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The best entitlement program

Although it was 7:30 Saturday morning, my Texas Lutheran University students were ready to go. I appreciated their discipline.

We were headed to Austin for the Century Management annual review. It was a fantastic opportunity to catch up with Arnold Van Den Berg and his crew of super investors to learn from their 40 plus years of experience.

It is inspiring to be around Van Den Berg and his team. You cannot help but get caught up in their enthusiasm and intellect. The 74-year-old Holocaust survivor remains one of the most positive people I have ever met.

My students have observed Van Den Berg's success with great interest. As such, it was no surprise when they found out during the meeting that he was going to be profiled in the new book "The World's 99 Greatest Investors."

The ageless investor discussed a variety of issues facing investors and society today. Van Den Berg said while the official unemployment rate is about 7 percent, there are better metrics available. The "U6 Unemployment" figure stands at 13 percent, the worst in more than 30 years and nearly double the official rate. Unfortunately, with such high unemployment, it is hard to have meaningful economic growth.

Furthermore, Van Den Berg discussed our nation's debt, noting the decline of all great empires occurred from too much debt. Once a nation's debt to total productivity (GDP) exceeds a threshold of 60 percent to 80 percent, warning bells should be blaring. Currently, the U.S. stands at 100 percent debt to GDP. Only five countries have ever survived 100 percent or more debt to GDP. This should be reason for severe concern.

In addition to "official" debt, there are still "unfunded" obligations associated with Medicare, Medicaid and Social Security.

Ten years ago, the estimate for these stood at $39 trillion - today, it has ballooned to $84 trillion.

While Van Den Berg discussed these facts, I could see the look of concern on many in the audience.

Despite recognizing the "debt elephant in the room," Van Den Berg reassured the audience there are many positives, and money can still be made in all markets. However, doing so requires discipline, patience, the ability to understand value and the willingness to hold cash - even when unpopular.

Among the positives, Van Den Berg highlighted low-cost natural gas. The U.S. has 100 years of proven supply, and drilling times to access valuable reserves have been cut by 38 percent. This energy revolution has placed the U.S. as the top oil and gas producer in the world. Cheap energy has increased disposable income for the average family by $1,000 per year and is expected to continue to improve for the next decade.

Cheap fuel is also aiding a manufacturing renaissance along with technological innovation from robotics, artificial intelligence and nanotechnology. For the first time in decades, global companies are returning operations to U.S. soil to take advantage of these opportunities.

Finally, Van Den Berg remarked that while real estate has stabilized, it remains affordable.

As the audience assessed the pros and cons of the economic landscape, Van Den Berg offered a few other thoughts.

He said, "The key to the future is jobs. We cannot tax our way out of our problems, but we can grow our way out." He then added that "jobs are the best entitlement program as they produce taxes, consumption, health insurance, pensions and build independent people of character."

Given the explosive job growth and economic prosperity in Texas, it certainly appears that Van Den Berg's beliefs resonate across the Lone Star State. Other states would be wise to follow suit.

As the day wound to a close, an audience member asked why Congress fails to understand the importance of jobs. Senior Portfolio Manager Stephen Shipman quipped that "Congress is too busy trying to keep their own jobs to worry about creating ones for anybody else."

It certainly seems that way.

Dave Sather is a Victoria certified financial planner and owner of Sather Financial Group. His column, Money Matters, publishes every other week.

Originally published November 5, 2013 at 5:15 p.m.