I was reading Steve’s article and thought “Steve you are a smart guy.” Steve is being smart because I think he is reading the market correctly and getting ready. I read the comments associated with Steve’s article and thought many are missing the message within the article. One comment that caught my eye.

Of course anyone who is on the outside will be scared, like you Steve- quoting horror stories- however the real money is made now. You have to educate yourself instead of claim that all use of leverage (blanket term) is bad or dangerous. It’s simply a tool that when used properly can help you get ahead faster than if you had to save the same amount.

I would ask the person who made this statement, how do you know now is the time to make money? Because the trends are going this way? Because some people like Cramer said, “Now is the time to make money?” Making money is not about following trends. Making real money is about managing risk. Remember that in the market you can make real money regardless of what the market is doing. One book I read said it best. The market is like the waves in the ocean. There are always highs, and lows and you can always catch a wave. You want to avoid the wipe-outs.

Regarding that now might be a bull market to make real money, I want to make a comparison of the current situation to the Swiss housing and market in general. The reason why I want to use the Swiss market is because Switzerland has gone through what I think the other markets will go through in the future. Consider the following graph of the Swiss housing market since 82.

Look at the price growth, and you notice a very interesting behavior. The years 82 to 90 were fantastic years. These were the years when Swiss housing became expensive. Then prices stabilized, and took a slight dip in 95, before going up slightly in 96. Then the “big drop” happened at the end of 96. If you had invested in a house at the peak, then only in 05 would you have seen any profit in absolute terms. If you calculate in terms of investing, and had invested your monies in 96 your housing investment would still not match your money investment. For reference purposes I am calculating using the Swiss deposit rates of 1.5% annually and not calculating inflation because until recently Switzerland had next to no inflation.

When the housing market crashed did the market crash? No, something far worse than the market crash happened. People saved money and stopped spending. I will admit that Swiss always tended to be fiscally conservative, but Swiss stopped buying things for many years. The Swiss changed their habits and stopped using credit and stopped going into debt. It was hard for the retailers. Recently in Cash there was an article on how the credit companies want the Swiss to spend.

Look closely at the graph which talks about how much consumer credit (not including mortgages, but including car loans, etc) each person has. In Switzerland each person only has 920 CHF (736USD) debt per month per person. Whereas the Brits have nearly 5944 USD of debt, and from what I remember the US consumer debt load is about 12,000 USD where 6,000 USD is credit card. Swiss have cash. The Brits, and the Americans are going have to stop spending. The more it is delayed the longer the slow down will be. I am not saying that there will be a hard crash. I am saying the market will be like Swiss housing market and there will be a long protracted slow down.

In Steve’s article there was a comment to the effect:

This is not the way you want to retire!!! I lived this way for 2 years. That’s why I don’t believe that lowering your expenses is the way to retire early. You should be increasing your income. Then when you retire, you can go on vacations, cruises, Vegas or whatever you want… not just sit at home.

If I equate the lifestyle proposed by Steve as being the Swiss, then the comment does not make sense. If you live frugal for two years you are not going to feel any difference. It’s only over the long haul where you feel the difference. And in the case of the Swiss they tend to be big ticket item buyers. The reason why the Swiss can do this is because the Swiss have created for themselves a positive feedback loop that has been confirmed in today’s Cash daily magazine. Cash says that not including real estate the average Swiss has 225,000 dollars in bonds, cash, equities. In my positive feedback loop article I say the reason why the rich keep getting richer is because the rich keep investing thus making more money. And the poor keep getting poorer because they keep going into debt buying things that they cannot afford.

What people forget is that debt allows you to buy more things in the short term at the expense of buying something in the long term. Debt requires interest servicing taking earned money out of your pocket with no return value. On the other hand interest or investment returns is free money that can be used to generate more free money or buy things without taking money from your pocket.

When I read Steve’s article what I read was not early retirement. What I read is that you need to be fiscally responsible and in control of your destiny. I interpreted how stress free life can be. What Steve has right is that he is battening down his ship for that storm. And when that storm comes Steve will be singing, “singing in the rain…”