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Podcast 96: Product Downsizing and The Death of the American Investor

This article was written by Flexo in Podcast. 5 comments.

The first guest on today’s episode of the Consumerism Commentary Podcast are Tod Marks, senior project editor at Consumer Reports and author of the Tightwad Tod column. Host Bryan J Busch talks with Tod about consumer product downsizing and price increases in 2011.

After the break, Bryan speaks with Nico Willis, author of Death of the American Investor (The Emergence of a New Global eShareholder), about his book and what today’s investors need to know about the stock market.

Consumerism Commentary Podcast #96
Product Downsizing, Tod Marks & The Death of the American Investor, Nico Willis: S04E18 / 119 & 120

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[00:00] Introduction from Bryan J Busch
[00:34] Interview with Tod Marks
– [00:45] How manufacturers avoid raising prices
– [02:06] How consumers feel about product downsizing
– [03:00] People remember prices, not product sizes
– [04:00] Retail prices aren’t proportional to commodity prices
– [04:44] How manufacturers shrink packages
– [07:02] Store brand product quality
– [09:06] Why younger generations are less brand loyal
– [10:47] Consumers fighting back against product downsizing
– [13:38] Are store brands made in the same factories as name brands?
[15:26] Interview with Nico Willis
– [15:48] The origin of the U.S. stock market
– [17:57] Stock manipulation, then and now
– [19:48] The average American investor
– [21:00] “The Four Es”
– [22:47] What is an eShareholder?
[24:14] End

We always welcome feedback from listeners. If you have any comments for this episode or for any other, or if you have suggestions for future episodes, please leave us comments here or email us at podcast at this domain name.

Theme music by Mindcube.

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How to Prepare for the Demise of the Dollar

This article was written by Flexo in Economy. 11 comments.

Since the middle of the twentieth century, the U.S. dollar has been the currency that has dominated the world. Governments have held dollars in reserve, and borrowed dollars when necessary, because this currency can buy just about anything, anywhere. In particular, dollars can easily buy oil, a commodity currently necessary for the progress of developed societies.

Countries have attempted to reduce their dependence on the dollar. Iraq began pricing its oil in euros rather than dollars in November 2000. It wasn’t long after that the United States invaded the country and took control of oil production, adjusting the pricing back to the dollar. Iran announced it plans to hold its reserve currency in euro, and this might prove to be more successful.

There might be a coalition of countries ready to move away from using the dollar as their reserve currency. I’m not usually drawn into conspiracy theories, but I think, considering the state of the economy in the United States, the strength of the dollar, and the country’s massive governmental debt, there is a strong possibility that several decades in the future the United States will not be the economic superpower it once was.

Here are some details reported by the Independent, but since denied by governments:

Secret meetings have already been held by finance ministers and central bank governors in Russia, China, Japan and Brazil to work on the scheme, which will mean that oil will no longer be priced in dollars… [This] augurs an extraordinary transition from dollar markets within nine years…

This sounds like a dangerous prediction of a future economic war between the US and China over Middle East oil - yet again turning the region’s conflicts into a battle for great power supremacy.

Amplifying the importance of the currencies used for trading oil is the idea that at some point in the future — and there have been many disagreements about when dating back to the 1970s — the earth will no longer provide new sources of oil. Supply will eventually begin to shrink and unless major reforms in energy gain momentum, competition for the commodity and its price will increase.

Prepare for the dollar’s demise

Let’s assume this is true for a moment. If the dollar continues to decline, what are options for individuals who would like their wealth to grow over the course of the next thirty years or more?

Ignore the problem. It is possible that despite these obstacles, the dollar may end up victorious. It would take a lot of political might, and I expect more wars, for this to happen. What would a war with China look like?

There is also a reasonable argument that most of us, confined to little exposure to the world outside of our own country, will continue to build wealth in dollars. The external value of a dollar to other currencies could be irrelevant. I do think that as societies continue to progress, globalization continues and it is more difficult to exist in isolation.

Buy gold. Gold has for a long time been considered “real” currency compared to money issued by governments. In the earlier days of the United States, the government issued paper currency backed by gold reserves, so you could theoretically trade in your dollars for gold. Gold may be used as an interim reserve currency while the world loses confidence in the dollar and governments make other plans.

Gold has already shot up in price compared to the dollar and it probably will continue to do so.

Buy euros. If governments are looking to the euro as the basis for their reserves, perhaps you should as well. One option may be to keep a portion of your savings in CDs denominated in euros. EverBank offers this service but I have not yet tried these products.

Invest in China. Another article from The Independent suggests that for most of the next decade, China’s economy will grow 10 percent a year while the United States’ will grow only 2 percent a year. If true, this might be a good time to invest in China. If you want to take this bet, Vanguard’s best option is their Emerging Markets Stock Index Fund (VEIEX) with an expense ratio of 0.39%. Four of the top ten holdings in this fund are based in China making China the fund’s biggest representative. Over the past year, the China-based holdings increased to account for 18.4% of the entire portfolio from 12.4%.

And since buying the fund in dollars pits the strength of that currency against the others, you’ll benefit from both the dollar’s decline and other currencies’ success.

This is probably one of the riskiest bets of the century, but it may pay off.

Much ado about nothing

Saudi Arabia has denied that there have been “secret meetings” as cited above. The United States might quickly recover from the recession and other countries might relent with a stronger dollar. Recent studies suggest the United States will still be the primary global economic superpower in 2020.

What do you think? Is this the time to start thinking about how you might prepare for an economy decades in the future in which the United States is not the most primary economic superpower in the world? And how do you prepare for this?

The Demise of the Dollar, Robert Fisk, The Independent, October 5, 2009

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McCain Proposes Summer Gas Tax Holiday (Again)

This article was written by Flexo in Taxes. 6 comments.

The presidential candidates are fighting hard for your vote, and the economy seems to be one of the top issues. To soothe jitters over an economically turbulent near future, Senator Barack Obama proposed a second economic stimulus payment, similar to the one proposed and passed by President Bush and Nancy Pelosi earlier this year.

It’s dubious whether these payments have a direct effect on the economy. They may make some people feel better about the economy — depending on whether they receive a check or they subsidize the benefit for others — which may be a self-fulfilling prophecy. It’s more likely that these proposals designed to boost the economy, which have a nasty habit of showing up in election years or when approval ratings are low (is it just coincidence?), are created more for their public relations benefit.

Similarly, Senator John McCain is calling for a federal gas tax “holiday.” The 18.4 cent national gas tax and the 24.4 cent diesel tax, under this plan, would be suspended between over the summer. Originally planned for the time between Memorial Day and Labor Day, McCain’s campaign website hasn’t updated this issue now that we have passed the first summer holiday.

Someone who believes that gas prices at the pump are determined by supply and demand would argue that lifting a gas tax would simply allow prices to rise up the chain.

Neither a second economic stimulus check nor a gas tax holiday will on its own affect the economy much. It would be great to see some real economic proposals presented by our presidential candidates — ideas whose implementation would provide jobs, manage real inflation, and encourage business innovation while this country learns how to deal with globalization of the economy — rather than gimmicks designed to attract potential voters.

Let’s face it, though, it makes no sense to choose a candidate based on their economic policy, something the Office of the President has little control over thanks to the numerous people involved with setting policy and economic cycles. I can’t imagine that anyone in this country is undecided between McCain and Obama, but the final decision should be based more on who you want appointing Supreme Court justices and who you want initiating military actions (something that used to be left up to the Congress). These are the modern major powers of the Presidency with lasting effects.

McCain resurrects call for gas tax holiday, CNN Politics, June 9, 2008

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The Future Is Grim: Ben Stein

This article was written by Flexo in Uncategorized. 14 comments.

Here’s more for those concerned about costs in retirement: Baby Boomer Ben Stein is warning us that standards of living are set to take a huge dive not long from now. Here’s the health care example:

Look at it this way: Think of the most crowded freeway you’re on every day. Imagine what it’ll be like in 10 years. That’s what hospitals will be like — if they’re not that way right now.

Ben continues his grim prediction and provides some financial advice: invest in a total stock market index and switch to bonds before retirement. He even suggests annuities after the individual is sufficiently educated about fees.

There’s no doubt that the future is grim, but I think globalization will go a long way to soften the standard-of-living crash. We may not even notice it as we continue to communicate with the rest of the world, as long as we don’t close our eyes to options beyond home.

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Where Is That Raise?

by Flexo

In case you have forgotten or thought the situation has improved, pay is not keeping up with the cost of living. According to the article from Investor’s Business Daily, The working poor and middle class are getting hit the hardest. Higher gas and food prices buffet hourly wage earners the most. Skilled white-collar workers are ... Continue reading this article…

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Predicting Markets

by Flexo

Neville is writing about predicting the markets. Are the markets predictable? What were people predicting in 1930 and 1940, and were those predictions accurate? I was researching these questions and I came across a paper by Felix Stalder, a PhD Student at the University of Toronto, entitled The Nature of Financial Networks. It’s an interesting ... Continue reading this article…

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