We look forward to the Van Mueller newsletter every month. It's chock-full of sound bites, sales tips, and eye-opening statistics. Here are our favorite parts of the August 2018 edition. We're sharing the full introduction, and 2 of the 7 monthly sales ideas. If you like what you read, we encourage you to click here and become a subscriber.
Reprinted with the author's permission.
August, 2018 – 7 Ideas and Views Newsletter by Van Mueller
In July's newsletter I started to review some economic facts that all Americans should be paying particular attention to.
We talked about the new Social Security and Medicare Trustee's Report which showed that both Social Security and Medicare's financial condition had digressed in spite of a nine-year expansion of our economy.
How could that happen? The answer is clear. The expansion is not real. It is artificially created by interest rate cuts, cheap credit, printing money and stock buy backs. All have created an enormous amount of debt which cannot be serviced. We will talk about that later in the newsletter.
Here is an even more important question to not only ask yourselves, but every prospect and client we call on. What happens to the financial stability of these programs if we have a serious downturn? If their finances deteriorated during a nine-year economic expansion, what will happen during the next downturn?
Additionally, we discussed the enormous challenge of demographics. We currently have 62 million Americans using Social Security and Medicare. By 2045, 140 million Baby Boomers and Generation Xers will be over 65 and requiring Social Security and Medicare benefits. WHERE WILL WE GET THE MONEY?
Later in this newsletter we will talk about the overwhelming challenge of taking care of all these Baby Boomers and Generation Xers if they require assisted living care or long-term care. The amount of money required for these eventualities is almost incomprehensible.
What is so disheartening is none of this will be discussed until after the 2020 presidential elections. That will make solutions even more difficult. Politicians do not want to talk about mathematical issues that they cannot solve without offending EVERYONE. So, they raise emotional issues like immigration and abortion that preserve their constituencies.
I don't want you to talk about any emotional issues. That would serve no purpose. I do want you to ask about mathematical issues, such as taxes, inflation, volatility, longevity, healthcare, etc.
I don't want you to talk about any emotional issues. That would serve no purpose. I do want you to ask about mathematical issues, such as taxes, inflation, volatility, longevity, healthcare, etc.
If questions are asked correctly you can turn mathematical issues into emotional issues very, very quickly. Americans, including analytical Americans buy on emotion and support those buying decisions with a few facts. Doesn't that make sense to you? Shouldn't we inspire our prospects and clients to take action rather than overwhelming them with a large amount of facts that they can't even come close to understanding? May I be clear. I am not saying we should trick people. We must ask questions that will assist them to use their OWN reasoning power to determine what will work best for their particular set of circumstances. Our prospects and clients are NOT stupid. They are extremely busy. They are fed soundbites of information thousands and thousands of times. Even things that are ridiculously untrue become truth after a thousand times. Telling people that their truths are not true does not inspire action. Asking questions helps prospects and clients reason out why what they have been told might not be appropriate for their particular situation.
We also reviewed inflation and deflation. Please make sure you know the difference. These two economic issues will have enormous impact on the financial and retirement futures of the American people.
Here's an example: Your client has $10 million dollars in assets. They believe they are rich. They lose 50 percent of the value of those assets in the economic downturn. They now have $5 million in assets. That is deflation.
Then inflation kicks in because the government has to print money, so they have enough money to provide all the benefits they promised. The more of something there is, the less value it has. That is inflation. The government has to print so much money that its purchasing power is reduced by half in 7 to 10 years.
So, our couple had $10 million in assets earning 4 percent. This provided them with $400,000 per year of income. They lose 50 percent of their asset and now they only have $5 million. Now they only create $200,000 per year of income. Because the $200,000 now only buys what $100,000 bought 7 years ago, they must now try to have a financial life based on $100,000 of purchasing power rather than the $400,000 they started with. I know most people think this is a problem they would like to have, but this couple is now struggling to make ends meet and will probably have to use principle to maintain their lifestyle.
You could save this couple. Don't believe they know any of this, because they don't. They aren't even thinking about this. They think they are safe.
You could save this couple. Don't believe they know any of this, because they don't. They aren't even thinking about this. They think they are safe.
Now, apply this information to couples who have two or three or four hundred thousand in assets. They are toast! Their lives are destroyed. It won't take long: A couple of years and they are in serious financial trouble. Don't assume they know. They don't! Ask every person and family you come across about deflation and inflation.
Let's talk about some additional economic considerations that will cause or contribute to the economic disaster we are about to deal with domestically and globally.
Defined benefit pension plans at every level of government, public companies, corporations, and unions are all dramatically and woefully underfunded.
California's pensions are estimated to be underfunded by close to one trillion dollars. Illinois could easily become the first state ever to file for bankruptcy. The states of New York, Connecticut, Texas, Ohio, Pennsylvania, New Jersey, etc. all face enormous amounts of unfunded liabilities for their pension plans and for that matter their retiree health care costs.
S&P 500 companies owe retirees and future retirees $382 billion more than they have set aside. General Electric is short over $31 billion. Boeing has a shortfall of $20 billion. General Motors is short over $18 billion. Lockheed Martin almost $15 billion. AT&T is short $13.6 billion, Exxon Mobile $13.3 billion, the list goes on and on. General Electric's pension covers over 600,000 people.
Teachers, municipal workers, fire, police and government workers all face astonishing shortfalls in their pensions. What do you think will happen when Americans wake up to the fact that they will probably not receive all of their promised pensions? What will happen to our economy when retirees don't have all the money they need to buy goods and services?
I actually believe this is a “Black Swan” event that could cause the next downturn. Once Americans realize how serious of a problem this is they will reduce their spending dramatically.
I actually believe this is a “Black Swan” event that could cause the next downturn. Once Americans realize how serious of a problem this is they will reduce their spending dramatically.
A way to keep track of these issues is to go to www.truthinaccounting.org. Sign up for the daily blog of B. Bergman. It is free and will be sent to your email every day. You will be able to accumulate solid third-party information that will help explain the severity of this issue.
The largest economic entity on planet Earth, the European Union is about to disintegrate. Despite being bailed out many, many times, 22 of the 28 nations are deeper in debt than they have ever been. All the banks in Italy are essentially bankrupt. The largest bank in the world, Deutsche Bank, has seen their stock decrease by over 90 percent. Deutsche Bank alone has exposure to over 75 trillion in derivatives. Deutsche Bank is Germany's largest bank. Germany is Europe's largest economy. If Germany decides to stop bailing out other European Union countries like Greece and Spain and Italy and France, the European Union will be destroyed. Demographically, Germany has the second oldest population on the planet behind only Japan. If Germany stumbles it would destroy the European Union. If the European Union collapses the damage to the world's economy is not measurable. Europe still has negative interest rates in many cases. So, as they have printed more money they have used that additional money to invest in our interest rates and our stock market. Now that interest rates are rising in Europe that liquidity will be removed from our markets. That will cause a very severe slow down.
Japan, also still has negative interest rates. They have been printing over $1 trillion dollars a year and investing it here because of higher rates of return. Again, that liquidity which has been driving our stock market is being removed.
There is a phrase in finance, “Liquidity drives the markets.” If you remove that liquidity, it presents real danger. It also explains why our bull market continued even though the fundamentals didn't support market gains.
There is a phrase in finance, “Liquidity drives the markets.” If you remove that liquidity, it presents real danger. It also explains why our bull market continued even though the fundamentals didn't support market gains.
We had very similar circumstances in South America. Very weak economies printing money to survive and yet having to invest that money where it could provide the best return, The United States. Again, removal of that liquidity signals a dramatic slowdown in our economy and our stock market.
The Federal Reserve is raising interest rates and has stopped printing money, TEMPORARILY. They are even taking money out of the system currently to reduce their extraordinary balance sheet of almost $5 trillion dollars. They normally have a balance sheet of about $300 to $500 billion. Where did they get the rest of that money? They printed it. Now they must reduce their exposure without destroying our economy.
Do you see a pattern here? Tremendous money creation to stimulate economies. Eventually, this can create massive inflation which is much more difficult to deal with than slow growth. The world is currently in the process of deleveraging. None of this has ever been done to this extent before. This is an experiment. No one knows what will happen as we try to wind down all this stimulus. Most analysts believe we will be unable to do it. Mathematically, we will have to print more money. We will have to create ever larger and larger amounts of stimulus if our governments wish to keep the promises they have made for retirement benefits and healthcare.
That brings us to China: The second biggest economy, behind the United States. China, also still remains the most populated country with 1.3 billion inhabitants compared to our 330 million. The United States has a $20 trillion economy and we are now $21 trillion in debt. China has a $12 trillion-dollar economy and are now close to $40 trillion in debt. Can you say “bubble”? They continue to build a new one million person “ghost city” every month with no people living in them.
Demographically, they are not producing enough replacement people because of their one child policy to pay for all the old people in their country. China has 500 million Baby Boomers; that is more than the population of the United States and then some. How will they take care of all their old people?
China has 500 million Baby Boomers; that is more than the population of the United States and then some. How will they take care of all their old people?
We are now also in the throes of a trade war with other countries, friends and foes alike. We are putting tariffs on all Chinese goods entering our country. We are putting tariffs on goods from many other countries. In retaliation they are charging extra for goods we want to sell in their countries. This is already harming farmers and manufacturers in our country. Let me ask all of you this: Won't this slowdown of commerce contribute to a possible recession or severe recession in the near future? A price will be paid by Americans for all this recklessness.
All of the above are serious issues. However, debt is the most serious and dangerous issue of all. The world has created a current $247 trillion debt bomb. The world is $247 trillion in debt and will easily be $500 trillion in debt in the next 7 to 10 years. It is always amusing to me when I ask people where we will get the money for all our unfunded liabilities, they reply almost every time that we will borrow it from China of Japan or Europe. Those economies are in even more debt than we are. So, who will we borrow all the money we need from? Ourselves, of course. Higher taxes, lower benefits and it is of extreme importance that you completely understand this, WE WILL NEED TO PRINT MORE MONEY. Printing money and devaluing the currency is a form of borrowing. If you ever thought we printed a lot of money in the past, get ready, because we are going to print more money than you could ever imagine. I want to talk more about debt, but I must include important information right now.
This is why this is The Greatest Time Ever to Sell Cash Value Life Insurance. It is the perfect product for what is about to happen in our country and our world.
This is why this is The Greatest Time Ever to Sell Cash Value Life Insurance. It is the perfect product for what is about to happen in our country and our world.
Cash value life insurance uses pennies to buy dollars. That replenishes the lost purchasing power of the inflated money. It replaces losses or deflation. It allows current users to use the values while replenishing the starting amount of money for the survivors.
Cash value life insurance is also one dollar that can do many things with the same dollar. In a time when people have less and less discretionary money to deal with more and more challenges cash value life insurance becomes the perfect solution. It takes care of your family or business if you die too soon. It takes care of you if you live too long. It is self-completing if you become disabled and have waiver of premium. Many products have critical illness benefits. You can access face amount values if you have a critical illness like a heart attack, stroke or cancer. Most policies have terminal illness benefits. You can access benefits before you die to help arrange finances for the loved ones you leave behind. The most important future benefit of cash value life insurance will be to provide long term care benefits to the millions of Americans who will require benefits in the future. Do not underestimate how important of a benefit this is. For many it will be the most important reason to buy cash value life insurance.
Additionally, cash value life insurance does not have to be probated if there is a named beneficiary. The benefits are incontestable, and they are private. The benefits can be controlled after death. They have creditor and predator protection. And finally, the cash value can be converted from an asset into an income stream necessary for Medicaid planning.
It is the greatest time ever to provide cash value life insurance.
Let's return to debt for a little bit. The United States' future debt just for Social Security and Medicare is $100 trillion. According to many analysts including my favorite, Professor Laurence Kotlikoff, are convinced the future debt of this country exceeds over $200 trillion for retirement and health care promises made to the American people.
Corporate debt will be another “Black Swan” event and it is beginning to happen. Over the next 5 years, over $4 trillion of corporate debt must be refinanced and at much higher interest rates. Many of these companies cannot ever service or pay the interest on all the debts they have now. What will happen when the interest rates are raised?
In 2007, one of every 17 companies could not even afford the interest on their debt. Currently, in America it is one out of every 7 that cannot afford the interest payments on all the debt they have accumulated. That is hundreds of companies.
In 2007, one of every 17 companies could not even afford the interest on their debt. Currently, in America it is one out of every 7 that cannot afford the interest payments on all the debt they have accumulated. That is hundreds of companies.
The recent bankruptcy of Toys R Us is one very important example of what will happen to dozens and dozens of companies in similar circumstances. They were $5 billion in debt. They could not even afford to pay interest on that debt even at low interest rates. The debt came due. They tried to refinance at higher interest rates. Realizing that not only would they never pay the money back, they couldn't even afford to make the interest payments, creditors forced Toys R Us into bankruptcy and the courts agreed. They had to sell everything and liquidate the business.
What do you think will happen to our economy when the same thing happens to hundreds of companies who have gorged themselves on almost $12 trillion dollars of almost free credit over the last nine years? This is more borrowing than has ever occurred in the history of our country. We are about to see calamity beyond description. Four more quick things and then we will get to the additional ideas I would love for you to examine.
First, housing is about to crash again. It is already starting in California. The same things that caused the housing crash in 2007 and 2008 are being used again. Harry Dent recommends that if you wish to determine how much the crash will affect you look at the value of your property during the year 2000.
Second, we have slowly and now completely defanged the laws protecting against the abuse of derivatives. In 2007 and 2008 when $87 billion of derivatives contributed to the downturn there were $600 trillion of derivatives on the planet Earth. With the reduction of regulation, it is now estimated that the value of these derivative has climbed to $1.2 quadrillion. One little mistake and we will be off to the races again. This is a very poorly regulated segment of our financial world. It is ripe for either a mistake or a misuse. Either way the damage would be severe.
In 2007 and 2008 when $87 billion of derivatives contributed to the downturn there were $600 trillion of derivatives on the planet Earth. With the reduction of regulation, it is now estimated that the value of these derivative has climbed to $1.2 quadrillion.
Third, on August 22, 2018 this could become the oldest bull market ever. It began on March 9, 2009. That is 3453 days. It is not being propped up by solid fundamentals. It is being propped up by artificial and manipulative means. This market will be subject to “mean reversion” which is financial theory that asserts that asset prices and returns eventually return to their long term mean or average. For that to happen this market would have to lose 50 percent or more. Interests rates would have to rise to the high single digits or low double digits. You can't even imagine what that would do to our markets.
Finally, there is a changing political and economic climate in our country. Millennials in study after study profess a preference for a socialist economy over a capitalist economy.
Here are a couple of ideas which are financially back breaking but still favored by the largest age group ever in the history of our country.
First, is "Medicare For All." Favored by Bernie Sanders and a name you must start paying particular attention to; the junior Senator from California, Kamala Harris, who could not only be the first woman president, she could easily be the next president of the United States. The cost is ridiculous. A new study just reported the cost would exceed $32 trillion dollars over a ten-year period. That is $3.2 trillion per year and would be 75 percent of the current annual budget of the United States.
The other new idea is “Universal Basic Income.” This is where we would give a basic amount of money to every man, woman and child in America. Let's say we gave each of them $10,000. If there are 330 million Americans that would be $3.3 trillion dollars. Again, that expense would be 75 percent of the current budget. Taken together, that would be $6.5 trillion or approximately 33 percent of the GDP of our country which is $20 trillion. Not only is this impossible, it doesn't work. There has never been a successful socialist economy in the history of the world.
Remember, government doesn't make anything. They are a transfer agent. They transfer assets from one group to another after taking out their cut.
Remember, government doesn't make anything. They are a transfer agent. They transfer assets from one group to another after taking out their cut.
This may be the last chance our prospects and clients have to be in control of the taxes they pay and the assets they will be allowed to keep. Shouldn't we, at the very least, ask them how they feel about this and what do they want to do about it while they still can?
I can't say it enough. Cash Value Life Insurance!!
Let's get started with this month's ideas.
We're passing on two of the newsletter's monthly sales ideas - every issue of the newsletter contains 7 ideas, plus one idea for the Canadian market. Subscribe to get them all.
Idea #1: Where Will We Find All the Caregivers?
This is a quote from a Wall Street Journal article dated July 20, 2018. “Today an estimated 34.2 million people provide unpaid care to those 50 and older. These caregivers, about 95 percent family, and long the backbone of the nation's long-term care system, provide an estimated $500 billion worth of free care annually – three times Medicaid's professional long-term care spending – and help keep people out of costly institutions according to a 2017 Merrill Lynch study.”
As more and more people reach an age where caregiving will be required, less and less people will be available to provide that care.
This is an amazing article. It has already helped me to make three sales. I have a woman who lives here in Wisconsin. She has three children. The daughter lives here in Milwaukee and lives about three miles from her mother who she has to care for. It became so time consuming she had to quit work. The other two children, a brother and a sister live in other states. When I got together with the four of them, I asked how the daughter who was providing the caregiving was going to be reimbursed for her time? I also asked the two children that lived out of state if they realized there would be no money left if the daughter wasn't willing to provide the care? Did they realize a nursing home would eat up all the money if she had to go there? In spite of that, they felt whatever was left over should be divided equally. The daughter who lived here cried. Did they realize how much this was disrupting her life?
I recommended using pennies to buy dollars. We could use a small percentage of mom's money to provide something extra for the daughter doing the caregiving. We used guaranteed issue life insurance to provide the benefit. Everybody felt listened to and the mother received care from a loving daughter who didn't feel used and taken advantage of.
This will become a very serious issue for all Americans over the next 30 years. Money is the only thing that will alleviate some of the trauma created by these scenarios. Wouldn't it be smart to pay pennies to buy those dollars?
Title: America Is Running Out of Caregivers, Just When It Needs Them Most
www.wsj.com (The Wall Street Journal, July 20, 2018)
https://www.wsj.com/articles/america-is-running-out-of-family-caregivers-just-when-it-needs-them-most-
1532094538
Idea #3: Inflation Is Rising Faster than Your COLA
Loss of purchasing power is becoming a serious issue for retired people. Their money does not buy as much goods and services as it did five or ten years ago. In fact, during a very low inflation period, since 2000 Social Security has lost one third of its purchasing power.
That's not the whole story. The Cost Of Living Adjustment (COLA) is an average. If you use products or services at the high end of the spectrum your money buys even less than that. Two thirds of 39 expenses grew at a faster rate than the COLA.
Prescription drugs out of pocket expense increased by 188 percent; far more than the cost of living adjustment. The article lists the top ten items which are all integral to quality of life for grandma and grandpa. This article shows their standard of living is decreasing. Ask prospects and clients how they expect to deal with that. You will find it to be an interesting discussion.
Title: 10 Expenses That Grew 2 to 4 Times Faster Than Social Security's COLA Since 2000
www.fool.com (The Motley Fool, July 25, 2018)
https://www.fool.com/retirement/2018/07/25/10-expenses-that-grew-2-to-4-times-faster-than-soc.aspx
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