Monday, December 31, 2012

What's In Store For The New Year?

We have a Congress that can’t seem to get anything done. And the funny thing is if they do nothing, all of the previous laws start to expire. It reminds me of Cinderella at the ball with the prince and the approach of Midnight. In this case, we get the pumpkin.

Remember the Bush tax cut passed in 2001? In the house, 211 Republicans and 28 Democrats voted for it and 153 voted against it. In the Senate, 12 Democrats voted for the bill as did 45 Republicans. Two Republicans McCain and Chaffee voted against it with 31 Democrats. Bush signed it, no big deal. Now, today just trying to extend the tax cut has become a herculean effort. If you examine the Congress of 2001 and today’s Congress, they’re pretty comparable. Rumors have it, that Obama has said “My way or the highway.” It tends to support the idea that the square cog in the gears could be Obama as far as getting a deal in place.

Some mutton head decided that we needed to spread Democracy to the Arab world. I look for Syria’s president to get the Noble Peace prize this coming year. Egypt could have the first Islamic Democracy (that’s where you get to choose which trash can to throw your amputated limb in). Libya could have a new dictator in place with lots of military toys for sale (Got Stingers). Look for a new PBS documentary called “The Mushroom Cloud” shot on location in Iran and Israel, with a cast of millions.

In Europe, look for the Greek government to be overthrown—talk is cheap and the country is tired of the political rhetoric. The financial pain in Spain, Portugal and Ireland might spread to France. The economic problems facing the Euro is kind of like trying mix Ex-lax and Kaopectate ---you have to go when you don’t want to and can’t go when you want to. If the Euro goes kaput, look for unemployment rates to drop drastically in Europe.

In the US we could have one or two states (Illinois comes to mind) become insolvent and figure about 20 cities to file for bankruptcy.

Look for interest rates to keep artificially low. Common senses suggest that some loans are riskier than others (the reverse mortgage is no more). Of course credit card debt interest rates are a different story 20 percent rates for Visa and Master Card. But if you want to buy a home, 3% interest no down moves you in. And a lot of the government programs will give you upfront money for move in repairs (like a motorcycle and/or widescreen TV). Think I'm kidding, read this from 2008 A Dollar Down Moves You In

Consumption should plug along, no incentive to save money at these interest rates. This will be the year that we get used to living with less and spending more for it. The stock market is kind of an unknown item. Nobody can figure out what’s been holding it up for the last 4 years.

Obama care is starting to kick in. I went to a coin dealer the other day and found out that there is a provision in the bill that requires a 1099 on gold sales over $600. What part of health care is involved in gold sales? In an unrelated item that ties into the above, PayPal wants my Social Security number so they can issue me a 1099 for my eBay sales. That’s not my hand I feel reaching for my wallet.

Then if you’re familiar with the school lunch program in California, Obama’s wife has screwed that up royally. Kids aren’t crazy over whole wheat bread or skim milk, and fruit, euck, it goes in the trash, give me some fries and a burger. This smiling wife with great concerns has no idea that the kids think her school lunch menu sucks. The schools have to serve the stated menu to get reimbursed by the government. What do you do with a dozen trash cans of food that the kids won’t eat? My suggestion; the fat kids don’t get the free lunch!

More than one commentator has suggested that Obama take a course or two on Economics. I believe the suggestion comes from puzzling over his current economic policies.

The New Year will ring in with a different tone this year. It’s Republicans against the Democrats. Cash or Credit will be the issue. Congress and the President can pass all sorts of wonderful new laws. Paying for them will be the problem. The battle to raise the national debt limit could be the fight of the century. The country is divided, but it isn’t rich against poor as Obama would suggest, it's about living beyond our means.

Have a Happy New Year everyone.

Copyright 2012 by Jim Brubaker

Saturday, December 22, 2012

Is It Really Christmas?

Listening to some of the comments coming out of Washington, you have to wonder about what we are hearing. “The economy is getting better.” “We are trying to avoid a double dip recession.” And then there is the “Fiscal Cliff,” and Congress can’t come to a compromise to solve it. And then everyone packs up and goes home for Christmas.

Obama wants to tax the rich, no big deal, it isn’t going to raise the revenues we need and the amount won’t even cover the interest payment on the national debt. The big sticking point is that Obama wants the ability to raise the national debt limit without having to run it by Congress. I don’t think Congress will grant him that wish.

The economy seems to be picking up steam; most of it is tied to consumption. The main reason for this appears to be the low interest rates. Why save it? With the miracle of compound interest, it only takes about 144 years to double your dollar deposited today. The really laughable thing is the spread between high risk bonds and Treasuries is about 3 percent.

Interest rates in the bond market can’t go much lower but they have the built in ability to go higher. Examine the two graphs below. Graph one shows the value of a 1000 dollar 30 year bond issued at 3 percent interest. Notice what happens to it as interest rates jump up. Whoever holds these 30 year bonds will take a bath (you will get your principle back--if you can wait 30 years).Just a doubling of interest rates would be a 42 percent loss. Of course if rates went to 15%, you might want to buy these bonds, it would be a once in a lifetime opportunity.
Using a 5 year bond in the second example below, the damage isn’t as great if you need cash right away. The shorter the bond term, the less you get burned. With the eventual rise in interest rates look for home prices to drop and the interest on the national debt to increase.
Sooner or later, all of this quantitative easing is going to work itself into the stock market. There are still some companies out there paying a decent dividend. This is the last game in town, I look for the market in the New Year, to take off and go higher—for a while.

With high unemployment and a lot of seniors opting for early retirement, look for decreased tax revenues next year. That may be why there is no compromise over the fiscal cliff debate in Congress. We need the tax revenue, don't pass the tax cut, and the Republicans will be blamed for it. Of course the voter has a poor memory, the Bush tax cuts were a Republican thing, and come next election, the Democrats will get burned for not passing it.

Congress IMHO is a shambles. Everyone wants to talk and no one is listening. The key to the whole debate revolves around the national debt. Will the debt ceiling be raised? The Democrats can spend all they want, but if the debt ceiling isn’t raised, they’ll run out of money some time before inauguration.

The election was pretty well split even, half Republican and half Democrats. I would imagine that rich people populate both parties evenly. So the real issue seems to be where our tax money will be spent and can we keep spending at the current rate?

Christmas is coming next week, and it doesn’t look like Obama will get what he wanted from Santa. Putting coal in his stocking wouldn’t be politically correct. Congress is a little like Santa. We get something real from these Congressional elves that nobody had to pay for. --Inflation.

Merry Christmas everyone.

Copyright 2012 by Jim Brubaker

Sunday, December 16, 2012

Government "Enhanced" Spending (reprinted)

Here is a reprint from March of 2009, some of you may have missed.

Some people have caught on to the new government approach to economic stimulation. If you have a credit card, you can still borrow, courtesy of the banks and the Federal Reserve. This is spending to stimulate the economy. I know people who have over 100K in credit card debt.

If you can’t pay off the principal on your credit card and it is way beyond being absurd; why not add more on to it, until they cut you off? It’s not like you have to work for what you’re buying. Be happy and consume. If you are broke, max out the card. Get what you can while you can. Plus if you are over 65 you get a bonus, you don’t need to file for bankruptcy. What wages can they garnish if you don’t work? Give your kids everything they’ve always wanted.

Somehow I don’t think that this concept of maxing out credit cards, has been appreciated for what it is, by the credit card companies. Unsecured debt is free money. Tarp funds are letting a very large credit card bubble grow even bigger. If the banks all got together and sorted accounts by address. They would realize that 15 different cards at one location, doesn’t indicate the residence is an apartment complex. It might indicate things are a not quite as they appear.

Unemployed? Start your own business. Buy a color Xerox laser printer and some linen paper and print up a couple of thousand 20 dollar bills. Let’s lend a hand, and help our government get this money printed. If we could get the unemployed set up to print dollars, we could be out of this mess by Christmas(Employment suggestions are for entertainment purposes only, talk to your probation officer for employment advice).

Poor old Barney Madoff has been put in jail for using creative Congressional financing practices. Congress is mad as hell. He spent a lot of that “rich people” money that they were going to tax. They are going to put him away for 150 years. That seems a little steep for impersonating a Congressman. There is a difference though, when Barney ran out of money, he went to jail. In our case Congress still has a check book, so we can’t be broke.

Below is 4 years of pictures from the past.

The Democrats with this "Cliff thing" are clueless. The Republicans know what will happen to our savings if Obama isn't stopped. The billionaire will end up just as broke as the guy sleeping in the park. The middle class will be destroyed. Our retirement savings will be wiped out. It's kind of a Grimm Fairy Tale with a bad ending for everyone. Of course, it couldn't happen here, could it?

Monday, December 10, 2012

Let the Rich Pay Their Fair Share????

When you hear the phrase, “Let the rich pay their fair share,” it is obvious that you are listening to a Democrat. I’m not trying to start a discussion of Republicans verses Democrats. But you do have to wonder what the words ”fair share” are all about. I can agree with the action, of raising taxes on the rich a little more—but it has no justification as being “their fair share.” This is a selling point addressed to the Hoi Polloi to garner votes in Congress; admittedly, it kind of works.

I’ve pointed out in the past, that whatever the tax rates on the rich were, whether 90 percent or 28 percent, government revenues NEVER increased noticeably. The amount of taxes taken in has been pretty constant. See graph below.

The person on the street (and your average Congressional retard) think that a 90 percent tax, generates more taxes than a 28 percent tax. The basic fact to be realized, is that the government can get 10 times more money with just a medium increase in middle income taxes of say $1,000

There are two groups of people who get no W-2 forms from employers, the real rich and those in the underground economy (working for cash). The underground economy is thriving.

If you remember newspaper reports on the Katrina Hurricane and read between the lines, the government was overwhelmed when trying to provide relief. The footprint of people paying taxes was minuscule to the population working for cash only. All Katrina did was ruin a way of life that had been fed by government entitlements and relief programs for 3 decades. I imagine someone will write a book about it, sooner or later.

Workers making over 250K are few and far between. This group includes rock stars, sports players, movie stars, and CEO’s to name a few. The one thing that stands out among rich people paying a lot of taxes, is the notion of "What am I getting for the extra money I pay?"---My answer, not much.

In today’s society, being poor and collecting food stamps entitles you to keep your cable and cell phone. Plus being poor gives you more rights. A single mom with 2 kids making 29K a year is entitled to about an additional 30k in benefits. But the single mom with 2 kids, making 60k a year, pays taxes and doesn’t get those free benefits.

Life is hard, but why take money from someone who works hard and give it to someone who gets rewarded for earning less, with better benefits? Has anyone ever accused poor people, or rich people of being stupid? But we come to Obama's mantra “Poor people deserve help to become part of the middle class.” Gee, maybe that's what Socialism is all about.

"Poor people" (notice the quotes) are gaming the system, it is a way of life. I'm all for taxing the rich, and while we're at it, let's tax everyone including the poor. There is no free ride. If you pay nothing in, you get nothing back.

I heard a Congressman say, "These people that pay no Federal tax, pay other taxes." My rebuttal, "So do I!" In California, we are almost to a 10 percent sales tax, and it has happened so slowly, that the absurdity of the rate has escaped notice. So when you hear them say "Tax the rich," reality is, Congress wants more money to spend.

Maybe it is time to draw the line. We don't have a problem with too little tax money, we have a problem with a Congress too busy buying votes for re-election. Of course, I have often suggested that the lead content of the water in Washington D.C. is a tad on the high side. That might explain the insanity in Congress right now. Of course if you look at John Boehner, leader in the House, he doesn't strike me as a water drinker. Whatever he drinks, let's get him another bottle--he's doing a pretty good job.

Copyright 2012 by Jim Brubaker

Sunday, December 02, 2012

Tough Times to Make a Wish

The week started out OK. We bought the turkey Sunday, and invited our in-laws over for Thanksgiving Thursday. The oven stopped working Monday night. Getting a repairman to show up was next Monday at the earliest. So I had to fix it myself. The dinner went off without a hitch. My son, just before flying back to college, brought out the turkey wish-bone and we each made a wish and pulled. The results are in the picture below.

My son and I started a discussion on how we should determine who was going to be granted their wish. About the only thing we could conclude was that either we were each entitled to our wish being granted or neither wish would be granted. We smiled and didn’t reveal what we had wished for (It can’t come true if you do).

This wish-bone represents unexpected results where there are no rules to determine a winner. This is what we are facing in the economy after the election, uncertainty and a lack of rules. Zero interest rates, 8 percent inflation, 18% unemployment and everyone gets the right to own a home. Of course if you are rich, Obama wants half of your earnings, maybe they’ll make an exception for basketball and football players. Then there is the health care tax on poor people, kind of like social security and Medicare, where you can’t opt out.

What will happen next to our economy? Probably a lot more of the unexpected, but when you think about it, that’s all we expect lately, just more of it. The one good thing about a depression, when you’re that far down, its all up from there. The trouble is, we are not there yet!

Reality is standing in line to buy a Power Ball ticket--are you feeling lucky? Did I forget to mention, there will only be one or two winners? Maybe that's why I like wish-bones, there are more winners.

Copyright 2012 by Jim Brubaker