Where to Put Your Money Now, by Peter Passell (Paperback, 2009)|
(You can print this review in landscape mode, if you want a hardcopy)
Mark Lamendola, author of over 6,000 articles.
This book begins with a synopsis of what led to the Wall Street collapse of 2008/2009. The author does a good job of providing a succinct, accurate explanation. He then provides his recommendations for where to put your savings. I don't see, in these recommendations, fulfillment of the subtitle. None of the investments he discusses are super-safe, and few can do much to secure your future. In this review, I'll explain where the book falls short, and what you can do to make up for that.
Despite the fact the book doesn't deliver on its subtitle promise, it generally doesn't steer the reader wrong. In addition, the author pokes holes in some common misconceptions about saving and investing. The advice he gives in this vein is more valuable than the price of the book, several times over. It can prevent a person from making matters even worse, which most investors invariably do.
I was pleased to see that he tackles the "gold harbor" theory and explains why gold isn't a safe harbor. When you read the gold bug propaganda, these points are always glossed over or missing, and that's because if you understand those points you won't make the mistake of hoarding gold in an attempt to preserve your wealth.
This book consists of an introduction and six chapters occupying 138 pages. The introduction is unusual in that it wasn't just tossed in there per the normal tradition. The author had specific goals in mind when writing it, and I found it to be an excellent start to the book.
Chapter One explains how the panic of 2008 came to be. It doesn't explain what set the stage for that panic, and understanding that origin is instructive for understanding where you might invest. However, in subsequent chapters, he does address this but he doesn't go into much explanation.
Here's a short version of the explanation that should have been in the book. As a consequence of how the Federal Reserve operates our central banking system, inflation is inherent. That is, your dollars lose value over time. And it's not just a little value. During Alan Greenspan's 18-year reign of error, the dollar lost half of its value. So if you held $100 in gold when Greenspan took office, you could redeem it for $50 when he retired. Or if you had saved $20,000 in hard cash, you could buy $10,000 worth of goods with it. Or if your salary was X, you'd need to be making twice that just to be paid the same (in fact, people are working much longer hours in response).
Chapter Two discusses inflation, but in a way that seems abstract and barely relevant. For any investing strategy, inflation is a key problem to overcome. But the author seems to consider it of only minor importance. He also talks about the federal deficits run up during the Bush years, but not those of the Clinton years. He mentions the Obama spending spree, but doesn't explain it in terms that allow comparison. If you take Obama's trillion dollar hit on American taxpayers during his first two months in office as his spending rate and apply it to 6 months times 8 years, he makes Clinton and Bush seem to have behaved responsibly by comparison.
Chapter Two does a good job of discussing other factors, such as leverage and home ownership. But then he falters. He talks about accounting for taxation in your investment planning, but frames it all only in terms of the federal income tax. This is way down the list of taxes in terms of cost to the taxpayer. In fact, the cost of compliance far exceeds the amount of revenue raised (businesses pass compliance costs to their customers, thereby making it a tax in itself) by the income tax, which means the IRS serves no financial purpose for the Treasury whatsoever. If we abolished the IRS today and stopped collecting the income tax, the Treasury would have a net increase in revenue.
The largest tax you pay is the federal sales tax. Yes, we really do have one. You pay for the cost of federal regulations compliance every time you buy a product or service. You pay for the enormous cost of federal borrowing that crowds out business credit, every time you buy anything. You pay for quite a few federal follies every time you buy anything. Yet, Passell doesn't even mention this. It's fine to catch mice, but not when there are several elephants stampeding around in your living room.
If Americans would stop voting for the Demopublicans (who control the ballot, by the way), this enormous taxation could be removed from our backs. The Demopublican Party is essentially in the business of taking your money and handing it to their real employers, which is why Demopublican members of CONgress are nearly all millionaires. How do you think they get that money? It's not by saving their nearly $200,000 a year salaries and living off their bloated perk packages.
Making a 5% return on some of your money when the govt takes 60% (or more) of all of your money is like bringing a squirt gun to a house fire. Yes, it helps, but it doesn't solve the problem.
Calculate your current portion of the $11 million million dollar current federal debt and $100 + million million of the unfunded federal obligations by dividing those numbers by the number of wage earners in the USA (about 75.6 million). Did that make you gasp? Now suppose you invest $5,000 at 5% a year, which after income taxes is 2% a year and after inflation is a minus 4% a year. Do you see the problem, here? None of Passell's recommendations overcome this reality.
Passell does mention, almost in passing, the value of investing in yourself. This should have been a chapter in itself. He mentions education, but fails to mention how you can eliminate health-related bills by adopting a healthy lifestyle. I have an immune deficiency, but because of the health practices I have adopted I haven't been sick since 1971. I've saved thousands of dollars and huge amounts of pain and suffering. Talk about a great investment!
He also fails to talk about investing in your brain power. People who watch television and people who read have such starkly different brains due to the adaptation response that any medical examiner can tell if the deceased was a reader or television watcher just by looking at the brain. If you want to be stupid (and disinformed), watch television. If you want a brain capable of dealing adroitly with today's problems, read instead of watching television. The value of this will manifest itself in real money, but also make you more fully human. What a great return on investment!
Chapter Three is entitled, "Bulletproofing Your Savings." I don't see that theme realized in the subsequent text. None of the investments he discusses can earn a high enough return to counteract inflation. He even talks about bonds in this chapter, despite the fact a bond is a guaranteed loss of wealth. I think if he'd entitled this chapter "Slow bleeding investments" then it would have been fine.
One place where he errs is his discussion of "inflation protected investments." These are all bonds. And the wealth in a bond is "borrowed" rather than owned. Thus, it can never create value or wealth. It can only store it. In our debt-based (as opposed to credit-based) monetary system, you can't get interest without inflation. Any interest paid comes from thin air, and thus must be paid by inflating the currency. Therefore, bonds cannot and do not outpace inflation.
When the govt issues its inflation figures, those figures are always understated. Sort of the way the warnings on cigarette packages understate the real costs by failing to mention impotence, bone cancer, disfigured skin, and a persistent personal stench. Like the tobacco companies, the govt has a vested interest in understating the damage it does.
To get the correct figures, you have to compare price data over time. And you can't cherry pick the data to get the results, if accuracy is your goal. The govt always cherry picks the data, so it can keep picking your pocket.
Passell does a good job in this chapter of exposing the reverse mortgage fraud. This alone more than justifies the price of the book if you were considering subjecting your parents or yourself to this kind of lunacy. The language used to sell this scheme comes straight out of the con man's handbook.
In Chapter Four, we get into investments that just might bullet-proof your portfolio. Those would be stocks, which are partial ownership of companies. Many "investors" don't understand this, and treat stocks like chips on a poker table instead of as the long-term ownership assets they are to wise investors. But don't take my word for it, just look at what Warren Buffet does.
Passell correctly points out that the average person doesn't have the resources to learn about a business before buying a piece of it. The solution is to buy shares of mutual funds. This, also, needs to be a long-term strategy because the fund managers are buying ownership in companies.
As we know, the trading value of a company can plummet dramatically in terms of dollars (share price drops). To a real investor, this doesn't mean anything. If you bought a company because you have done your homework and believe (based on solid evidence) in its products and management, then you own something valuable. What the stock exchange thinks is not relevant in the long term, because the stock exchange chases returns and stock prices instead of value and wealth creation.
This instructs how you should pick your mutual fund. An intelligent decision will take a little more time than picking an individual stock. The reason the mutual fund is a solution to the resources problem is you don't have to keep investing the time to keep picking stocks, you simply invest enough time to pick a mutual fund that invests in the kinds of companies you would pick. Passell doesn't mention this.
Passell once again discusses bonds, in this chapter. I guess if your goal is to just lose money more slowly one way rather than another, this information is worth reading. If your goal is to preserve your wealth, skip past it.
Passell ends this chapter with a concise but valuable discussion of gold and commodities. Right now, the gold scammers are sucking in victims left and right. Reading this last part of Chapter Four is required reading if you are considering putting yourself into that particular cattle chute.
Chapter Five is about various govt programs for saving for college and retirement.
Chapter Six is pretty much a "for more information" chapter. It lists various sources of information and gives you a thumbnail about each one. He lists a few financial writers also, but amazingly omits Jim Rogers! If you can read only one financial writer, Rogers should be it.
This chapter ends the book, and it ends with a subsection called "Calling the Cops." It lists a few resources for researching and reporting scams. Amazingly, it doesn't list the National Taxpayers Union, which reports on the biggest scams of all.
The Missing Chapter. There isn't a chapter on the proven method of buying items you need when they are on sale and stocking up. Yet, this is just about the only way to make a super-safe investment and secure your future.
The key isn't to buy things just because they are on sale. Do that, and you merely accumulate clutter. The key is to buy things you'd use anyhow. For example, there's a sale on motor oil, 20% off. You buy the oil. If you use it 6 months later, you've made a 20% annual profit. If the price goes up in that time, you make an even higher return.
Inflation may not stay within reasonable bounds. So even if you were able to buy everything with, say, an annual profit of 20% you could still lose wealth at an alarming rate. Of course, your 20% return is much better than the 5% return someone else is making via a financial investment.
Most people will not do the math on investing. There is no broker's statement showing you made 20% on it. So you might not understand that you made that kind of return on the investment. Plus, you are going to use the oil and then it's gone so all you see is that they spent money on oil. Yet, you made a bullet-proof
If you think about it, this example is actually a leveraged investment. It's money you were going to spend (not have) anyhow, and so you make 20% on someone else's money but do so with real goods. Pretty hard to lose in that scenario. Do this for anything you can reasonably stock up, you've made a nice return on money you otherwise would not have invested.
Obviously, this smallish book is meant to be a quick read rather than an encyclopedic treatise. It doesn't deliver on it subtitle, and one chapter is simply misnamed. Yet, it does provide solid advice with few errors (if you skip the stuff about bonds). Where it really falters is in its glaring omissions. This writer took the "write what you know" adage to heart, and didn't look at things from a perspective informed by the current (and classic) literature.
His list of suggested references contains exclusively periodicals and Websites, most of which are in the "mudstream media." He even mentions the New York Times, a publication that any serious analysis will show to be horribly biased and seemingly allergic to editorial integrity. It astounds me that anyone would suggest relying on it when it comes to deciding your financial future.
I think if you read this book along with others, it's helpful. Just don't consider it complete or authoritative.