MARK SKOUSEN, Editor of “Forecasts & Strategies.” Paul asks Mark if he has any predictions about the Dow. Mark also offers some new stock recommendations. Push play to watch the interview. (You need Flash installed to watch video.)

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“Citigroup (NYSE: C: 4.84, 0.14) used to be the world’s #1 bank; it is now ranked #15 after the financial crisis,” points out long-standing investing and trading expert Mark Skousen.

Despite the financial institution’s troubles, the advisor ranks the bank as a speculative buy in his premium Hedge Fund Trader service. Here’s his review on IStockAnalyst.

Mark Skousen appears on CNBC with Maria Bartiromo to talk about the efforts to turnaround Ford Motor Company. Video available through YouTube. Click here to watch the video.

Personal Snapshots
Forecasts & Strategies
October 2000

Bankrupt Millionaires
by Mark Skousen

“In the midst of the biggest economic boom ever, millionaires are going bankrupt.” – Forbes (October 2, 2000)

Last March, I reported the findings of Professor Thomas J. Stanley, author of The Millionaire Next Door and The Millionaire Mind, that the rich are model citizens-frugal, well-educated, balanced, religious and happily married. But according to the October 2 Forbes, a growing number of millionaires are going bust. Doctors, lawyers, accountants and executives are declaring chapter 7 and 13 bankruptcies at record numbers during this time of prosperity, due to bad business decisions, poor budgeting, overuse of credit cards and divorce. I also know a few financial gurus who continue to dispense advice yet are strapped (but I won’t mention any names).

There are several important lessons here:

(1) An above-average income is no guarantee of financial success. Forbes describes individuals earning $300,000 a year, and some with assets exceeding $5 million, going under. Las Vegas singer Wayne Newton was earning a million dollars a year when he went bankrupt in the early 1990s. (He blamed it on his advisors for getting him into leveraged real estate projects.) Earning more money is not the answer to one’s financial problems-living within your budget is.

(2) Open-ended credit card and business debt is a major source of trouble. If you can’t pay off your credit cards every month, you are headed for trouble. Replace them with debit cards or the American Express card, which requires you to pay off your obligation every month.

(3) Avoid margin debt and leveraged business ventures. The majority of busted millionaires made the mistake of getting in over their heads in leveraged real estate deals and highflying stocks. In many cases, greed drove them to put too much of their savings into one risky scheme.

(4) Most importantly, always spend less than you make, year after year. This advice may sound simplistic, but I’m amazed at how often it is violated.

The Best Book on Avoiding Bankruptcy

There are some excellent books on the subject: Rich Man, Poor Man by Robert T. Kiyosaki, The Wealthy Barber, by David Chilton or High Finance on a Low Budget, by my wife, Jo Ann, and me (all available through amazon.com). But the classic work on the subject is The Richest Man in Babylon (New Library edition). I require it in all my investment classes. It tells the story of Arkad: “In old Babylon there once lived a certain very rich man named Arkad. Far and wide he was famed for his great wealth. Also was he famed for his liberality. He was generous in his charities. He was generous with his family. He was liberal in his own expenses. But nevertheless each year his wealth increased more rapidly than he spent it.”

How could Arkad accomplish this financial miracle of being a big spender and yet still grow richer every year? Simple. Whether he earned a lot or a little, he always set aside at least 10 percent of his income, which he religiously saved and invested. He scrupulously avoided living beyond his means. Thus, in times when he earned more, he could afford to spend more-even as he added to his net worth.

My Financial Life Story

I read The Richest Man of Babylon when I was a young adult and have followed it ever since with great success. I started college with $50 in my pocket, but have always lived frugally. I pay cash for everything, including big-ticket items like cars. I seldom buy stocks on margin. I put aside 10%-20% of my income every year through my pension plan and Automatic Investment Plans (AIP) with various brokers. Like Arkad, I spend money liberally on my family, church, charities and other good causes (such as the Foundation for Economic Education). My only major debt was my home, and I paid off my mortgage several years ago, so I am totally debt free. Yes, I invest frequently in high-risk ventures, but I always diversify enough to keep out of trouble.

If you haven’t read The Richest Man in Babylon, I suggest you do so. It is entertaining and enlightening-and will keep you financially straight.

Economics on Trial
IDEAS ON LIBERTY
April 2000

What It Takes to Be an Objective Scholar
by Mark Skousen

“It was the facts that changed my mind.” -Julian Simon (1)

During the 1990s we watched the Dow Jones Industrial Average increase fourfold and Nasdaq stocks tenfold. Yet there were well-known investment advisers-some of them my friends-who were bearish during the entire period, missing out on the greatest bull market in history. (2)

How is this possible? What kind of prejudices would keep an intelligent analyst from missing an overwhelming trend? In the financial business the key to success is a willingness to change your mind when you’re wrong. Stubbornness can be financially ruinous. When a market goes against you, you should always ask, “What am I missing?”

Over the years, I’ve encountered three kinds of investment analysts: those who are always bullish; those who are always bearish; and those whose outlook depends on market conditions. I’ve found that the third type, the most flexible, are the most successful on Wall Street.

Confessions of a Gold-Bug Technician

A good friend of mine is a technical analyst who searches the movement of prices, volume, and other technical indicators to determine the direction of stocks and commodities. Most financial technicians are free of prejudices and will invest their money wherever they see a positive upward trend, and avoid (or sell short) markets that are seen in a downward trend. But my friend is a gold bug and no matter what the charts show, he somehow interprets them to suggest that gold is ready to reverse its downward trend and head back up. Equally, he always seems to think the stock market has peaked and is headed south. As a result, throughout the entire 1990s he missed out on the great bull market on Wall Street and lost his shirt chasing gold stocks.

I also see this type of prejudice in the academic world. Some analysts are anti-market no matter what. Take, for example, Lester Brown, president of the Worldwatch Institute in Washington, D.C., who puts out the annual State of the World and other alarmist surveys and data. He gathers together all kinds of statistics and graphs showing a decline in our standard of living and the growing threat of population growth, environmental degradation, the spread of the AIDS virus, and so on. For example, despite clear evidence of sharply lower fertility rates in most nations, Brown concludes, “stabilizing population may be the most difficult challenge of all.” (3)

Too bad Julian Simon, the late professor of economics at the University of Maryland, is no longer around to dispute Brown and the environmental doomsdayers. Simon was as optimistic about the world as Brown is pessimistic. Simon’s last survey of world economic conditions, The State of Humanity, was published in 1995. That book, along with his The Ultimate Resource (and its second edition), came to the exact opposite of Brown’s conclusions. “Our species is better off in just about every measurable material way.” (4)

Yet Julian Simon was not simply a Pollyanna optimist. He let the facts affect his thinking. In the 1960s, Simon was deeply worried about population and nuclear war, just like Lester Brown, Paul Ehrlich, and their colleagues. But Simon changed his mind after investigating and discovering that “the available empirical data did not support that theory.” (5)

Scholars Who See the Light

The best scholars are those willing to change their minds after looking at the data or discovering a new principle. They admit their mistakes when they have been proven wrong. You don’t see it happen often, though. Once a scholar has built a reputation around a certain point of view and has published books and articles on his pet theory, it’s almost impossible to recant. This propensity applies to scholars across the political spectrum.

We admire those rare intellectuals who are honest enough to admit that their past views were wrong. For example, when New York historian Richard Gid Powers began his history of the anticommunist movement, his attitude was pejorative. He had previously written a highly negative book on J. Edgar Hoover, Secrecy and Power. Yet after several years of painstaking research, he changed his mind: “Writing this book radically altered my view of American anticommunism. I began with the idea that anticommunism displayed America at its worst, but I came to see in anticommunism America at its best.” (6) That’s my kind of scholar.

1. Julian L. Simon, The Ultimate Resource 2 (Princeton, N.J.: Princeton University Press, 1996), preface.
2. See the revealing article, “Down and Out on Wall Street,” New York Times, Money & Business Section, Sunday, December 26, 1999.
3. Lester R. Brown, Gary Gardner, and Brian Halweil, Beyond Malthus (New York: Norton, 1999), p. 30.
4. Julian L. Simon, The State of Humanity (Cambridge, Mass.: Blackwell, 1995), p. 1.
5. Simon, The Ultimate Resource 2, preface.
6. Richard Gid Powers, Not Without Honor: The History of American Anticommunism (Free Press, 1996), p. 503.