• Bluemound Asset Management
    Bluemound Asset Management A Kirk Spano company

A Better Way…

Kirk SpanoAccording to Warren Buffett, the top 2 investing rules are…

Rule No. 1: Never lose money. Rule No. 2: Never forget rule No. 1.  

The most important aspect of financial planning is having an investment approach that protects you from large permanent losses and still gives you an opportunity to make money over the long-term.  I founded Bluemound Asset Management after seeing that most of the sales driven financial industry comes up lacking.

My name is Kirk Spano. I am visible and easy to follow in the media. Please take some time to read about the advice I have given. Then, if you are ready to find a better way to secure your lifestyle and create a legacy, contact me so that we can talk about what is important to you.

MarketWatch  Fox Business  WisBusiness.com  Seeking Alpha      Scutify

Avoiding the Next Crash & Investing in the Next Boom

In January 2012 I told people on MarketWatch not to miss the upside coming in American stocks, especially energy stocks, most of which doubled and tripled within two-and-a-half years. By June of 2014, again on MarketWatch, I told people to sell their oil and gas stocks, most of which were cut in half by December 2014.

Click for your Special Report

Today, I am telling people that the next few years are lining up for some very negative events in parts of the world that will effect your portfolio. In my special report “The Two Most Important Trades You’ll Ever Make — Avoiding the Next Crash & Investing in the Next Boom” I discuss how to protect yourself and how to preserve your lifestyle. 

Request your free report today.

Demographic Depression

October 2010

— I have updated the charts as of August 2014 due to heavy interest to this page. I have not changed any prose, so right or wrong, this is where I was in October 2010. I am still of the belief that demographics will be challenging most of this decade, but that the 2020s look good as the “echo boom” or “millennials” enter peak spending years and emerging markets emerge. Until then, we must pick our spots as investors and be mindful of risk, particularly in the currency markets and due to derivatives running rampant again. I do expect a significant market pullback sometime the second half of this decade, probably about half of the gains from the 2009 bottom will be given back. For example, if the S&P 500 ultimately gets to 2700 which is the high end of my anticipated range (2200 is the low end), we would give back about a 1000 points as the 2009 bottom was 666. With regard to Harry Dent, I believe he is being overly pessimistic and his time frame is once again not quite right due to a few factors I believe he does not incorporate into his research. That said, demographics are completely understated by the majority of analysts and Dent is right to make it a significant macro-forecasting tool.— Kirk

 

Demographic Depression

Much blame has been laid regarding the current state of the American economy.  While there is ample blame to go around, most of it is misunderstood, if not outright misplaced.  The United States is in a long term economic aggregate demand decline not exclusively due to the foolish, arrogant and greedy economic policies of both the government and financial industry of the early 2000s– which we have covered– but because of a larger problem that can not be quickly solved.  The United States is suffering an aggregate drop in economic demand due to an aging population.  The depression is demographic in nature.

Demographics is Destiny

Economist Harry S. Dent coined the phrase “demographics is destiny” in the 1990s.  His general economic predictions, widely shared, have been generally very accurate, even if his stock market predictions have lacked precision.  The chart to the right (below) demonstrates the simple idea that the size of the population is extremely important in driving aggregate economic demand.  This is common sense, but generally overlooked, possibly because it is so obvious.  Once we grasp what is going on with the population, we come to one conclusion: the easy times of the 1990s and early 2000s are over and not coming back soon.

 

Spending Curve

By looking at the chart, we can see that the baby boom generation drove the economy up for decades.  Because household spending peaks in a person’s forties and early fifties we see that due to the size of the baby boomer generation in relation to the “X” generation, we can expect a prolonged slump in aggregate demand to occur as boomers enter their sixties, as is happening now.

 The drop in aggregate demand will persist as most baby boomers simply do not have enough money to retire and are thus cutting back on their spending long term.  Many boomers who believed that they would be able to sell their homes for hundreds of thousands of dollars in profit are being sorely disappointed.  Real Estate is depressed, and likely will stay depressed through the decade or longer due to the simple fact that the generation behind them is much smaller than the boomer generation.  There is even a possibility that real estate could stay depressed for two decades as the baby boomer children, known as the “echo boom” or “millennials” might not create much demand price push.  Why would this be so?  I believe many of them will move back in with their parents when their parents are elderly, which will actually add a home to inventory, instead of subtracting one.

 Another factor in real estate prices is immigration and the naturalization of millions of undocumented residents.  While many do not like the idea of granting millions of people work visas and paths to citizenship, doing so would likely add more support to the real estate market as people would gradually turn from renters (who do not pay taxes) to owners (who do pay taxes).  Regardless of longer term trends in real estate, the shorter term appears to be a generational buying opportunity for those who have a decade or two time frame to resell. 

Home Values

 

The chart above shows that there is still likely some downside left in home prices.  While I believe that is true for the next few years, it appears that the downside is being mitigated by money creation in the United States.  That money creation should put some sort of a floor under home prices soon.  However, due to the lack of aggregate demand there will not be a rebound in home prices soon.  My general advice to clients is to sell at the price they can get if they are in need of selling.  My advice to younger clients is save as much cash as possible as quickly as possible, even at the expense of making some contributions to retirement plans, and buy property if they have the stomach to be property owners.  There are two types of properties I am recommending:

  1. Properties that you can enjoy and use for decades, and possibly pass on to children.
  2. Properties that are cash flow positive that can be held long term.

 A Global Helping Hand

While the picture looks dire in the United States short run, there is hope.  The demographics of some of the emerging markets are as positive as the demographics in the United States are negative, maybe even more so.  Because the world economy has become more globalized and interdependent, the emerging markets ought to lead the developed world out of its slump sometime late this decade or early in the next decade.  Developed nations that have regained their competitiveness by then will thrive once again.

For the United States to regain its competitiveness, two things need to happen quickly.  The first is that we have train the work force to produce again.  In general, the jobs we need are skilled trades, technical, medical and scientific in nature.  We need engineers of all sorts, project managers, high-end machinists, scientists, biotechnicians, nurses, doctors and skilled manufacturers (CNC), among others. Next, the United States must develop an energy policy that makes sense.  Without a sustainable energy policy, which will necessarily include changes to transportation, the United States stands no chance at overcoming the debt we are taking on to maintain our current standard of living.

There is an enormous catch 22 to the emerging markets demand growth in the next decades.  Although they will demand more of our higher end goods, they will also demand more natural resources.  This means that our ability to import energy at reasonable rates– it was down right cheap from the early 1980s to the early 2000s– will evaporate.  Hence, the importance of finally putting together a real energy policy in the United States.

Current Politics

I will try to come full circle here and discuss the current politics in regard to the current economics.  This has been a point I have been making in my seminars.  While there is an uproar about the government debts being piled up, it is important to remember why the federal government is spending about 6% more above GDP than usual.  They are doing this to keep the standard of living from falling off any more while we wait for global demographics to assist us over our domestic demographics.  How many of us would sacrifice our standard of living to balance the national pocketbook?  When it is put that way I have found that few people want that set of alternatives.  In fact, I have asked that question at my seminars, and nobody has raised their hand to volunteer a lower standard of living for a hypothetical greater good in the future.

Why do I call it a hypothetical greater good in the future?  Simply put, the debt arguments made by demagoguing politicians are overblown.  The United States is currently spending about 6% more than normal federally.  We are also engaged in, and likely to engage in more monetary actions (various forms of creating money). This is not as big of a problem as some would make it out to be.  There is a growing demand for tradeable currency in the emerging world, we are supplying it (we discussed this before).  It is really better our dollars around the world than some other nation’s currency.

So long as our debt does not exceed what we had as a percentage of GDP following the Great Depression and World War II we will be fine.  We will need to slow our spending by the middle of the decade to stay in the safe zone, but cutting spending is not required immediately, and we do not need to balance the budget until the next upturn– which could and hopefully will happen just by pursuing fewer wars.

We all need to realize that what is going on now is about as serious economically as the Great Depression.  Remember, despite the huge federal debt after World War II, the United States went on the greatest economic run in history during the 1950s. The force of emerging market growth will be at least as great as the need to rebuild Europe and Japan after World War II

While I do not subscribe to any unifying theory of economics, neither Austrian or Keynsian, I do know these:

  • When the economy is good, the government should pull back on spending, like what happened in the middle to late 1990s, and unlike what happened in the early and middle 2000s (clearly there were aggravating circumstances after 9/11). 
  • When the economy is bad, the government should help fill the gap with spending.  Like what is going on necessarily now.

There is, and should be, debate about whether the current spending is being done right.  I talked about that almost two years ago BEFORE the spending actually took place, discussing that government spending was necessary, but that we had to do it well.  Today the discussion shouldn’t be about cutting short term spending, it should be about how to best spend to get ready for the future.  We can cut budgets later when threats to our standard of living have subsided.  If we cut spending and money creation now, we might not get to the next boom, as the demographic deflationary forces are too strong to be ignored for the next few years.  Might I suggest we get started on that new energy policy and rebuild our infrastructure.

Your realizing that standard of living trumps ideology advisor.  Until next month when we will have a post election discussion.

Kirk Spano

Share this page

Submit to DeliciousSubmit to DiggSubmit to FacebookSubmit to Google BookmarksSubmit to StumbleuponSubmit to TechnoratiSubmit to TwitterSubmit to LinkedIn

Find Worthy Causes

Evaluate charities here.

Bluemound will match any donations that clients make to qualifying charities and causes up to 10% of the fees that we bill to a client.

Receive Vital Alerts




Joomla Extensions powered by Joobi

Investment Programs

All of our investment programs provide a level of service and expertise rarely found within the retail financial industry. Our programs also are at the low-end of the fee scale relative to the financial industry. All of our investment management and consulting services have access to our founder and nationally recognized advisor Kirk Spano.

 Punch Card Stocks

Based on Warren Buffett’s idea that if there was a limit to how many companies we invest in, that our investments would be less risky and perform better. Learn more…

Retirement Income Options

A flexible income strategy designed to handle any interest rate environment and provide enough growth for a long life.  Learn more…

Resource Opportunity

Scarcity for resources and looming inflation require that any portfolio have exposure to hard assets and companies that provide resources for our lives. Read more…

Investment Coaching

A flat-fee program for self-directed investors who would like a well regarded professional to consult with and learn from. Very limited space.  Learn more…

Tactical ETF Allocator

A unique diversified low cost exchange traded fund (ETF) strategy for dealing with an uncertain global economy. Learn more…

Mutual Fund Allocator

A low cost flat-fee program for traditional investors who want a better way to manage a mutual fund portfolio without new commissions.  Learn more…

401(k) Monitor

Fund selection, contribution strategy and ongoing asset allocation recommendations for your at-work retirement plan.  Retire Sooner…

Annuity Rescue

A chance to reduce annuity expenses, increase net returns and avoid the nasty surprise awaiting most annuity owners.  Learn to get more

Kirk’s Recent Quarterly Letters

Dealing With Today’s Volatility

“I don’t really care about volatility.” Warren Buffett

Asset Returns vs InvestorsI put off publishing this letter for about two weeks, as over the past month, stock market volatility has increased quite a bit. While we are not seeing the wild swings of 2011, we are seeing a significant reaction to the overdue realization that the enduring slow global growth I have talked about multiple times and the end of quantitative easing by the Federal Reserve are both real. 

Buffett’s quote above is meant to convey a message that emotions should not be a part of our investing process. He goes onto discuss how volatility gives us opportunities to buy great companies at good prices.

Continue Reading

 

Freedom to Unite and Invest in Tomorrow

UpWhen I was a kid I dreamed about being an astronaut, a baseball player, a rock star and the President. As I hit my teen years and I hadn’t done much musically, I dropped the Mick Jagger aspirations and focused on baseball. By senior year of high school I knew that baseball was fun, but that I wasn’t an elite player so I had to drop the Robin Yount dream too. 

When I got to college, I focused on having a good time and taking courses that might help me when I grew up. For awhile I thought I’d be a lawyer, but a great uncle gave me some guidance…

Continue Reading

 

The Great Retrenching Continues…

Total DebtIn September of 2008 I had coffee with a group of executives from local manufacturers, it was just after the financial crash had started. One company president in the group — a particularly political sort — asked me how long the economic slowdown would last? I said “until the middle of the next decade sometime.” He laughed at me.

Fast forward to today. What we know now is that the economy still has not recovered in real terms and that it will be a few more years until it does. The United States is just about in the middle of a demographic depression that can not be fixed with legislation or easy money. We must wait until household formation and spending by the very large millennial/ echo boom generation ramps up. Last year was the first year since 2008 that we saw an uptick in the birth rate, so that is a positive, however, it is only a baby step.

Continue Reading 

 

2014 Another Crossroads 

S&P 5002013 proved to be a profitable year for investors. The S&P 500 rose 29% and set new record highs. Global balanced indexes, more representative of most people’s portfolios, also did very well by returning about 20% despite a tough year in China which lost 9%.

Continue Reading

 

Volatility, Opportunity and the Next Crisis

Secular Bulls and BearsOver the past several years, I have discussed the monumental demographic changes that not only America is dealing with, but also that Europe, China and Japan are dealing with. The cumulative impact of national and personal debts, de-leveraging from the bubbles of the 2000s and the four largest economies in the world having aging populations has created global demand destruction that is not likely to end soon.  

Continue Reading