Jason Hartman talks with Robert (Bob) Katz, author of The Solomon Portfolio. Robert W. Katz has been a partner in a New Orleans-based certified public accounting firm for the last 30 years. His areas of specialty include personal financial planning, tax and estate planning and health care consulting. He received his bachelor’s degree from Louisiana State University and his master’s degree from the University of New Orleans. He is a certified public accountant, AICPA Personal Financial Specialist, investment advisor and an ordained minister.
Bob is a frequent teacher at churches and conferences and is often a guest on Christian television shows such as Enjoying Everyday Life with Joyce Meyer, This is Your Day with Benny Hinn, The 700 Club with Pat Robertson, Life Today with James Robison, and the Harvest Show. He resides in New Orleans with his wife, Jamie, and their two children.
The Solomon Portfolio begins with God’s advice to King Solomon over 3,000 years ago to diversify and invest your holdings into seven asset classes. And, this advice is confirmed 3,000 years later by the remarkable work of a professor at BYU who studied over a 38 year period various portfolio allocations only to find out that the investment portfolio with the highest return and lowest standard deviation for risk was exactly what the Lord told us through Solomon, a seven asset class portfolio.
Introduction: Welcome to the Solomon Success Show where we explore the timeless wisdom of King Solomon and the Bible as it relates to business and investing, false profits, and get-rich quick schemes are everywhere. Let’s not be distracted by these instead let’s go to the Source, the eternal principles that create a life of peace, power and prosperity, here is our host Jason Hartman.
Jason Hartman: Welcome to the Solomon Success Show. This is your Jason Hartman where we talk about Biblical principles applied to business and investing learning from King Solomon of course and we will back with a fantastic guest for you in just a moment here, but be sure to visit our website solomonsuccess.org or solomonsuccess.com. Take advantage of our extensive blog library and our free content. I think you will find some fantastic things there so be sure to visit us on the web at solomonsuccess.com.
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Jason Hartman: My pleasure to welcome Bob Katz to the show. He is the author of The Solomon Portfolio: How to Invest Like a King and Bob welcome I think everyone wants to do this. Tell us more.
Bob: Well, thank you. It’s a pleasure to be here. It really there is a little bit of history to this. You know sometimes your message comes out of your mess, and many, many years ago my finances is like so many peoples finances was in a mess, and I was earning a very good living. And I can remember just going to the lord say you know what is going on here. Its just something that’s not right, and I remember distinctly hearing the voice of god just say look, I’m not going to let you prosper, and violate my scriptural principles, and that really started a process gosh maybe almost 30 years ago just digging financial and stewardship principles out of scripture and being amazed that at that at thousands of thousands of references in scripture to financial principles, and actually I have an earlier book Money Came by the House the Other Day that is really a financial planning book based on scripture, that’s been around for about 10 years and as people become better stewards hopefully by following god’s principles. I started you know that they started to finally acquire assets and then the obvious or the next question is what do I do with these assets, and so I would — I went was back to scripture like I did for all the questions regarding finances and actually all questions, and I think you know what better source than Solomon he was the richest and the wisest man that’s ever lived. What did he say about no investing and sure enough it was right there in Ecclesiasts as he says you know, give portions to seven, and then it says yes eight. Unfortunately there is no references, no direct reference as to what those seven portions were. You know Solomon was really the first person ever I think to write about what we call nowadays asset allocation, correlation but it didn’t go on other than reading through his scripture and seeing what he held. He didn’t say specifically what those seven asset questions. So fast-forward now you know 5000 years and I’m reading this obscure article in the journal of indexes of all the things and a professor at Brigham Young University who spent his whole life researching portfolio construction comes up with this conclusion they are — he took all these permutations to asset classes like large-cap stocks and small-cap, and three asset classes, large-cap, small-cap international, and went on and on and on and of all the permutations, and then he backed us to them over I think 30 years or more and what we found was that a seven asset classes gave you the overall best return over a long period of time in the lowest amount of risk and I was just — I mean it just hit me instantly. You know here is this professor doing all this analytical work building all these metrics, doing all this modern stuff that we do only to confirm what Solomon told us 5000 years ago divide your assets into portions of seven.
Jason Hartman: Yeah I think people find that with a lot of things when it comes to the scriptures because a lot of the answers were already there a long, long ago, weren’t they?
Bob: I will tell you. I’ve been a practicing CPA now for almost 35 years, and not once, not once in 35 years have I been confronted or asked a financial question, a stewardship question, any type of financial question where I couldn’t go to scripture, and say okay here’s the answer, or even a warning. A lot of times people will say this looks like a great partnership. You know should I invest in this? It looks like a [unintelligible 0:06:32]. The guy wants me to partner up with them and invariably I will leave them to the scriptures says don’t be unequally [unintelligible 0:06:40] and almost without exception if they push the head and yoke themselves with a non-believer invariably there were problem sometimes very serious problems. If they did not do or they yoke themselves with a believer you know god ‘s word prove true so yeah absolutely every financial question that that you I may have or the listeners may have I promise you the answer is in scripture.
Jason Hartman: Yeah well they say there is nothing new under the sun of course right, so.
Bob: Absolutely not.
Jason Hartman: Yeah well tell us more about the portfolio.
Bob: Well, I wrote to the professor we became actually pretty good friends, and we just kept in contact over several years, and it’s really constructed of you know seven equal allocations that would be large-cap stocks, small-cap stocks, international stocks, commodities which we recommend ETFs or commodity funds, and then real estate would be the sort of the equity type side of it, and then a equal portion of bonds and an equal portion of cash. And what you will find is if you take your investment portfolio and you divided it into seventh, and you divide into those seven asset classes and do it wisely you know. Now, I use very high quality four and five-star no-load mutual funds or good high quality ETFs, but if you will divide it into equal sevens and put it into high quality mutual funds and ETFS, that over a long period of time its going to outperform virtually any other type of long-term investment you could invest it.
Jason Hartman: So I’ve got ask you a question here. Obviously King Solomon wasn’t investing in stocks, bonds, or mutual funds. Now, there may have been financing and so forth there would be bonds I guess you could consider those. You probably owned a lot of real estate with this direct ownership right? But how do you extrapolate this to things like modern portfolio theory?
Bob: But if you look at the fancy home you know that was primarily an agrarian society. They certainly didn’t have stock markets. But if you look at this [stupid homes 0:08:48] they own, they really what we’ve done and for better of the worse and we package it now. He had farms. He had timber so we have commodity ETFs. He had real estate and then we have mutual funds and ETFs that represent either domestic or even international real estate holdings. It would be certainly a cash and bonds and the investment in businesses. You know Bible talks about them going into business with [Indiscernible] [0:09:14] and others. So he had his large businesses. I suspect he had small businesses. He did what this portfolio does, but he had more direct ownership if you will. I think for the average American that’s virtually impossible. We are more market-driven and thank goodness we have markets that are honest by and large if you stick to the high quality investments in the larger markets we have a free market an efficient market and most people find access to these asset classes to the markets and that being mutual funds and ETFs.
Jason Hartman: One the things I think that’s going on to the world today and I’m sure you’re well aware of it is that Americans are so jaded because there have been so many scandals on Wall Street. There have been scandals on various funds and my whole thing is I just want to be a direct investor that’s why I like owning rental properties, but how do you know who you can trust? I mean it just seems like every day you pick up the Wall Street journal, and there is just another scam. It’s unbelievable, gets very discouraging.
Bob: You’re right. Really an incredibly good point. Let me ramble for a while. For most people it’s very — a direct investment like real estate for most people unless you have an interest and an expertise. It’s really difficult. I’ve had a lot of clients over the years. Most of my clients are doctors and they will buy rental real estate, and they have no time to properly manage it, and its turned out to be for them not such a great investment not because of the marketplace, but because of the reality of they get a tenant who moves out in the middle of the night and takes the sinking toilet with them or if there’s a freeze warning and they don’t do anything to run the water and the pipes burst, and it just the reality of that type of direct investment for a lot of people just doesn’t work out now that it’s a bad investment, but you know any investment requires a lot of work. I’m sure you put a lot of work into your rental property.
Jason Hartman: Well, that’s a great point you bring up and so on the first one; you know I’m not trying to play Devil’s Advocate with you on all this stuff.
Bob: No please.
Jason Hartman: Because I want to hear about the book and that’s my main interest. But on the first thing a lot of that can be insured around obviously theft and vandalism you can send the tenant to collection, your insurance cover some of it.
Bob Yes.
Jason Hartman: But the other part of it is it I think if you want to be a good investor in a non-direct investment where you’re relinquishing control to somebody else the CEOS, the boards of directors, the fund manager’s etcetera, the investment banks you’ve got a study. You’ve got to be reading the journal. You’ve got a be watching CNBC. You got to be on it. Don’t you? I mean to be a prudent investor don’t you need to be studying?
Bob: Can’t agree with you more. The bible could not be more clear. My people perished for a lack of knowledge. I teach the financial stewardship at my church, and the first thing I tell them is you know you make wise decisions about us by surrounding yourself with counselors. The wisdom of many wise counselors, it doesn’t say surround yourself with a bunch people that will make decisions for you. Once you start to delegate your decision-making and you’re not no longer maintaining the stewardship level that god wants you to maintain. God entrust assets into your care. You were to steward them. They belong to him. You’re just the temporary caretaker. Its incumbent upon us to learn everything we need to know to be a good steward because if were faithful of the little then scripture tells us we will be given more so absolutely I manage over a $100 million for people and I did and what’s called a nondiscretionary account, I don’t make decisions. Every decision I make to buy or sell anything it has to first be approved by my client. I call him up because I consider an education process. I want you to know how I’m thinking, why I’m thinking, I want you to understand what I’m thinking. I’m counseling you and then you tell me if we’re in agreement and we need to move forward with this. You don’t ever delegate any major, any financial decision. You’re the head of your gentlemen. You don’t delegate that head of household responsibility that steward responsibility is someone else. Its incumbent to you, you know there is get the counsel you need, get the wisdom and education, read the books whatever, but you need to make a wise decision over the assets that belong to someone else. They belong to god or else don’t do it at all so absolutely I could not agree with you more.
Jason Hartman: See when it comes to non- direct investment where you’re trusting somebody else that requires studying time when it comes to something like income property investments that requires may be doing time managing your manager or dealing with tenants directly if you’re doing that, but doesn’t really require much studying because there’s just not — it’s not very quick. It’s not very fast. It’s not very dynamic. You just kind of keep track of what’s going on with the rental market and make sure your houses are leased up. There’s not a lot of research or studying as there would be with business climate that is much faster moving on Wall Street, right?
Bob: Yeah but all of that’s been should be simple. I forget who it was that said it, but if you understand it you don’t buy it. I think it was Warren Buffet.
Jason Hartman: Couldn’t agree more.
Bob: He will never buy a business that he doesn’t understand.
Jason Hartman: Well, he said that — he said that so famously and so rightly during the dotcom bubble, remember?
Bob: Exactly and it’s the same. You know you brought up a good. There are a lot of scandals but if you dig into the scandals I don’t think I’ve ever a client that got sucked into well may be WorldCom by and large it’s too good when it’s presented. It’s good to be true in the first place. It amazes me what people — they work so hard for their money, and then they will buy-in to what I call the big smile and the firm handshake and that’s enough. He was so nice you know what’s — that’s got nothing to do with — if you stick to the prudent investments in, if you go to Morningstar you stick to the four and five-star funds, you do your research on Morningstar which is free, you do your research on the exchange traded funds. You stay on the major exchange fund like the NASDAQ or the New York Stock Exchange. You stay with no-load mutual funds. You read books about allocation, and only and allocate properly, and buy and hold. A lot of people lose money because they think stocks are the Christian substitute for Las Vegas. Its not.
Jason Hartman: That’s a great line.
Bob: It’s investing.
Jason Hartman: Sure.
Bob: And investing by nature is a marathon. It is not a sprint, but if you do those things it’s fairly simple and straightforward. I mean the book year, I mean my latest book the one we’re talking about is not a long book. Its — I think just over a 100 pages.
Jason Hartman: Yeah it’s nicely laid out. Its clean and simple it’s great.
Bob: Investing should be simple and if anybody ever tells you something, and its way too complicated or even worse they say you know you really got to do this right now or you’re going to miss out. Find the nearest exit and get out the door that person does not have your best interest at heart, and that’s it should be like I said it’s a marathon. You do it right upfront, and then you just like tending the garden you know something should always in bloom. You’re watching over your garden. You’re pulling out the weeds, but it takes time. I’m sure you’re familiar with all Modern Portfolio Theory of Markowitz.
Jason Hartman: Sure yeah.
Bob: But you know it’s been proven over and over again. It’s not an ability to pick a particular stock. No, it’s not an ability to pick a market top or bottom. 95% of your return comes from proper allocation upfront and then leaving it alone and that’s what this book, this what this book is all about how to properly allocate upfront and then just monitor leave it alone, and that’s where the miracle of compounding comes into play and your assets will grow. Nobody is smart enough to consistently pick winners or to pick market tops and bottoms. Let’s say I have never met them or read about this.
Jason Hartman: Right exactly. You know most of them are the good old buy-and-hold philosophy the sort of old-fashioned value investing Warren Buffet style.
Bob: Sure.
Jason Hartman: But lately you got to say Warren Buffet is having his own share of problems. There is no shortage of that kind of thing. So the portfolio it’s got seven things large-cap U.S. small-cap U.S. non-U.S. so that means international stocks right?
Bob: Right emerging market.
Jason Hartman: And then commodities and natural resources, real estate investment trusts or non-direct real estate again they are intermediate bonds and then cash. Talk to us about some of those other things if you like.
Bob: You know the U.S. domestic is pretty straightforward. The asset class is that — let me speak about a principle. The reason this works and it’s amazing to me because Solomon knew all this without a computer before Microsoft before Apple 5000 years ago Solomon was talking about a driving principle today and that’s correlation. And correlation is nothing more than the ability or asset classes moving in the same direction at the same time, and a correlation of one would be that everything you own that the market is up is up, and if the market is down, it’s down. And as you move towards a correlation of zero which is what you want is much more randomness so one of your asset classes isn’t performing well. Another one will be is that they’re not tied to one another if you will so what this Professor found at confirming Solomon’s work 5000 years ago is that the seven asset classes gives you the lowest correlation available when mixing asset classes so it was like I think 038 which was to me that was its just really interesting that somehow Solomon you know god relate this supernaturally Solomon and here’s got proven at with these super computer 5000 years later, but its about correlation. Its about everything that doing the exact — every asset class is not moving in the exact same direction, which brings to the answer to your question was well, U.S. and domestic are — I mean U.S. small-cap and large-cap are very correlated. They moved almost identically what’s brought into this scenario which I found very interesting was commodities and real estate which are almost not at all correlated with domestic stocks and fixed income of course isn’t really highly correlated and international is sort of semi correlated, but the class I really enjoyed watching the most is commodities. I feel world and let me tell you listeners I’m not talking about going out and buying futures contracts, way too risky that is not at all what I’m talking about. I’m talking about a world where you have billions of people in China and India, Brazil, Russia who are racing to the middle class. They want — they live that middle class lifestyle that this country is enjoyed and Western Europe has enjoyed for so long, and they’re going to be demanding three basic commodity groups and that would be foodstuffs, energy and building materials. And if you watch it because I did you can just see I mean commodities have been drifting up and up, and particularly we saw it happened to oil and gas in the last couple of years. That demand, there is a true economic indicator. That demand is not going to go way back. In fact, I suspect it’s only going to increase rapidly, and the fight for commodities worldwide is going to be both literal and figurative, figuratively and literally they will be fighting for commodities. China is buying up commodities all over the world. They just bought a oil and gas investment in Brazil. They were in Africa last year I had a picture from a money or smart money magazine of Chinese soldiers in Iran guarding an oilfield that China bought in Iran. If you watch what the Chinese are doing with all those surplus that they are buying the staples of life so I think that is regardless of where the domestic stock market goes yet you’ll see this correlation principle that the staples of life the energy, the food, the building materials are going to continue to not be correlated necessarily to our stock market. They will keep going up and up at and so that’s one thing I particularly like to watch, and I think it’s a great one of the driving reasons why this portfolio works so well. Real estate is again not highly correlated to domestic stocks. It’s more driven by supply and demand, but also by interest rates. And I think you’re going to see things happening in the bond market as well.
Jason Hartman: Let me take a brief pause. We will be back in just a minute.
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Jason Hartman: Well, I couldn’t agree with you more and I think commodities is a great investment. I mean I’m a real commodities bull. I kind of agree with Jim Rogers [unintelligible 0:23:30] china is rising. Obviously Brazil lot of big, big movement toward more commodities demand in the future and I go back to it, and I kind of hate too, but that’s one of the reasons I love my little rental properties because they are made of commodities.
Bob: Yeah.
Jason Hartman: How would you — what would you think about lumber, copper wire, glass, steel, concrete, labor, petroleum products all that good stuff and then companies use all that stuff too of course so that impact stocks.
Bob: Absolutely. I think all of those have a very bright future and now there’s easy ways to invest in this. You don’t have to and again I want to reiterate the 99% of the investors in the world should not be buying futures contracts that’s again normal speculation unless you’re in some business that really needs to hedge commodities. But there are wonderful ETFs now that are a basket of commodities and they are weighted according to world usage so one basket may represent 26 different commodities like you’re talking about, it would be oil and gas, it will be wheat, it will be lumber, it will be a copper, nickel, lead the whole nine yard, it will be 26 different commodities weighted according to world usage so maybe 60% of that basket is oil and gas. But you — when you buy the basket you get the whole all 20, you’re buying all 26 commodities that is a wonderful way to have a long-term investment in commodities.
Jason Hartman: Here I got to ask you your Solomon portfolio here it says commodities and natural resources, but it doesn’t specifically call out precious metals. What are your thoughts on the gold bugs out there obviously gold is doing really well right now and silver is I’m not sure if its actually doing well or if the dollar is just doing poorly. That depends on how you look at it, but what are your thoughts on the metals so you probably lump those into commodities I assume, right?
Bob: Well, I don’t.
Jason Hartman: Oh you don’t okay.
Bob: Although it is, don’t write or email about this.
Jason Hartman: Okay.
Bob: Because I know it’s going against the grain. I think gold is a huge bubble that’s going to burst just like Holland tulips and this is why I will say that gold is primarily driven by fear. It’s the Armageddon mentality and yet nobody stops to think if you really had Armageddon gold will be totally useless to you and again let’s back to the three useful commodity groups you can’t eat it, you can’t build anything with it, and it’s not a source of energy and it’s very heavy so you got to lug it around. If we really got into that miserable state that everybody fears so much gold would be fairly useless to you. I guarantee you that you better have a bushel of wheat than a bushel of gold.
Jason Hartman: I couldn’t agree more.
Bob: So I’m not a — I’ve never have been and am even less so now a gold bug I think it’s just the bubble. It’s going to burst, and the last guy at the door needs to turn off the lights.
Jason Hartman: Yeah either greater fool theory definitely plays in with the metals so I’m in agreement with you definitely to some extent on gold, but I just got to ask you how about silver and the reason I ask you that question Bob is because so many of them the metals bugs out there, are constantly talking about the gold-silver ratio. And they say silver just looks so cheap right now even at a $100 an ounce they say it’s still a decent deal and what do you think of that? What do you think of the silver side?
Bob: I chose, and I’m not saying I’m right. This is just me. I’m not ever — I’m just not — I feel the same way about diamonds for that matter. Precious metals, precious stones if they don’t have a function, and again you can’t eat them and you can’t build with them and you can’t burn them for heat or energy. If they don’t have a function and things, and remember people are buying all of these things because they’re scared of currencies being worth nothing and the world going into free chaos or chaotic state. If these things have no function what use are they going to be to you if that really were to happen and I’m not saying its going to happen. I’m just saying what use, probably you could have the biggest famine in the world so what. I mean rather than using this as a magnifying glass, and it maybe start to fire what are you going to do with it. If you’re hungry or you’re living that you don’t have a house to live in or no fuel to burn this is just okay. I have never been big on precious metals or precious stones or even coins for that matter.
Jason Hartman: Yeah fair enough but that’s based on the Armageddon scenario and we will off this topic here, but I just want to ask you more thing about it.
Bob: Sure.
Jason Hartman: That’s based on the Armageddon scenario but silver is an industrial metal. Billions of people understand that gold and silver are money to one extent or another so I’m not talking about the Armageddon scenario necessarily. I’m just talking about investing. I mean if we have the Armageddon scenario all these funds will collapse, the companies will collapse, the stocks will be worthless, there maybe lawlessness and you can’t cash in your stocks anyway and what you’re going to cash it in for worthless currency not much work small in Armageddon at all except maybe for bullets right?
Bob: Again you what you would in an Armageddon scenario what you would really want is not even ETF or the mutual commodity fund. You would want those — you would want those three commodities. You would want energy, you would want food, and you want building material and you want the real thing. If you were to direct investment you were talking about earlier, but my book is not written for Armageddon. It’s written for assuming the world is going to stay much like it is now in terms of an investment environment. If I was, and I really don’t track gold and silver that closely, but if someone asked me to answer the question you just had, I go look at the supply-demand ratio. What’s the demand for silver? And what’s with the supply? If there is a readily available supply or even a excess inventory or an adequate inventory then I don’t care what the ratio is silver to gold. It’s always going to be supply and demand that that is a basic fundamental principle. If the supply is adequate and the price is going up then you got another bubble brewing.
Jason Hartman: No question very good point. Okay so just moving on with the book and I want to make sure before you go today I get to ask you about your thoughts of the future inflation, deflation, and anything on that because I’m sure you have some thoughts about that as well, but tell us more about the book. I especially going to ask you about the eighth portion the Readers Gift that you’ve got there in Chapter 12.
Bob: It’s actually a series. There’s four books and several types that you can get on my website if I can give a, a plug which is —
Jason Hartman: Oh please do.
Bob: Its Robertkatzministries.com, and there is actually four books that I have written on stewardship and Christian financial planning and a bunch of takes so one of the things I want to say right up front is 99%, I would stride for a 100, but 99% of what I write I want to be able to go back to the Bible and say here it is. Don’t believe me here it is. But when you’re talking about that pace portion you can’t go to the Bible and say here it is. I want to preface that you know this is opinion and this is through prayer and believe in that I heard the voice of god, but you can’t go to the Bible and say well, here is the eight portions. But I have prayed about this, and I feel like god gives people and he talks about everyone having special gifts and talents, and those gifts and talents been irrevocable. And with same people that have a particular it’s more than a hobby and it’s a gift, it’s a talent, and they may be wonderful that it’s accumulating, compiling an antique collection, antique furniture, stamps, coins. There may be an interest that is actually investable and investable if you will, and they have a talent in that, but no one else you know that, you or I might not have the talent, but we could never do it, but we may not have the interest to do it and I believe that god allows if you will a portion of your overall portfolio to encompass this, this talent so you may take the seven basics that I think are available to everyone and everyone has access to, and you may want to add to that your coin collection or your stamp collection because you have a passion for it to understand it or you may collect antique furniture or any number of things and that would be the eighth portion. That would be something that god’s given you a unique skill or talent or passion for that has value and you want to encompass that in your overall portfolio.
Jason Hartman: Good point. Yeah that’s great. What else on the book and then I want to kind of ask you about the future and your thoughts there?
Bob: I think the book — I want to take the book as it’s written and don’t try and improve upon it. Not that it’s perfect, but people will fall in love with but you and I, I can tell you and I sort of really like the commodity sector and we believe it. And I think we have solid ground to believe it, but don’t go out and read my book and fall in love with one sector like commodities and say well, you know what I’m going to do this, but I’m going to put 80% in commodities, and the other six asset classes I will provide the 20% there that’s not what scripture says. It’s that what the book says that may not work or it may be a very volatile ride for you if you do that. The book is a basic primer about all of my books are the fundamentals of stewardship in Christian financial planning. This is for the person that says okay I have a 401(k) plan and they’ve given me all these options, and I have no clue to how to invest it or I have a 529 plan for my kids education, and I’ve got an 18 year horizon, and I have no idea how to invest the money. This book is for the person who understands again it’s a long-term proposition. I want to properly allocate money toward some long-term future goal. It will be retirement. It could be educating your kids. It could be just a amassing additional wealth for when you get older, but this book is for that. It is not for speculation. I would never be able to be so presumptuous to say that to tell you what stocks and mutual funds to pick exactly or when to buy them when we are at the market top or bottom. This book is for the long-term investor who believes that you know it’s based on some fundamental scriptural principles, and don’t turn it into something else.
Jason Hartman: Fair enough. So Bob what are your thoughts about the future? I mean the world is in an economic mess right now. You just cannot get away from thinking about it’s all over the news everyday, everywhere it’s so pervasive. The government is bailing people out the moral hazards are just out of control. They are creating money out of thin air. And my view of it is that we’ve had deflation on all the things we want and inflation on still on all the things we really need those basic three commodities you talked about. What are your thoughts about the future? I mean everybody wants to know what is coming, what is next, and that gives people insights into how to prepare?
Bob: Well, this might give you a hint. Teach your children how to speak Chinese
Jason Hartman: Yeah Jim Rogers would say that, is that true?
Bob: Nothing is ever really gained a lost. It shifts. One person make a profit that means someone else’s somewhere is losing money and vice versa. I am really saddened and I want to be careful with my words because sometimes people here a ‘expert’ say something and they go into a panic. This is not to panic anyone. Everything is cyclical. If you look at this country right now I think you see two huge forces. You have a private sector which is our corporate and the environment that’s doing fantastic. I mean they are lane and main and all year they’ve been turning out record earnings. They are competing heads-up with every corporation around the world, and in holding their own. Our private sector is really doing quite well. Then you’ve got the government which is functionally bankrupt. You’ve got $12 trillion worth of national debt when you throw in unfunded liabilities like Medicare and social security and state shortfalls. It’s really more like a 100 trillion which is about I think if you do the math about $400,000 for every man, woman, and child in this country.
Jason Hartman: Unbelievable.
Bob: Yeah but for the government how we would still be the number one economic power on the face of the earth, but we have been on a drunken, borrow and spend spree for the last 40 years. That to me is not been abated. I mean we have record deficits again this year. Our single biggest problem as a nation, and I’m looking for the statesman to come forward, and say I don’t care if I get reelected. I’m going to do the right thing. We have got to cut spending. We have got to — and it’s going to mean raising taxes, significantly cutting spending we’ve got to reduce these deficits. But the government’s made up of people who now have come to expect that the government is going to take care of them from cradle-to-grave. You’re going to pay for my education. You’re going to pay for my healthcare. You’re going to pay for my retirement. You’re going to pay for. You’re going to pay for. You’re going to pay for. So we’re slowly drifting into this Western European socialism while we’re complaining the whole way that the country is too deep in debt. The single most discouraging thing to me is the attitude of the people that expect the government now to take care of them from cradle-to-grave. That was not what made this country great. What made this country great was the direct relationship between how hard you were willing to work and the unlimited success you could obtain. And now its you’re seeing the [Crosstalk] —
Jason Hartman: Its entitlement, entitlement yeah. Right, you see it elsewhere.
Bob: But you’re not seeing it here.
Jason Hartman: Well, like you said it shifts. It’s the entitlement mentality has now shifted here, and away from other places that have learned that socialism doesn’t work. Big government doesn’t work. It’s the most dysfunctional thing on earth and you know a comment on what you said earlier about government spending. I love the way Ronald Reagan said it many years ago. He said I would say that the government spends like drunken sailors, but that would be unfair to drunken sailors. It is and that was years ago. I mean looking at it now what would he say now? So with all of this pending and the entitlement attitude and the 60 to $100 trillion entitlement time bomb coming up I mean are we just going to print our way out of this mess, and see hyperinflation.
Bob: Yeah I think you’re looking four things for sure. I can’t tell you when, but if you look at the history of the world whenever people got these massive deficits. Four things always happened. You had higher taxes. You had higher unemployment. You had had rapid inflation and higher rates, and you know right now the government I think just doing everything they can to keep interest rates down because there is an election coming up and when they start to go up its going to be pretty violent. Inflation is going to be violent at some point. Yeah it’s inevitable. We’re going to print our way out of it, and that’s going to cause higher interest rates, higher inflation, the whole nine yards.
Jason Hartman: And people better be prepared for that. That’s for sure because I think there is a sea change on what is going on. People will not be living the lives that their parents lived. The baby boomer generation was the one that enjoyed a lot of that prosperity and things are different now this time it really is different if you ask me. And the 70s, the inflation of the 70s look tame compared to what’s coming up. But again like you I can’t tell you when just —
Bob: So it’s going to happen.
Jason Hartman: Its has to happen. It’s inevitable.
Bob: So that’s why the wise steward now is starting to read books and understand okay what does that mean? It means I’ve got to shift from being domestic with my facts to a much more emerging-market international perspective. What’s going to be in demand in a high inflation, high interest-rate world. Well, you bet and I have been talking about commodities. What I do with my bonds? Well, right now I keep the maturities very short. When those rates jump up I buy longer-term bonds. Now that’s the time it starts getting a lot of knowledge to prepare for that because like we said earlier it’s just the shift. Somebody is going to lose money. Somebody is going to make money. The wise steward is going to find out what I need to do now to be the one that’s making the money when these things occur because you’re not hopeless. There is just tactical things you need to do.
Jason Hartman: Well, Bob Katz thank you so much for joining us today. Again the book is the Solomon Portfolio: How to Invest Like a King and we really appreciate your insights on this.
Bob: Well, it’s been a pleasure talking with you.
Jason Hartman: Thank you so much.
Bob: Thank you. Bye.
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The Solomon Success Team
Transcribed by: Renee