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You give your tithe as a spiritual duty, the same way you breathe. When you give without looking for results, you are giving openly. That giving is rewarded secretly. That secret rewarding may come as a flash of insight into the heart of God.
— John-Roger, DSS

Saturday, August 29, 2009

Are there any adults in the room?

In past posts I have explored the idea of "getting ready." There is the game the world plays. It is a difficult game to win because inherent within it is the compromising of values and dishonesty, and we are certainly seeing more and more of that everyday.

And what is it to win at the world's game anyway? The world is run by a negative power that is a master at the game.

So we must play a different game and follow another master, hence this blog outlining the spiritual principles of abundance and prosperity which require one essential step--connecting to the divine. Not through words but through action. It is a winnable game because it is not a worldly game. It is a game of consciousness.

If I would name the game I would call it, "Can You Let Go?"

The below is one of the best articles on the economy I have read in a long time. It is non-technical and clear and free of invective. PLease take the time to read it. I have reproduced it in full. It is by John Maudlin.

An Uncomfortable Choice

As our family grew, we limited the choices our seven kids could make; but as they grew into teenagers, they were given more leeway. Not all of their choices were good. How many times did Dad say, "What were you thinking?" and get a mute reply or a mumbled "I don't know."

Yet how else do you teach them that bad choices have bad consequences? You can lecture, you can be a role model; but in the end you have to let them make their own choices. And a lot of them make a lot of bad choices. After having raised six, with one more teenage son at home, I have come to the conclusion that you just breathe a sigh of relief if they grow up and have avoided fatal, life-altering choices. I am lucky. So far. Knock on a lot of wood.

I have watched good kids from good families make bad choices, and kids with no seeming chance make good choices. But one thing I have observed. Very few teenagers make the hard choice without some outside encouragement or help in understanding the known consequences, from some source. They nearly always opt for the choice that involves the most fun and/or the least immediate pain, and then learn later that they now have to make yet another choice as a consequence of the original one. And thus they grow up. So quickly.

But it's not just teenagers. I am completely capable of making very bad choices as I approach the end of my sixth decade of human experiences and observations. In fact, I have made some rather distressing choices over time. Even in areas where I think I have some expertise I can make appallingly bad choices. Or maybe particularly in those areas, because I have delusions of actually knowing something. In my experience, it takes an expert with a powerful computer to truly foul things up.

Of course, sometimes I get it right. Even I learn, with enough pain. And sometimes I just get lucky. (Although, as my less-than-sainted Dad repeatedly intoned, "The harder I work the luckier I get.")

Each morning is a new day, but it is a new day impacted by all the choices of the previous days and years. Tiffani and I have literally interviewed in depth well over a hundred millionaires, and talked anecdotally with hundreds over the years. I am struck by how their lives, and those of their families, come down to a few choices. Sometimes good choices and sometimes lucky choices. Often, difficult ones. But very few were the easy choice.
What Were We Thinking?

As a culture, the current mix of generations, especially in the US, has made some choices. Choices which, in hindsight, leave the adult in us asking, "What were we thinking?"

In a way, we were like teenagers. We made the easy choice, not thinking of the consequences. We never absorbed the lessons of the Depression from our grandparents. We quickly forgot the sobering malaise of the '70s as the bull market of the '80s and '90s gave us the illusion of wealth and an easy future. Even the crash of Black Friday seemed a mere bump on the path to success, passing so quickly. And as interest rates came down and money became easier, our propensity to acquire things took over.

And then something really bad happened. Our homes started to rise in value and we learned through new methods of financial engineering that we could borrow against what seemed like their ever-rising value, to finance consumption today.

We became Blimpie from the Popeye cartoons of our youth: "I will gladly repay you Tuesday for a hamburger today."

Not for us the lay-away programs of our parents, patiently paying something each week or month until the desired object could be taken home. Come to think of it, I am not sure if my kids (15 through 32) have ever even heard of a lay-away program, not with credit cards so easy to obtain. Next family brunch, I will explain this quaint concept.

(Interestingly, I heard about a revival of the concept on CNBC radio, coming back from dropping Trey off at school this morning. Everything old is new again.)

As a banking system, we made choices. We created all sorts of readily available credit, and packaged it in convenient, irresistible AAA-rated securities and sold them to a gullible world. We created liar loans, no-money-down loans, and no-documentation loans and expected them to act the same way that mortgages had in the past. What were the rating agencies thinking? Where were the adults supervising the sand box?

(Oh, wait a minute. That's the same group of regulators who now want more power and money.)

It is not as if all this was done in some back alley by seedy-looking characters. This was done on TV and in books and advertisements. I remember the first time I saw an ad telling me to call this number to borrow up to 125% of the value of my home, and wondering how this could be a good idea.

Turns out it can be a great idea for the salesmen, if they can package those loans into securities and sell them to foreigners, with everyone making large commissions on the way. The choice was to make a lot of money with no downside consequences to yourself. What teenager could say no?

Greenspan keeping rates low aided and abetted that process. Starting two wars and pushing through a massive health-care package, along with no spending control from the Republican Party, ran up the fiscal deficits.

Allowing credit default swaps to trade without an exchange or regulations. A culture that viscerally believed that the McMansions they were buying were an investment and not really debt. Yes, we were adolescents at the party to end all parties.

Not to mention an investment industry that tells their clients that stocks earn 8% a year real returns (the report I mentioned at the beginning goes into detail about this). Even as stocks have gone nowhere for ten years, we largely believe (or at least hope) that the latest trend is just the beginning of the next bull market.

It was not that there were no warnings. There were many, including from your humble analyst, who wrote about the coming train wreck that we are now trying to clean up. But those warnings were ignored.

Actually, ignored is a nice way to put it. Derision. Scorn. Laughter. And worse, dismissal as a non-serious perpetual perma-bear. My corner of the investment-writing world takes a very thick skin.

The good times had lasted so long, how could the trend not be correct? It is human nature to believe the current trend, especially a favorable one that helps us, will continue forever.

And just like a teenager who doesn't think about the consequences of the current fun, we paid no attention. We hadn't experienced the hard lessons of our elders, who learned them in the depths of the Depression. This time it was different. We were smarter and wouldn't make those mistakes. Didn't we have the research of Bernanke and others, telling us what to avoid?

In millions of different ways, we all partied on. It wasn't exclusively a liberal or a conservative, a rich or apoor, a male or a female addiction. We all borrowed and spent. We did it as individuals, and we did it as cities and states and countries.

We ran up unfunded pension deficits at many local and state funds, to the tune of several trillion dollars and rising. We have a massive, tens of trillions of dollars, bill coming due for Social Security and Medicare, starting in the next 5-7 years, that makes the current crisis pale in comparison. We now seemingly want to add to this by passing even more spending programs that will only make the hole deeper.

Frugality is the New Normal

I could go on and on, but I think you get the point. The time for good choices was a decade ago. It would have been more difficult at the time, so that is not what we did. And now we wake up and are faced with a set of choices, none of them good.

Reality is staring back in the mirror at the American consumer, and especially the Boomer generation. The psyche of the American consumer has been permanently seared. We are watching savings beginning to rise and consumer spending patterns change for the first time in generations. Even as the authorities try to prod consumers back into old habits, they are not responding. Borrowing and credit are actually falling. Banks, for whatever reason, now want borrowers to actually be able to pay them back. Go figure.

Frugality is the new normal. We are resetting the underpinnings of a consumer-driven society to a new level. It will require a major overhaul of our economy. The normal drivers of growth - consumer spending, business investment, and exports - are all weak, and it is only because of massive government spending that the second quarter was not as bad as the two previous quarters and that the coming quarter will be positive.

But what then? How long can we continue with 10%-plus GDP deficits? We have an economy that is in a Statistical Recovery, fueled by government largesse. In the real world, we are watching unemployment rise, and it is likely to do so through the middle of next year. Deflation is in the air. Capacity utilization is near all-time lows. Housing numbers are only bouncing because of the government program of large tax credits for first-time home buyers and lower home prices. It will be years before construction is significant.

We will be faced with a choice this fall and early next year. If you take away the government spending, the potential for falling back into a recession is quite high, given the underlying weakness in the economy. A few hundred billion for increased and extended unemployment benefits will not be enough to stem the tide. There will be a groundswell for yet another stimulus package. Another 10% of GDP deficit is quite likely for next year.

As I (and Woody Brock) have made very clear in these e-letters, deficits that are higher than nominal GDP cannot continue without dire consequences. Good friend Richard Russell writes today:

"The US national debt is now over $11 trillion dollars. The interest on our national debt is now $340 billion. This is about at 3.04% rate of interest. In ten years the Obama administration admits that they will add $9 trillion to the national debt. That would take it to $20 trillion. Let's say that by some miracle the interest on the national debt in 10 years will still be 3.09%. That would mean that the interest on the national debt would be $618 billion a year or over one billion a day. No nation can hold up in the face of those kinds of expenses. Either the dollar would collapse or interest rates would go through the roof."

That would be at least 30% of the national budget. How would your household do, paying that much as interest? How can you operate when interest payments are 30% or more of the budget? Do you borrow to pay the interest? And the Obama administration openly admits to deficits of over a trillion a year for the next ten years, under very rosy growth assumptions. Anyone outside of Washington and rosy-eyed economists think we will grow 4% next year? I am not seeing many hands go up.

And Then We Face the Real Problem

If we do not maintain high deficits, it is likely we fall back into recession. Yet if we do not control spending, we risk running up a debt that becomes very difficult to finance by conventional means. Monetizing the debt can only work for a few trillion here or there. At some point, the bond market will simply fall apart. And it could happen quickly. Think back to how fast things fell apart in the summer of 2007. When perception of the potential for inflation changes, it changes things fast.

The problem is that we are now in a very deflationary world. Deleveraging, too much capacity, high and rising unemployment, falling real incomes, and more are all the classic pieces of the formula for deflation.

Let's look at what my friend Nouriel Roubini recently wrote. I think he hit the nail on the head:

"A combination of higher official indebtedness and monetization has the potential to yield the worst of all worlds, pushing up long-term rates and generating increased inflation expectations before a convincing return to growth takes hold. An early return to higher long-term rates will crowd out private demand, as lending rates on mortgages and personal and corporate loans rise too. It is unlikely that actual inflation will emerge this year or even next, but inflation expectations as reflected in long-term interest rates could well be rising later in 2010. This would represent a serious threat to economic recovery, which is predicated on the idea that the actual borrowing rates that individuals and businesses pay will remain low for an extended period.

"Yet the alternative - the early withdrawal of the stimulus drug that governments have been dispensing so freely - is even more serious. The present administration believes that deflation is a worse threat than inflation. They are right to think that. Trying to rebuild public finances at a deflationary moment - a time when unemployment is rising, and private demand is still contracting - could be catastrophic, turning recovery into renewed recession."

There are no good choices. Nouriel, optimist that he is (note sarcasm), suggests that there is a possibility that the government can manage expectations by showing a clear path to fiscal responsibility that can be believed. And thus the bond markets do not force rates higher, thereby thwarting recovery.

And technically he is right. If there were adults supervising the party, it might be possible. But there are not. The teenagers are in control. Instead of fiscal discipline, we are hearing increased demands for more spending. Please note that the very rosy future-deficit assumptions assume the end of the Bush tax cuts at the close of 2010. But raising taxes back to the level of 2000 does not make the projected future budget deficits go away.

I mean, seriously, does anyone think Pelosi or Reid are going to lead us to fiscal constraint? Obama talks a good game, but he has not offered a serious deficit-reduction proposal, other than further tax increases. And by serious, I mean we need cuts on the order of several hundred billion dollars. The Republicans lost their way and their power (deservedly, in my opinion). Just as at the high school prom, the very few adults are being ignored.

It is the proverbial rock and the hard place. Cut the stimulus too soon and we slide back into a deeper recession. Let the budget spin out of control for a few years and we will see inflation return, with higher rates and a recession. Raise taxes by 1.5-2% of GDP in 2010 and we are shoved back into recession.

There are no good choices. If we do the right thing and cut the deficit, it means very hard choices. Can we keep our commitments to two wars and our massive defense budget? Medicare and Social Security reform are not painless. Education? Research? The "stimulus"? But cutting the deficit by hundreds of billions while raising taxes by even more than is already in the works, is not the formula for sustainable recovery.

Have we grown up? Are there adults in the room? Sadly, I don't think there are enough. We are still a nation of teenagers. We will do whatever we can to avoid the pain today. We will kick the can down the road, hoping for a miracle. Will we grow up? Yes, but the lessons learned will be hard.

There are no statistical signs of an impending recession. We are not going to get an inverted yield curve this time, which made it relatively easy for me to predict recessions in 2000 and 2006. We are in a deflationary, deleveraging world. A far different world than in the past.

I see little room for us to avoid a double-dip recession. It would take the skill and speed of former Cowboys running back Tony Dorsett hitting a very small hole in the line to break us into the open. I see no running back in our national leadership with such ability. As I have outlined above, recession could be triggered again in any number of very different economic environments. It all depends on the choices we make. But the choices lead to the same consequences, at least in my opinion.

As I wrote in August 2000 and August 2006, I write again in August 2009: there is a recession in our future. I was early both of those times and I am early now, maybe two years early, though I doubt it. And as I pointed out both of those last times, the stock market drops an average of over 40% during a recession. When I was on Kudlow in October of 2006, I was given a hard time about my recession call and prediction of a bear market. I think it was John Rutherford who dismissed my bearish vision. And he was right for the next three quarters, as the market proceeded to rise another 20%. I looked foolish to many, but I maintained my views.

You have choices. You can buy and hold (buy and hope?) or you can develop a strategic alternative. The next bear market, as I wrote in 2003 and in Bull's Eye Investing, will likely be the bottom. (It takes at least three of them to really take us to the bottom.) But the next one will change perceptions for a long time. Valuations will drop. Savings will rise even more. And a generation will grow up. The adults will return. Chastened. Scarred. Shaken. But we will Muddle Through. That is what we do. Even my teenagers.

Choose wisely.

John Mauldin, Best-Selling author and recognized financial expert, is also editor of the free Thoughts From the Frontline that goes to over 1 million readers each week. For more information on John or his FREE weekly economic letter go to:

http://www.frontlinethoughts.com/learnmore

Posted by Paul Kaye at 3:58 PM
Keywords: Getting Ready, Letting Go, The Economy, Values
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Wednesday, August 26, 2009

Go Revisited

In past posts I have spoken extensively about the Game of Go. Chess is about win/lose and is mostly tactics. Go is more about a longer range strategic approach, in which even the loser usually ends up with some territory. Chess is primarily played in the West. Go in the East.

This interesting article by Ambrose Evans-Pritchard highlights what I was attempting to convey:

Beijing is drawing up plans to prohibit or restrict exports of rare earth metals that are produced only in China and play a vital role in cutting edge technology, from hybrid cars and catalytic converters, to superconductors, and precision-guided weapons.

A draft report by China’s Ministry of Industry and Information Technology has called for a total ban on foreign shipments of terbium, dysprosium, yttrium, thulium, and lutetium. Other metals such as neodymium, europium, cerium, and lanthanum will be restricted to a combined export quota of 35,000 tonnes a year, far below global needs.

China mines over 95pc of the world’s rare earth minerals, mostly in Inner Mongolia. The move to hoard reserves is the clearest sign to date that the global struggle for diminishing resources is shifting into a new phase. Countries may find it hard to obtain key materials at any price.

Alistair Stephens, from Australia’s rare metals group Arafura, said his contacts in China had been shown a copy of the draft -- `Rare Earths Industry Development Plan 2009-2015’. Any decision will be made by China’s State Council.

“This isn’t about the China holding the world to ransom. They are saying we need these resources to develop our own economy and achieve energy efficiency, so go find your own supplies”, he said.

Mr Stephens said China had put global competitors out of business in the early 1990s by flooding the market, leading to the closure of the biggest US rare earth mine at Mountain Pass in California - now being revived by Molycorp Minerals.

New technologies have since increased the value and strategic importance of these metals, but it will take years for fresh supply to come on stream from deposits in Australia, North America, and South Africa. The rare earth family are hard to find, and harder to extract.

Mr Stephens said Arafura’s project in Western Australia produces terbium, which sells for $800,000 a tonne. It is a key ingredient in low-energy light-bulbs. China needs all the terbium it produces as the country switches wholesale from tungsten bulbs to the latest low-wattage bulbs that cut power costs by 40pc.

No replacement has been found for neodymium that enhances the power of magnets at high heat and is crucial for hard- disk drives, wind turbines, and the electric motors of hybrid cars. Each Toyota Prius uses 25 pounds of rare earth elements. Cerium and lanthanum are used in catalytic converters for diesel engines. Europium is used in lasers.

Blackberries, iPods, mobile phones, plams TVs, navigation systems, and air defence missiles all use a sprinkling of rare earth metals. They are used to filter viruses and bacteria from water, and cleaning up Sarin gas and VX nerve agents.

Arafura, Mountain Pass, and Lynas Corp in Australia, will be able to produce some 50,000 tonnes of rare earth metals by the mid-decade but that is not enough to meet surging world demand.
New uses are emerging all the time, and some promise quantum leaps in efficiency. The Tokyo Institute of Technology has made a breakthrough in superconductivity using rare earth metals that lower the friction on power lines and could slash electricity leakage.

The Japanese government has drawn up a “Strategy for Ensuring Stable Supplies of Rare Metals”. It calls for `stockpiling’ and plans for “securing overseas resources’. The West has yet to stir.

Posted by Paul Kaye at 7:34 PM
Keywords: Getting Ready, The Economy, The World
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Friday, July 31, 2009

An Extraordinary Story

I am always fascinated by people who live outwardly very simple lives and yet die with extraordinary amounts of money. Of course some of them are just plain crazy, but other seem to have transcended the need for materiality. This, via NPR and DailyGood.org is one such story:

July 27, 2009

Every day on NPR, listeners hear funding credits — or, in other words, very short, simple commercials.

A few weeks ago, a new one made it to air:

"Support for NPR comes from the estate of Richard Leroy Walters, whose life was enriched by NPR, and whose bequest seeks to encourage others to discover public radio."

NPR's Robert Siegel wondered who Walters was. So Siegel Googled him.

An article in the online newsletter of a Catholic mission in Phoenix revealed that Walters died two years ago at the age of 76. He left an estate worth about $4 million. Along with the money he left for NPR, Walters also left money for the mission.

But something distinguished Walters from any number of solvent, well-to-do Americans with seven-figure estates: He was homeless.

Walters was a retired engineer from AlliedSignal Corp.; an honors graduate of Purdue with a master's degree; and a Marine. Walters never married, didn't have children and was estranged from his brother. But he wasn't friendless.

Rita Belle, a registered nurse, met Walters at a senior center 13 years ago.

"He always came in with a little backpack on and a cap on," Belle tells Siegel. "And always kind of looked at me, but [was] very reserved. And I'm very outgoing and outspoken. So I said to him, 'Hey, you got a minute can we sit down to visit?' And we'd have coffee there at the senior center."

Belle and Walters became friends. Belle stayed with Walters when he was ill. She became his nurse and ultimately the executor of his estate — as well as one of the beneficiaries — despite fundamental differences between them.

"He was an atheist and I'm a very profound practicing Catholic, and I'd never met an atheist," Belle says. "And that just blew my mind that somebody could not believe in the Lord."

Belle volunteers at the mission in Phoenix, which like NPR and several other nonprofits got about $400,000 from Walters.

Belle knew him as a very well-informed man who could fix her air conditioning — someone she just assumed had a place to live. Then he told her that he had no home. She heard that he slept on the grounds of the senior center. He told her he ate at the hospital and used a telephone there or at the center.

"And I'm sure that's when he was making his trades and so on," Belle says. "He was involved in investing; we talked investments a lot." Belle says Walters even did his own income taxes.

When Walters retired, he evidently retired from the world of material comforts. He didn't have a car.

"He just gave up all of the material things that we think we have to have," Belle says. "You know, I don't know how we gauge happiness. What's happy for you might not be happy for me. I never heard him complain."

Evidently, among his few possessions was a radio. Hence those announcements listeners hear now and again on NPR stations.

Posted by Paul Kaye at 1:52 PM
Keywords: Abundance, Letting Go, Security
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Thursday, July 30, 2009

Yes, A Debt-Free City Exists!

Thanks to dailygood.org an extraordinary video of a ten time mayor of a debt-free city in Canada with $700 million in reserves and an approval rating of 92%. And best of all, and the reason to see this, is that she is 88 years-old.

Scroll Down past Tags on right hand side.








































































Posted by Paul Kaye at 11:06 AM
Keywords: 
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Monday, July 27, 2009

Boomer Factoids

From a Business Week article "The Incredible Shrinking Boomer Economy" (from a McKinsey study):

The rising savings rates in the boomer population will drain $400 billion out of consumer spending for the foreseeable future.

The boomer's were such an integral part of the spending culture that the group (79 million) accounted for 47% of national spending before the credit and real estate bubble burst, yet was responsible for just 7% of national savings.

The boomers were responsible for 78% of the spending growth in the economy from 1995 to 2005.

The peak year for spending in the boomer community was 54; whereas for the generation ahead of them (a thriftier bunch), the peak year was 47.

The share of boomers aged 54 to 63 who say they are "financially unprepared for retirement" comes to 69%.



Add to the above that interest rates and minimum payments on credit cards have risen and you can see that the life is being sucked out of one of the major drivers of consumerism. And it has been consumer that has driven the U.S. economy in the past.

As I have been saying for a while in MSIA parlance, it is going to get "interesting." This weekend I will do a longer post on why this all shouldn't matter to us.

Posted by Paul Kaye at 4:44 PM
Keywords: The Economy
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Friday, July 24, 2009

Happiness

Thanks to Nancy for pointing out this great article by Pico Iyer on the Dalai Lama.

My favorite part:

Think in terms of enemies, he suggests, and the only loser is yourself.

Concentrate on external wealth, he said at Town Hall, and at some point you realize it has limits — and you’re still feeling discontented. Take his word as law, he constantly implies, and you’re doing him — as well as yourself — a disservice, as you do when assuming that any physician is infallible, or can protect his patients from death in the end.

None of these are Buddhist laws as such — though in his case they arise from Buddhist teaching — any more than the law of universal gravitation is Christian, just because it happened to be formulated by Isaac Newton (who said, “God created everything by number, weight and measure”). I’ve been spending time for 18 years in a Benedictine monastery, and the monks I know there have likewise found out how to be delighted by the smallest birthday cake. Happiness is not pleasure, they know, and unhappiness, as the Buddhists say, is not the same as suffering. Suffering — in the sense of old age, sickness and death — is the law of life; unhappiness is just the position we choose — or can not choose — to bring to it.

Posted by Paul Kaye at 5:39 PM
Keywords: Happiness, Letting Go
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Tuesday, July 21, 2009

No Such Thing As Multitasking

At last, an article that articulates my thoughts on this matter. It's all about attention.

Excerpt:

In Brain Rules, Medina points out that the brain cannot multitask:

"Multitasking, when it comes to paying attention, is a myth. The brain naturally focuses on concepts sequentially, one at a time. At first that might sound confusing; at one level the brain does multitask. You can walk and talk at the same time. Your brain controls your heartbeat while you read a book. A pianist can play a piece with left hand and right hand simultaneously. Surely this is multitasking. But I am talking about the brain’s ability to pay attention… To put it bluntly, research shows that we can’t multitask. We are biologically incapable of processing attention-rich inputs simultaneously."

If you’ve ever put on a CD to listen to while working, and then noticed with surprise that the music has finished and you can’t remember hearing any of it, you’ll know what Medina is talking about. Because we can only concentrate on one thing at a time, when we try to do multiple tasks that require attention, we end up switching between tasks, not doing them simultaneously.

Business coach Dave Crenshaw, author of the book The Myth of Multitasking, makes the same point:

"When I speak of multitasking as most people understand it, I am not referring to doing something completely mindless and mundane in the background such as exercising while listening to this CD, eating dinner and watching a show, or having the copy machine operate in the background while you answer emails. For clarity’s sake, I call this ‘background tasking’.

When most people refer to multitasking they mean simultaneously performing two or more things that require mental effort and attention. Examples would include saying we’re spending time with family while were researching stocks online, attempting to listen to a CD and answering email at the same time, or pretending to listen to an employee while we are crunching the numbers."

So there’s no such thing as multitasking. Just task switching - or at best, background tasking, in which one activity consumes our attention while we’re mindlessly performing another.

Posted by Paul Kaye at 9:19 AM
Keywords: Art, Attitude, Health, Success
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