I do not use the term “extraordinary” very often to describe books, but this one qualifies as a TRULY extraordinary book.

It is extraordinary because it was first published in December 1996 and has accurately predicted the following events which have since transpired:

1. The September 11 2011 attacks by Osama Bin Laden
2. The decline of the welfare state, which is now transpiring in much of the Western world
3. The mobility of work and jobs due to the rise of technology

The Sovereign Individual is subtitled How to Survive and Thrive During the Collapse of the Welfare State, by James Dale Davidson and Lord William Rees-Mogg.

Davidson and Lord Rees-Mogg anticipate the collapse of the welfare state and a world where cyberspace frees the elite from the constraints of national boundaries. The welfare state collapses because wealth producers will move their operations elsewhere. We already see this with the outsourcing of both low-skill and high-skill work to the developing world.

The authors look at history, from the age of the hunter/gatherers, to the first city dwellers through the feudal times and the industrial revolution and observe how economic realities shape and reshape the nature of government. Davidson and Rees-Mogg point out that the world changes every five hundred years:

500     B.C.   Greek democracy emerged

     0               Birth of Jesus Christ

500     A.D.   The Dark Ages

1,000 A.D.   The Advent of Feudalism

1500   A.D.   The Renaissance and the Industrial Age

2000  A.D.   The Information Age

The authors contend that the modern welfare state, just over 100 years old is a variation of an old societal relationship – that government treats the most productive members of society as members to be exploited for the benefit of special interest groups.

The Information Age has several aspects that change the nature of the relationship between the Sovereign Individual  (i.e., the creative entrepreneur) and the state:

• businesses can now be run in cyberspace, and work can be done anywhere in the world. A high salaried Wall Street financial analyst may find his job outsourced to India. Software development may be done in Russia. The concept of a “job for life” will disappear, replaced by contract work.

• since the Sovereign Individual will not limited to her own country, she may strategically relocate her place of residency to a tax haven to avoid paying high taxes, or keep traveling to avoid being a resident of any country. The Sovereign Individual is no longer confined to any one country and will maximize her own benefit by selecting a state that provides government services for the most attractive price (i.e., taxes)

This is good news for those individuals with initiative and talent. The authors state that:

“Those who can educate themselves will be almost entirely free to invent their own work and realize the full benefits of their own productivity. Genius will be unleashed, freed from both the oppression of government and the drags of racial and ethnic prejudice. In the Information Society, no one who is truly able will be detained by the ill-formed opinions of others.

Politicians will no longer be able to dominate, suppress and regulate the greater part of commerce in this new deal.”

However, governments will be threatened by the departure their most productive people because they pay the highest taxes, which will lead to collapse of the welfare state as we know it. In the United States, the Internal Revenue Service, Central Intelligence Agency and National Security Agency will launch a counterattack against individuals and groups who seek to circumvent taxes. On one side will be cyber currencies and hard encryption, on the other will be increasing harsh penalties to those who resist.

The book includes an action plan. The authors recommend preparing for an exit from high taxing or repressive states, moving businesses offshore and developing cognitive skills that are portable and in demand.

The content of this book was very well researched and presented in a very digestable manner, and the conclusions are controversional. However, this is definitely recommended reading so you can put the changes that are occurring around us into historical context.

This is by far the best documentary I’ve seen which explains the reasons for the ongoing financial crisis that started in October 2008.

BBC business editor Robert Peston examines how the world got to this point and how the colossal imbalances in the global economy have left Western nations in need of a radical economic overhaul.

In this first of two programs Peston examines how, thirty years ago, momentous decisions were taken which shaped the world we live in today. In China, Deng Xiaoping opened up the country to foreign capitalists; in Britain and America, the free market revolution was unleashed by Margaret Thatcher and Ronald Reagan. The Party’s Over compares the lives of workers in a Chinese company with their co-workers in Britain.

Robert Peston interviews bankers, politicians and economists, and concludes that the boom we enjoyed before the crash was based on an illusion, and that the world’s economy is now so unbalanced that in the West we face a sobering wake-up call.

In the second program Peston asks how Britain can compete in the new world economic order. After years of living beyond its means, Britain needs to wean itself off the consumer society.

With the Eurozone crisis still threatening further financial armageddon, Peston asks whether we are in for decades, rather than years, of sluggish growth. Featuring interviews with senior economists, bankers and politicians, as well as the ordinary people in several countries, whose livelihoods depend on the outcome of this vast economic reordering of the world.

When reading or watching today’s news about the ongoing financial crises in the United States and Europe, one can spot a recurring theme in many of these news stories:

• Within each country, a very small minority has accumulated a large majority of the wealth;

• For the past thirty odd years, average middle class wages have been declining in real terms (i.e., after adjusting for inflation) as middle class jobs have been replaced by technology or outsourced to the developing world; and

• As a result of the above, the middle class is being wiped out. We in the West are transitioning into a two-tier society of the well off and the poor.

To a casual observer, this would seem like an alarming state of affairs which must be rectified by government intervention. After all, without a middle class, who will purchase goods and services? Who will pay the income taxes necessary to finance the operation of government and government programs? What about the concept of social justice?

But here is a provocative and controversial question: what if the current decline of the Western working class is actually a natural occurrence in our evolutionary history?

Does Darwin’s Theory of Evolution (“Darwin’s Theory”) have any application to what we’re seeing today? Is the decline of the middle and working classes a real time occurrence of “the survival of the fittest”?

An overview of “On The Origin of Species”

To analyze this issue, we should review a summary of Darwin’s Theory, which he explained in his book “On The Origin of Species”:

• The possibility of infinite growth of population sizes is checked by the limits of geography and natural resources, which will not allow an infinite number of beings to survive.

• As a result of limited food, water, shelter, and so on, species must engage in a “struggle for existence,” creating competition for survival.

• “Natural selection” decides which species will survive and which will become extinct. Darwin argues that organisms exhibiting advantageous variations—variations that will allow them to adapt to their environment better than other organisms do—will be more likely to survive.

• Through heredity, these advantageous variations will be passed on to the organisms’ offspring. Eventually, natural selection will allow those species best adapted to their environments to survive and prosper, while species without these advantageous adaptations will lose the struggle for existence and become extinct.

So in reference to human organisms, what are the “advantageous variations” that certain people possess that enable them to prosper in today’s economic environment driven by rapid technological change? How are they acquired?

In today’s world, to “prosper” is to attain financial success and independence.  And since the most prosperous members of every modern human society are its entrepreneurs, it would be useful to review what “advantageous variations” entrepreneurs have and how they are acquired.

Is Financial Success Genetic?

All successful entrepreneurs share the following traits: (1) they have the ability to work very, very hard; (2) they are able to analyze, calculate and take risks; and (3) they see opportunities that others don’t.

According to research conducted at the Department of Twin Research and Genetic Epidemiology at Kings College in London, England, 37 percent to 48 percent of the tendency to be an entrepreneur may be genetic. Here is a summary of findings by one of the researchers,  Scott Shane:

• The tendency to be an entrepreneur is heritable.  We found these heritabilities were substantive regardless of what indications of entrepreneurship we measured: owning or operating a business, the number of businesses owned and operated, starting a business, the number of businesses started, having engaged in a start-up effort, the number of start-up efforts, being self-employed, or the number of years spent self-employed.

• The tendency to identify new business opportunities is also heritable. Plus, the tendency to identify business opportunities and the tendency to start new businesses have a common genetic source. This pattern suggests that genetic factors might influence the odds of people becoming entrepreneurs by affecting their ability to identify new business opportunities.

• Self-employment income is heritable, which suggests genetics affects not just the tendency to engage in entrepreneurship but also the ability to perform it.

• The tendency to be an entrepreneur and personality traits of extraversion, openness to experience, and sensation-seeking have a common genetic component, as does the recognition of business opportunities and the personality trait of openness to experience. These patterns suggest that our genes might affect our tendency to be entrepreneurs by influencing the types of personalities that we develop.

If the conclusion of the inheritability of entrepreneurial traits is correct, it may have significant consequences on our society for the following reasons:

• Those who are not genetically disposed to be entrepreneurs will have to work as employees in order to earn a living. As we’ve indicated at the beginning of this article, jobs in the Western world are being eliminated en masse due to globalization and technology;

• Those few jobs remaining will be low paying service jobs which will be insufficient to sustain a “normal” existence (i.e.,  raise a family and pay for shelter, food and clothing for that family). Those occupying such jobs will be members of the working poor;

• In the long run, those who aren’t working will no longer have access to government programs such as employment insurance, social assistance, and old age pensions. As we’ve seen in the United States and Europe,  governments throughout the Western world, having spent trillions of dollars on bailing out banks and implementing economic stimulus packages, have become so indebted that they can no longer afford to pay for such programs. Entire nations are insolvent and on the verge of bankruptcy.

The consequence is this: with insufficient income from what few jobs  remain and the elimination of entitlement programs by indebted governments,  it may be likely that members of the “99 percent” will choose not to have children simply because they cannot afford to.

There is already anecdotal evidence that this is happening:

• The Daily Mail reports that in the United States, women living in states hardest hit by the recession are having fewer children. Arizona, Nevada, Idaho, Mississippi, California and Georgia all saw fertility rates drop by at least five per cent between 2007 and 2009;

• On the other side of the economic fence, it appears that the richest Americans are having more children. Here is an excerpt from an article in Grist.org about this phenomenon:

“There’s an odd phenomenon being reported in tony enclaves across the country: highly educated, highly compensated couples popping out four or more children — happily and by choice.” A lengthy article along the same lines in The Boston Globe Magazine quotes a pediatrician in affluent Wellesley, Mass., saying, “having four kids has become the new status symbol, like having a luxury SUV. It says you can afford it; you can have a nanny to help you out.” In the Observer, Molly Jong-Fast blames the uptick in part on in-vitro fertilization, which the rich can easily afford and which often leads to multiple births.

• Higher fertility among the rich isn’t just an American phenomenon. The Associated Press reported on how a wealthy Chinese couple flouted China’s one child policy by paying a million yuan fine ($160,000) to have eight children and illegally enlisted two surrogate mothers to help them have the four boys and four girls.

To emphasize the application of Darwin’s Theory on the current global economic transition, I repeat the last point of its summary above by integrating what we’ve covered so far:

Natural selection will allow those species (the 1 percent) best adapted (by possessing entrepreneurial traits) to their environments (globalization and rapid technological change) to survive and prosper (accumulate wealth and have offspring), while species without these advantageous adaptations (the 99 percent) will lose the struggle for existence and become extinct (lose their economic standing and stop having  offspring due to lack of means).

So, five hundred years from now, will the surnames of Smith, Jones and Brown become extinct in the United States and be replaced with the surnames of Gates, Jobs, and Zuckerberg? Only time will tell….

Conclusion

Applying Darwin’s Theory to the current global economic transition is a very disturbing view of why so few people seem to be prospering in this environment and why so many more are not.

There are many more employees than there are entrepreneurs, and at the current rate of technological change and outsourcing, there will be very few good jobs left in the Western world. Moreover, of those entrepreneurs who attempt to build a business, nine out of ten of them fail within the first five years. Therefore, taking this application of Darwin’s Theory to its logical conclusion implies that a select few are genetically programmed to succeed while many more will not.

Although the Kings College study concluded that 37 to 48 percent of entrepreneurial traits are genetic, this conclusion appears to leave room for the possibility that the other 63 to 52 percent can be nurtured through education or the creation of an entrepreneurial environment.

I am therefore hopeful that public education systems throughout the Western world will reform themselves to teach entrepreneurial skills to our children so that they can create a better future for themselves and the societies in which they reside.

 © Copyright Victor Fong, 2012.

Robert Kiyosaki is the best-selling author of the “Rich Dad Poor Dad” series of financial education books, which have collectively sold over 26 million copies worldwide. This makes him one of the best-selling business writers of all time.

A large part of the appeal of Kiyosaki’s books lie in the apparent common sense of what he teaches:

• Your financial goal in life should be the attainment of “financial freedom”. You attain financial freedom by building businesses and investing in assets which will generate passive income. This is distinct from “financial security” where someone works as an employee with the objective of receiving a steady paycheque

• To Kiyosaki, the concept of attaining “financial security” by having a job is an oxymoron, given the current state of the economy (e.g., layoffs) and the structural changes in the global economy (e.g., downsizing and offshoring)

• What you learn in school does not prepare you for financial freedom because schools don’t teach financial literacy, which is a prerequisite to building businesses and investing in assets. Rather, the current school system prepares you to be an employee.

Throughout his series of books, Kiyosaki uses stories involving his “rich dad”and his “poor dad” as parables to highlight the above concepts. His “rich dad” was his best friend’s father, a high school dropout who became one of the richest men in the state of Hawaii, where Kiyosaki grew up. His “poor dad” was his real biological father, a highly educated PhD who was once the Superintendent of Education for the state of Hawaii, but died broke at the end of his life.

The following is an interview with Kiyosaki on the Oprah Winfrey show. Within the financial education industry, Kiyosaki is a controversial figure since the advice he imparts is somewhat unconventional. However, what he says is always engaging, and we will leave you to decide the merit of what he teaches.

Kyle Bass is a Texas hedge fund manager who predicted the U.S. subprime housing crisis and made millions from being right in his predictions. He is now betting on the collapse of entire countries in Europe. Many of his predictions are frightening, but as you’ll see in this interview on the BBC’s Hardtalk, they make complete sense when he explains his reasoning. Among other things, he predicts that:

• The European Union will collapse

• The Japanese economy will also collapse due to its high level of debt and a shrinking population base, which is unable to service that debt due to its aging demographic and xenoph0bic immigration policy

• Governments around the world will try to print their way out of debt. That is, they will pay their debts by printing more paper money. Fiat currency will eventually be seen as worthless leading to its eventually collapse as a medium of exchange.

• Consequently, Bass sees the only reliable investments as being guns and gold. “Gold” because of the impending collapse of fiat currency as an exchange medium, and “guns” because of the impending social unrest resulting from the collapse of governments around the world.

Here it is from the man himself in this interview with the BBC’s “Hardtalk”:

 BBC’s Hardtalk – Interview with Kyle Bass (Part 1)

BBC’s Hardtalk – Interview with Kyle Bass (Part 2)

A detailed analysis of the subject matter Bass discussed in this interview is contained in this November 2011 report to the shareholders of his hedge fund, Hayman Capital Management L.P. It makes for very interesting and insightful reading.

“Where should I invest my money?“

I’m frequently asked this question, and almost invariably, the speaker asks it in a tone of fear and concern.

And there is much to be frightened and concerned about. As of this writing, the European Union is on the verge of collapse and the United States is still mired in high levels of debt and unemployment.

One has step back to look at the bigger picture and ask: “why is all of this happening?” The answer can be found by examining what has happened on a global level over the past 30 years. There are two sides to this story – the West and the East. On the Western front:

• Globalization has outsourced jobs from the industrialized nations to the developing nations. Moreover, technology has, on a net basis, destroyed more jobs than it has created.

• Consequently, average wages have steadily been decreasing during this same time period.

• At the same time, interest rates have also been getting lower, making it easier to borrow. People still wanted to live the same lifestyle as their parents and grandparents and they were able to finance that lifestyle by getting into hock.

• The ultimate effect was to increase levels of indebtedness at the consumer level. Eventually, these consumer debts could no longer be serviced by consumers due to their low wages. When these debts went bad, the financial institutions that made these loans became insolvent and required government bailouts to keep them from failing. Now, because they borrowed so much money to bail out their banks, entire governments are effectively insolvent and may not be able to pay their creditors (i.e., holders of government bonds such as banks and pension funds, as well as the pension of obligations of their civil service and citizens).

Meanwhile, on the Eastern front, Asia has greatly benefited from the twin forces of globalization and technology. Here are some compelling facts:

• The Canadian International Development Agency states that over the past 30 years, 500 million Chinese have been lifted out of poverty.

• It is estimated that 300 million Indians now belong to the middle class; one-third of them have emerged from poverty in the last ten years. At the current rate of growth, a majority of Indians will be middle-class by 2025.

• A majority of the world’s middle class will reside in Asia – of the world’s five largest middle-class markets, four will be in Asia by 2035: India, China, Japan and Indonesia.

Today, we are witnessing a historical global power shift that happens only once every few hundred years. The last one happened 500 years ago at the onset of the European Renaissance, which saw the economic decline of China and India, then the most advanced civilizations on earth, and the rise of the European nation states which came to dominate the globe both economically and militarily.

So, within the context of this setting, we shall proceed to give our views on where to invest in order to preserve your capital and make a steady return on same. We shall examine two companies which we feel are undervalued and are in a position to do very well given the global economic forces at play today:

Intel Corporation (NASDAQ: INTC)

Intel is synonymous with microprocessors, the heart of all computers. In fact, it has 80% of global microprocessor revenue and is effectively a monopoly. There are two trends which will contribute to Intel’s financial success and consequently, its stock price:

• A rising middle class in Asia (as well as South America and Africa) will purchase more computers and 80% of those computers will contain Intel microprocessors.

• Intel also dominates the market for server microprocessors (approximately 90%). There appears to be a trend towards cloud computing services by both consumers and business that will be permanent. Moreover, as alluded to earlier, as technology advances and replaces people with software programs, more processing power will be required to run these applications. Therefore, there will be a rising demand for computer servers to meet demand for processing power. Ninety percent of those servers will contain Intel chips.

Intel is currently priced at a price-earnings ratio of 10.65, making this a very attractively priced stock. Moreover, it has a very high dividend yield of  3.41 % and has consistently paid a dividend since 1992. Finally, a review of its balance sheet shows that Intel is a financially stable company: it effectively has no debt.

The Coca Cola Company (NYSE: KO)

From a cultural perspective, the term "globalization" is synonymous with "Americanization". The newly-minted middle class in Asia and other developing regions aspire to live the quintessential American lifestyle. They want to drive Cadillacs, eat McDonalds hamburgers, take their children to Disneyworld. And they want to drink Coca-Cola. Consider the following facts:

• China’s soft drinks market is forecast to grow from $49 billibn last year to $86 billion by 2015, according to Euromonitor, the data agency.

• China now accounts for seven percent of Coke’s global consumption. The company now has 41 bottling plants in China, five of which were opened during 2009-2010 and another in 2011. In the first half of 2011, Coca-Cola’s sales in China topped 1 billion unit cases, which doubled the company’s sales rate there five years ago, according to an article in industryweek.com. The new investments in China will help Coke achieve its goal of doubling system revenues and servings by 2020.

Coke is currently priced at a price-earnings ratio of 12.23, making this a well-priced stock. Moreover, it has a good dividend yield of  2.83 % and consistently pays a dividend. A review of its balance sheet shows that Coke does have a higher level of debt, but this is being used to finance its expansion plans in developing markets such as China. Given the statistics cited above, this financing appears to have been put to good use.

Disclaimer: You understand that no content within this article constitutes a recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. The author is not advising you personally concerning the nature, potential, value or suitability of any particular security, portfolio of securities, transaction, investment strategy or other matter. To the extent that any of the content of this article may be deemed to be investment advice or recommendations in connection with a particular security, such information is impersonal and not tailored to the investment needs of any specific person. The author is not an investment advisor and is not offering investment advice. You understand that an investment in any security is subject to a number of risks, and that discussions of any security published in this article will not contain a list or description of relevant risk factors.

© Copyright Victor Fong, 2011.

I had the pleasure of being a guest panelist on the Dash Show. The Dash Show is the media outlet of the Online Party of Canada, which is is a political party founded by Michael Nicula “enabling direct democracy in the internet era“.

The topic of discussion was a timely one – Personal Debt.

I am often asked what is the best debt counselling service available to someone  who wishes to get out of debt without going bankrupt.

The answer to this question depends on the severity of the debtor’s situation:

• If one is able to repay all debts in full given: (1) a reduction or elimination of the interest on debts; and (2) more time to pay,  one should consider working with a Credit Counselling Agency to repay one’s debts through a Debt Management Plan (DMP)

• If one is unable to pay off all debts in full, but can repay some of the debts, then one should consider working with a Trustee in Bankruptcy to make a settlement with creditors through a Consumer Proposal.

The following table summarizes these two options through some frequently asked questions:

DEBT MANAGEMENT PLAN FAQS

CONSUMER PROPOSAL FAQS

If you feel that a Debt Management Plan may be a viable option for you, here are some reputable credit counselling agencies operating in the Greater Toronto Area:

Credit Canada

This company has been around for decades (since the 1960s) and I have personally referred people to them. They are very reputable and are involved in the Toronto community providing educational seminars on personal finance.

Head office: 45 Sheppard Avenue East, Suite 810, Toronto, Ontario M2N 5W9

Website: www.creditcanada.com

Incharge Canada

This is an American company which started operating in Canada in about 2008. InCharge Debt Solutions was established as a Nevada nonprofit credit counseling organization in 1997. In 2000 the corporate headquarters were moved to Orlando, Florida.

Canadian head office: 809-200 Consumers Rd., Toronto, Ontario M2J 4R4

Website: www.inchargecanada.ca

Consolidated Credit Canada

Yet another American company, this one is based in Florida and has been operating since the early 1990s. They started their Canadian operations a few years ago.

Canadian head office: 210-716 Gordon Baker Rd., Toronto, Ontario M2H 3B4

Website: www.consolidatedcredit.ca

This post should not be interpreted as legal advice or a legal opinion. Please consult your Fong and Partners Inc. advisor to review your own particular circumstances.

© Copyright Fong and Partners Inc 2011.

You may have noticed a recent proliferation of telemarketing calls, TV ads and radio ads from “non-profit” debt management/debt counselling companies in the Greater Toronto Area.

Almost all of these companies are U.S. based, and they have been aggressively moving into the GTA because their highly questionable business practices have recently been restricted by the U.S. Federal Trade Commission.

The Spin

Here are some typical claims these companies will tell you:

• they’ll negotiate with your creditors to reduce the amount you owe

• using their services will have no or little negative impact on your personal credit rating

• negative information can be removed from your credit report when you complete their debt negotiation program

• the firm will hold your funds in a special account and pay your creditors on your behalf

The Truth

• these companies will charge you a hefty fee before they settle or reduce your debt

• there is no guarantee that the services debt settlement companies offer are legitimate

• there also is no guarantee that a creditor will accept partial payment of a legitimate debt

• in fact, if you stop making payments on a credit card, late fees and interest usually are added to the debt each month.

• While creditors have no obligation to agree to negotiate the amount a consumer owes, they have a legal obligation to provide accurate information to the credit reporting agencies, including your failure to make monthly payments. That can result in a negative entry on your credit report. And in certain situations, creditors may have the right to sue you to recover the money you owe.

These American companies have been moving up to Canada because our country has absolutely no regulation against these types of duplicitive practises.

Warning Signs

Steer clear of debt management companies that

• charge any fees before it settles your debts

• guarantee they can remove your unsecured debt

• tout a “new government program” to bail out personal credit card debt

• promise that unsecured debts can be paid off with pennies on the dollar

• tell you to stop making payments to or communicating with your creditors

• tell you it can stop all debt collection calls and lawsuits

• claim that creditors never sue consumers for non-payment of unsecured debt

• promise that using their system will have no negative impact on your credit report

• claim that they can remove accurate negative information from your credit report

The Ideal Solution

If you are having problems dealing with your debts, consider contacting a government licensed trustee in bankruptcy. Most trustees (including our firm) offer a free initial consultation to explore the legal options available to you. This may include a settlement with your creditors through a consumer proposal to get you back on track.

The source of this post’s content was from the website of the United States Federal Trade Commission. Here is the link.

This post should not be interpreted as legal advice or a legal opinion. Please consult your Fong and Partners Inc. advisor to review your own particular circumstances.

© Copyright Fong and Partners Inc 2011.

Once a debtor has been discharged from bankruptcy, she can obtain a secured credit card to start rebuilding her credit.

Contrary to popular belief, a debtor who has been discharged from bankruptcy doesn’t have to wait 7 years (the length a bankruptcy stays on a credit file) to re-establish her credit history.

Immediately after her discharge, she can apply for and receive a secured credit card to start rebuilding her credit. This is how it works:

1. Apply for a secured credit card. It is called a “secured” card because you’re required to provide a security deposit to the bank. Your credit limit will be equal to the amount of security you provide.
2. Once you get the credit card, use it as a convenience card to purchase gas, groceries, etc.
3. Pay off the balance in full each month so you are not charged any interest on unpaid balances.
4. Your credit file gets updated every time you perform items 2 and 3.

If you do this consistently for about 2 years, you’ll have built a “track record” of paying your debts in full and on time. This will look favourable on your credit file, and will make it easier for you to obtain other forms of credit, such as a mortgage or a car loan.

The best product we’re aware of is the Home Trust Secured VISA. They require a minimum of just $500 to get you started. Here is a link to an application form.