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10 ways to survive the economic tsunami that is coming

10 ways to survive the economic tsunami that is coming
  1. Pray for Wisdom | James 1:5 says, “ If any of you lacks wisdom, you should ask God, who gives generously to all without finding fault, and it will be given to you.”  We need wisdom more than anything to make the right decisions in protecting our families, freedoms, and finances during these turbulent times.
  1. Give Extravagantly | Malachi 3:10-11 say “Bring the whole tithe into the storehouse, that there may be food in my house. Test me in this,” says the LORD Almighty, “and see if I will not throw open the floodgates of heaven and pour out so much blessing that there will not be room enough to store it. I will prevent pests from devouring your crops, and the vines in your fields will not drop their fruit before it is ripe,” says the LORD Almighty.”  God’s Word doesn’t return void and when you give with a joyful heart and learn to give out of your need rather than out of your abundance God will supernaturally intervene in your life and pour out so many blessings that you will not be able to contain it.  And the second half of the promise mentioned here is that He WILL make you more productive.
  1. Read and meditate on God’s Word | Joshua 1:8-9 say, “Keep this Book of the Law always on your lips; meditate on it day and night, so that you may be careful to do everything written in it. Then you will be prosperous and successful. Have I not commanded you? Be strong and courageous. Do not be afraid; do not be discouraged, for the LORD your God will be with you wherever you go.” Yet another promise from God, who’s Word does not return void!  This is a conditional phrase.  When you meditate on God’s Word and are careful to do what it says, THEN you will be prosperous and successful.  The Bible is our blueprint for a successful life.
  1. Get out of Debt | Interest rates are at the lowest point in the history of our nation.  This means they can’t go too much lower, they will go up, and go up rapidly as the U.S. Dollar continues to deteriorate. If you carry any variable debt you will find it increasingly more difficult to service your debt payments as those payments rise. 
  1. Grow your roots in a local church | How could this help you navigate through this harsh economy?  Well, when your roots grow deep you will be able to withstand the storms of life as they arrive.  Remember, storms ALWAYS happen and sometimes Jesus calmed the storm, sometimes he was the peace in the midst of the storm.  Regardless, the end result was PEACE.  Having a support group of like-minded, God fearing, friends and family of the local church will make the storms of life easier to navigate.
  1. Be politically active | Make your voice heard!  We still live in a country where our voice can be heard and we can make a difference.  We need to hold our elected official’s feet to the fire and encourage them to make wise decisions.  After all, it is their policies of excessive taxation, excessive spending, and a continuous elimination of God from the policies and principles of our nation that have produced the mess that we are in.  Make a difference while you still can!
  1. Become self sufficient | In reading accounts of other countries throughout history that have gone through hyperinflations, the people that have survived the best are the ones who were able to produce their own food, had supplies of fresh water, had acquired barter type items prior to the economic tsunami hitting them.  It is sad that we are about at the point where we look at long-term food storage as part of a solid investment portfolio, but our goal is to protect, preserve, survive and thrive, and these type of items should be sought after.
  1. Diligently study the fundamentals of the markets | Knowing what fundamentally causes markets to move is ESSENTIAL to safeguarding your assets from erosion due to bad public policy. For example:  The value of bonds will come down when interest rates rise.  Financial metals like gold/silver do very well during times of political and geo-political turbulence, economic uncertainty, chaos and change.  Industrial and agricultural commodities tend to do very well during times of inflation.  The stock market will ultimately come crashing down as revenues continue to decline and taxes go up. 
  1. Reallocate your assets | You need to analyze your current investment mix and get out of the downward trending asset classes (stock market and allocate into positive trending asset classes like gold/silver.  Precious metals in this economy will act as a hedge against your paper assets as they are in the midst of a HUGE bull market.  Gold has increased over 400% since 2002 and silver has increased over 700% during the same time period.  A proper allocation of metals and cash in your portfolio will help to insulate you against some of the turbulent market activity that will wipe out a lifetime of savings in a short period of time.
  1. Contact a financial advisor who understands the times we are living in | 1 Chronicles 12:32 says the sons of Issachar understood the times and knew what to do.  We need to be modern day sons and daughters of Issachar and understand the times we are living in and know what to do about it.  Also, make sure your investment advisor is the same.  Many well meaning people just don’t grasp the seriousness of the economic downturn we are living in, nor do they grasp the magnitude and scope of the implications of not allocating wisely.  Our window of opportunity to protect us, our families, and future generations will not be open forever.  In fact, it may not be open for very long at all.  ACT NOW to preserve and protect everything you have worked your entire life to accumulate.

The $2 million cup of coffee

The $2 million cup of coffee

On May 28th, 2014 there was an article on Bustle.com reporting how Starbucks baristas had served the most expensive drink ever.  It’s called the Sexagintuple Vanilla Bean Mocha Frappucchino, and it’s pretty much death in a glass. A 128-ounce glass with 60 shots of espresso and costs a whopping $54.75!  So this got me thinking, not only is this DEATH IN A GLASS, it is also DEATH TO YOUR RETIREMENT PORTFOLIO!

         In 1996 Thomas J. Stanley and William D. Danko wrote a book called, “The Millionaire Next Door.”  They described the surprising secrets of America’s wealthy.  What are just a few of the characteristics they talked about?

Millionaires don’t look like millionaires, dress like millionaires, eat like millionaires, act like millionaires, and they don’t even have millionaire names! 

  • They live well below their means. They wear inexpensive suits and drive American-made cars. Only a minority of them drive the current-model-year automobile. Only a minority ever lease their motor vehicles.
  • Most of them have never felt at a disadvantage because they did not receive any inheritance. About 80 percent of them are first-generation affluent.
  • About two-thirds of American millionaires are working, the rest are retired. Those who are working are self-employed. Interestingly, self-employed people make up less than 20 percent of the workers in America but account for two-thirds of the millionaires.

In a nutshell, they are not flashy.  They live below their means, they work hard, are very entrepreneurial, and they save and invest what they don’t spend.

So, let’s get back to the coffee.  I know a person who would go to the coffee shop every day and get a frappaccino.  Let’s not be ridiculous with the $54.75 frappaccino.  Just a basic frap is $4.25.  If my friend would  invest that $4.25 instead of drinking it the results would be AMAZING!  From age 20 to 65 (when most people want to retire), investing $4.25 Monday through Friday instead of drinking it, and having that grow at 15% annually, my friend could accumulate a lot of money.  Let’s do the math.

$4.25 cup of coffee for 22 days a month = $93.50 per month on coffee

WHAT IF SHE CUT THAT OUT AND INVESTED IT.  As we learned in previous lessons, there is a time and place for everything.  A buy and hold forever strategy is a foolish allocation.  Day trading is also foolish.  But, IF YOU ARE A STUDENT OF HISTORY and a STUDENT OF THE MARKETS you can identify the major trends and take advantage of them so those trends don't take advantage of you.

In working trough this example, let's assume a 12% annual growth rate on your investments.  Why 12%?  Isn’t that kind of high?  Well, let’s look at the trends:

1980-2000 the DJIA grew 1404%, that’s a compounded average of 14.5% a year for 20 years!

From 1970 to 2000 U.S. average real estate prices grew 593%, or an average of 10.7% per year.

For the decade of the 1980s you could have averaged 9.46% per year with bonds.

But, nothing lasts forever, when you are a student of history and a student of the markets, there are signals you can look for that can indicate that a trend is about to change.  This happened in the early 2000s.  From 2002-2014 Gold has grown from $278 per ounce to $1230.  That’s a 342% increase in 14 years.  Or 13.1% per year average.  Silver is similar, growing from $4.57 per ounce in 2000 to $20 per ounce in 2014.  That’s an average annual return of 13.1%.

So, by understanding the trends, allocating into the right place at the right time, 12% per year all of the sudden doesn’t seem outrageous, but actually quite a reasonable expectation over time with a properly diversified portfolio that maximizes your return and minimizes your risk.

So, back to my friend.  Instead of her coffee, if she invested that $4.25 per day into a growing trend from age 20 to age 65 how much do you think she would have saved up?  Just from cutting out coffee and saving $4.25 per day?  $10,000, $50,000, $100,000

NOT EVEN CLOSE!  At age 65, not adjusting for inflation she would have $2,026,073.94.  YIKES!  Not only will the cup of joe with 60 shots of espresso probably kill you, but going out for coffee every day should have just made you sick!  $2 MILLION DOLLARS is what those cups of coffee cost.

In economic terms this is called the opportunity cost, or the best forgone alternative if you would have done something else with your money.

Now, replace my friend with you.  Imagine how much you could have if you cut your cable TV package from the highest to the lowest package.  Instead of eating out once per week you went out once per month.  Instead of going to a movie you rented one.  Examine your life.  Just think of all the things you could cut out.  I’m not suggesting you cut out everything.  STILL HAVE FUN AND ENJOY LIFE!  But, if you invested what you cut out into the right places at the right time, all of the sudden your retirement could look AMAZING instead of something to fear and lose sleep over.

In closing, here are 3 strategies for a prosperous retirement while still enjoying life now!

  1.  LEARN TO LIVE BELOW YOUR MEANS
  2.  FIND FUN THINGS TO DO THAT ARE FREE
  3.  INVEST IN THE RIGHT TREND AT THE RIGHT TIME
Discuss this blog with your family over dinner.  The future could be AMAZING if you follow these steps.

Why do people trade?

Why do people trade?

As a follow up to the last blog post where I wrote about international trade and tariffs, I want to dig in a little deeper and answer the question, Why do people trade?" It’s really simple actually.  Trading between people, businesses, and countries occurs because the other party has something you want.  That’s the basic reason why people trade.  Someone else has something that you either want or need.  Trading baseball cards is a perfect example at the most individual level.  If you live in Boston and have a player card from the New York Yankees and your best friend lives in New York and has a Boston Red Sox player’s card you two will get on the phone, have a short discussion and the trade will happen.  After all, between those two bitter rivals who would want a player from the rival team?  This is how trade works at the simplest level.

            Let’s dig deeper into this concept by looking at what happens between countries.  In a previous lesson we learned about Adam Smith, the great economic thinker and moral philosopher from Scotland who lived during the 1700s championed a theory called ABSOLUTE ADVANTAGE.  In simple terms, absolute advantage refers to the ability of a person, firm, or country to produce a greater quantity of goods or services than a competitor using the same amount of resources.  So, an island country like Jamaica may be able to produce a lot more fish than a land locked country like Germany.  But Germany, because of where it is located produces a lot of coal.  Therefore, the theory of absolute advantage would say that Germany has an absolute advantage over Jamaica in coal production and Jamaica has an absolute advantage over Germany in the production of fish.

 

The theory of absolute advantage makes sense right?  If something takes a smaller quantity of inputs to produce a good then that’s what should be produced.  The theory of Comparative advantage takes this one step further.  Comparative advantage was a theory developed by David Ricardo in 1817.  It brings opportunity cost into the picture.  Remember our previous lesson on Opportunity cost?  That is the cost of the greatest foregone alternative for choosing to do one thing over another.  Therefore, Comparative advantage is the ability of a country (or person) to produce a good or service at a lower marginal and opportunity cost over another.

            Let’s look at how this plays out and how nations can gain from trade.  But I want to ask you a question first.  Is it possible for a country to have an ABSOLUTE ADVANTAGE in producing in everything still have different countries that have different comparative advantage in something and be able to gain from trade with that country?  It doesn’t seem like it, but it is possible!  Let me show you how.

Look at this simple chart.  Country A HAS AN ABSOULTE ADVANTAGE of country B in both production of Food and computers.  They just produce more!

For example, consider again Country A and Country B in . The opportunity cost of producing 1 unit of computers is 2 units of food in Country A, but only 0.5 units of food in Country B. Since the opportunity cost of producing clothing is lower in Country B than in Country A, Country B has a comparative advantage in clothing.

Thus, even though Country A has an absolute advantage in both food and clothes, it will specialize in food while Country B specializes clothing. The countries will then trade, and each will gain.  Make sense?  It was just simple division to determine which country had a comparative advantage in the production of a certain good or service.  So this is how gains from trade can happen, EVEN if one country has an absolute advantage in their production.

This can get a little confusing, but once you go through some of the exercises in the study guide this will sink in.  Just remember, the bottom line is this:  an individual our country can still have a comparative advantage in a good or service even of their trading partner has an absolute advantage in both goods being considered.  The gains from trade can help all be more successful. 

 

Output per day of work

 

Food

Computers

Country A

6

3

Country B

1

2

 

Source: Boundless. “Absolute Advantage Versus Comparative Advantage.” Boundless Economics. Boundless, 26 May. 2016. Retrieved 10 Jun. 2016 from https://www.boundless.com/economics/textbooks/boundless-economics-textbook/international-trade-31/introduction-to-international-trade-124/absolute-advantage-versus-comparative-advantage-493-12589/