Poker American Style - 'All In' on Credit, Bluffing with Bling
This sums up my opinion on America's current financial and economic condition. With a few exceptions, most American companies and individuals have highly leveraged themselves because of 'affluenza' (aka 'keeping up with the Joneses') or to help pay bills. Rising auto and health insurance premiums, skyrocketing college tuitions - not to mention food and energy - are why the American middle class is being squeezed.
To be a good investor, you need to know where a company or country is economically, and where they're headed. Former 'blue chip' companies like GM and Ford are teetering on the edge of bankruptcy (along with Uncle Sam), and living off their past positive performances. All three entities are drowning in red ink, and most Americans are blissfully unaware how leveraged they are. Nobody under 40 or 45 should expect Social Security or Medicare to be much help when they get to retirement age.
As Clive Maund points out, our country and most Americans are holding a bad financial hand, with many more liabilities than assets. Instead of a pair of Aces (A-A, the best starting hand in Texas Hold 'Em poker), we're holding something considerably less... say, 9-4 non-suited. Many Americans have a lot of big houses, nice cars and other 'bling' which looks good on the outside, but hides a rotten financial statement on the inside.
China and other Asian countries hold a much better hand because they are a net lender (instead of a net borrower like the US), have a stronger manufacturing base, and a more stable and appreciating currencies. Unless my economic and financial history is wrong, I can't recall any company or country solely borrowing and spending their way to prosperity.
Americans have bluffed their neighbors and other countries about how prosperous we are for a long time. But not any more. Russia, China, Sweden, and other countries are getting out of US Dollar reserves. The ultimate security for any financial paper asset (stock, bond, mutual fund or currency) is the public's confidence in that asset. Once that confidence is breached, it can take a long time for that confidence to be re-gained. Sometimes it never comes back.
The debt party is about to end, and the financial hangover is ready to begin. There's not an easy way out of this mess. Americans can start by reducing their bad debt, increasing financial and economic literacy, and reducing their dependence on government. Post-Katrina New Orleans is a prime example of why folks shouldn't rely on government to solve their problems.
Public and private schools should teach financial literacy, but I don't see it happening anytime soon - maybe not for another generation. It's up to you to get literate and teach your kids and grandkids how to be good business owners and investors. Learn to sell in person and in print, through the art of copywriting. AWAI has great educational programs if you want to learn a profitable, marketable skill along with your current job or business.
I may have painted a gloomy picture, but I do see a silver lining. Tougher times will make Americans more resilient, humble, and restore more common sense to our society. Instead of relying on status and stuff for our happiness, we'll rely more on God and others. Maybe we'll even have time to talk more (and actually get to know) our friends and neighbors. Time will tell, but that's my hope.
To be a good investor, you need to know where a company or country is economically, and where they're headed. Former 'blue chip' companies like GM and Ford are teetering on the edge of bankruptcy (along with Uncle Sam), and living off their past positive performances. All three entities are drowning in red ink, and most Americans are blissfully unaware how leveraged they are. Nobody under 40 or 45 should expect Social Security or Medicare to be much help when they get to retirement age.
As Clive Maund points out, our country and most Americans are holding a bad financial hand, with many more liabilities than assets. Instead of a pair of Aces (A-A, the best starting hand in Texas Hold 'Em poker), we're holding something considerably less... say, 9-4 non-suited. Many Americans have a lot of big houses, nice cars and other 'bling' which looks good on the outside, but hides a rotten financial statement on the inside.
China and other Asian countries hold a much better hand because they are a net lender (instead of a net borrower like the US), have a stronger manufacturing base, and a more stable and appreciating currencies. Unless my economic and financial history is wrong, I can't recall any company or country solely borrowing and spending their way to prosperity.
Americans have bluffed their neighbors and other countries about how prosperous we are for a long time. But not any more. Russia, China, Sweden, and other countries are getting out of US Dollar reserves. The ultimate security for any financial paper asset (stock, bond, mutual fund or currency) is the public's confidence in that asset. Once that confidence is breached, it can take a long time for that confidence to be re-gained. Sometimes it never comes back.
The debt party is about to end, and the financial hangover is ready to begin. There's not an easy way out of this mess. Americans can start by reducing their bad debt, increasing financial and economic literacy, and reducing their dependence on government. Post-Katrina New Orleans is a prime example of why folks shouldn't rely on government to solve their problems.
Public and private schools should teach financial literacy, but I don't see it happening anytime soon - maybe not for another generation. It's up to you to get literate and teach your kids and grandkids how to be good business owners and investors. Learn to sell in person and in print, through the art of copywriting. AWAI has great educational programs if you want to learn a profitable, marketable skill along with your current job or business.
I may have painted a gloomy picture, but I do see a silver lining. Tougher times will make Americans more resilient, humble, and restore more common sense to our society. Instead of relying on status and stuff for our happiness, we'll rely more on God and others. Maybe we'll even have time to talk more (and actually get to know) our friends and neighbors. Time will tell, but that's my hope.
posted by Brian Ochsner | 9:21 AM
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