I REALLY want to talk about the union situations in Wisconsin and Michigan (and coming to a state near you, mark my words). They need to be addressed because they are intimately tied to what is going on in the markets and our economy. So, I am going to. First, let's discuss what is happening in the markets in general.
Confession: when I said in the Sunday post that it was a big week for the market and that we were really close to a big pull back, I was cheating a little bit. Before I wrote the post, I was on the internet watching the opening of the Nikkei (Japanese stock market). I saw Japanese stocks getting pummeled. When you add that to what is going on in the Middle East, it seemed simple: this market was going to shrug off this bad news as it has been doing for nearly two years, or we were finally going to see some reality set in. We were down huge early today and bounced back pretty remarkably. We did post an ugly loss, but we actually made up more than 50% of the losses that the market was showing this morning. I cannot reiterate this enough. This is not the market in which to learn how to trade stocks. I promise you that I am not saying this simply because it is what I do for a living. I'm saying it because it's scaring me too! The swings are SO violent and normal information is no longer driving the markets. We have reached a breaking point. The market wants to move violently upward or downward. It just hasn't made up its mind which one. Let's keep a good amount of cash on hand, earn our dividends, and see where this thing goes. Keep your eye on the action this week. I look at Friday as a HUGE hallmark for things to come. If we close Friday higher than we are now, I look for us to move substantially higher. Likewise, if we close lower I will expect that trend to continue into next week.
Now to the Unions. We have all seen the stories and news casts from Wisconsin, the debate raging on whether or not we should limit the rights of labor unions to use collective bargaining. It is important to point out that collective bargaining itself is not on trial. Collective bargaining for state employees is the issue. The issue can be boiled down to this: do state employees have the same right or ability to make demands when they are being paid with tax payers dollars? Interestingly enough, Federal employees gave up the right to collective bargaining in 1979 because the federal government decided it was not fair to have unrestrained bargaining over tax payer dollars. So, why are the state employees putting up such a fight? Well, I'm gonna give you my unadulterated view of this whole thing. States cannot carry the burden that all of these mandatory raises, paid vacation hours, deluxe health insurance, and pension plans. That is not an opinion. Can you afford to pay more taxes? How much will be enough? Now, here is where I differ from many people that hold that same view. Is this problem the union's fault? Are we really going to lay this monumental fiscal disaster at the feet of the middle class government worker that has served us all for their entire career? Truly, the union's have a great point. For the last 40 years, the value of a union wage has been diluted and eroded. However, this dilution is not because of unsubstantial "COLAs" (cost of living adjustments) or insufficient wages. Ironically, the fiscal handicap of the modern day government union member,--or any union member for that matter--can be laid at the feet of the very politicians who claim to be "fighting" for unions. The greatest tax and monetary blow to the working middle class is the depreciation of our currency. As the dollar falls, goods such as oil, corn, plastic, gas, lumber, copper, wheat, coffee, sugar, cotton, and nearly everything else we consume, increases drastically in price. The upper class is able to offset such increases through investments and economic growth. Your average middle class union worker lacks the readily accessible 100k to purchase oil futures and benefit from a weakening dollar. The very politicians who have lobbied for increased government spending and "programs" have unwittingly undermined the foundation of our middle class. A middle class union member used to own a home and two cars. Now, a union wage gets you a mortgage that's underwater and a car payment that's double than what you paid in rent on your first apartment. Inflation is insidious and truly is the greatest tax on the middle class. In fact, it is decimating our middle class as we speak. Perhaps government cut backs and fiscal restraint won't ruin the middle class or the union family; it may be their only hope.
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