Monday, December 31, 2012

What's In Store For The New Year?

We have a Congress that can’t seem to get anything done. And the funny thing is if they do nothing, all of the previous laws start to expire. It reminds me of Cinderella at the ball with the prince and the approach of Midnight. In this case, we get the pumpkin.

Remember the Bush tax cut passed in 2001? In the house, 211 Republicans and 28 Democrats voted for it and 153 voted against it. In the Senate, 12 Democrats voted for the bill as did 45 Republicans. Two Republicans McCain and Chaffee voted against it with 31 Democrats. Bush signed it, no big deal. Now, today just trying to extend the tax cut has become a herculean effort. If you examine the Congress of 2001 and today’s Congress, they’re pretty comparable. Rumors have it, that Obama has said “My way or the highway.” It tends to support the idea that the square cog in the gears could be Obama as far as getting a deal in place.

Some mutton head decided that we needed to spread Democracy to the Arab world. I look for Syria’s president to get the Noble Peace prize this coming year. Egypt could have the first Islamic Democracy (that’s where you get to choose which trash can to throw your amputated limb in). Libya could have a new dictator in place with lots of military toys for sale (Got Stingers). Look for a new PBS documentary called “The Mushroom Cloud” shot on location in Iran and Israel, with a cast of millions.

In Europe, look for the Greek government to be overthrown—talk is cheap and the country is tired of the political rhetoric. The financial pain in Spain, Portugal and Ireland might spread to France. The economic problems facing the Euro is kind of like trying mix Ex-lax and Kaopectate ---you have to go when you don’t want to and can’t go when you want to. If the Euro goes kaput, look for unemployment rates to drop drastically in Europe.

In the US we could have one or two states (Illinois comes to mind) become insolvent and figure about 20 cities to file for bankruptcy.

Look for interest rates to keep artificially low. Common senses suggest that some loans are riskier than others (the reverse mortgage is no more). Of course credit card debt interest rates are a different story 20 percent rates for Visa and Master Card. But if you want to buy a home, 3% interest no down moves you in. And a lot of the government programs will give you upfront money for move in repairs (like a motorcycle and/or widescreen TV). Think I'm kidding, read this from 2008 A Dollar Down Moves You In

Consumption should plug along, no incentive to save money at these interest rates. This will be the year that we get used to living with less and spending more for it. The stock market is kind of an unknown item. Nobody can figure out what’s been holding it up for the last 4 years.

Obama care is starting to kick in. I went to a coin dealer the other day and found out that there is a provision in the bill that requires a 1099 on gold sales over $600. What part of health care is involved in gold sales? In an unrelated item that ties into the above, PayPal wants my Social Security number so they can issue me a 1099 for my eBay sales. That’s not my hand I feel reaching for my wallet.

Then if you’re familiar with the school lunch program in California, Obama’s wife has screwed that up royally. Kids aren’t crazy over whole wheat bread or skim milk, and fruit, euck, it goes in the trash, give me some fries and a burger. This smiling wife with great concerns has no idea that the kids think her school lunch menu sucks. The schools have to serve the stated menu to get reimbursed by the government. What do you do with a dozen trash cans of food that the kids won’t eat? My suggestion; the fat kids don’t get the free lunch!

More than one commentator has suggested that Obama take a course or two on Economics. I believe the suggestion comes from puzzling over his current economic policies.

The New Year will ring in with a different tone this year. It’s Republicans against the Democrats. Cash or Credit will be the issue. Congress and the President can pass all sorts of wonderful new laws. Paying for them will be the problem. The battle to raise the national debt limit could be the fight of the century. The country is divided, but it isn’t rich against poor as Obama would suggest, it's about living beyond our means.

Have a Happy New Year everyone.

Copyright 2012 by Jim Brubaker

Saturday, December 22, 2012

Is It Really Christmas?

Listening to some of the comments coming out of Washington, you have to wonder about what we are hearing. “The economy is getting better.” “We are trying to avoid a double dip recession.” And then there is the “Fiscal Cliff,” and Congress can’t come to a compromise to solve it. And then everyone packs up and goes home for Christmas.

Obama wants to tax the rich, no big deal, it isn’t going to raise the revenues we need and the amount won’t even cover the interest payment on the national debt. The big sticking point is that Obama wants the ability to raise the national debt limit without having to run it by Congress. I don’t think Congress will grant him that wish.

The economy seems to be picking up steam; most of it is tied to consumption. The main reason for this appears to be the low interest rates. Why save it? With the miracle of compound interest, it only takes about 144 years to double your dollar deposited today. The really laughable thing is the spread between high risk bonds and Treasuries is about 3 percent.

Interest rates in the bond market can’t go much lower but they have the built in ability to go higher. Examine the two graphs below. Graph one shows the value of a 1000 dollar 30 year bond issued at 3 percent interest. Notice what happens to it as interest rates jump up. Whoever holds these 30 year bonds will take a bath (you will get your principle back--if you can wait 30 years).Just a doubling of interest rates would be a 42 percent loss. Of course if rates went to 15%, you might want to buy these bonds, it would be a once in a lifetime opportunity.
Using a 5 year bond in the second example below, the damage isn’t as great if you need cash right away. The shorter the bond term, the less you get burned. With the eventual rise in interest rates look for home prices to drop and the interest on the national debt to increase.
Sooner or later, all of this quantitative easing is going to work itself into the stock market. There are still some companies out there paying a decent dividend. This is the last game in town, I look for the market in the New Year, to take off and go higher—for a while.

With high unemployment and a lot of seniors opting for early retirement, look for decreased tax revenues next year. That may be why there is no compromise over the fiscal cliff debate in Congress. We need the tax revenue, don't pass the tax cut, and the Republicans will be blamed for it. Of course the voter has a poor memory, the Bush tax cuts were a Republican thing, and come next election, the Democrats will get burned for not passing it.

Congress IMHO is a shambles. Everyone wants to talk and no one is listening. The key to the whole debate revolves around the national debt. Will the debt ceiling be raised? The Democrats can spend all they want, but if the debt ceiling isn’t raised, they’ll run out of money some time before inauguration.

The election was pretty well split even, half Republican and half Democrats. I would imagine that rich people populate both parties evenly. So the real issue seems to be where our tax money will be spent and can we keep spending at the current rate?

Christmas is coming next week, and it doesn’t look like Obama will get what he wanted from Santa. Putting coal in his stocking wouldn’t be politically correct. Congress is a little like Santa. We get something real from these Congressional elves that nobody had to pay for. --Inflation.

Merry Christmas everyone.

Copyright 2012 by Jim Brubaker

Sunday, December 16, 2012

Government "Enhanced" Spending (reprinted)

Here is a reprint from March of 2009, some of you may have missed.

Some people have caught on to the new government approach to economic stimulation. If you have a credit card, you can still borrow, courtesy of the banks and the Federal Reserve. This is spending to stimulate the economy. I know people who have over 100K in credit card debt.

If you can’t pay off the principal on your credit card and it is way beyond being absurd; why not add more on to it, until they cut you off? It’s not like you have to work for what you’re buying. Be happy and consume. If you are broke, max out the card. Get what you can while you can. Plus if you are over 65 you get a bonus, you don’t need to file for bankruptcy. What wages can they garnish if you don’t work? Give your kids everything they’ve always wanted.

Somehow I don’t think that this concept of maxing out credit cards, has been appreciated for what it is, by the credit card companies. Unsecured debt is free money. Tarp funds are letting a very large credit card bubble grow even bigger. If the banks all got together and sorted accounts by address. They would realize that 15 different cards at one location, doesn’t indicate the residence is an apartment complex. It might indicate things are a not quite as they appear.

Unemployed? Start your own business. Buy a color Xerox laser printer and some linen paper and print up a couple of thousand 20 dollar bills. Let’s lend a hand, and help our government get this money printed. If we could get the unemployed set up to print dollars, we could be out of this mess by Christmas(Employment suggestions are for entertainment purposes only, talk to your probation officer for employment advice).

Poor old Barney Madoff has been put in jail for using creative Congressional financing practices. Congress is mad as hell. He spent a lot of that “rich people” money that they were going to tax. They are going to put him away for 150 years. That seems a little steep for impersonating a Congressman. There is a difference though, when Barney ran out of money, he went to jail. In our case Congress still has a check book, so we can’t be broke.

Below is 4 years of pictures from the past.

The Democrats with this "Cliff thing" are clueless. The Republicans know what will happen to our savings if Obama isn't stopped. The billionaire will end up just as broke as the guy sleeping in the park. The middle class will be destroyed. Our retirement savings will be wiped out. It's kind of a Grimm Fairy Tale with a bad ending for everyone. Of course, it couldn't happen here, could it?

Monday, December 10, 2012

Let the Rich Pay Their Fair Share????

When you hear the phrase, “Let the rich pay their fair share,” it is obvious that you are listening to a Democrat. I’m not trying to start a discussion of Republicans verses Democrats. But you do have to wonder what the words ”fair share” are all about. I can agree with the action, of raising taxes on the rich a little more—but it has no justification as being “their fair share.” This is a selling point addressed to the Hoi Polloi to garner votes in Congress; admittedly, it kind of works.

I’ve pointed out in the past, that whatever the tax rates on the rich were, whether 90 percent or 28 percent, government revenues NEVER increased noticeably. The amount of taxes taken in has been pretty constant. See graph below.

The person on the street (and your average Congressional retard) think that a 90 percent tax, generates more taxes than a 28 percent tax. The basic fact to be realized, is that the government can get 10 times more money with just a medium increase in middle income taxes of say $1,000

There are two groups of people who get no W-2 forms from employers, the real rich and those in the underground economy (working for cash). The underground economy is thriving.

If you remember newspaper reports on the Katrina Hurricane and read between the lines, the government was overwhelmed when trying to provide relief. The footprint of people paying taxes was minuscule to the population working for cash only. All Katrina did was ruin a way of life that had been fed by government entitlements and relief programs for 3 decades. I imagine someone will write a book about it, sooner or later.

Workers making over 250K are few and far between. This group includes rock stars, sports players, movie stars, and CEO’s to name a few. The one thing that stands out among rich people paying a lot of taxes, is the notion of "What am I getting for the extra money I pay?"---My answer, not much.

In today’s society, being poor and collecting food stamps entitles you to keep your cable and cell phone. Plus being poor gives you more rights. A single mom with 2 kids making 29K a year is entitled to about an additional 30k in benefits. But the single mom with 2 kids, making 60k a year, pays taxes and doesn’t get those free benefits.

Life is hard, but why take money from someone who works hard and give it to someone who gets rewarded for earning less, with better benefits? Has anyone ever accused poor people, or rich people of being stupid? But we come to Obama's mantra “Poor people deserve help to become part of the middle class.” Gee, maybe that's what Socialism is all about.

"Poor people" (notice the quotes) are gaming the system, it is a way of life. I'm all for taxing the rich, and while we're at it, let's tax everyone including the poor. There is no free ride. If you pay nothing in, you get nothing back.

I heard a Congressman say, "These people that pay no Federal tax, pay other taxes." My rebuttal, "So do I!" In California, we are almost to a 10 percent sales tax, and it has happened so slowly, that the absurdity of the rate has escaped notice. So when you hear them say "Tax the rich," reality is, Congress wants more money to spend.

Maybe it is time to draw the line. We don't have a problem with too little tax money, we have a problem with a Congress too busy buying votes for re-election. Of course, I have often suggested that the lead content of the water in Washington D.C. is a tad on the high side. That might explain the insanity in Congress right now. Of course if you look at John Boehner, leader in the House, he doesn't strike me as a water drinker. Whatever he drinks, let's get him another bottle--he's doing a pretty good job.

Copyright 2012 by Jim Brubaker

Sunday, December 02, 2012

Tough Times to Make a Wish

The week started out OK. We bought the turkey Sunday, and invited our in-laws over for Thanksgiving Thursday. The oven stopped working Monday night. Getting a repairman to show up was next Monday at the earliest. So I had to fix it myself. The dinner went off without a hitch. My son, just before flying back to college, brought out the turkey wish-bone and we each made a wish and pulled. The results are in the picture below.

My son and I started a discussion on how we should determine who was going to be granted their wish. About the only thing we could conclude was that either we were each entitled to our wish being granted or neither wish would be granted. We smiled and didn’t reveal what we had wished for (It can’t come true if you do).

This wish-bone represents unexpected results where there are no rules to determine a winner. This is what we are facing in the economy after the election, uncertainty and a lack of rules. Zero interest rates, 8 percent inflation, 18% unemployment and everyone gets the right to own a home. Of course if you are rich, Obama wants half of your earnings, maybe they’ll make an exception for basketball and football players. Then there is the health care tax on poor people, kind of like social security and Medicare, where you can’t opt out.

What will happen next to our economy? Probably a lot more of the unexpected, but when you think about it, that’s all we expect lately, just more of it. The one good thing about a depression, when you’re that far down, its all up from there. The trouble is, we are not there yet!

Reality is standing in line to buy a Power Ball ticket--are you feeling lucky? Did I forget to mention, there will only be one or two winners? Maybe that's why I like wish-bones, there are more winners.

Copyright 2012 by Jim Brubaker

Friday, November 23, 2012

Bargaining, How It Really Works

Unions bargain for their workers. One thing not really appreciated is the theory of how this is done. Normally the two sides sit down and reach a compromise. In today’s world it is a little different.

When a union sits down to the bargaining table, it is on this premise, “What’s mine is mine, and what’s yours, is up for negotiation. It’s a little like watching a foreigner haggle over the price for a basket of strawberries. Once they settle on price, the customer proceeds to cherry pick the strawberries that go in the basket they are buying—nothing but the biggest and the most colorful.

Many of the best union deals that could have been made are now coming apart. Retirement benefits seem to be a common denominator. In all of the bargaining in the past, the threat of a strike got concessions from management. Now, it looks like thing have changed somewhat. Hostess Brands decides to go into bankruptcy liquidation rather than deal with unions that had it all their way. It’s kind of humorous to watch unions balk at wage cuts. Their reasoning, “Why should the worker have to pay for the screw-ups of management?” Or, “We need a decent working wage.” The union got deal after deal and management was the frog in the pan of water on the stove, getting hotter and hotter. Management acquiesced too many times and all it took was a bad economy, to see how bad the deal was. Any way you look at it, the union leaders look like Ding Dongs and there will be no Ho Ho’s this Christmas. Of course, the Twinkie murder defense will be a thing of the past.

Illinois and California will be the poster children of the new state governments that claim, “We can have it all.” State governments haven’t figured out one simply principle. Raising tax rates does not in turn increase tax revenues. It only implies more revenue. It does however determine where and when people choose to spend their dollars. Can the consumer justify a new car every 5 years when the sales tax is 10 percent?-- Maybe now it will be every 8 years. A company car instead of a wage increase?-- The list goes on.

During the Great Depression many localities raised taxes and all they got were the taxpayer’s keys to their home. Increased taxes were the last straw. Of course it will be different this time. At times I wonder, are we smarter than those people back in the 1930’s or incredibly more stupid? The jury is still out on this one.

The real drain for the states will be retirement funds for state workers, and of course we aren’t even discussing the Federal programs of Social Security, and Medicare.

The California State retirement fund (CalPER's), among others, can only pay 65 cents on the dollar in benefits to everyone in the plan. The way the legislature looks at it is, everyone gets full benefits for the next 10 years and then we have a problem.

FDR even said that government employees should never be unionized, and they are now. Business profits determine if a pay raise is warranted. In a government job, the guiding hand of profits is not there to determine a realistic wage. What our state governments have contracted us to pay as benefits, border on the absurd in some cases. The unions took advantage of our political system, to get benefits that could never be realistically paid on a long term basis. Where does it go from here?

Hostess Brands had a slow death. They couldn’t make a profit and the company folded. In good times the unions asked for more and always got it. This time they asked for more, thinking it was a poker game they could bluff their way through. How many of those 18,000 employees will even find a job? Of those that do, what will be their starting wage?

It’s time for the taxpayers to realize that they have been ripped by these government unions on a more intense level than private industry. We need state employees that will be underpaid and with training, will find better jobs in the private sector. Government is inherently inefficient, let’s reward this inefficiency with lousy wages and low retirement plans.

Where I grew up as a kid, we had volunteer firemen with no 100k retirement plans at age 50. The argument isn’t over whether or not these firemen or police or teachers are worthy of these wages, the argument is over whether or not we can justifiably pay private sector rates for jobs that could be filled for one third of their present cost. There is no problem filling the jobs, it’s the turnover rate that has to be dealt with, that is the trade-off with higher wages. Government unions always want more, Ronald Regan once said no, and meant it.

Of course in California, who runs the government, the unions or the legislature? Do you get the feeling that the unions can run the state into the ground? Of course, maybe they already have, and are keeping quiet--no need to panic anyone.

Copyright 2012 by Jim Brubaker

Monday, November 12, 2012

The Fiscal Cliff or "Hey Buddy Can You Spare a Dime?"

Mentally picture 4 or 5 dogs all pulling on a towel in different directions, this is Congress in action. The towel represents our budget. So when you come down to it, it’s not a very big towel. The consensus is, Congress needs a bigger towel. How we get there, is more taxes or print more dollars. Both do the job, but when you raise taxes, you can point to who raised them. But when you print dollars, you can’t blame Congress, that’s how the economy is, we live with inflation.

The real problem is that the benefits and entitlements take up almost the entire budget, and we have to borrow to pay the rest of the bills. The President doesn’t have to worry about reelection, but the Congress does; so none of the entitlements and benefits will be cut without a long drawn out fight. Whatever the compromise, it won’t even be close to enough to fix the existing problems of funding.

Figure that total tax collections next year, even with a tax the rich provision, will probably be far below this year’s totals. Remember we are not taxing rich people, only high wage earners. So a doctor making 250k, what does he do to limit tax liability? He forms a Limited Liability Corporation and pays himself about 60K a year and slaps the rest into a retirement fund. If you’re an oil company, forget American investments; drill where you get tax breaks.

State governments’ layoffs will start in the coming week (the election is over), government employees have to be given 90 days’ notice now. If you’re not part of the Police or Fire department, count on layoffs. The teachers will be thrown under the bus. The voting’s over; education is where the first cuts come.

Congress wants to raise taxes on the rich and lower them on the middle class. It sounds great if you’re pandering for votes trying to get reelected. Do we dare assume that rich people are incredibly stupid and will pay more? It’s probably the middle class that is incredibly stupid. They believe Congress has done something constructive by extending the same tax cut another 4 years that will expire time and time again. And of course it will forever be called the Bush tax cut. Realistically, Congress has to drastically reduce entitlements by 50% and/or most probably double everyone’s taxes. That wouldn’t be a bad thing in a robust economy, but in this economy, neither is an option. A legislative solution to our fiscal problems doesn’t exist with the current thinking in place. Entitlements will not be addressed.

As if things couldn’t get worse, Obamacare, will start cutting into many wage earner’s paychecks . The national work week has now been (unofficially) reduced to 32 hours (part time workers don’t qualify for health benefits). And those that paid some federal taxes working 40 hours will now pay none (working less hours). Of course where you once had 4 employees working 40 hours you will pick up one new worker when we go to 32 hours. Your hourly wage stays the same, your paycheck is smaller, your standard of living drops, and more people will be employed--oh goodie!

The real problem just becoming apparent, we are in a depression, greater than the Great Depression. We can’t tax our way out of it, and since we have already borrowed almost every dollar in the banks, it will be impossible to print more money without inflation. Bernie Madoff's problem wasn’t with the money he had in the bank; it was the money he needed to withdraw for redemptions (consumption). As long as everyone keeps their savings in this “FDIC insured piggy bank” there is no problem. The Governments problem starts when everyone wants to spend their saving at the same time. The reward of consumption (instant gratification) is presently a far better value than the saving rates offered by a bank of one percent interest, considering the current 6 percent inflation rate.

The fiscal cliff out there that everyone is referring to is the fact that we are broke. Our government is running out of people to borrow from. A sign from the great depression in a grocery store read, “In God We Trust, all others pay cash.” In 1933 you bought a box of apples and sold them on a street corner to make a living. Now, the government is proposing to buy the box of apples and . . . .—“it’s going to be ‘different’ this time around. “ The trouble is, nobody is sure what that means.

Copyright 2012 by Jim Brubaker

Wednesday, November 07, 2012

Real Estate is Coming Back??

If you read the papers, it looks like real estate is coming back, prices are rising. The inventory is “drying up.” But look a little deeper. According to Zillow 31 percent of homeowners are underwater. And CNN Money reports, half of mortgage borrowers under 40 are under water. That kind of makes some of this “inventory shortage” a tad bit soggy.

I don’t see anyone lining up for a “Liar Loan,” anymore. The rush to buy before you are priced out of the market is gone. The median housing price is rising for a very simple reason. There are no low priced homes in the statistics to bring the average down. Do you want the 300k 1500 sq ft starter home? Or for 75k more you can buy a McMansion with 2400 sq ft?

Sources are reporting that a large portions of sales 30% are cash only. Kind of boggles the mind unless you figure when a bank wins the bid on a home in foreclosure (by bidding the amount owed by the borrower), that’s considered a cash sale. As a real estate transaction, you have a new owner, the bank, and it is a cash sale. Of course, throw in the words “foreign buyer” and everyone nods, they must be doing the cash sales. That many foreign sales ought to set of sirens at the office of immigration.

Out here in California, earthquake insurance isn’t really affordable, so you let the bank own most of the house and you make payments --- if a quake wrecks the house, give the bank the keys. Paying off a home in this economy isn’t too smart, especially if you lose your job. Banks won’t do a home loan if you’re unemployed.

The economy is just peachy keen, and no one is worried about losing their job, and real estate is doing just great. “Now is the time to buy a home, ” interest rates will never be this low again. I hear that shouted in my ears all of the time. Do you get the feeling that there is inventory out there that they need someone to sign for on the dotted line? If you buy a 300k home in California, you can’t flip it. It isn’t appreciating and the 18K in Realtor commissions is staring you in the face.

There is the normal crowd of people buying homes as there has always been. But the speculative zip is gone. The demand is only about 1/2 of what it was in bubble times. And getting financing is a real chore. When I read these headlines that the housing market is coming back, I have to wonder, coming back to what? 6 cars in front of every home, doesn’t suggest to me that housing is booming.

The one thing that really bothers me, I can’t see any bank in the country writing 30 year loans at 3 percent -- 5 years maybe. Can we believe what we read in the newspapers? Is real estate back like it was in 2006 with a full punch bowl? Did the recession really end in 2010? The election is over, maybe it’s time to take off the rose colored glasses.

Copyright 2012 by Jim Brubaker

Sunday, October 28, 2012

Health Insurance, Who is really “Jerking Us Around?”

If you look at an insurance company, it’s a group of people insuring against a certain risk. It could be your home, your car, your life or your health to cite a few. For these insurance companies, it is quite easy to gage the amount of risk involved and charge accordingly. The insurance company is willing to insure to a limited dollar amount, while the the insured and Congress are expecting unlimited coverage.

When the government steps in to fill the void at age 65, it may seem like the right thing to do, but you have to ask only one question, what does government bring to the table to make it affordable to offer it to everyone? Deep pockets are the answer (AKA the National Debt checkbook).

The real issue isn’t that apparent. Once you limit what health insurance companies can and cannot do, and you limit their profit margins, you eliminate their ability to survive. Obama might accuse the insurance companies of “Jerking people around,” but it is the President who is jerking private for-profit-businesses around. The net result, the private health insurance industry will fade out of existence. Profits are the driving engine of competition. Private health insurance cannot compete with Obamacare; the government doesn’t have to make a profit to survive.

People that never even gave a thought to health insurance, (those from the age of 18 to 45) would suddenly find themselves in a situation where health insurance is now mandatory. The question they may ask is; “Why am I forced to pay for something I don’t feel I need?”

What makes Obamacare so insidious is the fact that they are dictating what sort of profit margins are acceptable for insurance companies to have. Bill Gates at Microsoft probably has a profit margin of about 85 percent. Pill factories probably have a 400 percent profit margin. Blue Cross was having problems justifying a 5% profit margin during a recent Congressional investigation.

Forcing insurance companies to insure people with previous conditions is a death sentence. Rates are determined by the number insured without problems. The government is now saying that preexisting conditions have to be insured. This changes the risk for the underwriters and negates all actuary tables that have been used previously. The new risk cannot be calculated, when people can sign up with preexisting conditions.

What happens in this case? The health insurance investors realize that there is no profit in writing coverage and move their funds elsewhere for a better return.

The end result, the insurance industry will continue to write home, auto and life and let you go to the government for your health care insurance. Think about it for one moment, is anybody accusing the life insurance industry or the auto or home insurance industry of “jerking anyone around?” You aren't being forced to take the government insurance as long as you can find a private provider.

So what happens when the health insurance industry drops dead? The government will add it your paycheck deductions and they can adjust your rates for this new “health insurance,” without having to ask Congress. It won’t count as a tax; it’s your health insurance. You might think I am kidding, but it will be about $6,000 to $12,000 a year (Your employer pays half, guffaw, guffaw).

Obama claims that health insurers are "Jerking us around." Let’s rephrase it, health insurers are pointing out the real costs of health insurance, and we have to make decisions on how much of it, we can afford. Life will end for all of us, and for a politician to suggest that government health care insurance will solve our problems is wishful thinking. That is the person “jerking you around.” He wants your vote and that new health care revenue stream. There is no free ride. Of course if you have nothing, the "free ride" is better than nothing.

Obamacare could be the biggest tax increase to ever face our Republic. It is the death knell for private health insurance. I'd rather they force everyone to get car insurance instead. This government is going to harness the working young to pay all of our debts. After you get your first job, here is what the "Company Store" wants from your paycheck: State and Federal taxes, Social Security, Student loan payments and the new one, health insurance. I remember when I was young; I had a hard time trying to afford girls and car insurance. So what Obamacare really boils down to is a tax on being young and dumb.

As a concept, I have no objections to Obamacare. But if you understand how Congress works, this new found money will be spent on anything but health care and will destroy the private health insurance industry by dictating their rates. Show me one thing that the government can do better than private industry for less money. One thing is certain; we are being jerked around, by a bunch of politicians in Congress promising "Surf and Turf" and delivering "biscuits and gravy."

The irony of history (tongue in cheek) it took a Republican to free the slaves, and a Democrat to put the chains back on.

Copyright 2012 by Jim Brubaker

Thursday, October 18, 2012

QE3 Makes Gold An Attractive Investment.

Ever wonder why a country buys gold? If you’re a deadbeat country, you might need it for international trade. Of course, if you are printing money like crazy, buy gold now at x dollars and sell it a few years down the pike at 3x dollars. As a Government, you know what you’re doing even if the rest of the world doesn’t. Of course if you’re a country running a tight ship, buying gold could be a way of tightening up the money supply. Not too many countries are in that boat.

Normally holding physical gold for the average investor, was a losing proposition because, gold pays no interest. Well, with 8% inflation and 1% interest rates, gold is a better deal than a printed dollar. Plus if interest rates stay low like this, you’re at least making the difference between the current inflation rate and interest rates.

There is one problem, if everyone starts reaching for gold, the price will climb. The problem is the government needs to stop that from happening. They will again have to outlaw gold possession.

When I was in college in the 1960’s a ten dollar bill bought two full tanks of gas and you had a couple of dollars left over. Today a hundred dollar bill will buy two tanks of gas—maybe. The peculiar thing this time around, is that the hundred dollar bill is our biggest bill in circulation.

To the young people just entering the work force, today’s prices are the only ones they have ever seen. Everything appears normal to them. However if you had put 10 hard dollars earned in 1965 into a savings account, you don’t have the same buying power today that that ten dollars had 60 years ago. Of course the price of gold was 35 dollars in 1964.

With interest rate at 1%, bonds use to be the retirement vehicle for most retirees. Why even bother with them? Convert your savings to gold or put your dollars in a safety deposit box and apply for Supplemental Social Security (if you have no funds in the bank, you qualify).

As long as our government wants to spend a trillion dollars more than they take in in taxes, your savings are being taxed by inflation. Gold and silver have maintained their value over the ages. They are a store of value that pays no interest. If Bernanke thinks that keeping interest rates low is good for the economy, let’s all buy gold and silver. Let him covet his paper dollars, while we laugh at him.

They’ll have to start printing Thousand dollar bills pretty soon,--but doesn’t that pretty much give away what is actually going on? Of course not! If you have been poor all your life and now have a $1,000 dollar bill in your hand, you have made it! You are rich! You’ll earn 5 times more than what your dad did and you’ll be proud. Even though your pay raise each year is just the cost of inflation, it is a pay raise, as far as the average worker is concerned.

Then we have Ben Bernanke saying he will buy all housing paper (40 billion a month) (because the banks aren’t dumb enough to buy it) for two years, kind of blows me away. These people in office are going to save us, but I kind of wonder what they are trying to save us from?

I just wish I had bought gold at $35!

Copyright 2012 by Jim Brubaker

Sunday, October 07, 2012

Four More Years of This?

Listened to the Presidential debate the other night and did a ho hum. I went to the gas pump the next day and said what the hell—FIVE DOLLAR gas????

Then I started to review the last 4 years from my perspective. The price of gas has more than doubled. My wages have been frozen for the last three years and they are still laying off people at Camp Pendleton. The price of steak and hamburger has doubled. Can goods on the shelf, are smaller 14 oz vs. 16 oz. Laundry soap is now $8 dollars a box, shampoo is $8 a bottle. The price of coffee is out of sight, and they are messing with the container size. We used to get $10,000 in interest on our saving and I think we’ll get about $700 this year (great interest rates).

Then if you want to add up cable, phone, heat, lights, water and sewage, they are all up 30 percent. Our water and sewer bill is 100 dollars a month. We buy drinking water for about another $40 a month only because the tap water isn’t fit to drink.

The Democrats want to make sure everyone has health insurance because many people can’t afford it. This phrase comes to mind; “In order for government to give money to someone who has none, they have to take it from someone who has some.” The food stamp program is another great vote getter, and remember if you want more food stamps, think carefully before you vote. With food stamps, you get the option to keep the cell phone and cable TV.

When we take our evening walk now, my wife and I marvel over the number of cars parked in front of each house. We are talking three car garages with 3 cars in the driveway and 3 on the roadside for many homes (the garages are now used for storage). Four years ago the street sweeper might have had to dodge one or two cars on our street. Now, people kill for a parking spot at night. Listen to the pundits and you hear that real estate is coming back and I don’t see it. The kids are coming back for sure, to live with mom and dad. Our next door neighbor rents out two rooms of his 4 bedroom home. The lack of privacy would drive me insane.

My Sister and her husband in Colorado gave up looking for jobs and both retired at age 62. Kind of makes you wonder about the unemployment stats they just published. There must be an election coming up. They both voted for Obama last time, and I don’t want to raise my blood pressure by asking them who they are going to vote for this year.

Bernanke using his car salesman rhetoric is trying to keep us “from having a double dip recession.” We never got out of the first one (if you ask me), so if you buy his line, things must be getting better. However, this recession is now labeled the “Greatest Recession since the Great Depression.”

Ben is printing too many dollars, and he will print more. It looks like this will stop when these wantobe million dollar homes out here are finally worth a million dollars. When that happens, bread should be $10 a loaf. Of course if you are in a retirement home, a million dollars might only last a year. Kind of a cruel joke for someone who saved all of their life. But if you spent every dime you had, you’re going to fit right in, to this new economy.

30 days until the election. Four more years of what we just had, kind of sucks. The difference I see, is that Romney will pragmatically work with Democrats. Obama left the Republicans out of the legislative process when he passed Obamacare with an “I don’t need you“ attitude. He burned a bridge that has “payback” written all over it.

During his term in office, Obama has vacationed the world, been on TV every day lecturing us like children, and been campaigning incessantly for re election. His executive powers to enforce the laws have entered the realm of legislative powers when he chooses which laws to enforce. If you are leaning on a shovel, talking to me, you aren't working as far as I'm concerned. A new face with different ideas could be the fresh start this country needs.

Copyright 2012 by Jim Brubaker

Thursday, September 27, 2012

Oil Prices Set to Collapse

There are a lot of oil producing countries that depend on oil dollars to pay the bills. With oil at 100 dollars a barrel, they have to pump x barrels of oil to be able to pay to run the government. If oil were to drop $11 like it did last week, and an oversupply surplus is announced of 11%, these countries will fall short of meeting their planned budgets. The prime directive of each country is now to pump more oil to make up the shortfall. Short term, this solves the problem. Only now, the oversupply might be 15% and the price could drop another 11 dollars. The oil producers will quickly realize that the increased production is cutting their own throats. The trouble is, the respective governments need the dollars, not the oil. These countries can’t cut their budgets anymore; their only option is to pump more oil.

With world unemployment at around 20 percent, energy consumption has to drop. This is where people will cut. No air conditioning, no heat, no cooking. A heating bill in California is about zip, but in Colorado, it could be about $200 a month in the winter time. I have seen senior citizens cut off the heat and sit in a stack of blankets to keep warm because they couldn’t afford to pay their heating bill. And of course, Obama the white knight will fix that--more blankets please!
Gasoline consumption stateside could drop from 20 to 50 gallons a week for a family of 4, down to possibly 10 to 25 gallons a week. Multiply this drop in consumption by millions of people, and the lack of demand for product becomes very noticeable.

Look for oil production to continue at present production levels, and for world consumption to drop another 10 -15 percent. The price of oil could collapse and drop below $60 per barrel before December. That would be welcomed news here, but for the rest of the world selling oil, it could translate into serious financial problems. At 50 dollars a barrel, countries would have to pump twice as much oil to obtain the same revenue. And that sort of overproduction could send prices even lower. Remember the Arabs are buying food and other consumables with their oil revenues.

This drop in the consumption of energy is a sign of economic hard times worldwide. A drop in oil prices is a drop in taxation for a country like the United States. Call it a tribute tax. It will make life a little more bearable for the near future, for the US and Europe, but sooner or later, bankers and oil sellers are going to demand a currency linked to gold. You can print money, but you can’t print food or the other things that oil can buy.

Look for the price of oil to collapse in the coming months. And after is does, look for it to be pegged to the price of gold and silver. Do you get the feeling that our currencies are floating on a cesspool of debt? Nah, it must be my imagination acting up again.

Copyright 2012 by Jim Brubaker

Sunday, September 16, 2012

Low Interest Rates Make No Cents

The economy is doing just great. If you are retired, your savings are generating just gobs of interest--right! Figure a million dollars in the bank is generating about $10,000 a year. Remember when interest rates were about 8% and your return would be more like $80,000 a year?

If you are into buying bonds, there is no reason to buy any further out than 5 years at these interest rates. They can’t go much lower, and if they do, why even buy them? Do you want to hold a 100K 3% 30 year bond if interest rates double. Can you wait 30 years to redeem them? Or take a 50% haircut when you redeem them early?

The interest carry costs for futures are warped out of place. For a futures contract, 100 oz of gold one year out, a majority of the option cost is figured as interest on the actual amount of money tied up in the contract till delivery, plus storage fees and a volatility premium. So the commodities game right now is in play, with very low interest rates. It’s not rocket science to figure out that borrowing the money to buy gold futures is a money making proposition, the interest costs are negligible. Sounds a little like the housing boom doesn’t it?

Your health care and auto insurance companies invest the premiums received, into the financial markets to get an additional return. These returns allow them to reduce premiums charged on policies. This nice little cost cutter has gone to hell.

Retirement plans like CalPERS have assumed that the return on investment would be around 8.5%%. Guess what, it is not even close. Figure 100% of all state government plans are in some form of denial, “This can’t be happening.” If they were marked to market and held to realistic return rates, a lot more money would have to be ponied up by the states. Naturally the legislatures hope that this problem will just go away given enough time—Translation: After they are dead and gone.

Real Estate loans, you want to buy a home? Fannie and Freddie still offer nothing down loans at competitive low interest rates. If your credit rating isn’t up to par, that will not stop you from getting the loan. The aggravating thing, is that if the government got out of real estate financing, the sale prices would be a hell of a lot lower than what Fannie and Freddie are offering with government financing. To compound matters, there is no one out there to buy 30 year paper at these interest rates. By no one, I mean the banks, investment firms, and anything else you can think of. This is why Mr. Bernanke has decided to go with a 40 billion dollar a month re-purchase of mortgage securities.

The question has to be asked, who really benefits? The government can still borrow at ridiculously low rates. The interest on the national debt remains lower than normal, and Congress can spend more than it takes in in taxes and kick this can further down the road.

The big thing to understand here is that the current interest rate keeps the government debt manageable. Plus it facilitates the borrowing of more money. Why not borrow instead of tax the constituents? The concept of borrowing and putting it on the national debt has no real tie to the world most people live in. The national debt is just a place where we park debt we have no plans of ever repaying.

Americans are led to believe that the Arab crisis is the reason for the doubling of gasoline prices, when in reality; it is due to the massive printing of dollars. The US government is going to tax everyone with a savings account 50%. You have the same amount of dollars in the bank, but it only buys half as much. Bank depositors need to ask one question, why keep your money in the bank at these rates, where is the reward?

Our government has borrowed 17 trillion dollars. As long as interest rates are artificially low Congress will have no problems, but the minute they rise, we as a nation are in serious trouble. The funny thing is, the money they borrowed, was from people preparing for retirement, the silver foxes were going to live off of the interest. It’s a little like having retirees stand on a chair with a rope around their necks. They bought the rope and the chair and now the government wants the chair. Their savings were their lifeline to comfort in retirement. But by God, the government will not fiddle with your Social Security, all $1,200 a month of it. They are going to fiddle with the million you have in the bank. You’ll now get $800 instead of the $6,600 a month in interest; you had counted on for your golden years.

Ben has to buy all paper presented in order to keep interest rates low. If he doesn’t, you'll get more interest on your savings, and we can’t have that, can we? Risk has been taken out of the financial markets. Government guarantees for everyone, drinks on the house. What ever happen to plain old common sense?

Romney says he'll replace Ben if elected, so we do know when the party ends--- November 6th. At that point the movie is over and reality sets in---Got Food Stamps? Looking on the bright side, the Sunday paper is now cheaper than a roll of toilet paper and goes further if cut right.

Copyright 2012 by Jim Brubaker

Thursday, September 13, 2012

Idiotic American Foreign Policy (reprinted)

This is a reprint from last October 27. I'm reprinting it to point out how bad our goodie-two-shoes foreign policy is going ("sucks" might be a more apropos verb). I apologize to readers who already read this. Normally I wait a few years to republish previous articles. Next new article should be ready Sunday.

Normally this blog deals with the coming Great Depression so foreign policy is a bit of a stretch. We have just helped kill the leader of Libya. Not much of a big deal, but we did it so these people could have Democracy. That country is totally devoid of any social institutions so there will be no Democracy, the guy with the most bullets will be the new President. Of course if your currency becomes suddenly worthless, you are pretty much in the midst of a depression. Life in Libya looks rather brutal for the foreseeable future.

We are getting out of Iraq. Great idea; Christmas comes early for Iran. There is turmoil in Palestine, Jordan and Egypt; Israel could go bananas and nuke Iran or vice versa.

Oil ties the US to the Middle East; water ties the Middle East people to the land. The real key is not oil, but rather water. Iran and Turkey, China and South East Asia, are building dams that could start a war over water; the hell with the people downstream.

Then in Pakistan, we send a woman (Hillary) (where women are considered property) to tell them how to run their government. Great for women’s lib, but who are we kidding, the Pakistanis would like to chain her up in a basement and teach her what the slang term "airtight" means. These people are not going to listen to a woman, more to the point; they feel insulted having to deal with her.

The US press is selling their readers this "goodie two shoes" idealistic policy of spreading Democracy to the world. The reason we lost in Viet Nam, was because the average farmer could point to his family and land, but he could not point to Democracy. Democracy does not come from the masses who have nothing, but rather from those who have a position of wealth that needs to be preserved. Democracy is not an option for the Middle East; they have always taken what they have wanted. Might is right.

U.S foreign policy towards Libya has been very irresponsible; we can't shoot first and then think about it. Getting rid of Qaddafi accomplished nothing. His supply of stinger missiles is now on the auction block. Leaving Iraq without some advisory troops begs Iran to move in. Obama needs to send Hillary home with a box of cigars for Bill. And while he's at it, he mise well paint a bull's eye on Air Force One. The score is Obama 3 Arabs 0. I feel that the game is only pausing for the half time activities. Got Stingers?

Copyright 2012 by Jim Brubaker

Monday, September 03, 2012

Slow Money Vs Fast Money

Believe it or not, there are two types of money. It sounds implausible, but it’s true. If you live paycheck to paycheck, you have “fast money;” it’s here today and gone tomorrow. “Slow money” is the funds socked away for that rainy day, years in the future.

Enter someone like Bernie Madoff. His investment program was a Ponzi scheme. The money he was using was "slow money,” investors didn't need for several years out. Rich people are rich as long as they don’t spend the money, which goes without saying. Notice though, Bernie’s rich investors were rich up and to the day the scheme was uncovered, they didn’t get poor slowly over time--it happened immediately. What did him in was a bad economy. His investors needed funds to cover losses. As a group, their increased withdrawals, was the monkey wrench that fell into the gears. Bernie’s “slow money” accounts were turning to “fast money” obligations before his eyes.

Our government “borrowed” the 2.6 trillion in the Social Security trust fund and spent it. Then Congress purloined 4 trillion to cover the housing mess and it's gone. Then there is that 8-10 trillion in IRA savings that we have loaned indirectly to the government, spent also. So long as everyone doesn’t decide to retire at the same time, there isn’t much of a problem. The trouble is, that is just what is happening. People unemployed and 62 years old, are not going to wait until age 65 to 70 to retire and they are cashing in their IRAs. These people are no longer paying taxes; they are now receiving tax money (i.e. Social Security benefits). The government’s financial pain is further exacerbated by high unemployment, low tax collections and legislative fiscal irresponsibility.

It's becoming more obvious that the present system cannot last without reducing the massive government spending. “Kicking the can down the road” or “Rearranging deck chairs,” both point to that moment in time where things get real. It’s a little like promising to quit smoking. Everyone quits eventually--- For most, it’s not a planned event.

Our national debt is comprised mostly of “slow money” borrowed from financial institutions worldwide. With the deteriorating economy and the higher than normal redemption of funds, the government needs to borrow more, or an option not available to Bernie, print more dollars.

People are beginning to dip into their “slow money” accounts. As long as the money wasn’t needed, the government had no problem. Everyone assumes that FDIC insurance is to protect the depositor. It isn’t, it’s there to keep depositors from withdrawing their funds from the banking system in times of financial stress. Our government has already borrowed and spent a great deal of this bank money and needs access to the banks in order to borrow more.

Lack of "slow money" was the problem that Bernie Madoff faced. The system works perfectly as long as more is being deposited than is being withdrawn. All of this “slow money” that the government borrowed and spent will suddenly turn to fast money obligations. How do you pay back 17 trillion when you are borrowing an extra trillion a year to add on to it? Just like Bernie Madoff’s clients, you have a piece of paper stating how much you have in your accounts. It isn't a cash balance, its an IOU. The money was spent.

Reality is when your wife puts 170k on the family credit card. There is a complete disconnect when the Federal Government puts 17 trillion on plastic. We don’t have to pay that one—do we??? Bottom line, your retirement funds paid for the party that is still in progress. Learn the full particulars sometime after the next election.

Copyright 2012 by Jim Brubaker

Thursday, August 23, 2012

Fixed Costs the Giant Killer

A while back in San Marcos, California, we had a drought and our public water utility requested that everyone reduce water consumption. The plan worked great, with an unexpected consequence. We got a notice from the water utility that rates had to go up because we were consuming less. The water company had fixed costs that weren’t being met because of the drop in consumption.

These fixed costs could lead to cash flow problems in a business that expands too much during good times. They might not be able to meet their fixed costs when times get tough. For example, General Motors doesn’t make a profit on every vehicle. Everything they make up to September or October covers fixed costs. The rest of the year is their profit. Have a bad sales year or pay too much in retirement benefits, you don’t meet fixed costs.

Stores that may be in a trouble are chains like Staples, Home Depot, Lowe's and Wal-Mart. Fixed costs for each store are real, and when times were good, the money rolled in. A drop in consumption of about 15% really hits the bottom line hard. The real pain is felt one tier up in the organization, upper management, the bigger the organization, the more corporate infrastructure that demands fiscal support (i.e. fixed costs).

Internet competition is exacerbating the chain store problem. A brick and mortar store has obvious fixed costs in inventory, that a web based store doesn’t have to contend with. Display a photo and sell. Do it right and you bypass the sales tax.

Chains are starting to downsize. They are closing marginal stores and laying off personnel. The competition in our area is intense. We have 4 Home Depots, 2 Lowe's, 2 Staples and 3 Office Depots within 12 miles of each other. The Office Depot by our place is now closed and I had no idea when I drove over the other day. The Ace hardware I use to go to every Saturday for free popcorn with my son is gone.

We need to step back and realize that things are getting progressively worse only because people are not consuming as they were before. Once we realize that, we can understand why this mess is not going away any time soon. Consumption is what drives our economy. The super stores that displaced all of the mom and pop stores 20 years back now have a problem of being too big. Size does matter in a declining economy. These businesses are asking the question “Do we have the funds to continue operating?”

If we examine government, there is a different view to downsizing. Why bother. And the aggravating thing, any money left over at the end of the year has to be spent or turned back into someone higher up who will figure out how to spend it. So if there was a couple of million left that wasn’t spent, you kind of see how every department got the wide screen TV and the exotic exercise machine. What would happen, I wonder, if the department head got a 10% commission added to his paycheck, for funds not spent and returned to the General Fund? Of course, the taxpayers would never tolerate a State employee receiving a 10 million dollar bonus for cutting welfare by 100 million, or would they? (Can't happen but it sounded funny)

What we can deduce, is that private enterprises that expand, increase their fixed costs. And as these fixed costs increase, they tend to become unmanageable in a recession/depression when they try to downsize. Government on the other hand, has budgets that have been preapproved for spending. Government doesn’t have to make a profit in order to survive.

Both Private and Government entities can file for bankruptcy. This only happens after they have tried everything else. Private businesses fail for lack of consumption on the part of the consumer. Whereas, the problem for most of the city government failures to date, is too much consumption, sandwiched with declining tax revenues.

I was just listening to the nightly news and someone stated that Medicare had until 2023 until it went broke. That put my mind at ease, it’s kind of like the Captain of the Titanic advising the passengers that they get to keep the deck chairs when they leave the ship. The bankruptcies now happening, started 3 to 6 years ago. The business model for government and private enterprise has changed somewhat. Private enterprise will pay for failure by going out of business. Not so with government. They are the only abstract body that can perform a sexual act upon all of its constituents that doesn’t result in a single pregnancy. And if they can do it twice, they’ll probably get a pay raise. You can be rewarded for gross incompetence in the government sector, go figure!

Copyright 2012 by Jim Brubaker

Wednesday, August 15, 2012

The Depression Has Been Called Off Due To A Lack Of Interest

When our government collects 2.5 trillion and spends 3.5 trillion who gets hurt the most? The poor, they have the least to spend. Look at it this way, If government taxes were to cover expenditures, a dollar would be worth a dollar. But if the government spends 1/3 more than it collects, they have to print dollars. So now each dollar will only buy what 66 cents used to buy. You have just been taxed 33 cents on every dollar you earn after taxes by inflation. Notice, you didn’t have to fill out any forms or mail in a check to the government. Your dollars don’t go as far as they did yesterday.

These trillion dollar a year deficits will bankrupt the government. If you are on the receiving end of entitlements, who cares? They owe it to me, pay up. The concept of a train wreck is not there. Give me my benefits until you can’t and then we will sue for back payments. It’s kind of like adding more vehicles to the freeway until it clogs up and stops moving.

Here is what happens in a financial collapse. Nobody gets paid. Nothing gets delivered. You want to buy something, currency and credit cards would be worthless. A driver in Colorado with a full truck load of potatoes is not going to transport them to Pennsylvania without clear cut payment for fuel. Food distribution on the retail level would stop, if looting hadn’t already solved the distribution problem for what was already on the shelf.

At some point, the trillions of printed money will leave little to consume. The farmers this year have a very bad corn crop. But with insurance, the losses will be minimal. But notice one thing, the farmers get their dollars for a failed crop, but half of the corn is not available for consumption, it doesn’t exist. This is what happens when you print money, you’re not producing anything for consumption, you are only enabling consumption.

So the real problem will be that can of beans now selling for 98 cents and that gallon of gas at $4.20. If the can of beans increases in price to $9.98 and a gallon of gas rises to $42 dollars a gallon everyone will be out to crucify the local Arab or farmer with glee. Notice how the government is out of the loop.

Looks like the old farts in Florida will vote for Obama because of the free health care. Look at it from a different perspective. If you worked all your life and saved up one million dollars, an 8% return on you nest egg (80K), would cover most of the bills. With T-bills now paying a half a percent, how do you retire on 5K in interest a year? What caused it? The FHA has financed another 4 million homes with nothing down because the home buyers have no money saved up for a down payment. These loans merit an 8% interest rate just from the risk involve, but alas, they are government insured.

It pays to be a deadbeat. Why not tax everyone one months labor or let them pay someone to work for them? The concept of tax the rich has some merit, but why not tax everyone at least one month of their wages or one month of their life? Rome asked for two months and built a lot of roads. We need everyone contributing to make a better America, not just the rich.

There is a chance of reform with the next election, but will it happen? Its hard to say, If interest rates were to jump to 8%, Federal Income tax collections couldn't pay the interest on the national debt and the "Game Over" light starts flashing. We are almost there, and Congress is still stacking more hay on the camel. What's one more straw?

Copyright 2012 by Jim Brubaker

Friday, August 03, 2012

The Election is getting closer

I can hardly wait for the election to be over. The winner will be the big loser. The economy is tanking at a faster rate as every day ticks by. It’s Democrats against Republicans in the Congress. I would expect the people in Congress to keep their mouths shut and legislate. But oh no, they are too busy trying to get reelected. Naturally it’s all the other party’s fault. Turn on the TV and if you can’t tell the speakers party affiliation after 15 words, you have a problem—not the guy talking.

The biggest mistake of the present administration was trying to bring Democracy to the Middle East. Liberia, Egypt, Syria, Iraq, and Iran are all in a state of flux. Oil revenues were their “food stamp” program for the masses. We have destroyed that system of guaranteed delivery with a promise of Democracy. Hillary Clinton thinks that Democracy will spring up if the despots are disposed of. With dreams like that, even Lewis Carroll would dub her a “Snow Queen.” It’s all about power, the more you have, the more money and sex is yours for the taking.

We have Israel with nukes. We have a President that has wiped out two Arab leaders, Osama Bin Laden and Muammar Gaddafi. Where is the major population of the Middle East looking to for guidance? No food, no political order, they don’t give a damn about Democracy. The funny thing is that these people don’t give a damn about the oil, its water rights that determine whether their family lives or dies. Nobody is paying attention to the dams being built surreptitiously in the region (ok maybe Israel is).

Neither candidate has a real chance of solving “The Greatest Depression to ever be experienced.” The greatest hurdle facing the nation is our declining tax base. The United States is broke and we have Republicans and Democrats fighting over taxing the rich. When they pass this next tax bill, how’s that going to work? Obama’s speeches seem to imply, If you’re a Democrat, you don’t have to pay the tax, but if you are a Republican, you do. Maybe we can deduce from the heated political arguments, that “A Republican is a Democrat with money.”

Hiding money for the rich is very easy. I knew a doctor that formed a corporation and paid himself $600 a month. I asked him how he could live on so little, he said his wife was an RN making good money. These people write their own W-2’s, they are the employer. Show me a worker that would rather spend his paycheck on higher taxes than on his family? How many Congressmen have been caught cheating on their taxes as well as their wives?

The issue for the next election is higher taxes for the rich. The problem is, raising tax rates in this economy does not guarantee more taxes coming in. Common sense suggests that if you double the tax rate, you double revenue. What history teaches us, in a depression, you end up with less.

Obama stuck a broom in a hornets nest when he passed Obamacare. What happens from here is all scripted, Obama will get his comeuppance from Congress. Paybacks are a bitch.

From here, it’s all on TV, Republicans against Democrats. The trouble is, is anybody listening? Let’s face it; the voter is fed up and tuned out. Do we have a President or a jive ass pimp lookin to sell us what we want for our vote?

Copyright 2012 by Jim Brubaker

Friday, July 20, 2012

US Labor Costs Are the Key to More Jobs

We took a small trip to Crater Lake last week. Its a real pretty place. If you are over 62 a lifetime National Park pass is $10 and it covers everyone in the car.

I went to the gift shop and thought the little beaver with a park ranger hat (below right) was neat. I almost didn't buy it, it had a "made in China" tag. Plus it seemed kind of phony as a souvenir from Crater Lake, it was made a half a world away (as was almost everything else in the store). The bag on the left, I picked up later. It's recyclable and made in the USA! WOW!!! Politically correct, but how many college grads does it take to load a roll of paper onto a bag making machine?

As an entrepreneur, you want inexpensive souvenirs to sell to the tourist and China is where you shop. Why make it in the USA, where labor laws and employment taxes eat you alive? How can we blame the retailer for using common sense?

The picture below is also from Crater Lake. It's an outhouse (no longer in use), that kind of reflects how Congress solves our problems. The solution to one problem creates another. Tax the employer and bring in more revenue.

What is the real issue, jobs or the cost of labor? Why employ an American when you can pay someone in China at 1/10th our wages. Remember Ross Perot and the "Giant sucking sound" from our free trade agreements? He lost the election, but he was spot on!

Maybe if the Chinese were saddled with Obamacare instead of us, it would be cheaper to make things here instead of over there. Jobs are all about the cost of doing business. The American public is the ultimate employer. We want it cheap and to hell with employee benefits. How can we expect to create more jobs if we can't compete realistically with China?

We have set the tone for consumption in the US, "Low costs" and that kind of answers the question of, "Where are the good paying jobs?"

Here I sit with my cute little souvenir from Crater Lake made in China and a paper bag made in the USA. It comforting to know that whoever wins the next election is going to provide more jobs for unemployed Americans, Mexicans, Chinese and other third world countries. You'll need a passport to apply, if you're from here.

Copyright 2012 by Jim Brubaker

Sunday, July 08, 2012

Living Paycheck to Paycheck With Obamacare

Probably half of the population lives from paycheck to paycheck. And even if that isn’t the case, everyone’s priorities on what bills get paid are different. A large majority of people never saved for retirement. Social Security changed that. So now what’s left of the paycheck is spendable. The major spending decisions revolve around the rent/mortgage payment, food, auto payment, car insurance etc. The car and home are the two bills that have to be covered, no matter what (unless your home is in foreclosure, in that case you don’t have to worry about house payments, only about eviction).

In the event the wage earner’s income gets squeezed, decisions are made on what is necessary for day to day living. Is it diapers or a 12 pack of beer and cigarettes? Do you really need car insurance? Can we get the kids on the free school lunch program? Cut out day care for the kids and instruct them not to answer the door.

With government programs like food stamps, cable TV and cell phones suddenly become affordable. Notice that the family decides on what expenses are necessary. Health insurance is not on the top of the list. Why pay for it, go to the emergency room if you really need to, otherwise forget it. These are the 50 million people that Obama wants to insure. In the past they have made the decisions on where they spent their income; now one of these financial decisions is no longer optional. In the lower income households, this will become visibly obvious, as a tax. A yearly income of $36,000 drops to $34,000 with health insurance. Their paycheck will be 50 dollars a week smaller. So the single woman with 2 kids gets a $200 dollar a month loss of income and wow, paid health care. No Cable TV for the kids and Mom has no car insurance. Mom and the kids are one car accident away from real trouble.

We know what happened when Congress tried to make home ownership affordable for everyone. It was the American Dream turned into a nightmare for many home owners. This health care insurance for everyone is an undefined bottomless pit. The neat thing about it, when it goes bust, nobody will be scratching their heads wondering why. The question you have to ask is, "How can this new government program promise the moon for no charge?" Doctors right now are refusing Medicare patients because of the paltry government reimbursement rates. And we are not even talking health insurance here.

The Supreme Court has ruled Social Security and Obamacare are taxes. In other words, the government cannot be held accountable as to what they spend the collected money on. The benefits are not guaranteed, only promised. This law will change how each house hold spends its weekly pay check. Rent, car payments/repairs, gasoline, cigarettes, booze and lottery tickets are the bare necessities. Food for the kids and day care are now optional. The family budget is a little like a balloon, squeeze it with your hand and it moves out between your fingers. Those 50 million people will probably now qualify for food stamps. Hmmm take away $50 a week with one government program and get it back with another.

Car insurance will become optional for the Hoi Polloi and sadly, the emergency room can't be used for auto repairs. The road to hell is paved with good intentions. Why do I get the idea that Obamacare is not going to work quite as planned?

Copyright 2012 by Jim Brubaker

Saturday, June 30, 2012

The Death of Private Health Insurance

I just heard someone touting Obama care stating this would end the outrageous premiums the insurance companies were charging. Remembering back to an interview with the head of Blue Cross in February of 2010 here is an excerpt from my blog post two years ago.

Last Wednesday a Congressional committee grilled Angela Braly the CEO of Wellpoint Health Insurance (Anthem Blue Cross). House member Bart Stupak was upset that Angela was paid a million a year and the Company made 2.7 billion dollars. The fact that it was a 4 percent return on investment, didn’t sink through Representative Stupak’s head. He kept referring to the 2.7 billion dollar profit, being a lot of poor people’s insurance premiums; that was just too much profit for a private insurance company. He thought that a 39 percent increase in premiums was outrageous. As an investor, a 4% return is pretty poor also. Common sense suggests that no company would raise rates 39 percent just to make a profit. Irritating your policy holders doesn't help when it comes to renewals.

In the investment world, a 20 percent return is more of the norm. The question arises why play here if you can make more money elsewhere? The other point to ponder, if there is gobs of money to be made in health care, there would be more competition for those big bucks.

The point that impressed me at this interview was the fact that a private company trying to make a profit, was charging rates that allowed it to survive. To some the rates seemed exorbitant. But that is always the case when you can’t afford the premiums. The private sector has to know all the costs of doing business. Make a wrong estimate and the company is out of business.

Some of the provisions of Obamacare spell the end of health insurance. No limits on claim amounts and no denial for previous conditions, cannot be tolerated in a for profit insurance business model. These values have to be defined. It is grand and noble to want to cover every condition, but as a business model, it cannot survive. As a government model it can survive, governments do not need to make a profit. Can Blue Cross compete against the government model?

The Democrats point to the "unfortunate" 50 million people who are uninsured. Without doing any research, I would guess the group of people from the age of 18 to 40, are the 50 million people without coverage. At their age, they're immortal, why buy health insurance? But with them paying premiums into the system, the insurance companies could offer lower rates to everyone. These young people are not about to buy health insurance, they’ll pay the tax.

Once the government destroys the health insurance industry by eliminating their ability to make a profit, then Obamacare will be free to charge (TAX) whatever they need to kick the can further down the road. The neat thing about this, raising health care rates will be done by a committee not Congress, so it won’t be considered a tax increase. We the people will have no control over it. We will pay for steak and end up getting dog food. Government run programs are a little like public restrooms, they get used and abused.

There is no reason for a company to sell health insurance if they can’t make a reasonable profit. And of course any business where the government tells you what you can or can’t charge for, is one to be avoided, especially if they are the competition. Big government it going to teach private health care insurance a lesson. John Q Public gets to keep their present health insurance until it goes out of business. It’s a little like signing up for a cruise around the world-- it’s when they pass out the oars, that you realize this isn’t quite what you had in mind. Plus the fun part, you won't know the costs of the tour until after the cruise.

Copyright 2012 by Jim Brubaker

Sunday, June 24, 2012

The Difference between the Great Depression of 1929 and Today's

Lately you hear, “This is the worst it’s been since the Great Depression!” Think about it for a minute, know anyone that was around for the last one? They’d have to be about 100 years old. There is only history and statistics to define our present plight. So far, we seem to be off of the charts, of course, it’s still not a depression; it’s just the worst thing we have ever experienced.

What makes this depression different than the 1929 one? Credit, lots of it. Psst wana buy a house cheap, boy do we have a deal for you, sign here no money down. I can’t get 2 percent on my savings in the bank, but I can get 2 percent back on my consumption using my credit card. Want to buy on plastic with monthly payments? 20 percent  or more interest. Of course to point out the obvious, no one had a credit card in 1929.

The banks in Greece and Spain are not running out of money when the depositors make a run on the bank. In 1929 a bank run, would close the bank and put it out of business.

It has been suggested that there could be a possible charge card frenzy in Europe. People would buy on their card until the credit card companies refuse to honor them. This could have global ramifications. Credit has been abused worldwide by everyone and most excessively by governments. What happens if the world goes on mad buying spree and decides to buy and put it on plastic?

Bond yields in the US are down to one percent. Where is the incentive to save? Insurance companies invest their premiums in the financial arena and policy rates depend a lot on investment returns. Their worst case scenario model for future income generation from investments never went this low. The net result, insurance premiums have to at least double and a lot of people will no longer be able to afford insurance. We are talking, health care, life, fire and car insurance to name a few.

The CalPERs retirement plan has a real big headache. Their investment model assumes an 8 percent return on investments. Using the rule of 72, their invested funds double every 9 years. So if you’re a part of that plan and are 9 years away from retirement, the money you have in that fund is not going to double as anticipated. CalPERs did nothing wrong, their business model went to hell. As a retiree, you’re guaranteed X amount for life. X/2 is not an anticipated outcome, but it is a probable one.

Where was the mistake made? Everyone went on the assumption that the short term economic model would continue and it didn’t. The housing bubble collapsed and Congress picked up the tab. Then the financial bubble collapsed leading to massive bailouts and now we only have the national debt bubble. Of course, that’s not a bubble; we can still pay the interest on the debt.

The 17 trillion is real money borrowed from real people. Ever wonder who we borrowed that much money from? And why are they happy with 2 percent interest? But wait, interest rates, given time, will get back to 8 percent when good times return. There is just one little hitch, the interest on the national debt will be too large to pay.

Of course, there are two types of depressions, deflationary ones and inflationary ones. In 1929 our currency was married to gold and silver and it was a deflationary one (the country couldn’t print money). Today's dollar is not backed by any precious metal (Congress can print dollars). Conclusion: our money isn’t as real as the currency during the Great Depression. That’s what makes this depression different from the last one. This one is inflationary and of course Ben is putting out the deflationary fires.

Gold and silver are an option to consider. Not as investments, but as a good store of value. A silver quarter will buy two gallons of gas.

Copyright 2012 by Jim Brubaker

Monday, June 11, 2012

Belt Tightening, Pay Cuts For Everyone, Retirees Included

It looks like the voter is going to hit on government employee wages. Every survey so far, shows the benefits and wages paid to the government workers far exceed what is paid in the private sector. The governor in Wisconsin didn’t get recalled and it looks like he’s going to cut some things a lot of people take as god given rights. The voters that tried to get him fired, have a payback coming.

When I was a kid, everyone joked around about government jobs not being real jobs. You started there, got experience and then moved on into the private sector if you wanted to earn some real money. Over the last 50 years, something changed and it was hardly noticeable, but it sounded like good common sense. “Let’s pay these government employees enough so they don’t quit and go to the private sector.” In hindsight, that doesn’t seem like a very smart thing.

The big thing to notice is that these wage surveys of the private sector, were based on pay for performance. If you were good, you got paid more. From there, each government job is linked to that private sector wage survey. Pay for performance drops out of the equation. Your government pay will keep up with the private sector whether you produce or not. And then there are the government benefits that are locked to the wage rate. So it’s not hard to see how government employees can retire with 100k per year pensions. It went from “the pays lousy, but they have good benefits,” to “The pays great and so are the benefits.”

This happened very slowly over 50 years. When times were good, no questions were asked. Now in today’s bad economy, there aren’t enough funds to pay for everything promised to the workers.

This gets worse if you look at retirement pension funds. At an 8 percent interest rate the funds of a pension fund double in 9 years. Well, rates are about ONE PERCENT. The rule of 72 here, means that the fund won’t double for 72 years. But most of the calculations of benefits were done when rates were 8 percent or higher. Hmmmmmm.

North Carolina has invested their retirement funds in some high performance stuff to get the return they needed for their retirees. Kind of make you wonder if they were Greek or Spanish Bonds?

We have come to a fork in the road. Pay all benefits or pay for services. Not an easy choice. And this is just the beginning! Bad choices are being made every day now to keep things as they once were, and that just isn't possible. I wonder, how long to we have to wait before some of these State financial insolvency problems start to hit the fan? There is no such thing as reserved seating in a lifeboat.

Copyright 2012 by Jim Brubaker

Wednesday, June 06, 2012

Put Fannie and Freddie to Sleep

In the beginning, Congress created Fannie and Freddie to make homes affordable to more Americans. It was a fulfillment of the American Dream, home ownership. There are renters and there are homeowners. Raise your hand if you have owned your home 100 years or longer; so basically everyone reading is a renter.

When the housing bubble took off, everyone was financing homes, and they sold the paper to the banks, Fannie, Freddie and private investors. Any bad performing loans that the banks held, have probably been turned in for foreclosure redemption. Basically the loan insurer eats the first 20 percent of the loan amount on a home (Fannie, Freddie and VA); the bank eats the second 20 percent. Looking back over time, there hasn’t been a span of time where a bank could sustain a 20 percent loss on a home loan with 20 percent down unless you go back to the Great Depression. The bank has an owner cushion of 20%, and their losses start from there, they could sustain a 40 percent drop in equity without sustaining a loss.

But about the year, 2000 everyone was writing zero down “no doc” loans. The two GSE’s, Fannie and Freddie packaged up the paper and sold it to anyone. They made gobs of money and then things started to go south.

Once the bubble burst, you have millions of home owners in homes with no money down and they are upside down on their loan. Fannie, Freddie and the VA are left holding the bag. They guaranteed the loans. Congress realizes that they need to bail out Fannie and Freddie to keep the housing market from collapsing. If it collapsed, the losses would be catastrophic. But if they can keep people in the homes and make payments of some sort, the game can go on. The other thing they needed to do was find a source of low interest rate financing to entice people to buy the homes that they have already guaranteed. The Federal Reserve did that by dropping interest rates to unheard of levels. Notice Fannie and Freddie didn’t drop the prices of the homes they held by much, but they did reduce the qualifying requirements for the loan - - nothing down, but take the original note with very little discount. Second, release the homes very slowly. Fannie and Freddie own these homes at full list bubble prices.

The government guaranteed these GSE’s and assumes all losses. Ask yourself one question. Has the mission statement of Fannie and Freddie changed? Is it to make homes more affordable to our children? Or to cut the losses of these GSEs? Fannie and Freddie have nothing to lose by selling a home to just about anyone with nothing down. A vacant home is on the books as a loss, a signed contract is a performing loan. The problem here, the new owner may make one payment and ride free for two years. As far as Fannie and Freddie are concerned, that’s a good thing; the house is occupied and less liable to be stripped out. Talk about job security, inefficiency keeps the ball rolling.

The issue here isn’t banks, it is Fannie and Freddie, these two programs are a dis-service to the community. They need to be stopped in their tracks and the homes put on the market, what ever the price. We need to sell homes with 20% down payments. Fannie and Freddie are circumventing this common sense rule. What they are doing should be against the law and it isn’t. The banks can’t do it so why should the GSE’s under government management.

It’s a little like when my dog was terminally ill, I was doing everything for him, because he was my best friend, and then I realized, I wasn’t really doing him a favor by extending his suffering, I was just satisfying my needs for his companionship. I had to make a hard decision, and it was something I still shed a tear over when I think back about it.

Reality is right around the corner (of course if you are dealing with deck chairs, it's a lifeboat away). Not sure how this will turn out, but it is obvious, the decisions that have to be made are not being made. Can we trust the political judgment of our government and Congress? I think not. But if we terminate those two (failed) GSE's, pricing reality may emerge in the real estate market. The real irritating thing, is that we know that just isn't going to happen!

Copyright 2012 by Jim Brubaker

Friday, May 25, 2012


Here's a political joke

Here's a real joke that Ben and Tim pulled on us and nobody is laughing!--- (newspaper ad LA Times pg 5A 5/17/2012).

I can just envision a fun-time retirement. I'll mosey down to Walmart and pick up a shopping cart--before they run out. And if I'm lucky Maytag may have a "collapsible mobile home" that I can snag.

Copyright 2012 by Jim Brubaker

Saturday, May 19, 2012

Lost in the Woods

In California, tax income shortfalls have increase from 9 billion to 16 billion in 3 months. Governor “Moonbeam” Brown has proposed new bond issues to raise the revenue. Does anyone think that we are in a better position now to pay more in taxes than we were, when times were good? The logic escapes me. The State governments have to have a balanced budget. And the way to do that is by hook or crook—(Also known as creative financing). The trouble is, we have run out of hook and crook. Kind of looks like Moonbeam hasn't run out of rope to smoke - - yet.

If we shift to Greece, there is all of this doom and gloom. Why? If Greece repudiates its debs and gets off the Euro - - hey, we have another Iceland (A country that can now live within its means after telling the world to “go fly a kite”). Of course the people who loaned the money have a different perspective on this. The rich euro counties loaned money to their poor neighbors without regard to their ability to repay the loans. Mobilizing the military to get them to pay, would solve the European unemployment problem and bring in some cash--hmmm.

In the United States, the government has decided that if you bought a home with nothing down, you entitled to government subsidies to help pay it off. No Money down for a GSE home. And if you are upside-down they will forgive that part of the loan. Of course if you buy a Fannie or Freddie home, no money down, and need to sell right away, you’re already upside-down (with the 6 percent Realtor's fees). On the flip side, if you lose your job, you can live in the home rent free for two years while they go through the foreclosure process.

The debts are real, and the expectations that the debtors will pay back the loans, is nothing more than wishful thinking. The governments of the world have only postponed the final outcome. Reality is just around the corner. To quote Obama, “We are not out of the woods yet,” - - I wonder if he’s noticed that the smoke is getting thicker?

Copyright 2012 by Jim Brubaker

Monday, May 07, 2012

The Gold Behind THIS Dollar is Gone FOREVER

Anyone ever ask the question, “How did gold and silver disappear out of our coinage system?” We had them both until you could make more melting the coins down and selling them as bullion.

Go back to 1920, they actually used gold and silver coins. You had the option of paper, gold and silver. There was no real shortage of metal coins for one reason, they paid no interest. Money in the bank could be loaned to someone else with an expected rate of return.

There was however a bond between the currency and gold and silver. They were one and the same. People that understood a currency backed by gold and silver knew the paper was as good as gold. Well, we have progressed a bit. The twenty dollar gold coin is still minted by the US Mint, but they’re not selling it for $20 anymore.

Inflation as far as the general public is concerned has nothing to do with government; it’s just a fact of life. Things over time just cost more.

The only thing that has kept pace with the value of a $20 gold piece is the Dow Jones Average. A move of 500 points on the DJIA reflects your loss or gain from the year 1890. Not many people today have been holding stock that long. Of course I digress.

The thing to really examine is that in the 1920’s your bank loan was payable in gold to the bank. There was a certainty to that that every banker could appreciate. Plus even if the saver knew nothing about inflation, they were protected from it and got a real return on their savings. Twenty dollars of paper money was just as good as a 20 dollar gold piece, they were interchangeable.

Fast forward to today. Interest rates are at 1% and inflation is at 8%. People marvel at the cost of silver and gold. The real disconnect is between the banks and government inflation. The banks’ loan money long and have to cover short term. Inflation leaves them with a built in loss. In today’s world, borrowers are paying back, a hell of a lot less in real dollars than they borrowed 20 years ago. In the 1920’s with gold as base, this couldn’t happen. A dollar WAS a dollar and time had nothing to do with it. The concept that the dime you loaned would buy the same can of beans 20 years later was a given. In today’s world, that isn’t true. Bankers lose over the long term as do savers. Today’s dollar isn’t going to have the purchasing power it does today, in 20 years.

The masses have been weaned off of their commons sense that revolved around the interchangeability of printed currency for Specie. What if we returned to using silver and gold in our currency? How would it work out? We could value silver at $100 per ounce and gold at $2,000 an ounce.

Examine an old 20 dollar gold piece. Even the newly minted gold coins say 20 dollars. The copper penny had to come to an end in 1982. It cost more for the copper than the penny was worth. There was nothing stopping you from melting the pennies down and selling them back to the government to make new coins. So now we have a copper clad zinc penny (FYI a copper penny 1982 weighs in at 3.11 grams and a zinc clad weighs in at 2.5 grams).

Reality could be a new government edict. Issue a new currency backed by gold and silver (Chances are slim to none on this). But take everyone’s savings and divide it by 100 and convert it to new dollars. We would be back to 1920 and it would take two zeros off of the national debt (don’t think for one moment that it would in any way solve that problem). The penny would again represent buying power (four cent a gallon gasoline, WOW!). It could work, but what do you do if prices go up again? Gold and silver will again start to disappear out of the system. There is a saying, “bad money chases out good money.”

The sad thing is that the present financial system is working “Just Great!” No need to change anything. The European Euro is in its death throes, our real estate market has had the “Cesspool” sign removed and replaced with one saying “Government Financed Housing.” The only drawback, the smell is not going away. The thing that cracked me up today was a comment I read, “Everyone figures that they have to work to the age of 80 before they can retire, and that’s two years longer than they are expected to live!” Go Figure.

Copyright 2012 by Jim Brubaker