What’s going to happen with interest rates – will they stay low? What about inflation or deflation? What’s going to happen with Obamacare, Medicare and Social Security? Will the national debt keep ballooning? Will the U.S. keep printing money? Join Prism Insurance Agency as we discuss with Senior Market Advisor magazine’s 2010 Advisor of the Year, as he discusses his view and strategies for facing an uncertain future.
JIM: Today, we have an international speaker that has spoken to hundreds of thousands of people around the world about how to be prepared for what’s coming ahead. Van Miller has been a professional advisor for 39 years and was named Senior Market Advisor Magazine’s 2010 Advisor of the Year. Today, he’s going to share with us some of the tremendous challenges we face as well as opportunities that they present and things you might want to talk about with your advisor. Welcome Van.
VAN MILLER: How are you doing? I’m anxious to have a great conversation with you about what’s going on.
JIM: Well, we’re so looking forward to it. There’s so much going on. There’s so much uncertainty. I think that’s the common denominator every time we’ve had you on. There’s always something going on in the economy or in the world that people are wondering how is this going to impact them, so why don’t we start out with right now, we just had a real good year in the market last year and now we have for his year, 2014 Obamacare coming in. What do you think is going on with the economy here in 2014?
VAN MILLER: Well, from what I’m reading and I read extensively a number of newspapers, several hundred periodicals every month. Because I speak a lot, I’m on a lot of panels with some of the people we’re going to talk about, so I really get to ask them a lot of questions. I think this is one of the most uncertain times ever in the history of our economy. What’s going to be fun talking about is how vast the differences in the opinions of people about what’s going to happen. In my opinion, I think there is spectacular danger. At the same time, every time we say something about danger on this conversation, I want everybody to think to themselves well where’s the opportunity here? How could we take advantage of this instead of being hurt by it? Because every time I say something bad, it’s absolutely an opportunity for clients, our listeners to first of all make sure that they’re safe and not hurt by that danger; and then second of all, to position themselves in such a way so that they always have enough liquidity to take advantage of it to some extent, and that’s what a really good advisor will do right now. As we talk, you’re not going to believe the massive difference of opinions as far as what people think is going to be the outcome. One other quick thing before you ask me anymore questions, but this is really important: Most people believe that we are at the very end or near the very end of a bull market. Some people believe that we’re very close to having a serious downturn in the stock market and others believe we are going to have a downturn but that it’ll be a year or two or three yet before that occurs. They all agree that we’re going to have a downturn. The question is and it’s really hard to come up with an absolute answer is this big word when, and the reason is because there has been so much artificial manipulation of our economy, many people have come to call it the grand experiment. How much money can we print without harming ourselves, and it’s very surprising to many of us. Usually, when you talk about printing a lot of money, you start thinking about massive inflation, but most people really don’t understand that the first thing that we’re really dealing with is deflation, the shrinking of our economy rather than the growing of our economy and so the government is saying geez, we can print money like it’s going out of style trying to expand our economy, and we won’t have to deal with inflation. Well, eventually we will. It’s the eventually that’s going to be the serious, serious problem. Can I ask you something, Jim?
VAN MILLER: Has anybody ever really discussed on your program really what quantitative easing is? I mean a lot of people, we throw that word around, we called it quantitative easing one and then quantitative easing two and now, we have a term for it called quantitative easing forever. It’s kind of interesting. How can we print $1 trillion a year and not have inflation?
JIM: Well, you know quantitative easing sounds so much easier than printing money. I don’t think we have as much public support for it, and it just sounds like we’re relieving some pressure, you know?
VAN MILLER: Think about this. Pretend you’re one of my clients, okay? The very first thing I ask them is: If you like the banks to go to the Federal Reserve and borrow money at one-tenth of one percent interest, really how much money would you borrow?
JIM: As much as they’d give me.
VAN MILLER: As much as they’d give you and that’s what they’re doing; and then what the federal reserve was kind of hoping that the banks would do, is that they would take that money and start loaning it to businesses and loaning it to people want to build homes or buy homes, so they could expand the economy. Research and development and all those things, but that’s not what the banks did. Banks went and took the money, and they did what is called financial arbitrage. They went and bought US treasuries and they bought it starting at a rate of – it was very high when they initially started doing this, then the interest rates went down to about 1.6% on 10-year bonds and now, they’re up to – they were up as high as 3% and now they’re down today to about 2.82% and so, what that means is that they borrowed money at one-tenth of a percent; they turn around and buy US treasuries at let’s say 2.51% and so they make 2.5% profit on it and then they pay themselves all kinds of spectacular bonuses because of how brilliant they are. Well, I could do that because it would be easy; but here’s the fun part. Now that the banks have all these US treasuries, now they don’t have any money to loan out, so quantitative easing was created and the Federal Reserve comes and buys back all of those US treasuries at what interest rate again? One-tenth of one percent and now, the Federal Reserve’s books have gone from having about $300 billion or $400 billion of assets to they have over $4 trillion of assets, and I say to people – do you know that on a 10-year government bond if the interest rate goes up only 1%, you lose approximately 10% of the value of the bonds; so if that’s true for the Federal Reserve, they’ve gone from $4 trillion to $3.6 trillion, they’ve lost $400 billion if the interest rates have gone up just 1% since they started doing this quantitative easing, and here’s the problem with that. Essentially, that makes the Federal Reserve bankrupt but why isn’t that a problem for the Federal Reserve?
JIM: They just print more money.
VAN MILLER: Exactly, and then they start the process all over again and so, what people don’t understand is that in order to have inflation, you really need two things. You have to print all this money, and we’ve expanded the money supply of the United States enormously, more than double, maybe even triple since 2007, but none of that money is making it into the system. It’s not going to buy more homes. It’s harder to get a loan than it’s ever been. None of that money is going to create new businesses because it’s almost impossible to get a loan unless you don’t a loan.
VAN MILLER: And so what’s really happened is you need what is called velocity of money. It has to get out into the system. Well, once that starts to happen, then I think we could see a time again, and many people predict this, that we could see a time when we would have Jimmy Carter interest rates again.
JIM: What’s interesting Van is we had a guest on awhile back, I know you probably know Joe Jordan personally, right?
VAN MILLER: Yes, I do.
JIM: One of the things he said on our program that I really found interesting – we were talking about books or programs that he had heard, and he said his favorite book was a romance novel from the 1800s in England. We’re sitting here thinking, now what the heck does this have to do with finance and investing and insurance and all that wonderful stuff and he said, you know the romance novel was about these gals that were looking to hook up with the most eligible bachelor, and the most eligible bachelor was described as the richest bachelor in England, and they didn’t describe him in net worth, they described him in net income, and he was getting 10,000 pounds or whatever it is a month was his income. I think we’ve lost focus here, and it’s not even so much the income. It’s having a focus on what your purchasing power is, and I’ve heard you say and I’ve repeated it now, I can’t count how many times, the stealth tax and I was kind of explaining it to my kids too. We’ve kept these low tax rates and when you shared that concept with me, I don’t know that tax rates will necessarily ever have to go up because it’s politically unpopular, but if you can double the money supply, then you’re money is worth half as much so isn’t that like a 50% tax, and then that’s a way to get a 50% tax that taxes the rich, the poor, the young, the old all the same because everybody’s working with that same money supply, so what are people doing to protect themselves about that, so how do you respond to all that.
VAN MILLER: Thank you for that and you’re exactly right. The Federal Reserve and our government have really painted themselves into a corner. Think about this. The GDP, the measurement of the output of goods and services of our county, is approximately $16 trillion, and this is very interesting when people hear this, but if you go to a website called www.usdebtclock.org and you look at it carefully, there is quite a bit of very interesting information, and the very interesting information is this: At the federal level, we are taking in approximately $2.8 trillion to $3 trillion of taxes which include individual taxes, corporate taxes and social security and Medicare taxes. It’s $2.8 trillion to $3 trillion and then, if you go and you look at the local level for state and city and property taxes, we’re taking in another $2.8 trillion of taxes so we’re already taking in somewhere between $5.5 trillion and $6 trillion of taxes and what anybody that knows economics will tell you is that if we take too much more in taxes, what’ll happen is there’s not enough money to continue to have your economy grow if the government is a bigger user of the revenues than the private sector and so what’s happened is: We’re really very, very close to that tipping point where we can’t really tax much more. In fact, I would be astonished if we see a rise in the tax rates. What I do believe will happen is you’re going to see a reduction in deductions, like the charitable deduction is probably going to go away, the state tax deduction is probably going to go away. The deduction for home mortgages is probably going to go away. We’re almost certain that you’ll see capital gains go away and everything will be taxed as ordinary income. They’re probably also going to do away with step-up and basis which means that the values of assets won’t be stepped up at death, and here’s one that’s in current legislation. The termination of inherited IRAs – only spouses will be able to inherit IRAs from each other and defer. Any other person will probably have, I’m going to say approximately five years, to distribute pension assets we’re allowed to have that payout be over their life expectancy, the people that were inheriting the money; and so all of that is going to be taken away. In fact, we’re even starting to see exclusions on pension accumulations. We’re going to see even a requirement maybe that’s in the legislation talking about 401(k)s and the like, not having to be paid out of this monthly income rather than the same way social security is, rather than be an asset that can be inherited by families; and so with all of those adjustments coming, that’s how you’ll see the taxes; so what’s going to happen is we’re not going to be able to provide the money that we need if you go to that debt site again, it shows that the unfunded liability just for two of our biggest programs, social security and Medicare, is about $127 trillion. Well, if you an annual budget of $3.8 trillion, how are you going to fund the $127 trillion that’s unfunded to pay for social security. By the way, I want to be very clear. I believe everybody will get their social security, and the answer’s easy for the government. They’ll print it. They’ll say look it, we didn’t raise your taxes; look it, we told you were going to get your benefit. Here’s what the problem is. What you buy with it will be less and less and less, and the simplest example is you just say to a couple at 65, you say: Look it, if we have just 5% inflation, not hyperinflation, no nutso inflation, not Jimmy Carter inflation – if we only have a little bit more than the so-called 2% inflation that we have now, five; if you retire at 65, 14 years later you’ll need twice as much income to have the same standard of living as you do when you retire. How is that going to be possible? We don’t talk about the devastation that’s going to happen and if we went to 7%, it would be 10 years late; and if we went to 10%, it would be only seven years after you retire you’d need twice as much money to live on, or your money would only buy half as much stuff, and I have a lot of people; Jim, I’m sure when you talk to your listeners, they’ll say the same thing. They’ll say I have $1 million, I’m never going in the market again, I don’t care if I don’t make anything, I just don’t want to lose anything; and then I ask them, I say are you comfortable going broke slowly, and they say well, what do you mean; and you say well, if you have $1 million and you don’t make anything and we have 7% inflation in 10 years, you just lost $500,000 of purchasing power. I think it’s going to be the weapon of choice of not only our government but all the governments on the planet. China’s printing $800 billion a year. Europe is printing $1 trillion a year, and Japan’s printing $1.3 trillion. Now think about that. They have a GDP of $5 trillion and they’re printing literally, literally 25% of the GDP of their country. They’re just printing out of thin air.
JIM: There are certainly a lot of challenges, and I think a lot of people aren’t even thinking about it. One thing I always share with my clients is watch the news and they got this inflation rate that’s behind the curtain. It’s like Ozland rates that they’re reporting; and I say what are you spending your money on in retirement? You’re not buying super semi-conductor chips and all that stuff where the prices have come down. You’re buying groceries, you’re buying healthcare, you’re paying your property tax bill. You might be putting some fuel in the car, and I said just look at what those prices are compared to 10 years ago and the inflation rate there is almost double what the government is telling us, so you’ve got to be in tune with your personal economy and what the inflation rate’s going to be and making sure you’re prepared for what lies ahead. Hey, Van, we have to take a short break. When we come back, let’s talk about some of those opportunities and solutions so that our listeners don’t have to be completely depressed about the future.
VAN MILLER: Well, actually, I have nothing but good news for them but there are just a couple of more things I think you and I should talk about, and we’ll explain. There are very simple strategies for dealing with this as long as you’re organized and everybody who listens and makes a decision that they’re going to take action, I think will have spectacular results.
JIM: All right, we’ll be right back.
JIM: Welcome back as we continue to visit with Van Miller. He is an international speaker that has gone around the world and talked about these planning opportunities. Before the break, he was talking about all the challenges that people face. The one message I think we can all agree on, Van, is don’t put your head in and bury your head in the sand and just hope it all goes away. You’ve got to be proactive, work with your team of professionals and come up with some solutions that are dealing with some of the issues that we face, so let’s start out by talking about what do you see as some of the opportunity? We talked about hyperinflation. I know we didn’t even talk about Obamacare and what impact that’ll have on Americans. Let’s talk about some of the solutions, as I think we have enough problems that we described in the beginning of the show to not tackle Obamacare.
VAN MILLER: Well, let me – this is just really important because in order to set up how we know what the opportunity is, there are a couple of things. The census bureau and the congressional budget office just issued a report. It’s very important. It said two major things, three major things. First, it said that from 1990 to 2013, incomes had only risen 14% so in a generation, if you think back to 1990 what the price of gas was, what the price of energy was, what the price of food was, what the price of healthcare was, quite different from 1990 to 2013 and incomes have only gone up 14% and since 2001, incomes have not increased at all for Americans; so what’s happening is these costs are really causing some serious problems for our country. The second thing: In order to understand where the opportunity is, you have to know this information. The second thing that is really, really important is that believe it or not, 46% of America makes less than $25,000 a year from this report and about 73% make less than $50,000 and 86% of America makes less than $75,000 a year; so if you really understand that, I ask audiences when I talk to them, I say: Where you live, if you’re married with two kids and you make $75,000 a year are you rich; and they always say no; so you have 86% of our country really not able to buy anything, so you need to really understand that in order to fix the banks and Wall Street, we decimated the middle class over the last six, seven years with these low interest rates. Because when they used to have $100,000 in their CDs and they were making 4%, 5% and 6%, they were making $4000, $5000, $6000 a year to live off of and now, with their CDs only paying one-tenth of one percent or $100 of interest, they have to starting digging into their principal to maintain their standard of living and it’s just decimated the middle class. I don’t know if you saw, but there was a report that just came out, this is how badly this is going: The 85 richest people in the world make more money than the bottom 3.5 billion people on the planet; so 85 people make more than 3.5 billion people do and you’re starting to see that separation of income. It’s very important that people understand; so here’s the thing, we have some advisors right now, some analysts who are saying that the stock market currently at 16,000 could go as 31,000 by 2016. I’ve heard 21,000; 22,000. I have quite a number that have just issued cautions and alerts saying that they think we’re within months from the stock market crashing off the map, and they believe that we’re going to go to, and I’m not kidding, 3000 – 4000 – 5000 Dow, that we’re going to see 50%, 60%, 70% even 80% losses and these are people that have been correct many times in the past. This is not out there in outer space kind of analysts; these are mainstream analysts who are concerned. We also, at the same time, have people that say that were going to see these low interest rates until 2023, that we will maintain these interest rates for an undetermined amount of time and then, we have another group of people that say that the interest rates are going to increase dramatically, and I have read as high as 20% to 25%, and I’m not talking about an outer space analyst. I’m talking about a mainstream analyst who’s saying “I think 20% to 25% interest rates by 2016.” So, who’s right, and the answer is maybe everybody, maybe nobody so, under a situation like that, should you be taking an inordinate amount of risks right now with your money; and most of my people say no; so what if we could keep you safe from all of that volatility, all of that fluctuation and that we could just kind of sit back and wait for an opportunity to present itself so if the stock market crashed or gold prices went up, interest rates changed dramatically to our benefit, how could we take advantage of all of the situations and the way to do that is to first never lose any money, and there is so much danger out there where people could easily lose enormous amounts of money in so many different kinds of vehicles, so we asked them: What if you didn’t have to know what was going to happen? What if you could make a little while you were waiting for these events to occur and then when they occurred, you could make real money because you were buying in a way that would take advantage of the opportunity; wouldn’t that be a good strategy for these uncertain times? I’m going to have some fun with you, Jim, if you’ll allow me. I ask my customers all the time, I say: President Barack Obama, whether you voted for him or didn’t, whether you like him or didn’t, this I believe: If he could fix our economy, don’t you think he’d do it? And they say well, some of them grudgingly and some of them say, of course he would. Then, I say: Mitt Romney, when he ran for president, I’m not kidding, when he woke up the next day, he really thought he was going to be the president. His advisors told him he was going to win, and so he went to bed; and when he got up the next morning, he found out that he had gotten beaten worse than John McCain had been beaten by Obama. I say to them if he could’ve told us a way that for certain he could fix he economy so we’d vote for him, wouldn’t he have done that and they say, well yah, I guess so; and Ben Bernanke, the head of the Federal Reserve, the guy who’s printing all the money, the ultimate financial insider, I mean if he doesn’t know what’s going on, who does? If he could fix the economy without printing $1 trillion a year, don’t you think he would and they say of course. I say so let me ask you something: What do you expect me to do? These guys aren’t calling me up and telling me the next mistake they’re going to make. They’re certainly not calling you. We don’t know what’s going to happen. In fact, many people call what’s happening in our economy the Grand Experiment because this has never happened in the history of the world, the kind of money that we’re seeing printed. This has never occurred. Nobody knows really what’s going to happen; so in those circumstances, should you be taking a lot of risk or should have a strategy that allows you to be safe under any of those circumstances and always in a position to take advantage of them, and they’ll say “well yah, do what you just said,” and I say okay, well when do you want to get started? Do you want to wait until after the next downturn or would you like to do it before the next downturn? What do you think they say? Anybody who tells you with that assorted variety of opinions about what’s going to happen, if they tell you they know it’s going to happen, I don’t think they’re being honest because we don’t know what’s going to happen; and so we have to find a way to make sure that our clients are safe first and then that they have enough liquidity to take advantage of whatever opportunity presents itself because of whatever mistake is made, and there are enormous things that could go wrong. There are derivatives, there’s real estate crashes, there’s stock market crashes, there’s interest rate hikes, this Obamacare. Please, this is just my personal opinion but I don’t think this is the end result. I don’t think it’s really going to do what they said it was going to do, and I think it was intentional. I think the ultimate thing is that the Americans will throw their hands up in the air and they’ll go: God, we ought to have a single payer system, and I really think that’s what they’re going for. There are so many rules that they’re not telling people, like all the people that they’re putting on Medicaid but they’re not telling them that all the states have laws in place that are called the State Recovery Laws, so if during your life, they pay you a claim under Medicaid and you have any money in your estate, they’re going to be able to come get that money.
JIM: The other thing I don’t see this on the news, if you don’t make enough money, you don’t qualify for the subsidies and you have to spend down what you have to go on Medicaid, so when they talk about it being a tax law that our Supreme Court said, it truly is. It’s a way to get more money for the federal government.
VAN MILLER: Absolutely, and there are even more issues. Do you know Alzheimer’s and dementia? We have about 4.6 million Americans that are suffering from it right now that we know about which would be about which would be about one out of every eight retirees. They’re talking not just in future, that we’ll have 15 million people with Alzheimer’s and dementia, which will be about one out of every five retirees, so where are we going to get the money for this? What kind of stress is that going to put on families and how can you save for those eventualities and still make sure that you have money for retirement and make sure that you have money in case you die too soon and all of those kinds of issues? Again, we have answers for that in our industry and it’s just people need to take the time to talk to somebody about it.
JIM: Van, I really appreciate you coming and sharing with us today. I know we’ve gone a little bit long. We could probably go for the next two hours, maybe even longer than that, but I guess the moral of the story is: If you don’t have a strategy going forward, if you’re just kind of being reactionary when things happen, I think there’s so much opportunity right now. Volatility creates opportunities and with Obamacare, whether you’re for it or against it, when you talk about the issues with people with Alzheimer’s and dementia and other issues, because people are living longer, there’s industries that haven’t even been invented yet where there’ll be tremendous opportunities, and I think the key is not to have all your eggs in one basket. You’ve got to be working with a team of professionals, because if you’re not keeping on top of it the folks like Van is, just having someone who’s got their ear to the ground to help guide you through the landmines that are in front of us, I think is more important now than ever. Looking at taxes, I mean taxes are going to have an impact if they change the deductions. If you just default to whatever falls on your return, it’s going to put you in a more vulnerable position, so working with a team of professional advisors can certainly help get you better results over the long run if they’re working with you and planning with you and strategizing with you; so thanks a lot, Van, for sharing with us today.
VAN MILLER: Well, thanks for the opportunity. It’s so well said. What a tremendous service you’re providing for people. The more they can hear about this, at least they have awareness and now, they make a decision. They make a decision to not do anything or they make a decision to plan for a have a successful outcome.
JIM: Well, thanks again Van.
VAN MILLER: Take care, thanks.