Slave To The Dollar

2009-05-28T20:43:00.013-04:00

During my trip to Chelsea Piers Yesterday, I stood witness to an impressive array of luxury yachts, neatly lined up along the dock. These were beautifully crafted vessels glimmering in the sun, host to their owners, men in their mid 40’s wearing the standard faded polo shirt tucked into khaki shorts and scruffy hair protruding from beneath their baseball caps. The faces were those of a relaxed person, no signs of concern about the $600 they just spent to have their tank filled with the high octane fuel necessary for the week. Motivated by my own inquisitive nature, and basic human emotion of Jealousy, I began looking for answers. How difficult is it to own a Yacht?

What it takes:

Such a splurge should not cut into your savings by more than 10%. A modest yacht would cost at a minimum $500,000, which most likely is financed with a down payment of 20%($100,000). Payments would resemble that of a mortgage.

One would be irresponsible to buy a boat, without first buying a house. So, I would first have to save $50,000 for a down payment, buy a house, save a million dollars so that my 20% Yacht down payment is only a tenth of my total savings. The final straw, an Income in excess of $250,000 would be needed to sustain both my home, and my fancy yacht.

Researching salaries in my respective career path, I observed I will be hitting a wall at the low 100,000’s. This is after 10-15 years in my field. Today my dream died of ever owning one of these monstrosities. The math simply does not work. I will never be anywhere close.

So how are people able to own these?

Well, I have the answer. Allow me to explain. These Yacht owners have the turned the tide. They are in the minority; they are no longer Slave to the dollar. Their money works for them, while people such as myself work for money. The capitalistic system is a complex engine; money flows though and accumulates at various junctures. Everybody must play their role otherwise the system collapses. I will break this extremely complex system down to the basics. In my example we have two people:

Working Class Man and semi-retired Investor Guy.

Working class man: let’s call him Mike, made $3500 this month as an insurance agent. He pays his rent/mortgage, buys gas for his car, and a BBQ from Wal-Mart. He puts his $200 leftover in a savings account where he will earn 3% interest(if he's lucky).

Investor guy: let’s call him Madison, owns stock in Bank of America, the holder of Mike’s mortgage. Madison also owns some Wal-Mart shares, as well as oil futures. Since his stocks had a good quarter because people like Mike are still paying their mortgage on time and buying consumer goods, they issue a dividend to Madison. Madison also knows oil always goes up in the summer so he invests in crude oil.

This summer a helpless mike will once again pay $4.00 a gallon to gas up his car. Since he drives to work, his income actually declines. Madison on the other hand, is protected from the fuel increase and has no concern over the rising fuel prices.

Who is the winner here? Madison has positioned himself at the top of the chain. His part time job handles his expenses, and his investments are generating as much income as Mike receives from his job. Madison is one step closer to his yacht, Mike, our Insurance salesman is happy to pay his rent on time.

Mike will never become Madison. It is extremely difficult rise more than one or two ranks in our dollar driven caste system in a single generation. For the rest of Mike’s life, he will be Slave to the dollar, but will work hard never acknowledging the limitations of his financial independence. This unrealistic hope is what keeps our system chugging along.

Side note: Mike’s inability to acknowledge his financial ceiling caused him to make excessive purchases. He wanted a swimming pool, a nicer car, and of course his children want to wear nice clothes like the rich kids. He has now maxed out his credit cards and depleted equity in his home. Mike has worked hard most of his life and wanted what Madison has, and credit gave him a taste of the good life, if only for a short period of time. There are many hard working people similar to Mike who are extended well beyond their means. This has contributed to our current credit crisis, pushing our banking system to the brink of systemic failure.

How does one get to the top?

Anybody will agree wealth facilitates further wealth generation. People will tell you the most common path to wealth is through rich parents or inheritance. This is for the most part true. A child born into wealth has their table is set for financial success well before they even work a day in their life. Better schools are available, and more importantly the pursuit of a high risk/reward endeavor is never off the table. Most non wealthy Americans are handicapped with significant debt after graduation. The unfortunate consequence is that Job selection becomes secondary to the pressure to generate immediate income. If you start off in a hole, the impulse is to start digging yourself out as soon as you can.

For those born into wealth, a high income job is an entitlement. Social ties and Ivy League degrees go hand in hand with a wealthy family. My family has social ties with people in the food industry, and the local cable company. Not the places where you find this six-figure income jobs. After graduation my finance degree was just good enough to dial numbers out of a phone book and solicit people for their money. I hit a wall.

The self made millionaire generates a lot of publicity. The entrepreneur is the epitome of the American dream. But for every one self made millionaire, there are 100 who put it all on the line, lose it all only to start over with nothing working for somebody else. Starting a business requires risk capital, social ties, ability to absorb failure. Let’s see, I was born into debt. I must pay off the countries debt through my taxes, as well as those pesky student loans.

With no money to invest, no safety net to fall back on, I will remain slave to the dollar. What keeps the system going is the golden carrot dangling on the string. It keeps us in check, working hard so investor guy can continue to collect. We are taught that anyone can be investor guy with enough hard work, but hard work is the least of it.

I offer no solution because a solution would first requires a definitive problem. While our system is nowhere close to perfect, I can think of no better methodology to distribute the wealth . After all, in America we put our emphasis on the individual. We are in constant competition with our selves, whether it be at work, in sports, getting the girl, or impressing the neighbors, we find our self comparing the horsepower of our cars, the karats in our diamonds, even the quantity of Christmas lights on our homes. In our build it bigger culture, how can any other system work?

Has capitalism failed us?

2009-03-07T13:56:00.002-05:00

I have an eerie feeling that we are on the verge of a major event that will be a topic of discussion for a some time. I wont speculate if it will be positive or negative but I cant see this current economic trend continuing without the current system collapsing. We need to begin a recovery now.

Either the whole stock market will be reduced to nothing but a ghostly penny stock exchange after all remaining investors get fed up and pull everything out, or we will begin the greatest sustained rally ever seen.

The latter is not probable in the near future, I believe hedge funds are making substantial profits from shorting the financial sector every day and this could continue. The current crash of the markets is the necessary counterpart to the unregulated period of leveraged growth we have all benefited from over the last decade. However, we are soar winners in times of prosperity, and get frantic when we lose. The dooms day scenario is a real possibility considering the fear mongering, and constant negative exposure supplied by mass media which we all take so seriously.

Just like we are conditioned to buy a certain product, or listen to a certain band, we have been conditioned to sell stock in good companies, lay employees off, not buy cars we can afford, and in some situations unnecessarily cut bonuses that would otherwise help to stimulate the economy. Recession related activities such as those mentioned are becoming the cool thing to do. America's paranoia has the potential to lead to her ultimate demise.

This market is so paranoid that when our "Leader" speaks it equates to an instant 100pt drop in the Dow Jones. Its getting to the point where traders look up the scheduled times of a Timothy Geithner testimony and trade around him. We see traders dumping minutes before the guy even says anything. We hang on every word and deal millions of shares based on essentially nothing. When the word "nationalization" is mentioned out of context thousands are sitting at their desks with itchy fingers on the mouse ready to click sell without even comprehending the complexity of the discussion. Why would somebody want to invest their hard earned cash into this casino? It deeply saddens me that my generation (I'm 26) will be paying for mistakes by our greedy predecessors. Greed which was instilled from birth by families with entitlement complexes.

My friends cant buy houses, and the married ones are afraid to bring children into this mess. There is no escaping the severity of it all, maybe the best thing to do is let the whole thing come crashing down, this way at least we know things couldn't get much worse(as long as we dont start killing each other)

The government, it seems, will continue to let this happen. Its Obama's job to stop pointing fingers and take responsibility for what he has inherited, and restore confidence in the American people. I almost think a lie here and there would do more good than harm. Tell us it will all be ok, and sell it good enough to break through our thick skulls so I can stop checking my stocks for a second and enjoy the only thing I'm looking forward to right now, baseball season which will consist of buying $400 tickets at Yankee stadium with money I don't have, watching overpaid selfish athletes compete at the highest level, only to boo them unmercifully when they fail.

Hopefully this panic that we are in is only cyclic. Once hope runs out, we have nothing left.

Defense creating offense

Slave To The Dollar

Has capitalism failed us?