July 2005 Newsletter
Issue Seven, Volume Six

IN DEFENSE OF AMERICA

By Mike Gasior

If there is any sort of constant theme in the email and comments that readers often inundate me with is that my views in this newsletter can focus too frequently on what seem to be negative situations. While this might superficially appear true, my intent really is to cast light onto areas where you may not have been previously focused and open your eyes to opportunities that might exist if you were to exploit them. Being an American, and with Americans being the majority of my readers, there is usually an abundance of commentary by me about the U.S. economy and markets, which in turn make it look like I'm picking on my Mother country. Although, in my own defense, I think I do an admirable job keeping a global perspective. I continually outline the international nature of the economy, politics and financial markets and showing the differences between countries. This is largely due to the amount of time I have spent in the past 16 years outside the U.S. and becoming friends with untold numbers of people who are proudly citizens of other nations and have made me all too aware of my "Americanisms".

Given all the time I have spent critiquing and criticizing U.S. economic policy, monetary policy, and never mind my endless negative predictions of various U.S. financial markets, I thought it was time to focus on some positive attributes that continue to make the United States what it is today, and will continue to be for a very long time. There have been several surveys done recently that show clearly that for all our problems, America is still poised for greatness well into this new century and I want to cast the spotlight onto those positive aspects. For those of you reading this in other countries and figuring this will be some blind, patriotic rant, give me the chance to prove otherwise. And by all means feel free to steal or borrow anything that might improve your own future.

First a little bit housekeeping.

VIDEO AND RADIO SHOW ARCHIVE PAGE IS OPEN FOR BUSINESS

It took us a little while, but I am VERY excited to announce that we finally added an archive page to the website that will allow you to go back and video any video commentary over the past two years. We have also posted MP3 copies of my first four radio programs that can be downloaded or listened to.

Just visit the following webpages and you will see a description and date for all the videos and radio shows, and remember you can also save any of them for future viewing or listening by simply right-clicking the icon and saving them to your hard drive. The link is:

http://www.afs-seminars.com/v-commentary.html

http://www.afs-seminars.com/radio.html

I also want to remind everyone that you can view and newsletter from the past six years by visiting the newsletter archive page at:

http://www.afs-seminars.com/newsletter.html

THE BERMUDA PROGRAMS IN SEPTEMBER

The sessions that I will be hosting during the week of September 12th are rapidly filling and although we are trying to secure a larger room for the programs, we are so far without success. I am afraid (although pleased as well) that the "Structured Products & Derivatives" seminar is nearly sold out. We are accepting registrations on a "first come, first served" basis, and we will do our best to accommodate anyone who wants to attend. The two sessions we are holding are:

On September 12th and 13th, 2005 I will be presenting an extremely important program for any accounting, operations, audit or management staff who needs a clear understanding of how the financial markets operate; "Securities Operations, Processing and Accounting". For a complete description of the sessions please click:

http://www.afs-seminars.com/2005_bermuda_securities.html

The subjects of my sessions on September 14th and 15th, 2005 will be some of the most complex securities held by investors; "Structured Products & Derivatives". This program will cover these securities, which have become favorites of all types of institutional investors, in detail. If you need to gain knowledge about these exotic vehicles then this seminar is a must for you. The details of the two days can be viewed at the following link:

http://www.afs-seminars.com/2005_bermuda_structured_products.html

Both programs will be held at the Fairmont Hamilton Princess Hotel and you may register by calling our offices at (860)347-6568 or by simply visiting our online registration page at:

http://www.afs-seminars.com/register.html

I look forward to seeing you and your colleagues there.

THE AUGUST VIDEO CLIP IS UP

The topic of this month's video commentary is municipal bonds, although they are often referred to as "tax free" bonds. Keeping with my theme for this month's edition of being "positive", I will admit that I am of the personal opinion that this segment of the bond market is offering some of the best opportunities for fixed income investors. Although I'm somewhat negative about the bond market in general at the moment, municipals are among the more attractive alternatives. You can view either a high-speed or low-speed version of the video by visiting our video page at:

http://www.afs-seminars.com/v-commentary.html

Now let's get on with the newsletter.

THE CASE FOR AMERICA

Americans can often behave like an enormous family, bickering over every minor difference of opinion and acting like a nation divided. Every issue seems only to be "black or white", or perhaps more appropriately "red and blue". Outsiders watching our behaviors, or the behaviors of our politicians, would think that we are in complete agreement with either one side of a debate or the other. Americans are either for gay marriage or against. For stem cell research or against. They either support the war in Iraq or are against it. Want Roe versus Wade overturned or not.

There is even a population within the United States that see the country sliding backward and moving further and further away from the "glory years" when America lead the world in technology, research, freedom, science and many other fields. Even by reading past issues of this newsletter might have given you the impression that it is only inevitable that the United States will be overtaken by China and India in many of these regards. This, however, is not the case and will not happen anytime in the near, or even distant, future.

As much focus as is cast on the differences between Americans, there is vastly inadequate time spent focusing on what we share in common and that is deeply entrenched into our society, and why the United States will remain the "Land of Opportunity" for the foreseeable future.

Allow me to make you a list:

AMERICANS WANT TO IMPROVE:Back in 1945 a Swedish gentleman named Victor Vinde wrote, "The greatest asset of the American, so often ridiculed by Europeans, is his belief in progress."

When I travel and speak with my friends from other countries, if there is one thing that is said about Americans that will honestly offend me is that we are "arrogant". While it certainly may appear as though we are arrogant, I would rather substitute the word "confident" in its place. For all of our internal, abject bickering, the United States is a supremely confident place, and as a group we walk around vastly optimistic about our future. A recent survey showed that fully 66% of ALL Americans believe that they will achieve the "American Dream" of self-improvement sometime during their lifetime.

It is estimated that Americans will spend nearly $700 million on a variety of self-help books in 2005. After the escaped prisoner in Atlanta was captured, it was learned that the woman who was being held hostage by him was freed after she read him passages from a book I had never heard of called, "The Purpose-Driven Life", which is a 40-day religious course of self-improvement. Unbeknownst to me, this book has sold in excess of 25 million copies and that is more than any other non-fiction book except the Bible.

When I was a kid, most Americans wanted a nice ranch house in a subdivision, a Chevrolet in the driveway and one of those new color televisions. Today the new American dream is a BMW SUV in the driveway of a McMansion, watching 100+ channels of television on their new plasma TV and accessing the Internet via a high-speed connection. You can argue if any of these material items does truly improve their lives, but that debate doesn't matter. Americans THINK their life is improved while they pursue even more.

AMERICANS WORK HARDER:
The American worker works harder than almost anyone else, putting in 300 more hours a year than his or her European counterparts. Americans switch jobs on average every seven years instead of eleven years as workers in Germany and Japan do. The unemployment rate in the U.S. hovers around 5% and that is roughly half the rate that of Germany, France and Italy.

AMERICANS ARE HIGHLY MOBILE:
Americans have always been ready, at the drop of a hat, to pursue better opportunities for themselves and their families. Dating back to the "Gold Rush" to California in 1849, or the Internet/tech boom of the late 1990's, Americans are quick to move geographically to chase a better life.

In 2005 almost 40 million Americans will change their place of residence, which is a group of people larger than the populations of Greece, Spain, Poland, Australia or Chile. Actually, almost half of all Americans changed addresses between 1995 and 2000, which was more than ANY European country, and very often FAR more than most of them. One can only assume that most, if not all of this movement was the search for a better life and improvement. The moving must be good for the movers themselves, otherwise why would they move at all?

What makes all this movement even more impressive is the extremely high level of home ownership in the U.S., which you might expect would keep some people from moving so readily. In fact, the tremendous rise in home ownership rates has dampened the percentage of Americans who move each year, which used to run at about 20% in the 1960's to about 13% today. Best of all, the rate of migration is even higher among the young, the educated and the rich, and that means that society's "best and brightest" are likely the ones chasing the newest and most promising industries and areas.

This movement has also changed the way suburbia is viewed compared to the 1960's when suburban living was thought of as boring and bland. In the latter part of the 20th century this would create a shift that would cause 75% of all new office space built during the 1990's to be built in the suburbs, and produce three times as many jobs as downtown regions during the same period. Some of America's largest corporations began and remain in non-urban areas, such as Microsoft, Cisco, Dell and Walmart, and this could not have been possible without a highly mobile population.

AMERICA HAS A GROWING AND YOUNG POPULATION:
During the 20th century the United States saw its population increase by 250%, as compared to Britain and France who grew by less than 60% during the same time period. Even in the past 10 years, the U.S. population grew from 263 million to nearly 300 million, which is the fastest growth in 40 years, and that is more than twice as fast as the European Union countries. Best of all, 66% of the increase in the U.S. population comes from "natural increase", as opposed to the EU who can attribute almost all their modest growth to immigration.

Because of the "natural increase" in U.S. population, this is going to cause them to enjoy a younger group of people in the future. The following is a list of the "median age" (half the people are younger and the other half older) of the population of a group of countries in the year 2050:

**South Korea - 52 years old
**Italy - 51 years old
**China - 45 years old
**Britain - 43 years old
**Brazil - 40 years old
**United States - 40 years old
**Nigeria - 28 years old

Of the "industrial" countries, only America has maintained the industrial-era type of demographic growth during this post-industrial age the world is moving into. If bringing new children into the world is a symptom of confidence about what the future holds in store, this kind of statistic is more evidence of American's extreme self-confidence.

AMERICA STILL EMBRACES IMMIGRATION:
In a previous newsletter I commented that the United States receives more highly educated immigrants than all other countries on earth COMBINED. This amazing fact remains true today, and provides further support to the notion that the world still views America as "the land of opportunity". Indeed, an immigrant is currently the governor of the largest state in the land, and people who came to the U.S. from countries around the world now hold positions of power in politics, business, entertainment and sports.

All the posturing about clamping down on this wave of immigration after 9/11 has done little to slow the influx. Since 1990 over 14 million people have emigrated to the U.S. legally, and even more have likely entered illegally. While not all of this immigration is a positive for society, the rest of the world is envious of how we are able to absorb all these newcomers with very little trouble.

AMERICA REMAINS HIGHLY EDUCATED:
No one, including myself, is going to argue that there are not deep-seated problems within the U.S. secondary education system. There was an international study done recently that showed that American 10-year-olds finished 12th among 25 countries in math and 6th in science.

With all that said, however, the quality and quantity of the intellectual experience in the United States is second to nowhere else on earth. Today 25% of all American adults have a college education and the U.S. produces 33% of all scientific papers in the world. U.S. companies employ 66% of all living Nobel Prize winners and 17 of the best 20 universities in the world (according to Jiao Tong University in Shanghai, China) are located in the U.S. Finally, the United States has more intellectual-based workers employed than any other nation on earth. All of this positions the U.S. well for the technological future that lies ahead.

AMERICA LOVES FREE TRADE:
Even with all the lament in the recent presidential election about the outsourcing of American jobs, and even my complaints about China potentially buying a U.S. oil company, trade barriers in the U.S. are extraordinarily low.

With all the jawboning by many in the U.S. Congress, very little is likely to happen to this situation either. During the 1990's, the percentage of imports and exports as part of the U.S. economy grew steadily and continues to do so. With the recent failure of the EU constitution in several European countries it is reasonable to expect protectionism to take over in that continent and for America's advantage to only grow wider.

IN SUMMARY

Truthfully, there were even more avenues I considered exploring, but decided I should stop before I sound too much like some flag waving kook, to blinded by patriotism to recognize America's faults. There is no denying that there are plenty of negatives that could have been explored also, and one simply needs to tune into the nightly news any evening to be inundated with those. As was my promise, I wanted to remain upbeat and focus on the many reasons the U.S. is such a vibrant and exciting place to live and to visit.

To my non-American readers, I know we can often seem too competitive and too cutthroat in so many things we pursue, and perhaps nobody is more guilty of that than myself. When struggling to explain this trait to my friends in other countries, I've boiled it down to one simple fact. The United States is a "let's race" type of society and we're not even that embarrassed about it either. It's plainly visible in our popular culture if you just watch a little television. Consider the entire premise of "American Idol". He sings good. She sings good. Let's race 'em!! Actually, if you consider the entire offering of reality television, that is the thread that sews the mess together; competition. Who can eat the most disgusting things? Who can kiss Donald Trump's behind the best? Tune in and find out!

But it is this highly competitive culture that permeates almost every facet of American life that drives the country to succeed as it does, and this American cannot imagine it will ever be any other way.

SPEAKING OF DONALD TRUMP

Although I can find the man stupefyingly annoying sometimes, I cannot argue his success nor his business savvy. The guy is, without question, a very smart man and a ruthless businessman.

What I feel compelled to speak up about is that I am in total agreement with Mr. Trump on one particular thing. The proposed "Freedom Tower" that is planned to be built on the former World Trade Center site is a hideous eyesore, and that they should rebuild the towers as they stood, EXCEPT to make them one floor taller at 111 stories.

As a guy who used to sit on the 105th floor of tower two looking south and spent countless hours in tower one enjoying happy hour at Windows on the World, I am clearly not unbiased. Truthfully, I am extremely biased and I feel there are probably plenty of New Yorkers who share the viewpoint of myself and Donald Trump. I just wonder if we can summon enough volume to make ourselves heard to Messrs Bloomberg, Pataki and Silverstein.

A CUTE FACT ABOUT SAVING

As a person who is always preaching that Americans need to save more, and also one who tries to impart that discipline to any kid within earshot, even I always wondered where the idea for a "piggy bank" ever came from. I grew up around farming and agriculture and I was never witness to a pig being a saver of anything in particular, so I thought this was worth some research.

It seems that back in the Middle Ages, people would save their money in clay jars made of a material called "pygg", which was an orange colored clay widely used for household containers because it was durable and cheap. People would refer to these primitive savings devices as "pygg jars".

During the 1700's in England there was a movement to begin saving money and potters started to receive requests to make "pig banks" from their customers. Being unaware of the pygg material from several hundred years before, the potter crafted banks in the shape of a pig, and the term "pig bank" was hatched. The early versions of these banks were cruel, requiring the owner to actually shatter the bank to withdraw the money saved inside. Over time, a corked hole in the bottom became as standard as the slot on top to make easier for the saver to gain access to their cash.

Even though I would like to resist this opportunity to get preachy, one thing Americans could definitely improve upon is their savings rate. In the past few years the U.S. has dipped into a negative savings position and right now Americans are putting away only about 1.3% of their income. This compares to a 9.4% as recently as 1970. I'm not trying to be negative here, and you could even use this dismal statistic to argue that it's nothing more than other evidence to show how confident Americans are about the future. Be that as it may, I still advise anyone willing to listen to me that you should be saving 10% of your income. Period. Paragraph.

BRAINTEASER

In keeping with the trend of the previous few months, I've chosen a financial/economic/investment theme going here. If you have ever attended any of my seminars in person it is very probable that I gave you the answer during the program, since I love to tell the story, so here I go again.

This month's question is:

"Who was the first musical artist to sell their future musical royalties in the form of an asset-backed bond?"

At least try to figure out or research the answer before turning into a weasel and clicking the following link for the answer:

http://www.afs-seminars.com/brainteaser_July2005.html

And the answer to LAST month's brainteaser is:

"Most people regard the world's first bank to be Monte Dei Paschi di Siena, which was founded in Siena, Tuscany. It continues to operate as one of the important Italian banks and has branches in various parts of the world."

http://www.afs-seminars.com

Copyright 2005, Michael Gasior. All Rights Reserved.

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