Creating a Community.
Partnerships are key to success! The Golden Gate Bridge wasn’t built by one person. The more you can partner with like-minded people, the more big problems you can solve. Partnerships can help you to commit to an exercise regimen, to study, to invest and to do almost anything you want to do.
The key is getting the right kind of support. For instance, your workout buddy might be a great, fun way to keep regular with your routine. However, s/he is probably not the best person to design your routine. For that, you want someone who is well-schooled in diet and exercise regimens, and who knows how to keep you from hurting yourself. It’s very common for people to pray and meditate individually, and come together each Sabbath to study the scriptures for guidance on how to live a more divine life.
Getting wisdom from a qualified source (not just your friends) is key to success. You don't want to get your spiritual practice from Jim Jones, your diet tips from an anorexic model or your financial wisdom from a salesman. Grade your guru before you listen to anything they say. Make sure that they have a Ph.D. in success that spans at least a decade. The most common way that people lose money is by trusting blindly, without verifying, in a friend, family member or commission-based salesman.
I want to encourage all of us to learn more about financial literacy, and to form partnerships that help us to take our learning and actions deeper. Our team offers the time-proven systems and solutions that can support you and your community to make sure that you are drinking your #finlit from the well of wisdom (instead of from sales-speak). The more you drink in and apply what works, the better your results will be. Your community can then help you to be disciplined about applying what you learn, and even in forming partnerships that might take on larger projects that you couldn’t handle on your own.
Please see below for ways that we can support your continued learning up the path to financial empowerment and wisdom. Also, we are here to help, particularly when you have a hot tip/idea, or are concerned about a popular video or email that is circulating. Some of the hottest companies that I’ve featured came in as a hot tip from our community, as have some of our most valuable investor alerts.
*21-day coaching program.
*Free teleconferences, blogs and online community.
*Private, prosperity coaching
And here is more information on each resource.
*21-day coaching program.
The Gratitude Game was originally designed as a 21-day coaching series for retreat attendees to do after they attended a retreat, in order to make sure that they were remembering and implementing all of the wisdom and strategies that they had learned. We recommend this book in the audio format, using The ABCs of Money and Put Your Money Where Your Heart Is as textbooks.
*Free teleconferences, blogs and online community.
You can join me in a monthly teleconference, in my money blogs and access daily money tips. I frequently post links to relevant videos and articles on my Twitter and Facebook pages, and always post when a new blog is up or a teleconference is scheduled. Check out the links below for each page that you should consider following and visiting on a regular basis. If you have a suggestion, hot tip, investor alert or a question for the monthly teleconference, please tag me with it on Twitter or Facebook, or email Heather @ NataliePace.com.
Feel free to start your own conversations and share Stock Report Cards on our Facebook.com page.
Monthly Teleconferences: http://www.BlogTalkRadio.com/NataliePace
Money, Personal Finance, Investor Alerts and Hot Stocks Blogs: http://NataliePace.com/Blog
Sustainability Blog: https://Medium.com/@NataliePace/
*Private, prosperity coaching
This is your chance to make sure that you understand how our time-proven systems in budgeting and investing can apply to your own personal situation. Private prosperity coaching packages can be a great, affordable way to get your life on track. We recommend that you attend a retreat and learn the basics first, so that the private coaching can be more effective. Call 310-430-2397, if you’re interested in learning more.
Our 3-day Investor Educational Retreats offer the ABCs of Money that we all should have received in high school, taught by a No. 1 stock picker. You can find additional information about the next retreat on the home page at http://www.NataliePace.com/. The next retreat will be Oct. 13-15, 2017 in Southeastern Arizona – our Old West Financial Empowerment and Healing Retreat. This is our most affordable retreat. Receive the best price if you register by July 31, 2017. Receive a complimentary private, prosperity coaching session (value $300), when you register by June 30, 2017.
Wonder what news I read? How I know what is happening before it hits the headlines? How I am able to identify great companies before they get a Buy rating from the analysts? Learn my tricks, so that you can match my results. If you wait for the headlines, it’s too late to act and to protect yourself. The Master Class is available to volunteers and repeat retreat attendees only.
Recent Blogs To Check Out
Will Congress Raise the Debt Ceiling in Time?
The Debt Ceiling Must Be Raised By August.
The SnapChat IPO
Penny Pot Stocks
Important Disclaimer: Natalie Pace is not a broker or a financial advisor. She doesn't sell financial products. She is a bestselling author and has been ranked the #1 stock picker. She offers financial education and the ABCs of Money that we all should have received in high school.
Will Congress Raise the Debt Ceiling Before the Summer Recess? How will this affect the U.S. economy, and your income and nest egg?
The House Freedom Caucus will not approve a clean debt ceiling, according to their press release, issued on May 24, 2017. Here are the demands of the Freedom Caucus, which is chaired by Representative Mark Meadows (R: North Carolina).
We oppose any clean raising of the debt ceiling, we call for the debt ceiling to be addressed by Congress prior to the August Recess, and we demand that any increase of the debt ceiling be paired with policy that addresses Washington’s unsustainable spending by cutting where necessary, capping where able, and working to balance in the near future.
This puts the far right in opposition to Democrats, who have called for a clean debt ceiling bill. Treasury Secretary Mnuchin requested for politics to be put aside for now to get the Debt Ceiling passed before Congress breaks for summer. Twice Secretary Mnuchin was pressed to support a clean Debt Ceiling bill, and twice he iterated that was his preference.
However, the White House economic team, headed by Gary Cohn and Mick Mulvaney, wants the Debt Ceiling to be accompanied by a debt reduction and spending reform plan. National Economic Council director Cohn and White House budget director Mulvaney, who founded the Freedom Caucus, have both spoken in interviews this past week assuring Americans (and the world) that the Debt Ceiling will get passed and that there will be no default on payments. However, Mulvaney has also made it clear that The White House Administration would “like to see things attached to it that drive certain spending reforms and debt reforms in the future.”
Paul Ryan has little choice, but to go along with the Freedom Caucus. Without their member votes, he will be unable to get the Debt Ceiling raised, unless he writes a bill that caters to the Democrats. Speaker John Boehner went around the Freedom Caucus, and used Democratic support to raise the Debt Ceiling in October of 2015. It cost Speaker Boehner his job. Speaker Ryan could conceivably craft a bill that would get all of the Democrats and a small number of Republicans on his side to get it passed. However, the key number here might not be the roll call. It’s more likely to be Ryan’s age. Speaker John Boehner was 65 when he committed political suicide – a time when he was ready to retire. Speaker Paul Ryan is only 47 years old. Speaker Ryan has been in office since 1999 – for almost two decades. It’s hard to imagine him doing something that would cost him his job.
The Debt Ceiling bill is bound to include concessions that the Democrats will find it tough to swallow. However, there is another massive problem. All of this must be done before Congress breaks for summer. If they get too close to the X date – the date when we run out of money to pay our bills – then the U.S. risks a credit downgrade from both Fitch and Moody’s. The Debt Ceiling was hit on March 15, 2017. Secretary Mnuchin has been using extraordinary means to pay bills since then, but warned that tax receipts were weaker than anticipated. This put X date before the Summer Break, rather than fall.
In August of 2011, when the U.S. credit was downgraded by Standard and Poor’s after coming too close to the X date, gold soared to its all-time high and stocks sank. Stocks did ultimately recover. However, that was the third year in the bull market cycle, and Moody’s and Fitch Ratings did not downgrade the U.S. credit from its AAA rating. 2017 is entering the 9th year of the bull market – a milestone that is very difficult to achieve. The last two times the economy went 8 years without a correction, the losses were catastrophic. The Dow Jones Industrial Average lost 55% in the Great Recession and the NASDAQ Composite Index lost 78% in the Dot Com Recession (and took 15 years to recover).
A political log jam will cause a flood of distress in the world economic system and a downgrade to the U.S. credit by both Moody's and Fitch Ratings. The Powers that Be, both sides of the aisle, understand this. However, the sheer weight of the debt might drown the debate more than investors, and the politicians, are expecting.
One thing is for sure. Protecting what you have is your most important job in 2017, just as it was in 2008 and 2000. That is why I’ve scheduled my Florida Financial Empowerment Retreat for Jun 10-12, 2017 – in plenty of time to get safe before the Debt Ceiling starts dominating the headlines. If you wait until the headlines heat up, it will be too late to protect yourself. Those people who used my Easy-as-a-Pie-Chart Nest Egg Strategies earned gains in the last two recessions, and have outperformed the bull markets in between. These strategies also save thousands in your annual budget! Meaning you can live a richer life today, provide far better for tomorrow and enjoy more bucket list vacations. If you’re employing Buy and Hold, then you are riding the Wall Street rollercoaster, and are as vulnerable today as you were in 2000 and 2008. Call 310-430-2397 to get started on your Debt Ceiling-proof asset protection plan now.
FYI: I first warned that this Debt Ceiling crisis could be problematic, and that the U.S. AAA credit rating was at risk, on March 16, 2017. Click to view that blog. Check out other important updates regularly at http://www.nataliepace.com/blog.
Debt Ceiling Must Be Raised By August
On May 24, 2017, Treasury Secretary Mnuchin warned the House Ways & Means Committee that the Debt Ceiling must be raised by August, before Congress goes on Summer Break. What does this mean to you, your investments and your future?
5 Things the Powers That Be Aren’t Telling You About Our Economy
Here are the details, and how these issues affect you now and in the years to come.
1. Congress must raise the Debt Ceiling by August, Before the Summer Break. May 24, 2017, just a few days before Memorial Day, Treasury Secretary Steven Mnuchin testified before the House Ways and Means Committee. At least two different times, he emphasized that the Debt Ceiling should be raised before Congress leaves for the summer break. He said, “It is absolutely important that this is passed before the August recess. As far as I’m concerned, the sooner, the better.” The same day, White House Budget Director Mick Mulvaney told the House Budget Committee that “The [tax] receipts are coming in slower than expected.”
What does this mean for you? Not a whole lot in the near term, if Congress raises the Debt Ceiling in June. If the process is drawn out or gets to close to X date (the date when the Treasury Department can’t make payments to Treasury Bill holders, government employees and/or Social Security recipients), then the U.S. risks a credit downgrade from both Fitch and Moody’s. If that happens, it could be a serious problem, with pandemic economic consequences, beginning as early as August.
Other world currencies are gaining strength on the IMF Currency Composition of Foreign Exchange Reserves. The Chinese renminbi was added to the SDR basket of currencies in 2016. The Australian and Canadian dollars are increasing as global FOREX reserve holdings. The U.S. dollar currently makes up 46.8% of the total FOREX reserves (according to the IMF). (The IMF data grossly misrepresents the power of the Chinese renminbi, and the trade exchanges that are going on between Russia and China directly, in their own currencies.) As the U.S. debt continues to balloon, this will continue to force pressure on the buying power of the dollar. Basic supply and demand tells you that a weaker dollar translates into more dollars needed to purchase the same thing. That would put even more pressure on the debt, which will start experiencing larger interest payments in the years to come (no matter what). Switching from the dominance of the U.S. dollar to a basket of world currency is happening incrementally. The Powers That Be are trying to prevent it from becoming a snow ball.
The Bottom Line: Cash, though safer than bonds and Money Market Funds, is losing buying power. Safe, income-producing hard assets that you purchase for a good price are a better idea. That’s why we spend a full day on this topic at the Investor Educational Retreat. (Call 310-430-2397 or email Heather @ NataliePace.com to learn more.)
2. Social Security has been cash negative since 2010, and is predicted to run dry in 2034 (in 17 years). Disability Insurance is borrowing from Social Security because it dried up in 2016. $5.5 trillion of the current $20 trillion in debt is social security debt (and climbing). What is a little distressing about these facts is that they are not part of the public debate. In fact, Representative Kevin Brady, the Republican chairman of the House Ways and Means Committee, noted that Medicare and Social Security are the biggest drivers of our debt, yet were absent from Treasury Secretary Mnuchin’s statement dated May 24, 2017, as was any mention of the urgency of raising the Debt Ceiling as soon as possible.
3. GDP Growth is Predicted to Be 2.1-2.3% in 2017 and 2.1-2.6% in 2018, not 3%. Most predictions have the growth under 2% in the years thereafter. (No one ever predicts a recession, until after it has happened.) Meanwhile, The White House Administration and Treasury Department are using 3% GDP growth as rationale for making their tax cuts work. Here’s what Fitch Ratings’ Charles Seville had to say about this (in an email to the press dated May 24, 2017), “The President’s Budget’s proposal to eliminate the federal deficit and reduce the debt/GDP ratio over 10 years rest on an optimistic long-run growth assumption of 3%, which is unlikely to be realized given slowing growth in the labor force.” Mr. Seville is senior director and lead analyst on the U.S. sovereign rating.
The GDP growth in the 1st quarter of 2017 was 1.2%. The prediction for the 2nd quarter is currently 3.8%! (Woo hoo! If those predictions hold true.) We will get new projections from the Federal Reserve Board on June 14, 2017, when they have their next meeting.
We all want a robust economy, strong jobs and less taxes. The basis of a strong economy is innovation and inventing/building the products of tomorrow that the world can’t live without.
4. The Current Administration’s Tax Cuts Help (A Little) in the Short Term, but are predicted to hurt in the Medium and Long Term. And they aren’t expected to get us to 3% GDP growth. Who doesn’t like lower taxes? People and companies all benefit. The problem is that with $20 trillion in debt, when the government cuts its income (with the tax breaks), it can’t pay off its debt. More military spending also equates with more disability and medical claims from young men. Up to 35% of Iraq/Afghanistan Veterans suffer from PTSD, and over one million veterans from those wars were injured. (The VA stopped publishing data on injured veterans in 2013.) The disability insurance went broke in 2016, and is borrowing from Social Security. Tax cuts mean even more borrowing to try and make ends meet – a recipe for disaster. When cutting taxes and increasing military spending is prioritized at the expense of education and investments that fuel desirable, new industries, then GDP growth is held back by the inability to pay what we already owe and increased social and financing costs.
5. Cash is not the safest investment in today’s Debt World, though it is better than bonds and money market funds.
Bonds have lost money over the last decade and are vulnerable in the years to come. Credit risk (bankruptcies and restructurings, ala Detroit, Puerto Rico and the retail stores going belly-up) and interest rate risk are both concerns. Money market funds now have redemption gates and liquidity fees. When currency moves happen, cash can lose buying power overnight. We saw this in the fall of the euro and the British pound in the wake of BREXIT, when both currencies lost 15% or more overnight after the vote.
So, what’s safe? Safe, income-producing hard assets that you purchase for a good price. Every word in that sentence is key, particularly now when real estate is higher than it was in 2007, before the Great Recession. Fortunately, our team has identified some great investments that meet these criteria. The annual savings for most people is in the thousands, and for many can add up to tens of thousands in annual cost benefits. That’s the best ROI in today’s world, and also the lowest risk!
In short, if you’re getting your news from the mainstream media and your budgeting and investing strategy from salesmen and debt collectors, you’re as vulnerable today as you were in 2007. In the Great Recession, stocks lost 55%, 7 million Americans lost their homes and most of the banks, brokerages and insurance companies were bailed out.
Wisdom is the cure. Call 310-430-2397 to get access to budgeting and investing strategies that have worked since 1999 – earning gains in both of the last two (devastating) recessions and outperforming the bull markets in between. If you want to be sure to implement these strategies before August, then attend the June 10-12, 2017 Financial Empowerment Retreat in Cocoa Beach, Florida.
About Natalie Pace
Natalie Wynne Pace is the co-creator of the Earth Gratitude project and the author of the Amazon bestsellers The Gratitude Game, The ABCs of Money and Put Your Money Where Your Heart Is (aka You Vs. Wall Street). She has been ranked as a No. 1 stock picker, above over 835 A-list pundits, by an independent tracking agency (TipsTraders). The ABCs of Money remained at or near the #1 Investing Basics e-book on Amazon for over 3 years (in its vertical).
5 Distressing Facts You Probably Don’t Know About Social Security
1. Cash Negative: Social Security went cash negative in 2010, five years earlier than anticipated, according to the Brookings Institute.
2. A Big Percentage of the Federal Debt: Social Security adds to the federal debt every year. The current amount of debt that is attributable to “Intragovernment Holdings” (the name given to various federal accounts, including the social security trust fund) is $5.5 trillion and growing. The total U.S. public debt is $19.8 trillion (as of 5.26.17). The social security trusts (and a few other accounts) add up to 27.8% of the debt.
3. Tax Cuts and GDP Growth Are Unlikely to Fix It: According to Fitch Ratings (in a press release in 2016), “The most immediate fiscal challenge is to restore the social security system - largely unaddressed by 2016 budget proposals - to a more sustainable state.” On May 25, 2017, Charles Seville, Fitch Ratings senior director and lead analyst on the US sovereign rating, wrote that “The President’s Budget’s proposal to eliminate the federal deficit and reduce the debt/GDP ratio over 10 years rest on an optimistic long-run growth assumption of 3%, which is unlikely to be realized.” Tax cuts are unlikely to generate a lasting and substantial boost to growth, in Fitch's view.
4. The Disability Fund Dried Up in 2016 and is Borrowing from Social Security. The Disability Insurance Fund has been borrowing from the Old Age and Survivors Insurance (OASI) Trust Fund since 2016 – just before the DI Fund was depleted (source: Social Security Administration). The DI Fund is predicted to be drained dry in 2022 (in just 5 years), if no changes are made.
5. Tapped Out in 17 Years. The Social Security Funds are predicted to be depleted by 2034, unless measures are taken to shore the funds up. The last time this was about to happen, in 1983, Congress saved the day with measures that are not predicted to work as well this time. This also assumes that the fund depletion doesn’t move faster than predicted, as happened when the Social Security system went cash negative in 2010.
With one bonus, Social Security Note.
Should You Wait Until Age 70 to Retire?
It’s easy to see why the government website and many mainstream media outlets encourage people to wait until 70 to retire, under the rationale that waiting offers you a larger annual stipend. Waiting to retire helps the system stay afloat. However, if you do the math, then you realize it takes 12-20 years to make up the amount you forego when you wait that long. (If you wait until 67 to retire, instead of age 62, you could be giving up $100,000. If you wait until age 70, you could be passing up over $200,000.) If you’re an active income-earner, it won’t add up to retire early, when you could earn your full salary instead. However, if you’re out of work, the early retirement could be a Godsend.
Incidentally, the Brookings Institute reminds us that public pensions went cash negative over 25 years ago, in 1985. (2003 was one year when distributions were less than contributions, however, the majority of the time has been in the red.)
The bottom line is that if you’re counting on getting a fat check from your company or the government in retirement (or disability), your expectations are likely to hit a reality check in the years to come. Many pensioners, particularly those in the auto manufacturing and airlines industries, have already learned this the hard way – having received a big cut in the pension, health care and other post employment benefits that they were promised, but are not receiving. Private pension promises are rewritten and cut in bankruptcy proceedings. Politicians are having a hard time announcing reform to the public pension system, which is one of the big reasons why the U.S. debt is increasing each year.
The bankruptcies in the private system remind us that borrowing from Peter to pay Paul always has an expiration date. Let’s hope we can all come together to resolve the problems before that happens. Until then, it’s a good idea to have a Plan B for your retirement future. There are many ways that you can do a better job of providing for your future, while living a richer life today, by shoring up your assets, and making smarter choices in your energy, budget and savings expenses and strategy. Call 310-430-2397 to learn more about Natalie Pace’s:
Good math goes a long way in today’s world. It has been fueling the rise in the stock market, and it is also helping to make ends meet for the U.S. Federal Government. For instance, if you wait to retire until you are 67, the Social Security Administration will give you XYZ benefit level, and even more if you wait to 70. On the face of it, waiting looks like a good idea. However, if you do the math, you’ll realize that it will take you 20 years to make up the losses of waiting until you’re 67 to retire – longer than most people live. (Something that is never mentioned in the glossy brochure or blog.) That’s great for the U.S. (and “us”), but not so good for you individually, particularly if you are 62 and out of work.
And that’s the issue with stocks, too. The boom/bust economy that we’ve been embroiled in during this new Millennium can be great in the short term, but costs everyone dearly in the correction (which has been happening in an 8-year cycle since 2000). In 2000, Dot Com companies were given the cheap, easy money, resulting in a 78% correction in the NASDAQ Composite Index that took 15 years to recover from. Prior to the Great Recession, money flowed into liar loans, subprime and real estate, costing the Dow Jones Industrial Average a drop of 55%. The American taxpayer had to bail out the banks, insurance companies and brokerages, and over seven million people lost their homes. 5.4 million homes are still seriously underwater and the debt in the developed world has become astronomical (at $20 trillion in U.S. public debt and over $65 trillion in U.S. total debt and loans). This hits Main Street the hardest, since the “smart money” always moves out first.
So, where is the cheap, easy money flowing these days? Who is benefiting, and what will be the ultimate cost? The short answer is that corporations are getting the bulk of the money. They are buying back their own stock, which pushes up the stock market. Just as Internet companies couldn’t get to cash break even in 2000 (despite an inflow of investment money), many legacy companies are suffering from sluggish sales and drowning in debt, pensions and other post employment benefits – something that borrowing money doesn’t correct. Large corporations have been borrowing money very cheaply and using it to push up the value of their own stock, rather than investing in new products, people or productivity. Here’s how the financial engineering works.
Corporate Buybacks Look Great on Paper Because…
The Share Price Stays High
Earnings Look Higher Than They Are
Price to Earnings Ratio Looks like a Bargain
However, what is really happening is that …
Share Price Stays High
The share price is staying high because the company’s own buying makes it look like the stock is popular.
Earnings Look Higher Than they Are
Many companies buy back their own stock in order to make their quarterly earnings look good. How does this work? When you reduce the number of shares (as happens when corporations buy shares and take them out of circulation), the earnings per share goes up, even if the revenue (sales) is actually flat or even lower than it was a year ago.
Price to Earnings Ratio Looks like a Bargain
The Price to Earnings Ratio also looks more attractive when the share count is reduced. Investors think that the stock is on sale, and might be tempted to buy at what they perceive is a bargain price.
According to Howard Silverblatt, the senior index analyst for S&P Dow Jones Indices, corporate buybacks have boosted EPS by 20% over the last 4 years.
The Smart Money Exits Quietly, First
Corporate buybacks were down in 2016 and 2015, from the highs set in 2014 (which were on par with the highs set in 2007, before the Great Recession). The last two consecutive declines in buybacks occurred in 2008 and 2009 (when the Dow Jones Industrial Average dropped to a low of 6547).
In spring of 2005 (two years before the subprime crisis), home builder CEOs were selling hundreds of millions of their company stock, including Angelo Mozillo at Countrywide, the Toll Brothers and the KB Home CEO. Over the last year, Apple insiders have taken profits on over $610 million in stock. Microsoft executives and directors have cashed out over $4.5 billion. Jeff Bezos (the CEO of Amazon) has sold over $1.7 billion of Amazon stock.
The First Signs of Distress: Retail Bankruptcies
The retail bankruptcies of the last few years have shocked consumers, but haven’t weighed on the stock markets – yet. Retailers continue to be at risk, with the threat of bankruptcy in the next 12-24 months looming for Sears Holding Company, Claire’s Stores, True Religion Apparel, 99 Cents Only Stores, Nebraska Book Company (for the 2nd time in five years), Nine West Holdings and Rue21 (source: Fitch Ratings). Payless declared bankruptcy on April 4, 2017. The loss of income for mall REITs can’t be good. Publicly traded mall REITs are heavily indebted, with Taubman Centers Inc. carrying a debt to equity ratio of 51 (source: Money.MSN.com).
No One Ever Predicts a Recession
In 2007, even as mortgage banks were going out of business in droves and the auto manufacturers were hanging on with backdoor borrowing from the U.S. Treasury, Treasury Secretary Henry Paulsen was still reassuring investors that the subprime mess wouldn’t affect the overall economy (source: Bloomberg, July 26, 2007). GDP growth predictions for 2009 were still 2-3% growth in June of 2008, even though Bear Stearns had already collapsed and Lehman Brothers, Washington Mutual, Merrill Lynch, AIG and many of the largest U.S. banks, insurance companies and brokerages were teetering on the edge of bankruptcy and negotiating behind closed doors for emergency capital to save their assets. Even after the bailouts, the October 2008 economic projections were still touting GDP growth. It wasn’t until January 28, 2009, just a month and a half before the bottom of the Great Recession, that the GDP growth predictions finally reflected negative growth. If you wait for the headlines that we’re in a recession, it’s too late to protect yourself.
What’s Really Going On Behind the Scenes
The basic analysis of what is really going on behind the scenes today is that everyone in most of the developed world (with rare exceptions), including governments, corporations and individuals, are borrowing from Peter to pay Paul. According to the Urban Institute, 1/3 of Americans with a credit score are in debt collections. It doesn’t take any amount of data to know that most of the people you know are struggling financially, buying less of everything, taking fewer vacations and being forced to come up with creative solutions for housing.
Financial engineering (fuzzy math) only takes things so far. When the correction occurs, there isn’t a warning. In fact, there is always a lot of high-level rhetoric reassuring everyone, while behind the scenes the smart money is cashing in as much as they can as fast as they can.
And that is why I’m encouraging everyone to make sure that you are safe and protected now. If you lost more than half in the Great Recession, and you haven’t made any changes to your strategy, you are as vulnerable today as you were then. The safe side of your portfolio is even more vulnerable. There are safe, easy, time-efficient, time-proven strategies that earned gains in the last two recessions, outperformed the bull markets in between and are easy-as-a-pie-chart. You can also save thousands of dollars every year with smarter energy, budgeting and investing choices (without a loss of life style), when you stop making the billionaires rich at your own expense. Wisdom is the cure.
Call 310-430-2397, or email info @ NataliePace.com to learn more. Join me on my teleconference this Thursday at 9 am PT (noon ET) for an interactive conversation on financial engineering, where I am happy to answer your questions. If you want to protect your assets before summer (and frolic in the warm Atlantic with new friends), then join me at my June 10-12, 2017 Oceanfront Florida Financial Empowerment Retreat. Only a few seats remain available.
Should You Sell in May and Go Away?
As we enter the 9th year of the current bull market (something akin to unicorns, historically), it’s definitely time to ask ourselves, “Should I sell in May and go away on holiday?” Is this the time to take profits, count blessings, get a little defensive and take an epic vacation? Below are a few considerations.
And here are details on each of these considerations.
2. How Do the Markets Perform May-October Under First Time Presidents?
As you can see from the chart below, the performance is more affected by the business cycle, than it is by the President. President George W. Bush had a terrible time his first year. However, he inherited an economy that was ripe for a recession. The U.S. had experienced eight years of prosperity under President Clinton. NASDAQ was a bubble that was ready to pop. When President Obama took office, the U.S. was near the bottom of the Great Recession (the exact bottom was March 9, 2009). There was nowhere to go but up. This year marks the 9th year of the current bull market – a difficult time for market gains, historically.
3. How’s the Economy Doing These Days?
The predictions are for very slow growth, at just 2.1% GDP growth for 2017. (No one ever predicts a recession.) The 1st quarter 2017 GDP growth was the lowest it has been in years, at 0.07%. Other issues include: $20 trillion in public debt, over $66 trillion in total U.S. Debt and Loans, and business, governments and people who are borrowing from Peter to pay Paul to try and make ends meet.
4. What Positive or Negative Events Are on the Horizon?
The current Budget funds government only through September 30, 2017. The U.S. Treasury Secretary is currently using extraordinary means to pay bills because the Debt Ceiling has been hit again. If the Debt Ceiling isn’t raised before the U.S. runs out of money to pay bills, then Fitch Ratings might downgrade the U.S. credit. The new budget and Debt Ceiling will have to be resolved in September to avoid all of this. The last time that Congress raised the Debt Ceiling, House Speaker John Boehner lost his job. He had to enlist the support of Democrats to get the Debt Ceiling raised. While the bipartisan Budget that was just passed makes it seem possible that all of this can get done, everyone is mum on the issues. If you wait for the headlines this fall, and they turn out to be contentious or problematic, it will be too late to protect yourself.
5. What’s Fueling the Bull Market?
Free, easy money (for corporations and countries, but not individuals or small businesses). Corporate buybacks. Financial engineering. For more on this, tune into my May 25, 2017 teleconference. Get call in instructions and listen back 24/7 on demand at http://www.BlogTalkRadio.com/NataliePace.
6. What Other Opportunities Exist for Investors?
The best opportunities today are safe, income-producing hard assets that you purchase for a good price. Real estate is more expensive in many areas than it was before the real estate bubble burst in the Great Recession. So, income property is not necessarily a good price right now (although it might be in some areas that have not experienced a return to the pre-Recession highs). Most of the best areas of opportunities lie in purchases you can make now to reduce the money that you spend monthly on big ticket items like housing, transportation, electricity, insurance, medical insurance, etc. (This is another major area of focus at my Investor Educational Retreats.)
7. What’s at Stake?
The last two times that the U.S. economy went 8 years without a correction, the economy crashed. Investors lost more than half in the Great Recession (and over 7 million people also lost their homes), and more than 3/4ths in the Dot Com Recession. This economy is far more fragile than it was in either of those two recessions, with all of the debt that abounds.
Performance of the Dow Jones Industrial Average Index from Oct. 2007 to March 2009
Performance of the NASDAQ Composite Index from March 2000 to October 2002.
Access my teleconference, "Should You Sell in May and Go Away?" at http://www.BlogTalkRadio.com/NataliePace/2017/05/05/sell-in-may-and-go-away.
About Natalie Pace
Natalie Wynne Pace is the co-creator of the Earth Gratitude project and the author of the Amazon bestsellers The Gratitude Game, The ABCs of Money and Put Your Money Where Your Heart Is (aka You Vs. Wall Street). She has been ranked as a No. 1 stock picker, above over 835 A-list pundits, by an independent tracking agency (TipsTraders). The ABCs of Money remained at or near the #1 Investing Basics e-book on Amazon for over 3 year (in its vertical).
Rich people know and understand the basics of money, and how to make the best out of any situation. It’s like playing tennis with Serena Williams. She can ace a tennis ball like a missile off your head, lob, volley or fake you out. She’s been practicing endless hours every day, and has thousands of tools at hand that you’ve never heard of.
There are many times when you’re going to be standing there stunned, wondering what just happened, as another ball zings past your face before you’ve even seen it. If you’ve ever felt that way about the economy, like say in 2008 and 2000, that’s what’s happening. The “smart” money knows when a house of cards is about to fall. The CEOs of KB Home, Countrywide, Toll Brothers and Goldman Sachs (and many more) all sold hundreds of millions of dollars of stock between 2005 and 2008 – before the Great Recession. It may be bittersweet to make money when others are devastated, but it is certainly better than losing.
In finance, amateurs get wiped out in recessions. Everyone makes money in bull markets, just as anyone can float downstream on a slow-moving river. It’s the white-water rapids that let you know, as Warren Buffett says, “Who has been swimming naked.”
As we enter the 9th year of the current bull market, and the white-water rapids of the next recession become nearer, here are some very important facts to consider.
Below are a few ways that Rich Americans protect themselves to rise above tough times and soar when the wind is at their back… Billionaires and Royals place a priority on family, on keeping their hard-earned money and on earning money while they sleep. If you know the tricks, you can embrace and adopt them, too.
10 Money Secrets Billionaires and Royals Know.
The rich are getting richer. The middle class is getting squeezed. And the lower class is still at the back of the line. You can change all of this by learning the ABCs of Money that we all should have received in high school. Call 310-430-2397 to learn more now.
If you want to get safe before the end of summer, join me at my next Investor Educational Retreat.
In the updated 2017 nest egg pie charts, I have an important alert for the safe side. Bonds and money market funds are vulnerable. FDIC-insured cash is safer. Safe, income-producing hard assets that you purchase for a good price are best. Why do I say that and what does that mean? (Click to get your own personalized nest egg pie chart in my free web app.) Is there any safe investment that pays a good return (like 20-40%)?
Bonds are vulnerable. They have already begun losing value, and in the worst-case scenario they become toilet paper or illiquid (the airline industry, auto manufacturers and Greek bond “restructurings” are examples). In today’s Debt World, this is a real consideration. Read my blog, “The U.S. Treasury Secretary is Using Extraordinary Means to Pay Bills” for more information on the risks of investing during such a highly-leveraged time. There are two aphorisms to remember when it comes to bonds today.
“I am more concerned about the return of my money than the return on my money,” Roy Rogers.
“Never reach for yield.” It’s hard to know who first coined this one. (If you know, please Tweet me.) But it has been said by many a wise woman and man over the years.
Money market funds now have redemption gates and liquidity fees. That means exactly what it sounds like. There could be times when you have to wait or pay to have access to your money.
Cash is vulnerable, too. When there is a shift in global currency trends, it takes a lot more cash to buy things. Inflation can whip up out of nowhere. We’ve already experienced that in housing, where many markets are simply unaffordable to 90% of the population.
So what are safe, income producing hard assets that you can purchase for a good price?
Let me stress that every single word in that sentence counts. The first thing that you might be thinking is buying a house and renting it out on AirBnB. I’ve known many a exasperated landlord who would warn against it. You definitely have to know what you’re getting into, including renter rights, before you become an income-property owner. You’ll also need to set up a business entity to protect yourself, and account for expenses and payments to independent contractors. But income property is not the first or best hard asset to purchase! (Be sure to read this blog to the bottom.)
When I did my first Investor Empowerment Retreat in Cocoa Beach, Florida back in 2013, as we were playing the Billionaire Game® on the beach at dawn, we noticed a group of guys dressed up like Vikings. They were there to launch a satellite at nearby Cape Canaveral, and were doing an early-morning team building exercise out on the sand. (Drinking? Just kidding.)
Later that day, as we discussed the important considerations for purchasing a home or apartment building to rent out, I mentioned that I would like to buy a beach house in Cocoa Beach to rent out to Elon Musk and his satellite launch crew, when they come into town for space launches. At the time, the Cocoa Beach Beachfront Hilton rooms were going for about $99 a night. Today, just four years later, the rooms at the Cocoa Beach Hilton are often selling for $199 a night or higher. Why? Because there are so many satellite launches coming into town.
Since 2013, another consideration has been rising into the mix for Florida real estate – sunny day flooding. The entire Eastern seaboard is vulnerable to rising sea levels. According to the former Secretary of the Navy Ray Mabus, the naval base at Norfolk, Virginia is at risk if we don’t slow the rate of sea level rise. Sarasota realtors must disclose that rising sea levels could become a problem in that area within the next 15 years. Clearly, you don’t want to just have a great idea, and then purchase something that you might be stuck with until it is covered in water. Climate change is one of the reasons why I didn’t purchase in Cocoa Beach, Florida in 2013. Real estate is not a liquid asset (or one that works well underwater). You have to have a 10-year horizon at minimum when you think about income property.
There are a lot of homes in Cocoa Beach that were built during the first Space Race in the 1960s. They are pretty run down, and optimum for renovating. Due to high foreclosures and bank-owned property in the area, they could be a steal. Are they vulnerable to climate change? Is it worth it? These are some of the things that we are able to examine firsthand at the Florida retreat, which we aren’t able to do at the California retreats, where real estate has become unaffordable.
Some of the best income-producing hard assets aren’t those that earn you an income, but are those that save you money. Life has become unaffordable for many Americans, due to the high cost of basic needs, like housing, transportation, gasoline, electricity and food. There are many ways that you can invest and save, literally, thousands of dollars every year in your annual budget.
As just one example:
If you purchase solar panels for $20,000,
Take a tax credit for 1/3 of the costs,
And your electricity costs drop to $30/month, from $300/month,
It will take you four years to pay off the $13,200.
Thereafter your “yield” or return on investment is 24.5%, with $3,240/annual savings on electricity.
If you switch to an electric car and “fuel” it up with solar energy instead of gasoline, that could save you an additional $2,000 or more each year, putting the annual savings at $5,240 (or more), with a yield of 40% annually.
You just don’t get anything close to that ROI on any bond. Even junk bonds only pay 6%.
One important tip: always do an air-test on your home, insulate properly, and switch your light bulbs to LEDs, before you purchase your own energy system (like solar). Reducing your energy consumption is one simple trick that can cut your energy costs by up to 80% on its own!
These are just a few examples of how learning The ABCs of Money that we all should have received in high school transforms our life. Most people report earning back the price of the retreat in the first few months in budget savings alone. One retreat attendee is saving $20,000 each year! That allows you to live a richer life today, provide far better for your future, take more bucket list vacations and sleep better at night.
Wisdom is the cure.
Join me for an intimate, empowering investor educational, boardroom retreat in the beautiful beach town of Cocoa Beach, Florida, June 10-12, 2017 for a life transforming, fun 3-days, where you’ll learn great strategies for protecting what you have, keeping more of what you earn and thriving with a well-designed, easy-as-a-pie-chart investment strategy! Register by March 31, 2017 to receive the best price. Get a great discount when you come with a friend. Call 310-430-2397 to learn more.
Debt Ceiling Hit March 16, 2017.
Treasury Secretary Uses Extraordinary Measures to Pay Bills.
Today, while headlines focused on the Federal Reserve raising interest rates 25 basis points to a hair's breath over 0 (up to 1%), the U.S. debt continues to spiral out of control. The Debt Ceiling was hit again, on March 16, 2017. The U.S. Treasury Secretary has already begun using “extraordinary measures” to pay bills until the debt ceiling is raised (again). Analysts predict that tax revenues and financial tools could run out by August or September. (In the last few Debt Ceiling crises, they’ve held until October.) If the Debt Ceiling is lifted before the Extraordinary Means run out, then there won’t be much hoopla. If it isn’t, the U.S. is facing a potential credit downgrade from Fitch Ratings.
According to a Fitch Ratings press release issued on March 15, 2017, “Fitch has previously made it clear that reaching the so-called "x date", when the Treasury's scope for extraordinary measures runs out, without raising the debt ceiling, is a negative U.S. sovereign rating trigger… In this scenario, Fitch would review the U.S. sovereign rating, and may judge these developments to be incompatible with AAA status.” The message to Congress and the current Administration couldn’t be more clear: raise the debt ceiling before fall, or risk the U.S. AAA rating.
What’s a bit heartbreaking about this is how the debt-spiral is already affecting regular people. On December 8, 2016, the IRS issued a press release saying that there will be a delay on refunds for anyone who is claiming the Earned Income Tax Credit (EITC) and the Additional Child Tax Credit (ACTC). If the Debt Ceiling isn’t raised by “x date,” the U.S. will be late in paying Social Security, government employees, contractors, pensioners, etc. There is a bill in Congress to prioritize debt service and social security payments.
Having the U.S. issue IOUs to government employees would be quite alarming at home and abroad. Thus, everyone expects the Debt Ceiling to be lifted before any of the fallout starts. However, that's not what happened last time, or the time before that. In 2015, Speaker John Boehner (R) had to get Democrats to raise the Debt Ceiling, and then he lost his job. In 2011, The U.S. Congress waited until hours before the Treasury ran out of money before raising the Debt Ceiling. On August 5, 2011, Standard and Poor's downgraded the U.S. credit as a result of that. gold soared. Stocks sank... until the currency printing machine cranked out more bills and loaned them out to the corporations (who bought back their own stock, prompting another Wall Street rise). As we all know from our personal budgets, borrowing from Peter to pay Paul isn't good husbandry.
Public Debt is $20 Trillion. Total Debt is $66 trillion.
Another astonishing fact is the U.S. public debt is an eye-popping $20 trillion, while the total U.S. debt and loans are an intergalactic $66 trillion (almost). That includes bank debt (including left over liabilities from the Great Recession), $12.6 trillion in consumer debt (housing, auto, student loans, credit cards), $6 trillion nonfinancial corporate debt, $3 trillion in state and local debt (not including employee retirement funds) and the public debt.
Most people are just looking at the recent rally in the stock market as an indicator of the economy, without examining the fundamentals that are fueling that rise. There were bubbles in real estate before the Great Recession, and in Dot Coms before that recession. Both times, the headlines were screaming about all of the money that people were making in real estate and Internet stocks. Both times, there were reasons why this time was going to be different. In fact, the last two times that the stock market went eight years without a correction, investors lost more than half. The NASDAQ dropped 78% between 2000-2002, while the Dow Jones Industrial Average dropped 55% in the Great Recession (to a low of 6547!). Is the current bull market a true recovery with more potential, or is there something else going on? Is clear that the U.S. government is borrowing from Peter to pay Paul. (That’s why we have to keep raising the Debt Ceiling and borrowing more money to pay our bills.) Are corporations doing that, too?
What is Financial Engineering?
With interest rates near zero, companies can borrow money very cheaply. Apple, a company with over $246 billion in cash ($230 billion of it offshore), borrows at less than 1%, and uses the money to pay dividends and to buy back stock, without being taxed on their offshore income. Heavily indebted companies, like auto manufacturers and other legacy brands, can borrow at just 6%, even though many of them owe a lot more money than the company is worth. The companies then use that ‘free’ easy money to purchase their own stocks. Buybacks reduce the amount of shares outstanding, which makes the earnings per share go up, even if earnings are flat or negative. When the earnings per share goes up, the price to earnings ratio goes down, making the company look like a “good buy.” The one time that corporate buybacks were higher than they are now was in 2007. You got it, right before the Great Recession.
Are We Living on Borrowed Time?
The risks that accompany the kind of astronomical debt that the U.S. (and much of the developed world) is embroiled in, and having so many government agencies, people and corporations borrowing from Peter to pay Paul, is something that will impact you directly (if it hasn't already). The powers that be hope that we can just cycle through this period, much as we did post-World War II, another period of extremely high debt in the U.S. That time, we had massive innovation on our side, and the U.S. dollar had just replaced the British pound as the global reserve currency. The U.S. is still making products that the world loves (the Internet is a strong suit), but the global currency is now a basket, with many countries choosing to trade between themselves in their own currency. And GDP growth is barely breathing. The Atlanta Federal Reserve Bank is predicting that 1Q 2017 GDP growth will under 1%. The Bureau of Economic Analysis will release the advance estimates of 1Q 2017 GDP growth on April 28, 2017.
We’ve seen quite a lot of tragedies that have occurred as a result of people, corporations, etc., borrowing from Peter to pay Paul. This “liar loan” mentality was the flaky foundation of the real estate meltdown in 2006. The auto manufacturing and airline industries have had most of the major companies experiencing slumping sales, increased costs and slim profit margins, resulting in Chapter 11 bankruptcy. MF Global, a financial services company helmed by Jon Corzine, a former Senator/Governor/chairman of Goldman Sachs, was a casualty of the Greek bond crisis. We don’t know the names or the stories of the investors who suffered financially in Detroit or Stockton, at the airlines, automakers or MF Global, bond and stock holders of AIG or banks in 2008, or any of the other corporate bankruptcies, like we do the victims of Bernie Madoff. However, they are likely as heartbreaking. And it is worth it to make sure that you don’t become one of them.
How Long Do Investors Have Before the Next Downturn?
Until the buyers dry up, and the sellers freak out about that. A credit downgrade by Fitch Ratings could spark that. Retail or other corporate bankruptcies could fire up the sellers. A terrible GDP report will spook buyers.
Main Street investors always get the memo after Wall Street insiders. (Homebuilder CEOs sold hundreds of millions of dollars of their own stock starting in early 2005, when Main Street homebuyers were still in a frenzy.) Wall Street insiders know about the Fitch Ratings warning, about X date, about extraordinary means, etc., and are already planning their strategy based upon what happens in the DC beltway. That’s why you have to get a better plan now. If you wait for the headline to act, it will be too late.
Which Companies, Cities, Etc. Will Be the First to Drop?
Follow the money – or the lack of it… Any entity that is spending more than it earns, and amassing debt to pay bills, is vulnerable. Getting that information is actually as easy as a few clicks! Once you learn this, it is far less time and money than you are currently spending trying to get this info in the “news.” It’s all publicly available. You just have to know where to look.
Never reach for yield. Preserving capital is paramount in a Debt World, followed by a policy of securing safe, income-producing hard assets that you purchase for a good price. This is easy-as-a-pie chart. (I have free web apps and bestselling books that can help. If you want to learn and implement these strategies now, attend my Florida Retreat in June 2017. Call 310-430-2397 to learn more now.)
REITs: Many private-placement REITs are paying 6% or higher dividend – putting them in junk bond territory. What a lot of unsuspecting investors don’t know is that companies that are paying that high of a dividend have been cash negative for years, and are at risk of having to restructure their equity and debt. Stockholders typically lose everything when companies declare bankruptcy. You don’t want to take on high risk for a measly 6% return.
Retail: In September of 2016, Fitch Ratings identified 7 U.S. retailers at risk of bankruptcy over the next 12-24 months: Sears, Claire’s Stores, True Religion Apparel, 99 Cents Only Stores, Nebraska Book Company, Nine West and Rue 21. Aeropostale and Pacific Sunwear avoided liquidation in 2016, after their Chapter 11 filings. Half of the recent retail bankruptcies closed up shop for good, versus 17% across all corporates. Stock and bondholders lose in that scenario.
50+-year-old companies: The higher the dividend, the higher the risk. Legacy brands with pension and other post employment benefit obligations are the most vulnerable.
Autos and Airlines: These legacy industries are always vulnerable because they have very high debt, massive employee obligations, low profit margins and flat (or negative) revenue growth. Autos have seen a marked increase in defaults on their subprime loans. A rise in interest rates, high levels of inventory and more defaults will impact auto sales. Airlines are only slightly profitable with oil prices at 10-year lows. When oil prices rise, that puts many airlines in the red.
The Bottom Line (That’s Not Making Headlines)
Americans are carrying more debt today than they did before the Great Recession, with no measurable wage growth to offset that. The economy has relied upon massive financial rescues by the government, low interest rates, large deficits and astronomical debt to show any economic growth at all. What will have to happen to shift this unsustainable trend is the opposite. We’ll need more exports – to continue to invent the products and services that the world desires and purchases – to reduce debt and to live within our means. In other words, the current predicament for the U.S. as a nation and us personally cannot be solved solely by earning more, though that is a piece of the equation.
The Spring Rally
Anytime there is a herd mentality, you have to worry about getting crushed. Today's herd mentality is dividends and stock market gains. High-dividend stocks (and REITs) are being sold as safe, even though they are some of the riskiest investments. Safe investments have little chance of capital loss. The stock market is in a rally because this is the season for rallies, not because there is great economic news on the horizon. Make sure your safe, diversified plan is in place before summer.
You can live a rich life, have more money for bucket list vacations, plan far better for your future, and save thousands every year in your annual budget. It starts with making sure that you are not putting too much at risk in today’s Debt World. It’s equally important to make sure that you are not borrowing from Peter to pay Paul in your own life. Individuals don’t get the same interest rates as corporation (except for housing). If you’re borrowing on your credit card, the interest rate could over 20%! There are ways to live within your means, protect your assets from the next downturn and make money while you sleep. As we enter the 9th year of the current bull market, this is more important now than ever. Wisdom is the cure.
Join me in Florida this June at my Financial Empowerment Retreat, where you will learn the time-proven, easy-as-a-pie chart nest egg strategies and the Thrive Budget. Call 310-430-2397 to learn more now.
I discussed the Debt Ceiling on My BlogTalkRadio show on March 16, 2017. Listen back 24/7 on demand at: http://www.blogtalkradio.com/nataliepace.
About Natalie Pace
Natalie Pace is the co-creator of the Earth Gratitude Project and the bestselling author of The Gratitude Game, The ABCs of Money and Put Your Money Where Your Heart Is (aka You Vs. Wall Street in paperback). The Earth Gratitude project urges all of us to honor Mother Earth on April 22nd with at least one hour of personal net zero. Get additional information at http://earthgratitude.org/. Learn more about Natalie Pace at http://www.nataliepace.com/.
Will the Snap Inc. IPO be a spectacle, or will the disappearing app offer a disappearing IPO? To put the Snap IPO into better perspective, I lined up some of the key metrics alongside the uber-successful Google IPO on August 19 of 2004.
The next gen social media platform Snapchat is now known as Snap Inc., a camera company. Snap Inc. intends to reinvent the camera because, according to the IPO filing, it is their “greatest opportunity to improve the way people live and communicate.” Hmmm. With that being said, you’d expect their first camera product to be drop-dead impressive.
The attractive models wearing the new Snap Inc. Spectacles video recorder sunglasses are definitely eye candy. But a tech company has to be far more than skin deep. Twitter has proven that even when a tech company offers something unique and does it well (and is the 45th President’s favorite late-night toy), they need to be cash positive to catch an investor’s eye. Snap is struggling in both areas. Unique they have in spades. It’s the technology and cash burn that are of concern.
Spectacles are fashion-forward sunglasses with a video recorder that gives a unique “first-person shooter” perspective. Spectacles started out as one of the hottest tech products of the year, going for as high as $1000/pair on eBay in November 2016. Since then, however, in only three months, the average sales price on eBay has dropped down to retail – at $130/pair. You can easily purchase your own Spectacles at Spectacles.com.
When it comes to actual performance, the reviews of Spectacles fall flat. They look good. They’re fun. But the novelty wears off rather quickly. According to Avery Hartmans of Business Insider, “If you're buying them for everyday use, you might be disappointed… The camera is below-average.” Problems include that the camera doesn’t record well in low-light situations. HD is an option, but requires a lot of extra work. The social media side is stronger than the actual video capability, i.e. you might want to Snap Video a concert or a goofy stunt, but probably not a scenic landscape. Sometimes your hair flies in front of the camera. Who would dream of surfing or skydiving with Spectacles for their videos? The reviews and user experience of Spectacles is very different from the launch of, say, the iPhone. The novelty of smart phone technology is still jaw-dropping a decade later.
So, does this doom the Snap Inc. IPO, which is scheduled to price on March 1, 2017 (Wednesday) after the markets close? Will investors want to court a company when their premiere product is more of a beautiful one-night stand? Snap Inc. revised their projections downward for the IPO on Feb. 17, 2017, according to Reuters, but still believes the market value of the company will come in at $19.5-$22.3 billion. Is Snap Inc. worth twice as much as Twitter and $20 billion more than GoPro?
Below is where Snap lines up with users, compared to Twitter, Facebook and Google. As you can see by the media metrics, most Millennials are more active on Google, Facebook and Twitter. FYI: Facebook’s video/photo app Instagram is included with the parent company metrics.
Comscore.com December 2016
Snap has one very attractive asset, which might seduce investors – revenue growth. In 2015, revenue was about $58.7 million. Last year, the company brought in $404.5 million – a jump of about 6.9 times. That is drop-dead impressive. If you go to the Snap app, there are actually more ads now than status updates. The ads are inviting, rather than offensive, on first look. Snap’s chief strategy officer Imran Khan boasts that Snap lets users "play with brands." Of course, that assumes that customers actually want to be sold stuff while they’re being entertained – a premise that users have been trying to escape for the past century. I, for one, didn’t stick around to play. When I found myself bombarded with ads, after I tried to look at some behind-the-scenes video of the Oscars Best Picture debacle, I ended my search abruptly and have been reticent to try checking out other updates since.
To put the Snap IPO into better perspective, I lined up some of the key metrics alongside the Google IPO on August 19 of 2004.
Data Crunch by Natalie Pace.
The problem with novelty products is that the shine can fade fast. The issue with companies that are having difficulty defining themselves, and are being forced to monetize quickly, so that the insiders can turn their paper profits into houses and cars, is that the customers may feel sold out. Since the chief camera product is not impressive – though it looks cool – and the main monetization plan is still advertising, it seems like a major misstep for Snap to be redefining itself as a camera company right before the IPO. Even a popular camera company like GoPro is only valued at $1.4 billion – not $20 billion.
Snap is hot and perceived as a very innovative company, so it could get a bump from chatter on the investor boards. However, whereas Google took off like a rocket and has rewarded investors with a 10 times return on investment, Snap could easily be more like the Groupon IPO, which roared onto the scene and then lost 80% of its value over the coming year, and has been at the bottom of its trading range ever since.
Whether Snap remains a “camera company” or returns to social media, it has little hope of competing with Facebook and Twitter (or even GoPro) without major technology innovation. Can a group led by entertainment executives and bankers hope to compete with tech giants backed by Andreessen Horowitz and Facebook? MySpace tried that route back in 2006, and it wasn’t a happy ending. Perhaps the best move that Mark Zuckerberg made was to uproot himself from Harvard and plant himself in Silicon Valley. The laid-back, look-cool Southern California vibe will only work if the executives discover the next Satoshi Nakamoto to run technology and innovation, and that’s less likely to happen on Venice Beach than it is in Palo Alto.
In short, I’d let tomorrow’s Snap Inc. IPO update disappear, and check back later in the year (late September) to see if goofy and cool has become something more substantive, at a better valuation and price.
Natalie Pace is the co-creator of the Earth Gratitude Project and the author of The Gratitude Game, The ABCs of Money and Put Your Money Where Your Heart Is. She blogs on Huffington Post and Medium, and is a frequent guest contributor to national news shows and magazines. She has been ranked the No. 1 stock picker, above over 830 A-list pundits, by an independent tracking agency, and has been saving homes and nest eggs since 1999.