Friday, September 30, 2011

Why A Solution Escapes Us

Here is a Link to a reality that is little appreciated let alone comprehended. It is a rather long winded piece. To quote the articles main thesis:

The Misconception: When your beliefs are challenged with facts, you alter your opinions and incorporate the new information into your thinking.

The Truth: When your deepest convictions are challenged by contradictory evidence, your beliefs get stronger.

If you have ever been in a three hour discussions over several beers, you’ll know what I mean. By the end of the night, both of you are more ensconced in your personal beliefs. I use to enter into these discussions figuring that I could change the way people think, and by the end of the night, nothing had changed, but I hadn’t realized that. I’d figured that I had moved them somewhat. Now I know different. Don’t think for one minute that any argument you have, will ever change another person’s opinions, it will only push them to reaffirm and embrace their deep down beliefs.

My grandfather told me way back that discussions around politics and religion were a waste of time, you weren’t going to change anyone’s mind and I tend to agree with him now.

For politics, Congress comes to mind. There is no common ground anymore. Discussions seem to be rally around the flag parties. No mater whose talking, there is a flag behind them. Kind of reminds you of the Nazi party, with flags everywhere. Of course their mission statement was “Let’s get patriotic and kill someone.” It worked great, the three beer arguments just disappeared. If you weren’t paying attention you ended up on a cremation list for the following week.

With religion, the idea that a religious body can preach death and destruction to infidels runs against the grain of decency of everyone in the United States. Of course Allah’s 60 virgins as a reward, is worth it if you buy the whole package. It just goes to show that you can pimp virgins in the afterlife and have takers grabbing a number and dying to wait in line—maybe dying after a wait in line.

What we are looking at, is a world ready for war. Arguing isn’t going to cut it; people are willing to die to convey their beliefs on the assumption that the other party isn’t that gung-ho. The Funny thing is, both sides have no concept of how it will end.

What we need to examine, is the fact that just about everyone up to now, has been getting what they want out of life without compromising their beliefs. That is beginning to change. The economy has been thrown into a dumpster. And if you think about it, people with money can afford to have morals and scruples; lose your wealth and you’ll find how unaffordable principles and ideals are. Political beliefs and moral concepts do not feed a family. We can see the effects of that in the Middle East right now.

Thursday, September 22, 2011

The Fall and Rise of Greece

Greece is in the middle of political turmoil. It has to move in 4 different directions at once; cut spending, cut benefits, increase taxes, and borrow from the IMF.

The population as a whole has nowhere to turn with all of the political rhetoric, and posturing. Any faith they have had in their Democratic institutions, is gone. In the coming weeks, look for a military takeover of the country.

This would solve all of their problems. Repudiate the debt, go off the Euro, and eliminate any government obligations to present retirees. They will get Greece back to work. The youth will be employed in the military, and since the debts will be gone, reasonable life can begin anew. It’s a little like Iceland, but in this case, it will revolve around military, not civilian rule. With control of the currency, they would be able to offer some sort of retirement benefits to the old, but don’t look for those sacred government pensions of before. You can be nice to old people, but they are too old to do any real harm without the right to vote. Greece will solve its problems and the outside world will not like it.

The IMF and the Federal Reserve think that they can increase world debt and solve the world’s financial problems. They have tied the hands of the politicians; elected officials will be the scape goats for the public anger.

No European country is paying any real money to fix this mess. A dictator will clear out the smoke and mirrors and offer immediate results. For a Greek to wake up and find out that all of their debts are gone, now that’s a bank holiday! Look for a new Greece; it’s a solution that will work for their country. Meanwhile Tim and Ben (the unofficial heads of the IMF) will be prescribing Epsom salt enemas for the rest of the PIIGS and moving them closer to the fan.

Thursday, September 15, 2011

The DOWnward Slide

The Dow is at 11000 and its value represents the increase in value from way back in 1898, when the DJIA was started. It is a great little indicator; it gives the investor some perspective on where he has been and how far he has come. There is one major problem; the index has lost all perspective. It’s up and down movement don’t display current gains and losses; they reflect the historic gains and losses from when the average started.

A little understood concept, stocks bought and sold on Wall Street have nothing to do with the companies that own them. If an investor buys IBM stock, IBM doesn’t give a damn about the transaction. Upon the investors purchase, the transfer agent (another process) notifies IBM that there has been a transfer of ownership of shares to someone new. IBM makes a note that they have a new owner with an address to pay dividends to and also send proxy voting ballots when necessary. Of course if you buy 10 million shares, that’s a horse of different color.

At the present dividend rates, the Dow 30 Stocks are priced well and support their dividend rates. This is their only link to the real world. Stocks out there that pay no dividend are not linked to anything other than the greater fool theory. The South Sea Company bubble of the 1700’s reminds me of Google today (fabulous riches awaited the “well informed” investor).

Where is the money made on Wall Street? It’s in commissions for buying and selling. So a high volume day is one that generates lots of earnings (there is a buy and sell commission for every trade). The question everyone asks on Wall Street is; “How do you make a million dollars in the market?” The answer still is, “Start with two million dollars.”

What will happen to our market in the future? Probably it will be similar to what happened to Japan; their market went from a high of 39,000 in December of 1989 to 8,500 today. It took twenty years, to get there.

When times are tough, there comes the need to raise money for survival. The natural instinct with financial investments is to sell the good stuff and keep the dogs—in the hope they will come back. Of course when things get real bad, everything gets doggy. All of our retirement fund managers are doing just that, holding on to the dogs. It’s the only way for a manager to preserve his job. Sell and you will have nothing left to manage. Investors will move to "better performing funds."

Have you ever noticed that people run out of money very suddenly and become bankrupt (Bernie Madoff comes to mind)? In reality, it is a very slow process that reaches a point to where the individual gives up—that’s the sudden part of it. They really made no mistakes, it’s just that the financial rules changed over time and they didn’t adjust accordingly. They expected the old rules to hold firm.

How will this all end? The stock market is just like the real estate market. With one minor difference, when your neighbor sells his stock, it determines the present value of yours. There is no jingle mail with stocks. Watch for a big drop in stocks not supported by a dividend or ones that cut their dividend.

Of course the downward slide of your stock equity in non dividend stocks will be invisible. The Dow 30 will be untouched. Everyone is investing in exotic trades with more zing (index funds come to mind).

Bernanke and Geithner claim the damage from the PIIGS has been contained while the Treasury is paying zero interest in spite of the 8% inflation rate. This financial Ponzi scheme is worse than the housing crisis back in 2006. It's a little like using a hooker as a last chance sperm donor; it kind of works for all the wrong reasons.

The stock and bond markets are the last game in town, gather 'round and faites vos jeux.

Tuesday, September 06, 2011

Things Are Getting Better?

The NY Times ran the following in Monday's paper
US Postal Service Nearing Default as Losses Mount

The United States Postal Service has long lived on the financial edge, but it has never been as close to the precipice as it is today: the agency is so low on cash that it will not be able to make a $5.5 billion payment due this month and may have to shut down entirely this winter unless Congress takes emergency action to stabilize its finances.

“Our situation is extremely serious,” the postmaster general, Patrick R. Donahoe, said in an interview. “If Congress doesn’t act, we will default.”

In recent weeks, Mr. Donahoe has been pushing a series of painful cost-cutting measures to erase the agency’s deficit, which will reach $9.2 billion this fiscal year. They include eliminating Saturday mail delivery, closing up to 3,700 postal locations and laying off 120,000 workers — nearly one-fifth of the agency’s work force — despite a no-layoffs clause in the unions’ contracts.
The idea of laying off 120,000 workers, closing 3,700 locations and eliminate Saturday delivery kind of makes you wonder. If there is a light at the end of the tunnel, what is it, another train? Congress is expected to fix it? I doubt it! This is the first time, in my lifetime, I can remember reading about something so dismal being suggested as a solution. The Post Office’s problems are directly related to the success of the Internet; email vs snail mail.

On Thursday President Obama will address us on jobs. I’m not sure what he will say. The Postal Service is an American institution, and needs our support like it or not. Government sponsored entities like Fannie and Freddie need to be cut off at the knees. Choices have to be made. And remember, an awful lot of people in California, haven’t made a house payment in two years. It must be nice to be so poor, to be that rich; "Let’s go to the Bahamas this year,Fannie Mae is paying."