Yesterday Rick appeared on The Financial Survival Network. The audio from the appearance is available at this link. The following is a transcript of the show.
Kerry Lutz: 1490 WGCH. This is Kerry Lutz. You’re listening to the Financial Survival Network.
We have a roundtable today with Rick Ackerman of rickackerman.com, and we’ve got Charles Hugh Smith, who is oftwominds.com. We’re going to talk about investing, retirement funds, what you do to protect yourself against potential economic disruptions, and how you keep what little savings you might have left safe from the taxman and from potential chaotic developments in the economy.
Hey Charles. Welcome to the Financial Survival Network.
Charles Hugh Smith: Hi Kerry. Thanks for having me today.
Kerry: Great to have you back. Great to have you back too, Rick.
Rick Ackerman: Thank you Kerry. I want to say, I’ve been a fan of Charles for a long time. I want to thank you for arranging this panel discussion. I’ve always wanted to meet him.
Kerry: Hey well, one day, God willing, you’ll get tom eet in person one on one. But until then, this is about the next best thing.
Getting into it, Rick, this tax system is insane. We’ve got the congressional tax collectors, their designees, just looking desperate for money to keep this thing propped up. A day doesn’t go by where you hear them talking about how to effectively confiscate your IRA, your 401(k), to tax private pensions, and the like, so that they could basically prop up social security.
What do you think you should do to avoid these actions from happening and damaging you?
Rick: Well, Charles had a great idea. He’s, I guess you can say, running with it. The idea is to Enron Wall Street and invest local. I looked at some of the interviews – a YouTube interview in particular – that I’ve linked on my site that Charles did.
I related it to my own life here in Boulder, Colorado. My dream is to produce theater on a small scale here, and to produce the kind of theater that would be a magnet for acting talent. I think it’s a very powerful idea whose time has come – the idea that you look at your own community and you attempt to affect it in any way that you can, investing in it your time, your money, and your efforts.
Kerry: Sounds like a wise move, because I think with central power perhaps breaking down at some point, we’re going to be stuck with each other in our communities. If we don’t rebuild those community relationships, we’re really going to have problems.
Charles: Local investing, how do you go about it?
Charles: Well Rick, I appreciate very much your linking to some of my work. I applaud your efforts. I think that really is the future.
I think the key issue in localization or re-localization, is that we control our money. That’s the problem with 401(k)s and IRAs and investing in Wall Street is, we’re basically trusting a corrupt, venal, fraudulent system with our savings, and hoping that it’s all going to pan out in our favor. Of course, that’s a pretty poor bet.
Kerry: Tell that to the people from MF Global, right?
Charles: [chuckles] Good example. So at least if we invest locally, then we control what we’re doing. We might suffer losses, but at least we know the risk in return. We get to write off some expenses, whereas with Wall Street, you have no control.
Kerry: Yeah, that is definitely true there. So Rick, it’s kind of like Peter Lynch, one up on Peter Lynch, where he said one up on Wall Street, where you find retailers in the mall, and you invest in those companies now, you find businesses on Main Street or in the commercial district, and you look at investing there, and you bypass Wall Street. Because those businesses, a lot of them are viable, but they have no means, no organized means of getting capital. The banks aren’t lending. So what’s an entrepreneur supposed to do?
Rick: Well, to be interesting, you mentioned retail. There’s so much retail space to be absorbed that it applies over time that the whole nature of retail may change. It’s still impossible to determine how much further things will go with brick-and-mortar retail dying at the hands of online retail. The odd thing is, you know that there are really just a few big boxes left.
One of them is Best Buy. I hope they’re not in their death spiral. They have gone on a major cost-cutting binge. If Best Buy goes down too, that will be one more giant hole in the retail landscape.
So I don’t know whether over time, we’re going to essentially come up with entrepreneurial ideas that will fill all those big retail spaces. But it’s a possibility.
Kerry: Yeah, it would be nice to figure out a use for all those empty stores, because they’re all over the place, all the big retail chains that have gone out of business. In this recession, depression, there haven’t been any businesses formed really to take up that space for the most part.
A lot of the retailing is moving online. That’s where entrepreneurs, locally, they can take advantage of the technology. They can beat the stuffing out of Best Buy, because there’s so much more flexibility and no fixed costs.
So what do you do? Do you cash in your 401(k), Rick? Do you convert it to an IRA? Should you have an IRA at all?
I mean, it’s really becoming alarming, because these calls aren’t going away. It doesn’t matter who’s in Congress, they’re going to be after your money.
Rick: Well, I think generally, just look at your IRA and the things that you’re invested in, in a less abstracted way. When we put money into an IRA, it’s put into funds. The investments themselves become somewhat remote.
But I think as Charles is suggesting, you really put it in places you understand. That goes certainly back to Peter Lynch, where you put your money in things that you do understand. You get closer to home when you do that.
Kerry: So Charles, how do you find people locally to invest with? Do you put an ad in Craigslist, friends, network… what’s the best way to find these people?
Charles: Well Kerry, as you and I were speaking in our last conversation, the internet and the web enable all sorts of new networks to form. As we discussed at one point, there are these networks that are still in the beginning stages where you can invest directly in a small business. Maybe you put up $500. The entrepreneurs are going online and pitching investors directly. So you can invest that way, and kind of feel your way around this entirely new movement.
That’s the thing about it. We’re like really at the bleeding edge here in re-localizing our economy. There’s a lot of new stuff happening. Some of it’s not going to work. Some of it’s going to work great.
But I think another thing that… Rick and I have done battle with various gold bugs. We’re both fans of gold. We’ve been in a lot of debates with the online community about deflation and inflation and these big topics.
I just want to introduce the concept of hedging. Because ultimately, nobody knows what’s going to happen. You don’t want to put all your eggs in one basket, that’s for sure. Investing in some coins, or if you don’t, if you can’t invest in physical, then at least in precious metal funds in your 401(k). At least you’re getting a bit of a hedge against the collapse of the financial system. That’s one hedge.
Obviously in terms of growth, you want to put your money in entrepreneurs who are dealing with reality, not like with corporate America that if we can only rape China for a few more years, our growth will be like 10%. It’s like, we want to look for models, whether on a corporate level or local. People get it. They’re looking for an age beyond growth and just raping the next Third World country of cheap labor and exploiting their resources as the way for us to profit.
Kerry: Yeah. A big transition taking place of, back from globalization, to what we’re talking about here, which is localization and investing in your neighbors and having them invest in you.
But one thing. When you’re investing in businesses, there are always these laws that come to bite you in the butt, like private placement memorandums, like Blue Sky regulations, so that if you’re selling securities, you need to register them with the appropriate governmental entity, unless all the people involved are going to be operating partners.
Hopefully, these online networks will find a way around that and enable people to invest without getting stuck in this red tape. Because I’ve done about 25 private placements in the past 10, 15 years. There are lots of pitfalls. People go to jail for selling unregistered securities. Many a person has gone there. So you have to be careful, and you have to have people who have a certain level of sophistication in these matters.
If you’ve managed to hold onto some funds, Rick, you’ve managed not to get wiped out by the Great Depression, what do you do? Do you diversify like among a group of these businesses? Learn everything you can about them? How active a role do you want to take in this kind of thing?
Rick: Well, I think for starters, there’s going to be a migration in this country toward places that favor entrepreneurial energy. California is losing population now. Even with the most ambitious ideas about re-localizing. Charles’ term. You still have state taxation and state public policy to contend with. So California is really bleeding entrepreneurs.
There’s a story in the Wall Street Journal the other day. It essentially characterized, there’s two and a half layers of inhabitants. One is the upper end – the Silicon Valley people – who are making so much money that they can stay there no matter what. But you also have a middle class that’s being kind of winnowed down. Keep in mind that in California, which has I think the third highest state income tax, the millionaire tax… you’re talking about an income of $250,000 and above, which is by no means billionaire. It’s really just kind of entrepreneurial, two-people businesses. Well, the tax there is 10.7%. But it kicks in at a much lower level. You’re considered rich for tax purposes in California. I think it’s $250,000 where the taxes, believe it or not, are 9.7%. So everyone’s migrating.
One place that’s really a magnet now for entrepreneurs is Austin. Apple is there. Google is there. Everybody’s there. They’re having huge growth, because even though by and large, people would rather live coastal – there are all the amenities of coastal California that are so wonderful – it’s just too expensive to live there.
I think that just by going to places where homes are affordable – such as Texas – you’ll be part of an entrepreneurial climate that will make it a lot easier to find things to do with your money.
Kerry: Yeah. Probably one of the last places in the country where the American dream hasn’t yet died, is in Texas. It’s growing. The petroleum industry is growing. Local entrepreneurs which I know of, a lot of those, since my son attends college in Austin.
Charles, where do you move to, to get out and dodge, to avoid the long arms of the tax collector?
Charles: I am a resident of California. I can confirm that what Rick has stated is certainly true. It’s kind of a death spiral in the sense that local governments, state, city, county… they’re squeezing anybody with any money left for higher and higher taxes, which then drives people away. Or people just give up making big money. If the rate is $250,000, well then you make sure you don’t make that much. So you lay off a few of your staff. You shrink your business so you’re not… and that of course is another aspect to the death spiral. But I think Rick’s point is excellent.
I think as an investor, you can work for businesses even if you don’t live in a hotspot like Austin or perhaps Colorado. You can look online for communities and businesses that are in those areas, and you can invest in them remotely or through buying stock in companies that are entrepreneurial in places that are enabling growth.
So even if you’re stuck in California like I am, then you can put your money elsewhere.
Kerry: Yeah, if you’re stuck in New York like me for the time being. Do you look at demographic trends? Like the population is getting older. So there is going to be more services needed by the elderly. Pretty much the people 55 and over have all the money. So you look for those favourable demographic trends. Or do you look more at emerging industries? You’ve got to have some type of checklist, I would imagine, to set about investing in these companies, right Charles?
Charles: Yeah, and I think I’d like to hear Rick’s point of view on that for sure. I think we can look… we know that energy is going to become more expensive, and the demand will be permanent for some kind of energy.
Energy is a sector we always should look at. Like I said, precious metals and commodities, certain agricultural commodities, they’re very volatile. The price goes up and down on all this stuff. But it’s something that you can look at as, the demand is always going to be there. We need to eat. Gold and silver have value that doesn’t, it’s not going to go to zero like a financial instrument.
And a new economy. That’s really what we need to look at. Making things that are more efficient and that are not financialized. They’re not based on financializing something and spinning off like fraudulent derivatives to make money.
Kerry: Yeah. What’s your opinion on that, Rick?
Rick: Well, the landscape is shifting. It’s very hard to… I have a son in college now. It’s hard for me to tell him which direction to go. I’ve been connected directly to the job market. I worked as a head hunter for a while. Even areas that I thought were bombproof. I was doing healthcare, essentially finding nurses with clinical and administrative experience. This was a $110,000 job at most hospitals. But I didn’t foresee that mergers of all these hospitals, which eliminated one of out every two of those jobs.
Locally, Boulder, I know so many entrepreneurs who are very low to the ground. They can be in one business one week. If it doesn’t work, they’re doing something the next week.
But one friend of mine was in solar panels, with a nice subsidy that came by way of Xcel, the utility here. Just arbitrarily, out of the blue, Xcel cut its subsidy in half, effectively destroying that whole area of business. So you really have to…
I think to kind of get yourself beyond the risks of investing in certain things, you almost literally have to go with the idea that whatever makes the community better will work as an investment. It doesn’t necessarily have to be in the area of energy or things that are maybe a little more esoteric. But really, just sort of nuts and bolts, building the community stuff.
Kerry: Yeah. One thing. One of my daughters is into… she got an advertising degree from BU. Hooked up with an online ad agency in Denver. Worked there for a year, then came back to New York. That’s something that’s growing by leaps and bounds, online advertising. As the dead tree media continues to implode and as the mainstream media continues to be ignored and pushed off to the side, advertising on the internet… that’s what makes business start-ups so appealing.
In a lot of ways, it’s so much easier than when I started my first business. I had to get the message out. I had to go send out a mailing to 20,000 attorneys. You had postage. God forbid you put those stamps on wrong or sorted the things wrong, they shot the whole thing back to you. You were pulling your hair out. Now it’s, okay, we do an online campaign on Google. Cost us $500. We’ve reached 10,000 people. That’s something that really, younger people need to look at. It’s communicating through the internet and building brand and business.
Anyway gentlemen, we’re about up. I really want to thank you both for joining me, because these issues are so important. Because it’s not just where you put your money, where you put your labor, because now that the employment picture is as Rick said, has so dramatically shifted, you need to be thinking about what it is you’re going to do with your life, with your time, with your career.
All three of us, I guess, kind of stand for that concept. We’re all involved in web-based entrepreneurialism. We’re doing things that 20 years ago were inconceivable. That gives me hope for the youth, because if they have the initiative and they have the drive, if you really want to make it, you still can. You just have to do it differently.
So Rick, where do we find you to learn more about your services?
Rick: rickackerman.com. The service is called Rick’s Picks. But if you go to Rick’s Picks, you’ll find a New York City-based pick and relish vendor. I only come up number two. But rickackerman.com. I put out daily trading recommendations. We have a chat room that runs round the clock.
Kerry: I think for new subscribers, you should send them a bottle of pickles. [chuckles] Rick’s Picks, right?
Rick: Right.
Kerry: Charles, where can you be found if people want to learn more about what you’re doing?
Charles: oftwominds.com. Or just do a search for Charles Hugh Smith.
Kerry: All right. Excellent, guys. Hey, well thanks so much for joining me. Been a pleasure. We will talk to you in a little bit. All right?
Rick: Thank you, Kerry.
Kerry: Okay.
Rick: Thanks Charles.
Charles: Yeah. Thank you, Rick. Thank you, Kerry. It’s been great.
Kerry: Thank you, guys.