Editor’s Note: Michael Cobb is the CEO of ECI Development, a leading real estate development company focused on the emerging markets of Central America. Mike has spoken at hundreds of investment conferences about real estate financing and development, and consulted with top projects and investment publishers on the subject.
With this issue of Golden Opportunities, Mike offers the third installment in a three-part series on questions that every serious investor needs to ask about the markets and their wealth. — Brien Lundin
— Brien Lundin
Who’s Going to Buy When the Boomers Cash Out? The final installment in a three-part series on questions we need to ask ourselves when investing.
A Guest Editorial
By Michael Cobb Can anyone else see the elephant in the room? Why aren’t people asking? Are they simply afraid to acknowledge it? But that won't make the question — or the reality of the situation — go away.
I just want to know, “Who’s going to buy all the equities and bonds when the Baby Boomers cash out to fund retirement?” Don’t you?
According to CNBC, “Over the next 30 to 40 years, $30 trillion in financial and non-financial assets is expected to pass from the baby boomers.”
They plan to sell these assets to fund their retirements. If that’s the case, they must sell these equities to fund their retirement lifestyle. So, here’s the $64,000 question: “Who will buy these stocks?” The Chinese? The Arabs? The next generation? The Fed? (Wait, they’re not supposed to buy securities. More on that later....) If you think stocks have been on sale in the past, just wait. Worldwide, the amount of assets in the markets is nearly $100 trillion. When a third of the global equities market goes into sale mode, the supply and demand curve is going to get whacky, unless there are huge buyers lined up (there aren’t), who want to own these stocks at higher prices (not likely).
Is the new high mark for the DOW a bubble? Milton Freidman said, “Inflation is always and everywhere a monetary phenomenon.” Since 2008, over $12,000,000,000,000 in Quantitative Easing Cash has been created out of thin air by central banks around the world. That’s $12 TRILLION in case all the zeros threw you off. And the U.S. accounts for $3.7 trilliion of it.
So did the Fed just buy securities, albeit indirectly?
For a long time, this QE cash went to rescue failing brokerage houses and to prop up the balance sheets of insolvent banks. As long as the QE cash was in a basement, locked in a vault, and doing nothing, inflation didn’t happen. However, when those trillions were set loose on the market chasing a smaller number of stocks, the DOW was propelled to all-time record highs.
Is what we are seeing a monetary phenomenon, simple inflation as Freidman suggests?
With over $12 trillion in QE money chasing a declining number of stocks, how high can this go? Is there room to ride the bubble up some more? Probably, but talk about risk. No one ever predicts the exact top of the bubble. It’s impossible unless the system’s rigged. If we’d only sold on Feb 2 “Irrational exuberance” combined with $12 trillion is driving the final phase of a tulip bulb... er ... I mean a stock market frenzy. When I can’t see the tangible value to the stock owner, I have to wonder, “What am I paying for?” Exuberance? I’d rather have something real with lasting worth. Items like hard assets.
Solutions to the pending meltdown are there, if we know where to look. Yes, gold and other metals are excellent hedges. So are commodities and real estate. We should all have some of our assets there, any many of us do. But unfortunately, unless you have hard assets outside North America, you still have all your eggs in one basket. Is that wise?
Answer this question. What have you done to diversify your investments internationally? Owning BMW or Nestle stock on the NYSE doesn’t cut it. True diversification means ownership of assets both out of the traditional markets and outside of North America. It means diversifying by asset class, geography and currency. Not nearly as easy as calling Schwab or Fidelity, but critically important for long term financial stability and investment return.
Check this out. The Ivy League Schools are very diversified internationally. Can you see how little they have invested in the U.S. stock market? Look at all the hard assets and alternative investments. Emerging markets. Real estate. What do they know that the average investor doesn’t?
http://www.marketwatch.com/story/heres-how-yales-endowment-left-its-ivy-league-rivals-behind-2016-10-20 Does your diversification look anything like the Ivy League allocation? Most folks are heavily weighted in traditional U.S and Canadian equities. It’s easy. It’s comfortable. And it’s what we know. We remain in the markets and our comfort zone far too long. These big-time Ivy League players aren’t. They know the value of true diversification. They also know that the key to winning is to take money off the table when the getting is good.
Does the time look good to you or will you try and time the top of the market and ride the crash down? Or you can take a small part of your winnings and diversify. The Dow is over 24,000 this week. This might be a great time to take a chunk of profit off the table and diversify into some hard assets offshore. What do you think?
Wouldn’t it be great to use house money to hedge against economic, political and social risk factors with some small part of your portfolio?
The challenge most people face when thinking about alternative investments is the issue of risk, the fear of the unknown, the discomfort of being outside the masses. But are real risk and the perception of risk the same thing? Do you want to be with the masses as they head off the cliff?
Only a hard analysis of the facts will allow us to find out what is risky and what just feels risky. They are different you know. For example, many people drive cars, yet are deathly afraid of flying. I recently sat next to a woman on a plane, who in some minor turbulence, was hysterically crying and had to be calmed by the flight attendant. She later admitted to the same attendant that she knows she’s over-reacting, but can't help it. She feels fear even when she knows that flying is far safer than driving according to the hard facts. Flying is 60 times safer than driving. Add talk and text, and flying is thousands of times safer. How does this tie back into investing? At first glance, what appears or feels risky may actually be a lot safer than what we know. Flying is far safer than driving. Yet for many it “feels” exactly the opposite. But there’s no room for feeling when it comes to investing. The professional Ivy League investment teams are hard calculating SOBs with one goal in mind, maximize return. Risk is something to be measured and analyzed, not felt.
The famous 20th century economist John Kenneth Galbraith sums up the issue very well: “Faced with the choice between changing one's mind and proving that there is no need to do so, almost everyone gets busy on the proof.” Are you everyone? Or are you someone who can look at the facts and make an informed decision with logic and rationality. There is no competition outside the masses.
Strive to be outside the competition. What if a small amount of due diligence on your part would uncover the facts and reality of a great investment outside your current comfort zone?
What if you examined this data under the light of objective scrutiny and it showed that owning a hard asset overseas was indeed less risky long term than owning a stock market index or mutual fund from Wall Street? Are you ready to act — because the time to act is now, while you have a jackpot of cash in the market to pull from.
But how do we do this? Where do we look? What kinds of investments overseas make sense? These are the hard questions, but one that you, as a serious student of history, probably already knows the answer to.
Smart, forward looking investors will put themselves in the path of progress in the same way that Levi Strauss did building hardware stores to serve the gold miners. Old Levi ran a boring business of selling shovels, boots and jeans. Boring, but exceptionally profitable. He served the needs of consumers and he got there first. You can too.
You may be already tuned into the incredible opportunities outside the North America. If so, then you are already ahead of the curve. If not, the demographics of U.S. and Canadian expats moving overseas is something you should examine closely.
Consider this: 11.6% of U.S. citizens have considered property ownership overseas and 45% of Canadians plan to spend a month or more outside Canada when they retire. Email me and get the data that Zogby and TD Waterhouse compiled. They took a hard look at the facts and made it easy for you to do so too.
Some folks know that owning a home or condo outside the U.S. will provide you a wonderful lifestyle. Maybe that’s you too or maybe it’s not. But do you see how you can be a landlord to the millions of visitors coming south for a vacation or the annual snowbird experience. You can own a rental property and earn a diversified cash flow. You can be in front of the masses of gold miners with picks, shovels and jeans.
Or better yet, accredited investors can actually own part of a business that serves these arriving consumers. It’s like Levi is selling stock in his company and you can buy some in 1850. Our company, ECI Development is already serving these retiring Baby Boomers. If you are an accredited investor and would like to learn about you can participate and be a part of our company, be in touch. We’ll send you more information about investing in the company. Request ECI Materials.
The megatrend of Baby Boomer retirement south of the border is already happening. Jump in. Look at the facts. Do some research. See if the risk and perception of risk are aligned. Perhaps there’s a nice perception gap there for you to profit from. Three ideas you should consider: Because I absolutely believe in my company and my products, here are three things that might make sense with some of the money that you take off the table. They offer international asset class diversification into hard assets. 1. Own a cash-flow condo in Belize Grand Baymen or Nicaragua Gran Pacifica. Enjoy the ocean front views a few weeks a year on vacation and then rent it out to divers or surfers who are looking for the pristine reef, best waves and some golf in the down time. ECI is keeping a third of these for its own inventory and cash-flow. We believe the story we tell and have our money where our mouth is.
2. In 1999, I planted 100 acres of Teak in Panama for my family’s generational wealth stewardship planning. Now I learn that over 10% of Harvard’s endowment is in Timber making this investment seem even wiser in hindsight. Baby Teak is being planted every year now at Gran Pacifica that you can own for your kids, grandkids and generations beyond. Own timber as the ultimate long-term asset class.
3. For accredited investors only, own alongside me, a pre-IPO stock with over 4,000 acres along five miles of beachfront in Belize, Nicaragua, Costa Rica and Panama. Homes, condos, hotel, clubhouses, restaurants, golf course, and services are in place today. Request a short video taken at a Stansberry Conference a few years ago highlights who we are and why you might want to take a deeper look.
Unlike most folks who find it hard to diversify internationally, I struggle to keep the right part of my wealth in the U.S. The lion’s share of my assets are international hard assets and invested in companies with a huge asset base and strong balance sheet. I’m just funny that way.
If you want to diversify internationally with some of your assets and own tangible items of real and lasting worth, reach out. Right now, is a great time to take some profits with the markets at all-time highs. Be in touch and see if there’s something in our product offering that’s right for you, be in touch. |
