Debt, Death and Taxes = Opportunity

[wgraham]

HomeblogWade's wordDebt, Death and Taxes = Opportunity




Debt, Death and Taxes = Opportunity

WRITTEN BY WADE GRAHAM /span>| 09 AUGUST 2011

It is an understatement to say that the US has some major problems right now. The lack of political leadership is, to me, very disheartening and I am NOT just point the finger at President Obama .... the problem is systemic throughout the political environment from the federal level to the municipal. Elected officials are more concerned with keeping their jobs and padding their wallets than doing the right thing and truly facing the problems at hand. At some point in time they will be forced to.


Standard and Poor recently down graded the US credit rating from AAA to AA+. To me this is the biggest farce! The US is BANKRUPT! If you or I were bankrupt we wouldn't have access to credit. We would have a very very low credit rating and we would be forced to pay CASH for everything! So what do you think the US credit rating should really be?


But alas complaining about the political and economic environment is a waste of time! It gets you nowhere other than into a negative mindset which is detrimental on many levels. The real question to ask is: What is the opportunity and can I capitalize on it?


The reality is this. It will take YEARS for the US to get their finical house in order. This means prolonged access to very cheap capital and thus record low mortgage rates for years to come. Have a look at this CRAZY visual representation ofthe US financial situation. We just renegotiated Almost $2 Million in mortgages with BMO at a rate of Prime-0.9....Thank you very much BMO!

ng-bottom: 0px; padding-left: 0px;">Mean while, with low interest rates the Federal Reserve is printing ridiculous amounts of money and flooding the financial system with it. This means that there IS (not will be...but IS) inflation taking place! I paid $1.40 for gas yesterday when last year it was under $1. Our grocery bill isn't getting any cheaper and neither are the cloths we need to buy for our son Kaden. Kid yourself not, INFLATION is the only way to get rid of $14 Trillion of debt and the government knows it but that isn't what they will tell you!

Oh and while this is all going on, the Stock market is taking an absolute kick to the teeth. Did you realize that in 2001 the Dow Jones was trading around 10,000? Well 10 years later the Dow Jones is still in the 10,000 area. The only people making any money what so ever are the traders who skim a little off the top every time you say..buy or sell! With this weeks route of the market over 18 BILLION shares traded hands. $9.99 a trade...you do the math! Someone made a boat load of money and I will bet it wasn't YOU! The system is designed for fear and greed and high volatility. If this doesn't make you angry it should! Read this article by Dallas Maverick owner and Billionaire Mark Cuban to see what I mean.


So you have ridiculously affordable mortgages, rampant inflation and a stock market designed to screw the investor. Where do you want to position yourself to capitalize from this?!?!


GICs that pay less then the rate of inflation? Mutual funds that compensate a fund manager to keep your money not make you money? Stocks that have unpredictable volatility? Cash that is being devalued daily? Or gold at a record high $1740/ounce?


Well, I can tell you this: We issued rental increases to all of our tenants last month because Calgary vacancy rates are dropping at an alarming rate. Not one of them said boo about it because they know we provide excellent value for our rentals. We treat them like gold and when they have issues we take care of it. The values of our homes are up from last year and the year before and the year before that even though that is not what you are reading in the news paper. And our cost of borrowing has gone down significantly. I'll let you do the math!


Everyone needs a place to live no matter what the economy is doing.

tyle="margin-top: 10px; margin-right: 0px; margin-bottom: 15px; margin-left: 0px; padding-top: 0px; padding-right: 0px; padding-bottom: 0px; padding-left: 0px;">More people are moving to Calgary with the promises of solid employment at great paying jobs.

Interest rates will stay ridiculously low for way too long.


I know where I will be placing my money.


I know not all of you will agree with my point of view but I encourage you to comment and let me know just how you are capitalizing on this current economic environment!

 

[Thomas Beyer]

Well written article Wade ! So true !! I was fuming like you, too !!



I
disagree that the US is bankrupt, though ! It has huge revenues and an
enormously large economy ! It also has borrowing capacities like no
other state ! The price of debt actually went UP as did the US $ ! The
issue in the US is taxes that are way too low, as G W Bush cut them far
too much, and way too much spending on the military, its own bureaucracy
and certain social entitlement spending ! Unlike Canada, which has a
majority government for 4 more years the US has a dysfunctional 3-tier
government (congress, senate, white house). That was the true aim of the
S&P downgrade: the politics ! The US has to raise taxes and lower
spending .. which it will do in time after much bickering. What we see
in the UK now .. or in Greece recently .. is a foreshadowing what will
happen more in Europe and in the US: more violent clashes as
entitlements are cut, taxes raised, yachts burned and people shot due to
the many guns as entitlements such as teachers salaries, pensions and healthcare are all rolled back.



I agree that Alberta, and Saskatchewan are the
places to invest right now due to in-migration and resource based job
growth. But: we will also see inflation, but flat wages, i.e. a
deterioration in the economy .. less in W-Canada than E-Canada .. and
far less than US or Europe. W-Canada has the least dirty shirt, indeed
.. but entitlement issues, high pension costs and unsustainable health
care burden exist in W-Canada too .. just to a lesser degree than the
rest of the "civilized" world.



I continue to invest in W-Canada real estate, especially AB and SK but more carefully .. and mainly land and apartment buildings as wage erosion will yield to less affordable housing and not necessarily to much higher home prices. Smaller houses, especially with basement suites, and townhouses probably still make sense, or rental pooled condos in decent locations. Cash-flow will be harder to come by but is still around if you buy carefully.



I also picked up some shares today for 22 and 23 cents on a gas drilling firm that used to trade for 80 cents and has a capacity to go to $2 .. or certainly 50 cents as this was their public raise price just a few weeks ago.



Have some cash ready .. opportunities in foreclosures or stocks will abound !!!

 

[RedlineBrett]

Good post wade.



Inflation is certainly happening and I agree that the only way to right the ship is to make the relative size of everyone's debt lower by putting more money into the system. I think it's also important to keep it cheap to borrow but tougher to qualify for loans.

 

[bizaro86]

The US certainly isn't bankrupt. They have the ability to pay their debts, borrowing capacity, and the unique ability to print the world's reserve currency. They are certainly in a tough spot, but they'll get over it.



It's like Winston Churchill said, "The US always does the right thing, after they have tried everything else."



Michael

 

[wgraham]

There certainly is more cash in the system than ever before thus inflation and devaluation of the USD.



Is the US bankrupt. Well I guess it depends on you definition. They currently have to raise the debt ceiling to pay the bills (which has been done many many times in the past) The ceiling should be a function of GDP and NOT some arbitrary number the politicians make up!



Their debt obligations are far above what they can actually currently afford. Pensions, healthcare, wars, etc. To me this is insoulvant..



Is NOW the time to invest in the US? Well if yesterday, last week, last month or last year wasn't then today CERTAINLY isn't!! The uncertainty in the market at this point in time is higher than any we have seen in history!



Stay in Canada. Stay in solid income based assets with large margins. Make sure your bank accounts are healthy. And selectively take advantage of situations that come your way in which you have solid solutions for!

 

[Thomas Beyer]

Well said, Wade. Debt has to be seen in light of assets and income, though ! I certainly have more debt today than 20 years ago .. But I also have higher income and far more assets. The US has a lot of assets, such as land, coal, oil, natural gas, water, military, intelligence, democratic election systems, bridges, canals, highways, schools, universities .. to name a few. So, as an example, is it prudent to build a new bridge for $1B or an interstate highway for the same amount and collect $60M / year in toll while also reducing time spent by 100,000+ citizens on a daily basis ? In most cases this answer would be "yes" even if the debt is now $1B higher. In fact, if the cost of the debt is only 2%, as governments borrow at very low rates, then surely a bridge yielding 6% and saves citizens time makes a terrific investment. So the issue is not debt per se, but what is the debt used for ? For productive purposes ? Or is it wasteful ?

 

[wgraham]

[quote user=ThomasBeyer] but what is the debt used for ? For productive purposes ? Or is it wasteful ?



Thomas this is the government we are talking about...which do you think it will be?

 

[BVPower]

Great Post Wade!