The Impending Destruction of the U.S. Economy: Part 2

To recap, here's our problem: Americans spend much, much more than they probably should and rely heavily on debt to fund their purchases. A huge amount of this debt is funded by foreign investors who enjoy the relative stability of American markets. As a result, we have an enormous account deficit -- nearly $800 billion per year.

With this massive account deficit comes a weakening dollar. With a weakening dollar, foreign investors will begin to demand higher interest rates to make their investment in the American economy worth their while. Sounds easy enough! But we have that pesky problem of our current real estate and credit disruptions that could place our economy in a tailspin and, hence, require lower interest rates to bail us out. Who is going to win this battle?

Home Ownership Is Not A Savings Strategy

When you add up interest, insurance, regular maintenance and a couple of costly repairs that are inevitable, a home owner can spend up to three times the purchase price of a house over the life or a mortgage.

Go through the links on that site.

Unbelievable Growth Is Just Beginning

The next boom

The act of paying relatively decent wages for the cost of living has spurred a new phenomenon in many formerly impoverished countries: a middle class. While that may not sound like a big deal to the average American, it is a huge deal for the rest of the world.

Taken as a whole, a solid middle class absolutely dwarfs the spending power of anyone else. While the ultra-rich may have a whole bunch of money, there are only so many of them around. To have a strong local economy, instead of simply an export-driven one, a country needs a solid middle class.

Blogs

Machinist has a good list: Sites I check Daily

The Consumerist: Shoppers Bite Back

Here's a cheap way to replace your cellphone if you lose it while under contract. Just go to Walmart and buy one of their pre-paid cellphones, then call up your provider and ask for them to activate the phone under your account. You'll need the provide the serial number and the ESN of your old phone. Those are found underneath the battery (so it's a good idea to write them down BEFORE you lose your phone).

Your savings can earn upwards of 4 more percentage points of interest, if you put it one of these high-yield online savings accounts. Here's seven to check out.

How does Frank Abagnale, an infamous check forger in the 60's, protect himself from modern day identity thieves?

With energy costs seeming to go nowhere but up and a growing "green" movement, you gotta love tips that save energy and money. Yahoo Finance has a list of seven eco-friendly ways to cut energy costs. Following even just a few of these can save you big bucks.

Consumerist's 10 Commandments of Credit

Barbarians at the Gate: The Fall of RJR Nabisco (Paperback)

Burroughs and Helyar tell the story of the leveraged buyout of RJR Nabisco in gripping fashion, showing how greed and shortsightedness contributed to the biggest and worst-managed corporate takeover in history. The players: Salesman F. Ross Johnson of RJR vs. Henry Kravitz of KKR. Everything from a wild, rip-roaring potboiler novel is here: Secret deals, stock market manipulation, flouting of laws, surprise plot twists. All of it almost unbelievable, but all of it true.

The next time you wonder about how people could have been taken in by internet companies with insane stock prices who blew through venture capital as if it were funny money, read this book. It's well worth your time, effort, and energy.

KKR's 399 workers generated net income last year of $2.7 million per employee, compared with the $2.9 million average by Blackstone's 770 workers, according to SEC filings. Their profits per employee dwarf those of investment banks. New York-based Goldman Sachs Group Inc., the most profitable securities firm, earned $360,336 per employee in 2006.

Small Cap Investing: 70 Times Better Than the Next Microsoft

Is 78 years a relevant investment period? Sure. It's just slightly longer than an average American life span. So the difference between small-cap value and small-cap growth over a lifetime has been a multiple of more than 70 times the end result. That's right: 70 times.

There are literally thousands of companies in that small-cap value quadrant that you should be concentrating on, none of which can possibly be described as "the next Microsoft." They might not carry the wallop of a potential Microsoft over the short term, but over many decades, and taken as a group ... wow.

What Happens When the Boom Goes Bust?

According to the National Association of Home Builders, the average price for a new home in 1980 was $76,400. By 2005, it had climbed to $295,100.

That's incredible! $218,700 in caaash ...
Before you get too excited thinking about investing in real estate and flipping houses, ponder this: Over a 25-year period, that $218,700 gain comes out to a 5.6% annualized return.

Think about that. If your stock investments had grown at just 5.6% annually over the past 25 years, you'd be kicking yourself. And with good reason -- during that time, the S&P 500 earned 10.3% annually -- almost double the average gains in housing. Ford (NYSE: F) (12.3%) would have more than doubled the average house's return, while McDonald's (NYSE: MCD) (16.2%) would have nearly tripled it, and Wal-Mart (NYSE: WMT) (27.3%) would have more than quadrupled it. Even AMR (NYSE: AMR), which operates in the cutthroat and sometimes struggling airline industry, churned out a 10.1% annualized gain from 1980 to 2005.

The best investment advice you'll never get

Solli took one look at my unkempt collection of mut­ual funds and said, “You’re being robbed here.” He pointed to funds I had purchased from or through Putnam, Merrill Lynch, Dreyfus, and—yes—Charles Schwab (which referred me to Aperio) and asked, “Do you know that you’re paying these guys to do essentially nothing?” He carefully explained the many ingenious ways fund managers, brokers, and advisers had found to chip away at investors’ returns. Turns out that I, like more than 90 million other suckers who have put close to $9 trillion into mutual funds, was paying annual fees, commissions, and transaction costs well in excess of 2 percent a year on most of my mutual funds (see “What Are the Fees?” page 75). “Do you know what that adds up to?” Solli asked. “At the end of every 36 years, you will only have made half of what you could have, through no fault of your own. And these are fees you needn’t pay, and won’t, if you switch to index funds.”

If Solli is an industry gadfly, Geddes, a modest, unassuming son of a United Church of Christ minister, is its chainsaw massacrer. “We work in the most overcompensated industry in the country,” Geddes admitted before the water was served, “and indexing threatens the revenue flow from managed funds to brokerage houses. That’s why you’ve been kept in the dark about it. This truly is the great secret shame of our business.