Tag Archives: gold

Recession is a good thing if you have knowledge.

Ok, maybe this title is a bit shocking.  In easy time it only really takes money to make money.  In good times you can use a dart board at a page of stock symbols and make a decent return.  But when times get bad, like they are for many right now, most of the money gets really scared.  They don’t invest in the great companies that still exist, they don’t short the walking dead, they don’t buy the houses that are dramatically reduced.  They simply sit there and they buy bonds and Gold or just keep the money in CD’s if they can find a bank they trust.  Bike Race up Cat's Hill

It is said that on a long marathon, or in a long bike race that the best racers are hopeing for the hills to come, because it is the hills that lets them show their mastery and where they can gain ground on the competition.  When it course is flat and easy it is much harder to get ahead.  In the same way a recession is a great time for the smart and knowledgle person to get ahead. I am confident that if I was given $1 million dollars to invest as I see fit I could turn it into $3 million or more before this recession is over.  More self made millionares are made during a recession than during any other time.

During any time of significant change those that figure out the new way things will work and form a profitable business plan around it first are very likely to succed.  The people who are failing the most now are all the people who still have not found themself in the information age, the ones who still think that we live in the industrial age, you know the people who like to work for a factory, get a pension and live forever.  That age has been gone for 15 years or more, but most americans still live in it.  During this time there will be many people entering the information age, maybe for the first time.  People who will make a living online.  And there will be people like me there to help them, there to show them the way, and of course I will make a small profit on the activity.  This actually has been my main source of income for some time now.

So what would I do if I had a million dollars right now.  Well first I would build some online businesses, and make oppertunities for those who want to join the information age to do so with me.  But most of my readers can not do that I would guess.  So what would I do if I was them, and I just wanted to invest.  Well first I would take most of that money and start looking for good real estate.  There is plenty of it around, and there is plenty of it at prices that are lower right now than where the bottom will settle.

Just last week I was presented with a deal on a rental house, it sold for $180k only 3 years ago.  It now sat ready to buy for only $37k, and it could be rented for over $800 per month.  Using simple math that means that in less than 4 years your rental income should pay for the entire house.  That is like getting a stock with a P/E ratio of 3.8.  Sit on this one for 4 years and you get all of your money back, and by then housing prices will be out of the whole and you could sell this house for $120k or so, pure profit.  Do that over and over with half of the money and you could buy over a dozen houses, worth at least 1.5 million total 5 years from now.  Now that you know how to buy them cheap maybe other investors would like in on the deal, and you can let them buy some of the houses from you.  So lets say you buy 10 houses at an average of $40k each (Something that is easy in the phoenix market if you know where to look.) You invest another 5k in to making them nicer, and in getting them rented out to nice tenants.  Then you sell the house, and the future cash flows, you can do this at a rate of 10 times the projected yearly earnings, this is what investors look for.  That would be near $90k or so per house.  Now do this as fast as you can.  Lets say you buy 5 each month and sell 5 of the other houses each month, that would be an income of over $200,000 per month.

I am confident that I could do this already, I have the connections, I have the renters, I have the knowledge, my only problem is that I don’t have the money, because I was distraced with my other businesses, and my investment in them does not let me walk away.    My plan is to work hard in my current business, make $100k or so and then get started buying, filling and then flipping houses to other investors who don’t want all the trouble.  Take all procedes from each sale and buy more houses with it, do this until I am so busy that I can’t sell all the houses, so then start to keep some of them.  Do this until the recession is over then ride the wave of the readjustment back up, it will not be as large but should be good.  Now these rentals are my retirement fund.  Sell one when I need money.

This is a lot of work, and the key to success is partnerships.  This was my plan back a few years ago but things happened that distraced me, a wife and two kids later I was ready to go, but I got stunned by the economy a bit, but now I am over it and ready to go.  Anyone want to join my team and work with me.  Send me an email.

The Silver Lining

Now that people are cashing out of everything in this market, many people are buying gold, it has kept its value very well, but the volitility of it has been crazy, many days it can be up or down 5% with ease.  But during this time I have noticed that silver has fell like crazy.  It was $19.70 when gold was $950.  But silver has gone down to $11 when gold was $900.  That is over a 40% drop for silver.

In the past I have made a good deal of money on silver, I bought a lot for under 6 during 1996-1998.  I sold the last of it when silver hit $19.50 at the start of this year, but I have never seen a change this large this fast in silver.  Look at this chart to the right.  This may be a great time to buy silver.  Of course if you plan to buy silver, nothing is better for me than silver bars or coins.  Most coin places sell these for 20 cents above the quotes price, and will buy them for 20 cents below the current price.  This is how they make their money, but you get the item itself, and it is better than hoping the bank you buy the paper from does not fail, or you have a problem getting it done.  Also you can give them as gifts, and sell them to friends and such and pay no transaction fees. Also it is easy to save, when I was in college I would buy two ounces every time I sold a computer, after a few years I had a few hundred ounces.

Our world is too complex and getting worse…please help.

Many people have jobs, where your job is to make something better.  In order to keep your job you need to show results.  Now a problem happens, many companies make their product just about as good as it can get.  In the real world of products they just move on to the next thing, but in software they keep adding features well beyond what is useful.

There are many examples of this. Winamp was perfect 8 years ago, it played music well, it had good skins and an equalizer.  Then they started adding stuff, and adding and adding.  They put in a video player, but it sucks.  They put in a browser, what is the point in that?  Adobe Acrobat is a program that never really worked well.  And every update just makes it slower.  There are third party ones that are much faster and better.  There are many other examples.

So companies that make programs have figured out that most people don’t need their updates, but if people don’t get their updates they can’t push future changes on them, that may include more advertising, or toolbars on your browser, and these companies love to do that.  So they have made their programs “phone home” each time they load, and if the company decided they want to send an update they will do so.  This makes these programs slower, and many of them gripe if you are not online when you load the software.  At least 20 programs I know of now try to push the Yahoo toolbar on their customers each time you update and unless you are very careful and unselect a box hidden somewhere you get it.  And it is hard to remove and almost totally useless.  There is really a battle going on for your attention, and these companies are trying more and more intrusive things to make you use their software, even though most of it is free.  The other day I noticed that if you update java, it tries to install download and install open office, a almost 180MB download.  Java is just a programming language, why should they push an entire office suite on users.  Most users are not smart enough to catch this stuff, then they call me when they see stuff they don’t understand, and these calls are increasing.  (As a note I love open office, I suggest it to many people and install it on all systems we sell.)

Now in the world of software this is a minor annoyance. You can run older versions, or usually disable all updates. But this is also done in many other areas, it is human nature that once something is very good you will keep changing it, even if the change is bad, simply to look like you are doing something.  One area where this is VERY costly and actually dangerous is in the area of Government.  The government keeps adding rules, and regulations in areas where none really is needed.  Many people running for office brag about the number of bills they introduced, and the number of laws they passed.  All of this makes life more complex.  Do we really need such a complex tax system that you have to call an expert for help and even the experts don’t know half the time.  Do we really need over 20,000 classifications for imported items.  Do we really need to have so many regulations on hiring employees, increasing complexity and costs so much that companies get fed up with it and simply hire people in other nations.  Should it really take over a year for a citizen to bring his wife to the US legally?  Do we really need the government to tell us what food is safe, to tell us that we need to give our babies over 20 shots, many of which cause more harm than good?  Should it be so complex to get a Federal grant that Matthew Lesko has become famous for his awesome 3000+ page book with over 15,000 DIFFERENT programs listed (BTW read his blog).  Do we really need a government with 1000’s of different divisions?

This has cost our country a huge price.  Our power has allowed us to survive for a while but now a crisis is coming. It is so hard to appease the government regulations that no nuclear power plant or oil refinery has been built here in over 30 years.  Most factories are built overseas simply because lack of regulations make them much more profitable.  Why would you want to build you widget here, and deal with the EPA the IRS and OSHA when you can built it overseas and import it for less.  This is why our balance of trade is so bad, this is why are money is flowing out of this country and we are all in debt, as a nation we are living well beyond our means.  This has been a problem for many years, but just recently it has gotten so bad that people have stopped lending to us, whole nations are writing down our debt, and this is causing problems for millions of Americans.  This is a problem, created by our own government decades ago, the symptoms were hidden for years, the official government report showed almost no inflation from 1997 until 2005 while the average person saw huge inflation.  Now it is all catching up, and millions of people are SHOCKED by it.  It will ruin the lives of millions, it will also improve the lives of millions.  I have written many times about this subject, see here or here.

Anyway this was suppose to be a simple post about how everything is getting more complex simply because people want to keep their job and have nothing better to do.  Please comment on what you think about all of this.

Will the price of gold continue to rise?

Recently I have been posting answers to questions on yahoo.  It is fun.  Here is one I did today.


Will the price of gold continue to rise?

My Answer:

Well no one has a crystal ball.  It could go up or go down. But one can read the signs and make projections.

I assume when you say price, you mean dollars per ounce.  Much of the rise in the price of gold was really a reduction in the value of the dollar, some was the demand for gold.  It is all really supply and demand.  The price per dollar of gold will depend a lot on how much money is created in the world, how much credit is out there.  In 2007 the trend was to create a ton of money, and with the low interest rates now going into effect it will do the same thing.

So it all boils down to a bet, do you bet it will go up or down, I say it is a 65% chance it will go up in the next year and a 35% chance it will go down.  I do think you may have a higher percent return on silver than on gold, simply because silver is very useful in many things and is in growing demand, and the supply is not growing as fast.

Also no matter what metal you choose to buy, I would highly suggest you buy the actual metal, not a paper title saying you have ownership.  The best way to do this is simply walk into to any coin shop and buy it.

Gold is a great hedge to inflation, but I do think that many other things would be a better investment right now.

The dollar is so weak, and we are paying for it, GREAT!

For years now we have been borrowers.  We spend way more than we make.  I am not just talking about the government but also the people.  You can see this in our balance of trade.  Because of this the dollar is falling like a rock.  People don’t want to lend money because it will probably devalue more than the interest gained.

Imagine that I would lend you $1 million dollars and you need to pay me $1.1 million a year from now, well if the dollar goes down 20% I am only getting paid back (In present dollars) $880,000.  So why on earth would I lend you the money.  This is the problem that we are having now.  Up until recently most of the money being lent to Americans was coming for foreign investment.  These foreign investors as a whole are hesitant to lend us money.

So what is the solution that the government thought up.  Well they offered to lend money, billions of it, to the banks so that they can lend it back out.  But where did the fed get this money to do this, they simply typed it into a computer and created it.  This makes more dollars in existence, and will further sink the dollar down.  This cycle will keep repeating and soon our dollar will be worth very little.

What will this do for us.  Well it will make the dollar cost of most things go up.  Even real estate will soon start to go up with all of this.  Gold is now over 1000, silver is over $20 and oil is at record highs over $110.  This has been coming for YEARS now, I have been talking about it for about 3 years.  This just that start, until we start exporting much more than we import, and we stop spending so much this will keep happening.

So what is the best position to be in?  Well you want to have as little dollars as you can, you even would want to be short on dollars.  This means to borrow them.  I have debt for my house, and for other things, and when I saw this coming I took out as much as I could and invested it in things overseas, and in physical things such as real estate, and I think that in a few months, the value of these assets will be much larger than the debt.  The banks have figured this out and stopped lending to most people.

So what will happen to people who were not ready?  Well it will not be good.  If you have a job, and save money and have no debt you are in the worst position. The money you have saved will be worth less than it should be.  The

What can you do not?  Well as I said before the people who see it first are the ones that are in the best shape, they can prepare for the change.  Now it is too late, there is very little that can be done.  Right now I think it would be good to move money overseas, invest in companies with a large amount of foreign exposure.  Pay off only the minimum on debt.  Don’t keep cash, go turn it into silver.  But MOST important, if you can afford it GO BUY REAL ESTATE.  The prices will never be this low again, you can still usually borrow money to buy real estate and pay back later with money that is worth less.  Prices will go UP much faster than your pay will go up, so be ready for that.  Food cost will go up, and fuel costs will go way up.  Your pay will probably stay flat.  Consider a side business if you need more money.

What should the government do?  Well they were the ones that created this, they were lending money out so cheaply, and printing money like crazy to keep us afloat.  You got to remember that the government is over 9 trillion in DEBT.  They also have over 30 TRILLION in obligations to people in the form of social security and government retirements.  This is a huge debt.  So what they did is they tied this to CPI, the fake, government created index of inflation.  Today it was released and it was 0%.  The people on CNBC just laughed at how fake it is.  But because it is 0% that means that the social security debt does not go up this month.  Now, by any measure dollar is worth MUCH less now than 5 years ago, I would say it is worth half as much or so.  So basically the government just CUT their debt in half because of the weak dollar, and this is very smart.  But they can’t let people know this is going on, they have to spin this so that foreign investors and the general population don’t know what is going on.  For all the people who are not watching are going to be hurt, but for the government, the big investors and all the people who see the signs and act on it, this will be a great time of huge wealth creation.

Jason Dragon

The flow of investment capital and how to keep it active

Well here is a quick mental exercise. I am going to think about, and share with you, my thoughts about investment money.

Well the main areas of investment I see are:

  • Real Estate (Commercial and Residential Property)(I am not counting owner occupied housing because that is not primarily an investment.)
  • Securities (Stocks, Bonds, Mutual Funds, Futures)
  • Private Equity (Direct investment in private companies)
  • Metals and Jewels (Large amounts of money are kept in Gold, Silver and other precious metals)
  • Cash (Yes many people keep money in cash, CD’s and deposit accounts.)
  • International Investing (All of these areas but outside of the US)

Now, because the total amount of money is VERY QUICKLY increasing, the actual value of a dollar must be going down. This is evident by looking at the price of the dollar verses most any investment. You could have invested in most any are for the last 5 years and had a positive outcome vs. the dollar. Over 90% of this money is owned by less than 3% of the population. The total size of all of this investment money is well in excess of 70 TRILLION dollars. That is more money than most people can even imagine.

One important concept that I have noticed is the fact that money shushes around, from one investment type to another. In the late 1990’s the stock market was all the rage, and most other areas of investment were growing slower than normal, most investment money went there so the values went sky high. Then the hype popped in 2000-2001, and people started taking their money out of stocks, the people who left early took most of the profits.

From 2002 until 2006 the hype was all about Real Estate, as a whole the US made over 6 TRILLION dollars investing in real estate. That is about $40,000 for EVERY adult in the United States, and this number does NOT count the house you live in, only investment properties. By the start of 2007 people made a ton of money and started to see an end to the run-up in prices of Real Estate, so they started cashing out. Again the people who did it first made the most money.

Now this money STILL is out there. Where is it going? The easiest way to find this out is to look at what is going up in value. Metals is one huge area that has seem price spikes from 2007 until now. Another area is Private Equity. Most people who made this huge money qualify to invest in Private Equity and they have done so. They have brought companies private, they have started new companies.

Another area that has seen a huge increase in investment is the INTERNATIONAL segment. New cities are being built all over the world. The rate of investment in much of the world is on record pace.

Because of the vast size of stocks, and the fond memories many investors have, much of the money has returned to stock market. But many people who made a ton of money in Real Estate are looking to return to that market also.

So where should you invest??? The key is to move into the segment first and leave first, but it is hard to predict what will happen. For example I think metals were HOT but they are now near the top, and as we have seen when this happens there often is a fall. A lot of money has gone back to the stock market and more will follow, so there will still be a few years to make money in that area. Real Estate has taken a huge hit but should come up later, the returns will not be huge but at least there will be returns. So the two areas I see, where I would invest my money is in Private Equity and in International. In much of the world the Real Estate boom is just starting.

The best thing would be to start a company in a fast growing nation, and take advantage of the growth. This is hard so the next best thing would be to invest, using Private Equity, in a US company that does a good deal of business internationally.

When we stated Capital Active, this is exactly what we thought about, the fact that there is a huge amount of Capital out there, and that it needs to be kept moving around, kept active doing different things at different times.

Tell me what you think, please leave a comment to this blog, tell me if you agree or disagree.