Paul Ferraresi

The summertime is a wonderful time to institute an educational system for your children. I am not talking about “text book” learning, but rather, your life experiences with money.

You have a host of examples that have accumulated over your lifetime. You can begin a simple mentoring program. The pressures and hectic activities the kids go through during the school year cease in the slower summer months.

For instance, many kids (possibly even you) that were latch-key kids, learned how to develop shopping lists, budgeting, reviewing bills, cooking, clipping coupons and how to use their allowance wisely.

I am sure you have your own stories that show simple ideas that you can teach and transfer a generation’s worth of financial knowledge. Obviously, children with financial skills and a history of being able to talk about money are better able to take on life. One method of education is an allowance. Do not tie the family chores to the money. Have the kids set up 3-4 “buckets” for their money: SAVINGS (say for college); Sharing (to contribute); Spending (for new purchases) and Spending later (for a later purchase).

Another method is to talk about bad habits of yours so they can learn. When driving to the mall with their kids, you may want to say out loud in the car: “I’m usually very tempted to buy clothes that are on sale, even if I don’t need them. Then I get home and wish I hadn’t bought them. So, I’m going to leave my wallet in the car. If I really want something, I can always come out and get my wallet.” Tactics like these can help your children understand how to value a dollar.

If the children run out of allowance money or want to buy an impulse item… let them “borrow” the money from you at a reasonable interest rate, but, they must put up some of their collateral until it is paid off… say a game or their computer. They can not use the collateral until the loan is paid off.

Oh, you say, that hurts and is “tough love.” Well, it is either discipline now or regret later.

The last few weeks have shown completely different approaches to managing energy by China and the U.S. China has lent $10 billion to Brazilian oil giant Petrobras to further its offshore exploration. In return China will get a future flow of oil equal to 160,000 barrels per day (bpd). China has lent Rosneft, Russia’s oil firm, $15 billion and Russian pipeline operator Transneft $10 billion for agreeing to supply 300,000 bpd from the new Siberian fields for the next 20 years.

In Venezuela, China will contribute $8 billion to a strategic fund for oil development mainly to increase Venezuela’s oil exports to China. China is paying now at today’s prices to insure growth in the supply of oil and their long term access to its share.

Meanwhile here in the U.S., the Obama administration is planning to severely tax exploration and production companies operating in the Gulf of Mexico (our core area of production). Boy, that will be a real incentive for any company to consider looking for oil (tish-tish). This will also make U.S. oil production more expensive (duh!).

The government has delayed and rescinded the opening of other offshore areas for additional incremental exploration and possible production (higher prices for us and less supply. Oh, and you did not know about this? HMMM! I thought we were to have full transparency in this new administration).

Since October 2004 the U.S. Department of Energy claims the global oil supply hasn’t grown much even though we had huge price increases. Most experts agree that large new oil supply is not in the picture.

So, if the supply for oil will be, say, “X” and China has already “bought up” an amount equal to “Y,” then, X-Y will equal the remaining supply. With the demand for oil rising and supply only at “Y”…..well better prepare for higher prices. Experts are predicting a price of $150-$180 a barrel very soon. That is without a major interruption in flow (war, terrorism, etc.) Ah, yes higher gas prices. Better prepare as well as make investments to benefit your family. Once again…discipline or regret.

The massive government stimulus package and additional future programs are slated to increase our debt load to $10-12 trillion.
To the average American they can not understand the magnitude of this huge number. For simplicity, take one trillion one dollar bills, line them up end to end and it would reach to the moon (240,000 miles) and BACK (total of 480,000 miles). Not just once, but over 200 round trips. Get it???
With all the new money being printed to fund these programs will lead to good ol’ inflation. That is, too many dollars chasing too few goods. Well, when we have too much of something it looses its value, so, watch for the dollar to devalue, or lose value. That means the cost of inflation will increase.
Inflation hedging mechanisms for people include investing in real estate, commodities, natural resources, other currencies and, in gold. Experts predict gold to easily trade from $1,650 to $2,000 in the near future from the current $900 levels.
The U.S has borrowed massive amounts from foreign investors like the Chinese, Japanese and Europeans to fund our needs and entitlements. We are asking these same people to lend us more for these huge socialistic programs. Once we have their monies, well, there is an easy way for the U.S. Government to pay back the debt by NOT paying back any money. That is, by a devaluation of the dollar. So those that have lent money to the U.S., foreigners, and also you, by buying Government Bonds will be in trouble. That is, everyone will be paid back in cheaper dollars after devaluation that will buy less, cutting your standard of living. So, senior citizens with Government Bonds are probably going to be hurt the most, since they hold the largest amount of “safe” government paper.
This is not the first Government devaluation. The currency devaluation was effective in ending the Great Depression. In 1930, Australia was the first to leave the gold standard, immediately devaluing the Aussie by more than 40% and the economy quickly recovered. New Zealand and Japan followed suit in 1931, each with the same result. By 1933, at least nine major economies had enacted a devaluation of their currency by removing it from the gold standard, all of whom emerged from depression.
In the United States, our devaluation occurred in 1933, when gold was confiscated and the dollar was devalued by 41%.
The only thing that would remain the same or drop in value would be debt. All other assets would immediately be worth more (in nominal terms), whether it be a home, a stock, an ounce of gold or a used car.
My own view is that currently devaluation would also help relieve the imbalance we have with Social Security and Medicare. Since the dollar would be devalued, the liability on those claims would be reduced by the same percentage. Doing so would make those obligations bearable and feasible. Consequently, a formal devaluation of the dollar would achieve many goals, all of which would be beneficial to those who are debtors.
However, currency devaluation would be detrimental to those with cash instruments such as savings accounts, CDs treasury bills, bonds, money market funds, or other forms of cash assets. This is one of the reasons I advise people to diversify with gold which traditionally appreciates during times of inflation and currency devaluation. All other inflation hedges mentioned above would be beneficial also.
A word for the wise.

Unlike big banks, the leading car lender loosened its loan requirements within hours of receiving approval for its government funding. A week later, GM and Chrysler agreed to expand their participation in a program offering low-cost loans and sales incentives to 90 million credit-union members in all 50 states. GMAC now entertains car shoppers with FICO’s as low as 621.
Basically, that opens the market to about 75% of consumers. Dealer selling prices – usually about 10% below sticker in January – now are running about 15% off, industrywide.
At this writing, annual percentage rates on GMAC loans range from 0% on less-popular models like Chevrolet Trail Blazer to 5.9% for more sought-after vehicles like the Silverado Truck. Terms have lengthened and, in some cases, cash-back offers can be combined for $4,000 or more off sticker prices. But the devil is in the details.
Hypothetically, you can fetch them from auto maker Websites – such as Chrysler Financial (www.chryslerfinancial.com) , Ford Credit (www.fordcredit.com) , Toyota Financial Services (www.toyotafinancial.com) and Honda Financial Services (www.hondafinancialservices.com)
The alternative? Shop on third-party automotive Websites, where it’s easier to find impartial info and make comparisons. Edmunds.com’s new inventory feature (“Search new car listings,” in the blue box on its home page) lets you comb local lots to find just the model and appointments you want. From there, you can get price quotes, conduct simultaneous negotiations with multiple dealers, and study specific contract terms while calculators and other sources are close at hand.
Documentation, sales and other fees in the typical automobile contract bear close scrutiny, as do the creative ways that dealers apply manufacturer sales incentive. Better to nail down those details before walking into a finance manager’s office where all the calculations and recalculations can be daunting. (See: “Confession of an Auto Finance Manager” at www.edmunds.com/advice/buying/articles/125308/article.html).
Sites like Edmunds.com also link to lenders, so you can have your credit approvals and alternative dealer quotes in hand before negotiations begin. You might also want to check Edmunds.com’s several True Market Value pricing surveys (www.edmunds.com/tmv/alerts.html) that show what others paid for a given model in your area and even predict how it will hold its value once it leaves the lot.

Edmunds.com isn’t your only ‘Net resource.’ NADA Guides (www.nadaguides.com) is another longtime industry observer with much of the same functionality, but also covering classic and collectible cars, RVs, motorcycles and boats. Publisher of the NADA Appraisal Guides, the site has other useful features, such as vehicle history reports priced at $15 for starters, compared with $30 for vehicle reports on Carfax (www.carfax.com).
On the other hand, Carfax’s used-car search tool has an unusual feature: a free preliminary car history for each search result that is pretty complete and can include tantalizing tidbits. For example, one recently listed Dodge spent the first 19,643 miles of its young life in Nevada before deciding to move to California a month and 450 miles ago. That could be innocent enough or a sign of a problem.
For a truly omnibus auto resources, it’s hard to beat the auto community on AOL (http://autos.aol.com). Industry news and car blogs abound, as do lenders and car buyers sharing lessons learned. In terms of credit, AOL’s Wallet Pop (www.walletpop.com) has every calculator and personal finance resource imaginable.
If you have good credit, FirstAgain (www.firstagain.com) is a common-sense lender that will judge your credit-worthiness holistically – based on your payment history, employment and financial resources as opposed to just your FICO score. With a background in auto lending FirstAgain makes uncollateralized loans of $10,000 to $100,000, entirely over the Net, within 24 hours. Alternatively, BadCreditOffers (www.badcreditoffers.com) and BadCreditLoanServices.com are convenient Web gateways for shoppers with credit problems.
Generally, expect your average credit union (www.creditunions.org) without exposure to devalued debt securities to offer more flexible credit terms than an over-leveraged major bank. The Credit Union National Association (www.creditunion.coop/cu_locator/imdex.html) will locate a credit union in your area.

One of my Finance Instructors that I admired was Nobel Laureate Milton Friedman. He was a monetarist and built the “Chicago School” of Finance. He advised many world leaders and showed that inflation was, is now and forever will be a monetary phenomenon.

As many of you learned in your economics courses – inflation comes about as too many dollars are chasing too few goods.

The money being printed in Washington for TARP, the Stimulus Bill, and the 2009 budget is astronomical. Never in the history of the U.S. has so much money been printed (I wish I would have told everyone to invest in WD-40 to oil the printing machines. We would have all been wealthy).

None-the-less, my role as my client’s advisor is to look out into the future, note trends and have them invest ahead of the crowd. With all this money being created in Washington it will lead to a HUGE increase in inflation very soon (somewhat like a snake eating a rat, it will take a little time to go through the system).

I advised all my clients in December to increase their asset allocation position in metals, especially gold. I am not a gold bug, but, it is obvious what will take place. Last December prices for gold were at $750. It increased to $1000 recently (a 33% increase) and as of this writing is in the mid $900. Experts predict a rise to $1500+ in the next two years. Please do not follow the crowd and get into gold after the price rises (you know buy high sell low). You can, and should have long ago taken a position in gold via stocks, mutual funds or exchange traded funds. I am suggesting that you buy the physical gold. Coins are an acceptable method to do this and you must take possession. Do NOT store them at the coin company.

Remember you will never make money in gold. It is simply a hedging or insurance mechanism. That is, if gold is going up, then other asset classes are going down and vice versa. Make sure you work with a reputable coin dealer.

Watch the short video below that came from Glenn Beck’s show; it does show how dramatic money creation has been recently.