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


Joseph Oppenheim said...

Zero interest rates, 8 percent inflation, 18% unemployment<<<<<<<<<

Invent numbers and you should keep on making wishes.

Zero interest rates? How come I can get about 3-5% from great companies which raise their dividends each year? Or, how come I get about 4% on my FDIC-insured CDs? (secret - locked them up several years ago - can always exit them with minimum penalties - I like guaranteed profits.

8% inflation - another invented number - heck, homes, arguably a person's largest purchase, are still way under all-time highs-- it's called DEFLATION with homes, although the new housing boom has begun, so up from their lows - so, for me, time to buy (had exited RE in 2005), so why not pick zip code 92127?, it made the Forbes 500 most expensive zip code list 433 out of about 43,000 zip codes - top 1% - location, location, location being perhaps the 3 most important RE considerations - plus, once in lifetime, perhaps, short sales using cash....I never liked having debt.

18% unemployment - another invented number - baby boomers are retiring, maybe earlier than planned for some, plus many of the rest still have at least part-time jobs and government benefits for low wage earners, etc.

Keep on wishing!

Jim in San Marcos said...

Hi Joseph

I’m not inventing numbers; I have some IRA funds that still pay 3.5. After you reach 62 the bank can’t hold you to the long term locked in price. That a good thing. The last 5K I put in the account is getting one half of a percent-go figure. No argument over stocks, my Mattel pays a 3 percent dividend.

As for inflation, the government index is a joke. Food and energy have been dropped from the calculation (you have to really read the fine print here). Rental costs are a part of the rate, but buying a home is not part of the index. Housing prices out here are still at bubble levels, they haven’t gotten back to pre-bubble levels yet. So to say that they have dropped and that is deflationary is kind of a moot point. Rents are realistic, but from an investment return standpoint, being a landlord in California isn’t going to make you enough money to justify the headache (in most areas). You’ll earn every dollar. California City has a nice 1800 sq. ft. home going for 71k that sounds tempting—population 14,000.

As for unemployment, in California it is about 20% and in Nevada about 22 percent. To quote CNBC “The government's most widely publicized unemployment rate measures only those who are out of a job and currently looking for work. It does not count discouraged potential employees who have quit looking, nor those who are underemployed — wanting to work full-time but forced to work part-time.”

I am very skeptical of government released figures. Social Security COLA’s are linked to the CPI. Federal subsidies to the states for unemployment insurance depend on the going rate of unemployment for the state. The incentive to understate real values on a governmental level is built in to avoid “excessive expenditures.”

Joseph Oppenheim said...

Jim, a few things....

1. I say stocks of great companies with modest debt which pay good dividends and raise them each year are more important now than most times because they represent real assets. I suspect China is and will be buying tons of them instead of holding so much Treasury debt or even Euro, etc debt. BTW, I used to own MAT, a fine stock, but I prefer HAS now......almost 4% dividend.

2. As for food, I do know food is a bargain for anyone who cares to be wise about shopping (coupons, sales, cutting out foods which get expensive.....heck, if all beef got too expensive, vegetarian is fine, etc, etc - the key with everything in life is to be flexible. As for energy, I always lived near work (RB when in CA), plus in SD can get away with little heating and no a/c....and since a vacation place, no need for expensive vacations ....I've found real fun is with the simple things in life.

3. As for just are fooled.......America has a crisis with OBESITY....however you run numbers, people get too much food, so how bad can things be except for a slightly elevated number of people?......during the Depression in the 30's, people were selling apples on street corners....Pulleeeze....America is in a mess mostly because of GREED...they want more than they need.

3. RE, I repeat......location, location, location......bottom was about 2 years ago, right now OK, but not great, overpriced is 20x(annual rent)....CA City?....Mohave way......heck, can get homes for about the same price in is SOCAL.....but I don't think either is places attract higher risk tenants (gangs, etc, etc)...if can't afford quality, stay away.

Anonymous said...

I agree with Jim's assessment of zero interest rates. Sure, you can find higher rates by increasing your risk, or living off a locked in investment choice of the past. However, zero rates refers to the current bank rates.

The older generation is shielded from the full effects of the current unemployment situation. They can just retire early. You may need a child fresh out of college to fully understand what is going on to the younger generation.

Joseph Oppenheim said...

Anon 6:21<<<<

Great, sounds like you are well into wishing. Zero interest rates may sound less risky to you and that they are guaranteed to give you a negative return wrt inflation.....congratulations.

Anonymous said...

Unemployment is not as bad as the numbers might suggest. I live in No.Cal., and there are many businesses that operate under the radar, cash only.
Go to any home improvement store in Ca. early in the morning.
There will be seveal dozen people hanging out in the parking lot.
When a contractors vehicle pulls in
(unmarded, unlicensed), the truck is surrounded by workers.
All cash, no income tax paid by either employer or employee, no business license.
And any flea market has a variety of businesses being run,
"off the books"

Anonymous said...

Interesting.So are you suggesting that many people on the unemployment bank roll are not actually unemployed, but have other businesses?

Anonymous said...
This comment has been removed by a blog administrator.
Jim in San Marcos said...

Hi Anon 7:37

I think that Anon 11:57 is observing the underground economy, that avoids all government regulation.

10 dollars under the table is equivalent to 15 dollars above board. And of course the employer avoids about an additional $8 in other fees.

A lot of people on Social Security at age 62 go this route. Every 2 dollars earned legit is a one dollar loss in benefits.

Our government doesn't keep statistics on under the table workers---yet.