warning!!...very long...
I don?t know what is going on in the world these days. I cannot comprehend today?s investment climate and every each way I look I see signs of an inevitable Big Bang event in the financial markets?.where once again the world will have to go through an imminent destruction and a simultaneous resurgence of new economic concepts and ideas. This Big Bang, like all others, will swipe out all current business beliefs and systematic ideas and a new set of concepts will rise that will be the cornerstone for future thinking in the business arena. ?.and once again, the world will flourish with intelligent, fast thinkers and business driven individuals?and companies will emerge and people employed and wealth created and new technologies born and cyclicality resurrected and poetry overlooked?.
Every which way I look I see signs of a global economic decease that cannot be cured. The symptoms of economic stagnation can be felt, heard and seen from Jarabacoa to Beijing and from Washington to Zaire. The financial doctors empowered with the medicine don?t seem to have an answer as the decease seem to have grown beyond their means?immune to it. All the financial mechanism (options) seemed to have been depleted and, worst of all, the decease cannot be contained. All sorts of economic stimulus packages have failed to produce any intended results and little, if anything, is left in the bag for the politicians to try and revive the dying global economy. ?El Pequetico?, ?El Paquet?n? and the recently announced economic stimulus package by Bush have done nothing to the underlying silence and skepticism of the financial markets around the world?.perhaps there?s something that we all know but are afraid of admitting.
Every which way I look the numbers don?t seem to add up. As recent as three years ago the word investment, almost by definition, expressed a very positive connotation. The mere action of investing, regardless of the product, guaranteed a positive return on your investments?..and the main question was how much do I want to make versus how much risk am I willing to take? Today it seems that the safest investment is the one you never make?and unlike the AIG commercial that states ?the greatest risk of all is not taking one??.I think that the greatest risk of all is taking one at this moment?this is scary to me.
Perhaps it is my timing or my missed-timing that has kept me from seeing the light but I have to admit?it does not look good. Over the last few years I?ve ventured through a number of investments alternatives?I invested in stocks, bonds, mutual funds, 401k plans, company employee stock purchase plans, real estate in the Dominican Republic?etc. The initial experience was good?I made some money...and best of all, they were all blind decisions?as I had no idea what I was investing on. I do know how these financial products behave but the reality is that most people invested in them by default (as I did). To me, it is nearly impossible to objectively look at a big corporation and make an intelligent investment decision based on financial analysis without really knowing the weeds of the company. This is even more the case for mutual funds?as you have more problems to worry about. Yes, you might be able to understand accounting, balance sheet, cash flow statement and the like but at the end of the day that is such a small piece of the equation that it is almost irrelevant to look at. Have you ever wondered about the distance that exists between a CEO of a large corporation (50k+ employees) and the sales representative that sells the company?s product? Do you think that when the CEO/CFO?s are projecting their financial figures they talk to the sales people that are out on the street gutting it out? Would their views of the world change if they took into consideration what the sales guys are telling them? I am obviously oversimplifying the whole decision making process but there?s a point to be made?.the blind leading the blind.
Now that the hanckerschiff has been removed from my eyes and I am able to see the world I have changed my investment approach. I am no longer investing blindfolded, so I am not following the leadership of the blind. I started investing in hard assets?tangible things so that I can touch it and feel it?so that I can look at the revenues, see them and see the expenses and subtract them?.so that I can count the cash$$ with my hands and control the line items?sold 20 lunches at $5 = $100?.and spent $30 in rent $20 in labor and $10 in food and have $10 left for me and uncle Sam?.Ironically, though, getting rid of my blindness turned out to revealed an economic reality that scares the hell out of me?running a small business is a lot more challenging than I would ever imagine and I don?t really know how small businesses make money. Since I started venturing in the small business world I have seen my sales go down at least 30%...and most of the business owners I talk to are going through similar if not worse scenarios. So, what is happening in the world? I don?t really know. All I know is that everything looks expensive?I recently bought a can of 8 ounce formula (baby milk) for my baby at a CVS store and I was shocked?the thing cost me $3.89?it will not last more than a day. How do people live these days? I have pretty good job, own a side business and it is tough man!! I work in NY city but I could not afford to live there?a one bedroom anywhere in Midtown can run from US$1,500 to $2,500?that?s a lot of money?I think?.so I live in Jersey which is a bit more reasonable. It is seek to me that a salary of 80k/year for a family of 3 is barely enough. To start, uncle Sam gets to keep about 33%, so you?re left with 54K for you?housing will cost you roughly $1,500/month ($18,000) for a two bedroom outside of the city?cellular $60, home phone $60, cable $30, internet access $20, healthcare benefits $400, car insurance $120, transportation $80, food at home $400, food at work $200, clothing $150, schooling for one kid $300?
At the end of this equation you?re left with roughly 10K?and these only include basic needs of an average American family. You?re left with 10K for vacation, entertainment (if any), Christmas shopping and all other occasions that come with a commercially-driven society, and investing or borrowing whichever the case may be.
The last time I checked a household income of 80K was considered in the upper-middle class category?so what is the average American doing these days to pay for their bills? I don?t know but I suspect?here?s an assumption: most Americans, and probably the rest of the world, is living off credit at least for that portion of their expenses that cannot be covered by their revenues ?debts are accumulating at an outstanding rate?most are taking second mortgages on their homes to take advantage of real estate appreciation....which, by the way, are ridiculously high. What will happen when real estate prices level off or give up some of the unrealistic gains that they?ve accumulated over the last few years? I don?t know, am not an economist, but it won?t be pretty.
The scary thing about a market economy, like the US, is that its upside and its downside are infinite. The authorities can only do so much as their power is limited by the market?and once the resources accumulated during the good times are relinquished, the power of maneuvering its destiny is transferred back to the market?where the problem originated in the first place. Now, since the market is a body of unknown minds, its behavior is uncoordinated?.it is like a body without a head. In a market economy, the result of uncoordinated actions may lead to uncoordinated consequences which in turn lead to arbitrage situations and a likely speculative reaction??.and we all know what speculation can mean.
But the more realistic scenario, if the current situation persists, is that the markets react to the current adverse economic conditions?and companies continue their downsizing pattern until they reach a level of sustainability. The problem with a market economy, though, is that if things do not level-off they are continuously pressed to get to that equilibrium?without any regard for say unemployment rate?and all these actions just feed themselves?to produce more drastic consequences?and on and on?.
I write this not to scare people off (who am I to do that?)?.I write this for two things 1) to share my experience with some of the business minded people in the forum and 2) as a reaction to some of the previously written threads in this forum like (Golo, Mondongo, etc) which I find very educational, realistic and intelligent and 3) to emphasize that the current business climate in the Dominican Republic is of a global nature?the world, my friends has no frontiers?for good or for bad.
Although this may sound overly pessimistic, I am a highly optimistic person who is more often than not wrong?so I hope that my history does not betray me?
I don?t know what is going on in the world these days. I cannot comprehend today?s investment climate and every each way I look I see signs of an inevitable Big Bang event in the financial markets?.where once again the world will have to go through an imminent destruction and a simultaneous resurgence of new economic concepts and ideas. This Big Bang, like all others, will swipe out all current business beliefs and systematic ideas and a new set of concepts will rise that will be the cornerstone for future thinking in the business arena. ?.and once again, the world will flourish with intelligent, fast thinkers and business driven individuals?and companies will emerge and people employed and wealth created and new technologies born and cyclicality resurrected and poetry overlooked?.
Every which way I look I see signs of a global economic decease that cannot be cured. The symptoms of economic stagnation can be felt, heard and seen from Jarabacoa to Beijing and from Washington to Zaire. The financial doctors empowered with the medicine don?t seem to have an answer as the decease seem to have grown beyond their means?immune to it. All the financial mechanism (options) seemed to have been depleted and, worst of all, the decease cannot be contained. All sorts of economic stimulus packages have failed to produce any intended results and little, if anything, is left in the bag for the politicians to try and revive the dying global economy. ?El Pequetico?, ?El Paquet?n? and the recently announced economic stimulus package by Bush have done nothing to the underlying silence and skepticism of the financial markets around the world?.perhaps there?s something that we all know but are afraid of admitting.
Every which way I look the numbers don?t seem to add up. As recent as three years ago the word investment, almost by definition, expressed a very positive connotation. The mere action of investing, regardless of the product, guaranteed a positive return on your investments?..and the main question was how much do I want to make versus how much risk am I willing to take? Today it seems that the safest investment is the one you never make?and unlike the AIG commercial that states ?the greatest risk of all is not taking one??.I think that the greatest risk of all is taking one at this moment?this is scary to me.
Perhaps it is my timing or my missed-timing that has kept me from seeing the light but I have to admit?it does not look good. Over the last few years I?ve ventured through a number of investments alternatives?I invested in stocks, bonds, mutual funds, 401k plans, company employee stock purchase plans, real estate in the Dominican Republic?etc. The initial experience was good?I made some money...and best of all, they were all blind decisions?as I had no idea what I was investing on. I do know how these financial products behave but the reality is that most people invested in them by default (as I did). To me, it is nearly impossible to objectively look at a big corporation and make an intelligent investment decision based on financial analysis without really knowing the weeds of the company. This is even more the case for mutual funds?as you have more problems to worry about. Yes, you might be able to understand accounting, balance sheet, cash flow statement and the like but at the end of the day that is such a small piece of the equation that it is almost irrelevant to look at. Have you ever wondered about the distance that exists between a CEO of a large corporation (50k+ employees) and the sales representative that sells the company?s product? Do you think that when the CEO/CFO?s are projecting their financial figures they talk to the sales people that are out on the street gutting it out? Would their views of the world change if they took into consideration what the sales guys are telling them? I am obviously oversimplifying the whole decision making process but there?s a point to be made?.the blind leading the blind.
Now that the hanckerschiff has been removed from my eyes and I am able to see the world I have changed my investment approach. I am no longer investing blindfolded, so I am not following the leadership of the blind. I started investing in hard assets?tangible things so that I can touch it and feel it?so that I can look at the revenues, see them and see the expenses and subtract them?.so that I can count the cash$$ with my hands and control the line items?sold 20 lunches at $5 = $100?.and spent $30 in rent $20 in labor and $10 in food and have $10 left for me and uncle Sam?.Ironically, though, getting rid of my blindness turned out to revealed an economic reality that scares the hell out of me?running a small business is a lot more challenging than I would ever imagine and I don?t really know how small businesses make money. Since I started venturing in the small business world I have seen my sales go down at least 30%...and most of the business owners I talk to are going through similar if not worse scenarios. So, what is happening in the world? I don?t really know. All I know is that everything looks expensive?I recently bought a can of 8 ounce formula (baby milk) for my baby at a CVS store and I was shocked?the thing cost me $3.89?it will not last more than a day. How do people live these days? I have pretty good job, own a side business and it is tough man!! I work in NY city but I could not afford to live there?a one bedroom anywhere in Midtown can run from US$1,500 to $2,500?that?s a lot of money?I think?.so I live in Jersey which is a bit more reasonable. It is seek to me that a salary of 80k/year for a family of 3 is barely enough. To start, uncle Sam gets to keep about 33%, so you?re left with 54K for you?housing will cost you roughly $1,500/month ($18,000) for a two bedroom outside of the city?cellular $60, home phone $60, cable $30, internet access $20, healthcare benefits $400, car insurance $120, transportation $80, food at home $400, food at work $200, clothing $150, schooling for one kid $300?
At the end of this equation you?re left with roughly 10K?and these only include basic needs of an average American family. You?re left with 10K for vacation, entertainment (if any), Christmas shopping and all other occasions that come with a commercially-driven society, and investing or borrowing whichever the case may be.
The last time I checked a household income of 80K was considered in the upper-middle class category?so what is the average American doing these days to pay for their bills? I don?t know but I suspect?here?s an assumption: most Americans, and probably the rest of the world, is living off credit at least for that portion of their expenses that cannot be covered by their revenues ?debts are accumulating at an outstanding rate?most are taking second mortgages on their homes to take advantage of real estate appreciation....which, by the way, are ridiculously high. What will happen when real estate prices level off or give up some of the unrealistic gains that they?ve accumulated over the last few years? I don?t know, am not an economist, but it won?t be pretty.
The scary thing about a market economy, like the US, is that its upside and its downside are infinite. The authorities can only do so much as their power is limited by the market?and once the resources accumulated during the good times are relinquished, the power of maneuvering its destiny is transferred back to the market?where the problem originated in the first place. Now, since the market is a body of unknown minds, its behavior is uncoordinated?.it is like a body without a head. In a market economy, the result of uncoordinated actions may lead to uncoordinated consequences which in turn lead to arbitrage situations and a likely speculative reaction??.and we all know what speculation can mean.
But the more realistic scenario, if the current situation persists, is that the markets react to the current adverse economic conditions?and companies continue their downsizing pattern until they reach a level of sustainability. The problem with a market economy, though, is that if things do not level-off they are continuously pressed to get to that equilibrium?without any regard for say unemployment rate?and all these actions just feed themselves?to produce more drastic consequences?and on and on?.
I write this not to scare people off (who am I to do that?)?.I write this for two things 1) to share my experience with some of the business minded people in the forum and 2) as a reaction to some of the previously written threads in this forum like (Golo, Mondongo, etc) which I find very educational, realistic and intelligent and 3) to emphasize that the current business climate in the Dominican Republic is of a global nature?the world, my friends has no frontiers?for good or for bad.
Although this may sound overly pessimistic, I am a highly optimistic person who is more often than not wrong?so I hope that my history does not betray me?
