” that showed how to borrow 12,000 British pounds (at almost 1.6 to 1 dollars per pound the loan created US$18,600) and use the loan to buy 3835 ounces of silver at around US$4.85 an ounce.

Silver had crashed, I mean really crashed from $48 per ounce.  As prices decreased from early 1983 into 1986, total supply had fallen to 449.7 million ounces in 1986.  Mine production was restricted by the low prices at this time, with silver reaching a low for this period of $4.85 in May 1986.  Secondary recovery also was constricted by these low prices.

Then silver’s price skyrocketed to over $11 an ounce within a year.  The $18,600 loan was now worth $42,185.

The loan was in pounds and in May 1986 the dollar pound rate was 1.55 dollars per pound.  So the 12,000 pound loan purchased $18,600 of silver.  The pound then crashed to 1.40 dollars per silver.  The loan could be paid off for $13,285 immediately creating an extra $5,314 profit.  The profit grew to $47,499 in just a year.

Conditions for the silver dip have returned.  The availability of low cost loans and silver are at an all time low.  The price of silver has crashed from nearly $50 an ounce to below $14 as did shares of the iShares Silver ETF (SLV).

finance.yahoo.com chart SLV

iShares Silver Trust (symbol SLV) from www.finance.yahoo.com

Imagine investing in a spike like this… with leverage!

At the same time the silver gold ratio hit 80, a strong sign to invest in precious metals.

I have updated a special report “Silver Dip 2019” about a leveraged silver speculation that can increase the returns in a safe portfolio by as much as eight times.  The purpose of the report is to share long term lessons gained through 30 years of speculating and investing in precious metals.  While working on the report, when the gold silver ratio slipped to 80 and the price of silver dropped below $14 an ounce, I knew I needed to share this immediately.

I released a new report “Silver Dip 2015” so readers were able to take advantage of these conditions and leverage 1.6 times as a speculation.  That report generated profits as high as 212% and a revised 2019 issue has been produced.

“The Silver Dip 2109”  sells for $39.95 but  you receive  “Silver Dip 2019” FREE when you subscribe to Pi.

Save

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 the $29.95 report “Three Currency Patterns For 50% Profits or More” and the $39.95 report “The Silver Dip 2019” free.

Triple Guarantee

Enroll in Pi.   Get the first monthly issue of Pi, and the report “Three Currency Patterns For 50% Profits or More” and “The Silver Dip 2019” 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 purposeful 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:  I guarantee you can keep “Three Currency Patterns For 50% Profits or More” and “The Silver Dip 2109” report as my thanks for trying.

You have nothing to lose except the fear.   You have the ultimate form of financial security to gain.

Subscribe to the Pi for $197.   You Save $158.95.

Your subscription will be charged $299 a year from now, but you can cancel at any time.

Gary