(Interviewed by Louis James, Editor, International Speculator)
Editor's Note: Doug is on
holiday this week, but we have a new member of the Casey brain trust
whom we have not interviewed, so we're taking the opportunity to remedy
that. Dennis Miller is the chief editor and analyst for our new
retirement income letter, Miller's Money Forever. Income
streams are of interest to others as well as retirees, of course, and
how to manage them in today's extremely volatile markets is a major
concern to many. So, without further ado, we give you the facts vs.
fears vs. fearmongering regarding investing for income today.
L: Dennis, let's start at the beginning: who are you, and why should anyone listen to what you have to say about money?
Dennis: I'm a subscriber of yours, actually. I'd been reading the International Speculator
and other Casey products for years. As excellent as these services are,
it seemed to me that they did not address a particular need of mine,
and that of many seniors I know - how to best put my money to work
generating income while exposing it to the least amount of risk
possible. In reality, a good portfolio for my peer group would have
picks from all the Casey newsletters in a proper balance. And here we
are.
Professionally, my background is as a sales and management consultant - readers can see my bio page for details.
The important part of the story is that I dedicated myself to study in
this area two decades ago and now have a lot to share - and a track
record to back up its value.
L: And access to the Casey brain trust to help you and support your work.
Dennis: Indeed. But I'm different from the other Casey
editors. Each of you is a sector specialist with exceptional skills in
your particular area. I am the market that came to Casey Research with a
need. My peer group is baby boomers on either side of the cusp of
retirement. I cut across all sectors and use all our research group's
expertise to build the kind of portfolio my peer group can use to
survive. In essence, I go to the research team and say something like:
"Okay, here is what our subscribers are looking for." The team is
amazing, because they always come back with some really solid ideas.
I tell readers that when we were younger there was a common saying: "How
come there is so much month left at the end of the money?" It was funny
then. Now, it's become: "How come there is so much life left at the end
of the money?" This is not the least bit funny; it's terrifying.
L: Let's talk about that. In your book Retirement Reboot, you say that your life totally changed as a result of the crash of 2008. What do you mean?
Dennis: I mean that my generation played by the rules;
we paid our taxes, saved our nest eggs, and did everything else we were
supposed to do for the last 30 years. Retirement projections were based
on a "conservative" projected investment yield of 6% vs. inflation of
2%. Now those numbers have reversed - yield is 2% and inflation is 6%+.
They changed with the first TARP law. That is when the problems started.
L: I would say that's when the problems became more visible, but go ahead...
Dennis: Yeah, you are right. The problems are
interconnected; what happened in the investment world in 2008 and how an
entire generation had to adjust and adapt almost overnight.
In my own case, I had several CDs called in that were paying 6-7%. I
just checked my brokerage account, and today, the best rate I can find
for a five year CD is 1.2%. In effect, investors who were holding
high-grade bonds and CDs took an 80% income cut on the spot.
All safe, fixed-income investments were taken away from us. Most folks
cannot live on Social Security; they need to supplement it with
investment income. Baby boomers and retirees are scrambling, looking for
alternative ways to make up the difference.
L: Makes sense to me, but how do you know that's not
just you and your friends? The mainstream media seem to be cooperating
with the government's rosy projections, talking about economic
recovery... Is this fear real, or are you just fearmongering?
Dennis: We conducted a subscriber survey; the
overwhelming message was that retirees are scared and looking for
opportunities to generate income. As a result, we have produced a
special report on dividends, and our last three issues focused on
annuities and reverse mortgages. The new issue out next Tuesday focuses
on real estate.
L: Mortgages and annuities - not the sort of stuff I've ever written about. But I know Terry Coxon and Bud Conrad have relevant expertise. Still, I imagine you and the research team faced some real challenges getting your letter going...
Dennis: Yes, but it has been fun. I like to look at
myself as the advocate for our subscriber base. If the majority of them
are looking for income, it is my job to go inside Casey Research and
show them where to find it. We have also used some outside resources for
help on the subjects mentioned.
Back to reality-based fear vs. fearmongering. Let me put the
generational challenges into perspective. Not only have we seen huge
hits in our income, which means we have to put our capital at risk, but
also our costs are going up rapidly.
In a recent article
we pointed out how the government is basically lying to the public
about increases in the cost of living. We used the data from John
Williams at Shadowstats as a reality check. The math is easy to follow: I
got my first Social Security check ten years ago, let's say it was
$1,000. Using the government's automatic cost of living increases, that
check would be $1,270 today, which theoretically keeps up with
inflation. Using the more realistic Shadowstats inflation figure, my
$1,000 check a decade ago would buy $477 worth of goods today.
So you see, I'm past the point of worrying about fearmongering. I prefer
to use the facts at hand and educate our readers. Once you retire and
have to live the rest of your life on Social Security and income from
your nest egg, you look at life through a different prism. I don't want
any of my friends or readers to ever say, "Why didn't you warn me?"
Picture your parents in this dilemma: Their safe sources of decent
income have been taken away from them. They now have to put the bulk of
their life savings at much higher risk than they are comfortable with,
and their day-to-day cost of living is skyrocketing. They are afraid
because they really can't lose their nest egg. They are no longer
working, and they don't have the ability to earn it back if they lose
it. This is a very real pressure that a lot of people feel. If that is
not the definition of a crunch, I don't know what is.
L: I see what you mean. How do you even start to address such a huge problem?
Dennis: We start with a wake-up call. People have to
understand that the paradigm has totally and irreversibly changed. What
worked ten years ago does not work today - will probably never work
again. This is very emotional for people.
Doug Casey's favorite investment writer, Benjamin Graham,
talked about passive versus active investors. Unless investors have a
lot of money - enough to warrant paying a true expert money manager -
they are going to have to become less passive and more active as
investors. That implies a massive self-education process, like the one I
was forced to undertake.
I am a member of a group called the ROMEO ("Retired Old Men Eating Out")
club. We meet for breakfast regularly. Most have accumulated a nice
nest egg and need to make it last. One thing we have concluded is this:
it makes little difference how you made your money - we are all money
managers now, and we'd better do a good job of it.
L: Are people getting it?
Dennis: More and more every day. It is like the fish
sandwich you forget about and leave in the back of the car; there comes a
point where you can no longer ignore things.
L: That actually happened to me once, when I was a boy.
It wasn't a sandwich, but a news-wrapped package of chopped squid I got
to use as fishing bait. It slipped under the back seat of the car as we
drove home and, well, I was maybe six or seven. Out of sight, out of
mind. The squid made its presence known within a couple days, but there
was no visible source of the smell. We tried driving with the windows
open, air fresheners, upholstery cleaner... Eventually, it became so
intolerable my dad got his toolbox out and dismantled the car piece by
piece, until he found the crevice the squid had slid down into. Thus
ended my quest to become a professional fisherman.
Dennis: [Chuckles] I suspect a squid would certainly have a very distinctive bouquet.
L: [Chuckles] Hard to ignore something when your eyes are burning.
Dennis: [Laughs] Good example, that's exactly where we
are, and it's real. The fear is driven by real numbers, and it's
becoming overpowering. People need real answers, and they need them now.
L: Okay, I get it. But most of my parents' friends who
accumulated nice nest eggs made their money in industries other than
finance or investing. So again, where do you start?
Dennis: We quickly realized we needed to do more than
just suggest stocks for readers' portfolios. We have to really do all we
can to educate our subscribers about both breadth and depth of a
portfolio suited for people in their situation. We educate them on the
overall big picture, then get down to individual investment suggestions.
You're right: much of this education is new to these folks. But they are
highly motivated and pretty sharp - they had to be in order to
accumulate their nest egg to begin with.
When Vedran Vuk, our senior research analyst, writes up his recommendations, they rival the kind of in-depth write-ups you do in International Speculator.
We want our subscribers to know as much about our recommendations and
why we made them as we do. In essence, part of our educational effort is
to show how trained researchers think. This is particularly important
to folks with larger portfolios. They need to understand the process,
because many may want to add depth, meaning additional picks to a given
sector.
And finally we come back to the nontraditional items we mentioned
earlier. Many may need to supplement their income with annuities, a
reverse mortgage, or real-estate investments. They are looking for help
wherever they can find it. In the case of those items, they are not one
size fits all. Investors have to understand when they make sense and
when they can be a disaster. In the case of annuities, we also produced a
comprehensive special report. I got an interesting response from a
subscriber thanking us. He said it is the first time he has read
something on annuities that was not produced by someone selling them
looking for a commission. That never dawned on me until I got the email.
L: Okay, but we risk turning into an infomercial here.
Let's get back to issues all seniors should think about. Do you see any
differences in the way folks "on either side of the cusp of retirement"
should be investing than those who may be younger?
Dennis: Our group does not normally get the benefit of
second chances; they have to be much more cautious. We suggest a
five-point balancing test for evaluating investments: safety, income,
inflation protection, appreciation, and the ability to quickly reverse
the investment. That last one really highlights a major difference for
investors your age and mine. I cannot see why any baby boomer or senior
today would ever consider investing in a five-year CD or long-term
Treasury. They are tying up their capital in an instrument with a yield
that does not keep up with inflation, is difficult to get out of, and it
would be totally destroyed when the inevitable hyperinflation ahead
becomes reality today.
L: How can you be so sure there will be hyperinflation? The US is not Zimbabwe.
Dennis: As you stated in the beginning, I was a
subscriber before I was asked to join the team. I was a student at the
2011 Casey Conference titled When Money Dies. I will never
forget the last two words of Doug's kickoff presentation: "We're
screwed!" I could not argue with him. I came away from that conference
convinced that hyperinflation is a real possibility, and made several
changes in my personal investment strategy.
With the government printing money at world-record levels, I just can't
see it not happening. But what is it Doug says? "Just because something
is inevitable does not mean it is imminent." I can't say when inevitable
and imminent meet, but history tells us that when hyperinflation
happens, it is quick and catastrophic for seniors and savers. There are
times when the probability of a catastrophe cannot be calculated, but we
must insure for it regardless, because we don't want to risk being
wiped out. In this case, hyperinflation could wipe out the net worth of
an entire generation overnight. Prudent investors needs to invest
defensively to make sure it does not happen to them.
L: How should Europeans look at this? People from elsewhere?
Dennis: Good question. If our dollar collapses, it will
have a major impact on the world, and they certainly have a similar
situation with the euro itself. Many Europeans have seen hyperinflation
in their lifetime - you don't need to convince them it can happen. I
think you mentioned that your father-in-law shared some stories about
hyperinflation in post-Soviet times. Vedran also tells me stories that
his grandfather has told him. Europeans are more comfortable being
invested in metals and several different currencies. As they feel the
probability of hyperinflation increasing, they will need to stay
diversified in the kind of investments that will hold their value.
L: Okay, back to the US, where most of our readers are
located. How do you feel about Treasury Inflation Protected Securities
(TIPS) - aren't they promoted as a surefire way to protect against
inflation?
Dennis: Let me make you a proposition. I want you to
lend me some money, and I guarantee you I will pay you back with
inflation-beating interest on a certain date. The amount of interest is
based on an index, and I get to keep score and calculate that index. How
do you feel about that?
L: Well, if it were you, I'd want to know exactly how
the index was constructed, how you were going to earn the money to pay
me back with, and what my remedies might be if your plan didn't work.
But you are someone I trust. If such a proposal came from a financial
institution, I would want an iron-clad contract enabling me to sue, if
things go south.
Dennis: Right, but in this example, I'm not me, and I'm
not an institution you can sue. I'm the government; and I reserve the
right to alter the formula at will and have a history of -
L: Stop right there. You're the same entity that can't
balance its budget, failed to protect New York City from known
terrorists, lied to me about weapons of mass destruction in Iraq, and
sent my little brother off into a counterproductive battle where he
might have been shot by people defending their own homes - and can't
even deliver the mail to the right address? Forget it.
Dennis: Well, yes. But just for the purposes of this thought experiment.
L: No deal.
Dennis: But most people aren't like you; they trust the
US government - or at least believe in its solvency. But even in that
context, TIPS will do the exact opposite of what it promises. You see,
even if the government was not lying about inflation giving you a phony
return, your income on them is taxable, so you really have zero chance
of keeping up with inflation.
We tell readers who have money managers to ask them how they are
protecting invested funds against inflation. If the answer is they have
put a portion of their investment capital in TIPS, that should be a red
flag. Too many of these so-called money managers in brokerage firms put
their clients' money in TIPS because the legal department says it helps
them if they get sued for malpractice. But it's a bad idea. I'll say it
again: TIPS is a guaranteed way to make sure you lose buying power.
L: Got it. Assume our casual reader will never
subscribe to or read your newsletter. Are there any other major points
you think he or she should take away from this conversation?
Dennis: A couple of things come to mind. First would be
to not ignore what is happening in the investment community. I see
friends rolling CDs over because the bank tells them the 1.2% rate is
competitive. I cringe every time I hear that.
Which leads to the second point. I don't know what it is about retirees,
but even today there are folks who retire and think their nest egg will
manage itself. There are no more Graham-style, passive, "set it and
forget it" investments today. Even if you have a portfolio of solid,
dividend-paying stocks, you need to monitor your portfolio regularly. I
remember the days when you could buy a group of mutual funds and peek at
them every few months. Just can't risk that today.
Bottom line: self-education is a continuous process.
No one is more concerned about your life savings than you are. Stay on
top of things by continually reading, learning, and monitoring your
investments.
L: Okay, then. Thanks for this general overview. Sounds
like quite a minefield out there - I hope these ideas we've provided
prove to be helpful.
Dennis: It's been a pleasure. We should touch base again next year, and see how the situation has evolved by then.
L: Good plan. Thanks again.
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