Sunday, January 08, 2017

Back Soon

Happy New Year Everyone.

I haven't given up posting, we bought a home in December and have been moving into it, the last 3 weeks.

Right now, I have a tendency to fall asleep if I sit down. I should be back to par next week.

Sunday, December 04, 2016

“Dumpster Journalism”

50 years ago, when you picked up a newspaper, you got a report of tragedy’s, deaths, assassinations, wars and weather reports along with the sports and business pages.

In today’s world, we have people writing the news before it happens. The US Presidential election comes to mind. The problem is, it didn’t happen as written.

What is not appreciated here, is that the manipulation did not go as planned. Journalism failed the common reader by interpreting too many facts and arriving at a conclusion that the reader was expected to reach after reading the article.

The Great Depression of 2006 is now being referred to as the Great Recession of 2006. My point that I made in the past, was that the people of the 1929 Great Depression had no idea that they were in great depression. Something was drastically wrong and they had no idea what it was. It was only when you picked up a history book in the 1950’s that you discovered the Great Depression. It was only when things started to get very noticeably better did people look back and see what they had been in.

I used the newspaper example of how Hillary had the election won to show how the truth about the economy has been stretched a tad. We are being told the economy is just great. 95 million people no longer looking for work and 45 million on food stamps. The fact you can earn more money from an interest perspective, spending money, rather than saving money turns every rule about financing upside down.

The stock market hits new highs. Most all stocks are divorced from the company they represent, the only thing that connects the buyer to the stock value is the dividend. Every stock has an owner and it is not the company (from a technical aspect). The price is determined by what another person is willing to pay for it. So a drop in the price of IBM of say $100 would revalue the net worth of shares issued, but not reflect in one bit the real assets of the actual company.

Right now, the world of journalism says everything is just great. Kind of reminds me of the many newspapers that flat out stated that “Donald Trump could never be elected President.” A reality check seems to indicate that whose ever opinions are available to us right now, these pundits don’t know any more than we do.

Admitting that we know nothing, gives us the ability to discard common sense if we feel it necessary. We all want to be comforted thinking we made the right decision by looking for company that shares our views, and that leads to problems. The herd is often wrong when it really matters.

The problems that we are about to face have been around 6 to 8 years. My only advice, if you have a job, keep it for the next two years and see how things progress in the immediate future. I get my first Social Security paycheck in two weeks at the age of 70 and I am still working.

We do have to realize that whatever solutions are proposed to fix the current problems will be solved by people who have saved money in the system (you can't tax people that are broke). The most visible taxable assets are wages, real estate and bank savings. What we need to understand is, the whole population is the target for any solution to the problem, not some sort of spend until we drop, financial boondoggle by Congress. We could end up with a Value Added Tax for manufacturing and production. In the future, for Congress, it should be, "Real money in, Real money out."

Remember when you buy a newspaper, they give you what you want to hear, otherwise you select another news source. So, in today’s world you get to pick your own perceived reality. The trouble is, there is no feedback until it is too late, if you are wrong.

Saturday, November 12, 2016

The Democrats Cannot Believe the Results

Mr. Trump won the election and we have Democrats protesting out in the street even before he takes office. I remember when Obama won, and I sucked it in and said he’s our President now. What he did over the next 8 years irritated the hell out of me! To say the least.

I get the feeling from these protestors that Democracy is great, only if your candidate wins. And the sad thing is that most of the losers in this race were one issue voters; global warming or the woman President fulfilment goal. I get the feeling that the protestors are either incredibly stupid or have been brainwashed by all of the nonsensical ads about Trump. Many are students that were confused as to why they can’t get a job after spending big bucks on college.

The issue we have here, is that the present protests are over a candidate that has never held a political office and has not yet taken the oath as the next President. He has no political record to censure but yet these disrupters of our Democracy, do not give a damn. They want him out before he has even been in.

What we really need to look at, is that we have Donald Trump, a dyed in the wool Democrat, elected as a Republican to be President. He did not fit into the liberal establishment of being politically correct. If you say something that the establishment doesn’t want to hear, you are labeled racist, homophobic, sexist, misogynist and so on. Most people in this situation, shut up and keep quiet. Donald in this case, said bring it on, it won’t stick.

We have come to a point now, where this politically correct police force is visible. Tell a black joke and you are a racist. Tell a religious joke and you’re anti-Semitic. You’re not graded on how funny the joke is.

The real joke is on the political system. It was too corrupt to select real people to run for office. The Democrats had morphed into socialists. Trump was considered harmless. He beat all the Republicans in the Republican primary, got on their white horse and then slayed the Hillary dragon.

The one thing that really stands out, is that the news media failed us and showed everyone how manipulative they are as a group. The misinformation they fed us during this election, calling it news, was deplorable. Everyone thought The Donald was exaggerating and bashing the media unfairly.

The Democrats became the party of the rich with socialism for the poor, while the party ignored the middle class. The socialistic Democrats that voted for Hillary, didn’t see Trump as a Democrat. The Republicans were wondering what made Trump a Republican; they were satisfied with the fact that he wasn’t a “damn Socialist” and liked the second amendment. Sooner or later the people of this country will come to realize that the Republicans, without knowing it, put a Democrat into the Oval office.

The good thing is, we have elected a President with a lot of common sense that will speak his mind and is not beholding to the lobbyists in Washington D.C. Obama the politician can probably take credit for the Trump Presidency. He pissed off the wrong person one to many times. Obama, your fired!!

The neat thing is that both parties won. The Republicans got the man they voted for and the Democrats are too stupid to recognize a Democrat, unless he's holding his hand out for a bribe. "Draining the swamp" just might cure that.

Editors note:
I define a true Democrat as representing the middle class

Monday, November 07, 2016

The Election

If you look at the polls, the split is 44 to 45 between Hillary and Trump. Add them together, and what do you get? 89%

The people that will determine this election are the undecided, the invisible 11%. I am not sure how tomorrow turns out. I'm hoping for a Trump victory.

Faites vos jeux

Tuesday, October 25, 2016

The Democrats won’t raise taxes on the middle class—don’t believe it

Just how true is the statement that the taxes for the middle class will not be raised? —They will only tax the rich? Believe that and buy the Brooklyn bridge while your at it.

If we examine your pay check stub, you will see the full amount paid to you with the Federal and state taxes deducted. Notice that there are other deductions, that are called payroll taxes for Social Security and Medicare. Technically you get them back some time way in the future, so they are not really taxes. The employee pays 6.2 percent Social Security tax and also a 1.45 percent Medicare tax which ad up to a total of 7.65 percent. And naturally your employer matches those amounts. In reality, the employee pays the full 14.3 percent, the employer anticipates this as part of your salary before he even hires you.

It sounds great that the employer pays half, but if you think about it, wages are a business expense. When you look at your paystub, you see Social Security and Medicare deductions at 7.65 percent. You’d look at your paystub a little different if it reflected 14.3 percent in payroll deductions.

If the administration decides to raise Social Security and Medicare rates, they can do it and this is not considered raising your taxes. It is only deducted from the first 127K of earnings. I would guess that people earning more than 127K a year have progressed beyond the middle class.

So if you are like me, with all of my 401k deductions to reduce my taxes, I still get hit with 20% income tax. Add on to that the 14.3 percent for SS and Medicare, and we arrive at about 35 percent of my paycheck is eaten up by government deductions and income tax.

Let’s throw in some health insurance, my employer contributes $11,000 a year and I contribute $5,000. I’m not even sick and if I was to get coverage privately, it would be rather pricey. Now if your employer doesn’t offer insurance, guess what? You now have to purchase it on your own by law. Ask yourself one question, are health insurance premiums in the private sector based on how much you earn, or are they the same for everyone? And the government has a plan for you called Obamacare. If you are too poor to afford insurance, you get full coverage. If you make some decent wages, you can only afford the plans with the high deductible that render them worthless.

Now a couple of weeks before the election, the state insurance boards are announcing new increases in rates for insurers in the following states because of Obamacare. Here are a few of them; Tennessee: 44% to 62%, Pennsylvania: 33%, Oklahoma: 76%, Nebraska: 35%, Minnesota: 50% to 67%, Illinois: 44%, Georgia: 32%, Alabama: 36%, Colorado: 20% and Iowa: 43%.

So let me get this straight, employers don’t have to pay health insurance for workers working under 30 hours. And by God they deserve $15 dollars and hour. So, you end up working two jobs to get 40 hours and are forced to purchase government health care insurance at your own expense.

How do you raise taxes on the middle class when you move them to a lower class? Donald Trump can end some of this miss direction on the middle class by getting rid of Obamacare. Raising the minimum wage just insures that corporations move overseas. The minimum wage has never been a wage to elevate people above the poverty level; It has been an entry level wage for employers to train new employees.

Where too from here? I hope we end up with Donald Trump as President. He isn’t a politician, and this is what has Washington DC worried. IMHO he is what the country needs to get back into the groove of being a major power. Obama was nothing more than a tourist with an unlimited expense account for visiting foreign countries. The era of “ Obama the tourist,” needs to be retired.

Editors Note:

Normally this blog doesn't take political positions and I don't apologize for not being politically correct. But I feel it necessary to take a stand. The news organizations of this country have selectively decided to hide "The Great Depression" that we are in, and sugar coat the present economic conditions to sway the election.

Sunday, October 02, 2016

The Rush to Buy Investment Rentals.

Consider this, landlords do not set rent rates, renters do. The rent paid is the amount paid per month times the months rented in a year. For example, if you rent out a house for $5,000 a month and only get rent for two months out of that year, the effective rental rate is $10,000/12 or $833 per month.

Right now if you want a decent return on your savings, you have to commit to rental real-estate. It is paying about 6 to 8 percent. Notice the banks are paying .05 percent interest. Real estate prices are determined by what the monthly payment is and supply on the market. So at low interest rates, buyers can afford to pay higher prices.

For example, a 300K nest egg in the bank returns a retirement income is .05 percent which is $1,500 per year, a pretty paltry amount. Take the same money and buy a 3-bedroom home, and rent it out for $1,500 a month. Generated income over a year is $18,000. $18,000/300K equals 6% interest. An investment in rental real estate multiplies your retirement income by 10 times. Historically a 6 percent return on rental property was considered the break-even point on rental returns. Most successful landlord’s years back, were generating about 20 percent return on investment. From this you can deduce that present purchase prices of real estate are double or better of what they should be. In other words, house prices are artificially high because of very low government financing for rental real estate.

Equilibrium in the past, was when house payments per month was lower than the monthly rental rates. Renters paid more for the freedom to pick up and move when they wanted. Today our governmental is forcing a misallocation of resources into rental real estate because of the abnormally low bank interest rates. Notice that the sales price of a home determines the owner’s monthly payment and supply determines monthly rental rates. So in essence, the consumption of real estate for rental use has created a shortage of homes at reasonable prices for future home owners

Presently three things are true. Interest rates do not reflect the rate of risk; they are abnormally low. Second massive amounts of money have been redirected into real estate investment rentals. Third housing prices do not reflect the true utility value of the asset; they are excessively overpriced due to an artificial lack of supply. The economy is adjusting to these new conditions being true. The only thing that has really happened is that there has been a massive misallocation of resources into rental income property. The REITS purchased the real estate bubble of 2007 and saved the banks. Our government is now the new piggy bank writing home loans through Fannie and Freddie. Real banks won’t even touch the very low interest rate loans; you just can’t loan money at 4% for 30 years when your depositors can withdraw their fund in 3 months and move to a better interest rate.

Once people start moving home or doubling up on apartment rentals, this creates an unanticipated surplus of rentals. Most rentals were bought on the projection of real anticipated dollars that other investments couldn’t offer. A surplus of rentals means that the lower priced unit gets rented for 12 months. The trouble is, most of these real estate trusts, bought on the assumption that rents could go no lower than X amount and now their projected cash flow assumptions are beginning to be way off of the mark. The idea that they could set rental rates was wrong. Their rates only determined the number of months the unit would remain vacant.

Another thing that is not in the REITS investment model, is wear and tear. Put 3 families in a two-bedroom rental and it is trashed after a year. From there, it is only downhill. This is far different that the REITS profit projection model suggested. Plus, your investors were happy with 3% returns when the market paid .05% but when rates rise, investors will want to withdraw their funds from the REITS.

What we are looking at here, are home prices that are absurdly out of whack in relation to rental returns. We are also looking at interest rates that are absurdly out of whack in relation to risk

We have gone from a housing bubble that collapsed in 2007. The government assumed all financing after the fiasco. What followed was a misallocation of resources with the low interest rates that sponsored the new rental real estate investment boom.

So if you can find a rental property that will rent for 100 times the sales price, buy it. All you need is 20 percent down. The property will pay for itself in 20 years. From there, your rent checks are your retirement nest egg.

The only other game in play, is the stock market. Faites vos jeux!

Interest rates reflect that there is no risk in the world and everyone is entitled to purchase whatever they want no matter how little cash they have. Do you get the feeling that this is not going to end well?

Of course there are the old standbys; gold, silver and platinum. With .005 percent interest rates, they seem to be very good friends.

Tuesday, September 20, 2016

Air is Free

Just thought I would throw this out there. An individual consumes 19 cubic feet of oxygen every day. And when you put that in pounds, that’s about 1.69 pounds.

When you burn a gallon of gasoline, it consumes 23.22 pounds of oxygen and you get water and a lot of CO2.
I burn about a gallon and a half of gasoline every day going to and from work. That is about 34.83 pounds plus the air I breathe 1.69 pounds = 36.52 pounds of oxygen every day that I consume.

So if we take my total consumption per day (36.52 lbs.) and divide it by what I need to exist (1.69lbs) we get 21.61. From that we can conclude that the “average” person consumes 20 times the oxygen he needs to sustain life. Each additional person is accelerating the CO2 rate accumulation rate in the atmosphere, by a factor of 20 (I didn’t even include factory production in the calculation so it is on the low side).

The General import of the above is that global warming is a reality. Historically we can probably attribute the fall of many ancient major cities in South America from a lack of firewood. All the trees could have been consumed for fuel within a 100-mile radius. After exhausting their ability to heat and cook the inhabitants would move to where energy resources (wood) were more abundant. This would have been a logistics failure that made life economically unfeasible. Net result, they moved.

Now let’s look at US government financing of the national debt. The current interest on 21 trillion at one percent is about 210 billion. If it went to 8 percent, the interest charge would be $1,680,000,000,000. And that is about what we take in, in taxes each year. Do you get the feeling that we have run out of firewood? Common sense suggests that our financial problems, just like firewood in the above example, have solutions that are very much removed from reality, but not from the follies of man.

Monday, September 05, 2016

What’s in your Wallet?

The credit card ads on TV amaze me. Credit card companies are giving card holders 2 to 4 percent back on their purchases. The new concept of money is that, you get nothing for saving it in the bank, buy yet you get money back for spending it.

Ever wonder where that 2 to 4 percent rebate came from? It has to come from the retailer. Kind of takes me back 30 years ago when you asked the store for a cash discount and if they said, no, you gave them your credit card. And you could stick it to them in varying degrees. Master Card charged the retailers more than Visa did.

If you can repay the credit card charges at the end of the month, you get a little cash back. Realistically if you made 120k a year, that’s about 10K a month to spend—$200 to $400 dollars in cash back if you put everything on a credit card.

The question you need to ask is, “Where does the credit card company make its money?” And it certainly not by giving you cash back for each purchase. If you screw up, you get to pay 16% interest on your balance. Not a bad deal for the bank.

So in today’s world, the phrase “What’s in your wallet?” has a good ring to it. I have trouble with the concept of spending money to get money back. It smacks of a snake oil salesman.

Of course, todays grads get the student loan and then the 250K home at 4% and everything else on their credit card at plus 16%. Sounds a little like the company store routine. We know what’s in your wallet, absolutely nothing, for the rest of your life.

You wanted it now, and decided to pay for it over time. The trouble is, forever is a little longer than you had in mind. Compound interest is still the 8th wonder of the world.

Wednesday, August 24, 2016

Obama-care Obfuscates Health Care Coverage With Insurance

You want insurance, you don’t buy it when your house is burning down. If you’re sick with health care issues, this would not be the time to shop for health insurance, there is none that you can afford. A majority of the people are in tune with how health insurance works, you buy coverage before you need it. If you are sick and can’t pay your bills, whatever the government gives you is not health insurance, is government medical coverage. Insurance is for people who are not sick. Get sick and you can wish you had insurance; the trouble is you’re a day late and a dollar short.

Obamacare is called “insurance,” but it is really government subsidized health care. The insurance aspect is not there. You want the coverage after the fact. Fire Insurance is not sold the day after the fire. So in essence, the people responsible enough to want coverage before they have a problem, now have to pay for those that were too cheap to pay for what they may have needed later in life.

How long can this work? My grown son has to have insurance, and he doesn’t need it, most kids will pay a doctor $300 total in a time span of 30 years, not $2,000 a year. Trump can kill this albatross. Obamacare is not health insurance; it is health care program destine to destroy private plans by destroying them with unfair government practices that make it unprofitable for the private sector to operate. You cannot sell insurance if someone else says that you have to cover those that didn’t buy before they needed it. The governments plan of redefining insurance does not make the concept better, it destroys it.

Of course we will never figure this out until the last health care insurer goes out of business. The neat thing about it is that it is a way for government to double each taxpayers tax assessment without raising taxes. And you can bet that the extra money collected isn't going for health care.

Monday, August 15, 2016

Lunatic Congressional Financing

The average citizen thinks that Congressmen have an intimate knowledge of government financing. That’s a totally wrong assumption. Picture a black box with an opening on the left and one on the right. Insert one tax dollar into the left slot and low and behold two dollars drop out of the right hand side. Nobody in Congress knows what the internal machinery of the box includes, but it works. The amount they can spend on the budget is twice what they get in tax collections.

There is a not so small black box called the national debt. It doubles in size every 10 years, but it’s no big deal, there has never been a problem with it. Since it’s just a bunch of numbers, it’s size lies in the virtual world of mathematics. You couldn’t trip over it even if you wanted to.

Then remember the archaic banking practice of saving money for retirement? You’d give the bank a dollar and 12 years later get back your dollar and another one as interest. There was no black box, you doubled your money in 12 years. It was called “Compound Interest,” the Eighth Wonder of the World.

In today’s world, you put a dollar in the bank and in some countries, you’ll get back 95 cents a year later. So if you examine the basics of banks loaning depositor’s dollars, that is fading into oblivion. All the bank does anymore is regulate transactions between different parties.

The thing to remember during the Congressional emergency of 2008 that lead to all of the quantitative easing, if the banks had failed, the US Government would have had no financial infrastructure to borrow from.

The problem today is this, there is absolutely no reason to save money, there is every reason to spend it. With that reasoning, there is no new money left in the banks for the government to borrow. Plus those retiring, are withdrawing the money deposited into the banks over the last 50 years. What the government is losing on the national debt on the back end from redemptions, is not being made up for on the front end.

Of course the financial markets seem to think everything is just great. You can draw all sorts of graphs on the bond market, but when interest rates approach zero you enter an undefined world that changes the perspective of how people view money.

What we do know is this. The government borrowed about 24 trillion dollars and has spent every penny of it. Congress knows they can’t pay the interest on the amount borrowed (the national debt) if rates were to rise to 8%. The banks have no more real money for the government to borrow. The Treasury and the Federal Reserve are printing dollars. T-bills are being presented for redemption and the Federal Reserve is purchasing every bill presented. This is what keeps the interest rates low. If there is no buyer, rates go up until there is a buyer.

What we have here is a situation that is artificial. As rates approach zero, the definition of a bond deteriorates. At zero it has no meaning. You can borrow for free. Low rates imply low risk, when in actuality, most of these new government homeowner borrowers couldn’t come up with 5 percent down, to close the deal. Loan qualification tests are now meaningless. Negative interest rate bonds are laughable. The trouble is, there are many people out there that think we are in a viable market. At some point people will realize that the emperor has no clothes, and then the game will then be over.

Carry the logic a step further. Scenario one, when people realize they are worthless, they will try to sell them for half price. On a one-year bond, that implies an interest rate of 50 percent. Of course that will never happen, the Fed will buy all bonds. Scenario two, the government will print 17 trillion dollars (electronically) and pay off the debt. That would be the effect, but in reality, they would print dollars to pay for all government payments to the citizens (Social Security, Welfare, etc). This would allow them to continue to “borrow” (Print) and kick the can down the road. The sad thing is, we are already there.

My only question, can we ever get back to a reasonable interest rate for savings? I am afraid the answer is no. Hyperinflation solves all of these problems by making new ones you wish you’d never met.

The great thing about credit cards, if a Starbucks Latte is $4,000 you don't have to plunk down or count out 40 100 dollar bills just for a cup of coffee. Kind of makes you smile for all the wrong reasons, go figure.