View From the Economic Armchair

There I was sitting in my comfy chair reading about how President Bush has asked congress for $7 Billion dollars to prepare for the possibility of a flu pandemic. A pandemic being far worse than a simple epidemic. My first thought had nothing to do with the fact that no one knows if this particular strain of bird flu is going to mutate in such a way as to become contagious between humans. Currently the only cases recorded worldwide were due to people either eating or coming in contact with infected birds.

No, my first thought was how are we going to pay for this? Now I realize that when you are $8 trillion in the red, and that only counts the on-budget debt, another $7 billion doesnt seem that big a deal, right? Wrong.

The other day I was trying to explain to my 10 year old how much a trillion dollars is. Heres what I have come up with. If you take $1,000 and multiply it 1,000 times, you get $1 million. If you take $1 million and multiply it 1,000 times, you get $1 billion. And finally, if you take $1 billion and multiply it 1,000 times, you get $1 trillion. It's incomprehensible. The human mind cannot fathom numbers that big.

But here's the issue, the government believes that they know what's best for us, their citizens. Our government is no longer by the people, for the people, its by the government, for the government. It all changed with that famous speech, "Ask not what your country can do for you, but ask what you can do for your country." And then they answer their own question, give us over half of everything you make, and a large percentage of everything your leave behind when you die and then we will take care of you and protect you from the big bad terrorists.

Templetons Five Steps to Financial Success

On a lighter note, I read in one of the many newsletters that I receive, a piece about Sir John Templeton's Five-Step Plan for Financial Success. They are remarkably simple, but as he is a billionaire, there must be something to his strategy. Those five steps are:

1. Take calculated risks. This does not mean unusual risks. Just know that return on investment is tied to the risk inherent in the investment. The higher the risk, the higher the supposed return...and also the chance of loss. By calculated, Templeton means that you should always calculate your risk to reward ratio. He has made a fortune doing that for many years.

2. Save, don't spend. Templeton was a big believer in saving. He and his wife always tried to save 50% of their income and live on what was left. He avoided consumer debt and bought his first house with cash.

3. Shop for value investments. He was a master at this. He bought stocks when they were dirt-cheap and nobody else wanted them and then sold them when they went up in price and made millions. He sold short the US dollar when it was obviously over priced and retired after cashing out of that investment.

4. Take advantage of international free markets. Templeton was a strong believer in Austrian economics. He believed that the less intervention by governments, the more efficient the markets. When investing overseas, he always choose countries where a strong free-enterprise system prevailed and he was rewarded handsomely.

5. Minimize your taxes. Templeton made a controversial decision in the 1960s. He decided to renounce his U.S. citizenship and move to the Bahamas where there is no income or investment tax. Amazingly, his investment success improved further when he stopped making investment decisions based on the tax consequences. While I am not advocating people leaving the U.S. to save on taxes, think about how much we hear about maximizing our contributions to tax deferred investment accounts. Because without the ravages of tax, our investments grow that much faster.

These five steps helped to make John Templeton a billionaire. While not everyone can become a billionaire, I believe that these steps should be taken to heart by everyone.