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.

Tuesday, August 09, 2016

The Great Depression 2006 vs Doom and Gloom

I've been writing this blog for quite a while. People in the remarks section tend to think that I am hunkered down in a basement investing in nothing, while waiting for the Great Depression to pass and then make a killing.

If that is what you think, you are sadly mistaken. This blog is about pointing out the misinformation out there. Especially from government. There was no great recession of 2007 until just recently, Obama verified it, 9 years after the fact.

If you can comprehend that we are in a Great Depression, we have the financial information to make a killing. We have some stocks paying over 4 percent dividends. We have rental real estate in some parts of the country that will return 20% with a lot of hard work. Precious metals are a good place to park spare cash. The investor can make just as much money in a rising stock market as in a falling one. The trouble is, it is against human nature to short a stock.

There are stock and bond options out there that are thinly traded. A $100 option contract in the last crash on October 20 1987 returned $86,000. I was greedy and had to settle for $43,000 two days later. You have to purchase options when nobody thinks it has a snowballs chance in hell, that is when the price is right. If I was to tell another person my option strategy, it would double my cost of options. Most options expire worthless, so I don’t need to throw away twice as much money for being your friend. The real key is to establish a position in good times waiting for the inevitable.

The only real place my wife and I have stopped investing in, is the Treasury Bill market. We use to make $10,000 a year on rolling over 3-month T-Bills. Why would you give our government $140k and savor your chops over $700 in interest income? I don’t know anyone who is dumb enough to invest in Treasuries, but whoever they are, they deserve to lose every penny invested. The thing that bothers me on this point, is that I don’t think I have ever met anyone that stupid. The government is covering something up here. Of course we could call it the greatest robbery of the elderly's interest savings to have every been conceived.

So what do we have here? A Great Depression. Am I in a hole waiting for it to blow over? Hell no. If you know where you are, financially, you have options; if you don’t know where you are at, you have none.

Is this blog about doom and gloom? My answer, no. It’s about knowing what is happening and making money off of it. Money is a tool, used wisely, you can carpenter many things. The real question that time will tell, are you a good carpenter? May you have the time to become a good one, remember that experience is not a one day class,.

Sunday, July 24, 2016

The Coming Election and Reality

Obama says that the economy is hunky dory. And Donald Trump thinks that we are going to hell in a hand basket.

Let’s address the issue. We are in a World Depression that is beyond anything experienced by man in world history. You can get 6 percent back on a credit card purchase, but you get zip back for money in the bank. 60 million people have stopped looking for work and 43 million people are on food stamps. The government message is this, "Don’t acknowledge the depression, if you do so, it becomes self-fulfilling." We do not have to worry about it becoming self-fulfilling we are there.

The options we have from here are several, we need to rebuild our infrastructure. We can afford to spend trillions on roads, water and electrical. We cannot afford to spend any more on Government Quantitative Easing programs. The odd thing is that the money borrowed from savers got us to where we are now. The government cannot pay back what it has borrowed or even pay the interest on what was borrowed at a fair market rate. Government is ripping off retired people of their interest income, that they expected to be generated from their savings.

From a realistic point of view, 20 to 30 cents on the dollar is about all the government is going to pay on its debts. Just what does that mean? It means if you have savings in the bank, you are about to lose 70 percent of your purchasing power through inflation, government taxation or a new currency. The neat thing, if you are broke, it is totally painless, you have nothing to lose.

What you have to realize is, the Federal Reserve, the Treasury and Congress have turned our financial markets upside down. The expected outcome is unknown. The people in charge of this financial economic experiment, have no historical guidelines to gauge what is happening. The only thing that can be deduced is that this is not going to end well, when it ends.

We didn’t build this country spending money to get 6 percent back, we built it saving money for a rainy day. We haven’t saved anything and now we have a rainy day. It’s a little like going camping and using the toilet paper to start the fire. You’ll enjoy the meal and then discover that there is no toilet paper. It was not a problem until it became a problem.

Friday, July 22, 2016

Congress and Laws

Some Congressman by the name of Elijah Cummings is screaming that we need to pass more laws to control guns and violence. He doesn’t even impress me as an adult, he’s one of those that could panic theater viewers if the rest room lines were too long

Think about it for a minute, have the laws against handguns eliminated murder? People have killed others since the beginning of time. Everyone in this country is entitled to buy a gun before they commit their first felony. What we need to realize is that laws are there to prosecute people that violate the written law. They do not prevent people from trying to kill you. I remember back 30 years ago, a man in Cheyenne Wyoming, kicked in the restroom door on a women’s restroom and took pictures of the girl in there. The police arrested him, but he had violated no laws that could send him to jail. So they released him. Later, Wyoming fixed that by passing a law making it a crime. Of course, a week later, they found the gentleman tied to a fence post with his testicals removed.

Laws do not curb behavior; they only threaten to you with jail or prison if you get caught. If the driver next to you cuts you off and you get mad and kill him with a hand gun, you’ll get 5 years if you are caught, and with good behavior you’ll be out in 2 ½. Your odds of getting caught, about 1 in 5.

Hand guns, when mixed with alcohol and drugs, become a lethal combination. Many will go to jail for doing something very stupid they would have never done sober, like rob a store.

Believe it or not, forbidding the sale of fully automatic weapons, enabled the terrorist to kill more people. Pull the trigger on a fully automatic weapon, the clip is gone in one second and you have probably missed everyone or cut one person in half, but I digress.

The urge for Congress to act every time there is a problem is probably what has put us in this mess. We cannot regulate behavior with laws, we regulate behavior with financial rewards. You don’t shoot a Congressman; you bribe him or her. So in most cases, passing a law restricting the flow or sale of something only raises the price to the consumer. The wholesaler can charge more for illegal items. The laws created by the legislatures only change the mode of delivery and cost.

Let’s back off of the idiots in Congress. Most voters when confronted with a problem, demand an immediate government solution. Common sense suggests that if a government solution was available, it would have been applied a long time ago.

Maybe that is why most new business' start out of a garage, there are no government restrictions.

Thursday, June 30, 2016

Everyone Has a Different Right Answer

Just listening to the news about Brexit. One side says were doomed if we go down this path and the other side says this will correct all of the wrongs.

Then in the US, a vote for Hillary will continue the government in place, while the other side is fed up with all the socialism.

If you notice, we have a 50/50 split. At one time everyone was in agreement. Over time, things have changed. Once you disillusionize enough people, they begin to march to a different drummer. Not to mention the fact that people everywhere are beginning to realize that the world is in a global Depression.

The real trouble with these political arguments, both sides have an opposing solution to the problem, that will solve everything. My only concern is that both sides are adamant over what the final outcome will be if the other solution is applied instead. Common sense suggests that neither side has any idea of what real results lie ahead for either path. But both sides imply that an improper vote will set the country on a path to doom.

I’m not sure how this line of thinking turns out. Almost everything is in an evolving state. In nature, the inability to evolve and adapt to new and different conditions, means you get eaten. It nice to know that all of these individuals running amuck have a solution to all of our problems, if only they could get us to listen. I've always held, that "the people with a solution to all of our problems, are a part of the problem."

Either way, it a news media feeding frenzy. Someone will print what you want to read. It's only a matter of selecting the right TV station or newspaper. The final truth?---there are no wrong answers--go figure!