Greg Sneyd, Director of DentalSuccess Financial, says... 

For those of you who would rather read than listen, here is the complete transcript of the Operation $$$ Independence conference call with Bill Nelson and Walter Hailey that was recorded on October 9, 2002.
 
If you would like more information about the next Operation $$$ Independence seminar Dayton OH on November 21-23 please contact Greg Sneyd at 800-460-3838 x106 or email gregs@dentalsuccess.net.
 
So here is the transcript:
 
Greg Sneyd: Well I’d like to get rolling with the call.  We’re on a fairly tight time frame here.  We’ve got an hour and Bill has a lot of things he wants to talk to you about. My name is Greg Sneyd.  I have Walter Hailey and Bill Nelson on the call with me .  Most of you have heard of or maybe have even talked to Bill.  Bill is a registered financial consultant, a life underwriters training council fellow, and the Chief Executive Officer of Nelson Financial Group, which is located in Dayton, Ohio.  He has been providing financial advice since 1970.  He’s actually provided financial advice to close to 200 of our Crown Council members and he’s got a lot of experience with the Crown Council.  Bill is a member of the Top of the Table, which puts him in the top one percent of all financial service professionals worldwide.  He’s had a number of honors and awards, and  I won’t go through the list right now but he’s very well educated and well respected in the financial communities.  He is on the Advisory Council of the Harry S. Dent Foundation and Successful Money Management Seminars.  Bill’s objective today is to help you to get a financial education and he has done that very well with a lot of our members and hopefully we can provide some good information.  Just before Bill goes ahead and gives you that start on a financial education, I’d like Walter just to give you a couple of words as to how we got involved with Bill and what some of his thoughts are about what we are about to do today. 
 
Walter: Well one thing I am glad about with Bill…well there’s a lot of things I’m glad about with Bill, but one thing for sure is that he is old enough that he’s not one of these shoot from the hip guys.  He has been through the downs and the ups and he doesn’t panic either way.  I like that. We found Bill by reading a lot books about him and Harry Dent and that operation and we liked what we read.  We told everyone about them and they went to the seminar.  Bill does a good job. I like the well-rounded idea of him being able to not only advise us, but also advise us on taxes.
 
Greg: Thank you very much Walter.  Just before you go ahead Bill, I am going to mute out everyone on the call during Bill’s presentation so we don’t get any feedback.  On some of our previous calls we’ve had some feedback.  So I’m going to “star five” us, so that will leave Bill, Walter and myself live on the call.  Throughout the call, a couple of times, I will come back to make sure everybody’s out there.  And then we will have about a fifteen-minute question and answer session at the end of Bill’s presentation.
 
Bill: First of all we gave you seven bullet points about this session and I could spend three hours on  each one of the bullet points.  So I am going to highlight each one of them.  The first question was why did we have a recession and how long will it last?  A recession like this comes typically once every century…about every eighty years you’ll have a great recession.  The last great recession started in 1919 and ended in 1922. 
 
A corporation grows in S curves.  They learn some knowledge, then they spurt, then they fall, then they learn knowledge, then they spurt again. That is typically what happens in any growth cycle.  What we found out from Harry Dent and his research was that there are four seasons of the economy just as there are four seasons in our weather pattern.  The first season of the economy most people are going to hear about is the innovation cycle.  An innovation cycle is when people are going into work.  In that group you will have high inflation, high taxation, high unemployment and low productivity.  Now that happened back around 1890 through 1910 and that’s also happening through the 1970’s and 1980’s.  Those were the innovation cycles. 
 
The next cycle is called the growth cycle.  The growth cycle in that arena is when people are very productive.  And there will be a large group that is very productive. In that cycle you will have low inflation, low taxation, low unemployment and very high productivity.  Well that happened from 1910 to 1929 and that is happening from 1990 to about 2009.  So you’re going to find these cycles are about eighty years apart from each other.
 
Greg: So you’re saying that we are in that cycle right now?
 
Bill: That is correct.
 
Greg: Okay.
 
Bill: Now the question everyone asks me is how in the world can we have a recession in a growth cycle?  Well let’s go back to the last cycle and show you how it happened and show you why this one is happening.  Well in 1910 we started in a growth cycle.  Back then, automobiles were the king.  Automobiles in 1908 ran about $875 a piece.  In 1922 they got the automobile price down to $275.  In 1914 Henry Ford created the assembly line.  From that period on from 1914 to 1919 everybody had an auto. If you’re in the stock market you knew the automobile companies and the tire companies were really going to have a massive expansion and they did.  In fact, they had the largest expansion in the history of the automobile industry.  So you had over 75% of new automobile upstarts.  So people poured massive amounts of capital into that and so therefore they did very well.  From 1919 to 1922 there was a major oversell and 75% of the automobile companies went out of business.  Now just because you have capital going into corporations doesn’t mean their going to run well.  A.K.A. Worldcom, Enron, Qualcom, and Adelphia, etc. 
 
There is this company called General Motors. From 1919 to 1922 General Motors lost 75% of their stock value.  For most consumers they would bail out.  From 1922 to 1929 General Motors had a 22 times growth.  Now it’s very important to understand these cycles.  From 1910 to 1919 the S&P grew around 16%.  From 1922 to 1929 the S&P grew another 16%.  From 1919 to 1922 there was about a 70% to 75% drop to the market.  Now that was the last cycle.  This was caused by…not by consumer spending, that was caused by business.  It was a business-to-business recession.  We have only had one business-to-business recession in the last eighty years and that was 1919.  Now let’s go up another eighty years and we’re into our cycles again.  We went to the dot com’s from 1990 to 1994 you started a growth curve and in 1994 you had the dot com.  From 1994 to 1999 you had just had a major growth in the dotcoms.  If you had a dot com, you made money.  If your dot com lost money you really had a buzzard. 
 
Now from 1999 to 2002 the NASDAQ was down 73.5%; eighty years ago it was between 72% and 75%…almost identical in the same years. 
 
Greg: So we’re following the same sort of a growth cycle?
 
Bill: The cycle is almost an imitation.  Now in a recession, one thing that separates a recession from a depression, very important…any recession…in this recession you have high productivity, low inflation, low taxation, and low unemployment. In a typical recession you will typically have high inflation.  And that is, it depends on if it is a consumer recession or a business recession. This is a business recession.  The economy is stronger today than it was three years ago because the baby boomers are spending at an unbelievable pace. 
 
Greg: Okay, just to clarify, you say the business recession as opposed to the consumer recession…the business recession is business-to-business isn’t doing as much business with another, but the consumer is still spending.  Is that what you’re saying?
 
Bill: That is correct. Well, the economy is spending stronger now than was three years ago.  Now there are always pockets and I’m not going to argue with that, but I am telling you that the entire economy is stronger today then it was three years ago.  That is the reason why everybody is wondering why in the world the economy isn’t going down in a hand basket.  Well the reason the economy hasn’t gone down is that we have a massive group of baby boomers born between 1946-1953 and when they really got into it is between 1959-60.  That is the group that is driving the market.  Now the largest group of baby boomers, right now are just hitting their peak spending.  We have all three major groups of baby boomers right now in their peak spending.  We also know that the economy is driven 72-75% by consumer spending.  In anybody’s category it’s always been proven that the economy is doing that.  Now in a depression this is going to be total…in a recession there is always a recovery.  There has never been a recession in the U.S. where the market has not had a complete, if not an excess, recovery.  Never has there been a recession that it hasn’t. 
 
Greg: So we’re just waiting?
 
Bill: I know that I’m scared to death too.  Logic and emotions are two different things. 
 
Walter: Okay, now wait a minute, now there’s always been a recovery…
 
Bill:  There’s always been a recovery in a recession.  In 1919 to 1922, Walter, the recovery took about 2.3 years and had a complete recovery.  In our last recessions, I will just go back to the ones in our lifetime, most people remember ’73-74.  All right? We lost about 44% in the two-year period.  That recovery was about 24.5 months and then we had the recovery.  In 1987 we had a recovery within 13 months.  We had a small recession in 1990 and recovered within 7 months.  There has never been a recession when the market has not come back equal if not better. 
 
Greg:  And how long have we been in this one?
 
Bill:  We have been in this two years, going on three years.  All right…we’re almost at the bottom of the down market of this recession cycle.  You’ll know when you’re in the bottom of a recession from these conditions:  One is, everybody hates the stock market, that’s the No. 1 condition.  No. 2 condition is you’ll have bottom fishing.  This bottom fishing is very simple.  It is that it’s testing the all time lows.  Basically the market goes up, the market goes down, the market goes up, the market goes down.  That means we have short term profit takers in this market.  We also want you to know that all the companies, the companies that reported last year or the previous year, 95% of them had  higher earnings than they did the year before.  But still the market went down.  Now how in the world does the market go down when 95% of the companies are reporting stronger earnings than they did in 2001?  It is emotion; it’s straight emotion right now.  Okay? 
 
Now we have some soothsayers out in the market; there is one on the depression.  I think its Prechter.  There are soothsayers out there that say that the market will only average 6%.  The reason that they have come after that conclusion is that if you follow the market and the S&P has averaged between 10.5 and 10.7%, the market did between 16-18% from 1990-99.  So in order to average out over that twenty years, the market must now do around 5 or 6%.  This is the reason you’re hearing these people say that the market’s going to do 6% in the future.  What they’ve done is they have just averaged the two out. Prechtor on the other hand has just written a good book on the upcoming depression.  I went to one of Prechtor’s seminars about four years ago and I had a problem.  He was telling everyone in 1996 to be in cash.  I asked him…this was in an audience in Atlanta,  I asked him if I moved my clients to cash and he was wrong, would he help me with the recovery process?  He then left the room.  All right?  Prechtor is a very intelligent person, but his whole goal right now is to sell books.  Him and Harry Dent had a conference, so at the end of the conference Harry said, “Okay, if you’re right and I’m wrong, I’ll bet you two to one $50,000, that I’m right, Prechtor, and you’re wrong.”  Prechtor said, “I will not gamble.”
 
Greg: In case not everyone is aware, Harry Dent is the philosophy that you follow…
 
Bill:  In my business world, I’ve been around the business world for 32 years.  There are four different strategies that I’ve seen in my 42 years that has any basis at all.  The first strategy is buy and sell.  You’re buying hope.  You do a little bit of research and then you hope.  The second strategy is what we call Standard Asset Allocation or SAA  ??  That was started back in the fifties by a Ph.D. by the name of Marcowitz.  And Marcowitz said, “Is there any rationalization of buying and selling vs. diversifying?”  Well, he found out without any shadow of a doubt…and he got a Nobel Prize in Economics for this…that if you were to diversify and put ¼ of your money into large companies, ¼ into small, ¼ into international, and ¼ into bonds, you would have outperformed the individual investor.  Well, that has been proven.  In fact, there was a study in 1984 to 2000 by Dalbar, which is the largest study in the history of the securities business, they studied 80,000 investors and they averaged less than 5.32.  Now the S&P over that same period of time did 16 + and the average investor did less than 5.32. 
Now there are always exceptions to the rules, I’m not arguing about it.  If you had used static asset allocation over that period of time you would have done approximately 10%.  After that period of time there was a thing called Tactical Asset Allocation.  What they did is they had some proprietary research where these people could study and that helped.  So they used Asset Allocation, but they used some proprietary research to reallocate the asset allocations.  The last form of asset allocation, which is the most advanced, is demographics.  And again, we found out there were four seasons to the economy.  Now the reason the asset allocation has never beat the market…it will never beat the market because only ¼ of its stocks will be out-performing the market at any given time.  So the problem with standard asset allocation is, you have to hold it for 70 years to average the market.  The problem is, most of us will not be here in 70 years.
 
Greg:  Very true!
 
Bill:  Now there may be some young distance, so for a person to have a standard, buy and hold strategy for 70 years is not going to exist.  That is your Standard Asset Allocation.  Companies like Mercer use that.  Mercer is not new.  Mercer’s just copying Asset Allocation.  That is the standard.  But I want to get back to the recession.
 
Greg:  Just before you do that, I’m going to “star five” and make sure we’ve got everybody on the call here…and make sure that everything’s running smoothly.  Okay?
 
Bill:  Okay.
 
Greg:  Everybody out there?
 
Yeah, okay.
 
Greg: Good, I just wanted to double check and make sure that we hadn’t lost anybody along the way.  I’ll go back to the star five.
 
Bill:  Okay, we’re back again.  Now, my statement is to you…the recession right now a great recession of this occurs once every century, and this came here.  Now, the question everyone’s asking me is  “Bill, if you knew a recession was coming, why in the world did you have cash?”  If we were a market-timing firm, we would have had everything in cash.  But the fact in life is, here’s where the market is: For many people, they’re down in the market.  If they move to cash and they miss the upswing, they’ll never get it back.  There’s 14 trillion dollars in cash right now in the market.  Most of those people will never make the upswing.
 
Greg:  What you’re saying is that they will miss…the timing will be critical and they’ll miss the timing on it?
 
Bill:  That’s correct.
 
Greg: That’s just based on a historical…
 
Bill: That’s historical.
 
Greg:  Okay.
 
Bill:  All right, if you’re good at dice and you’re good at gambling, you may want to really use that theory.  The next theory is: that you can go ahead and we move to bonds.  Well right now, if you move to bonds, you want to move bonds when inflation is high and heading down.  You don’t want to buy bonds when inflation is low and heading up.  All right now, the stocks have been beaten down.  Right now we have…now the next thing everyone says is that the PE ratio is way too high.  Well, that is true in an innovation cycle.  In the last gross cycle, the PE ratio was almost identical to the PE ratios we have in good stocks today.  So I want you to understand, in a gross cycle, the PE ratio will be higher than it will in an innovation cycle.  Now these are the things with research that we found out.  Now we’re down on the very bottom of the recession.  These are the conditions that are looking so favorable over the next three and a half  to four years.
 
Greg:  Okay.
 
Bill:  First of all, the first favorable condition is, you have all the baby boomers hitting all 8 cylinders at a time now.  The 48-50, the 51 thru 53, and the 59 thru 61.  They’re hitting that now.
 
Greg:  That’s 48-50…
 
Bill:  Forty-eight thru 50, 51 thru 53, and 59 thru 61.  Now, the rest of the people are still baby boomers, but these are the peaks.
 
Greg:  So this is a big chunk of the baby boomer market that is in a time spending mode?
 
Bill:  That is correct.  And they’re spending.
 
Greg:  And they are spending…that’s why consumer debt is high, lots of products are being purchased, they’re just not necessarily investing in the stock market right now.
 
Bill:  They’re still spending.  So what I’m saying to you is they’re still spending.  All right…that is the reason the economy is as strong as it is today.
 
Greg:  Okay.
 
Bill:  The No. 2 reason that we see for great growth in the next 3½ years, we have the echo-boomers or generation X.  Those people are entering between the 33rd and 34th
birthday.  That group is about 1/3…anywhere from ¼ to 1/3 of the size of the baby boomers.  They’re still sizeable.  They’re buying their first homes and they’re furnishing them.  Now, we’re very, very conservative in real estate prices.  You can buy a very nice 3 or 4-bedroom home, at least a 3 bedroom home, for $100 – 125,000 bucks.  They’re staying on the listings right now for less than a week.  They’re buying their first-time homes.  After these acu-boomers buy their first-time homes,  all right; No. 2, they’re going to have to furnish these.
 
Greg:  And then they start having kids.
 
Bill: Well, they already have kids…they’re furnishing now.
 
Greg:  Well, they’re going to have more kids.
 
Bill:  Well, they’re going to have more kids, but the big thing is, they want to be out of an apartment into a house.
 
Greg:  Okay.
 
Bill:  No. 3 condition…we have the lowest inventory in businesses that we’ve had in our lifetime.  The last time the inventory was this low was back in 1919…1922.  All right?  The companies, in order to grow, will have to increase their inventory.  That drives the economy.  All right? 
 
No. 4: We’ve had the worst evil thing that every happened to us in our life on September the 11^th.
 
Greg:  Yes.
 
Bill:  Okay?  Because of that, you’re going to see major defense spending for internal security.  All right?  And that major defense spending drives the economy, and any time you have mass defense spending, it drives the economy.  These are the four conditions that are driving the economy over the next 3 ½ years.  Now when is the market going to totally bottom out?  I don’t know.  All right?  Any anyone else tells you that, we don’t know.  We do know we’re in the bottom of the recession pot.  We’re looking right now…people say “Where you’re at.”  We do know that the institutional investors are in the market today, but there are short-term profit-takers, so we call it bottom fishing, Walter.  The market goes up, then it goes down, it goes up, then it goes down.  We believe that you’re going to have to see 3 to 4 straight negative days in a row to get rid of the short-term profit-takers before the road upwards is there.  The fourth quarter is looking as a positive quarter and then you want to put your seatbelts on for the next three years.  Now this is following the…
 
Greg:  So what you’re saying there is that the market will really take off at that point in time.
 
Bill:  Well, the market is.  Now the next thing is what sectors do you want to be in?  There are about 25 sectors in the Standard & Poors.  There are about four sectors that have done 75% of its growth.  So it’s very important, if you’re going to invest, to know which sectors you need to be in.  All right?  And those are put between pages 55 and 57.  I think…let me go on from there.  Tom McGarvey was at our last seminar…he came back to our view.  He probably can comment because  we shared a lot of this material.  We’re encouraging the dentists to come back for reviews because I think it will increase their knowledge at least 4 or 5 fold for people that have been here.
 
Greg:  Now what you’re referring to is that those Crown Council members that have been to your seminar can come back to the seminar to get an update?
 
Bill:  Yes.  ‘Cuz, in my opinion, education is the best…education won’t reduce fear.  Knowledge is the only thing that can take fear out of the picture.
 
Greg:  Well, and that’s what we’re all about here, even doing this or recommending that the Crown Council members get a financial education by going to your seminar.  You know, that is a first step to take.
 
Bill:  Well, they need financial education.  Am I biased to say that ours is probably the best?  I believe it is, but I’m biased.  I’m not going to try to tease you there.
 
Greg:  You’ve probably had a lot of Crown Council members that have been through it and I have never heard a negative response, but anyhow, I just wanted to make sure…moving along…yet a number of points that we wanted to cover today and I just want to make sure that we’re on track to move on and cover all those points.
 
Bill:  Well, let me move to the depression now.  Now again, I could give you an entire dissertation on the recession.  A great depression always follows a great recession.  Before a great depression you will have these conditions…low inflation, low taxation, low unemployment, high productivity.  All right?
 
Greg:  Mm-hmm.
 
Bill:  A great depression always follows a growth cycle.  All right?  Now after, when the baby boomer starts retiring, you’re going to see a major movement around 2009…we believe that you folks have a heyday at about 2009.
 
Greg:  So that’s when it’s going to peak?
 
Bill:  Yes.
 
Greg:  And then after that, watch out?
 
Bill:  Yeah.  If you were a squirrel and you knew the winter season was coming, and you were in the fall…would you go ahead storing as many nuts or just go ahead and do business as usual?  I’d store as many nuts as I could.
 
Greg:  Right, so what you’re saying is…2009 is the winter, so you’d better start preparing for it.
 
Bill: In the winter season this is what’s going to happen in the economy.  You’re going to have a deflation and you’re going to have a de-economy.  Now why are we going to have a deflation?  Well, first of all, you’re going to find that these baby boomers can’t stop their spending pattern.  There’s still some spending, but their earnings are not going to be there.  All right?  Well, always remember there are taxes.  Taxes are always low in low inflation.  Taxes are always high, okay, in a deflation or a high inflationary rate.
 
Greg:  Right.
 
Bill:  When the economy is good…low inflation.  When the economy is poor…high inflation.  It’s always going to be that way.  All right?  
Greg:  So in 2009 we’re going to start seeing higher tax rates?
 
Bill:  Well, let’s just be a businessman about it.  Okay?  First of all, the government is a spending machine.  Would you agree?
 
Greg:  Yes.
 
Bill:  When these baby boomers reduce their earning capacity, what is that going to do to taxes? 
 
Greg:  Well, they’re not going to have as much tax revenue.
 
Bill:  Well, they’re going to have to get it somewhere.  You’re an accountant.
 
Greg:  The only way they can get it is to increase the tax rate.
 
Bill:  Yes…it’s just a simple movement.
 
Greg:  So all of us on the call list have been socking money away in 401Ks or other types of deferred plans so that we can pay lower taxes when we pull it out.  That’s probably not going to be the case.
 
Bill:  Well, I’ve had a number of discussions with CPAs and I’ve won every time.  So you’re a CPA and I’ve talked to John Myrick, and you know, my whole point is…when the economy is good, you have low taxation.  When the economy is poor you have high taxation.
 
Greg:  Mm-hmm.
 
Bill:  Now when you have a bad economy, working Americans want to tax the rich.  You know what the definition of rich is in the U.S.?
 
Greg:  Give it to me.
 
Bill:  If you make more than $40,000 a year.  Every one of your dentists is classified as rich.
 
Greg:  Okay.
 
Bill:  They’re going to accumulate all the money in these retirement plans and they’re going to be classified as the “super rich” and the eco-boomer generation is going to blame us for creating all these problems…which is probably true.
 
Greg:  Mm-hmm.
 
Bill:  And they’re going to say it’s not our fault that you list us with this massive amount of debt structure.
 
Greg:  Yes.
 
Bill:  And they’re going to say, let’s go ahead and tax you.
 
Greg:  Yes.
 
Bill:  Where’s our money going to be?  It’s going to be tied up in retirement plans.  All right?  The easiest people to tax are dead people.
 
Greg:  Okay.
 
Bill:  So there are these new estate tax laws that you’re hearing about.
 
Greg:  Mm-hmm.
 
Bill:  I want you to be very cautious about them.
 
Greg:  So you’d better be very careful and have planned for your future so that you don’t get hit with some serious estate taxes that leave you with very little at that point in time…leave it to pass on to others.
 
Bill:  Okay, now I’m slowing down, I should be back to…let’s go to the third  (?)  What is the difference in gross money and net money?  Well, gross money is before you pay taxes.  Net money is what you have left.
 
Greg:  Mm-hmm.
 
Bill:  Let me give you the secret of the wealthy.  The wealthy pays taxes on the mustard seed rather than the mustard bush.
 
Greg:  Okay.
 
Bill:  If you were a farmer, would you rather pay taxes on the seed when you plant your crops or would you rather pay taxes on the whole crop when you harvest it?
 
Greg:  I’d probably pay it now and…
 
Bill:  You’re going to have to pay taxes somewhere.
 
Greg:  That’s right.
 
Bill:  The fact of life is, the very wealthy people do not have retirement plans.  It’s the working Americans that have this.  Now it’s very important to understand this.  When you get into taxable money,  all right…when the winter season is coming, at that period in time, probably you’re going to see probably corporate bonds do the best.
 
Greg:  Mm-hmm.
 
Bill:  Between 1929 and 1932 General Motors brought in all their bonds.  Reason?  It was a deflation.  They paid a premium for those bonds so that people who had those bonds did very, very well.
 
Greg:  Mm-hmm.
 
Bill:  But you understand, you want to buy bonds, okay, in the high arena, not in the low arena.
 
Greg:  Okay.
 
Bill:  So the bond rate will be higher around 2009…2010 and then when we go into deflation, these major corporations will start buying.  What most people are not aware of in the great depression, only 30% of the corporations in the U.S. went under.  What I heard was people jumping out the 13^th story.
 
Greg:  Mm-hmm.  You always hear the horror stories, but for the most part, a lot of companies were not negatively affected or not as dramatically as other companies.
 
Bill:  It is critical at that period of time that you have the greatest tax efficiency in your life.  That is where you want to reduce your taxes.
 
Greg:  Mm-hmm.
 
Bill:  Now when you switch from equities to bonds, you’re going to have a major tax problem.
 
Greg:  Okay.
 
Bill:  Now you must have vehicles that you can switch from equities to bonds at a very low tax rate or zero tax rate.  That is critical.  Next, when you use your money, okay…this whole thing when I was coming out of college, is you’re going to be able to retire in a lower tax bracket.
 
Greg:  Mm-hmm.
 
Bill:  Humbug…that doesn’t happen.  The average automobile today runs between $25,000 and $30,000.
 
Greg:  Yep.
 
Bill:  …but 10 or 12 years ago it was around five.  Ten or twelve years someday it’s going to be $100 to $125,000.  You’re going to be taking ‘em out of your retirement plans, which is going to increase your tax bracket.
 
Greg:  Right.
 
Bill:  This is the fallacy in standard retirement planning, but no one wants to put that up.  Okay?
 
Greg:  Mm-hmm.
 
Bill:  Now, next is…would you want to get more money or get a higher rate of return?  This is very important in this type of planning.
 
Greg:  Okay.
 
Bill:  Whenever you look at mutual funds, I’m in the fourth ditto mark, is that okay…so I’m just running down these as you gave them to me.
 
Greg:  That’s fine, yep.
 
Bill:  All right, first of all, mutual funds are interested in rate of return.  I’m not interested in rate of return, I’m interested in making more money.  Give me an example.
 
Greg:  Okay.
 
Bill:  Let’s assume you make 50% one year and you lose 40% the next year.
 
Greg:  Mm-hmm.
 
Bill: It shows that you’re making roughly a 10% return.
 
Greg:  Okay.
 
Bill:  But you’ve literally lost 10%.
 
Greg:  Okay, run through the math on that.
 
Bill:  Okay, you take $100,000…at 50%, you’re up to 150.
 
Greg:  Right.
 
Bill:  You lose 40% the next year…you have lost 60.
 
Greg:  All right, so now you’re down to 90, so you’re down 10.
 
Bill:  But my math says you’re up 10.
 
Greg:  Your math says you’re up 10 percent, but in reality you’re down $10,000.
 
Bill:  Now this is what everyone is forecasting…when you look at mutual funds, they always forecast their rate of return.
 
Greg:  Right.
 
Bill:  They do not forecast their total return.
 
Greg:  Mm-hmm.
 
Bill:  Now this is very important…when I see people saying, well I’m making 30 or 40 or 50% in the market.  They’ve always said this.  So you must understand, there’s a major difference in making money or getting a higher rate of return.
 
Greg:  I agree.
 
Bill:  Okay?  The next one was…and I’ll move down to it…I need to know about taxation during my retirement plan.
 
Greg:  Retirement year’s…right.
 
Bill:  Well, here’s where we’re at.  Very simply, let us assume that you’re living on $100,000 a day…this is really conservative for the dentists, but let’s say we’re at
$100,000.
 
Greg:  Mm-hmm.
 
Bill:  In about 20 years we’ll need $350,000.
 
Greg:  Okay.
 
Bill:  You tell me you’re in the same tax bracket?
 
Greg:  Definitely not, and especially based on some of the things that you’ve said today.
 
Bill:  You can’t be, because most of your dentists are going to be retiring during the depression period.
 
Greg:  Right.
 
Bill:  And that means…listen…
 
Greg:  Give me an idea of the type of tax increase that you’re talking about.
 
Bill:  Well let’s just go back to 1980 tax rates.  In 1980 if you made $45,000, you know what your tax bracket was?
 
Greg:  Help me out.
 
Bill:  Forty-nine percent.
 
Greg:  Okay.
 
Bill:  Now I’m just talking about a recession, not a depression.  After the great depression, tax rates went up to 75%.
 
Greg:  Okay.
 
Bill:  Okay, that’s a huge tax burden.
 
Greg:  This is back in the 30’s.
 
Bill:  In the 30’s.  If you go study taxes in the 30’s,  they started low and then they skyrocketed up to a 75% tax bracket.
 
Greg:  And in the 80’s they went up to 49%, but that was just a…
 
Bill:  They were up to 70% in the 80’s.
 
Greg:  Okay.
 
Bill:  You had a 10-tier tax bracket in the 80’s.  Now naturally, you did have some deductions.  I will agree with that.
 
Greg:  Mm-hmm.
 
Bill:  But listen, when you’re making 45,000 and you’re in a 49% tax bracket, you telling me that’s happy?
 
Greg:  No.
 
Bill: All right.  So I’m just telling you, I just went through the last recession.  I mean the last innovation period when we had high inflation, and your taxes were up.
 
Greg:  And so what you’re saying is that in the next depression, even if you’re making $300,000, half of that could go in taxes and then you’ve got the inflation factor to take into account too, so you may not have a lot to live off of.
 
Bill:  Well, I don’t think you have too much super inflation in the depression, but you’ll have massive taxation.
 
Greg:  Okay.
 
Bill:  All right? 
 
Greg:  Mm-hmm…now you mean the inflation between now and then that brings you up to, you know, that level.
 
Bill:  Well, it’s just going to eat you up.
 
Greg:  Right.
 
Bill:  Okay, you’ve got to plan…inflation has averaged since 1924…3.62.  The inflation from 1980, even today, is averaged 4%.  Now there’s times and periods that we all know that we’ve had inflation at 12 to 14%, and today it may…in Southern California it’s 4 ½.
In Ohio, it’s around 3.7, so again it’s varying in each area.
 
Greg:  Okay.
 
Bill:  But anyway, I do know…I’m around San Diego, so I know their inflation rate’s about 4½ right now.
 
Greg:  Okay.
 
Bill:  Okay now, let me go to the next one.
 
Greg:  Mm-hmm.
 
Bill:  I’m trying, for the sake of time to stay on schedule.
 
Greg:  And I appreciate that.  We still want to have some time for questions and answers.

Bill:  Okay, is my retirement plan a lawsuit in the making?  Well here’s the problem with standard retirements plans.  First of all, most retirement planning is called annuitization.  And the insurance company created an annuity, it was the first retirement plan created in the United States.  Then corporations come up under a risk and they created a pension plan and a pension plan works just like an annuity, basically it’s a self-insured annuity from a company and they’re going to give a guaranteed income for life.
 
Greg: Yeah.
 
Bill:  And they know certain people are going to live and certain people are not going to live longer, so the people that live longer, they win…the people that don’t live long, they’re not around to get it.
 
Greg:  Mm-hmm.
 
Bill:  And that’s the way I picture this.  Well, first of all, most pensions were created, but you had to have 20 or 30 years of service before you were qualified.
 
Greg:  Okay.
 
Bill:  Well, in reality, only 7-8% of Americans ever got a pension.  So Aretha K. Moranin said, “This is unrealistic.”  And because of that…all right?…you guys are going to have to pony up.  That is where, unless you’re working with a major corporation, you don’t see pensions.  All right?
 
Greg:  Okay.  So there’s small businesses that’s just not economically feasible for that.
 
Bill:  Well, you still have a few of them around.
 
Greg:  Mm-hmm.
 
Bill:  Okay, they’ll talk you into it.  And the problem is, when you’re in a pension account, and if you’re in a small business, you have a defined benefit so you can either have what we call based upon age or income.  So now, if you go into a pension and they start you into a pension, they say, “Okay, well, let’s give you a defined benefit or a defined contribution.”   Well, if you’re in a defined benefit, if you’re younger, that is to your benefit, if you’re older, it is better for a defined contribution, because you can put in more money.  Well that works for a short period of time.  Well, then you’re employees age, and then this defined contribution isn’t going to help you out as much as you thought it was.
 
Greg:  Okay.
 
Bill:  So I want you to understand there are some major loopholes in defined benefits and defined contributions.
 
Greg:  So what are you supposed to do?
 
Bill:  You know, most people are using one of those…now they’ve moved to a thing called a 401K plan.  It’s another definition of our profit sharing plan.
 
Greg:  Mm-hmm.
 
Bill:  And that has reduced the liability, because these companies could not really do an adequate pension.
 
Greg:  Okay.
 
Bill:  So a 401K is a defined profit sharing plan and you can allow employees to start investing in equities.  All right?
 
Greg:  Mm-hmm.
 
Bill:  However, the Department of Labor put a 404C law in there…a 404C regulation.  And that 404C regulation states that you must give adequate financial education to your employees or you can be held legally and criminally liable.
 
Greg:  Okay, so let’s go a little deeper on that.  Define the education that you must provide for them.
 
Bill:  Well, the problem is, they don’t define that.
 
Greg:  Okay, what you’re saying is that you get your employees into a 401K and it doesn’t perform like someone else’s 401K and they can say, “Well you didn’t tell me this,” and therefore they can sue you?
 
Bill:  Okay, let’s give you a vivid example, all right?
 
Greg:  Okay.
 
Bill:  Let’s assume that John Henry and let’s use Dennis Day and Dennis Zee…as a or let’s use Dennis Day and Dennis M.  I don’t like the word Zee.
 
Greg:  Okay.
 
Bill:  All right.  They have a 401K plan.  You and I are employees.  You are an employee of Dennis Day and I am an employee of Dennis M.  We put in the same amount of money into our retirement plan.  At the end of the retirement, your retirement plan is worth twice as much as my retirement plan.
 
Greg:  Yes.
 
Bill:  Now I don’t know any different, so I just assume that’s the way it is.  At a retirement meeting, we meet together and you’re happy…because you get twice the income I do.
 
Greg:  Yes.
 
Bill:  I get half the income you do.  How do you think I feel?
 
Greg:  Not very good.
 
Bill:  Not very good…now right behind your shoulder is called Walter, the litigation attorney.  And he’s smiling with his bright teeth and he’s looking at us…and he’s prospecting and he says, “Well, um, Bill, are there any other employees that your dentist has not given financial education to?”  I said, “Every one.”  That is called a class action suit in the making. 
 
Greg:  Okay.
 
Bill:  Now as a dentist, when you get a suit against you, you lose either way.  You have to go out and get the best attorney you can find.  Is that true?
 
Greg:  Yes, mm-hmm.
 
Bill:  Now you’re talking, typically,  now between 200 and 500 bucks an hour for those types of attorneys.
 
Greg:  Not to mention the amount of time it takes out of your schedule to deal with it.
 
Bill:  And your risk and your fear.
 
Greg:  Right.
 
Bill:  All right…because you’ve never been sued before.
 
Greg:  Right.
 
Bill:  You go home and tell your wife…”Well honey, I’ve got good news and I’ve got bad news.  We’re being sued, okay, both as a corporation and as an individual.”  And she says, “What does that mean?”  “Well that means if we lose, we can lose everything.”
 
Greg:  Mm-hmm.
 
Bill:  Wife’s not happy.
 
Greg:  No.
 
Bill:  All right…now the point was, in a 401K plan, you are open to that.  I have shut down my own 401K plan because when I saw that I did not want to have the risk.
 
Greg:  So basically you leave the employee on their own to provide for their future…is that the best thing?
 
Bill:  Why don’t you bonus it to them?
 
Greg:  Okay.
 
Bill:  Let them put it into their own Roth IRA…or they can put it into their own IRA, but let them make their own investment choices.
 
Greg:  Okay, put it within their control.
 
Bill:  Yes.  If you’re in a 401K and even if you let your employees make their own choices, you’re still held responsible for giving them financial education.
 
Greg:  Okay…I think that’s enough said on that point.
 
Bill:  All right.  Now next of all, what can I do to protect my retirement plan…you know, I look at this retirement plan as a lawsuit…what can I do to protect my retirement plan?  Well, first of all, retirement plans are albatrosses to planners.  At the end of your time, retirement plans are wonderful in the accumulation stage, but they have terrible problems in the distribution stage of your life.  All right?  They have a tendency to never to tell anybody about this…they’re really wonderful in the accumulation, but in the distribution phase they are a terror, and in estate planning you have a problem.  Well, here’s what you do…what we’re doing with an awful lot of the dentists.  We create either two different shells for their retirement.  We use a Family Limited Partnership, or we use an irrevocable trust.
 
Greg:  Mm-hmm.
 
Bill:  Now there are other choices, but I’m just giving you the two that are most popular.
 
Greg:  Okay.
 
Bill:  If you use a Family Limited Partnership, if I come to Greg, and I say “Greg, alright, if I allow you to control your money as long you live, do you mind whether you have the ownership or not?”
 
Greg:  As long as I’ve got control, I don’t need ownership.
 
Bill:  As long as you have 100% control?
 
Greg:  That’s right.
 
Bill:  Well, here’s what we do.  In a Family Limited Partnership we can go ahead and give out 90% of the ownerships to the children to 95.
 
Greg:  Okay.
 
Bill:  You folks, you and your wife, Greg, you maintain 5% of the ownership, but you have 100% control during your life.  Now, for litigation purposes, if someone sues you, the maximum they can go after is that 5%.
 
Greg:  Okay.
 
Bill:  Is that protecting your retirement plan? 
 
Greg:  That’s some protection.
 
Bill:  Now that’s out of litigation.  Even in some cases, the IRS has a terrible time getting it.
 
Greg:  Okay.
 
Bill:  It’s far better than anything you’ve seen, so we can make retirement plans litigation proof, but your standard retirement plan, they’re not in an FLP…so that means they’re going to be exposed.
 
Greg:  Well, and I’m sure there’s an number of other things that you can probably do, but that in itself sounds like some pretty solid protection.
 
Bill:  Well, we’re just trying to have protection, because I’ve seen people lose their entire retirement accounts from frivolous litigation.
 
Greg:  Right.
 
Bill:  Anyway, I think those were the areas you asked me to cover.
 
Greg:  They are, and I really appreciate it…and I think what we’ll do right now…just before we bring everybody on the line here…is let everyone know that you’ve just got one more seminar this year, which is November 21^st to the 23^rd , and if anyone is interested in that, to further their financial education, please contact me. I will be sending out an Email as follow-up to this.  I’m also trying to do something which is a little bit different.  We’ve recorded this conversation and I’d like to…I’m trying to get it put onto a real audio so I can send it to all the Crown Council members and then even if they didn’t get a chance to participate in this call, they’ll have an opportunity to hear it by clicking on their computer and listening to it, and I’m also going to transcribe this so we can send it out in the form of an Email.  But that being said, I’d like to…did you have anything to say before we let everybody in on the question and answer ,Walter?
 
Walter:  That makes us slow guys happy that you’re going to record it.
 
Greg:  In case you have to listen to it again.
 
Walter:  I’m still worried about No. 3 when we got to No. 5.
 
Greg:  Let me open up the lines here.
 
 Hello.                                                                                                    
 
This is Bill Dobson in Monterey.
 
Greg: Hi Bill…how are you doing?
 
Oh good.
 
Hey, Bill Nelson…are you planning on having a seminar at the Crown Council Annual Event this year in Orlando?  Are you planning on doing a one-day course before…would you make a comment on that?
 
Bill:  I’d like to.  What we’ve…we’ve done it for two years, I hope to do it this year.  I hope to bring in other people.  We’re going to have a couple of CPAs and a J.D.  Alright, and we’re going to have some different type courses than what we had the last time, but it works out very well, Bill, so we’re hoping to do it the day before.  Okay, so we’ll be sending you out our schedule and our agenda.
 
Sounds great!
 
Greg:  Any other questions?
 
Bill: I think something that would help this group…Tom McGarvey came back for a review.  I don’t know if Tom’s on or not.
 
Tom:  I’m here.
 
Greg:  Okay Tom, could you share, you know, your knowledge level the second time through vs. your first time?
 
Tom:  Well, I don’t know how many people are on or how many have worked through this the first time, but I went home with kind of a headache the first time.  And the second time, the pace was manageable in my cognition of what was going on, and the one-on-one time I spend with Bill, and also hearing Walt was…it was reassuring.  I think everyone’s in a bit of fear of emotion right now and I was definitely that way when I went back there.  And it kind of cleared out a lot of things and it set the emotions into rest, and yet, just realizing that we have a strategy and there is a plan, and right now there’s some turbulent waters, but just sit still and trust it.  And I think the big thing was that Bill ran through the scenarios for me…if I stopped where I was, and it gave me a lot of comfort because I had a lot of doubt about that.  Just with all the fears, they created doubt, so it was a very worthwhile experience for me, personally, and I certainly would encourage anyone that’s in a lot of fear and doesn’t know…you know, you feel like you’re between a rock and a hard spot.  You can’t do this, you can’t do that, but I think this is a very good time to get more education and re-solidify the strategy and the direction that you’ve made a decision, and then also to re-define the relationship of trust with Bill and his organization.  So that’s basically what I could say.
 
Greg:  Thank you.  Bill…
 
Yes.
 
I’ve got a quick question for the younger doctors that there’s only maybe a 7-year window of time… before this depression.  What can the guys do that have not put a whole lot of money aside?
 
Bill:  Well, the first thing you do is we need to look to say…how much do we have in lazy dollars?  In many of you there’s a lot of lazy dollars that you’re not even aware of.  And how can we put lazy dollars into effect that can improve you?  And so first of all, we look at your budget, we say okay, where are our lazy dollars that could be working for you?  And for many of you…let me give you a good example.  To keep it short, I got my veneers from Jeff Gray.  During the period of time that I went with Jeff, I had…what do you call that?  I had 3 root canals.  This was not an enjoyable experience.  If I would have known I needed 3 root canals to get the veneers, I probably would have questioned whether I would have had the veneers done.  I’m very happy to have the veneers done, but I did not know, and neither did Jeff know that I was going to have to have many root canals.  My point was…I’m going to be able to find your root canals; you probably don’t know they’re existing.  There are many times you have lazy dollars that you’re not even aware of, whether it be tax deficiency or growth deficiency.  And by doing that, you can find tremendous dollars to help you taxation-wise.  I hope that helps.
 
Yes.
 
Walter:  I like that, but I also like the idea that since we do have these years on us right now where we’re going to have this good time, we need to really be doing more dentistry, because there’s plenty of money out there to pay for it.
 
Bill:  Well, this is your best time of growth in dentistry, Walter.
 
Walter:  Right now.
 
Bill:  Of all times in the dentist’s career, this is your best expansion movement.
 
Greg:  And from now until 2009, you’d better make hay while the sun’s shining and sock away as much as you can.
 
Bill:  That’s right, because all of us have a tendency when things are kinda…when we’re kinda scared, we slow down.  And right now is the time to take all of the things we’ve learned about getting more business because half the people don’t even go to the dentist and 80% have gum disease, so we know there’s plenty of business out there, so let’s go get it.
 
Greg:  I agree.
 
Walter:  …and let Bill advise us on what to do.
 
Greg:  Bill, why don’t you just kind of give us an idea of what…the seminar that you have is a 3-day seminar or 2 1/2 days, right?
 
Bill:  Yes.
 
Greg:  And you’ve covered a lot of things that we’ve talked about today, but a lot more than that, …really it’s a complete picture.
 
Walter:  Bill, don’t you give us a guarantee on that?
 
Bill:  Well, here’s what I do.  First of all, this…if you’re coming to the seminar, I charge $2500 for the seminar.  I’ve given everyone a private session.  If you do your paperwork and you come out, I will show you how to save $100,000 in taxes in your retirement… and if I can, you don’t even pay for the workshop.  Now if you don’t do your paperwork and that, then Walter, I’m not obligated to help you out on that side.
 
Greg:  Now when you say, “do your paperwork” for you to sit down and have a one-on-one conversation, you have to have an understanding of what their situation is like, and so you require them to bring down that information.  There’s no obligation or anything, but for you to give them good advice, you need that information…is that correct?
 
Bill:  Yeah, I’m not going to give you a guarantee unless I have the information so I can show you how to save money.
 
Greg:  Well, that makes sense.
 
Bill:  Does that makes sense to you?
 
Greg:  Yeah.
 
Walter:  Just show me how to save $100,000 and I…
 
Bill:  I’ll show you how to do the taxes.  That is not difficult.  But my statement to you is…that every time you save a tax dollar, that’s almost a two-to-one growth dollar.  So the point was, we’ve got to worry about tax efficiency.  If we don’t, it hurts us.  But, you know, my statement to you is I’ll let ‘em all be the judge.  I’ll give you an excellent 2½ day education.  We have had no one negative with the education.  At the end of that session, Walter, I have offered to let anyone come in to a private session.  I normally charge $5,000 for that session.  I’m leaving that cause for the dentist.  At the end of that time, they have the election to go ahead and do this on their own or they could use an advisor like us.  But that’s their story…does that make sense to you?
 
Greg:  Yeah.
 
Bill:  I don’t think we can be any fairer, but what I’m recommending the dentists do is get financial education.  Now whether you use us as an advisor or you use somebody else, that’s not the critical factor.  The critical factor is to get financial education, because it’s the only way that going to set you free.  Now, in my opinion, 2½ days out of your lives, if it could change your financial future, Walter, is worth a lot more than 2500 bucks.
 
Walter:  I understand.
 
Greg:  Bill, with all the layoffs you hear about right now, how does that correlate with the increase in the consumer spending or the continued spending?
 
Bill:  Well, the layoff still is less than 5%, so if you see the economy, that’s still considered very low for the economy.  There are sections in the country that has higher layoff rates than the other…and there are different sectors, I mean, there are different areas in the U.S. and there are different sectors.  But typically, there are a lot of people there that’s being hired or a lot of people saying they’re being laid off.  Here’s an interesting tidbit.  You remember when the President told all the top 100 chief executives to go back and reseat their balance sheets?  Are you aware that 8 of the 10 largest companies came back with a better balance sheet than what they did before?  You normally don’t hear that in the newspaper.  They don’t tell you that.
 
Walter:  Well, the newspaper is looking for bad stories now.
 
Bill:  Well, there are 8 out of 10 of the largest corporations that went back, came back with a positive reinstatement.  But what you hear is everybody’s cheating out there.  Well, that’s not true.  You have some people in dentistry that cheat.  You’re always going to have 3 or 4 percent of people that are illegal.
 
Crowns:  My wife and I each have a company.  We have the ability to put away $44,000 in a 401K, but you’re saying save the tax on this seed(?) and forget it.
 
Bill:  Well, if you ever check out a Roth IRA, a Roth IRA is far better than a regular IRA.  The problem for most small business owners, is you can only put in what…$3,000 or $3500 depending upon your age.  It’s always better to have your money tax deferred and tax free rather than pre-taxed and tax deferred.  All right?  Especially if you’re retiring in higher tax brackets.  Remember, when you sign an agreement with the government, you have made them a partner of your money.  A retirement plan is not a tax shelter, it is a pre-taxed, tax deferred plan.  It is more tax efficient on taxable money, but it is not what’s classified as a true tax shelter.
 
Greg:  How do you unravel a 401K?
 
Bill:  Well, you have to have an attorney.  You can stop, but you need to have it done right because you’re probably the trustee.
 
Greg:  I’d like to mention that at the seminar, Bill’s not the only one presenting.  We also have Travis Bowen who is out of Salt Lake City, who has been providing a lot of very competent legal advice and counsel that has teamed up with Bill to give you an iron-clad plan for the future, so there’s no cracks in your armor…and he can help with those sorts of things.  So, you know, it’s not just the financial part of it, you know, we’ve got the protective part of it that we’ve been fortunate enough to have Bill put together as a team to give a complete plan to the Crown Council members.
 
Bill:  You need good financial legal help.  We don’t care whether you use Travis Bowen as an attorney or you use your own attorney, you need some good legal coordination here.
 
Greg:  Okay, we have time for one more call, or one more question.
 
Bill D.:  Greg, Bill Dodson, Monterey…to Bill Nelson.  Hey Bill, for all the callers that are on that have already went through your course, we have already done our deal with Travis Bowen, Asset Protection, and we’re in the midst of everything right now, and one thing we were going to do is refinance our house to pull equity out to place it into the market.  Now, I halted doing that…I don’t know how many other people with you that are in the middle, didn’t do that yet because of the market.  Am I right in taking that breather right now to see where things fall…would you comment on that?
 
Bill:  You’re probably right at this moment in time.  Understand, what we want to do is that home equity.  What I do think everybody should do with their home equity is to get a line of credit on their home for protection.  Remember, your home is an asset.  You don’t want to touch it.  But remember bankers are not asset lenders, they’re income lenders, Bill.  If you ever needed cash, that equity in your home is basically very inflexible.  That is where we use lines of credit that can be helped immensely in your business world.  A line of credit…let’s say you’re refinancing your business.  You’ll probably get more favorable interest rates on your home than you would in your business lines.  And that’s where you can us your home equity to your benefit.  Does that help?
 
Bill D.:  Okay…mm-hum.
 
Greg:  Okay, well that’s great…we appreciate everybody coming in on the call and…
 
Walter:  On a positive note, I thank you Bill, for your help and everything and on a positive note, I don’t think we’ve seen a better time…I think we’ve got the golden age of dentistry right now and I’d like to take advantage of this next 20…how many years have we got Bill?  Seven? 
 
Bill:  You’ve got about 9 years before we have a collapse down.  But I’m saying to you, you know, right now you’ve got baby boomers at their maximum spendable level.  Okay, I mean, I’m just telling you, you’re in the cream world of baby boomers.
 
Walter:  Okay…call us if you need us.
 
Thank you.
 
Walter:  Thank you, Bill.
 
Greg:  Yeah, thanks a lot, Bill, we really appreciate it.
 
Walter:  Thank you, Greg.
 
Greg:  Okay, Walter…I’ll talk to you tomorrow.
 
Walter:  Okay, bye.
  
If you would like more information about the Operation $$$ Independence seminar Dayton OH on November 21-23 please contact Greg Sneyd at 800-460-3838 x106 or email gregs@dentalsuccess.net.