Wealth Building Lessons

Why You Should Invest In Canada Right Now

Wealth Builder — Mon, 27 Oct 2008 19:14:28 +0000

Here’s a very interesting article by Dereck DeCloet on ReportOnBusiness.com. Some very good reasons on why you should be investing in Canada right now.

Heed the advice of The Smartest Man

Crackpot. Crank. Scaremonger. Alarmist.

The Smartest Man We Know has heard the slurs. When you make your living on Wall Street, yet hold the opinion that Wall Street is populated by incompetent fools, you’re not going to win a lot of friends at dinner parties, are you?

And when you bet millions that the American financial system is going to fall apart, that its economy will be seized with fear - and when you were doing this and saying this before there was any hint of real trouble - well, you couldn’t really expect other people to welcome the message, could you?

The Smartest Man, when delivering his prophesies, did not sugar-coat them. “This could potentially make Long-Term Capital [the financial crisis of 1998] look like some kind of walk in the park,” he predicted. “The reckoning has started.” No soft landing this time: It could even be “like the Great Depression of this century.” He said these things not last week, not last month, but on July 26, 2007. That day, the Dow Jones industrial average closed at 13,473.

But The Smartest Man was just getting warmed up. Checking in with him again this January, he was every bit as gloomy. By that point, credit fires were burning all over the place; the Dow was at 12,500; the world’s biggest banks had been forced to turn, cap in hand, to Singapore, China, the Middle East and elsewhere for billions of dollars. It won’t be enough, he said. “There’s a whole bunch of companies that just have to hit the wall. They can’t survive.”

What kind of companies? U.S. financial institutions, mostly. Wachovia looks bad. The major investment banks are shaky. It’s about to get a lot uglier, warned The Smartest Man. “The implications of what’s going on for the U.S. economy, credit, for lending over all, are not that pleasant to think of.” Two months and two days later, Bear Stearns was gone.

So you can imagine our surprise when the Smartest Man - his real name is Krishnamurthy Narayanan, and he goes by Nandu - showed up in town this week and was bullish.

“I think we’re ending the financial crisis now,” he said. “There will be countries, like the U.S., that will go into recession. But this need not be a global recession. And there are some encouraging signs on that front.”

In a different era, The Smartest Man might have been a rocket scientist, or an engineer, or a medical researcher, or maybe a university professor. The academic résumé says: MBA, PhD in finance and economics from the Massachusetts Institute of Technology, studied under Paul Krugman, who just won the Nobel prize for economics. But this is - or at least was - the age of finance, and The Smartest Man became a hedge-fund manager, placing money on his views rather than just writing them.

Lately, that has worked out rather well. His CI Global Opportunities Fund has returned 57 per cent in the past year, 19 per cent (compounded) over the past five. Nice numbers, but once you’ve made your money calling the credit crisis and short selling Washington Mutual, what do you do then?

You buy Canada, says Mr. Narayanan, who can’t believe the way the loonie has been savaged. “The currency is ridiculously undervalued. I can’t think of any country in the world that has no fiscal deficit, no trade deficit and no inflation - except Canada. I think the Canadian dollar should go through parity.

“I like the whole Canadian market. I don’t particularly dig the banks because I just don’t know what’s in there [on the balance sheet]. But I’d say virtually everything else is fine.”

You buy some emerging markets, even though they, too, have collapsed in the meltdown. “You can’t play the emerging markets by listening to the market action. If the Indian market’s down 50 or 60 per cent from its peak, I can assure you nothing’s really changed in India. Nothing’s changed. The vast majority of people in India don’t believe in the stock market,” said Mr. Narayanan, who was born in Chennai, India.

You look to the currencies of Asian countries that are growing and still financially healthy. Singapore, Malaysia and Thailand all have trade surpluses and single-digit inflation. “Most of the Asian emerging markets and emerging currencies are ridiculously priced right now.”

You buy uranium stocks: “Ridiculously cheap.” Gold miners: “Ridiculously cheap.” Pipelines, too: “How bad a business is that? It’s a fantastic business. You’re just shipping gas. Why are people selling those?” Energy: “Unless there’s an absolute collapse in oil demand, you really can’t see oil plunge all that much [more].”

There are, however, some things The Smartest Man wouldn’t touch. They happen to be the assets the investing masses have flocked to in this crisis: U.S. Treasuries and the greenback. “I don’t think it can hold for that much longer.” Once the world has to absorb trillions of dollars in new U.S. debt - watch out. In fact, he thinks the odds of the U.S. having its own currency crisis are “at least 30 per cent.”

Would you want to bet against him?

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America Is Out Of Control

Wealth Builder — Wed, 06 Aug 2008 17:47:20 +0000

According to Jim Rogers, the increasing foreign debt of the United States has created fundamental problems for its economy and the US dollar will lose its position as the world’s reserve currency.

“The US dollar is and has always been the world’s reserve currency; that is in the process of changing.” Rogers said during a presentation at the IFSA annual conference at the Gold Coast on Wednesday.

“America is out of control,” he said. “The US is now the world’s largest creditor, having US $13 trillion in outstanding foreign debt.
But what is even worse is that our foreign debts are increasing at the rate of US $1 trillion every 15 months.”

Rogers believes China will become the world’s next dominating economy.

Another person who thinks that the US’s economy is on a brink of a financial meltdown is Addison Wiggin. He’s made a movie called I.O.U.S.A which hits theaters on the 21st August.

If you watch the movie on the 21st itself and send proof to Addison, he’ll send you a complimentary 1 year’s subscription to “The Strategic Investor” which is worth a lot more than the $10 you spend on the movie.

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How Does The Fannie Mae Bail Out Affect You?

Wealth Builder — Tue, 15 Jul 2008 02:48:28 +0000

What a day for financial stocks! Regional banks got slaughtered and even large national banks sank like bricks. Washington Mutual (WM) was down 35% and Wachovia (WB) dropped 15%. I guess the market didn’t care for the Federal Reserve’s bailout of Fannie Mae (FNM) and Freddie Mac (FRE).

So should the Federal Reserve have offered to bailout FNM and FRE in the first place?

FNM and FRE own 80% of the countries estimated $7 Trillion mortgages, which works out to be $5.6 Trillion. However, they have less than $260 Billion in cash, which means their portfolio is leveraged more than 20 times. When you’re leveraged 20 times, a 5% default rate can wipe you out. (Remember Bear Sterns buy out at $2 a share? They witnessed this first hand). Based on this over-leveraging, many investors believe that FNM and FRE are already bankrupt.

IndyMac, a Pasadena-based bank, collapsed as the value of its mortgages that defaulted exceeded the value of cash reserves it had on hand. Of course, FDIC stepped in to bail out the bank’s customers, up to $100,000 in deposits. IndyMac had $18 Billion in deposits. However, after liquidating the bank’s $32 Billion worth of assets, the FDIC will have to chip in another $4-8 Billion to make sure the $18 Billion gets returned.

Assuming the worst-case scenario of $8 Billion, the liquidation value of IndyMac’s $32 billion of assets is only $10 billion. In other words, the true market value of IndyMac’s assets is only 31% of its stated book value. In the FDIC’s best-case scenario, the liquidation value of IndyMac’s $32 billion of assets is $14 billion, which is still only 44% of its stated book value. [Source: John Turk]

Based on this liquidation analysis of IndyMac, it looks like the actual true value of subprime and Alt-A mortgage debt still in the banking system is something less than 50% of stated book value? Looks like a lot of banks are going to go bankrupt!

And considering that the FDIC has just shelled out 10% of its cash reserves for IndyMac’s customers, I don’t know how many more bank failures it can handle until the Fed has to bail it out!

So the question remains, should the Fed have bailed out FNM & FRE? According to some reports, this bailout will end up costing the American Taxpayer $1 Trillion over the next few years. And its not like the government has this sort of money lying around. It already has future debt obligations worth nearly $60 Trillion and the interest payments on our federal debt is over $1 Billion per day!

Some people think that FNM & FRE are so big that the government just has to bail them out.

However, others like Jim Rogers think this is “an unmitigated disaster”. “I don’t know where these guys get the audacity to take our money, taxpayer money, and buy stock in Fannie Mae,” said Jim Rogers in a Bloomberg interview from Singapore. “So we’re going to bail out everybody else in the world. And it ruins the Federal Reserve’s balance sheet and it makes the dollar more vulnerable and it increases inflation”.

“These companies were going to go bankrupt if [the government agencies] hadn’t stepped in to do something, and they should’ve gone bankrupt with all of the mistakes they’ve made. What’s going to happen three years from now, when the situation’s much, much, much worse… They’re ruining what has been one of the greatest economies in the world… there are 300 million Americans that are going to have to pay for this”.

A lot of people are agreeing with Rogers. Chris Dodd, the Chairman of the Senate Banking Committee, is behind the Congress’s mortgage bailout solution. According Porter Stansberry, editor of an investment newsletter, “Chris Dodd, is truly one of the stupidest people in all of public life. And by the way, I don’t mean that rhetorically. I mean literally….he’s dumb as a box of nails”. Stansberry thinks theres a lot of things wrong with the financial scenario today.

He believes that the government will refuse to accept the responsibility for the mortgage crisis. “Rather than allow the bubble to deflate quickly, it bails out Fannie and Freddie. Mortgage losses build for five years, reaching more than $1 trillion. Housing prices stabilize in good neighborhoods, but risk-averse lending practices result in ghetto-like conditions and widespread vacancy across broad swaths of America. Refusing to substantially raise taxes, annual deficits surpass $1 trillion in 2010. Total government debt begins to spiral out of control as our interest costs mount. Our foreign creditors lose confidence in the dollar and begin dumping it on the world market. Inflation surpasses 20% annually and prices for energy soar. Oil reaches $250 per barrel. The president alleges an international conspiracy to destroy America and threatens to attack China if it continues to sell the dollar. Price controls are instituted. The European press begins referring to Obama as America’s Mugabe!

No paper currency regime has ever lasted. No government in history has ever repaid debts as large as those already assumed by our government (in terms of GDP). A default is not likely it is inevitable”.

Elsewhere, he also says, “The value of the dollar is going to go down, and the price of everything else is going to go up. I think this sets the stage for a true inflationary crisis as the economy can’t adjust to soaring commodity prices. I also find it hard to believe our foreign creditors will continue to hold U.S. Treasury bonds if the U.S. Treasury takes on all of the mortgage losses of Fannie Mae and Freddie Mac. I think they’ll dump our bonds and that will literally be the end. No more world reserve currency. No more pegs to the dollar around the world. We’ll be on our way to banana republic status, in terms of credit quality”.

Not a very pleasant scenario. Maybe Porter Stansberry and Jim Rogers are on to something. Jim Rogers has already sold his belongings in the US and moved to China. He’s been heavily short the US financial stocks for a while and is probably celebrating todays crash in the financial stocks. Stansberry also was short FNM & FRE and has often claimed they’re bankrupt and the stocks are going to zero.

So what should you do? I guess you keep shorting the Financials and buy precious metals like Silver and Gold!

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Global Inflation & Gold Prices

Wealth Builder — Mon, 23 Jun 2008 21:09:31 +0000

I read two very interesting news reports today. One was about the spread of global inflation.

Last week came word that the Gulf States were piling up $1.5 billion net per day in oil revenues. In China, not an oil exporter, the rate of growth of foreign currency reserves has slowed down recently, but the country still nets about $1 billion per day. Overseas central banks accumulate Everests of these dollars, and lend many of them back to the United States – by buying U.S. Treasury bonds. To give you an idea of how fast this mountain of money is growing, foreign central bank holdings of U.S. treasury bonds, held in custody at the Fed, are increasing at a 37% annual rate.

But to buy these dollars, foreign central banks must increase their own currencies to pay for them. And so the global inflation contagion continues to function much as it did for the last five years – except that the flow of funds has shifted away from the finished product exporters in Asia in favor of the exporters of food and energy in the Gulf, Brazil and Russia. The world’s leading central bank is still over-doing it. Result: higher prices.

The second report was a news article on Bloomberg.com, stating that Gold prices could rise to as much as $5,000/Oz over the next several years.

Gold prices may rise to $5,000 an ounce as investors seek to protect themselves against accelerating inflation, said Schroder Investment Management Ltd., which oversees $277 billion of assets globally.

“You could easily see for the next several years that prices rise not to $1,000 an ounce, but prices rise to $5,000 an ounce or beyond as inflation psychology becomes more and more embedded and people become desperate to have a source of value,” said Christopher Wyke, London-based emerging market debt and commodities product manager at Schroder, which oversees about $10 billion of commodity assets.

Investors are turning to gold for protection as two-thirds of the world’s population cope with inflation rates that are climbing to more than 10 percent, Wyke said. Cash and inflation- linked bonds are poor substitutes as low interest rates, coupled with surging inflation, erode the real value of assets, he said.

It’s very interesting how there’s a spread in inflation and how many investment managers think that gold prices will benefit from this global uncertainity in the financial markets.

What’s in your portfolio?

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How To Live Well In Retirement

Wealth Builder — Wed, 04 Jun 2008 07:42:41 +0000

A recent articl,e Is $1 Million Enough to Retire On?, got me thinking. According to the article, the average American thinks that retiring on $1 million is more than enough.

However, living on a $1 million isn’t what it was a few decades ago. It will only generate between $40,000 and $50,000 a year in income. Assuming that your house is paid off and your kids are independent, that sounds like a decent amount to live on.

The article quotes a financial planner advising putting $800,000 in an inflation-protected annuity that pays out $45,000 a year. Seems like a decent plan. Especially when you add in Social Security benefits and Medicaid. (Lets ignore the $30,000 commission the planner just made on that sale )

But, the real killer in this article is inflation. I’ve long held the belief that the government reported inflation statistics are wrong, and any investment that is purportedly indexed-inflation will most likely see its value severely eroded over long periods of time.

Despite the governments assertion that inflation is at 3%, inflation has been running about 10% per year since 2005. Almost everything i buy has gone up 30% in the past 3 years.

I came in to this country 10 years ago. since then:

Movie tickets are up 100%.
Gasoline is up 400%.
Tickets to amusement parks/zoos are up 30-100%.
Lunch at the food court is up 63%.
Rent is up over 50%.
Health insurance premiums are also up. I’m not sure how much because I’ve aged 50% since then and that also affects premiums, but I read somewhere that they up 100% too. (But that’s unverified information, so you can take it or leave it.)

Of course, if you exclude housing, energy and health costs there’s a lot less inflation. I don’t know that one dude who lives in a cave in South Dakota, grows his own food, is completely off the grid and who never falls sick, but I think everyone else is seeing some sort of decrease in their standard of living.

Even If you buy inflation-protected annuities, your standard of living is guaranteed to decrease substantially over the next 30 years.It may not happen overnight or for a decade. But it will happen at some point, last for several years, and you will end up in the significantly poorer.

Let’s take the example of my friend’s house that cost $30,000 in 1965 in a suburb of Los Angeles which he bought for $450,000 in 2004. (We’ll ignore the fact that it went up to $675,000 and is now at $550,000 and still dropping). Over a 30 year period, that was a 9.5% annual increase in pricing! At what point were government statistics pointing at 9.5% inflation??? Maybe for a few years in the late 70’s and early 80’s, but I don’t think they were sustained at that rate for the full 30 year period!

And if you’re counting on Social Security & Medicaid to fund your retirement, you’re likely to be even more disappointed. The government doesn’t have enough money to fund Social Security & Medicaid indefinitely. It is estimated that both will be bankrupt by 2027. In reality, they won’t disappear. The government will severely curtail the amounts paid out and they will not really be indexed for inflation. (OK, maybe they’ll be indexed to the fake inflation numbers of 2-3%).

Recently the government reduced Medicaid doctor visit payments to $27. Assuming each visit takes one hour and the doctor employs one nurse at $60,000 a year and a receptionist at $18,000, that works out to $36 per hour(assuming there are no other costs like Social Security Taxes, Health Insurance and Workers Compensation). Factor in rent and utilities, and the doctor is not only working for free, but he’s paying out of his own pocket to see Medicaid patients!

Another faulty assumption in the article is that you only need 80% of your income in retirement. The average American’s saving rate is -2% a year. Put differently the average American is spending 102% of their income a year. What makes you think they’ll be able to live off 80% of it?

If anything, you’ll have more free time and you’ll go out and want to spend more money.

So whats the solution?

As far as I know, there’s only one investment that really keeps up with inflation: Real Estate.

Over the long run, real estate always tracks the real cost of inflation. During times of economic uncertainties, it may lag it substantially (like it will probably do for the next few years), but it always eventually reverts back to the real cost of inflation (regression to the mean). The trick is to be sufficiently well-capitalized enough to last through the lean periods in real estate.
And that can be a definite problem if your over-leveraged and have poor risk management skills.

If you can, you should try to buy 3-4 homes and make sure they’re all paid off by retirement. You can live in one and rent out the others.

I currently own $1 million worth of rental real estate. No, that’s not my networth, because they all have mortgages on them. In 30 years, they’ll either be fully paid off, or the mortgages will be so small relative the values of the homes, that they’ll be meaningless. (I once met an old lady who’s mortgage was $80 a month! I think she had 3 years left on it.) Meanwhile, the homes are appreciating at the rate of inflation.

Going back to our previous example where the property had appreciated 9.5% annually over a thirty year period, I should have $15.2 million when I retire. Before you rush to congratulate me, remember, that in terms of buying power, that will be worth only $1 million in todays’ dollars. And as we saw from this post, $1 million isn’t exactly retiring in style. But it beats a life of boiled cabbage, or having to chose between taking either your medication or a decent meal.

Real estate should be one aspect of your retirement portfolio. Hopefully, you’ll have a large 401k, and have other investments outside of that.

But the key thing to remember is that in these times of cheap and easy liquidity, borrowers are rewarded and savers are punished!

What are you doing for your retirement?

Wealth Building Lessons

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Gold To Hit $2,000/Oz in 2009

Wealth Builder — Sun, 11 May 2008 06:32:32 +0000

According to Peter Schiff, Gold should be back at $1,200 by year end. He also thinks that it’s impossible for the US dollar to make a comeback because the Fed will not raise interest rates for fear of pushing the economy into recession.

He states that Gold should hit $2,000 per ounce in 2009 and within 4-5 it might even hit $5,000!!!. He also thinks that Silver’s rise will be even larger than that of Gold!

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Is It Time To Invest In Commercial REITs?

Wealth Builder — Thu, 10 Apr 2008 02:54:56 +0000

I’ve been under the impression that after the collapse of the residential real estate market, the commercial real estate market will follow.
My assumption is three fold:
1. Unemployment is much higher than is being reported.
2. Consumer spending will drastically slow down.
3. There will be a credit crunch regarding mortgages for commercial lending

The official unemployment numbers for January 2008 is 4.9%. However, this includes people who aren’t trying hard enough to find work or who, being dissatisfied with what they see have given up looking for jobs. If you ask me, they’re still unemployed and ought to count in official figure. If you expand the definition to include “total unemployed, plus all marginally attached workersk plus total employed part time for economic reasons, as a percent of the civilian labor force plus all marginally attached workers“, we get 9% for the same period. By the time the official number is 6.5%, the unofficial number may be closer to 14.5%.

It seems logical that high unemployment will be bad for commercial real estate, including office buildings, apartment buildings and malls. Local neighborhood strip malls which have grocery stores, liquor stores, a 7-11 and a barber should be relatively unaffected because people need basic food and services. But everything else should suffer.

The US economy is highly dependent on consumer spending. The average American saves only 2% of his income and has been refinancing his house every 2 years to buy fancy stuff and fuel the economy. Since there’s no more of that going on, consumer spending is bound to decrease sharply. I’m on the mailing lists for Best Buy, Circuit and several other big stores. Since last Thanksgiving the volume of their emails and sales and discount coupons has increased dramatically. Even Costco has doubled its emails in the past few months. I think they’re either seeing a drop in sales and/or anticipating a further drop and are desperate to get people in the store to buy nice big TVs and PS3s.

A drop in consumer spending should affect large malls especially badly. Mall owners typically earn a percentage of the stores gross receipts. A drop in that figure can hurt both the stores bottom line as well as the mall owners. Also, theres a chance that stores may file bankruptcy or may chose not to renew their leases. REITs that own malls will start to suffer when this happens.

However, based on the performance of REITs over the past few weeks, you wouldn’t think there was anything wrong. Looking at the chart of Simon Property Group (SPG) over the past few months, we see it hit a low of around $75 in late January. Since then the Fed had to orchestrate a bail-out of Bear Stearns but it still managed to rally to around $100 (that’s a 33% jump) in the first week of April.

I chose SPG because its one of the largest REITs and 24% of its earnings come from malls in California and Florida, 2 of the states most affected by the subprime crisis and having amongst the largest number of foreclosures and home price drops.

It also seems that the Federal Reserve is going to provide ample credit for all mortgage companies and financial institutions. So my 3rd argument is no longer valid.

Based on these events, investors might be willing to believe that the market has priced in all the negative action and now is a good time to buy SPG (and other REITs). After all, the management did increase the dividend recently, its off its highs of about $120 that it hit in early 2007, and it is rallying in the face of terrible economic news.

Somehow I’m still suspicious of this rally. Looking at the long term weekly chart, it looks like SPG has tried to break it previous high repeatedly and failed. Each time it makes a lower high and a lower low. This is could be a sucker rally and its headed back down again in the long term.

However, I’d like some sort of external confirmation of what I’m seeing, preferably using same different data. What I found was pretty interesting. Stock newsletter editor Tom Dyson has an interesting theory on when to buy REITs:

Real estate investment trusts (REITs) are huge portfolios of real estate that trade just like stocks on the major exchanges. They own about 15% of the commercial property in the United States. With the low occupancy rates in my town’s commercial property market, I wondered if there might be any good bargains in the REIT sector yet.

The key to making huge, safe gains in REITs comes down to one question. Investors have to ask themselves:

“How much more in dividend payments can I earn in REITs than I can by just placing my money in a risk-free 10-year U.S. Treasury note?”

You see, REITs can become over- and undervalued, just like stocks and private real estate can…

For example, back in 2001, investors didn’t care for REITs at all. They just wanted another hot tech stock. REITs as a group were paying dividends of 8.3%, while Treasury notes were only paying 3%. The “spread” between the two assets was huge. Investors had a big incentive to get their money out of risk-free Treasuries and into riskier REITs.

REITs gained more than 250% over the next six years as investors chased the higher yields. Of course, the huge real estate boom that got going in 2003 helped, but you get the idea: When REITs offer high yields versus risk-free Treasury notes, you make a fortune in REITs.

Now… before you get too excited about the possible gains here, remember that REITs can also go the other way… They can become highly overvalued. For instance, in 2007, REITs – which carry the risk of land ownership and stock market volatility – were yielding less than risk-free Treasury bonds.

When REITs are yielding less than safe bonds, you want to lighten – or even eliminate – your REIT holdings…. After REITs reached such low yields in 2007, they fell more than 40% in 10 months. This kind of fall is hardly cushioned by 6% dividend yields.

Bottom line: We want to be heavy buyers of REITs when they offer high yields relative to safe bonds, and we want to lighten up or even avoid them when they offer low yields relative to bonds.

Right now, the Treasury note yields 3.53%. And the National Association of Real Estate Income Trusts Equity REIT index yields 4.99%. The spread is 1.46%.

Below, you’ll see a chart showing historical REIT performance in the top pane, and the historical spread between REIT yields and Treasury yields in the bottom pane. (We used NAREIT’s equity REIT index to find performance and yield for the REIT sector.)

As you can see, when REIT yields are 2%-3% greater than 10-year Treasury notes (like they were in 2001-2003), REITs are a great deal. When REIT yields are less than those offered by Treasury notes (like they were in 1997 and 2007), it’s a sign to exit REITs.

The low occupancy rates in my town tell me must be getting close to bargain territory in commercial real estate. But with a spread of 1.46% over Treasury notes, we’re not there yet. Wait for a 3% spread… and then start buying.

Quite a useful piece of information. Whenever the spread between the T-bills and REITs are 3%, its time to buy! Not sure how historically accurate it is since it only goes back 15 years, but it definitely makes sense.

Even though I do know that the Federal Reserve is going to bail out Fannie Mae, Freddie Mac and any bank that goes under, I’m still skittish about investing in the financial sector. It’s certain that there won’t be a credit crunch in the near future, and most likely real estate and financials will do well over the next few months. However, I’ll stick to my original hypothesis and skip investing in commercial real estate for now.

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10 Tips On How To Negotiate

Wealth Builder — Wed, 26 Mar 2008 07:40:01 +0000

I spent the day at the office of a rich hotel owner. He was accepting bids for the construction of a new $10 million, 100 room Hampton Inn, and was kind enough to let me watch the process. I saw two different companies present their bids and both of them had extremely different operating styles. However, the owner and his team had a consistent approach in both cases. They had a rough idea of how much money they were willing to spend on a per foot basis and tried to negotiate on costs that they knew the contractors had some flexibility with. I also saw them put an offer on an adjoining piece of land and I realized what terrific negotiators they were. Just because he was rich didn’t mean he was generous with his money!

While most of us won’t be negotiating multi-million dollar construction projects any time soon, most of us buy a high priced item every year to two, be it a car, a large screen TV or maybe a house. Knowing how to negotiate these costs can definitely help save you a ton of money in the long run.

According to a recent article in the New York Times, up to 25% of shoppers are now haggling over prices at stores like Circuit City, Best Buy and Walmart. The slow down in consumer spending has made shops more willing to reduce the prices in order to keep customers in stores. While I often bargain on purchases myself, the article mentions stories of real pros like the tag-team duo who like to play good cop, bad cop. Very interesting indeed!

Here are some of tips that I’ve picked up over the years to help you negotiate:

Always ask for a discount.

If you don’t ask for one, you sure won’t get it.

It’s easier for stores to do a price-match than offer outright discounts.

Nowadays they’ll price-match online pricing. Just make sure you take along a print out of the online price.

Many stores (usually mom and pop stores) will offer a discount for cash.

Using a credit card can cost a store upto 5% and they don’t get paid for 30 days. Paying cash should always net you at least a 5% discount at a small store. Here’s an account of how using cash resulted in a 34% saving.

Look for someone who seems like they’re in a good mood.

The last thing you want to do is negotiate with someone who’s upset because the manager told him he hasn’t been meeting his sales quota.

If the salesperson isn’t willing to negotiate, talk to someone else or a manager.
Don’t expect to buy a hot-selling item at a discount.

If you’re willing to get an open piece or maybe an older model, you have a lot more negotiating power. Sometimes, the changes are cosmetic or the new features don’t even concern you.

Do your research about the product pricing before you leave home.

The more information you have about the product, the better position you’re in. If you know more than the seller does about his product, you stand a good chance of getting the best possible deal.

Be willing to walk away if you don’t get the deal you want.

The more desperate person always loses in any negotiation.

Practice your bargaining skills everywhere.

The more you do it, the better you’ll get and the more you’ll save in the long run.

Always remember that everything in life is negotiable.

And all important things in life involve some form of negotiation, only most people don’t realize it.

Wealth Building Lessons

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Buffett On Oil Depletion

Wealth Builder — Tue, 11 Mar 2008 16:34:35 +0000

Warren Buffett was recently featured on CNBC where he discussed oil depletion and the fact that we could be close to peak oil production.

He says that we’ve been “sticking straws in the ground” since the 1850s and all of the easy to reach oil has been tapped. We’re consuming 85 million barrels of oil every day and the demand from countries like India and China is just increased. Existing production is maxed out and the fields seem to be in sharp decline.

Sounds like Buffett is a proponent of the Peak Oil Theory. While is he doesn’t mention it directly, I got the feeling that he bullish on the price of oil. Or at least, he doesn’t think the price of oil is coming down anytime soon. My personal belief is that oil will peak at $200 and then stablize between $125 and $150 per barrel over the next 2 years. Accordingly, I’ve been investing in direct oil drilling programs. These programs aren’t without risk and are not meant for everyone. But they can be quite rewarding.

If you’d like to profit from the increase in oil and gas prices, you could check out Canadian Royalty Trusts (also called Canroys) that specialise in the oil and gas business. This is the easiest and most liquid way to invest in oil and gas. However, these are stock products and are subject to the same risks as all other investments.

Well today oil hit $108 per barrel. It’s been widely reported that gas prices at the pump are likely to hit $4/gallon by summer. If that doesn’t cause a drop in SUV sales, then I don’t know what will!

If this news is too depressing for you (and even if it isn’t), before you go out and torch your SUV, spend two minutes listening to John Stewart talk about high oil prices.

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How To Invest Like Jim Rogers

Wealth Builder — Thu, 21 Feb 2008 17:59:35 +0000

Legendary investor Jim Rogers has been bullish on commodities since 1999. He started out bullish on oil and metals and to a certain extent on soft commodities like orange juice, coffee and grains.

Here’s a great 10 minute video on his current economic views and what he’s investing in right now.

As always, he calls Ben Bernanke a clueless moron and has a great explanation for why lowering the interest rates is bad for the US economy. That’s always entertaining.

He thinks we might fall into the same trap as Japan and see 17 years of stagnant GDP. That’s downright depressing.

But he also lets us see what sectors he’s investing in right now and that’s really informative. Unfortunately he doesn’t name specific companies or ETFs so we have to make an educated guess regarding the investments.

He thinks the US recession will affect global economies, unless of course they’re related to water treatment and transportation. Powershares Water Resources Portfolio (PHO) is an ETF that comes to mind.

He’s also long foreign currencies like the Chinese remnimbi, the Japanese yen and the Swiss franc and short the US dollar, which is not anything we didn’t already know. Apparently, there’s no love for my Australian dollars! Some foreign currencies can be easily bought via Currencyshares ETF, like FXY for yen and FXS for Swiss francs. However the remnimbi isn’t that easy, but it isn’t too difficult either. You just need to open an account with Everbank and then convert the money into remnimbi, or any other currency you like.

Rogers is also short the Investment Banks and financials like Fannie Mae. The easiest way to short the financials is by buying Proshares Ultrashort Financials ETF (SKF).

He also recommends adopting China’s policy of buying real assets and owning commodity companies like RIO and BHP. He wouldn’t say whether he already owned oil (or oil-related stocks), but just that he wouldn’t be a buyer of the commodity at these prices. Thats not to say he doesn’t already own Harvest Natural Resources (HNR) or PetroBraz(PBR). After all, he did say that he’s well diversified across the globe.

Another thing he mentioned fleetingly was investing in grains. I’ve been wondering how to invest in this sector without buying futures contracts. It turns out that there are several ETFs that are geared towards these soft commodities and there composition:

Greenhaven Commodity (GCC): 18% energy, 18% grains, 12% livestock, 24% metals, 29% softs

PowerShares Agriculture (DBA) : 30% soy, 28% wheat, 23% corn, 16% sugar

Van Eck Agribusiness (MOO) : 8% Monsanto, 8% Mosaic, 8% Komatsu, 8% Potash Corp.

PowerShares Commodity (DBC) : 33% crude oil, 20% heating oil, 14% wheat, 11% aluminum, 10% corn, 10% gold

iPath Ag Total Return (JJA) : 31% soy, 20% wheat, 16% corn, 11% soy oil, 9% cotton, 8% coffee, 7% sugar

Thanks to Matt Badiali for this list.

Its not easy to get a billionaire to invest your money. But with a little research, you too can now invest like a billionaire!

Happy investing!

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