Tuesday, September 01, 2015

The Federal Reserve An Impotent Institution

Let’s get this straight, the Federal Reserve is about to raise the Fed funds rate by ¼ of a percent. The business television hosts are discoursing ad nausea on this. If they were to raise it 3% that might do something.

One quarter of one percent is almost too small to measure. The phrase “Canary fart” comes to mind." The Federal Reserve thinks that raising the interest rate a minuscule amount is going to change the celestial motion of the heavenly bodies?

The idea that this is discussed as a plausible item on the business shows, kind of tells you that many people have lost their true perspective of the markets. An increase of ¼ point from zero is a pittance and a joke.

As long as the Federal Reserve can dictate very low interest rates, there is no reason to save. Common sense suggests that cash stashed in your mattress is better than cash stashed in the bank. Where to from here?--- Buy Gold, Silver and Platinum, the price is right!

Sunday, August 30, 2015

Red China, A Panic That Could Bring The House Down

The Chinese appear to have lost control of their stock market. In reality, the stock market is a psychological theater with no rhyme or reason. A bad day in one market can induce a world panic. Value is determined by the potential buyer’s willingness to agree on price. Is google worth 630 dollars a share? It is, if you can sell it to someone else for even more. A lot of the rest of the world is living on margin. And in our country, every rest home retiree is in the stock market—the bond market won’t pay the rent.

Our bond market is living on borrowed time. Risk is not factored into the market. Triple D bonds are not like a bra size, bigger is better. Buyers should be demanding 25% interest, not fighting each other for 7.25%. And in the past when things got really bad, the Federal Reserve would drop interest rates a quarter point time after time. Guess what, they are as low as they can go. You have to laugh when they talk about raising the interest rate one quarter point. This is not going to send people to the banks to open up savings accounts.

In times of panic, the stock market can have moments where there are no bids to buy a stock (called air pockets) and a stock can take a very large quick drop. Like 50 to 60 dollars.

And then there is the phrase, “Stocks always come back.” If you retired in 1929, were you around in 1954 when they came back? The real truth is; the stock market is an allusion of wealth without having to work for it.

Mark Faber is expecting a black swan event in world markets. I think we are fast approaching it. The bond market marches to a different drummer. It is manipulated by the Federal Reserve guarantees. The weird thing is, the Federal Reserve can buy all the bonds it desires and keep interest rates low. All it does is force investors into different investment vehicles. Real estate, oil drilling in the Midwest, and stocks have replaced bonds for interest’s rate returns.

So we have the Chinese market swirling out of control. Nobody ever claimed that a Socialist Republic had any entrepreneurial financial acumen; that would run contrary to the fabric of the socialist doctrine. They played our game using our rules and it had a good run. Now it has turned sour, like the tulip bubble, of several centuries ago. Financial meltdowns don’t destroy buildings, they destroy fortunes. One minute you are rich and the next minute you are poor. It is invisible in its speed and reach. This is what we are fast approaching. Oil goes from $110 a barrel to $40, an unexpected event. What happens if real interest rates jump to 8 percent? Of course it is not supposed to happen, but oil was never expected to hit $40. We can project what will happen in the future; the only trouble is that common sense, is not what markets run on.

China right now is like a bunch of school kids walking by a graveyard late at night. One loud noise and they’ll run like the devil is chasing them.

Sunday, August 23, 2015

Food Shortages in Africa and the Middle East

We are seeing mass migrations of people from the Middle East and northern Africa into Europe. Normally we are use to immigrants working in a country and sending money home for the family. The news reports show thousands of families with men, women and children in the boats. The driving force is the idea that any place is better than where they are coming from.

Most areas of the world support a maxed out number of people in good times. The amount of food and water is limited. Start a war, and you pretty much eliminate farming as an occupation. At that point people with guns are eagerly waiting for your harvest.

Oil used to be the great generator of income for many parts of the world. At $110 dollars a barrel, populations increased to balance the extra dollars. The drop in oil prices is like what the potato blight did to the Irish from 1845 to 1852. Populations increased because of the abundance of food and then collapsed. Starvation ensued—a million people died; plus the population of Ireland dropped 25% from emigration.

Oil has dropped 2/3’s in price. The old economic question of guns and/or butter is playing a major part in the wars around the Mediterranean. These areas in turmoil, could run out of money, food and farmers, before they run out of guns.

The Middle East oil has some logistic problems. A 500 gallon truck can only haul 12 barrels of oil. And it is very unlikely that the driver would be able to sell the oil at $40 per barrel after delivering it to a refinery or an oil tanker. Most of the oil will have to go by pipeline. How this can be coordinated in a war zone is rather mind boggling to say the least.

The one thing that we know, is that this year’s budget in most countries is probably close in size to last year’s budget. The trouble is, if oil revenues drop by 2/3’s, production has to increase to make up for the shortfall. Since guns are not a food item, look for armament purchases to drop drastically. Look for oil production to triple to cover government expenses. Net effect, more oil will be pumped out of the ground than anyone could ever need. Oil could drop to $28 a barrel.

The indirect effect of the drop in oil prices and war in the Middle East could lead to starvation on a large scale. Escape or die in place.

Wednesday, August 05, 2015

Raising the Minimum Wage

A while ago, I was in the self-serve check out at Ralphs supermarket and there was this guy waiting in the cashier line next to me. The girl managing the 4 self-serve kiosks asked the gentleman if he would like to use one of the self-serve kiosks, as it was faster. His reply, “No thank you, I already have a job.” I laughed for hours after hearing that.

The one thing that many have not realized is that the computer revolution has drastically eliminated many jobs. If it is repetitive, it is gone. ATM machines come to mind, look at all of the bank tellers that are no more. I went to Home Depot the other day and they have 6 self-serve kiosks with one worker running them. At Walmart, they had 10 of them running. Meter readers for gas, water and electricity are no more; each meter phones home to report consumption. One person with an excel spread sheet can do the work of 20 accountants. 40 years ago, a secretary had to be able to type 60 words a minute and handle a lot of printed correspondence. In today’s world, nobody even knows what I am talking about. Pull up a reply form letter on your computer, change the name, type in the email address and hit send.

The irritating thing is this, we have had a computer revolution that has change the mindset of business radically but yet Congress does not understand the future economic projection of the concept. Congress and local governments, think that setting wage standards in the USA will set the tune. The problem is, they are not even close. Profit return is what runs business. The bottom line, can a machine do the work cheaper than an employee? At a wage of $9 per hour, the answer is no, but at $15 per hour, the answer may be yes.

So don’t look for $15 per hour to solve our problems. In the long run it could create more unemployment. On the lighter side, one job is safe (as long as computers need humans), cleaning rest rooms. The sad thing, you may be over qualified for the job if you have a college degree.

Sunday, July 19, 2015

The Foolish Iranian Nuclear Agreement

Kind of a weird agreement. Iran doesn’t really need nukes. Once the sanctions are lifted, they will go into full production of armaments. Their economy will supply that part of the world with oil and weapons. Talk about full employment, everyone will have a job, building something that explodes -- everyday can be the 4th of July somewhere in the world!

Israel is a state of 6 million Jews surrounded by 40 million Arabs. Do you get the feeling that Iran feels the need to nuke Israel? Why even bother? It is the passion of Islam’s radical followers, to destroy Israel. That unites them and gives them resolve. For that reason, the target (Israel) is allowed to exist--magnify the hatred.

Iran will export religion. Of course this will be the fanatical form of religion with the standard promise of 70 virgins in the afterlife (no inflation there yet--I'd hold out for at least 90). Nobody has come back from the hereafter to contradict the validity of the purported promise; so it is a done deal without argument. You explode and kill Christians and live the good life for ever after.

Look for the consolidation of Iraqi, Egypt, Libya and possibly half of Africa. Iran will welcome them with open arms or with more arms if they need them.

We are dealing with religious zealots, whose primary goal is to spread Islam by eliminating non-believers (a religious war if you think outside the box). If Congress votes down this Mickey Mouse arms agreement with Iran, Israel may provide the solution that could be more stable; nuke the radicals and take over the country.

We have a president who we mise well call “Slick,” The Car Salesman. He’ll sell you a health care plan, a student loan program, a nuke agreement, a Cuban cigar and a government paid sex change.

Iran doesn’t need to go nuclear with numbnuts Obama running the show. The nuclear option is a form of miss direction. It’s kind of like Brer Rabbit (Iran) pleading with Brer Bear (Obama) to not throw him into the briar patch (no nukes). Iran gets everything they need by signing off on a nuclear option. They can consolidate their position and extend their boundaries using religion and small arms.

Our leader is giving pink slips to 60,000 more American troops this year. Great for the unemployment numbers. There is much world unrest because we have a President with no balls and the rest of the world knows it. You can lead with the projection of power, or you can talk with the projection of weakness.

Thursday, July 02, 2015

Greece, What Happens Next?

Greece over the last 50 years has implemented a retirement and government bureaucracy that has become a very large portion of their tax expenditures. Notice one thing, retirement and government expenses contribute nothing to the economy. They are like leaches that live on a host. Like most governments, the bills got bigger and bigger and the bureaucrats figured out a way to pass the financing of these contracts of debt into the future. Why does that mythical country, Obamaland come to mind, for some reason?

Greece is about to have a referendum on whether to accept the terms of the EU or to refuse them. It doesn’t really matter. All transfer payments that deal with support for non-working citizens will be eliminated or reduced by about 70 percent. The Army will get paid either way. If the vote is yes, I expect a rebellion with the military taking control. If the vote is no, expect everyone on a pension or government subsidy to be out of luck, no more funds. Savings in the banks will go poof.

So next Sunday with Greece, it really doesn’t matter how the vote goes. If you are retired, you will pay for passing this mess onto the youth of your country. Their banking system is in ruins. Their educated youth has fled to other countries.

The preservation of the Euro is a Non-Sequitur for Greece. The old “farts” need to realize that they can’t tax the youth of their country for their future retirement. They can try, but I think it will fail this time. Let's not single them out as the only guilty country; it was the world bankers that "Cleaned their plow." The PIIGS as a group will fall together, one at a time.

The vote on Sunday revolves around; "Do you want to keep your government pension" or "Do you want to default on the EU loans?" Greece is in a depression. Chancellor Merkel of Germany is demanding repayment from Greece --- funny, how in 1933, "someone" in Germany repudiated the war reparations that had impoverished their country. To say that solution worked OK for them is a gross understatement of fact; it eventually led to a world war.

Moral: Don't expect a politician to get you out of a problem they helped you get into.

Tuesday, June 16, 2015

Congressional Mentality -- Idiots Rule

I was listening to the radio yesterday and heard that Congressman Charles Schumer is trying to get the airlines to stop their downsizing of the luggage size limits for passengers. I mentally thought it through, and realized that many passengers abuse the carry-on luggage to a ridiculous level. The airlines idea to make the luggage bags smaller would be a partial solution. But that is not the real problem.

The real problem is space per passenger. If you remember air travel 30 years ago, you had some space when you sat down and some leg room too. This “lebensraum” gave you some peace of mind and comfort. I used to be able to get up from a window seat and squeeze between the other two persons to get to the bathroom or stretch my legs. That isn't so anymore. The two passengers in your row have to get out of their seats in order for you to access the isle. God help you if the drink cart is blocking your access to the restrooms. Don't even try to use the first class rest rooms.

In today’s seating on airlines, you mentally have to discuss with yourself who has access to the arm rest next to you. Do you dare recline the seat? This invasion of your body space is very stressful. Just as a test, move real close to someone you are not familiar with and you can observe it firsthand. Violating someone’s body space (unless you are romantically involved with them) is very irritating, if not intimidating. It is this close confinement on airlines that results in a lot of bad behavior. You feel uncomfortable and claustrophobic and don’t really know why. Your perceived envelope of body space is yours alone and the airlines should understand this concepts from a physiological perspective. Airline management has to ignore that, if they are trying to pack the plane for max profit. "Sardine can" comes to mind for some reason.

Of course Congressman Schumer wants you to believe the discussion revolves around bag size, not the number of people stuffed into the airplane. Why don’t we do something different, instead of making the carry-on baggage smaller, why not lengthen the space between seats by about a foot and make the seats 3 inches wider? Guess what, you can’t fit as many people on an airliner and therefore, there is more luggage space.

Do we need Congressmen that can only think inside the box? --suitcase mentality! Or people that really understand the problem? I'd like to see standards set for airline seating space, not suitcase size. Schumer impresses me as a complete ID-10T that is 404 in the internet world. His solutions address the business world of money not the airline traveler. Give me a break, give me more leg and elbow room on my next flight.

The real question; "Are we getting more for our dollar or less?" That is what this Great Depression is all about.

Monday, June 01, 2015

Under the Mattress and Backyard Shovel Banking

Getting old and ready to retire, a lot of the benefits you receive from that point out depend on how much money you have in the bank. We are not talking safety deposit boxes, just cash in a bank account. So if you have a stroke and have 100k in the bank, and need to be parked in a rest home, that savings goes poof (rest homes costs 50k per year). Sell your home to move into a rest home, that money goes first before you can qualify for Supplementary Security Income in addition to your Social Security.

Former Speaker of the House Dennis Hastert could go to jail for giving someone hush money. The funny thing is, it was his money and he earned it. It's against the law to make cash withdrawals of less than $10,000 to avoid having the banks report it. They track every cash transaction over $10,000. The government looks at large cash transactions as a sign of illegal commerce. It very well could be. But more to the point, these transactions are invisible from taxation.

Legally you can only give each of your kids $10,000 a year tax free. What is to stop you from giving them, cash? Hmmm.

I purchase gold and silver now and then to add to my retirement funds, (leaving it in the bank to collect interest is an excellent waste of time). I usually pay by cashier’s check, I feel uncomfortable carrying cash. You want to buy one million dollars of gold, go right ahead write a check, no one will question it, you are breaking no laws. I’ve seen two different people show up at one coin shop I frequent, with ledger checkbooks, writing company checks for gold around Christmas time. I could swear the one guy wrote “cleaning supplies” on the check memo.

People are shifting to cash. If you have a debt collector after you, or an ex-wife looking for alimony, you don’t want direct deposit. Your paycheck will vaporize when it hits your account. The same for student loans. If you have a part time job under the table, you’re not going to put the dollars in the bank, it will screw up any government benefits you are currently collecting. Bust your butt to earn an extra $10,000 and find out it goes into your healthcare that was free, until it showed up in your tax return.

Hurricane Katrina showed the Federal government how invisibly large the cash economy was in that city, after the disaster. All of the Federal support checks being mailed down there, all of a sudden had no valid addresses. The words fraud and abuse never surfaced, and if they had, many high up government officials would have qualified for jail time. They whistled by the graveyard on that one.

The mechanic down the street has two prices, one for credit cards and the other for cash. When the phone says press one for English, you know there are two economies, one is hidden.

So what is going on, we have an economy that is collecting less taxes and having more expenses to cover. In order to participate in this "Free lunch program," you have to be broke (excluding your Mercedes and million dollar home--they don't count against you). The new trend is to hide your assets in a safety deposit box or under the mattress. The banks don't pay any meaningful interest. $100,000 in the bank at 1% will pay $1,000 a year. Hide the dollars and get a bonus of $3,600 in food stamps an EBT debit card.

The neat thing about keeping your money out of the banking system, is that no one from Nigeria can get on the phone with you and drain your retirement account. They can’t touch your mattress or the box buried in the back yard. Home Depot has shovels on sale at $15. Tip--don't bury currency or hide it in the walls, rats love the stuff for nesting.

Another good thing, if your care taker wants to make $1,000 the hard way, you have the cash on hand (that’s when having a bad memory is a good thing). You don’t have to go shopping with the wife to have fun—you can have fun, while the wife is shopping.

Interest rates are real low and no one is borrowing, but God help you if you want to withdraw your saving in cash. Retirees have gobs of money in banks, they have monthly statements to prove it. Bernie Madoff’s problem started when people wanted their dollars back. So far, most retirees are content to play the game of “Leave it in the bank.” The problem is, low interest rates have changed the way you play the game. You get more from government, if you can prove you have nothing. What would happen if more people (who have savings) wanted their savings in cash? The government wouldn't be able to borrow those dollars, to give it to those, that have none. But while they have the dollars, get in line and make Bernie proud.

Friday, May 22, 2015

Rental Housing in California Sucks

Statistically speaking, rentals on paper are a goldmine but there is one problem. Abuse of the asset. It’s great if you have a two bed room unit for rent. The real trouble is the other 4 people you didn’t meet that want to call it home. Basic cleanup repaint and carpeting can run about $12,000. And the neat thing, is if you have someone managing the place, they are going to want another 15 percent for management expenses.

The basic thought premise, is that rentals are a godsend with the low interest rate returns. The reality is that you may wish you had ever thought of the idea. You may have to evict them and that could take about 8 months. And you might have to pay them $1,500 just to move out even though they haven’t paid rent in months.

Rental prices may be high in California, and if you are strapped for cash, you can rent a garage for about $900 -- split 6 ways, that’s about $150 a month. Of course that is illegal, and probably the people living in the garage are also illegals.

Housing prices are going up in California, and the number of cars parked in front of each house is also going up. Kind of makes you wonder what line of work your neighbor is in, to have 6 cars parked outside his house with a three car garage—three cars in the driveway and three at the curb. Of course, he could have three more cars in the garage. I walk by several, every day that have a sofa and TV in the garage or a garage that is packed full to the ceiling.

IMHO if the Federal government had let the real estate bubble crash in California, we would not have everyone moving home to survive. Prices would be realistic to where you could afford to buy a home without sharing it with another couple. 10 years ago, in my area, there were maybe one or two cars parked at the curb. Now days, on trash day, finding a space along the curb for three trash cans can be a real chore.

Just pause for one minute and think when has it been this bad before? If you have a job, life is great, if you don’t have one, life sucks. This is a bad time for a lot of people. This isn’t a depression, everything is just hunky-dory (the government told me so).

From the million dollar home, the owner can see the guy across the street with his car up on jacks trying to get it to run. While that guy can watch the soccer mom back out of their McMansion in their Mercedes SUV. You do have to admit that the guy with his car up on jacks has a better view out his front window than the guy in the McMansion. Two different lifestyles that are worlds apart and on the same block.

Let’s boil this mess down to its basics. If a house rents for $1,250 a month, 2 people need to live in it, $2,500 4 people. If a house is selling for under 250K two adult occupants, 500K 4 adults. What happened in California? The occupancy rate of homes depends on the amount money earned by the average worker. At 9 dollars an hour, you only make $1,440 a month, your max for rent is $800. You'll need a roommate.

The government effort to save housing prices, by supporting the price of housing with the Fannie and Freddie supports, has only increased the number of occupants per residence. The economics of it are a little like squeezing on a balloon. You get one desired effect with several unknown ones.

Of course to the untrained observer, looking at all of the cars parked outside all of the homes out here, auto sales must be booming. But it could be a bunch of kids unemployed, living at home and too poor to pay on their student loans. And we dare not mention car loans.

So let me think, who gets to cut my lawn this week? -- Jose living in the garage, or the neighbor's son Jesse with a BS degree and a student loan? The answer "me," my wife doesn't have to pay me.

Tuesday, May 12, 2015

Obama the Manipulator

Not sure where this fits into the meld of world events, but I though it worth giving it a link. Its about the death of Osama Bin Laden. The reporter that did this also did the My Lia incident in Viet Nam and has a Pulitzer prize for journalism. It kind of portrays our President as a real manipulator. It is a little long, but it seems to explain why his cabinet and appointees tend to be distancing themselves from Obama. Click on the link below.

The Killing of Osama Bin Laden