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KAKA – Selling for £243 million

January 17, 2009
It's good to see that the world’s economic woes haven't affected football! No not the NFL. I’m talking about the real football that’s played in every corner of the world or as most Americans call it - soccer.

The 2007 FIFA world player of the year - Kaká - is on the verge of being sold to Manchester City (Manchester, UK) for a healthy sum of £243 million. That equates to roughly $350,000,000!

Indicating that the world of sports hasn't slowed its pocket books, which either means that things aren't really THAT BAD or that things are going to have to get a lot worse. Of course, this transaction is being made in Europe where we’ve been shipping our financial inflation for years and where they still have a solid footing and much less debt.

Back at home…

Personally, I do not believe the US markets will provide the kinds of returns we saw in the last 25 years (12% annualized) over the next 25 - 50. It would mean our government would have to stop counterfeiting money like its doing now and stop spending habits it's build up and definitely raise interest rates. Capitalistic Governments can't produce themselves; however, they can make it more or less conducive for business to produce. If not we could see a century of 4% annualized returns become the norm.

Here are a couple of possible solutions to the USA's ballooning government.

1. Raise interest rates substantially while drastically lowering income taxes. This will help encourage people to save money at high rates of return and limit borrowing on credit for the time being. Of course the problem here is that people with more money (because of the lower taxes) may end up just spending it instead, but only time would tell.

2. Stop government spending and abolish certain government programs. This would require the government to stop bailing out banks and bank related businesses to let the free market work itself out. This would also mean that we stop spending $500,000,000,000 a year in the Middle East and possibly giving tax breaks or other incentives to companies creating energy reductions. For example, automotive companies that produce cars that can gain 100 MPG or convert the cars on the road to water, etc… I mean 130 years ago we didn’t have light bulbs; we can create something amazing in the next 100 years, right?

3. Encourage manufacturers to NOT ship their facilities out of the United States! The problem we face now is that MOST of our businesses are commodity based where the main selling point is "we are cheaper" and this has created a flight to 3rd world countries. Think about it... We want EVERYTHING to get cheaper and it does because of basic economics ... Yet this has caused us to find cheaper avenues to use our scarce resources and in doing so, we’ve lost what makes America great, production!

In fact if we could get more companies to stay here we might get back to producing more than we consume, and the way to do that is to create a better brand! In other words, we need to make it more beneficial for companies to stay than to go. And, this happens with smaller government – not larger ones.

Of course if the dollar collapses under the force of the new Obama Economy and its $15 trillion deficit, we'll be the new cheap labor! At least for foreign companies!! And, they will be shipping their factories over here! Plus, our high paid athletes will leave for greener pastures in foreign markets like the Brazilian Footballer - Ricardo Izecson dos Santos Leite – a.k.a. Kaká!

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Jonathan D. Poland is the Chairman IAS Global Inc.

www.iasglobal.com

About the author:

Jonathan D. Poland
Above Average Odds: The author is a co-managing partner of a Kansas City based value investment firm, and runs separately managed accounts and a private investment partnership modeled on the original Buffett partnership from the 1950’s. His investment blog Above Average Odds Investing is dedicated to the premise that there is a “better way” for the average investor to protect and grow their wealth over time. Contact the author at: aboveaverageodds@gmail.com”

Visit Jonathan D. Poland's Website


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