Fifty years from now, a generation of middle-school children will learn the ins and out of this economic disaster. They will learn about millions of arrogant, self-absorbed investors — both on Wall Street and Joe Schmos with e*Trade accounts – that lost their shirts by placing dumb bets on common equities, junk bonds, real estate, and even bank CDs.
If you don't want to be lumped in with this group, listen up… You need to understand something about the investment world. It feeds on your interest and greed. Without these two things, the people that are running the show — yes, the same people that drove it into the ground — don't make any money.
Think about this for a second. When you hear about "investment opportunities," does the person speaking know how to decipher every line of a balance sheet or income statement? Can that person understand "Wall Street Speak"? If so, does that person get paid on the basis that his or her "investment opportunity" trade more often?
My point is…brokers profit from you trading often, most of your friends that day trade probably don't know a lick about a discounted cash flow model, and your early edition of the Wall Street Journal is full of advertisements from these same "investment opportunities" it is featuring on the front page. Get it now? Your interests don't align with the things you hear about investments.
You can be best friends with a banker, but do you think the CD you just tied your money up in will outpace inflation? [Remember we have a 10-digit budget deficit in the U.S.]
Even here in the investment newsletter industry, we have our share of pushers. At Agora Financial, we aren't allowed to invest in our own recommendations. We are the minority, when it comes to conflict of interest. Unfortunately, such conflicts do exist elsewhere.
I don't mean to scare you. I don't mean to intimidate you. I just wanted to set up what the rest of the world considers too boring to even discuss.
It's a type of investment that may not be sexy. It may not be popular in message boards. But it does make a select few tons of money with next to no risk.
I'm talking about enormous yields, limited and known downside, and investor benefits above and beyond what most investment managers will ever advise their customers to buy.
This is the kind of investment that Warren Buffet takes advantage of every chance he gets. In fact, investments like these are about the only thing the kept the old bat afloat last year.
You hear about sweetheart deals and how investor elites practically get away with murder on Wall Street. One of the investments I'm about to show you is the exact tool they use. In fact, Berkshire Hathaway — Buffett's investment company — can count the gains from these investments as assets even before they arrive in its trading account.
You can't do that with the gains you expect from the shares of Google you bought when it IPOed five years ago. Those gains are non-existent until you sell your shares. And when you do sell, the government will tax the hell out of your gains.
Berkshire Hathaway's investment, on the other hand, counts as real income, and is taxed at a relatively small flat rate. Beat that, top stocks market of 2010!
Alright, I'm done hyping… I'm talking about preferred top stocks for 2010. It's the only kind of equity that is considered fixed income. Meaning, holders of preferred shares can expect — and claim — the interest from these shares as future assets.
While this may sound boring or "unsexy," this is how the rich — like Warren Buffett — stay rich and even grow their wealth. It's also how folks like you and me bank a few extra bucks when you can't even count on your Google shares to increase in value.
I know from being a long-time reader of Whiskey that there's a good chance you're a gold bug. So am I. But do I think gold will pay me quarterly paychecks that are taxed at a flat dividend rate? Hell no!
Even when you cash out the gold you've been storing since the 1970s for massive gains, you will pay equally massive income tax on it [Well, some of you will—Ed.]. Dividends, which are how these preferred shares pay out, are currently taxed at a flat 15%. Average income tax is around 39%-40%. You can do the math.
Unfortunately, the people supposedly in charge of discussing opportunities like these are busy pushing more exciting "opportunities" like the "Next Microsoft" or whatever company just bought an ad in their paper.
I'm not saying there's no room in your well-balanced portfolio for great opportunities you hear about on the seventh green at your local golf course. I'm just saying, the ones you should be hearing about just aren't sexy enough.
Plenty of you had something to say to the fellow who assumed I was a ghetto snipe. This for example:
Hi Gary,
Just finished reading the response from the older reader born and raised in Irvington, and I find it amazing that he hasn't learned to listen to the message. He's way too focused on the messenger's delivery.
I'm not particularly fazed about the choice of your language; what matters to me is that I can understand the gist of your message, and it is a message that I'm getting loud and clear. When the faeces hit the fans in volumes, the least of our worries is the choice of niceties we use to communicate. Clear, concise language and imagery that invokes the truth of the message is all that is important, and if that occasionally contains colloquialisms or profanity to enhance the message, all the better. In particular, Mr. Kunstler has a very real way of communicating his concern through his writing (I've read his books), and he was even genuine enough to communicate with me about my fears of what the world faces, which I learned about whilst reading 'The Long Emergency'.
The importance of the events now occurring, and those very likely to occur, has encouraged me to learn as much as I can. In taking this path of finding the truth I can attest to the fact the truth is very often vulgar and brutal. But it is the truth, and I can work with that.
Ignore those who choose to listen to the way you say things as opposed to what you are saying; they are missing the point entirely. Keep up the honesty. Complaints come easier than the compliments, but rest assured, there are many of us out here who thoroughly enjoy your missives. And when you get the complaints, you are very probably getting very close to the truth.
Well done!
And this one…
Gary -
The [reader] who complained about Kunstler's language, et cetera, should have received a lot more opprobrium than you seemed to be willing to give, so let me say it: what a racist a**hole.
People like him are just pathetic. He can be offended by my language, but I am offended by his stupidity.
Keep shootin'.
And another…
Hey Gary,
I'm not sure which article the angry guy from Irving, NJ was referring to, but I have to say that of all the little ditties that I read on a daily basis. Whiskey & Gunpowder is the BEST.
I am a socially and fiscally conservative soldier stationed in Europe…a student of politics and history. I am also becoming more of a student of economics and how it all ties in together. I thank you and the rest of the 'Bar' for what you produce. I usually find myself saying..."damn right"... out loud while I'm reading your articles.
Thanks for the good word, all of you. We're truly glad to have you at the bar.
Now…about trusting fund managers and the government…
Gary,
After reading your opinion about 401 k accts [I wonder] what is your opinion on the availability for IRA accounts?
Good question. I'll answer that in a moment, but first this reader believes I got it all wrong…
You don't differentiate — however, in Congress' zeal TO "GET TAX UP FRONT ON 401K DEPOSITS." I would suspect that Roth 401k deposits actually could be withdrawn (once you pass age 59 and a half) any time you want.
The company match is a different story. And when your company matches at 72% on the first 12% of your income, that sum builds up fast, also.
Your suggestion to "avoid 401k completely" is stupid. What we need is a little assurance that Obama and Pelosi cannot "blend 401k and all other retirement plans into Social Security. Because if they can do that, they also can do damn near the same thing with your brokerage account.
The Roth is looking better all the time…
I'm tempted to file this one under "missing my point entirely"…
Having to wait till you are pushing sixty does not count as "any time you want."
And that enormous company match will be just enough to pay the tax on the whole kitty when you withdraw it…unless of course you withdraw it very, very slowly and avoid sending yourself into higher tax brackets.
So if you do everything juuuust right, then maybe this 401(k) thing will work out for you…like suburban living and excess consumption did for the baby boomers…still doesn't make it a good idea.
While you're at it, maybe you get a mortgage and have a couple of kids for the tax benefit and your benevolent Uncle Sam's pat on the head.
That adults would agree to such hegemon over their finances mystifies me.
Further it's become abundantly clear that funds you willingly place in these instruments are much more susceptible to being withheld from you than, say, the stuff you put in a savings account in hopes that Obama doesn't declare a bank holiday.
My advice to avoid the 401(k) — and by extension the IRA — is like my advice to avoid getting in cars driven by strange men who aggressively offer you candy and a ride. Take that for what it's worth.
Here's a Shooter who hits the mark…
Speaking of takes, here's an interesting one…
Only one thing in error on the tar pit article: Your buddy made the statement that "after all, it is my money."
Wrong, any and all government tax-sheltered plans are the property of the government. And always have been. It's just now, where every possible method of directing/pushing money towards the top stocks market has been utilized and the amounts have become so large, that true ownership of the assets is being asserted.
I accepted that once I realized it and was "deep in the system." Most people that I spoke to about it thought I was exaggerating, at the least.
Soon, with the stroke of an Executive Order pen, any and all assets can be/will be "locked up" for "the good of the nation."
Unfortunately, most do not realize what time it is, or what freedom is.
Lastly, I do not personally care if you are black, white, purple, or green. All I care about is your value system and your conduct. Shame on that fellow from NJ.
Thanks for trying to define what freedom is and what it isn't.
Happy to oblige. Thanks for writing.
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