Monday, April 14, 2014

Let Other People Work

Driving home from work the other day, I heard on the radio someone praise Obamacare, “I have been unemployed for 6 years and now I have health insurance.” For her, one less thing to worry about. You’ll probably bump into her at Walmart. She’s the one talking on a cell phone, a hundred pounds overweight, in tight stretch pants buying groceries with her EBT debit card. Of course, you might turn around and ask me, "Which one is her?" At that point, we can eliminate the "store greeter" and all of the cashiers. . . . . .

Later I was listening to some TV news program about saving for your child’s college education. I heard one parent state that he wasn’t saving for his son’s college expenses because his son wouldn’t qualify for as much financial aid. My eyes rolled on that one.

Then our "Banana Republic Presidente" stated that “We need more young people to sign up for health care, which they don’t consume much of, so the older folks won’t have to pay as much for coverage.” We have given these kids student loans that they can never pay back. Then these kids find that they have to live at home with mom and dad because they can’t find a job. How does higher education work? They give you a diploma when you graduate. Do you have to pay extra, for a brain to go with it?

College math: Graduate + new(health care -health -e) = Graduate + new car (BMW, Mercedes)
Obama math: Graduate + health care + student debt = "Rags to Riches" (indentured servant for life)

Where is the incentive to work? If you earn money, the government wants to tax it and give it to someone less fortunate. Ever hear of a lawyer suing someone that is broke? Deadbeats don’t pay traffic tickets, absolutely nothing will ever happen to them, no jail time, there is no room. And the car they drive is not registered to them; it’s not against the law to drive an uninsured car that belongs to someone else (of course they'll claim they thought it was insured after they hit you).

Getting ready to retire, make sure your savings are depleted (buy your kids a house). Then you qualify for SSI (Supplemental Security Income) and in California, it’s about $950 a month. Plus if you are a legal immigrant of retirement age, you qualify for SSI without ever having worked a day in this country.

Where to from here? There is a race on to prove how poor you are, so you can get a bigger slice of the pie. You don’t have to earn money to be entitled to a slice, but you become more entitled to a slice as you earn less. Our government will reward non productivity as long as it produces more people that vote for Democrats. The odd thing, if you go out and get a job, you lose all of those free benefits. Doesn't that feel like punishment? Who's to blame, those who provide the benefits, or those that take advantage of them?

Below is a cartoon that came out in 2008 that I really enjoyed, it gets more real with each passing day.
(Double click for a bigger picture)

Thursday, March 27, 2014

Why Even Bother to Save Your Money?

Simple question, why save money in any bank? At half a percent interest your money will double in 142 years. Wow, start saving at these terrific rates! There are people saving dollars in IRA’s and 401K’s to avoid paying taxes. Most of these people are in the 50 to 65 age bracket. The 20 to 45 age bracket are immortal and don’t even need to think of retirement, plus they pay into Social Security. So where are we with this mess? We have a government that can’t pay its bills. 17 Trillion In debt is just a number, it has no association or concept of understanding with the man on the street.

Where will the new rich come from? It certainly isn’t going to come from a savings account built up over 40 years. A million dollars in 1964 was a lot of money. At 3.5 percent interest, you would have had an interest income of $35,000 and never touched the principle. That was about 5 times more than what my dad at the time made in a year, to support our family of 4. In today’s world, that million will get you about $10,000 in interest income and the principle will be completely consumed in retirement after 35 years. This assumes you can live unassisted in your own home and need very little medical financing.

From 1964 to 2004, a zero was added to the price of everything. Houses went from 30K to 300K, and cigarettes went from 25 cents to $2.50 a pack. If that wasn’t bad enough, the price of Cigarettes, steak, beer, charcoal and gasoline have doubled in the last 10 years. The schools don’t teach concepts dealing with inflation and I can see why, it’s a meaningless exercise when the student’s world revolves around sex and music and hanging out. Our government is printing dollars, a lot of them, and inflation is a concept you begin to understand with age, it is a tax on long term savers.

So if we go back to the 1920’s, the banks loaned real money and got real money back. The dollar was backed by gold. In today’s world the dollar is backed by nothing. Why should I loan $100,000 to someone for 20 years at 3 percent interest and at the end of the transaction, the 100K now has the buying power of 10K from inflation?

There does appear to be a way to avoid the inflation produced by government spending when you are projecting for retirement income 40 years away. What you really need to do is buy gold and silver. They are worthless as income generators, but they preserve your savings from the Congressional printing tax (which is a lot higher than most investment returns). Our government has joked around and thinks that the national debt will never be a problem. Call it financial irresponsibility.

Normally in an inflation driven market, real estate is the best medium to be in, but, it is nothing more than a registered tax base, a piggy bank, that can be taxed as needed by the government with no say so from you. If you’re a landlord, the government could even freeze the rent you can charge. Buy a car in California and pay 8% sales tax on drive out. Buy a home, and pay 1% real estate tax every year you own it.

From the 1900’s to the 1960’s gold was about 32 dollars an ounce. Then for the next 40 years it never went below $300. 60 years of 30 dollar gold then 40 years of $300 dollar gold kind of suggests that maybe we are due for $3,000 gold a lot sooner than we think.

The increase in the price of gold only reflects the loss of purchasing power of the dollar. My grandfather lived to be 98 and died in 1964 and he understood inflation quite well. It took me 50 years to understand why his blood would boil when he explained how a loaf a bread was a nickel when he was a kid. He knew what the government had done to him and there was nothing he could do about it. Of course at the time in 1964 I was only 17 years old, and didn’t understand why the increase in the price of a loaf of bread could upset him so much, he had plenty of money.

So if you are starting a retirement plan that spans 40 years, Gold and Silver make more cents at these interest rates. If you don’t give a damn, spend it now and enjoy yourself, the government always seems to have money for those that have none or conveniently run out. Our government wants you to stimulate the economy and buy something. That way when you grow old, you can tell your grandson how you bought a loaf of bread for a dollar when you were a kid. Come to think of it, I just paid $4.29 for a loaf of Russian Rye bread the other day (Jewish Rye would have been more politically correct but the Russian rye has a stronger flavor).

The thing to realize at retirement age, is the value of assets that are visible. The house, the car, the bank account. Your visible assets can ultimately determine what future benefits you are entitled to and the taxes you have to pay.

So what do you want to save, Dollars or Gold and Silver? The older you are the more meaningless the decision becomes; time becomes your enemy. Congress can promise the moon with printed dollars, the poor will follow and the rich will get handed the bill.

In Europe they are proposing negative banking interest rates to induce investors to build new businesses. At the same time, we can get more money back on our credit cards by spending dollars than we can by saving them in a bank. This sort logic reminds me of an incident many years ago when my young nephew was using a hammer, he accidently hit his thumb with it. He was crying and I suggested with a serious face to do the same thing to the other thumb and make them both match. He stopped crying, kind of looked at me and backed away. To this day, I think he considers me to be a few cards shy of a full deck. You have to consider the secondary implications of any logical solution. The future pain might not be immediately apparent.

Compound interest is still the 8th wonder of the world, and we can all wonder where it went!

Wednesday, March 12, 2014

The Randomness of Life Made Logical

As a kid we were always asking the question “Why?” We wanted to know the answers. The trouble is in today’s adult world, there are no real experts with all of the answers, just a bunch of people with their best explanation for the occurrence. If you get a majority of them to agree, then that must be the reason. One thing overlooked, is that there may be no real reason why an event occurred, like a big rise or a large drop in the stock market. Of course if you happen to be a financial advisor, you had better have a reason why it happened, if you don’t, you lose credibility. People demand reasons for what is moving the market, and a lack of reasonable answers, and you’re out of a job. Common sense suggest that the person with the most right answers should have the best chance at becoming fabulously wealthy. So we can deduce that there is a difference, having an answer helps you hold on to your job and if they were the right answers, you wouldn’t need a job.

Suppose everyone in the world seeks to draw a line through 4 dots of news that they consider important. And that line is their interpretation of how the world functions according to them. Nothing is random, everything is planned to happen. And there are those that are in control that naturally pass this power on to others in secret to perpetuate this control through the ages-If you believe this I have a bridge for sale. The real key here, is that everything that happens in the real world is random. If I hadn’t have gone to the pool one day, I would have never met my present wife. My life would have been entirely different. There aren’t a bunch of secret people in control, it only sells well to the dumb and stupid.

Rich people are considered smart, and poor people are considered stupid. So if you are poor, you have to think of an excuse as to why you are poor and at the same time extremely intelligent. It brings to mind health insurance, Congress states that health care is unaffordable, well I have news for them, it is only unaffordable to those that have no money. No one is denied access to treatment, the hospital that provided the service, is stiffed by the patient.

So what we are really looking at is a world that is very random. Most people grab certain items as truths, and intertwine them to explain the world about them. Notice however, to challenge their perceive reality will invite their wrath, their world works for them and in their own minds, everything is very well thought out. Nobody will deny that there are random events, but many events are not considered random. For example take the group: the Middle East, Israel and the CIA, or the group bankers, finance, and US government. Most theories of thought have to have someone for the believer to blame for their current condition. And of course when everything is going great and the money is just rolling in, it is because of their own “superior intelligence.”

So onward to the final step, cycles. Everything in our lives has a cycle that repeats—boom to bust. This is where the fabric of our perception of reality clashes with reality. Build too many houses, nobody then needs one. Raise too many pigs, the price of bacon drops and farmers stop raising pigs. Blame whoever you want when you face one of these crisis. Note that these different items have different life cycles. Pork might be 12 years, and housing may be 8 years. The prosperity of a nation has a cycle. I have suggested that it revolves around the life span average of the population. Since people are living longer now, the time between depressions has lengthened, people don’t drop dead at 50 anymore, they live to be 75 to 80 so at present, there are very few people around to remind of us of our collective foolishness of the 1930’s. And plus you always hear, “It’s different this time, we know better.”

We all know what is going on, the Jews, the banks, the stock brokers, the government etc. control what is happening. These beliefs make our world real and explain the “why” of what is happening even if it can’t be validated by reasonable sources. The trouble is, we are in an economic cycle that travels from boom to bust, we have had the boom and the next part of the cycle is the bust.

The real perceived reality of Facebook, Google, and other internet stocks where everyone marvels at the price levels paid for the acquisition like Whatsapp boggle the mind. Is the game at a point to where absurd values that make no sense are reasonable? We are at a point to where being reasonable and logical has no meaning. My common sense suggests that things are not quite as they appear.

Most people are set in their views. Trying to Change someone’s perspective of the world is next to impossible. It won’t happen no matter how hard and long you argue. Our thought processes have taken the randomness out of our world and replace it with an order that is logical to us. We do not have the ability to look at our environment and assimilate information in an unbiased manner -- we interpret.

What will happen next? It won’t be words, it will be an event. The stock and bond markets are the last two games in play. The bond market is very sick and the stock market is very healthy for investing. It’s a little like skating on thin ice, everything is just great until it isn’t.

Sunday, February 23, 2014

The New Obama Work Week

Politicians always have our best interests in mind when they pass new legislation, but they always seem to screw things up and that is why we have the expression, “The road to Hell is paved with good intensions.”

Employers have to cover full time employees with health care insurance. The employer is kind of OK if he can keep his work force under 50 people. There are also other things that have to be covered for full time employee, so as an employer, if you can eliminate the full time employees, you limit your future liability.

For example take a small shop employing two full time employees and one part time employee. It's open 9 hours a day from 11am to 8 pm 7 days a week. In this case,there are two people working 40 hours each and one 32 hours.

Full time employees get benefits like vacation and sick time, where part time employees get zip. With the Obamacare perspective in mind, there is an alternate employer option to reduce having to participate in the plan. Employees who work less than 32 hours are not covered by the new health care plan.

So examine the schedule below, instead of two full time workers at 40 hours and one part time worker at 32 hours, we now have a new work schedule with 4 employees all working 28 hours a week. As far as the government is concerned, we have an additional person to boot, now employed. The trouble is, they don’t qualify for employer mandated health care. Some readers will jump on me claiming that this is such a small operation that the health insurance mandate wouldn’t apply. I will argue that this schedule could be used by Wal-Mart quite effectively. The new work week is only 3 and ½ days long.


Health care sounded like a great idea, but the end results are not the intended ones (full employment doesn't revolve around a 28 hour work week). Then on top of that, Congress wants to raise the minimum wage. It kind of makes sense, if you are getting the minimum wage now, the health insurance is free. Raise wages and the government will collect more taxes and you might not qualify for free medical. The 3 and 1/2 day work week should give everyone that wants a job, a shot at getting one. Problem solved!--- More money for working at a job you hate and less hours to boot.

Wednesday, February 19, 2014

Are We In A Depression?

I guess if you have to ask, the answer is no, but if you look around, things are quite a bit different than they were 5 years ago. The government now controls the banking industry, the bond market, and the real estate market. And of course, if it’s too big to fail, the government will manage that also. Not to mention that world currencies are a real mess getting worse by the day.

Interest rates are extremely low and there is no line of people waiting in line to borrow for new investments. There are a large number of companies and government agency’s floating new bonds at these low rates. And with low interest rates, savers are not flocking to banks to take advantage of the interest rates. In fact, the real question asked by the consumer, “Why save at these paltry rates when I can buy it now and enjoy it?” The concept consume later and enjoy the interest rate return is gone.

Real estate took off for a while when the money market funds realized that 20 percent down in distressed markets had a very high rate of return as a rental. That hole has pretty much been plugged. Rents can rise, but if the unit is not occupied 12 months of the year, the owner faces a decrease in rental income. Owners don’t set rental rates, available supply does ( i.e. the house could rent for 1,000 a month and be rented only 4 months out of the year, where the house renting for 800 a month might be rented for the full 12 months).

The stock market is truly the last game in town, and a very hard one to regulate from a government perspective. The money the Fed has been pouring into the real estate market and the Treasury market eventually ends up in the stock market. You sell a T-bill to the Fed at face and you get investment dollars that you can plunk into the stock market “for a real gain.” Faites vos jeux.

The real question not being faced is the misallocation of resources. Spending too much money producing or harvesting resources that are not needed, eventually leads to bankruptcy; is what can be considered a bubble. Are we talking about something tangible like real estate which every now knows was a bubble? Or are we referring to other things that show all signs of a bubble, like retirement benefits, and health care.

The government uses economists to project what the economy is doing. And from my opinion, an economist can explain why something happened in the past, but doesn’t have the foggiest idea of what it portends for the future.

The precious metals market displays the two sides of owning something. You either hold it in your hand, or somebody else is holding it in theirs. You can own the gold or the certificate, or you have ETF’s or street name stocks. At some point when everything gets marked to market for accountability, investors will find out that there are 1,000,000 ETF’s and only 100 actual items held in trust. I’m not sure how this will set with the investment community when it is realized. Common sense suggests that it is being abused on a large scale.

So from a government perspective, do you inform the public or misinform the public as to the status of the economy? I think most will agree, that misinformation is the best route, otherwise real information makes consumers more aware and more cautious in their spending. And in the end, being negative about the economy can project itself and make things even worse.

The question you need to examine very carefully is; “Do you believe what the government is telling you about the economy is truthful?” It really doesn’t matter what your answer is, you could have cared less about what government thought when times were good. Let’s face it, we haven’t experienced times like this in our lifetime and our government claims the economy is doing fine. Go figure!


Saturday, February 08, 2014

Idiots Are In Control

I’m amazed when grown men sit down trying to end the civil war in Syria and expect Bashard al-Assad to clear out and turn the country over to someone else with a gun. The US had a civil war and there were about a 750,000 deaths. Civil wars end sooner or later, they run out of grave diggers.

We have a President that thinks a minimum wage of 10 dollars per hour will solve the problems food stamps and unemployment insurance couldn’t cure. The people in China building our cell phones get 60 dollars a week. It kind of makes you wonder, if we are paying too much for flipping hamburgers. We certainly have no way to off-shore the restaurant business.

If you’re in Mexico assembling wide screen TV’s at 60 cents an hour, any job in California is a step up. No wonder we have an immigration problem, Mexico has a wage problem. 10 dollars an hour is heaven, Obama has become the patron saint for illegal aliens.

Obama’ wife thinks that modifying the school lunch program to make it healthy will keep kids mean and lean. The only problem, if it doesn’t taste good, you’re not going to sell many school lunches. Net result; satisfy your customer or go out of business. It is irritating to see trash cans filled with perfectly good food in the name of bureaucracy. The kid doesn’t have to eat the apple; it just has to be on his tray for the school to be up to government standards. The supermarket down the street sells lots of greasy chicken. If you do the math, a trash can full of chicken bones weighs a lot less that a trash can full of uneaten fruit.

Obama just praised CVS pharmacy for discontinuing the sale of cigarettes. The government can screw up my animal fat fried French fries (because they are unhealthy) and at the same time tax me to death if I want to smoke cigarettes. If the government was to ban cigarettes, people would be healthier and live longer, which is ultimately bad for the Social Security fund and bad for government programs that depend on the cigarette taxes. My guess is that CVS figured out that at $6 dollars a pack, the kids would rather smoke dope, and the only other people with money were the elderly buying prescription drugs.

"Obamacare" is turning into one of those nightmares with subtitles like, “What voter did you piss off today.” It’s nice to know that the government needs a lot of young people signing up to pay for all of the old farts already sucking money out of the plan. One is buying “insurance,” and the other is receiving “benefits.” My doctor really likes me, I’m 67 and have private health insurance; he mentioned that he doesn't take Medicare patients anymore (and didn’t elaborate why), but he was firm and meant it.

Ben Bernanke’s last week in office, brought up the image in my mind of a teacher passing out stick matches in a day care center, one to each kid. Everyone was happy they got one and that he was leaving.

Janet Yellen and Jack Lew are Obama’s picks for the Fed and Treasury, the new Laurel and Hardy of Wall Street. Why do I get the feeling that neither one has a restroom key?

The national debt is up for a vote in Congress soon. It kind of reminds me of a turkey farm I use to fly over years ago in Greeley Colorado. There were about 6,000 baby turkeys in a huge greenhouse like enclosure about 600 feet in length. It was heated by two gas heaters, one at each end. I had just taken off the runway when one of the greenhouses caught on fire. The wind had extinguished the lit flame on the one burner and over a long length of time,the unlit gas reached the other burner, all hell broke loose. The smell of burnt hair was overwhelming as I flew through it. What it demonstrates, is that under the right conditions the unexpected can be quite disastrous.

There is a fine line between unintended and unexpected consequences. Congress is full of unintended events. Unexpected events are a surprise to everyone. Fortify your nest egg with a little physical Platinum, Gold and Silver.

Saturday, January 25, 2014

The Stock Market Disconnect

Most people do not understand the relationship between a company and its stock. When a company first enters the stock market with an IPO (initial program offer) they usually issue a fixed amount of shares. In a simplified model, say a widget company wants to raise money. It has two paths to choose from, a loan or sell stock ownership. Usually the company has already exhausted its credit with the banks. So in an IPO the widget company decides to go public. They want to sell shares, but they also want to retain ownership. So they draw up a charter and issue two million shares. Only one million shares will be sold. The owners get the other million. At this point the widget company enlists a brokerage house to go public.

After the initial IPO sale, a new party enters the mix, called the transfer agent. This is the institution that keeps track of who owns the stock from then on. So if you were to buy 100 shares of IBM today, you are not buying them from IBM, you are now buying them from a broker on the stock market. He is selling shares owned by someone listed as an owner by the transfer agent.

Just because you initiate a sell order for stock does not mean that there is a buyer on the other end. Many brokers are “Market Makers.” They buy and hold until a buyer comes along. So if no one wants to buy Widgets at $10, the market maker will buy at $8 or $9, and you guessed it, sell at $11 the next day.

A lot of stocks pay a dividend and this to a large extent determines the price people are willing to pay for them. Since every stock listed has to put out a 10K financial statement each year (called a red herring for obvious reasons), there is a second way to determine stock value. Divide the number of shares into its stated net worth to arrive at a fair market cash value for the stock. Another way to evaluate the price of a stock, is the price to earnings ratio called P/E. During normal times a P/E ratio from 5 to 10 would be considered average. IBM selling at 179 has a P/E of 11 and pays a 2% dividend; Google selling at 1,121 has a P/E of 32 and pays no dividend. So from examining these two stocks, it isn’t hard to figure out that the buyers and sellers pretty much determine the price they are willing to pay for a stock. During the 1970's a P/E of 4 wasn't uncommon for a car company.

Notice that in the real world, 20 percent ownership of the company stock gives full control, not the 51% common sense suggests is needed. Why? -- because in most company votes, the stock owners split down the middle or don’t vote. This pretty much explains how the 10 percent lunatic fringe element gets to elect our President every 4 years.

There is one other thing to point out, and that is taking possession of your stocks or leaving them with your broker in what is called “street name.” Ordering out a certificate usually costs about $25 and takes about a month to get it. That can be a real hang up if you are a day trader. The other method is to leave it in street name with your broker. He actually holds the stock and your account with him, reflects your holdings. The thing that aggravates me is the fact, if you were to buy 100 shares of Google and keep them in street name, there is nothing to stop your broker from loaning your share to another customer (for a fee) who wants to short Google (sell without owning it). It’s kind of like during the banking crisis when I was shorting Bank of America, somebody else owned it, I borrowed it and shorted it. It’s kind of like supplying the rope for your own hanging. The neat thing about having the certificates, reminds me back to the crash of 1987, everyone was waiting in line to get into the Charles Swab brokerage to sell their street held stocks. There were no lines at many brokerage houses if you showed up with a stock certificate and wanted to negotiate a sale.

What we need to realize about the stock is that it is entirely separate from the company it represents. The transfer agent is as close as you get to the company (unless you attend a shareholder meeting). Good dividends paid by the underlying company and their earnings help support stock prices. The price to earnings ratio gives the buyer some measure of how fairly priced a stock is.

There are stock market experts everywhere today, and as long as the market goes up, who needs to pay for market advice? It’s not like stocks are going to drop in price. It hasn’t always been this way, I can remember a goofy little plaque on my broker’s desk in the early 1980’s of a cartoon character holding a sign saying “DOW 2000.” I can remember asking him, “Do you think it will ever get there,” and we’d both laugh. Back then a company could announce a cure for cancer and the stock would drop 15 points, go figure.

If we were to examine the dynamics of a future market crash, things change somewhat. Instead of rising prices and increased expectations, it is a rush for the exits. Good stocks are sold to raise cash and the dogs are held in the hopes that they will come back. The main thing to realize in a crash, is that the values of the stocks are being re-determined and almost all, invariable will be undervalued by quite a bit. In a panic, there is the creation of “air pockets,” where there are no bids for a stock offered for sale. The market makers have closed up shop because of the volatility. You could conceivable bid a dollar a share for Google and get it if it was offered “at market,” and you were the only bidder.

What one needs to realize about the stock market crash in 1929, is that it was a financial liquidation disaster. It was the investors who held the stocks that were taken out and shot, not the companies themselves. We could be approaching another such event. The stock market reminds me of the Real Estate market of 2006. That million dollar house is still there, but it sells for a lot less now. Our government was able to keep that bubble pumped up with government financing. Will there be another stock market crash? Of course, and the effects will be invisible. Google and IBM will still be there; only the price per slice will be different. Of course after eating steak all of these years, you might gag on the switch to hot dogs.

Effectively, the stock market is the only game in town not under government control. Many different companies produce marvelous products and have stocks you can invest in. Don’t get wrapped up in what they make, and buy the stock for that reason. If they don’t know how to run their business, they could become the next General Motors.

So now you know the difference between the stock, the company it represents and the stock market. The one thing we haven’t discussed is the fact that a person can make just as much money in a market going down as well as one going up. I asked my broker once how come he didn’t recommend shorting stocks and he replied, “Being negative about the market is bad for business.”

The easy way to make a million dollars in the stock market, start out with several million--it works every time.

Thursday, January 16, 2014

The Fed Quantitative Easing and Interest rates

A while back, someone pointed out that if homes were selling like hotcakes when interest rates were 6%, there shouldn’t be any inventory left at 4%. As it is, housing is not as robust as it was in the boom days. Bernanke said that the Federal Reserve would curb their buyback plan of 80 billion a month of Treasury’s and mortgage backed bonds.

Let’s use the back of an envelope and do some computations on the Feds involvement in Real Estate. Figure that they dropped about 40 billion per month buying real estate mortgages. If we calculate the number of homes that could be bought, figure the low end price of 200k and a high end of half a million. So the range of home loans purchased by the Fed is from 200,000 cheap ones to 80,000 expensive ones. The November real estate report calculated that 4.9 million homes were sold in the span of a year nationwide. The wild thing that I haven’t verified is that they claim 7 out of 10 buyers paid cash. If that is true, 1.47 million homes needed financing. Extrapolating the Federal consumption of Real Estate paper, on a yearly basis, we get a range of 1.4 million to a little over a half million homes financed. Take out for a down payment, and it kind of looks like the Fed is the market maker for Real estate loans.

The banks do not want to hold low interest bearing real estate loans and I don’t blame them. It puts them in the position of borrowing from their depositor’s short time and loaning it out long time. The Fed on the other hand, in theory, has no problem holding a low interest rate loan for 30 years. The printed dollars come back to them in monthly payments and in the end; it is a zero sum game.

This whole QE problem which some refer to as QEternity, has robbed the silver foxes of their retirement interest. While at the same time our youth are scratching their heads over the big deal that everyone use to make about compound interest being the 8th wonder of the world. Put money in the bank and save it? Why bother? My credit card pays me 2% interest for spending money and that’s more than the bank pays for saving it. We are living with the “I want it now” generation.

The young are not going to put money in the bank long term, but there is still one game in town going strong –the stock market. People with 401K’s can save on income taxes by putting money away for retirement. Where are these money mangers putting the funds? The stock market.

What needs to be realized is the fact that there has to be a correction of sorts. There is no incentive to save for a “rainy day.” If quantitative easing were to end, where does the money come from to finance the next real estate purchases? I’m not about to give anyone my savings for 30 years at 2% interest.

Many things revolve around interest rates; bonds, real estate prices, pension funds, national debt, bank rates, commodity futures, credit card debt and stock market margin to name a few. What we do know is that interest rates should rise if the Federal Reserve stops its quantitative easing. Risk would reenter the market and interest rates would reflect the perceived risk. The net result, the investor would reallocate their financial resources to take advantage of the markets. Change the rules and the game changes. The real estate recovery would probably hit the skids. A doubling of interest rates would trash the bond market and the interest on the national debt would approach one trillion a year. Commodity futures would cost more with higher interest rates, and the stock market would not be the only game in town anymore. Retirement funds heavily invested in long term bonds and real estate would be toast. Banks would be willing to pay more interest on savings which would be a boon to retirees, and credit card debt could become a lot more expensive. This could lead to a drastic drop in consumer consumption.

There is only one market that the Federal Reserve has not insured—the stock market. So if QEternity continues, we can see Google stock hitting $15,000 a share. Of course you say it could never happen, well, Ben Bernanke’s financial shenanigans remind be of John Law and the Mississippi bubble of 1720 in France (which wasn’t really a bubble); read up on it if you think $15,000 a share is excessive.

What we can realistically state about our present financial government solution to our present dilemma, is that it is not self-sustaining. A long term Federal Reserve bailout is only manipulating the financial structure in ways that affect those about ready to retire or are already retired. Basically Congress has no idea on how all of this Federal Reserve money fits in with their budgets, but it appears to work splendidly.

Presently gas pumps will accept $20 bills but not $50 bills. It takes $62 dollars to fill my tank. Do you get the feeling that the $100 bill is the new “$20” that you use to use? Of course it’s not inflation, let’s blame the Arabs,---and we are not even buying their oil, go figure!

Monday, January 06, 2014

Paying for "Affordable Health Care"

When you hear the words “Affordable Health Care,” no two people are going to be envisioning the same thing. We have health care, but we don’t have health care with unlimited funding. Affordable health care is a political rally point, it means something different to each age group.

Insurance is a method used to cover unforeseen events in our life. A group of people realized that they needed fire, life, car or health insurance, and as a group would figure out the cost that all of the members would bear to help the unfortunate ones. This isn’t something you could purchase after the event occurred. But if the rules were to change, to where you could file for insurance after the fact, it becomes rather obvious, that each and every person in the plan would never draw more than what they put in. The insurance becomes meaningless, it fails to offer the protection desired.

When your health care costs exceed your ability to pay for them, health care is no longer affordable. The purpose of insurance is to avoid being put in this situation. There comes a point in many people’s lives, where the cost of medical treatment is not justified because the high cost of the treatment outweighs its short term benefit (with or without insurance).

What we need to realize is that health care is not really that affordable, it never has been. Once we destroy the insurance aspect of it with a government plan, paying extra doesn’t entitle you to more; it is expected of you to pay more if you earn more. And conversely paying less, is an "entitlement" if you earn less.

I have a solution that is a thousand years old and might not be received well. How about if everyone over the age of 18 has to pay two month’s wages in taxes each year or work for two months for the government? Rome built a very extensive road system using this tax plan. Notice you can’t plead poverty; you show up for work or pay to have someone work for you. This would be quite fair, working people today pay taxes well into May of each year.

Everyone has the right to enjoy living in this country; and if you don’t have the dollars to pay your fair share of taxes, the Federal Government could\would make it possible for you to physically work off your debt. The thing that makes me chuckle, is the fact that the people who can’t afford to pay for health care, have given our government the information necessary to implement a "labor in lieu of taxes," plan. Kind of reminds me of Roosevelt's Social Security plan that laid out the infrastructure for an income tax that was eagerly and immediately leveled at the Hoi Polloi.

Let’s get rid of the free ride, everyone will pull on the rope, so we as a nation can benefit. Of course those that still think that “This is still the greatest nation on earth,” don’t need to pull on the rope--they're probably too busy smoking it. I’m just not sure who we are fooling here, nobody wants to pay more taxes and everyone would like unlimited health care. But would they want to work an additional 2 months for guvernment health care? Prosperity isn't what lies around the corner, Reality is lying in wait.

Monday, December 30, 2013

The Approaching New Year

Can’t quite figure out what is in store for us next year. Interest rates are a joke if you’re going to retire, and very reasonable if you want to buy a home. The Japanese stock market has doubled this last year, which isn’t bad. Our markets seem to be doing OK also. With all of the “Knowledgeable Experts” in the market, there is only one path and that is up.

The Motley Fool has sent me emails this year about the latest and greatest investment ideas. I never finished one of their links to the end. Whatever they are touting, they want about 20 minutes of your time to sell it to you (You are going to get rich and you don’t want to miss the boat on this spiel). Give me a break; if I spot a 100 dollar bill on the floor, I’m not going to point it out to everyone. People everywhere are selling a newsletters promising you unimaginable riches.

Headline today, “1.3 million people to lose their unemployment benefits,” sounds pretty spectacular until you realize that it’s for about 6 days—until Congress extends them. Currently there are 10 million people unemployed, and if you drop Detroit from the count, figure about 8 million. Of course the six million people that lost their health care through no fault of their own are not a news item, that’s just tough luck. And according to government statistics, they also all live in Detroit.

The Federal Reserve looks like it will curb quantitative easing. Interest rates could climb 100 basis points (%1.0). This could affect housing and payday loans more than anything else. It certainly won’t curb the borrowing in the stock or commodity markets. And if you're retired, the increased interest might buy a nice treat for your dog.

Robert Reich of Berkeley has been suggesting that the rich have been getting richer and that there is no trickle down into the rest of the economy. He could Reich/right. This could be a good thing. All of those dollars released into the economy went nowhere, except into the bank accounts of the upper one percent. There was no shotgun blast of new dollars into the economy with massive consumption. There is, however, another problem, kind of a time delay. The rich are mortal and die just like anyone else and the kids inherit. The expression “shirt sleeves to shirt sleeves in three generations” kind of suggests that the kids are going to spend the dollars. Three generations is a long time to wait, so grandpa gets to do some mountain climbing in his wheel chair.

When we talk about the government spending one half a trillion dollars on servicing the national debt each year, that is about 1/3 of tax receipts. To put it bluntly, we spend more on interest payments than we do on running the government. That’s pretty much why a paltry 80 billion in cuts can literally cripple the government. We are running on vapors. If you read the news, we have “emerged” from the “greatest recession” since The Great Depression. The EBT food stamp massacre at Walmart was just a glitch. But you must admit that food stamps have come a long way now and the name has changed to “Electronic Benefit Transfer.” Maybe it’s just my imagination, but it looks like a lot of the food stamp recipients need to go on a diet. Of course their Galaxy3 cell phone and their eight thousand dollars in tattoos make me wonder why they really need the food stamps, but I digress.

I think that people are fed up with government. Eric Snowden has become a national folk hero with his release of classified documents and revealing what NSA is doing to us. The thing most people don’t realize is that there are tremendous volumes of data collected. The government doesn’t even have the man hours needed to process the data. Of course once this is realized, why spend billions of dollars on this spy system just to get one possible terrorist? Why do I think that question will never be asked?

Health care is an issue that has no answer. Where to from here? I’m not really sure. People don’t need health care for their kids; they need it for their parents. Of course with the new program, your dad can go for the triple by-pass and your kids get to pay the bill. It’s not quite the program everyone had in mind, but it will work no matter how much you dislike it—the kids were only going to spend the premiums on drugs and sex anyways.


So, for the coming year what do we have? Whatever we had before, we still have, and Congress can’t take that away. The New Year brings in a suggestion of new consumption. The words “Fat and Fatter” come to mind. Colorado may add to the frenzy of food consumption with the legalization of marijuana— It will be known as "The munchie State." Even Chris Christie is dieting; I think that he realized that he is too fat to be considered a Republican. Look for the stock market to double, it’s the only game left in town; reality has absolutely nothing to do with price valuations. We have been told that the “Great Recession” is over, implying we are close to getting out of the woods. That's a relief, shopping carts don't push too well in the dirt, especially if everything you own is in one.

Since I am not selling a newsletter, I have very little to predict about the coming year that could make us rich. But here's hoping that the new year brings better times to all of us.

Happy New Year from our family to yours and God Bless everyone.