Some Thoughts on the Economy in 2012 - Still Very Bearish

If you're a successful entrepreneur, you've probably made some money over time and you are on your way towards building wealth. More than likely, you have given some thought to protecting your wealth.

If you are following the global economy, you probably have a feeling in your gut that everything is not right with the global economic recovery, and you might be right! I don't like to be a doom and gloom preacher, but among some of the economists I follow, the consensus is that 2012 may be a highly 'volatile and dangerous market', which is very bad for our investments. 

Many big economic terms may used to explain the problem; but the way see it, the problem is centered around four things: 

1) The world 'swiped' its 'credit cards' a couple of times too many and global debt is mounting to unprecedented levels (we accept this as a problem on a consumer level but it seems to be acceptable macro-economic policy - why?),

2) Pumping too much money, through ever increasing bailouts, into the global economic system dilutes the power of money to stimulate growth and creates new problems (specifically a slumbering inflation monster) (see the following chart displaying cash and electronic cash in the US  http://mises.org/content/nofed/chart.aspx).

3) The world shares a bed with the US, and the US debt problem is massive to say the least.

4) Fiat currencies are linked to nothing and the USD is a fiat currency.   

Refer to the following website for an illustration of the US debt.  

Keep in mind that all currencies are linked to the USD, which in turn is linked to NOTHING but promises. The US dollar serves as the world's reserve currency and the current EU crisis led money flowing from the EU to the USD, this lifted the US markets and depressed the gold price. somewhat.

Many think this is only a short term euphoria, I can only agree.  

The question really is, how long can the global economic 'house of cards' be propped up artificially through things like money printing, austerity measures, or whatsoever financial 'voodoo' the 'smart guys' running the show can come up with?      

Another scary thing to think about is the implication of fractional reserve banking and the possibility of bank runs. Wikipedia explains that with fractional reserve banking only a portion of the banks total deposits are kept in reserves. 

Basically, through this system, banks can lend out more money than it actually has in the vaults. This system works reasonably well, except in times of panic when everyone wants to withdraw their cash, which could actually bankrupt a bank (see bank-run).

The world economy is being kept alive using debt on steroids. I could never solve my own money problems by going into more debt. Yet, this seems to be what the world is doing.   

Now I ask you this ... are we living in a time when the probability of a global bank run is becoming more, or less likely? Are you willing to bet all your own money on your answer? It might just come to that.  

Micheal Maloney in his excellent book Rich Dad's Advisors: Guide to Investing In Gold and Silver explains the problem from a bird's eye view. 

All nations begin with real money, linking their currencies directly to gold, sliver and other real assets (this was the case with the US too). Then, governments essentially 'dupe' the population into accepting paper/token placeholders linked to real assets (we know this as paper money).  


The final step is to uncouple money from gold, silver and real assets creating a fiat currency (decreeing the backed-by-nothing money to have value). Fiat currencies ALWAYS go bust at some point, just ask these guys in history: 

The Roman Empire

The Weimar Republic, Germany

And recently, Zimbabwe, Southern Africa.

Why am I telling you this? I think that as business owners and investors we have to give serious thought to capital preservation. But even more than capital preservation, we have to focus on this preservation of value/purchasing power.

If all currencies were to go bust, what will happen to your investment portfolio? Remember that educated investors can make money when markets go up and when markets going down.  

I really feel it prudent to be cautious in 2012 and thereafter.  I tend to agree with guys like Mike Maloney of goldsilver.com, it is highly likely that the world is moving from a paper assets to physical assets cycle. That requires a shift in our investing mindsets.  

The structure of the global economy may also experience distinct metamorphosis in the coming years. The phrase 'adapt or die', may be even more relevant.  Let's keep our eyes open!

After reading some articles on bloomberg.com yesterday, I found that some optimism has returned to the US markets. Italy's bond auction went better than expected. However, I do not think any of the real underlying problems were solved. The markets love short term chatter, this time, I am not buying it!   

If you would like to add anything,  please leave your comments below.

Some sources I found to be insightful:

1) Debt Collapse by Mike Maloney (1.5 hour video, very large download)
2) Rich Dad's Advisors: Guide to Investing In Gold and Silver (Book available from Amazon.com, Kalahari.com, audible.com)
3) Mike Maloney Schools Bankers on Deflation (Youtube)
4) Nouriel Roubini: Perfect Storm Coming for Global Economy in 2013 (Youtube)
5) Milton Friedman - Debunking the Myth of the Great Depression - Part 1 to 3 (Youtube)

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Disclaimer: I am not a registered financial adviser. Please consult with personal financial advisers before making decisions regarding your personal finances.

My take on the US S&P 500 Index is not Pretty - Why I am VERY Bearish

Today I am posting something out of character for this blog, I am posting my technical view on the US SP500 Index. Note: I am not a professional investor or financial advisor; I follow the markets as a hobby, so please do not base your financial decisions on this view. 

I am merely asking some questions that have to be asked. If you want, maybe you could take this view to your financial advisors to discuss it with them.  

Most agree that the state of the US economy directly affects the rest of the world including South Africa. That's why it is prudent to follow the US economy. And if this technical perspective is correct the US economy may be heading for a massive reversal (crash).  

Take a look at the following chart I compiled from MSN Money, it is a long-run technical view on the US S&P 500 index; one of the largest stock exchanges in the US. This index is widely considered to be a proxy for the US economy. 

My Take on the US S&P500 Index - 19 December 2011

Being an investor, not a trader, I like to take a long-run perspective on the markets. When considering the S&P 500 from 1955, we clearly see the formation of a possible triple-top reversal pattern (note peaks 1, 2 & 3) on the chart (1995 to date). We also find a possible head-and-shoulders reversal forming from August 2009 to date (look for the H,S,H in the chart). 

Both the head-and-shoulder and triple-top patterns are very bearish signals. Many of the technical guys see the Head-and-shoulders as a reliable technical signal. When two bearish patterns are combined the position should be regarded as even more bearish.

The possible downward movement is usually projected from the top of the pattern (point 2) to the neckline (line AB on the chart). In this case,  if a bear trend starts, the DECLINE MAY BE MASSIVE! 

Another thing technical analysts look for is declining or increasing volume. In the chart,volume appears to be declining along with the formation of the Head-and-Shoulders. It is a highly bearish signal when the HSH pattern goes up and volume goes down (what appears to be happening in the chart). 

Also note that peak 3 on the chart is lower than peak 2; another very bearish signal! 

So, what I am telling you? 

I think that it is time to re-evaluate our stocks and portfolios. We had a nice run since 2008 and the US economic sentiment has improved a bit lately. But, this may just be short-term noise locking us in for the proverbial "bear falling out of the window" if I am right (hope I am not), the fall will be massive! 

Don't agree with me? I would really like to hear your view. Please comment below.

Don't lose sight of the kid in you! A tip for Innovation

Well, it's been a while and the past month or two was quite hectic (hence the low number of posts to this blog). I completed my MBA final year exams and started on a new project distributing Tree Lucerne (also known as Tagasaste), see http://www.treelucerne.co.za if you're curious about what we're doing.

Enough about me, let's talk about something fun, let's talk about the Super Soaker Water gun. You know, the water gun that really took the world by storm in the 1990s.


I remember it well, the soaker took water gun battles to a whole new level.  What's better than a really powerful water gun? And the soaker was, and still is, just that.  

One thing that you may not know about the soaker is that the guy who invented it is actually a real life rocket scientist with a degree in nuclear engineering. Yes, this is according to the August 2010 edition of Popular Mechanics. Lonnie Johnson invented the Super Soaker after he had an idea of a pressurized water gun that would be safe for children.

The idea came to him while he was working on a heat pump. 

What can we learn from this story? Alan Duggan of PM neatly extracts three lessons for entrepreneurs and innovators:

1. Be alert to possibilities - good ideas may enter our minds while doing something completely unrelated.

2. Success requires faith, staying power, and persistence - the Super Soaker was preceded by  many failed prototypes before achieving success. We see this trend with many successful people.

3. Never lose sight of the little kid inside of you - your childhood interests and dreams often provide valuable insight into your destiny. Sometimes we have to listen to the kid inside of us.

I think that the best ideas, innovators can have, are those that make you feel like a kid all over again. This certainly worked for Lonnie Johnson; the Super Soaker is estimated to have produced retail sales of more than 8 Billion ZAR.

What a cool story! Happy innovation. 

Finding work that needs doing – Preserving the environment

Good morning everyone! I trust the previous posting, where we took a brief look at the constructive use of technology was interesting and made you think differently about the impact of technology on people and their career and life development. We are sticking to the same broad topic – Finding work that needs doing – but will move along to the second area identified by Hansen, which talks to preserving the environment.

I am sure some of you will immediately conjure up images of Greenpeace, who have an interesting core values statement. On their website, Greenpeace state that their work is based on key principles, which are used to guide their actions. These core values are “bearing witness”, “non violence”, “independence”, having “no permanent friends or foes”, and “promoting solutions”. Some of us may think of their campaigns and actions as being of little consequence, others may think that Greenpeace is contributing to the greater good. I prefer to think of them as an (extreme) example of the attitude we all need to have when it comes to thinking about the impact we have on ourselves, our fellow man, and the physical and spiritual world around us.

In terms of the ILP approach, reference is made to the introduction of so-called new-paradigm thinking about preserving the planet. Hansen refers to the work of theologian Matthew Fox, economist Hazel Henderson, and Peter Plant, a Danish career development specialist. I will strongly recommend a visit to the websites of the above individuals, since their way of thinking is echoing the very typical ILP sentiments…if I may call it that!

To give one example of their work would be an injustice, but to then there is probably nothing wrong with whetting the appetites! Amongst other descriptive words, Hazel Henderson is defined as an independent futurist, advocate for and consultant on equitable ecologically sustainable human development and socially responsible business and investment. Now, if you have been following my blog postings, you will agree that the above description resounds of the ILP model. If one starts reading more of her work, you will see that Hazel Henderson is someone who is very critical of traditional economics and the Western focus on GDP. Take one moment and turn to current news…At this time, there are hundreds (perhaps thousands) of protestors occupying Wall Street in New York City. Why? Read the following quote taken from the “official” website of the “Occupy Wall Street” group:

We demand that Barack Obama ordain a Presidential Commission tasked with ending the influence money has over our representatives in Washington. It's time for DEMOCRACY NOT CORPORATOCRACY, we're doomed without it.

I think the parallels between ILP’s principles, the work of Hazel Henderson, and Occupy Wall Street is clear.

Before I forget, another at-this-moment occupation is also taking place in front of St. Paul’s Cathedral in London…reason? Pretty much same as the above. Again, if you have some time and interest, read an article posted by a freelance journalist who is part of the occupation in London.

I'll admit I'm no full-on radical subversive - indeed I'm solidly middle-class, thanks to my parents' hard work and commitment to their children (both were teachers, and they managed to raise three of us to have better prospects than they enjoyed). But, I am also part of the 99 per cent - those excluded by the current capitalist system and whose economic mobility is pretty much zero.

Those of us living in South Africa have also very recently seen an example of another (peaceful) march. The ANC Youth League’s March for Economic Freedom took place a short while back and has been described as successful by some because of the March taking place without any incidents of violence.

This is really an interesting topic – considering how our actions are impacting on the world we live in. When I started writing this posting, I was planning to introduce you to the topic of Preserving the Environment – which is a subtheme of our discussion on finding work that needs doing – and move along to the next topic…but alas, it is so interesting and topical that I have decided to dwell some more on the issue. In the next posting I will take some time to introduce you to the work of Danish career specialist, Peter Plant with the intention of showing how his work has also influenced thinking encountered in the Integrative Life Planning model.

Until we meet again, take some time to think how peaceful (and sometimes not so peaceful) demonstrations are impacting my / your / our worlds!

Based on the work of Sunny Hansen: Integrative Life Planning: Critical Tasks for Career Development and Changing Life Patterns

How to approach a Barter Deal in 5 Easy Steps

Welcome back! Things have been busy the last couple of weeks. But rest assured we haven't forgotten about our readers. 

I am excited to include the key points from another article about bartering, which I have posted on my small business site.  

So, if you have read our previous article and you think that bartering may be able to help your business grow. Take a look at the following points on how to approach a Barter deal which I have taken from my article on my small business site.  

Step 1: Make a list of what you have to barter with

Step 2: Make a list of the goods or services your business needs to grow

Step 3: Make a list of  people in your trade network with whom you may be able to trade

Step 4: Broadcast your barter deal to your online or offline networks

Step 5: Be patient and consistent

Read the complete article here, How to Approach a Barter Deal in 5 Easy Steps.  

I am also happy to announce that I have made available a free gift for new subscribers of vedaconsulting.org, my small business site.  Visit the link to for details. 

Happy reading!  

If you are using bartering in your small business, then I would like to hear how it is working for you. Please share your thoughts in the comment field below.  

    

How Bartering Could Help Your Business in a Downturn

I recently read about a pub in England. A pub that's very different from what I'm used to. But what's different about this pub? What's different about them is that they accept payment in pheasant, chard, and fish. 

Image: maya picture / FreeDigitalPhotos.net

That's right, you shoot it, hook it, or grow it, then bring it to the The Pigs, and if its good, you get your cold beer for free (or at least for less than usual). The owners of The Pigs, Edgefield, trade fresh game, vegetables, fish or meat in a classic barter system.

Apparently the sign on the wall of The Pigs states: 

"If you grow, breed, shoot or steal anything that may look at home on our menu, then bring it in and let's do a deal!" 

Reading about this system makes me happy. It makes me happy because it is a cool example of a small business owner 'thinking outside the box'. It's an example of a local business being relevant to their community. It helps both the client and the business to improve cash flow. At this pub, if your tomatoes are good enough, you don't pay for the beer. So the customer saves. The pub's management wins by getting streams of fresh produce delivered to them. 

Direct expenses are probably reduced for food supplies. I'll also venture a guess that the people that deliver the food to the pub are proud of it. This system allows for community; personally, it's much nicer to eat food, Judy from next door has grown, than the I'm-not-sure-what-they've-done-with-this-food commercial variants. I know that such a system won't work everywhere, but The Pigs is a good example of what is possible through bartering.     

Wikipedia tells us that bartering is a direct exchange of goods or services, without the use of a medium of exchange. That means money is not changing hands, which may be a good thing, especially during times when money is scarce (and scary).

It appears that bartering is on the increase; logical, considering the plight of the world's financial system at the moment. Wikipedia notes that bartering replaces money during times when the currencies become unstable; so when money sucks we return to basic trade.  

Bartering seems to be a more sustainable economic system. Maybe because you cannot inflate or increase your tomatoes with some kind of western banking voodoo (printing money), like our, now infamous, western banking system was able to do.   

In a bartering economy, you can only exchange something of value with something else of value.  

An example of the bartering phenomena is currently active in Greece. The financial crisis, in Greece, has led to the emergence of an alternative barter economy, running alongside the normal economy. People are exchanging goods, services and time, without the exchange of cash see I'm Broke. Let's barter. Greece's alternative economy (a 2.47 min video on youtube). 

So how could bartering help those of us in small businesses? Proponents of bartering tells us that it helps businesses to utilize excess capacity; something many small businesses and start ups typically have a lot of. 

It also helps you to control your cash flow by reducing direct expenditure.  Businesses often barter things like excess inventory, free capacity, or dead time, with other businesses, which if done right it helps both parties.      

I think we'll have to be much more creative and needs sensitive in a barter economy. "I have X, I need Y, how can I make the exchange happen?, who do I know with Y, uhmmm maybe Joe from ABC Corp ... but does  he need X?, Maybe Steven I met on Linked In? (etc.)". See where I'm going with this? 

Bartering opens up new possibilities. Instead of trying to trade with money, which we often don't have enough of, we could expand our businesses by trading things we have an excess of, time inventory, or capacity. This seems like a good way for SMME's to collaborate.  

Bartering may just take us from "I cannot do that because I don't have enough money" to "I wonder if someone will trade me this stuff I don't really need, for the things I actually do need to make my business grow". Seems to expand our possibilities, doesn't it?   

But does bartering work? I recently posted a question on Linked In to the Johannesburg Business Club Group asking whether the members of the group used bartering, and if it was beneficial to their businesses (see the discussion here http://www.linkedin.com/groups/I-am-curious-are-any-131389.S.74654001). 

The responses I gathered so far was very positive (thanks to all you guys that responded; I really appreciate it). One member suggested it (bartering) is a quick way to achieve mutual benefit. Another business owner expressed the value of bartering when in a restricted cash flow situation, especially during the start-up phases. An owner from Johannesburg suggested bartering  to be a powerful way to help a new business build a client base. 

So, we find that bartering may be able to help our businesses grow. But there are downsides to bartering. Arguably the most difficult thing about bartering is finding someone to barter with. There may not be an immediate demand for the goods, services, or time you wish to barter with.  

This highlights the importance of networking in a barter economy. The more connected you are the more likely you are to barter successfully. Fortunately this should not be hard considering the volumes of social networks we have online lately. Another possible drawback to consider is that bartering income is also taxable in most countries, but that's a story for another discussion.      

Curious about how to approach a barter deal? Read some suggestions here

Thank you for reading. I would love to hear your stories and views about bartering and business.    

Finding work that needs doing – Promoting the constructive use of technology

Hello everyone – it is good being back! As promised at the conclusion of my previous posting, we will spend some time looking at a couple of macro issues, which have been identified by Sunny Hansen in the conceptualisation of the Integrative Life Planning (ILP) model. There will probably not be too many surprises in terms of the topics here, but I think we will do well by looking at these issues from the ILP approach. The current and couple of postings to follow will be looking at macro needs and their relevance to the context of human development.

As if she was able to see in to the future, Hansen suggested the first macro issue to be promoting the constructive use of technology. Some detractors may say the ILP model was written in the previous century, and will therefore not be relevant in today’s context. Before throwing out the baby with the bathwater, let us briefly look at the ILP approach to the constructive use of technology. When the original work was produced, Hansen made quite a bit of the issue of networking; she described it as one of the most important words of the Information Age and proffered a variety of example contexts. These included computer networks (yes, even then!), team networks, personal and professional networks, and the like.

She also suggested an increased use of technology in the practice of teaching and learning. Again, many examples of the integration of technology into the education arena of today can be found. One only needs to think of SMART board technology, which is finding application in various international contexts.

If we were to further explore networking, various other forms of interaction and collaboration now seem to be taking place – it would be quite possible to compile a long list of examples. Perhaps one of the most interesting and influential phenomena of the current time is the prevalence of social media, yet another form of networking. With examples aplenty, we will be committing an oversight if we were to disregard the importance of social media in its various shapes and forms on lives in 2011. Career development professionals are essentially required to integrate social media into their understanding of their clients. If we think back to the basic assumptions and statements underpinning the ILP model, we should agree that ILP offers an approach to career developmental specialists to harness change.

In addition to the above, Hansen also opined that in future, we will be relying on computers and television to meet most of our service needs! Considering the current state of technology – which is being improved and characterised by new innovations by the minute – we will be hard-pressed to say she was wrong! I do not want to dwell on a discussion of the new wave of integration taking place between television and the internet; we have all seen it – to ignore the integration of these two powerful forms of media will be a superb example of short-sightedness (and stupidity!) by individuals and business corporations alike.

Taking the ILP approach and perspective of the career development professional, we will agree that technological change is (just) another form of change. By factoring the external context – which, is discussed in terms of promoting the constructive use of technology – into any and all career development interventions, career professionals will be able to make a contribution towards the constructive application of technology. As you may have realised, the current posting does not discuss the improper or destructive application of technology. As we are all well aware, there are enumerate examples of technology not being applied for the greater good. Our task, as agents of change, is to promote the proper use of technology through informing the uninformed, and by including this element into our approach to clients.

Next time I will continue the discussion of these macro issues, which have to be considered by everyone taking responsibility for the career and life development of others – and themselves!

Based on the work of Sunny Hansen: Integrative Life Planning: Critical Tasks for Career Development and Changing Life Patterns Also read the work of Neil Postman on the Surrender of Culture to Technology – Technopoly

Why It Sucks to be a Necessity Entrepreneur

Welcome back to our Letters to an Imminent Entrepreneur Series. 

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Dear Imminent Entrepreneur

In my last letter we have looked at our businesses, and how to position them as energy giving entities.  I discussed some thoughts on how to position your business as a life giving place of empowerment.  Remember that to be empowered yourself, you'll have to empower others. There's no way around that, in my opinion at least, 'life' cannot flow to you, if it is not flowing from you.  

Today, I want us to look at the distinction between necessity-driven and opportunity-driven entrepreneurship. I’ll highlight some reasons why it sucks to be a necessity entrepreneur, as I found out for myself. We'll then consider opportunity driven entrepreneurship in some detail. 

But first, let me explain the difference between the two. 

Simply put a necessity-driven entrepreneur starts a business out of necessity. This is someone who starts a business for the lack of other alternatives, maybe someone who has lost a job, for example, and has to start a business in order to survive.  

In contrast, an opportunity driven entrepreneur identifies a real business opportunity in the market and puts together people, resources, and money to profit from the idea. The latter is focused on a real opportunity.    

Do you see the difference? I started my first business out of necessity. I found that necessity often leads entrepreneurs to jump on the first semi-viable idea that crosses their path, even if that idea may not be the best idea to pursue. Necessity creates pressure to do something or anything to pay the bills. You probably know the story.   

Maybe I should mention that many necessity entrepreneurs succeed in building excellent companies. However, I am sure, in such cases success depended on the necessity entrepreneur making a mental shift, at some point, from survivalist to opportunity-driven entrepreneurship. Maybe someone could comment on this from their own experience. 

I am not degrading the necessity entrepreneurs; I think it is admirable to start a business, rather than to just sit at home.  However, I am concerned that such businesses do not adequately reward their owners for their troubles. I'll also venture to say that these businesses are at a greater risk of failure because of inadequate planning.      

The danger of necessity/survivalist entrepreneurship is that the entrepreneur may spend too little time on really evaluating the feasibility of the business idea. Pursuing any entrepreneurial idea will cost you. It'll cost you in time, money, energy and reputation. 

Evaluating the feasibility of entrepreneurial idea is critical for success. Wasting money hurts, but wasting time hurts even more. Let's try not to waste time on poor ideas.

We must learn to identify good and feasible opportunities. Successful entrepreneurs are successful because they are firstly able to identify and secondly able to exploit profitable ideas.    

In a 2009 study conducted by the Global Entrepreneurship Monitor (GEM) it was found that necessity-driven entrepreneurship doesn't meaningfully contribute to job creation in South Africa.  Thereby not helping unemployment, a big problem is SA.  Less than 3% of necessity-orientated businesses create six or more jobs.

That's one reason why we'll have to build businesses that do more than merely survive and to do that we have to switch to opportunity entrepreneurship.  

We’ll consider how to evaluate and exploit a true business opportunity in my next letter.     

Yours sincerely,

Gerhard 

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Thank you for reading. Please share your comments, experiences or advice, on this topic, in the comment field below.