Is College Really A Good Investment?

This question ought to be top-of-mind for parents and students alike. To anyone who's paying attention, it's obvious that a college degree isn't the start of a road to riches. In reality, it's a well-publicized debt trap if a graduate has taken out student loans to pay for their education. 

Zero Hedge reported yesterday that student loan debt in America has risen to an all-time high of $1,08 trillion. New graduates are taking longer to find jobs, and many of the jobs they find don't pay as much as they expected. 

The media and universities still try and sell the story that someone with a college degree will make more money over their lifetime than someone who doesn't. While that may have been true in the 20th Century, I don't believe it's true in this century. Or if it was true, the proponents of this meme are using outdated numbers. 

In an interview with Nick Gillespie of Reason magazine, Mike Rowe (star of the TV show Dirty Jobs) says it best:

'If we're lending money that ostensibly we don't have... to kids who really have no hope of paying it back, in order to train them for jobs that don't exist... I might suggest that we've gone around the bend a little bit." 

If you haven't watched the interview, it's worth 40 minutes of your time. Rowe makes some excellent points about the decades-long "you must go to college to be successful" PR campaign. Just like in politics, the best way for your candidate or issue to win is to present the case for how bad the other side is. 

His high school counselor talked to him about how going to a four-year university was the best option, and if he considered doing blue-collar work, that wasn't "living up to his potential." The same kind of thinking was promoted by school administrators, counselors and teachers when I was in high school in the mid-80s. 

I grew up doing dirty jobs on a farm and ranch, and I'm grateful for it. I got a PhD in real-world common sense, plenty of exercise, and those long days driving the tractor I got plenty of time to think. And thinking is something very few Americans seem to engage in these days. 

So let's think and analyze the premise that a college degree is a good investment for your mind and your pocketbook. What we're all told from the time we head off to Kindergarten is this: "Study hard, get good grades, get your degree so you can find that safe, secure well-paying job with your 401(k)." 

Job security is as big of a myth as Bigfoot or the Loch Ness Monster. Companies are always looking for reasons for cut employees and pad their bottom line. When American firms started to outsource jobs overseas in the 1990s, the concept of loyalty went along with it. Gone are the days when you would work with good people at a good company for 20, 30 or more years... have a nice retirement party with your friends, get your gold watch and live happily ever after. 

An equally outdated myth is that working for someone else will make you wealthy. When you work for someone else, you trade hours for dollars and make your employer more money. The way our tax code is setup, employees are the highest-taxed people around. Plus, employees don't have an option when they pay taxes, they're deducted directly from every paycheck. 

Business owners have a multitude of deductions available, and have more flexibility when they pay their taxes - on a quarterly basis or the following April 15th. With good tax planning, a business owner can drastically reduce his tax liability - even down to zero. You may think it's not fair, but that's the way the tax code works. 

For all intents and purposes, you are now a perpetual free agent. You can't depend on a company (or even a government entity) for a 'secure' job anymore. And the premise of putting money in a 401(k) so you can have a comfortable retirement is also false. Inflation will eat away a large chunk of your dollar-denominated wealth, and Baby Boomers (by law) will have to start liquidating the stocks and mutual funds in their plans in 2017.

Boomers' buying of stocks and mutual funds from 1982 to 2000 drove stock values higher; their selling will force stock and fund values lower (unless the US dollar goes into hyperinflation from Fed money printing gone mad - then the inflation will cancel out the real value of your nominal gains). 

When you graduate college and go to work for a company, you assume they're competent and know what they're doing. Unfortunately, my experience in the Dilbert cube showed me that was the exception instead of the rule. I hated having to deal with corporate politics and games in the white-collar world. 

In the blue-collar world, this happens a lot less. The focus is more on getting the job done right and on time. It's more about common sense and common courtesy, instead of sucking up to a boss or HR hack that you don't like. 

College has been sold as an institution of higher-learning, where you discover and hone critical thinking skills. Given the cognitive skills of the average American, I don't accept this premise. John Taylor Gotto, a former New York state Teacher of the Year and author of the book Dumbing Us Down, said that our current education system is based on the Prussian model. It's a system designed to create good employees and soldiers, and people who blindly follow orders, waiting to be told what to do. 

With maybe a few exceptions, college is nothing more than an extension of this Prussian-like K-12 system designed to churn out an abundance of obedient employees. Not the next batch of entrepreneurs or competitors to existing corporations. 

In the 21st century there are plenty of good-paying blue-collar jobs available - and have more career security than the white-collar variety. If you're a high school student reading this (or know one) who has an interest in becoming a carpenter, electrician, plumber or mechanic - get excited! This is a great time to have and use your skills, and the market couldn't be better. 

These so-called "dirty jobs" will probably provide more satisfaction than the highest-paying white-collar gig you could imagine. I discovered I wasn't cut out to be a Dilbert Drone, so I don't think much of climbing the corporate ladder. 

From my personal experience, I learned more about how to succeed in business from my dad and savvy business owners than I ever learned in college. The good part about college is you learn to live independently from Mom and Dad, and have some fun in the process. But it doesn't provide a lot more benefit than that. 

Here's a quick sub-8 minute video of Mike Rowe testifying before Congress, talking about his experience growing up and the skills gap we have in America between the number of available "dirty jobs" and the number of qualified workers to take them. 

Mike is living proof that you don't have to be pigeon-holed "just" into the occupation that you choose. He's a very articulate and bright guy, a former opera singer and TV spokesman for Ford. Although you may not be as famous as Mike is, you can still do a variety of things in your life. 

If college isn't the best investment for young students or adults, what is it? It's the investments you make in yourself. In my next blog post I'll reveal one of (if not the) best book I've read on how to do just that. 

Three Industries I'm Bearish On For 2014

As we start 2014, it appears the American economy hasn't improved that much over the past few years. Although the White House and the media keep repeating the half-truth (at best, and whole lie at worst) that the economy is in recovery, I don't see much evidence of it in the Denver-metro area. 

Commercial vacancies seem to be everywhere, and a grocery store (in what I thought was a middle to upper-middle class neighborhood) closed its doors. Medical and recreational marijuana seem to be the largest growth industries after the 'evil weed' was declared legal in Colorado on January 1. 

So why did I choose this topic for this post? In investing, poker and life, success sometimes results in making the fewest mistakes - not hitting the most 'home runs.' Ask anyone who had their retirement savings wiped out by the Wall Street crashes of 2000 and 2008. If you choose the wrong industry to be in, it could cost you a lot of time and money. If you're an older Generation X-er or Baby Boomer, the stakes and opportunity costs of missing a better industry are much higher. 

What are these three industries that could be Tar Babies for your career and investing future?

1) Residential mortgages. A lot of brokers made insane amounts of money from the 2000s real estate boom, and have done well with the recent "mini-boom" in real estate in the Centennial state. Interest rates have been held down at rock-bottom levels by the Federal Reserve the past four years. Unfortunately, the Fed won't be able to maintain these ultra-low rates.

Although the BLS tells us the national unemployment rate is still low, it relies on a Clintonian-like spin of how you define "low." This number doesn't include "discouraged" workers who have given up looking for a job because of the difficult job market. The more reliable number is the employment participation rate, which measures the percentage of Americans who are gainfully employed. 

Zero Hedge reported last month this number has soared to a record 91.8 million Americans - an all-time high. So much for that "Hope and Change" stuff we were sold by the Marxist-in-Chief. 

I don't know the exact numbers on credit quality, but I don't see how the average Americans' FICO score could improve when almost 1/3 of the population isn't gainfully employed. Unlike the Roaring 2000s when all you needed was the ability to fog a mirror to get qualified for a home mortgage; credit standards have tightened up a lot. 

Lenders also require this crazy thing called (gasp!) a down payment. And a pretty sizable one in some cases - like 10 or 20% of the purchase price. With all these strikes against it, I'm not optimistic that this industry is (or will be) the "gold mine" it was from 2002 to 2007.

2) Commercial real estate. The boom in commercial followed the spike in the residential market. During the 2000s the real estate market was like playing the board game Monopoly: Trade your four green houses for one red hotel, strip mall or multi-unit property. If an investor could have properties appreciate 10-30% a year in the residential market, why couldn't you do the same thing in the commercial market where the numbers were bigger?

But the decline in the residential market also led to the downfall of commercial. When the easy money and credit stopped flowing (with no fundamentals and household incomes to support it), the end was in sight for this market as well. I see plenty of commercial vacancies in the Denver-metro area, and another grocery store (an anchor store for a strip mall) also closed its doors. 

The increase in the commercial vacancy rate isn't all due to a muddle-through economy. The Internet has given business owners a better, faster, and cheaper way to do business. Think about it: If your business isn't location or employee-dependent, you can deliver the product or service and accept payment online... why would any marginally sane business owner want the added expense and liability of a brick-and-mortar building?

I don't see the US economy or real estate markets getting better anytime soon, and Internet-related business will only increase from here on out. If you're a commercial building owner or lender, I don't think this industry will be good for a long time to come. The exceptions could be commercial buildings with medical and government tenants. However, if you consider making any commercial real estate investments, remember: Caveat emptor, or buyer beware. 

Make sure it's in a good part of town with reliable tenants who can pay for years to come. And make sure the numbers make sense as an investment TODAY. Don't bet on future appreciation or an improving economy, which may not come as soon as you think. There are many 'wildcards' which will affect the US economy - and some are outside of the country and outside of our government's control. 

A soft commercial real estate market leads to the third industry I'm bearish on:

3) New construction (residential and commercial). The 2000s produced a glut of new homes and commercial buildings, and times were good. But when you factor in the real estate and stock market crashes, tightening up of credit and the increase in Internet-related business, it doesn't make sense from a business standpoint.

Remember, if a business owner can run operations through a company website, why should he foot the cost to build and maintain a new brick-and-mortar facility? 

A good physical location doesn't have the intrinsic value it used to (with a few exceptions), and there are plenty of vacant homes and commercial buildings that you can lease or buy for a fraction of the cost of new construction. 

In the short term, these industries could perform better than I expect, especially with government intervention and/or tax incentives. 

However, I have a good track record predicting economic and financial trends. Here are a few samples:

-  I was bullish on physical gold and silver back in 2003, because of the federal government's increase in spending and debasing the currency - similar to what happened towards the end of the Roman Empire. Both metals have more than tripled in price since '03, and I believe have more upside room to run. 

-  In 2004 I predicted the bust of the residential real estate bubble, because household incomes didn't  increase even close to the rate of increase in home prices. I was three years early, but cracks in the sub-prime mortgage market in August 2007 were the beginning of the end for the late, great Real Estate Boom. 

-  And in 2008 I was bearish on Fannie Mae and Freddie Mac because both entities were missing financial statements for the last three quarters. If they weren't quasi-government entities, their stock prices would have dropped like a rock. I bought February and April put options in January, but they both expired worthless because the stock prices didn't drop far enough (and soon enough) to make a profit... and I stubbornly held on in hopes they would.

However, on September 9, 2008 my hunch was vindicated. The federal government took both Fannie and Freddie into receivership (i.e., bankruptcy)... both stocks dropped below a $1 per share... and both stocks were de-listed from the New York Stock Exchange in July 2010. 

If you consider making your fortune, staying employed or hitching your income wagon to either of these three industries, be very careful - and have a Plan B ready in case either of these wagons goes in the economic ditch.