Positioning Your Assets

July 28, 2008

In our new audio seminar, Positioning Your Assets for Growth in Uncertain Times, among the many issues we address are one of the risks of holding your savings in a currency that is falling in value relative to other currencies and real things.

As an example, we show the cash flows of a 5% five-year corporate bond from 2003 to 2008. When the investor gets principal back in 2008, the dollar investment has dropped 50% in purchasing power when measured in the price of gallons of gas.

Now, let’s scale that up for an entire household. Let’s say we have a mother and a father, two children and an elderly grandmother living in the San Francisco Bay area. They have three checking accounts, with total balances of $5,250. The grandmother has two CDs at a local bank for an additional bank balance of $100,000 and the older child has a savings account of $75 from what she saved cutting yards during the summer and babysitting during the school year.

The couple has a 401k and an IRA. Among the assets held in these accounts are dollar- denominated money markets with another $20,175 as well as several dollar-denominated bond funds worth $70,000. They also share a brokerage account that has $30,000 in California municipal bonds and $23,000 in another money market account.

If you look at their collective wallets and the coin jar they have in the living room, they have another $500 in cash within the household. They also have reserves in some of their financing and vendor relations, including a $200 deposit with their utility company and an $800 balance on average in their mortgage reserve for taxes and insurance.

For simplicity’s sake, let’s say they have maintained these average balances from the beginning in 2003 to the beginning of 2008. That is, they have had $250,000 in dollar- denominated assets during this period that produce no or a modest income.

How much have they lost in purchasing power when we use gas as our currency instead of dollars?

They have lost approximately $250,000 of purchasing power in current dollar terms – a quarter of a million dollars!

That’s right. Whatever your average balances held in dollars are over the last five years, that is approximately how much you have lost in real purchasing power when we measure it in gallons of gas priced as of the beginning of the year. Of course, things are worse since then.

Does that help you understand why you are feeling drained?

This type of drain is part of a phenomenon we call the Slow Burn. We want to help you understand the Slow Burn and reverse the drain that a falling dollar is causing in your life. Remember – it is never too late to act!

Join Solari here

22 Comments

  1. What you say rings as true as the words in the Bible. I will continue to search your website for direction. I feel an urgency to take action and get my house in order, and start on my community, as well. Thank you for your work.

  4. I heard you on Coast to Coast last night and am now checking into your website. I think it would be wise for everyone to take stock of their entire investments and try to reposition. I am a Realtor in Tucson, have been a professional in this field for 19 yrs and by God’s mercy I have been very busy and fulfilled in my work. I note this fact because there are thousands of people who have a Realtor’s License but have precious little experience. I have a question for you–As I evaluate the plans that the government is suggesting regarding the home loan difficulties and I meet with real people with real difficulties, I have come up with something I believe the Government could do, however, I may be incapable of evaluating the potential long term problems this solution would bring about. I believe that the government should allow citizens to take a one time draw from their retirement to drop their monthly payment and to be able to do so without paying taxes so that the greatest possible benifit woudl be afforded the people paying down morgages: It would accomplish further commitment to the home, Less outgo each month for the owner and they would not be so concerned about their retirement dollars shrinking because they would nhot owe as much money, and could hopefully not be concerned about drawing down the principle on their investments.

    I would suspect that this would pull a great many dollars out of the stockmarket,
    It would strengthen banks because they would be receiving large sums of money and have lower debt to loan ratios……

    Can this be considered? Who could I suggest it to? I contacted Senator McCain’s office and spoke to a very UNIMPRESSED YOUNG MAN who said it was to difficult because it would require a change in the tax code. Am I nieve to think it could be done with a bill that allowed up to a specific amount to be paid off without a tax penallty.
    Please let me know if this is foolish.
    Linda Nelson

  6. Linda:

    It is a good idea. I would recommend that you write a letter to your two senators and congressman that is no longer then one page and then also post here. Yes, it would require an amendment to the tax code and that could take time. However, things will continue to deteriorate until we take the necessary steps to stop them.

    Keep those ideas coming!

    Catherine

  8. catherine;
    i heard you on coast to coast the other night. your understanding of the economic problems reflect my own thoughts. you gave me some new perspectives.
    thanks again.

  10. I have listened to you on Flashpoints for years. I’m now 80% gold, 10% silver and 10% oil stocks for two years now. I couldn’t be happier. Thanks for your great wisdom.

  11. Gee, I was really getting caught up in your writing thinking I was reading an academic treatise.
    Then the “to order” phrase. Same-o, Same-o. Goodbye!

  12. I didn’t know Catherine was on C2C again. I will have to join again to get the interview. It was C2C that orginally introduced me to Catherine & Solari. I have to ditto what Trish said. I can feel an excitement building up now and I was always inspired when I hear Catherine. Those of us who have been financially illiterate surely can grasp the understanding we need because of your “intimate” presentations that almost anyone can grasp. We can’t say thank too many times! Sending you lots of energy and good thoughts!

  14. 11-3-2008

    MY VERY NAÏVE SOLUTIONS TO U.S. PROBLEMS

    NATIONAL HEATHCARE
    1. Consolidate VA, Army, Navy, Air Force Hospitals into one system under one management. Spare availability can be used to absorb public wards.

    2. Government to form a managed Health-Net as follows:
    A. The total cost of all cardiac, arterial, stroke, hypertension diseases to be added up at the end of the calendar year and placed as a tax on all milk, cheese, and meat meat-products.
    B. Cost of all pulmonary, peripheral vascular, and renal disease to be added up annually and divided into all the tobacco and marijuana sales.
    C. Cost of all liver diseases, spleen, intestinal, orthopedic diseases are to be divided and taxed on liquor and cocaine sales.
    D. All sugar related diseases are to be added to the corn syrup, sugar, and confectionary sales taxes.
    E. Psychiatric diseases are to be taxed on Methamphetamine, Heroin, Morphine, and sales of all legal and illegal Psychotropic drugs.
    F. Traumatic injuries, be they auto, motorcycle, or work related need to be added up annually and divided into each registered vehicle. In this way every motorist is automatically covered.

    As an inner city (Harlem) trauma surgeon, the cost to taxpayers shouldering the burden for drug related crime is huge and absurd. ALL Drugs, illicit and legal need to be legally produced in the US and not imported from Columbia et al, in order to stop the outflow of dollars. The drug trade deficit is never included in the monthly trade statistics.

    The government needs to add the costs, add an additional 5% for management and next years cost increases, and manage the health care system. The reason to delete private enterprise: why should a CEO take a $15 MM salary, and fly a corporate jet…taking money away from the patients that need those dollars. Health care morally should be a NON PROFIT COLLECTIVE UNDERTAKING. Those people wishing to consume harmful substances, cholesterol, etc, will pay for the priveledge.

    GOVERNMENT:
    1. We need to shrink the cost of the US Government and make it more transparent. We should require every resident between the age of 18-20 to work for the government for modest wages, and room and board. We will have, in effect, a volunteer government. Younger folks being more idealistic would be less likely to take bribes. Volunteers that like government may stay an additional 3 years. These are “special employees.” Only these “special employees” are allowed to make procurements on behalf of gov.

    2. Special Interest Groups and Parties must be abolished. Lobbying and political contributions should be made illegal. Senators and Congressmen may serve only ONE SIX YEAR TERM in aggregate. President has line item veto power on any bill.

    3. Criminality and Prisons: Prison should only be for violent crimes. US Government must provide, maintain, manage all prisons. Economic crimes must be paid back in multiples of the amounts or in government service. Every attempt to keep families together, and not imprison anyone without truly just cause. Productive members of society should not be imprisoned if they can be of benefit to society.

    EDUCATION
    1. Every child should have 1-2 hours of physical education and activity daily. Every child should have a choice of language, (other then their native), and must play one instrument, have basic math, reading, and writing skills. Math through Calculus, and 10,000 word vocabulary are mandatory. Schools should be from 8:00 to 5:PM with breakfast, lunch, and afternoon snack.

    2. Retired and persons living in old folks homes, nursing homes, if able should volunteer their time (be bused if need be) at school, especially to the younger classes. Old people sitting in nursing homes are a waste of a good life experience, and have many life skills that can be put to use gladly, and without cost as volunteers, highly respected by the community.

    3. Math and science skills are essential for our future. These need to start early and every kid should be proficient with basic computational math in their heads.

    4. Foreign students need to pay dearly to get into US schools. Why are we training our competitors. At UCLA in the sciences 70% of students are Asians. They have superior math and study habits, so they are preferred by the admission committees. School in China in 6 days a week and 7-5 M-F and 8-1 Saturday. How are U.S. kids going to compete. If the poorer Chinese and India can provide this kind of disciplined education to their youth we can too.

    ENERGY=TECHNOLOGY
    $1,000 BLN spent on Iraq may have solved the fusion problem, and sent up a lot of space development. Why is CERN and the LHC built in Europe and not the USA. WE NEED BASES ON THE MOON and every dollar spent on space and technology has paid handsome dividends in microelectronics, healthcare, optics, and engineering, endless creative benefits.

    Fuel: Gasoline has to be priced at $10.00+/gallon. We need smaller cars. We need alcohol plants, and high import taxes on foreign oil. We need multi fuel cars. We need biodiesel and more local wood and waste fired power plants.

    OKAY, I am done.

  15. “A. The total cost of all cardiac, arterial, stroke, hypertension diseases to be added up at the end of the calendar year and placed as a tax on all milk, cheese, and meat meat-products.”

    Catherine, I see you have bought into Big Farm (Cargill et al). There is now a welter of research that highlights excessive consumption of carbohydrates (especially milled grain products and sugars, particularly fructose) as the major cause of much poor health (obesity, cardiovascular disease, Type II diabetes etc). Protein and fats are essential for maintenance of health and problems with those are not intrinsic but a result of industrial farming, e.g. massive use of antibiotics and hormones in animal husbandry. I speak as a long-time sufferer of cardiovascular disease afflicted with curiosity as to how things REALLY are, not accepting the stories I am told at face value. .

    OK, I’m off my horse now.

  18. Catherine,

    I lived for a few years in Argentina in the late 80’s to early 90’s and saw first hand what hyper inflation and currency devaluation is all about. It scared me then and it scares me now. If a similar situation were to happen in the states, how can i prepare me and my family for it?

  19. Dear Catherine,

    In recent Solari Report you mention investing in real things not paper. You also mentioned Rio Tinto and its former owners. As Rio Tinto is in the news these days I goggled it and read that it was a Rothschild entity for last two centuries, has mines all over the world, many billions in capitalization, and a very poor environmental record. Clearly world-class wealth knows to invest in real things, make a mess, and drop it on shareholders. Or am I off base?

  21. Hi Catherine,

    Regarding Rio Tinto, it was a very brief reference in regard to it being former Rothschild wealth. I think it was during the interview with Franklin Sanders. It resonated as I am researching precious metal mines and Rio Tinto kept coming up in side bar articles on Bloomberg and other sites. I had never heard of it before. I guess old wealth fascinates my conspiracy bent.

    As an owner of a successful small business with approximately 2 million in revenue, I am able to have some influence in my town though association with other movers and shakers. I cannot imagine the ability of mega-wealth to actually influence our base of knowledge and reference by simply controlling endowments and scientific funding. As in the movie Matrix, I question if I can separate reality from the construct. It’s unnerving to having been educated in a certain paradigm and watch it unraveling in front of me.

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