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On Covid 19; According to the CDC it’s over May 24, 2020

Posted by shaferfinancial in Covid 19, Interesting Reading, paradigm shift, Retirement Income, trust, Uncategorized.
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It’s hard to reconcile seemingly conflicting information/data coming in at the same time. So, I’m sure when people see this, there won’t be much they will find that is believable. But, pandemics go in stages.  1st stage is community spread, where an infected person enters the community and it spreads from person to person.  Then the virus burns out for several reasons some known and some unknown. Seasonal affects. Enough cross immunity is developed. The people who are going to get sick from the virus have already gotten sick. Etc. Finally, there are usually smaller waves that come into a community annually or occasionally. During all this the virus mutates into different forms which usually are less virulent forms of the virus. But it is impossible to predict when and how bad the waves will be.


Update: I was wrong.  The waves are very large in several states.  Mostly young and unaffected folks are getting infected and spreading this.  Also some small rural communities of mostly minority population are see high rates of infections, hospitalizations and deaths. Fortunately, overall, the hospitalizations and deaths per infection are going down significantly.  Unfortunately, the fear mongering is not.  Some front line workers and scientist think the virus has mutated to a more infectious, but less virulent form. Hopefully they are correct.


nchs-mortality-report.gif (900×580)


Look at the above graph from the CDC.  Note the spike in Pneumonia, Influenza and Covid mortality. When we reach the peak of the curve (about 3-4 weeks ago, was when the epidemic in the USA was essentially over. Now we are just dealing with the fallout. Note the sharp decline over the last 3 weeks. That is another indicator that community transmission of the virus was done.

But, how can this be?  Aren’t people still getting infected and dying???

Yes.  Again aftermath of the viral spread. Deaths are 2-4 weeks after infection. When a person tests positive for the viral infection, that is 3-7 days after infection. The majority of new infections are from institutions like nursing homes and prisons.  Doesn’t this mean the pandemic is still going strong?  No, it means that moved to a cluster phase, where people not in the general public or have jobs that get them large viral loading are getting infected.


What other proof is there. Well Emergency Room Visits are way down.



These are the CDC charts for ER visits. Notice the peak was around week 14-15 of the year. So middle of April. Note, that in the second chart that combines all influenza like illnesses (ILI), we are now below baseline. This indicates we are now below normal for emergency room visits for ILI’s. Most of the remaining COVID visits from the first chart are probably from nursing home and prison clusters along with health care workers and prison guards.  This is the last remnants of the viral epidemic that remains.

Please note, we are probably going to live with this virus for a long time, vaccine or no vaccine. Time will tell if it will fade into the tapestry of ILI’s, peaking in the winter and fading into the summer.


So, now you are probably pointing to all this and saying look how well the shelter in place is working. Well, there is an increasing amount of evidence that mitigation strategies didn’t mitigate much.  And there seems to be one item they can say by comparing different countries with different mitigation strategies. That is there is no scientific evidence that shelter-in-place worked to avoid the spread of Covid.

And just for fun, here is an article detailing how this strategy came into being in the USA. There is a link to the scientific paper written by epidemiologist of the time (2006).


Here is a key paragraph:

“There are no historical observations or scientific studies that support the confinement by quarantine of groups of possibly infected people for extended periods in order to slow the spread of influenza. … It is difficult to identify circumstances in the past half-century when large-scale quarantine has been effectively used in the control of any disease. The negative consequences of large-scale quarantine are so extreme (forced confinement of sick people with the well; complete restriction of movement of large populations; difficulty in getting critical supplies, medicines, and food to people inside the quarantine zone) that this mitigation measure should be eliminated from serious consideration…”


“Travel restrictions, such as closing airports and screening travelers at borders, have historically been ineffective. The World Health Organization Writing Group concluded that “screening and quarantining entering travelers at international borders did not substantially delay virus introduction in past pandemics . . . and will likely be even less effective in the modern era.”… It is reasonable to assume that the economic costs of shutting down air or train travel would be very high, and the societal costs involved in interrupting all air or train travel would be extreme. …”


“During seasonal influenza epidemics, public events with an expected large attendance have sometimes been cancelled or postponed, the rationale being to decrease the number of contacts with those who might be contagious. There are, however, no certain indications that these actions have had any definitive effect on the severity or duration of an epidemic.”

Happy reading…….

The 2006 Origins of the Lockdown Idea



The 1957 Asian Flu May 20, 2020

Posted by shaferfinancial in paradigm shift, trust.
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In 1957 a pandemic of the “Asian” flu hit the USA. This flu (H2N2) killed 116,000 Americans and millions around the world. It lasted 10 years as a seasonal virus and morphed into the Hong Kong flu in 1968-69. The IFR was estimated at .69%. The virus killed mostly older Americans and pregnant women. At the time the population was 1/2 what it is now. On top of that the USA was much younger and had less obesity/chronic diseases with the exception of smoking related diseases. With our current population that would 232,000 deaths. Note, the IFR was at the top range of what we are experiencing now with Covid 19.

There was common awareness at the time of this pandemic. A few conventions that had a significant amount of older folks were canceled. The media covered it as a medical event. A few schools were also closed down when an outbreak occurred. A vaccine was soon found, but it wasn’t very effective. But here is the big difference, politicians didn’t step in. Media wasn’t constantly reporting exaggerated or false claims. Somehow our 1957 selves were able to muddle through, even our 1957 health care system.

Have we lost the ability to think rationally? Or politically are we so sick as to have weak-minded politicians? How can our politicians not understand to protect the older folks and health care providers, from day 1, when we have history of many large and small pandemics? Where did they get the idea that we could do shelter-in-place and protect grandma????? Note 40%-78% of all deaths around the country are from long term care facilities. 15%-35% of cases are from health care providers (depending on state). I was amused when the NY governor seemed perplexed about over 60% of new cases in NY came from people abiding by shelter-in-place orders. In 1918 it was found that fresh air and sunshine was most helpful for the pandemic victims of that time. We know that these viruses spread in closed areas and that the longer you are in a closed area with infected people the higher the viral loading gets. Yet, our governors told us for a month or longer to stay at home.

Did this protect grandma???? No. Did this prevent folks from getting infected???? No. Did it lower the curve?? Probably. Did this extend the epidemic? Yes. Should there have been shelter in place orders? Yes, but only in a couple of places where the infections were raging so much to put hospital beds in short supply.

Latest update: Some colleges are starting early as to end the semester by Thanksgiving given there is evidence that this will become a seasonal affect pandemic. They hope to not have students on campus at the beginning of winter when the flu season usually starts.

Overall number in the USA remain stubbornly high in high density areas. Most states are starting to open up slowly. The numbers of deaths and cases (highly affected by numbers of tests) are on a downward trend. We are testing 3 times as many as 3 weeks ago. Average positive per test has plummeted (a great sign for our testing program as well as an indication of waning infections). My area has around 1 infection and 0 deaths per day. There has been a total of 3 deaths in my area (population 120,000) and around 110 infections. Was able to sit outside at a restaurant yesterday. That was nice. Beaches still closed, so probably no summer work for my son.

Musings on Covid 19 May 1, 2020

Posted by shaferfinancial in paradigm shift, trust, Uncategorized.
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There is so much panic and subterfuge now around Covid 19, that it is close to impossible to write anything based on what the science is demonstrating without having people jump right to criticism and emotional outbursts. Note the craziness over the release of pre-prints of the antibody testing now ongoing. People weren’t willing to allow science to guide their opinions and the outcry and criticism of the Stanford research was laughable. And it turns out that now multiple studies with various sampling methods, many randomized are proving the Stanford researchers correct. USC researchers, University of Miami researchers, Harvard researchers and the state of NY public health researchers all concur that there are many many people out there that have had the infection without symptoms. And the worst part is this is great news. It means the virus isn’t as deadly as we thought.

The 2008-2009 H1N1 pandemic provides an interesting comparison. This influenza A pandemic started in the US and like Covid was a novel virus. It spread to the rest of the world and in its first year it was estimated to have killed 360,000 people. So far, it has been estimated that Covid 19 has taken 233,000 deaths.

But that is where the comparison stops. That strain of H1N1 mostly killed children and young adults. While the average age of death for Covid 19 is around 80. It was thought that the reason for this was that older people had antibodies from a previous strain of H1N1, that occurred many years before. That is why this pandemic was much worse in 3rd world countries, than the US. While we had 12,000 deaths here in the US, countries with larger percentage of the young had much worse deaths. By June, the end of the influenza season the CDC reported more than 1 million cases in the US. 980 schools were closed in early May in places that had significant activity. The pandemic that started in mid-April was essentially done by mid July of that year. It has reappeared yearly since then, but in much reduced numbers. In July of the first year clinical trails started for a test. And by September 15th a vaccine had been made. A second wave started in late September causing school closure again. But that second wave subsided in 2 months. The vaccine was distributed to the public in December of that year and provided significant immunity. This H1N1 infection faded into the background and is still with us today. There were some hospitals that erected tents to treat patients because of overflow from this virus.

Note our response to a virus that was killing children and young adults. It was rational. School closures in hot spots. Erecting tents to provide health care in areas that were overrun with patients.

Now, what we know of the COVID 19 virus is it is killing older people at a much greater rate than the H1N1 virus killed young folks. That is common sense, of course, as 80 year olds are much sicker in general and don’t have reserves to overcome novel viruses or strong immunity systems. And I say this without prejudice or meanness in mind. The life span of someone born in 1940 (80 years ago) was 70. These folks dying of Covid 19 have already outlived their peer group by 10 years or more. And this is what we are seeing. The oldest and sickest people, mostly in long term institutional care, are dying from Covid 19, while each younger segment are mostly recovering and at the youngest age groups showing little or no symptoms.

So that begs the question, Why, like the 2008-09 pandemic, did we not do a vertical integration mitigation strategy? In other words, in the 2008-2009 pandemic we closed schools in heavily impacted areas because the children were the ones most heavily impacted. Why did we not lock down long term care facilities, shelter in place orders for those 65 and older who don’t work, masks for health care workers who work with the elderly, etc.? Why instead did we do a horizontal mitigation strategy, closing down our entire society? And don’t say we didn’t know, because we did from both China and Italy/Spain. We knew who was at risk and how to best protect them. Don’t say in order to protect Grandma, we needed to keep their grandchildren out of school, because that violates all we know about how to stop pandemics and what we have done every time since WW2.

Next post I will take a look at the 1957 flu pandemic.

I hope I have left you with some more understanding of pandemic societal reactions and some deep questions.

Be safe.

Keeping it simple; What should be your main concerns on retirement funding? March 23, 2018

Posted by shaferfinancial in Finance, mutual funds, Mutual Funds for Retirement, paradigm shift, Retirement Income.
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The finance world is famous for how complicated they want to make the analysis. Warren Buffett is famous for saying you only need basic math and a few metrics to make investment decisions.
The more I read about decision making, the more I lean toward Warren.

Currently, I am reading

    Thinking in Bets: Making Smarter Decisions When You Don’t Have All The Facts

When I get done, I will post a book review.

But for now, given the current financial environment, here are the three concerns you should have on retirement funding:

1. Sequence of Return. Simply put this is the #1 stealer of your retirement income.
2. Taxes. Yes taxes have gone down for some. But over your lifetime it will be variable, sometimes going up and sometimes going down. How about just reduce or eliminate that risk altogether.
3. Work. With corporations rarely demonstrating loyalty or rationality with its employees, do you really want to depend on their generosity for your retirement?

So there you have it. Keep it simple and solve those issues as best you can.

There is more than 1 right answer! May 2, 2017

Posted by shaferfinancial in Finance, mutual funds, paradigm shift, Retirement Income.
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I recently pulled out and wore an old t-shirt. It was a t-shirt from an old friend who is now deceased. He was a jeweler who made fine items for folks. The ultra-wealthy from all over the east would come to buy his wares. He was a mountain of a man with huge hands. I was always amazed that those club hands could make such fine jewelry. When he walked the beach he lived on, most people thought he was some biker and stayed away from him. He like it that way.

On the back of the t-shirt is his saying: It’s better to be a well known drunk than an anonymous alcoholic.

You can imagine the looks I got when I took my son to the playground wearing this t-shirt. 🙂
Anyway it has spent way to much time tucked into my closet and now I just don’t care what looks I get.

But the saying on the t-shirt it speaks to perspective. He lived the life of a rich and somewhat famous person and pretty much did what he wanted to do. While 12 step programs are all about conforming to society’s norms around substance abuse.

Where is this all going? Well most of us conform to the norms of society in our everyday life. We go about our business never really questioning the reality taught to us by those in power. Now I am not saying that we should all go around drinking excessively and doing what we want without regards to others. But I am saying that there are always alternative ways of thinking that are just as valuable as what we have been taught.

I dedicate my life to helping people understand that in the financial world. I am grateful that so many people come to understand what I am teaching them and have found financial success as a result.

As my son is now a freshman in HS, we often have discussions about the world. I find myself having to play “devil’s advocate” with some of his now strongly held beliefs. I hope he will learn from our discussions and not be so quick to buy into what is being told to him whether it is political, financial or the propaganda from the medical system about what is good for him and what is not. I hope he learns to be a critical thinker. He will need to be.

How Theories can help or hinder your investing. October 18, 2012

Posted by shaferfinancial in Finance, paradigm shift.
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I have been a big critic of efficient market theory, still am. Here is a link to a book review that you might find interesting.

But the most recent theory of human behavior that has caught my eye is chaos theory.
First described by a meteorologist, it is simply the idea that small, seemingly inconsequential variables, can create huge differences in outcome. Often the idea is explained by the thought that butterfly’s in a meadow in Asia can cause weather patterns over North America to deviate. In science “chaos” is described as underlying interconnectedness that exists in apparently unrelated events.

Moving from a rational theory like efficient market theory to a theory that states you can never totally record the variables that create change is a difficult one for investors. That is why EMT is held on so tightly by many. This scientistic culture that sees the world in terms of analysis, quantification, symmetry and mechanics has really created a prison of the mind or an allusion that we can control outcomes.

Embracing chaos theory is really embracing what we experience of the world. The first allusion that must be dealt a death blow is control. This is where the EMT has really led folks down a wrong path. The thought that by rational explanation one can create an investment strategy that will control risk is a faulty assumption as we got recently reminded. If we give up the thought of controlling all risk with a single investment strategy, then we can open ourselves up to a more creative and ultimately satisfying investment life.

As we see the devastation brought on to individuals retirements by adherence to these rational investment theories that didn’t account for the real risk [it was known] and certainly didn’t see the 2008 melt-down in all asset classes some folks have stepped away from the common strategies in surprising ways.

Unfortunately, many folks are simply ignoring the reality or so emotionally tied to the old ways of thinking that they can’t change. Worse, is the new generation of folks that are being pitched the same old tired ideas like buy term and invest the difference [in mutual funds] or asset allocation theories or buy and hold stocks that have failed. I am shocked when I talk to people who either don’t remember or have pushed 2008 out of their memory. Especially coming on the heels of 2000 tech break down. Did you know that in 2000 the Nasdaq was over 5000 and now resides at 3100+? People forget that in the 1990s tech stocks where all the rage and investing in the Nasdaq considered a no-brainer for indexers.

Truth is that the government and Wall Street have created a perfect storm convincing people to invest in stocks for their retirement. And small seemingly inconsequential variables will to continue to crop up and destroy those folks happiness.

Recently, I had someone tell me about a particular strategy where a relative had received double digit returns for 3 years. He also seem to indicate that double digit returns were a logical expectation. I didn’t ask him if that was 10-12-15 or 20%!

Expect the unexpected is the only rule to investing today. Don’t try to control it, just adjust your strategy assuming it will happen. Look for creative investing strategies even if that means taking on old ideas that were thrown on the dust bin of history by the experts pushing mutual funds, asset allocation, etc.

In the near future I will explore what this all means to me and why I have done the things I have done for my finances.

Design Your Life to Be Exactly How You Want It! March 11, 2008

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Yesterday, my son and I rode downtown from our home to get a couple of items at the grocery store.  My neighborhood is right on Tampa Bay, so we ride through the neighborhood waving at our neighbors and stopping occasionally for a short chat while gazing on the water.  We then go past the Salvador Dali Museum, riding on the back side looking for dolphins in the bay.  Next is a marina with sailboats gently rocking back and forth and then a university.  Finally, past a condominium project and into the Publix parking lot.  The whole way accomplished on sidewalks, a must for the safety of my five year old.  On the way back I think, I could not have planned my life any better!  Then it hit me.  I did plan my life.  When my wife and I bought in our neighborhood, downtown St. Petersburg was not developed in any way like it is now.  There was no grocery store, no ice cream stores, no upscale condominiums.  Truth is, much of that was just starting to be put on the planning board when we bought.  But, we purchased in our neighborhood specifically because it was urban.  We felt all along that we did not want to buy into a suburb or a gated community.  We imagined, even back then, being able to walk/ride downtown to go to restaurants, art galleries, etc.  We felt strongly that if we were able to have children that is the life we would want for them.  And it happened!  Perhaps we got lucky.  But the bottom line is that we took a chance at creating our life exactly how we imagined it and it happened. 

I have taken another chance recently.  I have mentioned before that I have taken advantage of the slowdown in mortgage origination to build a new business.  This business allows me more freedom than ever thanks to modern communication methods.  It also combines my love of teaching with my wealth creation knowledge.  The Shafer Wealth Academy is now officially up and running.  If the idea of having a Wealth Coach is intriguing to you please check out my web site (www.shaferwealthacademy.com).

Helping people build wealth is something I have enjoyed doing immensely.  I think this is a step forward in that goal, allowing to more directly impact people’s wealth creation.

Please know I will continue to blog and am very thankful for my readers!

Yours  in Wealth Creation,

David Shafer

True Wealth December 19, 2007

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On the eve of my rollout of the Shafer True Wealth Academy, I thought I would put some thoughts on my blog about what “True Wealth” is about.

First, I need to digress a little.   For years I worked as someone’s employee.  Sometimes this relationship was good, and sometimes it wasn’t, but the real issue was that I wasn’t particularly happy.  For me it was loss of control of my life.  My last job, when a client wanted us to work for them, it usually meant travel and overnight stay, many times on short notice.  When our son arrived, this situation became a source of unhappiness. 

When circumstances dictated a job change, I came to believe that being someone’s employee was not where I wanted to be, so I started Shafer Financial.  Since that decision it has been both emotionally and financially up and down, but the bottom line is that I am a happier person because I have control over my time.  When my dad died, I was able to grieve and deal with closing down someone’s life without having to worry about a boss’s expectations.  When there was a school function for my son, I went.  When my wife needed me I was there.  I am able to prioritize what is important to me.

That is the core of what “True Wealth” is about.  I believe in order for people to have more control over their lives they must start with their financial life.   Once control over one’s financial life is established, it works its way outward to all other parts of their lives; their personal relationships, their health, intellectual, and spiritual lives.

In my mind, creating true wealth is dependant on the confidence and security that comes with seeing your net worth increasing year after year.  And that is dependant on getting one’s mind around a new way of thinking.  Unfortunately, developing a new way of thinking (a new paradigm) is not as simple as reading a book or two or going to a weekend seminar.  For me it took several years of reading, thinking, and introspection to start to see that change.  Had I had a mentor to help me through this process, I believe it would have happened more purposefully, and ultimately been a quicker process.

The actual techniques used to build net worth are individualistic, and that is also a new concept for many people.  Warren Buffet, perhaps the greatest investor ever, Donald Trump, Robert Kiyosaki, all uniformly think that the “save and invest in mutual funds” thought pattern is not likely to create wealth, nor in my opinion create the security needed to be able to move successfully into new paradigm thinking. 

The aim is to move our way of thinking into a place that can see opportunity when it comes by, act on it without fear, and end up in a place of control over our lives.  

Hope, everyone has a happy holiday season.  My family and I will leave for our condo in New Hampshire soon.  There is already good snow up there.  You should see the smile on my son’s face, when told of this.  He loves to ski and snowboard.


Paradigm Shift III December 13, 2007

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How does a banker make money?  Well they borrow money from folks who put money into savings accounts and Certificates of Deposit or they borrow money from the government.  Then they loan that money out at a higher rate.  It is called arbitrage and is the basis for wealth creation for bankers over the last several thousand years.  Do banks incur risks?  Yes, their main risk is if people don’t pay them back what they owe.  Periodically, bankers forget about this risk and the result is disastrous.  Like in the 1980’s with the S & L’s lending money to real estate developers who just happen to be their buddies.  Or now, lending money to people who have a history of not paying their bills.  But the bankers do something else; they require collateral in most cases.  So, they reduce their risk this way.  They really don’t like to, but if forced they will foreclose and resell an asset to recoup as much of their money as possible.   But here is a key.  If bankers don’t think they can get their money from the asset, they will work with the borrower to avoid taking a loss.  Donald Trump tells the story of owing $100 million dollars and not being able to make his payments.  He told a room full of bankers he couldn’t pay them back.  What did they do?  They restructured his loan.  Did they take his yacht from him (yacht was his collateral)?  No.  Now here is the point.  It’s good to have a banker as a partner.  When they have a large amount of risk in the deal they will become very good partners, willing to work with you to insure that you become successful.

How do investors make money?  They buy assets.  These assets range from businesses to real estate to bonds.  Quite simply they put money to work for them.  Successful investors can create extreme wealth by infusing young businesses with capital (money).  For example Mitt Romney, Republican presidential candidate, and his company Bain Capital which turned 57 million dollars into 50 billion dollars.  The famous financier JP Morgan, along with being a banker also put together deals turning his bank into an equity investor creating tremendous wealth.

Now both of these ideas have been around for a long time.  Yet, they seemed to be reserved for only a special few.  But the new emerging paradigm is about extending these ideas to a larger percentage of the people.  Now on top of this is the fact the tax laws privilege business owners and investors.   

One of the biggest financial hoaxes is that you can achieve financial peace by being a consumer, either a spender or a saver (who saves so they can consume later in retirement).  Financial peace can only come from becoming an investor, using the arbitrage method of bankers, and using the power of leverage.  Now I know that most people view these ideas as extraordinarily risky.  But the financial truth is that they are far less risky than the risk most folks take every day with their finances. 

Now you might be thinking that you are an investor because you buy mutual funds inside your 401K.  Technically, you are and this is a good thing.  But I argue that becoming an investor is more about your state of mind, the way to see the world, than whether you own a microscopic piece of some corporations.  In short Wall Street has done a great job convincing us that investing in mutual funds is the way to riches (in order to retire), but behind this veil of propaganda is the reality that the only folks getting rich off of mutual funds is Wall Street.  I mean study after study has documented that 99% of mutual funds under perform the market over time (15 years or longer), that stock pickers are routinely beaten by darts thrown at a board (chance), and that you are best off finding a low expense index fund that will mimic the market.  In other words the best you can really hope for is average returns.  Yet, most people think that they can identify (buy) mutual funds that will turn them into automatic millionaires; or at least that is what the financial gurus are selling these days.  The facts tell a different story. Despite having been told to save and invest in mutual funds for a generation, despite having a good amount of folks retiring with a defined benefit retirement plan, despite living through the greatest economic expansion in the history of the world, less than 10% of folks retiring today are self sufficient.  Why?   Because they have the mindset of the consumer paradigm.  They shop.  They get caught up in the minutia of consuming, even to the point of consuming investments/retirement plans. 

These folks who consume investments are perhaps the saddest of the consumer paradigm, thinking they can save enough from their paychecks to retire wealthy by buying mutual funds.  Even the salesmen/financial planners are no longer arguing this is possible.  They now tell you that your goal should be to save enough to replace 60%-80% of your current income.  But of course they still tell you that you can beat the market with mutual funds, some arguing that you can get a return of 12% or more!  Here is another fact that should shock you.  Study after study has indicated that consumers of mutual funds’ total rate of return is approximately 10% below what the market returns! Why?  Because folks think like consumers, selling their mutual funds to change to the hottest funds of yesterday, cashing in their 401K’s to bid them over in times of trouble, and moving out of the market after a large drop in value.

Investors do not chase yesterday’s good investments.  They don’t panic when their investment dips.  Warren Buffet, perhaps the most successful investor ever, sums it up nicely: “You should invest like a Catholic marries-for life.”  The point that Warren Buffett has made succinctly is that you should do your homework on what you want to invest in, look for true value, and hold on to it for a long time until the fundamentals of the business don’t make sense anymore.  That is what being an investor is really about.

Bankers work a little differently, but ultimately it turns out to be the same viewpoint.  Their arbitrage strategy is based on taking money in at a fixed cost and putting it to work at a higher rate than their cost.  Now in all interest rate environments this works because interest rates move in tandem.  For example, in the early 1980’s bankers were issuing Certificate of Deposits that paid over 14% interest.  However, they were charging for their residential mortgages up to 18%.  Their commercial mortgages were over 25%.  Now you can get at Certificate of Deposit for 5% and a mortgage for 6% so the margin has gone down, but the strategy still applies.  The strategy works as long as no malfeasance occurs as when the Savings and Loans lent money to folks with no track record of commercial success or when some lenders lent money to individuals with bad credit.  But as long as you have accounted for the ability to be paid back on a loan the arbitrage strategy will create value and wealth.  If you don’t believe this, just take a look at any downtown center in the country and note the names on the large buildings.  Bet you they include bank names!

Now paradigm change is a very difficult thing to accomplish.  It takes much intellectual and emotional work.  You don’t accomplish this in a weekend seminar or by reading any single book.  For me, it took years of research, reading, thinking and yes mistakes to fully pull my financial viewpoint to the place it is now.

The question for your consideration is do you want to continue doing what hasn’t worked?  Or, are you ready to move forward in your understanding of financial principals?

Next blog on paradigm shift I will offer a suggestion on how to move forward.


Paradigm Shift II December 5, 2007

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You might be asking at this point, what this all means to my financial life?

First, we need to look at why you need to be concerned about this shift to the investor/banker paradigm.  The mortgage industry has suffered from bad press lately.  And it deserves the bad press it gets because consumers have been hurt by bad mortgage advice and Wall Street firms have also been hurt by lax underwriting standards. But the naked truth is that the mortgage industry labors under the assumptions of the consumer paradigm. Remember, the underlying assumptions from the consumer paradigm are competition for a limited amount of wealth, and the need to overcome someone else for the limited resources.  Hence the lenders set up a system that generally guarantees what is best for them is not best for their customers.  And of course the customers react by not trusting, or even worse, hating the mortgage company so much that they do things that are counter-productive to their wealth building.  This is in a nutshell what the consumer paradigm has come to for not just mortgages but for just about everything.

But on the fringes of the mortgage business are folks that have recognized the destruction of this way of doing business and have started to introduce different ways of doing business that break down the destructive cycle. In the finance world I call this the investor/banker paradigm.

The change it engenders for both the folks selling financial services and the folks on the consumer side is incredible.  But first a little explanation as to how to put the general ideas outlined in my first post to work.

There are three intellectual/emotional changes that need to occur:

1. We need to change our understanding of what is financially important from income to net wealth.  Let me give you a personal example of how this works.  A couple years ago I changed careers.  In that particular year I spent more money than I made to the tune of $30,000.  Now the old way of thinking is that you should never spend more than you make.  There are myriad of folks out there that ask you to track spending and compare it to how much you make.  They insist that if you spend more than what comes in you are on the way to financial ruin.  From the consumer paradigm this is a fact.  However, for me I didn’t care.  Why?  Because the proper metric to look at is net wealth.  Net wealth is the total worth of all your assets minus your debts.  In that year my net wealth went up $50,000.  Hmm, how could that be?  Well, I control some real estate that appreciated.  I control some stocks, bonds, and mutual funds that appreciated. So even though my income from work did not cover my expenses, the appreciation of my assets was so much that it drove my net worth up.  I will take that kind of year any day over a year that my income and expenses were evenly matched, yet my net wealth stayed the same.  Now the funny thing about net wealth is that you have a great deal of control over it, compared to income.  Income for most people is controlled by a boss, a company, geographic area, education, career choice, etc.  But you can design your assets any way you want to.  And this is what creates wealth.  From a practical view, you should always know what your net wealth is.  This should be a part of your daily regime, calculating net wealth in your head for the day.

2. The mental image of ownership should be replaced by control.  You don’t own your home,car,truck, etc. the bank does!  How many times have you heard that?  That is the consumer paradigm speaking loudly.  Are you in competition with your mortgage lender over your home? With the bank for your car?  Some people think so.  The reality is you control your home, your car, or any other item that someone loaned you money in order to purchase.  The lender doesn’t want it.  It is a royal pain for them to get it back.  They are in the business of selling money, not in selling distressed homes, or repossessed cars.  The truth is that the bankers of the world are your greatest asset, not your enemy (not that they think this way).  They make it possible to control assets without having the money to buy them outright.  By controlling assets you get the benefit if they appreciate.  You get the benefit of using them.  And you share the risk of this control with the lenders.  Personally, I care less whether I own assets, because I only want to control them so I can benefit from their appreciation and cash flow.  Now here is where the hard emotional work gets done.  The consumer paradigm has infused us with fear.  We fear losing things that we own.  But it is only things.  What makes a home?  Is it the brick, wood, cement, dry wall, and paint?  Or is it the people that live in the home?  I believe it is the people that make a home.  If a hurricane came and wiped out the structure I live in, I could easily find another one.  And it would become my home because my family would be there.  My job would be to replace an asset that I controlled.  It could be anywhere.  Fear of losing THINGS we own is what keeps most people from obtaining happiness and security.

3. Victimization and scarcity are the keystones of the consumer paradigm.  Currently there is much talk of mortgage companies who victimized consumers by putting them into bad loans.  People are going to lose their homes because of these sub-prime or variable rate or interest-only or option arm loans.  Earlier in the decade it was all those folks who got victimized by financial advisors who had their money in the stock market.  Every few years it is a new set of victims.  No discussion of why these “victims” knowingly entered into these mortgages.  Nor is there any discussion of who and what was really lost.  These “victims” are portrayed, somewhat accurately, as passive actors in life.  Bad things happen TO them.  They are blown by the winds of society to and fro.  This can only happen to folks working under the consumer paradigm.  Folks who have move beyond this are not victims because they understand there is no scarcity.  Human beings all have the capacity to act upon things, to control our destiny, to create wealth.  There is abundance out there for anyone to obtain.  Move beyond victimization and scarcity and you begin to see it, understand it, and make it possible.

Next blog post I will drill down to the core of the investor/banker paradigm.