Example on Lifestyle Design: Visit Ground Zero in Berlin
July 19, 2008 by Vagabond Investors · 11 Comments
I landed in Berlin in a funny Zen-like state of mind. I thought I had gotten used to slowing down when I want to. It turned out I wasn’t.
Waking up in the morning with no alarm clock and having no to-do list for the day was like going from triple espressos to de-caffeine. In addition, I had forbidden myself from checking email and news except for every second Monday for one hour. I was having serious disorders. What the hell was I gonna do all day?!
It’s impossible to realize how much constant motion blurs you until you stop. Based on my discussions with many serial vagabonders it takes 2-3 months before you can truly settle down and get rid of the addictions of Western work life environment. Hence the prohibition of news, email and non-fiction text books. It’s time to fill the void with something fun and exciting!
I have been to almost all major cities in Europe when I was vagabonding back in 2003. After seeing many places I finally fell in love with Berlin and have made several visits here ever since. The city is highly affordable and is rich in culture.
The shift from vacations to mini retirements is life changing. Vacations merely reward hard work, but mini retirements justify it. If you are new to mini retirements, you’ll find filling the void is a major challenge. When you’ve done ripping off your ass in frustration because you don’t have an alarm clock and a to-do list anymore, consider doing something you really love. Unplugging from your normal life may take a week of silence.
Here’s a simple example of what is possible with little money and little time. No, I’m not suggesting you go vagabonding around the planet for three years. This is just a little trip to give you an idea.
- An enormous fully furnished apartment in the trendy Prenzlauer Berg with wireless internet access and a Jacuzzi (never mind my confusion about Mitte on the video, I don’t know where that came from). Cost: €420 / month including water and energy.
- Tasty food dishes in pleasant restaurants. There’s everything from sushi and Vietnamese wok to huge steaks with a delicious wine or fantastic German beer. Cost: €15.
- Full contact Mixed Martial Arts for six times a week in one of Berlin’s top MMA gyms. This is as intense and real as it gets! It’s a blast! Cost: €56 / month.
- Want to become conversationally fluent in German in 3 months? Learning the language is the window to a new culture. Try intensive learning in Nollendorf Platz. Meet other students and get a dramatic discount for transportation with your student card. Cost: €200 / month.
- Make money in a cool Sony Center with free internet access. You can go to the money tree every day. If you don’t want to spend much time doing it but want to enjoy a high-tech environment, this is one of the most appealing places in Europe to do that. Cost: FREE
- Dancing in the hottest clubs in West-Berlin with your friends. Have the time of your life and go on a buzz to party and meet new people! Entrance, food, champagne and snacks. Cost: €60.
- Front row seats to Cirque du Soleil show. This group’s shows are the most incredible, most impressive and most bizarre audiovisual overloads I’ve ever seen in my life. Being there again was intentional. Cost: €80.
- Delicious breakfast on a corner café. Hotel-style breakfast with an excellent cappuccino. Cost: €4.
- Want to move on? Berlin is a hub. Travel all around Europe for less than €90 and all the way to Asia for around €400. I suggest you take a flight to one of Europe’s hubs (London and Berlin are the best) and take a local flight. I have traveled in a decent Airbus aircraft from Berlin to Helsinki for €29.
You could easily save 60% of the expenses I listed above. My goal was not survival, though, but royal enjoyment. Total cost for all of the things listed above (except for extending trip to Asia) plus transportation is highly affordable. Total cost: €1,600 / month. One good deal can so easily finance it.
How does this compare your normal expenses at home? If you think of the most expensive part of the trip (learning German quickly), you’ll notice that it’s probably 2-3 weeks’ cost of distracting yourself from all the stress in work. Once you get conversationally fluent, you can leave it out.
With a monthly expense in mind you can start designing your lifestyle. The trick is to make your finite cash flow provide you an almost infinite return in lifestyle output. Think it’s difficult to come up with figures like €1,000 / month in automated income? Not so. It’s a matter of financial IQ. I suggest you pay the price to learn that subject well. That’s what the Vagabond Investors is all about. We do our best to help you out.
Time for Mixed Martial Arts! Until next time,
Jaakko
@ you guessed it, Sony Center Berlin
The Scapegoat Game: Why Speculators Are Not to Blame for Rising Commodity Prices
July 11, 2008 by Vagabond Investors · 14 Comments
I am astonished that many finance ministers and “experts” blame speculators for the rise in commodity prices – especially oil. Italy’s finance minister believes that there is a “magnum of speculative champagne” included in the price of each oil barrel. Some EU members want the union to impose tax and regulation on speculation.
It’s a shame that economic discussion has disintegrated into such disinformation and manipulation of facts. Any attempt to curtail speculation is likely to make oil even more expensive. Speculators do play an important role in setting the price of commodities. However, if they had somehow managed to push prices to unjustified heights, then demand would contract and unsold oil would be left on the market. At the moment, there is little sign of that. All big exporters are pumping as fast as they can.
The reason for the rise in oil price is elsewhere. It’s always easy to blame somebody and speculators have become the most appealing scapegoat. There is little evidence to support such blaming statements.
It should be obvious that speculators do not buy physical oil. Instead, they buy futures and options which they settle with a cash payment when they fall due. The real currency of these contracts is cash and not oil barrels. There’s no limit to the number of bets that can be made. No oil is ever held back from the market. All positions are closed out in a futures market. The impact of speculators is essentially market neutral. These bets do not affect the price of oil any more than bets on a horse race affect the result.
The market for nickel provides a good illustration of this. Speculative investment in the metal has been growing over the past year. Still nickel prices have come down by some 50% of their peak. At the same time, the prices of many other commodities have been rising almost as fast as oil even though they are not traded on any exchanges. Iron and rice are two good examples of this.
It’s not long ago that all asset classes were inflating. As I have pointed out in my other posts, now the credit supply is contracting and lending standards are tightening despite the fact that the Fed has lowered the Fed Fund rate. Over the long term, there has been a close relationship between M3 money supply growth and oil prices.
The public invests in those sectors of the economy that provide superior profit opportunities. If short-term interest rates are set below the rate of consumer price increases, paper money is no longer a store of value. What then is the difference between a hedger and a speculator is not clear to me. Under constant growth of M3, it was acceptable for people to hedge the loss of purchasing power by buying into the Nasdaq until the burst of the tech bubble. There were no complaints when the public bought homes between 2002 and 2007. Some “experts” even believed it created wealth, (although I think this is one of the most stupid statements one can make: rising equity in homes might be a good at first but the inevitable correction is usually too painful!) However, when the public moves into commodities, it’s not considered acceptable. Such are the double standards.
Excessive speculation is a direct result to the easy monetary policies by central banks. They are eroding the purchasing power of their currency and undermining the working classes for the benefit of the elite. The easy monetary conditions have hit the consumers with a commodity price surge. At the same time, it is causing a global flight from dollar assets. Since oil prices follow the growth of M3, who would you say is the biggest speculator of them all if not the Federal Reserve itself?
However, I should like to congratulate the Federal Reserve and especially Mr. Bernanke for an amazing cover story. It seems that there are academics who know a lot more about monetary theory and too little about currency markets and price signals in the real world. They are doing a proper job blaming other people for their mistakes with the easy money experiment. At the same time, I hope more people would pay attention to the real causes of bubbles and changes in the investment environment.
Jaakko
Why Paying Down Debt and Saving Money Is Stupid
July 3, 2008 by Vagabond Investors · 5 Comments
It’s everywhere. The newspapers, TV shows, you name it. People and institutions have too much debt. Savings rate is low. Recession raises its ugly head and the consensus is starting to feel fearful. Panic is not far away. Then come the financial advocating a message that is familiar to most people: “Pay down all your debt and save money.”. Some disregard it, some believe it and some - like us - think that it’s not good financial advice. How can we say that?
We have a different philosophy on debt. You see, we happen to like debt. There is a radical difference between good debt and bad debt. Simply put, good debt makes you rich and bad debt makes you poor. This distinction is critical and it can make the difference between getting rich or falling behind.
For example, if you buy a leveraged investment which pays for its own debt, it would be considered good debt. Then again, if you buy stuff that goes down in value and does not pay for its own debt, it is bad debt.We like good debt and we do not believe you should get rid of it. After all, it’s one of the best ways to leverage investments.
We do think, though, that it makes sense to pay down your bad debt. Debt is like a loaded gun. It should be respected on all circumstances. It’s always potentially dangerous. Yet it makes a big difference whether you aim the gun on the target or on your own foot.
In order to use good debt in a correct manner, check your asset allocation. It is the most important thing you should do right now, if you have not done it already. Do it now.
What about savings? Don’t we think that saving money is a good idea? After all, most people are not saving money and that is a big problem, right?
No, I wouldn’t say so. Not for the new rich, anyway. A currency is designed to lose value. Inflation is running high. Although we believe that the numbers are manipulated, even some 4% inflation will do serious damage to your savings. The problem is that central banks can print money faster than you can save it. They are doing it all the time. Instead of saving money, we once again recommend you check your asset allocation.
Don’t try to avoid risk by saving money. Learn to manage risk and invest money. It should be relatively safe, profitable and fun too! The next time you hear financial advice that states that you should pay down all your debt and save money, think if you can be smarter than that. It all comes down to financial intelligence.
Remember, you can never learn less. That’s why we have given you this blog to read. The safest and most profitable investment of all is to raise your financial IQ. With it all is possible, without it nothing is possible in the game of money.
Until next time,
Jaakko
