Marc Faber calls US a banana republic

Marc Faber used a very strong language the other night calling US a banana republic. Why?

I listened to his interview with Max Keiser and well, he sounded very reasonable. That’s scary when a man says: “it’s dangerous to be right when governments are wrong."

Nobody exactly knows where the first $350 billion from bailout programs and TARP went and it makes me surprised that Americans are not interested in who took their money. Really astonishing thing.

Faber sees the USA as a banana republic producing enormous amount of debt without any control and it looks like Russia where oligarchy manipulates authorities and grabs all available cash.

It’s a sad picture and the only thing you can do is to protect your assets in best possible way. You don’t have to strive to get rich soon but rather not to go broke.

So now it’s time you diversified your assets because the dollar is really shaky. Look for some real estate, gold, silver, commodities, anything you like because every second your dollars are worth less.

Marc Faber calls US a banana republic may be too soon but unfortunately there are not many signs of improvement. Be prepared for the worst but don’t lose your mind or hope.

Commodities and emerging markets are the most promising

I’ve been talking about commodities and emerging markets for some time and still consider them very promising to make us rich, or at least save our assets. Yesterday, Indian stocks rallied 17.3% in just one day. Yes, it’s not my mistake. 17.3% in a day. It shows a real potential in emerging markets.

I’ve decided to buy some local commodity fund today because I don’t care about a right timing too much. I’ll buy more in June, July and so on. Why should I bother about the timing?

Look, crude oil is above $60 a barrel. To be rich is enough to follow the market and that’s all. I think everybody prefers bull market, me too. It means that the economy is expanding not shrinking. This time I’m not sure about it. I know that the inflation is coming and it’s better to put your money in something where your dollars preserve their value.

I’m constantly buying gold coins, even very recently I purchased another British sovereign but IMF makes me a bit nervous. These guys are threatening to sell 200-300 tons of gold. Yes, they can do it, it’s not their private gold. I believe them.
Many pundits say “buy silver” but the trouble is that silver takes a lot of room to keep. It’s impractical. I’ve got some silver coins and they look nice but their value is around $500 in total. If you look at them, you might get wrong impression and estimate they are worth much more. Yes, they look nice and impressive but they are rather cheap. You need a lot of them to invest some reasonable amount of money. Gold is more practical.

What commodities to buy? I wouldn’t care and just buy some index via ETF. It should outperform your deposits or bonds.

I’d to the same with emerging markets. In my opinion, Asia and Brazil are the most promising and I’m decided to put some my money there.

To sum up, I’m bullish on commodities and emerging markets and rather bearish on US dollar.

How to make money right now?

Everybody wants to make money. Most people are looking for very fast and huge rates of return. They play lotteries, go to Las Vegas or Atlantic City, buy American banks stocks or speculate on currencies in Forex.

Let me tell you something. If you are the same kind of person, do you remember what your grandpa said: Hasty climbers have sudden falls? Isn’t that true?

Next question to ask yourself: do you know how much money you had a year ago, two years ago and so on? What was your net worth and what is it now?

How about your debt? Do you owe any money to the bank due to some unpaid credit cards? Do you have to pay huge installments for your car?
Well, these are vital questions, not your hot picks in the stock market. Believe me.
Start with your personal finances and don’t bother that you will miss something. The markets are open every day and you will have thousands of opportunities to make money.

The first thing is to make yourself profitable. You are not a big bank, and you won’t get any bailout. You only have to pay for it.

There are no gimmicks, just spend less than you earn.

Charles Dickens was right:
“Annual income twenty pounds, annual expenditure nineteen nineteen six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.”

Only when you generate a positive cashflow you can make money in the best possible way. In this case you aren’t under any pressure and you don’t worry about your creditors or stuff like that. Your mind operates much better, more efficient and it’s not biased towards taking too much risk.

That’s crucial to have a clear mind and a wallet full of your own cash. If you need a leverage, just learn about derivatives but always remember that the leverage operates in both directions and you can lose a lot of money as well.

So assume you’ve got your emergency fund, no credit card debt and wonder what to buy now.

Don’t you see your dollars are burning? Yes, they are. Your government is printing more and more every day and what it means to you? Think about it. You’ve got a hundred in your hand and they print another out of thin air. Do you think it makes you richer? I doubt.

Then I bet dollars and all instruments connected with them like bonds or bank deposits are very bad investments and you’d rather go broke than get rich using them.
A sudden rise of inflation is inevitable. I don’t know when. In a year or two, you will see it. I wouldn’t care about official statistics –just compare the prices of things you pay for now and you paid last year.

Well, you may be surprised.

Anyway, I’d escape from the dollar and buy some land. Yes, now it’s time to buy real estate. Prices are good but the problem for America is that the citizens are in debt and have no cash. Maybe you have?

Even a small piece of farmland is better than a pile of green paper.

Stocks? I don’t know. Personally, I sold them but the rally may continue. Hard to say.

Gold? Yes, but not at any price and only real bars and coins, no computer records.

I think you’d better ask yourself but if you really want to make money right now start with your personal finances.

How to get rich with gold?

Anybody who would like to get rich should think of gold. Why? Gold preserves value. That’s the most important issue. Obama administration officials are talking about reducing budget deficit but in fact they are going to increase it. There will be no happy end for the dollar. So the way out is to buy gold, real estate (if you have your own resources) and any real assets that you can convert your funny money in.

In my opinion, gold must be real, not any kind of a computer game like some ETF or futures contract. Just real stuff. Recently some guys wanted to get real gold bars from NYSE Liffe and they got to know that there’s no real gold only a computer game.
I buy coins and bars gradually month after month and laugh at different values in paper money. Paper money is worthless. More and more people start to realize it when they hear about printing dollars, pounds or any other currency almost every single day. Do you really believe in those digits on paper? I don’t. Their face value should be divided by two or three at least.

Many Americans are in a really bad situation because most of them have piles of debts and they don’t save any money. That’s a shame. I can tell you folks. Start paying off your debts right now. It won’t be easier.
So how much of your capital should be invested in gold? Traditionally it’s estimated that 5-10% of your assets but now we are entering a new era. To be safe you need to double or triple that.

What is a good price to buy? I don’t know and don’t waste time on it. I buy coins and bars month after month in small amounts. If it’s $900 or $800 now I don’t care. It will be more, much more.

I hope that whole financial system will not collapse because in that case I will get rich at a price $3,000 or $4,000 per ounce. I’m afraid I wouldn’t be so happy. Neither will you.

Shall I enter emerging markets?

If you want to get rich in the stock market, you simply can’t skip emerging markets. Nobody knows whether it’s just a correction move (some call it fools’ rally) or a new bull market. I don’t believe in the other but you must trade what you see not what you think.

I live in one of the countries labeled “emerging” and I doubt whether the economy will recover so soon but look at the real cash flows.

According to MarketWatch $4bln were invested in funds covering Brazil, China, India and Russia only last week. It’s a lot more than usual. Brazil seems to be most fashionable now.

Well, I doubt whether you can make any money following the news and media but at least I’d consider some diversification of your money.

The dollar is doomed whether you like it or not. You have a big problem with evaporating value of your dollars. I’d convert them in real assets like gold, commodities, land, real estate in the first place and maybe try some stocks but after so huge rally it’s really risky right now and I don’t like risk very much. Do you?

You can also protect your assets by buying some foreign stuff and emerging markets are the most promising, much more than for example sinking British HMS “Titanic”.
The problem is with the timing.

How to solve it?

There’s always a simple way out. I’d buy ETFs month after month with the same amount of money. That’s all.

Personally, I tend to think that you should gamble a little and buy more at the end of October. I worked on statistics and the data are quite intriguing. In the last 14 out of 15 years we had always a positive rate of return between October and May investing in my country – Poland, so remember to prepare some extra cash for a Halloween shopping in emerging markets.

On average, buying in May and selling in October resulted in 4.5% loss so I’d be rather cautious now and invested only with a close stop-loss order. If the credit crunch is going to ease in October we will be much more sure about it and that’s another reason to be skeptical now.

Yes, personally I’m preparing some of my bank deposits to terminate in September or October and then I’ll use some of my funds to buy new stocks. So, in my opinion emerging markets are a great opportunity but I’m waiting 4-5 months to put more money in the stocks.

American bonds are the worst possible investments

I don’t know who keeps money in American bonds. 3,29% for 10-year bonds just make me laugh. They should be at 10 or more percent. Why?

America is a risky bond market. Increasing public debt and printing money is no way out of credit crunch.

I don’t think gold is very cheap at $910 an ounce, but I would rather keep a gold bar or coin than American bonds. You are guaranteed a very low return at a very high risk. In my opinion, this is ridiculous that so many countries and financial institutions value them at such crazy levels.

Many stocks are much better. They also offer high risk, but you can make many times more than funny 3% a year. However, now I don’t think that buying stocks right now in May is a good idea. The rally is crazy and probably needs at least some correction.
Commodities are also interesting because inflation is coming.

If I were American, I wouldn’t keep even a single bond.

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How to get rich now?

Many people wonder how to get rich now. I’m not a philosopher so I’m not going to tell you about how to develop personally but I’d rather focus on material things. First of all, you should start with building a safety fund.

It could be even $100 for a start but remember to build it gradually month after month every single month until you get to the amount that equals your household’s three months expenses Don’t stop then but you can save a bit less, say $50 a month.
Now you can ask me what this money is for? It’s simple. You will use it only in emergency cases like some accident, illness, an urgent car fix and so on. It means that the funds should be easily accessible and you need some simple saving account and don’t worry too much about the interest. It’s not any kind of investment.
Next thing is paying off your debts. There are different approaches. The most logical way is to pay off those with the highest interest first –usually credit cards. Yes credit cards are painful. If it doesn’t work for you, you should try David Ramsey’s methods with starting with the smallest debt to pay off in the beginning and it will give you real kick and motivation to reduce other debts.

I can give you some advice which is worth thousands of dollars: when you finish paying off your debt just cut all your credit cards and throw them away. Yes, I’m serious. Use only your money. Full stop.

If you really want to get rich now, you have to change the way you think. First of all, you must start generating positive cash flow every month.

It’s simple but not easy.

Your income must exceed your expenses and that’s all. You should try to increase your income and cut your expenses simultaneously. Don’t waste your time on gambling or lotteries. Every day try to make up a different ideas how to create new streams
of income that are coming straight to your pocket.

They don’t have to be huge, even a dollar a day makes a difference. If it’s profitable, it could be multiplied or increase to say 5 or $10 very soon. Do you need a good example?

Writing a blog might bring you nice income from advertisements but you need to provide a good content and you need a bit of traffic and a lot of patience to wait for some results.

There hundreds ways of increasing your income and I’ll tell you another simple thing: do what you like really good and people will pay you money, a lot of money. Think about it really hard and you will be rich soon. See you next time.

How to make money in stocks? Ask Stephen Friedman

Stephen Friedman made money buying Goldman’s stocks in December, actually he added 37,300. Now their price is above $130 and then it was less than $80. Accidentally, he has also a chair at the Federal Reserve Bank of New York and I bet SEC and other American regulators think it’s fine. It’s always fine when GS is involved so why shouldn’t be it the same now.

Think of Henry Paulson, a man who saved AIG by a huge bailout last year. Of course, he worked for Goldman Sachs for more than 30 years and increased personal net worth around $700 mln but don’t be too malicious. Free market is working properly as usual.

Well, I’m just kidding but America is seriously ill. Where are your values, guys?
I’m not going to cry or shout. I’m just surprised that you accept being manipulated. That’s your choice.

I just follow big guys and buy stocks but this doesn’t make me comfortable, especially that I know that Warren Buffett also rescued Goldman. I bet he’ll be fine, but I’m not sure about the USA.

Sell in May and come back in October

I checked Polish stock market in the last fifteen years and to my surprise “sell in May and go away” works here in an amazing way. The average rate of return is -4,88%. On the other hand buying in October brings astonishing +14,65% on average. The only bad year was 2007-2008 but everybody knew that it was a bubble to burst.
So the best idea from statistical point of view is to accumulate stocks in October and sell them in May.

I found similar conclusions concerning American market here.
Of course, it’s much more mature and there’s more data so discrepancies are smaller but it proves generally the concept.
So what’s my conclusion?

I’ll buy more stocks in October than usually. Then I‘ll match some of my bank deposits to expire then. You know, there are lies, big lies and statistics but I believe that “buy in October “is for me much more interesting than “sell in May”. I guess it will help me to be rich faster.

Warren Buffett invites shareholders to Omaha

It is estimated that around 35,000 shareholders are coming to their annual meeting in Qwest Center Omaha, Nebraska. Berkshire Hathaway’s shareholders will be entertained by two really old friends Charlie Munger, 85 and Warren Buffett, 78. If you want to see full program, it’s here.

Maybe I’m a bit old-fashioned but I don’t like that the holding will be trying to sell its products (for example Borsheims jewelry) as well.
2008 seems to be the worst year in the history of Berkshire-Hathaway and I’m really looking forward to hearing from Buffett what he is going to say about his investments in "financial weapons of mass destruction." That’s how he called derivatives 6 years ago and now it is estimated that BRK has positions around $40 bln. That’s a lot!

Traditionally Buffett was a person interested in real assets and real companies. Now he became kind of speculator and I really don’t know what to think. I hope that after this weekend, it will be clearer and he will help us get rich faster ;)