Investments and Trends of Past, Present and Future

"You can avoid reality, but you cannot avoid the consequences of avoiding reality." Ayn Rand

Welcome to The Golden Sense! Can you believe it is almost 2013? This year has been filled with ups and downs. The markets have been reacting to news rather than making any significant changes. I believe that 2012 compounded the known realities of the world rather than changed any of the primary trends. 

Historians one day will look back on this time period as a time of great significance. These are interesting times and it is important to wake up and act accordingly for your own protection, or to take advantage of an opportunity. I see three major long term trends in the world today:

• The decline of Western superpowers and wealth creation in the emerging countries.

• The destruction of fiat money and the revamping of the world financial system.

• The rise of technology and enhancement of individual worldwide communication

In the near term the situation of the world looks dire, but with the enhancement of technology and the necessary destruction of fiat money, the long term outlook of the world is actually quite good. 

Two of the primary trends are directly related to one another. The decline of Western superpowers such as the United States and Europe are directly due to the fiat monetary standard. Fiat money is money created by a central bank or government that has no intrinsic value. An example of this is the U.S. dollar. The value of the money rests solely on confidence of those who use it and the ability of the government to repay its debt. The U.S. dollar, the Euro, the Yen, etc. are all manipulated currencies. The widespread currency devaluation occurring today is actually lowering the standard of living within these respective societies.

Over the last hundred years the Federal Reserve's widespread printing of money has created a debt based society. The worst abuser of debt is the U.S. Government. The U.S. Government has so much debt it simply cannot repay it. The situation in Europe is very similar. If you spend more than you produce, you will eventually go bankrupt. The same is true for Governments; it just takes longer for Governments to get there. In order to keep the status quo Governments and central banks are creating money out of thin air in a desperate attempt to keep the shenanigans going a little while longer. 

"For every one of all 25 million working people in Britain the government is printing £16 of brand new money – every day. The situation in the U.S. is almost precisely as bad – some $25 per day per head of the working population" Paul Tustain. 

This is a guaranteed path to destruction for the monetary system. It is also theft against the average person. The average person suffers with resulting higher prices in goods and services. It still amazes me - the general apathy the average person has towards the government and the Federal Reserve. The numbers in regards to debt or mass currency devaluation are not a question of politics, confidence, or feelings. Numbers don't feel. They just are what they are...and the numbers don't look good.

Despite all of the bad things happening around the world, the long term prognosis is still very good. This is due to the unbelievable inventions and enhancements made in technology. The strides being made in communication are phenomenal. The Internet, smart phones, Skype, PayPal, etc., the list goes on and on. These tools will eventually bring freedom to every individual across the globe. Worldwide communication is getting faster and easier. Due to this phenomena wealth creating opportunities will continue to flourish around the world and everyone’s standard of living will increase.

There are direct investment implications in regards to the first two primary trends. Buying hard assets such as gold and real estate is a way to protect your wealth. Many experts say that averaging into secure dividend paying stocks is the way forward. Basically, accumulating wealth and diversifying is a must as the government's debt expands and the value of currency decreases. 

The development in technology creates business opportunities. Using all of the new technology effectively is a great way to start your own business and work for yourself. 

MTV took an interesting poll recently. It found 75% of Generation Y workers (those in their 20’s and early 30’s) want to work for themselves one day. This poll is excellent news for the future. The more businesses created the better. 

We live in a time where the mistakes of the past are meeting their consequences, and the future is nothing but the result of those consequences and what we make of it.

It is up to you.

Over and Out,

T. Norman

Listed below are the gains or losses for the year up to November 30th. It appears that (of these) most of the gains will still be gains and the losses will still be losses by the end of the year. Of course the percentages will change, but I expect they will all be in the same ball park. 

	11/30/12	12/31/11	11 months 2012
	values	values	gain (loss) %
Gold	$1,715.00	$1,566.00	9.5
Silver	$33.44	$27.81	20.2
Permanent Portfolio	49.18	46.09	6.7
Dow Jones average	13,025.58	12,217.56	6.6
S&P 500	1,416.18	1,257.60	12.6
NASDAQ composite	3,010.24	2,605.15	15.5
US$ index	80.22	80.58	(0.4)
Euro currency	1.2982	1.2952	0.2
10 year T-Note yield	1.610%	1.871%	(13.9)
Commodity index	298.98	305.30	(2.1)
Crude oil (NYMEX)	$88.94	$99.06	(10.2)

The stock market will most likely end the year up along with all precious metals. How has gold been up 12 years in a row? The answer is that central banks are now net buyers of gold. Central banks are not dumb. They know the consequences of mass currency printing. With one hand they print money and with the other they buy gold. This trend is set to continue in 2013. In 2012, it was noted that central banks purchased the following: Central Banks

• The South Korean central bank added 14 tonnes (approximately 450,000 troy ounces) of gold in November, and now holds six times more than they held back in June of 2011. "Gold is a physical, safe asset, and allows us to deal with changes in the international financial environment more effectively," bank officials said.

• Brazil bought 18.9 tonnes (607,650 ounces) in September and October alone. It will likely buy more, since gold still accounts for only 0.8% of its reserves.

• Paraguay bought 7.5 tonnes (241,130 ounces) in July.

• Turkey imported 4.2 tonnes (135,000 ounces) of gold in November. It has bought 117.2 tonnes (3.7 million ounces) so far this year, almost double last year's purchases.

• Central banks around the world bought a total of 351.8 tonnes of gold (11.3 million ounces) in the first nine months of 2012, up 2% from a year ago.

• Even Argentina added 7 tonnes last year (225,000 ounces), and Colombia 2.3 tonnes (almost 74,000 ounces).

• And of course there's China. They didn't reveal the number but it is said they have been accumulating large quantities of gold.

An interesting fact for the stock market:

On Election Day November 4th 2000 when George Bush ran against Al Gore the S&P closed at 1,429. On Election Day November 4th 2012 when Barack Obama ran against Mitt Romney the S&P closed at 1,430!

This means that over 12 years the stock market has posted zero gains!!!!! It truly is a lost decade in regards to stocks. If you are invested in the stock market you have to be averaging into high grade, dividend paying U.S. or foreign stocks. Timing this market or trying to get capital gains is strictly a professional’s game and should be avoided by everyone else.

Gold: The Path to your Financial Freedom

Why buy gold?

Because.....

"Gold will be the last man standing." Richard Russell


Welcome to The Golden Sense! It would be an understatement to say that things in the world seem a little volatile. It is well known that the economy is slow and a shadow of its past. The U.S. Government is broke and in debt way beyond the capability of repayment. The European Union is broke due to their luxurious entitlement programs. The Middle East is riddled with war and turmoil (as always). All this is spreading to Asia and effecting production and the global currencies markets.


At any point in history, there have always been problems in the world. The current situation is nothing new in the grand scheme of things. All in all, this will pass and wealth creating opportunities will arise. However, we live in the present and we must act accordingly to environment we are in.


It doesn't matter whether you are 20, 30, or 70 years old; securing your financial freedom and your financial future is paramount. Today, securing financial freedom is harder than ever. Income is difficult to find. It is hard to find a good place to invest. Most people just want a place to accumulate savings without worrying about bear markets, inflation, or high fees.


Central banks and governments around the world are actively devaluing the money we use as a medium of exchange. This is a fact and a publicly stated one at that. The two ways they are doing this are as follows:


First, they are printing money for government expenses and the Federal Reserve is helping their banking affiliates clear their balance sheets of rotten investments. This creation of money devalues the currency, silently stealing the purchasing power from you and me.


Second, central banks are manipulating the interest rate market. They have set rates below inflation levels. This helps the Government borrow money and expand their spending capabilities. Unfortunately, this punishes individual savers.


The money in your individual checking accounts or saving account is losing value. You can see it by the higher prices in food, gas, cable TV, hardware supplies...etc.


Bearing this in mind it is important to protect your savings by acquiring gold. Gold is the oldest and most trusted currency in the world.


 Remember the famous quote by Volatire:

"Paper money eventually returns to its intrinsic value-zero".


And Jude Wanniski once said:


"For 2,500 years the global electorate has identified gold as the most reliable standard of value- which means that gold, a specific amount of gold, is the best possible unit of account, the best proxy for all goods, services and financial assets that are involved in the banking system and exchange economy."


So the lesson to learn is to get out of paper money such as the U.S. Dollar. It is being manipulated. Help yourself become free of the crooked governments and central bankers.

It is sometimes difficult for people to understand the concept of gold. Unfortunately, most people have grown up under the fiat currency standard (a currency backed by nothing but a Government promise). Understanding the value and use that gold offers, is a huge advantage for your personal finances.


"Gold is the ultimate form of savings. When you own gold, you own the one item that has held its value over the centuries. Consider this -- of the original stocks in the D-J Industrial Average, only one, GE, is still in the Average. Corporations fail, nations fall apart, empires collapse, homes deteriorate, millionaires become destitute but gold has ALWAYS represented wealth. Throughout history, the nation or the person who owns a relatively large quantity of gold is wealthy. Period. You don't buy gold as a speculation; you buy gold to be wealthy and immune from the stupidity of greedy politicians."


"Gold exists outside of any political system. It is truly international. It has a multi-thousand year history of being valued by men. Gold is the only currency that has never been destroyed. Gold is not like an investment in Apple or Google. Gold doesn't grow like Procter and Gamble. Gold doesn't pay a dividend like Abbott Labs. Gold is a creature of savings. Gold is pure wealth. Buying and holding gold is like buying a gem-diamond or a Picasso. Gold is a form of eternal savings. On that basis, regardless of where the dollar-price of gold goes or where the yen price of gold goes, there's no need to ever sell your gold. Use gold to hold and secure your wealth. Over the decades and the centuries, gold has been the safest place to keep your wealth.. Even Picassos can go out of style. Colored diamonds are currently taking precedence over white diamonds. But gold is built into the DNA of man. In coin form, in brick form, in necklace form, in the form of Rolex watches, gold has always been a magnet for mankind." (Russell)


Newcomers to the gold market often feel intimidated because they don't know where there is a safe place to buy and sell gold. That problem no longer exists. Now, there are excellent companies that help you find the financial freedom gold offers.


BullionVault and GoldMoney are two brilliant options.


BullionVault is the largest online investment gold service. People from 122 countries use it to buy and own gold and silver. They are located in London, England. The service allows you to buy and store gold in professional vaults in London, Zurich, or New York.


Here are three reasons why BullionVault is a great choice to buy gold.


First, the storage rates at BullionVault are some of the best in the world. The management costs of the major ETF's such as GLD is as high as 0.4%, which is over 3 times higher than BullionVaults 0.12% storage rate for gold. Allocated storage at a bank would typically cost you 10 times the storage rate at BullionVault.


Second, Bullion Vault offers allocated storage. That means the gold you buy is yours and you are specifically labeled as the sole owner of the bar. This is much more desirable compared to unallocated storage. This means that the quantity of gold you own is equal to the gold stored in the vaults. It is a strict one to one ratio held in professional vaults in safe jurisdictions.


Third, BullionVault maintains the ownership records, and they publish on-line the daily register of owners. All users can see their private holding publicly listed against their alias - which of course only they know. The register's total matches the bar list total, produced independently by the vault operators, and published alongside a register. No other bullion business provides this daily and independent client-by-client proof that the right amount of bullion is in the vault.


There are many other reasons to choose BullionVault as the place to buy and store gold but these three reasons are critical and make BullionVault an excellent choice.

GoldMoney is a fantastic choice as well. GoldMoney is a profitable, privately owned company without any debt. It is located in the Isle of Jersey in the English Channel. Its financial position is sound, its books are regularly audited by a a Big Four Accounting Firm. Gold Money is very similar to BullionVault in regards to services provided. However, I see their three biggest appeals as follows:

First, you have an option of buying and storing Gold, Silver, Platinum, and Palladium. It is fantastic to have all these options available to you.

Second, you have four choices of what country you would like your precious metals professionally stored. You have a choice between Canada, UK, Switzerland, or Hong Kong.

Third, GoldMoney has four patents on a pay with gold service. GoldMoney’s founders had a clear vision that gold should once again fulfill a role as money, as it had done in the past. These patents acknowledge the work GoldMoney has put into advancing the 'prior art' of global payments. They have created an advanced and robust currency with many superior qualities compared to prevailing fiat currencies. The patents illustrate why GoldMoney is a currency that is ideally suited for electronic commerce. This could be a huge deal in future years.

GoldMoney is an amazing company with a great reputation. Their history and vision for Gold is one worth looking into.

Both BullionVault and GoldMoney provide excellent and easy access to the gold bullion market. This market is no longer difficult for individual investors to access. These companies provide a revolutionary service in a cost effective way.

Do not worry about where the price of gold is going. You buy gold to store your wealth. If anything is certain in life, it is that gold will retain its value. Gold is money, it is the ultimate currency and this is what the current trends are showing us.

So get invested, feel the freedom.

Sincerely,

T. Norman

How Bonds Work

"True Knowledge exists in knowing that you know nothing" – Socrates

Welcome to The Golden Sense! I was at a dinner party just a few weeks ago in Santa Barbara and came into conversation with a gentleman my age who was a PhD student in Psychology. I was interested in talking to him because I have acquired a BS in Psychology. I spoke to him about his program and research studies. He was studying the effects of appetite and exercise on motivation. Then the conversation moved in the opposite direction and we began discussing the banking world. I told him that I managed a banks bond portfolio. He confessed to me that he didn't even know what a bond was. Well, that statement motivated me and I began by saying; the bond market is one of the biggest investment markets in the world and historically has been a safe place to invest money. I did note that this perception is poised to change rapidly.

So what is a bond? A bond is a debt security. It represents a loan to the government, a state, a country a municipality, or a corporation. A bond is simply a unit of debt that a borrower sells to an investor. A bond is a formal contract to repay borrowed money with interest at fixed intervals (semiannual, annual, and sometimes monthly). A bond is called a fixed income security.

So let’s get away from the technical terms. They just might confuse or bore you to death. Bonds are important to understand because at some point in your life you will probably want to make money in the bond market.

 Here is a simple example:

Let’s say the State of California needs money (as they often claim). They can go out and issue "bonds" to raise money. Let’s say they need $1,000 dollars. The state wants to use the $1,000 for 10 years all the while paying the person who lent them the money $20 every year before repaying the lump $1000 back at the end of 10 year period.

Under this typical scenario, the $1,000 is the issue amount. The 10 years is called the "term". The $20 represents a 2% interest rate on the $1,000 bond. This 2% is called the "coupon".

Bonds are almost always issued in on thousand dollar denominations. Bonds are quoted in percentages. Bonds are quoted at 100, also called par. A bond quoted at 100 would sell for exactly one thousand dollars. The term par equals $1,000.

A bond provides a certain interest rate or "yield". That is the return you will receive on your original investment regardless of whether the bond rises or falls in price on the open market.

Interest rates in the open market change daily. These daily changes affect the daily market price of bonds. Bonds move inversely with prevailing interest rates. As interest rates move up, the price of bonds moves down. As interest rates go down, the price of bonds move up.

Here is an example. Let’s say that you own that $1,000 California bond that is paying 2% interest or $20 a year. Suppose that interest rates rise on the open market. The price of your bond paying 2% will decline. That means you would be selling your bond for less than $1000. If you keep your bond, then regardless of this price change you will still be receiving your 2% interest or $20 a year on your bond till the maturity date. If interest rates decline on the open market, then the price of your bond will rise. This is important because then you have to decide whether to sell your bond for a profit or continue collecting the 2% interest or $20 a year on the bond. Remember, if you choose to sell your bond you will then have to pay capital gains taxes.

When analyzing a bond, you should look at three aspects.

First, the bonds yield to maturity.

Second, look for the yield to call. Some bonds allow the issuer to call the bond at a certain price at a certain time. The yield to call shows you what you will earn up to the possible call date. Not all bonds are callable. If it is then you should take into consideration the date that it might be called at. If a bond is not callable it is termed a "bullet".

Third, check the premium on the price based on the day or the hour you buy the bond. Try to avoid paying high premiums.

Bonds can be good investments because they offer a stable income. You will know exactly how much you will receive with a bond investment if you hold it to maturity.

It is very important to understand who is issuing the bond. When buying a bond, make sure you feel comfortable with whom the issuer is. S&P and Moody's rate almost all bonds. I usually suggest sticking to the A-AA+ rated bonds.

In 2012, many bonds are selling at high premiums due to the low rates on the open market. In simple terms, bonds are overpriced. Due to the extreme low rates many analysts are calling a top in bond market by claiming that low rates are coming to an end. It would mean the long drought, which this low interest rate era has been, is finally coming to an end. That would make a lot of investors happy because they’d finally be able to obtain some income. Keep in mind; bonds have been in a 30 year bull market.

This view is debatable because other analysts are saying low rates are here to stay for another five years. The Federal Reserve has made its presence felt in the bond market by artificially keeping interest rates low by going on a buying spree in bond market. The Federal Reserve has stated publicly that they intend to keep rates low throughout 2015.

At this point in time I would say that bonds are a very dangerous investment for an individual to make. My advice is to leave the bond market to the banks and institutions and take your personal money elsewhere.

Doug Casey makes a good point about the current bond market by saying, "bonds are a triple threat to your welfare. You've got the interest-rate threat. Interest rates could only go up at this point since they're at zero. You've got the credit-risk threat. Will they be able to pay back the dollars, or Euros, or yen, or whatever that they are in? And you've got the currency threat. Will the yen or dollars or Euros or whatever be worth anything, even if they pay them back to you? I don't see why, but every body's buying bonds. Institutions are buying them; the average guy is buying them – trying to reach for 2% in yield when real inflation is probably running 5-6% per year."

If you want to profit in a rising rate environment you can always buy ticker "TBT". Do not take that as investment advice. I am not recommending anything; the bond market is in uncharted territory and rates could do anything at this point.

Besides the current dangers in the bond market, it is a market that is important to understand because it could be of great use to you one day. There are many investment tools in the world and each one of them can be extremely valuable as long as you use it properly.

As Ani DiFranco said, "Any tool is a weapon if you hold it right".

Sincerely,

T. Norman

Apple recently released its new iPhone 5. Apple has been making killer profits and this iPhone release has sold more than the iPhone 4 release. However, now their is something a little different about the phone. Once upon a time, Apple and Google were partners. Well, sort of. Google Maps was far and away the best service of its kind in the world. Apple recognized that and has been happy to feature it on the iPhone since 2007... or, if not exactly happy, willing to grant Google a grudging acceptance. Apple users expected to find Google Maps on their phones. Until... well, until they didn't anymore. The new iPhone now has a different mapping system. Google Maps is gone, Apple Maps is in - although consumers will still be able to access Google's mapping service through a mobile Web browser, a method that analysts describe as rather clunky compared to an app. Reaction to the change was swift and often highly critical. Users complained about the iPhone's inability to navigate by voice, and also that Apple map searches pull up wrong cities, wrong streets, and incorrect destinations if they're not spelled out 100% perfectly (Google Maps can deal with misspellings or variations). Even certain towns are not featured on the map. This is creating a problem for Apple and it is something the company will have to sort out sooner rather than later.

Angry Birds-maker Rovio Entertainment will be hoping to prove it's no one-hit wonder when it launches Bad Piggies on September 27th, just as players seem to be tiring of the game they've been addicted to for the past three years.

Here is a quick update on the sad realities of the USA's distorted economy.

Peter Schweizer, founder of the Government Accountability Institute recently stated:

"In the United States now, the city with the highest per capita income in America is Washington, DC. They passed Silicon Valley last year. Seven of the ten wealthiest counties in America are counties that border Washington, DC, so government has become big business. There's a lot of money to be made. And not only is that leading a lot of young and talented people into influence-peddling in industries where I'd rather have them doing something more productive, it's also changing the entire incentive structure. We know for example now that if you look at hedge funds, hedge funds that invest in lobbyists and make a lot of campaign contributions actually consistently outperform those hedge funds that don't. It's not because they're smarter – it's because they're getting access to information in terms of legislation or trends that gives them a leg up. So I think that's extremely troubling, and it's distorting the entire nature of our free-market economic system."

Personally, I have had a wonderful month of September. Rebecca and I got married on September 1st in the Santa Ynez Valley and went on our honeymoon to Moorea, Tahiti. The wedding was amazing and the honeymoon was just as good. If you ever have a chance to go to French Polynesia I certainly recommend it. Rebecca and I are now back in Santa Barbara and happy as can be. I have posted a few pictures below from our honeymoon.

Be Free of Government

"Poke any saint deeply enough, and you will touch self interest"

 Irving Williams

Welcome to The Golden Sense! Today it seems like everyone is talking about Government action or inaction. People often look to Government as the solution to their problems or societies problems. Then there are others who hang on every action of the Government and try to stop it from expanding or fight against it to persuade it to make different choices. These types of people are often miserable because their fate hangs upon other people’s actions.

Harry Brown wrote a book 39 years ago called How I found Freedom in an Unfree World. Harry made a great point about individuals and their relationship with Government. At this time in history it is important that we all have a little perspective on Government.

"Most people seem to think of the Government as this all powerful giant with unlimited resources, super powers of control and surveillance, and the ability to keep every citizen in line. Such impressions are reinforced by movies and TV dramas of agents calling upon vast powers and resources to catch any criminals or dissenters. This is often reinforced by news reports of Government crack downs on narcotic rings, tax fraud, and smuggling.

The role of Government plays a big part in many people’s lives. It takes one third of our income from us and enforces additional property taxes, sales tax, import duties etc. The apparent importance of Government can be seen by the sheer amount of media coverage it receives every day. It is no wonder people look to Government whenever they are concerned about their freedom.

This can be very intimidating but this has little to do with your relationship to the Government. For one thing, the Government has limited resources- just as you or I do. If a large number of agents crack down on marijuana smugglers, then that leaves fewer men to police the average marijuana smoker. If they concentrate their resources to crack a million dollar tax fraud that leaves less man power to look over the average tax return.

If the Government was as powerful as people think then the wars in the Middle East would already have been won, crime would not be an issue, and the Governments grandiose social reforms would be successful. As it is, none of these are true because the Government CAN'T force many people at once to act in ways they don't want to.

The Government is one big group trap. To be efficient it depends upon millions of bureaucrats whose incomes and careers do not depend upon efficient action.

The super agents and spies are just normal people with normal lives. Each one of these individuals has family problems, health concerns, office meetings, girl friends, car troubles, and interferences inherent in any bureaucracy.

The Government is an inefficient bureaucratic mess. It isn't surprising that all of its programs turn out to cost more than expected, that it never successfully completes a project, that bombers bomb the wrong cities in Iraq, that it's usually rallying upon it's citizens to compensate for the Governments mistakes.

In the book 1984, George Orwell pictured a totalitarian society that has become the standard view of the total state of the future. Everyone's life was controlled by a computer and there was a TV camera in every room monitoring everyone's activity.

Fortunately, such dramas overlook the fundamentals of economics. The larger the Government, the less efficient and productive the economy is. Slaves don't produce with enthusiasm, incentive, and imagination that free people do. Government programs never work as intended.

So while a totalitarian or communist state might include a TV camera in every room, I doubt that the camera will even work" (Brown 1973).

I see three things that are important for an individual to do in dealing with the Government.

The first is not be awed by government. Do what is right for you. If you choose to deal with the Government then expect the process to be slow and inefficient. Those that don't want to help the Government can go their own way without running into much trouble.

The second is don't confront the Government. A sure way to make your life miserable is to attack the Government head on. Its resources are limited and it can't waste time tracking down every possible violator or every law. However, if you defy it publicly it will aim its powers at you. So just do what is in your self interest.

The third is act as an individual to secure your financial freedom. Find work outside the Government. If you have extra money then I suggest you buy some gold.  Why should you work and be paid in a piece of paper that the Government insists is money. You want to be paid with something that possesses value outside the Government's pronouncement. Remember, gold always retains it value. It is the dollars value that is constantly decreasing. Check out Bullion Vault or Gold Money for possible places to buy and store your gold. I also suggest you get a foreign bank account if you have extra money. Try and get dual citizenship or residency in another country. This will help you be financially free. The idea is to keep your money outside the reach of a bankrupt U.S. Government.

Every individual will know what they need for their own life. Remember what David Seabury said...

"He who hesitates is bossed"

So take action.

Sincerely,

T. Norman

Kristen Stewart’s fling with her “Snow White and the Huntsman” director, Rupert Sanders, is the latest cheating scandal that has rocked Hollywood and shocked fans around the world. Both Stewart, 22, and Sanders, 41, have issued groveling public apologies for their wrongdoings, specifically begging their significant others for forgiveness. For the past three years, Stewart has been dating her “Twilight” co-star Robert Pattinson, who reportedly packed his bags and left the Los Feliz, Calif. home the couple shares after news of the affair broke.

The summer Olympics has started and I am looking forward to seeing who turns out on top. The queen and James Bond gave the London Olympics a royal entrance like no other in an opening ceremony that rolled to the rock of the Beatles, the Stones and The Who. 

 Back to the U.S. Government...

Our federal debt is exponentially increasing by $54,373 every second.

"At this dangerous rate, our debt will be $18.6 trillion at the end of the president's term, an unimaginable explosion of 75% above and beyond the debts accumulated by all of his 43 predecessors combined. America's fiscal future is frightening." From Rep. Kevin Brady, in USA Today.

The following is courtesy of The Casey Daily Dispatch:

Suppose that every day, ten men go out for a beer and the bill for all ten comes to $100.

If they paid their bill the way we pay our taxes, it would go something like this:

The first four men (the poorest) would pay nothing.

The fifth would pay $1.00

The sixth would pay $3.00

The seventh would pay $7.00

The eighth would pay $12.00

The ninth would pay $18.00

The tenth man (the richest) would pay $59.00

So that's what they decided to do. The men drank in the bar every day and seemed quite happy with the arrangement, until one day the owner threw them a curve.

"Since you are all such good customers," he said, "I'm going to reduce the cost of your daily beer by $20.00."

Drinks for the ten men now cost just $80.00.

The group still wanted to pay their bill the way we pay our taxes, so the first four men were unaffected. They would still drink for free. But what about the other six men - the paying customers? How could they divide the $20 windfall so that everyone would get their "fair share?"

They realized that $20.00 divided by six is $3.33. But if they subtracted that from every body's share, then the fifth man and the sixth man would each end up being paid to drink his beer. So, the bar owner suggested that it would be fair to reduce each man's bill by roughly the same amount, and he proceeded to work out the amounts each should pay.

And so:

The fifth man, like the first four, now paid nothing (100% savings).

The sixth now paid $2 instead of $3 (33% savings).

The seventh now paid $5 instead of $7 (28% savings).

The eighth now paid $9 instead of 12 (25% savings).

The ninth now paid $14 instead of $18 (22% savings).

The tenth now paid $49 instead of $59 (16% savings).

Each of the six was better off than before! And the first four continued to drink for free. But once outside the restaurant, the men began to compare their savings.

"I only got a dollar out of the $20" declared the sixth man. He pointed to the tenth man, "But he got $10!"

"Yeah, that's right," shouted the seventh man. "Why should he get $10 back when I got only two? The wealthy get all the breaks!"

"Wait a minute," yelled the first four men in unison. "We didn't I get anything at all. The system exploits the poor!"

The nine men surrounded the tenth and beat him up.

The next night the tenth man didn't show up for drinks, so the nine sat down and had beers without him. But when it came time to pay the bill, they discovered something important. They didn't have enough money between all of them for even half of the bill!

And that, boys and girls, journalists and college professors, is how our tax system works. The people who pay the highest taxes get the most benefit from a tax reduction. Tax them too much, attack them for being wealthy, and they just may not show up anymore. In fact, they might start drinking overseas where the atmosphere is somewhat friendlier.

For those who understand, no explanation is needed.

For those who do not understand, no explanation is possible.

References

Brown, Harry (1973) How I Found Freedom in an Unfree World. Avon Books. New York, New York

How the Banker gets a Good Deal

"Yesterday's home runs don't win today's game"-Babe Ruth


Welcome to The Golden Sense! Babe Ruth was right when he made the statement above. However, banking is not baseball. Currently it is yesterday's strategy that is hitting the home run for banks today. The strategy that bankers play in the bond market is not something to celebrate but it's a strategy that's been played for quite some time. This strategy is unique to the banks and individual investors can't get in on the play. To understand the strategy you have to break it out in simple terms.

Banks are often misunderstood and seen as complicated establishments. This is simply not true. The banking business model is easy to understand and extremely profitable.

The bank gets money through customer deposits. The public put their money in the bank because the banks promise to keep the money "safe" and available. After receiving that money they then use that money to make loans. This is the profit engine of the bank. Today, banks lend out the money and receive 5-6% return on that money. This money goes to pay for the services the bank provides and to pay employees that run the bank.

The bank typically uses 80-90% of the deposit liquidity (customer deposits) to make loans. So what do they do with the rest of the money?

Answer: They invest it in the bond market.

This money is given to boys and girls in the finance department. They make use of every depositor's penny and still have money to dish out on more lucrative loans and deposit withdrawals as needed.

Wait-if every dollar is used then how is there more left over for making new loans and to cover the withdrawals?

The banks have the ability to borrow money from the Federal Home Loan Bank or the Federal Reserve. The banks can borrow millions of dollars and only have to pay 0.30% or 0.25% on the borrowed money. That's right, that is less than a third of a percentage point annually. This is super cheap money! Meanwhile the boys and girls in the finance department can earn an average return of 0.45% on short term bonds.

Do you see how that works? The bank can borrow money for 0.30% and then invest it the same day for 0.45%. The bank pockets the difference (a free 0.15%).

When the bank borrows money (from the FED or FHLB) the bank can use that money to buy additional bonds or make a loan to an individual. When the bank needs to repay the FHLB or the FED it can use new depositor money, sell a short term bond, or use money from a matured loan to pay the FED or FHLB back. By employing this method the bank always has access to free money. It can use this borrowed or "free money" to earn easy returns in the bond market. You see, the bank always has money "working" for them and earning profits.

You might say that those rates are so low it hardly makes a difference. However, when you are using millions of dollars... it does make a difference and the cash rolls in.

It's the arbitrage of all arbitrages! And the bond guys call it "playin the yield curve".



Signing off,
T. Norman


The summer Olympics in London is almost here. The opening ceremony will be on July 27th. So how will Michael Phelps do in the pool this summer? He has a few doubters out there. However, on June 27th  Michael Phelps came from behind in the final 50 meters to defeat Ryan Lochte in the 200-meter freestyle at the U.S. Olympic trials. It looks like he's still got it in him to win a race or two.


Can grown-up Justin Bieber still sway the masses? Believe it. The pop sensation, which turned 18 in March, tops the Billboard chart for the fourth time after selling 374000 copies of “Believe,” the year's biggest debut. I must confess I have never listened to an entire Bieber album but I have to say he sure can draw a crowd.

Census data finds that while most people in this country have moved to a new community at least once in their lives, about 40% never leave the city or town where they were born. There are many factors that come into play when you look closely at who moves and who doesn’t that I find interesting. For instance, did you know the affluent are the most likely to move (by income group), while those with a college degree will move about 33% more often than those with a high school diploma (by education level). In addition, those who live in the Midwest are about 25% more likely to stay in their hometown than those who live in the West (by geography).

The City of Stockton, CA (with 300,000 people) is expected to formally file for bankruptcy, after 90 days of negotiations with 18 creditors failed to reach a deal. The city would become the largest city ever to file.

A sign of the times...

Start your business

"Hell, there are no rules here - we're trying to accomplish something."

Thomas Edison  

Welcome to The Golden Sense! My fiancée, Rebecca, recently became a Pilates instructor. We predicted early on that being a Pilates instructor wasn't all about teaching Pilates - it's about running your own business. No matter what you choose to do in life, whether it's being a chef, designing the new Facebook, or becoming a doctor...it's all business. You might specialize in a certain profession ,but in the end you’re conducting or running a business for yourself or for someone else.

I think deep down, everyone wants to start a business of their own. The idea of freedom and the sense of ownership is particularly appealing.  Every year, thousands of people catch the entrepreneurial spirit, launching small businesses to sell their products or services. Some businesses thrive while others fail. It is the nature of the market.

You no longer need to go to the best schools to acquire knowledge needed for running a business. The information is out there for everyone to benefit from.

Yep, you wouldn't believe it, but it's called the Internet. Make use of it.

Have you ever heard of Bill Gates or Mark Zuckerberg? They're college dropouts who started billion dollar businesses. Countless others with less intelligence than those two have started and ran successful businesses. 

The more you know, the more power you have to form an organization that develops into a lasting source of income and satisfaction. 

So where do you start?

The old adage states, "find a need and fill it". 

Rebecca wanted to fill the need of "instructing Pilates." So we went from there.

First you have to determine if you can make money. Your business idea is worthless if you can’t make money. Do a break even analysis. In simpler terms: make sure that your income covers your costs. Then write up a business and marketing plan. If need be, seek out some start-up financing.

In Rebecca's case, she pays rent to a high quality Pilates studio and makes the difference from what she charges for a class. She uses social media, business cards, and word of mouth for marketing. For Rebecca, marketing is a tough challenge because her budget is small and she strongly depends on good referrals. 

You'll have to identify the number of owners in your business, your ownership structure, protection from personal liability, and how the business will be taxed. 

Rebecca decided she would be the sole owner and structure her business as a sole proprietorship. She has insurance to cover her liability. She decided to work as an independent contractor and rent from established studios. She likes it this way. She has low overhead, no employees, and the freedom to set her own schedule.

Once you have your company's name, check with your county clerk's office to see whether your proposed names are on the list of fictitious or assumed business names in your county. For corporations and LLCs: check the availability of your proposed names with the Secretary of State or other corporate filing office. Do a federal or state trademark search of the proposed names still on your list. Change or eliminate the name if the proposed name is already famous, confusing to customers, and/or legally trademarked.

Your business should be established as either a partnership, LLC, C Corporation or S Corporation. For Rebecca, it was easy. She made herself a sole proprietor and was on her merry way.

If your business is selling a product you will need to find the right location. The ideal business should not be location specific because ideally the product sells to the world. That means the product or service is not dependent upon its surroundings. Either way, make sure the spot is properly zoned or permitted and determine the price or lease amount.

Of course the B.S. goes on in regards to acquiring insurance and so forth. Starting a business is filled with annoyances but in the end it will be worth it.

You will need to set up your books by using a specialized program for your industry, Quickbooks, or Excel. Conducting the correct accounting measure is extremely important in business. Make sure you set up the correct bank accounts and prepare for tax reporting. 

Rebecca uses Excel to keep track of much she makes, how much she needs to deposit for rent, and how much she puts in her tax savings account. She knows she needs to report taxes quarterly, so she has her smart phone remind her just before the end of the quarter and then she can pay taxes through her tax savings account.

All business is different and some businesses require more detailed start -than others. These are just the basics all businesses must consider. Being successful in business can be tough. However, I recommend everyone try it at some point. I as well plan on taking my own advice at some point.

Each one of these individual tasks can be difficult and is probably best suited for a different kind of personality.

As the great Richard Russell says,

"All successful businesses need three kinds of people: a dreamer, businessman and a S.O.B." 

So if you’re on your own and the going gets tough, try to remember which "hat" to don.

Best,

T. Norman

So is the European Union going to collapse? A Greek tragedy of epic proportions? I think some dramatic changes are in store.  Keep your money safe from these troubles. Everyone should know this by now. As Bob Dylan says, "You don't need a weatherman to know which way the wind blows".

In the town of Santa Ynez, CA about a year and a half ago a shop named the '2nd Amendment Gun Store' opened. The guy who opened it was a realtor in his past life until 2007. At that point he realized that real estate was in for a tough time. After quiting, he thought things through and believed gun sales were going to be a growth business in years to come. He then went on to open the store. Since the opening of the store he has a had a steady stream of customers. He says his biggest problem is procuring inventory. He says some items are backed up as much as six months. Even ammunition is harder to come by. So his biggest problem is supply and not demand. You will notice a rising trend if you check out the stock price of large gun manufactures. Due to the current political environment and poor economic condition it is no wonder gun sales have been a successful business the past few years. 

Chelsea did it! They won the European Champions League for the first time in their history! It was written in the stars for them as they rode their luck throughout the final. They beat Bayern Munich in a penalty shootout. It was amazing. I have never seen a German team lose on penalties as they generally have nerves of steel.