During unstable financial times, special rules exist for investing. During a “normal” recession, we wait for the market to hit bottom and then begin acquiring stocks at bargain prices. We enjoy the harvest as prices steadily climb back up and our biggest worry becomes when to pay capital gains taxes.
Unfortunately, we aren’t in a normal recession and there is no quick fix to reestablish the momentum of our money supply. Economic stimulus has little effect and the banks are more scared than anyone. Bankers don’t like losing money, but even more so, they really don’t like losing their jobs.
For your own “personal economy” to turnaround, the nation’s economy must do so first. That turnaround needs to involve large international institutions and it’s important that they view the United States as a safe haven for capital. Unfortunately, the European Union did a pretty good job stealing that distinction away from us in the minds of many.
The U.S. used to offer lower tax rates, our politics appeared somewhat stable, and that brought in investors. Today, our corporate tax rates are some of the highest in the world. When that happens, corporations reduce taxes by moving their business abroad.
In order to bring jobs to the U.S. we need to bring businesses. In order to bring businesses, we need to bring capital. In order to bring capital, we need to lower the corporate tax rates.
Many think lowering taxes for business is a handout. It’s important to remember taxes come back to consumers in the form of higher prices. If you disagree, look at the cost of gas. A huge portion of the cost-per-gallon is state transportation tax. Another example is cigarettes - jumping in price when states sued the tobacco makers for causing a myriad of health problems.
In the 1990s, Ireland took an aggressive stance and lowered tax rates on corporations. Within a few years, Dublin became a major center for companies looking to expand throughout Europe and the people prospered. The U.S. has potential to do the same.
There will be a pause before the economic forecasters feel the effect, but the alternative is we become as bogged down in taxes, tariffs and regulation as the UK before Tony Blair took office.
Lowering corporate taxes can put into place a series of economic changes that would act as a domino effect on our economy:
It’s no secret we face difficult economic times. It’s how we rise above the mess and instigate change that will determine the success of our global economy tomorrow.
The Forbes 400 list began in 1982 and to date 1,300 names have graced its pages. Since its beginning, only 31 wealthy individuals remain annual mentions, named on the list every year.
Updated every September, the names on the list this year will likely turn over at a greater rate than any other time in history. After all, losing 70 percent of your net worth doesn’t happen every year and 2008 proved difficult for many.
Simply Googling ‘who lost the most’ gives you a good picture of how the financial world came crashing down on so many. The manner in which fortunes are lost is the same way they are created - through leverage, concentrated investments and risk.
A year ago, we all read about the tremendous wealth booming in India, China and other developing nations. We also read about banks in Iceland as well as energy mavericks in the U.S. Their wealth was amassed as the global economy steamrolled forward, as commodities like steel, oil, gas and copper inflated in value by several hundred percent in a brief span of time.
Today, a glance at the stocks and commodities that fell gives us a sense of where and how much money was lost:
How it Affects You
If you made any of the mistakes that cost the world’s billionaires their fortune, it is likely too late to protect yourself. We advise our clients to structure their debt carefully, always keep their portfolios diversified among stocks, real estate and lending.
What You Can Do To Protect and Grow Your Net Worth in This Environment
The most important question becomes what do you want to risk in order to create lasting wealth for yourself?
For some, the answer is very little. For others, risk is common practice in their lives and they are comfortable with it. Risk and reward are very personal elements to your individual strategy.
From Lakeside’s standpoint, your strategy should involve maximizing your opportunities when the reward in any asset category is much greater than the risk. Today, that means lending while traditional lenders face market burdens and cannot serve their customers. Just a few years ago, the rate our clients could earn by lending money was six to seven percent. Today, that rate is eight to 14 percent. When you lend, you earn greater amounts on that loan then you would have a few years ago. Our work will involve more lending in 2009.
When acquiring fallen assets, use cash and have a ready state of liquidity if you need it. Oil falling from $140 to $40 means hard assets are now cheaper. If you have your eye on purchasing a larger home, vacation home, new car, art or antiques, now would be an excellent time to explore those areas further while you face fewer competing offers from sellers.
In the coming year, our work will include more real estate acquisitions then ever before. Today’s broken economy translates into more sellers than qualified buyers for existing real estate. We intend on acquiring real estate assets due to the high cash flow on rental and commercial sites. We are not averse to acquiring assets currently in bankruptcy when the price is right.
We look forward to answering any questions you may have.
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