Image by epSos.de via Flickr
Image by epSos.de via Flickr
Comedy (?): How to adapt to changing economic seasons- whose advice to follow?
People sometimes ask me: whose advice should I follow in regard to adapting to changing economic seasons? You tell me: should you focus on the advice of people who have a significant shared interest in your results, like profit-sharing partners who make money and lose money with you, on the advice of people who have no interest in your results, or on the advice of people who have a vested conflict of interest with you?
As soon as you know the answer, then contact me. If you don’t know the answer yet, then keep listening and I will explain.
In particular, some people get really interested in what I mean by a conflict of interest. It means that someone else’s economic interests are directly conflicting with yours. Here are some examples.
Go to a car wash and ask the attendant which service to buy: the $5 car wash or the $50 make-over, wax, massage, pedicure, and anti-rust treatment
art gallery and ask the painter what to buy: $500 piece or the $5,000 piece?
car lot and ask the sales mgr what car to buy: $5,000 used car or the $50,000 new foreign car with horrible mileage and super-expensive to maintain?
realtor: $50,000 home or $500,000 home?
annuities: insurance co. promises to pay a set amount no matter how well the underlying investments do
(and people wonder how AIG went bankrupt, like it was all on real estate speculation…
guess what: the insurance agent makes a huge bonus for selling you that! )
Professional experts promote the things that benefit them to sell (things with big commissions and big profit margins). That’s it!
When a farmer grows corn, someone might buy $5 of corn from the farmer, then package and sell that same amount of corn for $50. So much was that amount of corn worth: $5 or $50? To the farmer it was worth $5. To the consumers who bought it, it was worth $50. It’s the same corn!
However, if the car sales manager or the insurance agent or the realtor or the painter or car wash attendant could get you to pay $5,000 or $5,000,000 for that same amount of corn, then they would be doing their job well, right? Now we are talking about some BIG profit margins, right? If I pay $5 at Starbuck’s for some coffee and some farmer in Central America would charge me 50 cents for the exact same coffee from the exacts same beans that the farmer grew, then that farmer would probably be making a lot more profit than they are by selling the coffee beans to Starbuck’s!
So, what’s the difference in value between a $500 piece of art and a $5000 piece of art? $4500! However, the same piece of art could be sold for those two prices at different times, right? The artwork does not change when the price changes, right? What REALLY changed? What changed is how much someone valued the money that they used to buy the art. Maybe one person had more money available at a particular time, maybe they had a brand new credit card account and felt rich. However, it is the same piece of art, just like the same amount of corn or coffee beans.
Now, if I buy a home for $100,000 and a decade later, after making virtually no improvements to the house, I sell it for $500,000, great: that is a big unearned capital gain for me. However, that change in price does not mean that the actual functional value of the home changed much. It means that the price changed. The value of the dollars used to buy the home may have changed a lot, like due to expectations of continuing inflation. If inflation rates drop far enough then expectations of future inflation may also drop, and eventually, housing prices could drop.
So, what’s the difference between the $5 cup of coffee and buying the same cup of coffee for 50 cents? $4.50! It means the purchaser values their dollars more and the coffee less.
What’s the difference between paying $10 for a new DVD and then selling the exact same DVD still in the wrapping for $1 at a garage sale a year later? $9. It shows the difference between how much different purchasers value the DVD and the dollars are various times.
What’s the difference between paying $100,000 or $500,000 or $200,000 for a house? It shows the difference between how much different purchasers value the house and the dollars are various times. With housing, the dollar issue is not just about cash dollars, but debt as in mortgages or borrowed dollars.
Now, let’s quickly go back to the issue of why the insurance company would give the insurance agent a huge bonus for selling an annuity that sounds too good to be true because it is. Why do they give such a big bonus for selling that? Because selling that gives the insurance company a huge profit, since actual practical value of the annuity contract may be so much less than the price that some consumers are actually willing to pay for it.
It’s like owning a home and saying to a realtor: here is a home that cost exactly $100,000 to build last week. However, if you can sell it for $200,000 or even $500,000, then we the owners will give you a huge bonus- in proportion to the amount that you can sell it for. So, whether the realtor sells it for $200,000 or $500,000 or does not sell it at all, that does not change the fact that the home cost exactly $100,000 to build or that the farmer only got $5 for the bag of corn, does it?
If an insurance company can get someone to pay them $100,000 for a particular policy or $1,000,000 for the exact same policy, that does not change the value of the policy, but only the price and profit margin of the policy. If I can get the exact same cup of coffee for 50 cents from a farmer or for $5 from the store around the corner, those are just differences in price, not in the actual cup of coffee, right? If I can get a brand new perfectly good DVD from a garage sale for $1 or the same DVD for $10, which price would I rather pay?
Why are prices of real estate and stocks falling? Because so many people are valuing their cash money more and other things less. Why are prices of corn and coffee and cars and art and gold and silver and platinum and copper all falling? Because so many people are valuing their cash money more and other things less.
So, whose advice is best?
You tell me: should you focus on the advice of people who have a significant shared interest in your results, like profit-sharing partners who make money and lose money with you… or anyone else?
Do any of these folks actually make money and lose money with you: Mass media? Politicians? Popular financial institutions?
No, let’s look at what a guy with a PhD in Economics said, Dr. Paulsen:
Sept 2005:
“when most seem bogged down worrying about when the housing bubble is going to burst or when oil prices are going to cause the consumer to capitulate, investors should be focusing away from such issues towards the many positive things… yet to occur.”
6 years later, he still works there! He’s still the chief investment strategist there! That might be amazing, unless his job is not to give advice that benefits the public, but that benefits his employer, right?
In a separate video, I will say more about what he wrote in September 2005, which I criticized in a December 2005 publication. I will also detail what I recommended and what I recommend. In brief, what I recommend is that people who want valuable advice can focus on the advice of people who have a significant shared interest in your actual results, like profit-sharing partners who make money and lose money with you.
For now, below is an image from Paulsen’s September 2005 publication. Here is a link to my 2005 article:
Again, please share this with others could benefit from it or at least enjoy the humor of it. Also, if you are willing to begin to receive the full benefits available from adapting wisely, contact me now.
By September 2005, I had already identified the beginning of the bursting of the US real estate bubble because I had been looking for it since 2002. It happened in Phoenix and Las Vegas in mid-2005. I had been warning about the global credit crisis since 2003. Since 2004, I had been warning about the effect of rising fuel prices on the global economy, including global trends in lending and borrowing, in real estate speculation, and in stock market speculation. In other words, I saw the global economic crisis coming since 2002, but I did not identify rising fuel prices as the trigger until 2004. By the way, global fuel prices had been rising since 1999.
Why did housing prices begin to drop first in the sprawling desert metros of Phoenix and Las Vegas? Perhaps because those areas are so sensitive to rising energy prices. Many big homes in Phoenix have summertime electricity bills of more than $400 per month just for air conditioning.
Here’s Paulsen’s actual content from 2005:
He frequently appears on several CNBC and Bloomberg Television programs. BusinessWeeknamed him Top Economic Forecaster. He’s been honored by Money magazine.
Beware of the advice of those who do not have a shared interest with you. Share this and contact me about how you can benefit from a partnership with a competent specialist.
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Tags: advice, conflict of interest, economic, energy prices, fuel prices, inflation, inflation rates, price, prices, profit margin, profit-sharing, profit-sharing partners, real estate prices, speculation, stock, stock prices, value
power of language blog: partnering with reality by JR Fibonacci 
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