Friday, October 26, 2012

Is leverage still good?

This article is dedicated to someone I hold very dear.

In my latest post, "The Italian Government’s insider trading ", I wrote about the fact in Italy the financial system has been stuck by the government and the central bank. Those institutions poured huge amounts of money to the major banking institutions and those same bankers invested in Italian T-bond earning buku bucks in just a few months. The problem is that money wasn't invested in companies that needed mortgages for their business goals. 

The Italian economy is made of small to medium sized companies, which are near to bankruptcy due to their limited cash restrictions. On the other side, I was told by a big wig, that if the banks had not invested in the Italian T-Bonds, Italy would have gone bankrupt. In my opinion there is not a black-or-white position. The right way is in the middle. And in the middle there are deserving companies which didn’t receive the money they needed and now are in big financial trouble.

For the above mentioned reasons, this is the best momentum to explain if leverage is still good. In the last ten years, Banks gave money to everyone. Everybody knows it. And the Subprime Crisis is a widely known concept as I wrote in my post. History showed it was a destructive formula.

Now we are suffering for the opposite reasons. Banks stopped banking. And even if you are a healthcare company CFO, you are going to pay for the sins of others. Although this is a destructive way also. So, the right way is supporting only those businesses that deserve to be supported. But how can a banker trusts a company? There are tons of theories on “how to lend money”. I will focus on two of them I usually adopt with my banks.

Lien. If you have money, banks will give you more money. Money follows money. You will experience it once you have a 7 figure bank account. For the bank this is the easiest form to secure its own interest, but if a bank considers this form of lending as the only form to secure its interests then it can be considered as financially suicidal. Because not every business is a good business…

In addition to the tangible assets, banks should also consider how much cash flow their given money would generate. This is the basics of commercial banking. If you have a good business with a strong cash flow, you deserve a financial injection from the banking system, obviously if you need it. Unfortunately in Italy it ain’t always possible.

If I were a Banker, first of all, I would certainly consider the customer's cash flow. I run companies with solid cash flow figures and with solid assets. Sometimes in Italy I found it difficult receiving financial lending for my companies, or if I found it, it was too expensive. In other countries it's much easier. So my advice is simple: first you have to set up a business with a positive cash flow so that it will be much easier for you to find a Bank that understands your financial figures. In the end during these hard economic times I would focus on the debt. A debt is not good or bad. When you use a debt you are simply using other people's money. The debt is good whether it is necessary to generate a positive cash flow. If the positive cash flow creates a stream of cash to pay interests and the capitalization rate, then is a good debt. I use this type of debt. And if you need it, you need to have a supportive banking system. But if you have too many loan repayments you are going to be in trouble.

Never forget Leverage is like fire. You can cook your dinner with it but if the flames overwhelm yourself you will be dead in few seconds.

Use leverage only if you are able to live without it.

Luigi Foscale.

A note on Italy. Unfortunately Italy is not the best place to establish a new business because banks only give money to those who have a friend or a relative in that bank. If you have no connection, it can be really hard.

Thursday, October 25, 2012

Wednesday, October 24, 2012

Collateral on Retire Rich by Luigi Foscale on Financial Times

Dear Friends,

On the list "Retire Rich by Luigi Foscale" on , you will read an interesting article regarding the banking system. My advice is to read it because the article continues what I anticipated in this Blog.

Take information.


Luigi Foscale
The most visited Clipping List on Financial Times is Retire Rich by Luigi Foscale

Friday, October 19, 2012

The Italian Government’s insider trading

Today, I read on the news the Italian 10-year bonds dropped to 4.77%, the lowest record since June 2011. So those who in the past 6 months invested in Italian bonds, made a 25% capital gain. 

In my latest post about banking (Banks Stopped Banking), I have hit hard on banks because once they received massive amounts of cash from Central Banks instead of lending out money to business companies in need of cash, they invested that money in state bonds. In my opinion such a move would have got the market completely stuck. In fact mainstream media praised the banking system claiming it was a great move to gain stability. 

By reading the news today, governments is telling us the story that banks and government officials saved our system and that they did it well by investing their money in Italian bonds. The Banks raised Italy’s risk by investing in the bear market, something that eventually would have gone up. 

The very reason why banks invested in state bonds is because they already knew the spread would have gone down. Bankers are awarded bonuses. If banks make money they make it too. So they chose to secure their bonus and they gambled on the bear market.

The 2008 crisis, which is still on, was generated by those same people who now have been called to solve it.  

These are the only people who took advantage of the crisis and mostly they took an undue advantage of us all!!!! It’s like asking a robber to protect your money. The trick is really simple and it’s made of two stages. 

First I destroy your asset’s value then I buy it for a penny, then I raise it up again and then I sell it big time. 

Let’s see it together: 

In the past few months the major Western governments attacked the Italian system and the Italian bond spread went up. In the meanwhile they made up an infamous media campaign against Italy, that literally ditched our financial situation. Then they led the banks to buy Italian bonds. 

Please consider bankers get millions in bonuses and that the incumbent Italian government is plenty of technocrats. 

After a few months they emphasised a series of positive macroeconomic figures, so that the risk about Italy and by consequence the spread both went down. This evil plan was possible thanks to the connivance of the Italian government, the banks and the mainstream media. 

What then? 

Those managers who made the banks realise outrageous profits were rewarded with stellar bonuses. 

While those business companies that desperately needed the money to survive they never obtained their deserved help and many of them unfortunately went bankrupt. 

However the game is not over. The worst is yet to come: the future. 

Small businesses will face the crisis and because of their lack of liquidity they will be pressured to sell off their stash. If you add up the out-of-control Italian revenue service, the game is even clearer. 

Indeed those who gambled they found themselves with a lot of cash and they can buy goods at very lowered prices. These people generated the crisis, these people made their money out of it while we are those who are going to pay it. 

If we were in the U.S. Stock Market, this would have been Insider trading....big time! 

Unfortunately this is Italy and the business world pays the system’s inefficiency. Business in Italy is overtaxed and can’t grow its potential at its best. 

These are the real economic barriers to Italy’s industrial development and its potential economic growth. 

Luigi Foscale

Thursday, October 18, 2012

Retire Rich by Luigi Foscale on Financial Times

Dear Friends,

please check our Clipping on the Financial Times. There is an interesting article on Banking.

Thank you for following me, for almost one month, we are the most visited List on Financial Times.

Retire Rich by Luigi Foscale on Financial Times is the most visited list
Retire Rich By Luigi Foscale on Financial Times is the most visited list


Luigi Foscale

Sunday, October 7, 2012

US unemployment rate at 7,8%

Dear Friends,

In the Clipping List "Retire Rich by Luigi Foscale" on the Financial Times, there is a new article regarding the lowest unemployment rate in the US.

Check it out.


Luigi Foscale

Friday, October 5, 2012

The Physics of Money

There are tons of books that tell stories of big challenges, taken by the richest billionaires. I have read many of them, and I can tell some of them are really inspirational. The majority of these stories, explain how these people were able to create their own fortune. 
I am here to provide you with the unique opportunity of learning how did they manage to keep their fortune. You have to know not only how to accumulate but most important how to maintain your wealth.
What if you make $1 million, and you lose it after a few months?
Do you know that this kind of “loss”, usually happens to the many who happen to win the lottery for the first time? Inform yourself… In order to build and to keep your wealth you need a plan on how not to waste your money.
First point. Wealth is Accumulating (and not spending…)

Your first fortune is learning how to maintain your money. 
In my latest post, "the Survival Handbook" , I introduced the Cash Flow, and the Tracking Ob. If you do not have a plan, you have less opportunities to become rich. Planning, budgeting and controlling expenses are key elements. Accumulating money means knowing your daily inflow and outflow. Build a plan of action, study your Cash Flow and Tracking Ob.
Second point. Money is a form of Energy
Let me introduce you a metaphor: consider a weir on a lake. The water is your wealth. If the inflow is less than your outflow, you are generating wealth. If not, you are wasting money. You need to close the plug or at least to open it carefully. If you pull out the plug, the water creates a giant whirl of energy. Same thing is for the money. 
Money, is a form of energy. And what you need to know, is how does energy works. I don’t understand why at school they taught me about physics (and that’s an important subject) but they didn’t teach me about the Physics of Money …
Money is energy!!
The more money you have, the more energy you are able to provide. 
Do not trust those who go like: “do you prefer money or love?” I prefer both. I couldn't live without my son’s smile, my wife’s cuddles and my dogs… but I cant live without money too. In these few lines I am ready to challenge every Scientist on earth to prove that Money is not a form of Energy. Money is Energy.
Third point: Net worth and Cash Flow are the measure of economic success
You need to control your levels of net worth and your cash flow, in a systematic way. Check your wealth status. 
Fourth point. High consumption lifestyle and High Maintenance are not forbidden
The important thing, is that your spending must always be under the line of your income budget. 
For example, if you buy a car with a lease, that’s not the best way to generate money, because you work to pay the lease rates and its interest rates. You work to have something you cannot afford! It’s like if you keep running without moving a step forward and if you stop you "probably" default. Ask yourself: if you stop working now, how long would you be able to keep up with the same living standards?
Advice of the day: Live below your means. 
Fifth point. Work to “Retire Rich”
Even if you have a job, my advice is to start creating your own Automatic Cash Flow. And later you will check your finances. When you are in the “Retire Rich” level, your money will work for you. 
Your time will be dedicated to generate money, counting the inflow and checking your financial status.

The Question....
Now, after these 5 points, I ask you a question: “Why aren’t you in the “Retire Rich” level yet?” 
The answer is easy: Nobody taught you how to do it. Nobody told you anything about the opportunity to “Retire Rich”. 
Sixth point. “Teach by Examples”
Thus, don’t let your children do the same mistake you did! The most important thing you can do for your children is teaching them about the money physics. Teach them financial discipline and how to be financially independent. 
If you don’t, they will always struggle to make ends meet. It is proven that a random donating system always generate financial dependence, in the end, It’s like any other addiction. Teach your kids how to fish and not simply provide them with the fish every day. They will become financial independent and productive adults. Eventually one day they will thank you.
You will find out you are able to learn the art of making money sooner than what you thought. Life is a long run.
Luigi Foscale

Tuesday, October 2, 2012

Do you want to stay up-to-date?

Dear Friends,

I invite you to stay up to date with my "Retire Rich By Luigi Foscale" Clipping list on the Financial Times.

Stop wasting your time by getting lost among myriads of news!

With my clipping list you’ ll have immediate access to those financial news you are looking for. Being a businessman myself, I perfectly know what’s the news that meet my specific needs as an investor and a manager.

That’s why my Clippping list has been ranking in the first five since my selection joined the FT.

Set my Clipping list as your homepage and you will stay up to date with financial news that matter.

Stay tuned,

Luigi Foscale