Tug of War

There is a classic battle between financial strategists when it comes to retirement strategies and paying down mortgages. 

It can be a veritable tug of war! 

Some say being debt free is the most important thing while others would suggest that debt, as long as it is a mortgage, is not a bad thing.

Some experts suggest that paying off the mortgage will give home owners invaluable peace of mind. As a top priority, these experts favor becoming mortgage free and suggest restraint with discretionary purchases or offering financial assistance to family members. They favor large lump sum pay-offs to become mortgage free as quickly as possible when the home owner is approaching retirement.

This may be a good strategy for some if there are savings or a steady source of income to rely on to cover expenses.

What these strategists sometimes fail to mention is that they are assuming that a person has enough contingency funds to sustain themselves in case of an emergency.  

In retirement, the classic recommendation of having three to six months of living expenses on hand as a safety net still applies. If paying off the mortgage depletes these reserves, then the home owner is left vulnerable in case of unexpected expenses.

Other experts suggest it may be a better course of action to maintain a substantial reserve and to use these funds to make mortgage payments, if needed. In this way the retiree can avoid assuming high interest consumer debt for unexpected expenditures such as emergency home renovations or repairs, or even sudden medical expenses by using cash from savings.

It is not prudent to think of retirement funds as a reserve. Cashing out at the wrong time, such as a period of poor performance, can precipitate a loss. Cashing out when performance is optimal should also be avoided, when these funds produce cash flow. This should only be done as the last course of action if circumstances are dire.

Bottom line is that there is no blanket strategy. Each person must evaluate their own circumstances, income stream and potential for risk with their home and other expenses to enjoy a safe and secure retirement.

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Sources:

Lynda at Sonoran Sun | Private Equity Investments 

The Tightrope To Retirement

The Walk - is the cinematic story of Philippe Petit, the French high-wire artist who devised a plan to walk on a tightrope between the towers of the World Trade Center. 

Historically it was a feat of great daring that took meticulous planning to cross from one point to the other. Petit planned and trained for six years for the tightrope crossing know as the Artistic Crime of the Century. He had to calculate the sway of the buildings, how to get the wire across, the impact of wind at that altitude, weather and many other factors to cross the fixed distance.

While this is a daring and historical accomplishment, the one thing that made it easier was that Petit had a fixed goal in mind. He knew how far his destination was and what he needed to do to accomplish his goal. Petit had a plan.

By contrast, retirement is a far more challenging and nebulous prospect. A person cannot know where they will end up, what supplies they will need for the journey or how long the journey will be.

The thought is so overwhelming that some people choose to ignore the prospect of it.

Indeed there are many risks in everyone’s future. That’s the scariest thing about the unknown.

The biggest risk to your retirement is… living it. 

It is known as “longevity risk” and refers to the possibility of outliving one’s retirement funds.

Most people know that they must plan for retirement. But when no one can really know what the future holds, how is that achieved?

The best way to plan for your future is to be over prepared. 

That may sound silly, but since life expectancy is steadily increasing and market volatility is here to stay, running out of income and funds during the retirement years is a distinct possibility.

The alternatives may not be pleasant.

Some people believe that the government will provide for them - especially during retirement. However, the rate of senior population is increasing steadily over other population demographics. By the year 2035 it is expected that 20% of the population in America will be over the age of 65. It may become completely un-sustainable for government programs.

Each person must plan for their own future to have security and peace of mind.

Over the next few weeks I will be sharing some strategies to take the fear out of outliving your funds.

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Sources:

Lynda at Sonoran Sun | Private Equity Investments 

Characteristics of Our Aging Population:Human Aging— A Recent Phenomenon 

Philippe Petit -From Wikipedia, the free encyclopedia

Complaints, Conspiracies -- and China. Oh My!

The Trans-Pacific Partnership deal that was tentatively reached on 5 October 2015 is an expansive agreement forged by 12 participating Pacific Rim countries.

It allows countries making up 40% of the global GDP to lower or abolish tariffs, making trade cheaper and promoting business in all countries involved. It includes international trade, environmental issues, labor and intellectual property rights – most notably the hot contentious issue of bio-pharma patents. 

The absence of China from this potential trade agreement was often mentioned, but rarely explained by the North American media.

By contrast QQ.com, Asian social media, has been abuzz since the announcement of the agreement earlier this week. There was talk about China being shut out of this deal from both camps. Those who feared this would negatively impact the Chinese economy by isolating it from the “outside world” and from others who think China does not need to be part of such a partnership.

Studies suggest that the Chinese economy stands to dip negligibly as a result since it enjoys trade partnerships with 120 other countries. However conspiracy theories abound on the social media platform. There are fears that the eventual inclusion of India into the TPP will greatly impact the Chinese economy. They fear China will be force to make concessions by the USA and its partners. And while confirmed that China and the US are not enemies (thank goodness!), there is mistrust and fear over Sino-US competition in the Asia-Pacific region.

Interestingly, while China’s media is pointing fingers at the TPP and India, China is negotiating its own free trade agreement, the Regional Comprehensive Economic Partnership (RCEP). Negotiations began in 2012 and will cover trade in goods, services, investment, economic and technical co-operation, intellectual property, competition, dispute settlement and other issues.

While the TPP agreement appears to cover more trade between richer countries of the world, these countries are also slower-growing than RCEP ones.  RCEP nations have outpaced TPP ones in GDP growth: 

Covering about half the world’s population, the RCEP countries pose a formidable alliance:

India is sometimes described as the “swing” country: a potential future partner in TPP and a negotiator in the RCEP.

These past weeks US and Canadian protesters expressed concerns over issues such as dairy industry protection, higher drug prices and increased job loss over the fear of “NAFTA on steroids.”

“The TPP would expand the North American Free Trade Agreement (NAFTA) "trade" pact model that has spurred massive U.S. trade deficits and job loss, downward pressure on wages, unprecedented levels of inequality and new floods of agricultural imports.”

The TPP will remove trade barriers across 40% of the global economy for North American industries. It offers the opportunity to evolve global trade and business models that have come with rising global economic integration. This particular agreement represents a valuable opportunity to gain a foothold in Asian economies. With market access to partnering countries for goods and services, business and investment opportunities will abound.

One has to wonder why any country wouldn’t consider a trade alliance as part of a positive protected environment. Especially when faced by a rival trade agreement covering one half the world.

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Sources:

Lynda at Sonoran Sun | Private Equity Investments 

Some "demonized" TPP impact on China's views

Thought the TPP was a big deal? China’s rival free trade pact covers half the world’s population

Trans-Pacific Partnership (TPP): Job Loss, Lower Wages and Higher Drug Prices

Can Investments Be Powered By Perpetual Motion?

Mankind has long been looking for a perpetual motion device. 

Used as an endless supply of energy, it would be formidable source of power. 

Imagine having power without having to work for it!

Some people wish there was a way to get income without having to work for it. This is defined as Passive Income on Wikipedia:

Passive income is an income received on a regular basis, with little effort required to maintain it. It is closely related to the concept of "unearned income".

It is a wonderful idea, but most people eventually realize that passive income is a myth. At some point in time, most investments require work.

Some people think that profits from stocks are passive. What these people fail to realize is that stocks must be constantly monitored and researched. These days, with all the volatility in the markets, not only do stocks require a lot of attention, they have also become a source of great stress! That hardly sounds passive – or healthy.

Other people believe that having rental properties is a great way to earn passive income. This is usually great – until something goes wrong at the property. Most owners aren’t ready to deal with broken plumbing in the middle of the night, or other emergencies. The time needed to maintain a rental property and sometimes even just to get the rent can often be as much as a full time job!

Those who have tried these options without success often settle for investment accounts where they get very little or no interest for their money – while banks get richer and report record breaking profits!

Earning respectable amounts of passive income seems like a myth, indeed.

But what if there was a way to get significant income without having to do anything. No work, no research – no worries! Nothing except looking at your bank account and watching it grow. Safely and securely… month by month!

Imagine the possibilities that extra income would open up for you and your family!

To learn more, send me a message with your contact info. We will arrange a time to discuss options tailored to your needs.

As the financial world sits and wonders what will implode next, I have realized that my own smart money has been safe and secure, growing and giving steady returns…elsewhere.

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Sources:

Lynda at Sonoran Sun | Private Equity Investments 

Passive income - Wikipedia, the free encyclopedia

Don’t just Roll Back – Roll Forward!

This week Apple announced its commitment to the Titan Project. 

The technology company plans to offer an electric vehicle by 2019. It seems as though more and more companies are exploring this opportunity.

This is one of the reasons it surprised me when August reports from Walmart showed that the company has reached a plateau. With the North American market fairy saturated with stores and superstores and other markets not far behind, there are concerns about the company’s future growth potential.

I believe that the potential and opportunities for Walmart’s growth should be evaluated otherwise than how many stores it has left to open in the world. I believe this plateau is a good time for Walmart to consider its future.

I would like to see Walmart do what it does best. The way the company took $200 designer blue jeans and made them available and accessible for $14.99, I would like to see it expand into the automobile market.

I am not saying Walmart should place used or even new car lots out beside the gardening supplies!

Walmart shoud implement its best practices to the automotive industry.

Walmart is great at sourcing goods at the best prices and buying in bulk for even deeper discounts. The economy of scale is a wonderous principle. Its distribution systems are also legendary. Using the business acumen it already has, I would like to see Walmart create its own brand of automobiles. The George Car.

What I think would have a huge impact on the world is if Walmart were to embark into the electric vehicle industry. Walmart could make this form of transportation a viable option for the masses.

By contrast, the relative scarcity –even EXCLUSIVITY -of Teslas, Leafs, Sparks and other brands demands a premium price in addition to the cost of the research and development and the technology itself.  They are certainly desirable, but not necessarily accessible.

Why should Walmart do it? Oil is at a historic low!

Sure, right now oil is trading at about $45 a barrel and a gallon of gas is under $3 in most states. But anyone who does not foresee the return of the $150 barrel better remove their sleeping mask!

EV is the future... Now.

Walmart should do it because it is a new frontier for them and will ensure continued expansion into new markets.

Designing and developing an EV isn’t like deciding on next year’s kitchen tableware collection. Even if Walmart started this year, it would be several years before their EV became available. No doubt oil will be trading higher by then. Demand for EV will increase.

Now that EVs have gained acceptance and charging stations are expanding across the nation, there is a great opportunity here. Competing with the lower priced Spark may give Walmart the impetus it needs. 

Taking on the mission of delivering a well designed EV for under $15,00 would be good for Walmart – and good for the world. 

It would ensure Walmart's expansion, create jobs, offer sustainable transportation to the masses and be good for the environment.

So take a break on that plateau and move onward and upward, Walmart! Roll Forward!

As Walmart stock prices drop due to reports of saturation, I have realized that my own smart money has been safe and secure, growing and giving steady returns…elsewhere.

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Sources:

Lynda at Sonoran Sun | Private Equity Investments 

Walmart Reports Slow Revenue Growth, Reduces EarningsGuidance

Electric Car Price Guide: Every 2015-2016 Plug-In Car, WithSpecs: UPDATED

RIP: GEM Peapod, NEV apparently a victim of Chryslerbankruptcy

Interested In Walmart? What Investors Need To Know 

Diamonds aren’t forever?

DeBeers is legendary for taking diamonds to superstar status.

Marketing crystallized carbon, as common as sand on some ocean shores, as though it was as rare as an intact star falling from the heavens.

What isn’t forever is the demand for these stones. 

In the past five years the demand for diamonds has dropped by 12%. Not surprisingly, some analysts blame the Chinese economy for the latest decline. De Beers disclosed a 23% collapse in profits to $360 million this summer. At the end of August, DeBeers reportedly dropped the price of its diamonds by 9%. Anglo American plc did as well, some anonymous source suggested.

It was quite news worthy and I remember the presenter I was viewing seemed quite shocked under her professional composure.

The report reminded me of an old television program called Barney Miller. A sitcom based in a New York City police station from the 1980’s. There was one episode in particular that has stayed with me to this day.  It certainly made a lasting impression.

One of the officers was having a conversation at the station about buying diamonds with a elderly victim who had been robbed. The officer was planning to invest some money in the gemstone and was seeking another opinion.

The old man was encouraging the officer to buy land instead, but the young officer was sure he was making the right choice.

“Land” the old man kept suggesting. You can live on it; you can grow food on it.

The young officer continued to make the case for the gem.

Finally the old man said something to the effect of: 

Yes, it will hold its value – until people just don’t want them anymore. People will always need land.

So here we are 30 years later and it seems as though the demand for ice is becoming luke warm.

I am glad I was never partial to the gem. As an investment – or otherwise.

As diamond prices drop these past weeks, I have realized that my own smart money has been safe and secure, growing and giving steady returns…elsewhere.

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Sources:

Lynda at Sonoran Sun | Private Equity Investments 

De Beers cuts diamond prices by up to 9pct

De Beers Said to Cut Diamond Prices asMuch as 9%

The price of diamonds is collapsing

The Yuan-Mart

A lot of people are saying that the devaluation of the Yuan is good news for Wal-Mart. 

Certainly it will help the retail giant negotiate even lower prices for its future inventory. 

That definitely is good news for Wal-Mart’s customers around the world.

But what is good for Wal-Mart may not be good for the rest of the world when viewed from a different perspective.

Devaluing the Yuan is a great strategy for China in that it will help bring international currency into the country when it desperately needs it during this financial crisis. However China is already super competitive with a lot of the world’s consumer goods originating there.  The effect this will have on other countries remains to be seen.

India, Korea and other Asian countries all produce consumer goods as well. Will they have to lower the prices of their manufactured –for-export goods to remain competitive with the devalued products originating from China?

With some economies struggling to remove themselves from Third World Nation status through international trade, the devalued Yuan could mean that industrial crime may be on the rise. If they can no longer compete with the currency, they will need to find more “creative” ways to stay competitive.

Apart from relying on the notorious sweat shops in regions that produce cheap clothing in despicable conditions to maintain an edge, other industries may resort to additional extremes. Countries focusing on industries such as electronic consumer goods, automobiles and other methods of transportation, food products, and natural resources may need to find ways to cut costs to stay in the game.

One likely method is to lower quality. Another would be wage freezes, cuts, or layoffs to hire new workers for less. Increasing production to maximize existing equipment can often compromise human safety. Perhaps the worst method is to resort to the improper handling of waste, including toxic waste to avoid the cost of proper disposal.

As challenging as it is to get these countries to conform to our manufacturing ideology, if not our personal standards of decency, as this factory collapse in Bangladesh illustrates, the devaluation of the Yuan may have the most impact for human/workers rights and the protection of the environment in these countries.

Today the Yuan strengthened to 6.3936 per dollar as of 12:51 p.m. in New York. I for one, hope that the Chinese economy stabilizes sooner rather than later.

As currency fluctuated these past weeks, I have realized that my own smart money has been safe and secure, growing and giving steady returns…elsewhere.

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Sources:

Lynda at Sonoran Sun | Private Equity Investments 

Walmart Is Looking For Growth In InternationalMarkets

China Said toTake Rare Step of Bolstering Yuan's Offshore Value

Frack You

THIS week we saw oil prices soar from $39 to near $50 per barrel because OPEC announced that it is considering cutting world oil supplies...again.

These days most people are just happy to fill up their vehicles with inexpensive gas without caring why the price of oil – and gas – is so low.

As a little kid, I remember the gas shortage of the early 1970’s. 

I thought that there was a shortage because there was no more oil. 

I didn’t know about OPEC (Organization of the Petroleum Exporting Countries) didn’t get the concept of an embargo. 

Media coverage certainly wasn’t as all encompassing as it is now.

In fact, I just Googled “OPEC” and got this from the OPEC website:

OPEC's objective is to co-ordinate and unify petroleum policies among Member Countries, in order to secure fair and stable prices for petroleum producers; an efficient, economic and regular supply of petroleum to consuming nations; and a fair return on capital to those investing in the industry.

I marveled when prices stabilized, and then just as I became a driver, I watched the price hike happen again in the late 70’s. This time oil production had decreased due to the Iraq-Iran conflict.

Central and South American nations evolved into top producers along with the Soviet Union. Alaska blossomed into a producer as well. There was great incentive to produce oil when the prices were high. Profit outweighed R&D and risk.

Back to today’s pumps….

Everyone knows that there is a finite amount of this resource on the planet. It may not all have been found, but there is only so much. It boggles the mind to see it selling relatively inexpensively in the past year.

Some analysts are saying it’s the Chinese economy. “They are experiencing a downturn…” and “They aren’t using as much oil and gas…” 

OK, that’s probably true. But let me ask you this:

If OPEC secures “fair and stable prices for petroleum producers” why hasn’t it cut or slowed production to increase prices –and profits – for OPEC members?

That would make sense, wouldn’t it?

Hmmmm…..

Fracking has been around since the 1940’s. However in the 1980s, Mitchell Energy & Development Corp. (now part of Devon Energy) began experimenting with hydraulic fracturing (fracking) in horizontal wells in Texas. An economic way extract large amounts of natural gas from the shale formations was found. The potential application to the petroleum industry was quickly recognized for use in Arkansas, Pennsylvania, and North Dakota for shale.

As of 2013, massive hydraulic fracturing is being applied on a commercial scale to shale in the United States, Canada, and China. With oil prices high, a lot of new companies embarked on fracking in the USA and Canada. Oil production rose.

OPEC, realizing that it was losing control over oil production came to an historic understanding in the fall of 2014 , in spite of protests from some member countries, that it would not defend its prices (AKA: manipulate the oil market).

While this was concerning for Venezuela and Algeria – countries who use oil profits to balance their budgets and maintain their governments:

“Venezuelan Foreign Minister Rafael Ramirez said he accepted the decision as a collective one and hoped that lower prices would help drive some of the higher-cost U.S. shale oil production out of the market.” ~Reuters

With oil prices at record lows, the fracking industries couldn’t justify the cost of production versus the price per barrel.

So while the Fed is still debating on whether to increase interest rates and end economic stimulus, American oil producing companies are under a strategic business attack by OPEC. If the fracking industry goes under due to weak oil prices and jobs are lost when these companies close, the economy will certainly take a hit.

Enjoy the prices while they last.

As the oil prices go up and down these past weeks as OPEC nations no doubt bicker as to whether they should raise prices again, I have realized that my own smart money has been safe and secure, growing and giving steady returns…elsewhere.

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Sources:

Lynda at Sonoran Sun | Private Equity Investments 

OPEC: Brief History

Wikipedia 1973 energy crisis

Wikipedia 1979 energy crisis

Shooters – A “Fracking” History

Hydraulic fracturing

Saudis block OPEC output cut,sending oil price plunging