I don't know shit, but Skyped with a friend who is self-made and smart. Can you read the transcript?

[Bonobo]

Can you read the transcript and tell me if you think the guy is on the level, full of shit or what?

I appreciate ANY comments you might have, any insights since I am a little lost sheep in all this and just want to protect what I have and let it grown marginally.

Here is the conversation. Maybe it will be enlightening for some of you or maybe you will tell me why I should avoid him like the plague... I have no idea at this point and am looking for the insight of others.


Me: Are you there?
Friend: Yes, but just about to fly out...
Me: Well it is something better dealt with in an email, but basically...
Me: I have some money from sale of my house and recent death of my mom :(
Me: I am concerned about investments in America and...
Friend: Sorry to hear of it.
Friend: hmmm...
Me: I only know an investment guy in America.
Me: He is so bullish about the American economy.
Me: So optimistic.
Me: I am less so and tend to be conservative.
Me: I was wondering if you knew anyone...
Friend: Don't trust that. He doesn't know why he thinks the way he thinks.
Me: I think he depends on the past.
Friend: He's probably taking instructions from others.
Me: I think it is bad times coming.
Me: Ah.
Friend: Guidance...
Me: So can you offer me some?
Friend: Most people will be fooled by the past.
Friend: Most people are expecting a cyclical recovery.
Friend: This time there won't be one.
Friend: A cyclical recovery is a fiscal phenom.
Friend: The US doesn't have a fiscal problem.
Friend: The US has a final demand problem.
Friend: Investment guys don't have a clue what final demand is.
Friend: Final Demand
Friend: Capitalized.
Me: Neither do I
Friend: Capacity of a market to consume manufactured goods and services.
Friend: THE ECONOMY...
Me: IN other words, no middle class = no fianl demand?
Friend: 85% or more of the US GDP is transactions related to household consumption of goods and services or the transactions that lead to consumer consumption.
Friend: The number of consumer households in the USA is declining and it will continue to decline for another 12 years.
Friend: Every year, there will be FEWER households purchasing goods and services.
Me: Because of no jobs, no middle class? No saving, etc?
Friend: It doesn't matter HOW MUCH goods and services any one household consumes, the fact that there are going to be fewer households means that GDP is going down.
Friend: No, that's all a lie.
Me: I see.
Friend: That's the world pulled over people's eyes to keep them ignorant.
Friend: It's in the population charts.
Friend: It's a demographic reality.
Me: Ah, ageing boomers.
Me: So what does one do?
Friend: There are fewer people so that are going to be fewer households.
Me: How to protect money?
Friend: Not baby boomers. There's no such thing. That's also a lie.
Friend: There was a HUGE baby dearth starting in the USA from 1960.
Friend: Dearth...
Friend: The absence of...
Friend: From 1960 the average household when from producing 5 children to about 2.5 children in less than 5 years time.
Friend: By 1965, the average US household was producing only 2.5 babies.
Me: Ah...
Me: So what is the answer?
Friend: The net effect of that baby dearth is coming home to roost - economically speaking....
Friend: To what?
Me: Can you introduce me to someone who can handle my money wisely?
Friend: There is always a way to make money.
Friend: Nope. I don't know anyone like that.
Me: So what do I do with my liquid assets?
Friend: Ah,
Friend: What do you hope to acheive?
Me: Kids education and retirement.
Me: A hedge against bad times.
Friend: I think NOT LOSING THEM, would be your highest priority.
Friend: should be your...
Me: I don't have that much, but more than ever. About $300,000
Me: Yes of course, not losing them.
Friend: My father asked me a few years ago about the same question.
Me: So I stuff them in gold under a mattress?
Friend: He said, Guy, I want to make 5% a year from my $500,000 retirement money. How can I do that?
Me: That's about how I feel.
Friend: I said, before tax, or after tax?
Me: Almost exactly.
Friend: He said, well, after tax I suppose if fine.
Me: Same here, I guess?
Friend: 5% after tax in US dollars is doable.
Friend: The trick is not to put your capital at risk.
Me: So bonds?
Me: Portfolio insurance?
Friend: No, that's where people are going to lose a lot. That's where he was before and thinking that he was safe, until the bonds collapsed - including the GE bonds he had.
Friend: The interest payments were fine, but the underlying bond resale values collapsed.
Me: I see.
Me: So where does that leave me/him?
Friend: If you don't need access to the pincipal, and you don't mind watching the value of your account drop 20 percent or so, bonds are fine.
Me: No, that is not ok for me.
Friend: The resale value of the bonds he held dropped 20%. So, even though he was getting his 7% annual dividends, the amount of money he could get back if he sold the bonds fell much more than the aggregate dividends he had recieved.
Me: I see.
Friend: Got it?
Me: Yup.
Friend: GE.
Friend: Gold bond, right?
Friend: BS
Me: Got it.
Me: So where does that leave things?
Friend: He doesn't have much patience to understand what he is doing. But he is my father and I don't want to think about him running out of money. So I helped him.
Friend: He has some other income from Social Security. Unlike you and me, his generation is able to take that money out each month.
Me: Yeah, Social Security is looking like it is in the gunsights in America.
Friend: His social security plus 25,000 per year are more than enough for his needs. Plus his 500,000 principal is doing fine.
Friend: The market is down, how much from the recent peak? Hold on, let me look....
Me: OK. Sure.
Friend: About 12% right now. It was down 16% last week. There's been a bump up.
Friend: It is about to peak again and then start moving down. I'd bet on that.
Friend: Do you short stocks?
Friend: That's one way to make money in down markets, but you gotta watch it everyday.
Me: I don't do anything with stocks, Guy. I really had no money before.
Friend: It's not for everyone...
Me: We just got a little from my mom's death and we sold our house in America.
Friend: Short funds get paid to stay short, so they won't work for you.
: So now we have this $300,000 or so if we live rent-free on this rock.
Friend: You won't qualify for any hedge funds, so that won't work...
Friend: You in Japan?
Me: Yeah, a small island off Himeji.
Friend: Hmmmm....
Me: It is called Ieshima.
Me: No traffic lights or convenience stores.
Friend: Where is the US$ money now?
Friend: Super...
Friend: Where is the US money now?
Me: In banks mostly.
Me: But all liquid. Or soon anyway.
Friend: Sure, it's in banks.
Friend: Where are the banks.
Friend: In the USA?
Me: Umm, yeah.
Me: I can't bring to Japan now with this conversion rate! Can I?
Friend: Do they have multi-currency accounts at any of your banks?
Me: Nope, I don't think so.
Me: But I could always switch banks.
Friend: I expect the yen to go to 60 or 55.
Me: Now fucking way!
Me: OMG
Friend: I found it hard. I think that you will find it even harder.
Me: US trying to jumpstart manufacturing?
Friend: My US banks can only deal with dollars. They are so myopic.
Me: Hard to do what?
Me: Find a multi-currency bank?
Friend: Hard to find a US bank that will keep your money in any currency other than dollars.
Me: I don't even know what it means.
Me: Do they lock it in at a certain conversion rate?
Friend: I have a bank in Hong Kong. They are used to that.
Friend: Well,
Me: At the rate when you start for example?
Me: I used to be in HSBC. That's the Hong Kong one, right?
Friend: I keep money in Australian dollars, Japanese Yen and US dollars.
Me: So this is a measure to protect what you have in case any one currency takes a dive, right?
Me: But what about getting 5%?
Friend: Each account pays a different rate of interest based on the market.
Friend: I have currency risks for fluctuations.
Friend: If the yen goes up, my yen is worth more dollars, etc.
Friend: But yen savings pay ZERO interest. Haven't paid any interest in 15 years.
Friend: I've kept most of my savings in yen even though there is no interest.
Friend: During that time, the cost of living in Japan has fallen about 25%
Friend: The US dollar has lost about, just a sec.
Friend: 38%
Friend: So in dollars, I've made 38% just sitting on yen.
Friend: In yen, I've made 25% just sitting on yen.
Friend: But I also invest in new businesses.
Me: But only if you convery it to dollars, right?
Friend: If I need it in dollars, I convert some. If I don't need it, I don't covert it.
Me: I see.
Friend: If I took yen, and put it in dollars to "invest" it, I would have to make a large percentage increase just to offset the currency loss.
Me: SO if you are right about the 60 or 55 JPY, then it still would be an argument to bring that money to Japan now, or even better, put it into a multi-currencly account.
Friend: Wrong again.
Friend: You really are a lost sheep.
Me: I am nothing but wrong.
Me: I am!!!!
Friend: You got a good heart...
Me: Baah, bahh ("help me".
Friend: :D
Me: Baah, baah.
Me: So what does a little lost sheep do?
Friend: You won't make any money sitting on yen. I don't. It's a total defence strategy to protect assets. Not an "investment" strategy....
Me: At least I am a sheep who knows he is lost.
: I figure that puts me in the top 10% of Americans.
Friend: Top 2%
Me: :)
Friend: There is a stock in the USA that I put my father onto.
Friend: He put all of his money into that one stock.
Friend: Like I do with my US investment money.
Me: Can you share?
Friend: I have owned it for over ten years.
Me: Baa baa
Friend: It always makes money...
Friend: It pays 7% dividend every year and the dividend always goes up. Like a fucking Swiss clock.
Friend: I told my father about it.
Friend: I wrote specific instructions for how to buy it.
Friend: He went to his Fidelity broker one day...
Me: You’re killing me.
Friend: And told him to dump all his other holdings and buy $500,000 worth of x.
Friend: "x" not X.
Friend: As in I havn't told you yet.
Me: Yeah, I know that.
Friend: Dummy!
Friend: My Dad is a DUMMY.
Friend: But GOD loves drunks and fools.
Me: Huh? (whew)
Me: So this is a zen lesson?
Me: Like a koan?
Friend: Why did I bother to write a page of easy to follow step by step instructions to cost average into the stock?
Friend: Do you know what cost averaging is?
Me: Will the answer make me look stupid?
Friend: No.
Me: Then I answer "no".
Friend: Good.
Friend: It means, to buy a stock in chunks, rather than all at once.
Me: Ah.
Friend: That way, your purchase price will "average" out any ups and downs as you get "fully invested" into it.
Friend: So he was supposed to buy five $100,000 chunks.
Me: Why does it take time to get "fully invested"?
Friend: Traunches they call it.
Friend: If you move all in too quickly, you don't get the best average price.
Me: I see.
Friend: fully invested is when all of your 300,000 is invested.
Me: SO as I buy the stock, it will go up? Because I am buying that much?
Friend: Do a little homework. I've got to go.
Me: OK, I will.
Me: But what about the stock?
Friend: Search the following terms:
cost averaging
Me: Will you tell me it?
Friend: After you study, Grasshopper...
Friend: If you prove yourself worthy...
Me: OK, I will, sensei!
Me: I will write you a fucking paper f you want.
Friend: cost averaging.
Friend: high-dividend stocks
Friend: ex date
Friend: We better start you with "dividends"
Me: I will study the terms.
Friend: Jim Cramer (idiot shill) occaisionally writes some useful material.
Me: I am due to talk to my investoer guy in one week, but he makes me nervous.
: Too red, white and blue for me.
Friend: I saw an article he wrote a few months back about high-dividend stocks. He was wrong on about 80% of them, my pick wasn't even on his list, but I found a couple of new ideas to consider.
Me: I think he is a dupe.
Me: I will learn the terms, seriously.
Me: And then I will come back to you, ok?
Me: I really appreciate your time.
Friend: Tell your "investor guy dude" that you want to park you cash is liquid form. What does he suggest. Send me his suggestions and I'll give you feedback. Send it by email.

[supernova]

1. So to recap

Your friend plays around in the currency markets and short sells. Nothing wrong per see, but it is highly risky and only for expert gamers.

I'm skeptical that he knows of a sure thing stock (7% ) that you should sink your entire 300K into.

[nilram]

2. I think it sounds really smart

If I may paraphrase, "Hedge against economic deflation by keeping some of your money in other currencies." His model of the economy makes sense, and having a hedge in this situation is also sensible. I think ETrade will let you hold in different currencies -- I wonder if you can buy stocks in different currencies through them. In any case, holding some funds in other currencies is a good idea.

"And then buy dividend producing stocks." A friend who has studied the market longer than I will consider only dividend stocks, and no others. It makes sense to buy a stock you think is going to go up and then have it pay you while it does so. Once you have some dividends under your belt, it can even go down and you can still make a profit.

I'm not so keen on your friends idea to hold only the one stock, though. It's not a great idea to put all your eggs in one basket, that's my only negative take. But of course, people who put all their money in Berkshire-Hathaway did very well. I'm curious what stock he's such a strong proponent of (feel free to PM me...:)).

You might check out Mebane Faber's book "The Ivy Portfolio: How to Invest Like the Top Endowments and Avoid Bear Markets." (And he actually has a lot of useful information freely available on the web.) He essentially uses a trend following system, but diversifies it (using EFTs) among asset classes -- US stocks, foreign stocks, bonds, commodities, and real estate. He uses these different assets because historically, they don't rise and fall all at the same time. When one asset is decking (determined by his trend following rules), you move that portion of your portfolio to cash. You aren't constantly trading your account, you might check your account weekly or monthly, but not every day. And to pick up on the economic situation your friend is talking about, you could add a currency EFT to the mix as well.

Good luck with it all.