I really have no idea how many people still read this blog. BUT, if you do, if you happen to be one of the faithful ten or so readers who still subject themselves to my rants regarding the utter madness that our economy has become, PLEASE email this blog entry to everyone and anyone you know. For those of you who know me personally, you can attest to the fact that although I am not always right, I am intellectually honest and will only present the facts when professing to do so. That being said, I have done my research and crunched the numbers and I am simply unable to remain quiet regarding this convoluted Desperate debt debate. So, being true to the nature of this blog, I will attempt to break the situation down in the accessible and simple manor in which it should be discussed.
First, let's define the terms. Default: Not paying all or some of a payment, in a timely and agreed to fashion, that one party is contractually obligated to pay to another.
Debt (as it relates to our government): Almost exclusively and entirely made up of bonds that are issued via the full faith and credit of the federal government to investors.
We are in no risk of defaulting on our debt. We just aren't. Our government brings in roughly (give or take a billion) $200 billion a month. Our interest payments on all bonds, social security, medicare and medicaid, military costs (including all additional war costs and veteran benefits), add up to about $165 billion. Now to be fair, our other costs that do include social programs and other entitlement programs do add up to more than the $35 billion remaining. Cutting back on these programs or not funding them does not equal a default. It actually would have the opposite effect. If we made hard and meaningful cuts into these social programs we would most likely preserve our AAA debt rating by reducing our long-term commitments and liabilities. For the record, I am not suggesting that this would be easy or even that it is the right thing to do. I am simply illustrating that we have no real risk of default unless our government consciously chooses to not pay our debt.
As far as the aforementioned cuts to social spending and entitlement programs, it is not something I support unequivovally. No matter your view on entitlement spending, making deep and meaningful cuts into social programs is a painful enterprise. One must approach the matter with a sense of sobriety, knowing full well that such cuts will impact struggling families and hungry children. At the same time, we must acknowledge that the tens of trillions of dollars that have been spent on social programs since the inception of LBJ's heralded Great Society programs, the poverty level in this country has risen from 14% to 14.3%. You can draw whatever conclusion you want to but the numbers don't lie. Is it possible that the more we spend to help the poor we simply create more poor? Is it possible that the more comfortable, palatable and dignified we make living in a state of poverty that we are simultaneously encouraging more Americans to join the ranks of the impoverished? I am not, and will never, suggest that we should end social programs. My wife and I are ardent believers in helping those less privileged, both with our personal monies as well as our tax dollars. Yet, when looking at the cold hard numbers, we must take a serious look at how we are spending the money and examine whether or not we have pursued the correct course and philosophy as it relates to helping out our fellow man.
The other aspect of this debt and spending debate that seems to get ignored by both parties is the unsustainable nature of our out of control spending. REGARDLESS of how necessary you believe that any or all of the innumerable amount of social programs are, you cannot ignore the cost. We must all wake up to the fact that the government is spending ACTUAL money. The government does not have access to some magical bank account with supernatural replenishing powers. Therefore, the governments first concern should always be taking care of and carefully managing its main source of funding, the taxpayer. It is immaterial what programs you believe to be necessary and moral if the money does not exist to fund them. Furthermore, how compassionate is to recklessly spend and borrow to fund certain social programs while simultaneously straining our tax and borrowing base to the point of endangering ALL government programs. Additionally, we must cease looking to the taxpayer, whether rich or middle class, to pick up the ever expanding tab. If that worked, the EURO zone and its 50-60% tax rates would be amply funding their social spending. The fires burning in Greece and Italy (Spain will be there shortly) would suggest otherwise.
Cutting budgets and spending is never fun. You have to be a sadist to truly delight in the slashing of social programs. But I find it to be a much more bizarre and sadistic practice to endanger the solvency and existence of this great republic by the fervent refusal to curtail spending. Should we include such things as military and law enforcement? As unpalatable as that may be to the majority on the right, the answer is simply yes. There is waste to be trimmed in all areas. But, we must keep in mind what the ultimate goal of this Union was upon its founding. This country was based on the aim of securing life, liberty, and the PURSUIT of happiness. As one of my favorite movies points out, this country is obligated to give you fair shot at happiness. Even in 1776, our forefathers knew that we could never make happiness a certainty. Therefore, our spending must always be dedicated, first and foremost, to the preservation of our union and the safety of her citizens. We absolutely cannot risk our future solvency and survival in the hopes of securing and guaranteeing the comfort and happiness of all our citizens. That would truly be the pursuit of destruction.
Wednesday, July 27, 2011
Monday, July 11, 2011
The Budget Battle in Washington: A Synopsis of the Issue
I have been absolutely amazed at the misinformation and contradictory summations of what exactly is going on in Washington regarding the budget and the debt ceiling. So, I'm going to keep all opinion out of my explanation and deliver only the facts. I believe it is imperative that every citizen of this country understands exactly what's going on and what the ramifications are for all proposed solutions. But, let's first take a look at what has been going on in the markets.
I WAS WRONG. There. I said it. I have been opining for months about how this market is overvalued and we are headed for a big sell off. Well, that hasn't exactly happened. Don't get me wrong, the economy is still a disaster. Record unemployment, houses still in free fall, and bad consumer spending are still dogging this so-called recovery. However, Wall Street is in full rally mode and keeps pushing ever higher. This has absolutely confounded me until my recent epiphany. I grossly underestimated the effect of the stimulus and the mountains of free money that the Fed has pumped into the system. Companies have been able to refinance their debt at essentially zero percent, make capital investments they previously could not afford, and use the free money to purchase short-term investments and essentially fabricate profits. Did you know that many investment banks that were bailed out on your tax dollar are borrowing money from the Fed to purchase short-term government bonds? This means that the big banks are using government money to purchase government debt, stripping off the interest payments and pocketing the profit, and then paying the Fed back with the proceeds from the sale of said government bonds!! So, they are borrowing your money to purchase investments that pay interest with YOUR tax dollars. Now, this is obviously unsustainable and is not without its consequences. All of this free money floating around is going to be a millstone around the neck of the dollar's value for years to come. Anyway, my point is simply that at least in the near term, Wall Street will continue to be able to post profits as long as the Fed keeps interest rates artificially low. So, barring any unforeseen events, my position now is that this market will probably keep floating higher. Yet, I am not changing my investment approach as the party has to end at some point and nobody knows when that will be.
Now to the budget. We have discussed the budget crisis at great length in previous posts so I will try to stick to the current debate and not digress to previous discussions. First off, this is not a partisan or politically based issue. People are trying to make it a political issue but it is simply an economic issue. Both parties have been spending more than we are bringing in for some time. Now, our debt has surpassed our entire gross domestic product. We currently do not have enough revenue coming in to cover all of our obligations. So, the President is advocating that we raise the self-imposed debt limit in order to issue more government debt (sell more bonds) to pay our bills. Republicans are refusing to raise the debt limit unless the government cuts spending that at least equals the amount that the debt will be increased. Democrats are advocating that taxes be raised in order to pay for the debt increase. Republicans will not sign on to the debt increase if tax hikes are included and the Dems have vowed to nix any plan that doesn't include tax increases as well as any reductions to entitlement programs like Welfare and Medicaid. We are at a bit of a stalemate.
What's the answer? As much as I hate to say it, we must raise the debt limit, TEMPORARILY. As for raising taxes, we do not have a revenue problem. What other company or organization in the world confronts a budget crisis without making cutting costs an absolute priority? We can no longer pay for programs that we BELIEVE government should provide without considering whether or not we can afford them. As for raising taxes, it's just not a good idea in a recession. First of all, the assertion that raising tax rates equals more tax revenue is ridiculous. Tax hikes may result in a segment of society paying more money, but large corporations and the wealthy will simply move the equivalent amount of capital or business offshore to counteract the tax increases. This equates to less jobs and money here at home. This is best illustrated by the fact that GE profited nearly $14 billion last year and didn't pay a cent in federal income taxes. They simply routed the profits through international channels and absorbed the costs here at home. In short, tax increases are dead weight on an economy and many on the Left refuse to accept it. What we need to do is cut spending and incentivize businesses to do more business here at home. For example, does the government make more money if 100 people are paying 35% of their income in taxes or if 120 people are paying 30% of their income taxes? You don't have to have a mathematics degree from Harvard to realize that more people paying a lower percent will yield more revenue for the government. We need to create more jobs and get this economy cranking again as well as cut government spending in order to pay off this ridiculous debt and avoid fiscal calamity in the future. Let's hope reason wins out in Washington. Well, that may be a bit naive!
I WAS WRONG. There. I said it. I have been opining for months about how this market is overvalued and we are headed for a big sell off. Well, that hasn't exactly happened. Don't get me wrong, the economy is still a disaster. Record unemployment, houses still in free fall, and bad consumer spending are still dogging this so-called recovery. However, Wall Street is in full rally mode and keeps pushing ever higher. This has absolutely confounded me until my recent epiphany. I grossly underestimated the effect of the stimulus and the mountains of free money that the Fed has pumped into the system. Companies have been able to refinance their debt at essentially zero percent, make capital investments they previously could not afford, and use the free money to purchase short-term investments and essentially fabricate profits. Did you know that many investment banks that were bailed out on your tax dollar are borrowing money from the Fed to purchase short-term government bonds? This means that the big banks are using government money to purchase government debt, stripping off the interest payments and pocketing the profit, and then paying the Fed back with the proceeds from the sale of said government bonds!! So, they are borrowing your money to purchase investments that pay interest with YOUR tax dollars. Now, this is obviously unsustainable and is not without its consequences. All of this free money floating around is going to be a millstone around the neck of the dollar's value for years to come. Anyway, my point is simply that at least in the near term, Wall Street will continue to be able to post profits as long as the Fed keeps interest rates artificially low. So, barring any unforeseen events, my position now is that this market will probably keep floating higher. Yet, I am not changing my investment approach as the party has to end at some point and nobody knows when that will be.
Now to the budget. We have discussed the budget crisis at great length in previous posts so I will try to stick to the current debate and not digress to previous discussions. First off, this is not a partisan or politically based issue. People are trying to make it a political issue but it is simply an economic issue. Both parties have been spending more than we are bringing in for some time. Now, our debt has surpassed our entire gross domestic product. We currently do not have enough revenue coming in to cover all of our obligations. So, the President is advocating that we raise the self-imposed debt limit in order to issue more government debt (sell more bonds) to pay our bills. Republicans are refusing to raise the debt limit unless the government cuts spending that at least equals the amount that the debt will be increased. Democrats are advocating that taxes be raised in order to pay for the debt increase. Republicans will not sign on to the debt increase if tax hikes are included and the Dems have vowed to nix any plan that doesn't include tax increases as well as any reductions to entitlement programs like Welfare and Medicaid. We are at a bit of a stalemate.
What's the answer? As much as I hate to say it, we must raise the debt limit, TEMPORARILY. As for raising taxes, we do not have a revenue problem. What other company or organization in the world confronts a budget crisis without making cutting costs an absolute priority? We can no longer pay for programs that we BELIEVE government should provide without considering whether or not we can afford them. As for raising taxes, it's just not a good idea in a recession. First of all, the assertion that raising tax rates equals more tax revenue is ridiculous. Tax hikes may result in a segment of society paying more money, but large corporations and the wealthy will simply move the equivalent amount of capital or business offshore to counteract the tax increases. This equates to less jobs and money here at home. This is best illustrated by the fact that GE profited nearly $14 billion last year and didn't pay a cent in federal income taxes. They simply routed the profits through international channels and absorbed the costs here at home. In short, tax increases are dead weight on an economy and many on the Left refuse to accept it. What we need to do is cut spending and incentivize businesses to do more business here at home. For example, does the government make more money if 100 people are paying 35% of their income in taxes or if 120 people are paying 30% of their income taxes? You don't have to have a mathematics degree from Harvard to realize that more people paying a lower percent will yield more revenue for the government. We need to create more jobs and get this economy cranking again as well as cut government spending in order to pay off this ridiculous debt and avoid fiscal calamity in the future. Let's hope reason wins out in Washington. Well, that may be a bit naive!
Thursday, June 16, 2011
The Greek Debt Crisis And How It Can Impact Your 401k
If you have been paying attention to the news then you most certainly have heard about the Greek debt crisis and have probably noticed the coinciding drop of our own stock market. What's the connection? Is there a connection? The simple answer is yes, there is a very important and critical connection. So, what's going to happen? That is the million dollar question. Is it possible that everything will work out in the European Union and that they will successfully deal with the Greek debt issue? Sure. One thing I have learned is that you should never underestimate the resourcefulness and determination of market forces to stabilize potentially damaging situations. However, what's more interesting, and scary, is what the situation in Greece is showing us.
The situation in Greece is fairly simple. Like nearly all other European Union member countries, Greece has a socialist society. By socialist I simply mean that the government provides cradle to grave benefits for its citizens which are paid for with pretty steep tax rates. When the global market melted down, so too did corporate and personal income tax payments. Greece, much like the US, ramped up spending and debt with the assumption that revenue from taxes would keep increasing. Well, we all know what happened. Greece now lacks the money necessary to make the interest payments on their outstanding debt and is relying on the EU to bail them out (write them a check for $12 billion to make their immediate payments). The problem is that Greece will be in the same situation 60 days from now. The long and short of it is that if Greece defaults it will send shock waves through the banks that own Greek debt could create a crisis much like the collapse of Lehman Brothers. The most concerning aspect of this is that there are several other EU countries that are in similar shape. Actually, the most concerning thing is that the US is in similar shape. So, what does this say about the market and your 401k?
There are 2 ways to deal with the problems that Greece, the entire EU, and the US are currently dealing with. The first method is to monetize the debt. This means simply that you print money to pay off your debts. Monetizing the debt is precisely what we, along with the EU, have been doing. The hope here is that the increase in the money supply that is caused by all of the printing will feed into the economy and will result in greater tax revenues which will enable the government to slowly and gradually balance the budget. Well, as we all know, the economy is not cooperating. The only other way to fix the problem is to drastically cut budgets. Politicians in the US and abroad refuse to do this as providing expensive social services has served as the most effective way to stay in office. Basically, the problem is quickly coming to a head and the governments around the world, including ours, are running out of time. At some point, the printing will have to stop. When this occurs, the economy and the society, as we are seeing happen in Greece, behaves much like an addict coming off heroine. Riots break out and social services come to a grinding halt. As you can imagine, this has devastating effects on the stock market as commerce is gravely hindered. Markets crash.
Now, this may be a worse case scenario but it is all too possible. Basically, now is not the time to be aggressive. Investors should be focused on preserving principal rather than making profits. Commodities have taken a bit of a hit lately but stick with them. If you don't own gold in your portfolio, buy some. Gold stocks are taking a hit right now along with the rest of the market. However, they are suffering from guilt by association. Gold is the one thing that has held up, nearly unscathed, during this recent market downturn. Gold stocks will bounce back as soon as the market realizes that they are being unfairly punished. In fact, the mining sector may be the only sector to garner healthy profits in the months to come. As the fears of default and more money printing build, gold will continue to rise as it is seen as the only way to hide from the wide spread currency devaluation.
Once again, if you have any questions or would like further information on how to protect your investments, never hesitate to email me. If I can't help you I can certainly direct you to someone who can. Best of luck
The situation in Greece is fairly simple. Like nearly all other European Union member countries, Greece has a socialist society. By socialist I simply mean that the government provides cradle to grave benefits for its citizens which are paid for with pretty steep tax rates. When the global market melted down, so too did corporate and personal income tax payments. Greece, much like the US, ramped up spending and debt with the assumption that revenue from taxes would keep increasing. Well, we all know what happened. Greece now lacks the money necessary to make the interest payments on their outstanding debt and is relying on the EU to bail them out (write them a check for $12 billion to make their immediate payments). The problem is that Greece will be in the same situation 60 days from now. The long and short of it is that if Greece defaults it will send shock waves through the banks that own Greek debt could create a crisis much like the collapse of Lehman Brothers. The most concerning aspect of this is that there are several other EU countries that are in similar shape. Actually, the most concerning thing is that the US is in similar shape. So, what does this say about the market and your 401k?
There are 2 ways to deal with the problems that Greece, the entire EU, and the US are currently dealing with. The first method is to monetize the debt. This means simply that you print money to pay off your debts. Monetizing the debt is precisely what we, along with the EU, have been doing. The hope here is that the increase in the money supply that is caused by all of the printing will feed into the economy and will result in greater tax revenues which will enable the government to slowly and gradually balance the budget. Well, as we all know, the economy is not cooperating. The only other way to fix the problem is to drastically cut budgets. Politicians in the US and abroad refuse to do this as providing expensive social services has served as the most effective way to stay in office. Basically, the problem is quickly coming to a head and the governments around the world, including ours, are running out of time. At some point, the printing will have to stop. When this occurs, the economy and the society, as we are seeing happen in Greece, behaves much like an addict coming off heroine. Riots break out and social services come to a grinding halt. As you can imagine, this has devastating effects on the stock market as commerce is gravely hindered. Markets crash.
Now, this may be a worse case scenario but it is all too possible. Basically, now is not the time to be aggressive. Investors should be focused on preserving principal rather than making profits. Commodities have taken a bit of a hit lately but stick with them. If you don't own gold in your portfolio, buy some. Gold stocks are taking a hit right now along with the rest of the market. However, they are suffering from guilt by association. Gold is the one thing that has held up, nearly unscathed, during this recent market downturn. Gold stocks will bounce back as soon as the market realizes that they are being unfairly punished. In fact, the mining sector may be the only sector to garner healthy profits in the months to come. As the fears of default and more money printing build, gold will continue to rise as it is seen as the only way to hide from the wide spread currency devaluation.
Once again, if you have any questions or would like further information on how to protect your investments, never hesitate to email me. If I can't help you I can certainly direct you to someone who can. Best of luck
Tuesday, June 7, 2011
The Real Reasons Our Economy Is Not Recovering
Although my wife may ardently disagree, sometimes I don’t like being right. If you look over the older posts on this blog, you will see that I was claiming quite some time ago that the story of “Recovery” that the administration was trying to sell was complete garbage. There is no recovery. The only thing that has improved is the stock market and that has been because Wall Street thinks things are going to get better. The market is now overvalued and has pulled back significantly because it is realizing that it had greatly overestimated the recovery. So, in this entry, I will attempt to explain why I believed there was no recovery and there will be no recovery until we change course. Most “financial experts” will disagree with my premise, just as they disagreed when I said housing was going to crash; just like they disagreed when I said we should be buying gold; just like they disagreed when I said silver was overvalued; and just like they disagreed when I said “stimulus” wouldn’t work. Please do not interpret what I am saying as bragging. Rather, I am attempting to illustrate that by deploying common sense and basic reason, we can all outsmart the “experts” who are usually too smart by half. I am no genius; I can assure you. I’m just the guy in the back of the crowd who is attempting to point out that the king simply isn’t wearing any clothes.
Once again, this is not a political critique. I ABSOLUTELY disagree with anyone claiming that Obama and/or his administration were lying about the recovery. I am quite certain that they did and still do believe they are on track and taking the necessary actions to get us back on track. The reason I am so confident that Obama, Bernanke and the rest of their ilk are sincere is because I have spent quite a bit of time in the collegiate economics circles. My time at a certain unnamed mutual fund company had me submerged in the theories of academic types who accept Keynesian (if you are reading this blog for the first time and are unfamiliar with Keynesian economics, we discuss it at great length in previous posts) economics as gospel. They all live in an echo chamber, horrifically afraid to go against the grade lest their colleagues and contemporaries think less of them. To me, the problem is simple: the Fed began pumping money into the economy in an effort to buoy the banks and the financial system at large. None of the underlying problems that created the mess were dealt with. So, surprise surprise, companies have accumulated large piles of cash and have trimmed costs WHEREVER possible. They aren’t dumb. They realize that money is cheap right now. Interest rates will be moving up in the near future which makes borrowing money more expensive. CEO’s get paid based on their company’s profitability. As cash gets more and more expensive to borrow that large stock pile will become increasingly valuable and let them take advantage of opportunistic situations, such as mergers and acquisitions. That is how they will increase their working force and grow the business. The economy and the consumer are in trouble right now, you know it and so do they. Herein lies the problem with trying to spend your way out of this mess. The underlying issues that are prolonging—unemployment and housing—are actually getting worse. The only way to get housing to stabilize is to improve the employment picture. The only way to improve the employment picture is to give companies an incentive to hire. How would you do that? Well, I believe the most effective way to do that is to lower tax rates on corporations. Hear me out here. If we just give companies money to “stimulate” them, they will do what they are currently doing which is sit on it. If you give them tax breaks instead, they are forced to transact more business. The only way to take advantage of a tax break is by making money. Also, that cut in taxes has made transacting business less expensive as those tax savings drop right to the bottom line. Well, we all know companies and CEOs are greedy. So, that greed will drive them to exploit that tax cut as much as possible (transact more business) which will require them to hire more people. It is the only way to grow profits and for CEOs to hit their bonus targets. By pumping money, we are rewarding companies for sitting still and cutting costs. By cutting taxes, only the companies who transact more business will make more money.
Let me state plainly that I am not advocating getting rid of taxes. Furthermore, the answer isn’t ALWAYS just cutting taxes. Taxes are really a balancing act. For instance, most people think that increasing tax rates will increase government revenue. Well, if the tax rate was 100% the government would receive no revenue. In other words, if you had to pay 100% of your income to the government you would most likely quit working. The flip side of that argument is if the tax rate was 0%, the government would receive no revenue either. The trick is finding the sweet spot, and I can assure you that right now, with this economy on the ropes, that sweet spot is not higher. Consider this: would the government make more money with 100 people paying 50% of their income in taxes or with 120 people paying 40%? It’s not even close. We must find that sweet spot and let the free market do what it has proven it can do time and time again. The free market has created more wealth and raised the global standard of living more than any other social or financial system in the history of mankind. Why do we doubt it now?
I hope people took my advice and took some profits in the last few months. I may be wrong, but I believe this market could keep heading south in a big way. We are keeping cash on hand and holding on to our gold positions. As I suspected, silver has come back down to earth. I continue to love dividend stocks as long as your cash position is big enough. Oil could be under some pressure, but I really think it is a compelling buying opportunity at 90 or below. I really believe that we will see another round of quantitative easing and look for gold to go much higher. It may get a bit pinched in the short term, but it should do well over the longer term.
Monday, May 30, 2011
To Those Who Paid The Ultimate Price: A Thank You
Please have the patience to read this entire entry and take the time to contemplate it upon finishing. If you must, skip the next paragraph as it is merely an introduction.
I have succumbed to the seemingly inevitable fate of nearly all those who begin writing blogs or journals: life got in the way. Well, I'm back with a renewed dedication that is equal parts excitement and obligation. I began this blog not because I am foolish/arrogant enough to believe that anyone needs my words or insight. I simply wanted to record the abhorrent fiscal and social policies of the day with the hope of once and for all answering one of the most pertinent and consequential questions of our time: can government and her policies save and keep this great nation or will they usher in its demise? If I can help or inform anyone along the way then that would be an added bonus. So, as most of you know, markets are closed today. On this Memorial Day, I would like to take this opportunity to dedicate this "comeback" entry to the courageous and selfless warriors who have so willingly sacrificed their freedom, future, life, and American dream in order to protect all of those things for people they have never/never will meet. Thank you.
As I sipped my coffee this morning my wind wandered, thinking about the meaning of this day. I wondered how many others were doing the same. Disappointment set in. For far too many, this day bookends a 3 day hiatus from monotony and obligation. It's for baseball and barbeques, for yard work too long passed over. The more responsible and "patriotic" among us may proudly display a "Thanks to all who have served" as our status on Facebook. I demean none of these observances as I am actually pleased that such uniquely American pieces of our culture have been graphed onto this most hallowed day. But, as I looked at my daughter playing at my feet, I couldn't help but think of the generations of fathers who proudly handed over the privilege/right to watch their own children grow in exchange for the hope, just the hope, that their children wouldn't need to consider paying such a price. Too often, we as Americans are the "Sunshine Patriots and Summer Soldiers" that Thomas Paine so eloquently lamented. We love our country and her ardent and noble protectors on Memorial Day. We may even tear up a bit as we dutifully and intently listen to our National Anthem serving as the preface for the sporting event we attend on the eleventh day of September each year. Do such emotions flood over us on June 11th? Does such pride and allegiance drive us to tears on November 11th or Labor Day? Does our tearful admiration rise to the surface while we hurriedly pass by an impeccably organized and camouflaged clad young adult in the airport as we indignantly rush to our gate, righteously angered at the 15 minute delay that is jeopardizing our connection flight home? Do we, for that matter, consider exactly to what foreign and inhospitable hell hole this young warrior is traveling to, our flight home serving simply as the first leg of a journey that could quite possibly be their final destination? I say this not to apply the leverage and pressure of guilt, or extol my own virtue of not succumbing to such short sighted and selfish oversights; for such observations are possible ONLY through experience and self examination, as I too am guilty of these selfish oversights. I say this because I fear that far too many of us in this culture have been lulled into a self focused and historically inaccurate understanding of what exactly this America is. We believe that America IS the freedom of speech, the right to a fair wage and paid for medical care. We bluntly and universally speak of our "rights" and entitlements as if they were an inheritance, a currency awarded to all who had the good sense and foresight to be born here. We debate and question war and violence as they are clearly the arcane tools of our less evolved, albeit brave and dedicated, predecessors. However, at the very least and to our credit, we will agree and state with a tone of patriotic sophistication that our uniformed guardians have "preserved and protected" the liberty we so enjoy and too often abuse or under-appreciate. Yet far too rarely we recognize those breathing and living uniformed Talismen of freedom for what they are. Those young soldiers aren't the protectors of America; they are America. Unlike nearly every other country on the face of this earth, America is not the natural evolution of a geographically concentrated race or culture. We are a people of different descent, different creeds and cultures, ironically bound together in an inner-dependent community that is based on the very freedom that has enabled our individuality and self determination. Uniquely, America was birthed of blood and conflict. We are the adopted children of armed engagements and fierce battle. We are the barefooted 16 year old boy that fought through the ravages of starvation and dysentery to march toward Princeton through a freezing winter storm on a Christmas night in 1776, resigned to death, but determined to die standing up in what was seen at that time as being the final gasp of our all too young Revolution. We are the brothers who spilled each others blood on the fields of Antietam and Gettysburg. America is not the result of such men, it is these very men. America is not freedom or opportunity. Rather, freedom and opportunity are the offspring, the result, of the ultimate price that so many young men and women selflessly paid. America is selflessness, courage, conviction, blood, and sacrifice. Freedom and liberty are merely the miraculous benefit that blossomed from the bloody soil that served as the final resting place for our best and most courageous. Don't let this definition of what we are get lost or contorted. Teach your children of the sacrifice and unmitigated tragedy that gave birth to the freedom that they will grow and prosper in. And, when you see a soldier or think of one on hallowed days like today, don't thank them or shed tears for what they have done. Thank them and cry appreciatively for what they ARE. They are America. Freedom, Life, Liberty and the pursuit of happiness are merely their byproduct. Thank You to all who have served and/or paid the ultimate price. As for me and my family, we will never forget and will fervently attempt to be ever mindful of the price you have so selflessly paid so others might enjoy the life that you forfeited. May God Bless You and may you forever Rest in Peace.
I have succumbed to the seemingly inevitable fate of nearly all those who begin writing blogs or journals: life got in the way. Well, I'm back with a renewed dedication that is equal parts excitement and obligation. I began this blog not because I am foolish/arrogant enough to believe that anyone needs my words or insight. I simply wanted to record the abhorrent fiscal and social policies of the day with the hope of once and for all answering one of the most pertinent and consequential questions of our time: can government and her policies save and keep this great nation or will they usher in its demise? If I can help or inform anyone along the way then that would be an added bonus. So, as most of you know, markets are closed today. On this Memorial Day, I would like to take this opportunity to dedicate this "comeback" entry to the courageous and selfless warriors who have so willingly sacrificed their freedom, future, life, and American dream in order to protect all of those things for people they have never/never will meet. Thank you.
As I sipped my coffee this morning my wind wandered, thinking about the meaning of this day. I wondered how many others were doing the same. Disappointment set in. For far too many, this day bookends a 3 day hiatus from monotony and obligation. It's for baseball and barbeques, for yard work too long passed over. The more responsible and "patriotic" among us may proudly display a "Thanks to all who have served" as our status on Facebook. I demean none of these observances as I am actually pleased that such uniquely American pieces of our culture have been graphed onto this most hallowed day. But, as I looked at my daughter playing at my feet, I couldn't help but think of the generations of fathers who proudly handed over the privilege/right to watch their own children grow in exchange for the hope, just the hope, that their children wouldn't need to consider paying such a price. Too often, we as Americans are the "Sunshine Patriots and Summer Soldiers" that Thomas Paine so eloquently lamented. We love our country and her ardent and noble protectors on Memorial Day. We may even tear up a bit as we dutifully and intently listen to our National Anthem serving as the preface for the sporting event we attend on the eleventh day of September each year. Do such emotions flood over us on June 11th? Does such pride and allegiance drive us to tears on November 11th or Labor Day? Does our tearful admiration rise to the surface while we hurriedly pass by an impeccably organized and camouflaged clad young adult in the airport as we indignantly rush to our gate, righteously angered at the 15 minute delay that is jeopardizing our connection flight home? Do we, for that matter, consider exactly to what foreign and inhospitable hell hole this young warrior is traveling to, our flight home serving simply as the first leg of a journey that could quite possibly be their final destination? I say this not to apply the leverage and pressure of guilt, or extol my own virtue of not succumbing to such short sighted and selfish oversights; for such observations are possible ONLY through experience and self examination, as I too am guilty of these selfish oversights. I say this because I fear that far too many of us in this culture have been lulled into a self focused and historically inaccurate understanding of what exactly this America is. We believe that America IS the freedom of speech, the right to a fair wage and paid for medical care. We bluntly and universally speak of our "rights" and entitlements as if they were an inheritance, a currency awarded to all who had the good sense and foresight to be born here. We debate and question war and violence as they are clearly the arcane tools of our less evolved, albeit brave and dedicated, predecessors. However, at the very least and to our credit, we will agree and state with a tone of patriotic sophistication that our uniformed guardians have "preserved and protected" the liberty we so enjoy and too often abuse or under-appreciate. Yet far too rarely we recognize those breathing and living uniformed Talismen of freedom for what they are. Those young soldiers aren't the protectors of America; they are America. Unlike nearly every other country on the face of this earth, America is not the natural evolution of a geographically concentrated race or culture. We are a people of different descent, different creeds and cultures, ironically bound together in an inner-dependent community that is based on the very freedom that has enabled our individuality and self determination. Uniquely, America was birthed of blood and conflict. We are the adopted children of armed engagements and fierce battle. We are the barefooted 16 year old boy that fought through the ravages of starvation and dysentery to march toward Princeton through a freezing winter storm on a Christmas night in 1776, resigned to death, but determined to die standing up in what was seen at that time as being the final gasp of our all too young Revolution. We are the brothers who spilled each others blood on the fields of Antietam and Gettysburg. America is not the result of such men, it is these very men. America is not freedom or opportunity. Rather, freedom and opportunity are the offspring, the result, of the ultimate price that so many young men and women selflessly paid. America is selflessness, courage, conviction, blood, and sacrifice. Freedom and liberty are merely the miraculous benefit that blossomed from the bloody soil that served as the final resting place for our best and most courageous. Don't let this definition of what we are get lost or contorted. Teach your children of the sacrifice and unmitigated tragedy that gave birth to the freedom that they will grow and prosper in. And, when you see a soldier or think of one on hallowed days like today, don't thank them or shed tears for what they have done. Thank them and cry appreciatively for what they ARE. They are America. Freedom, Life, Liberty and the pursuit of happiness are merely their byproduct. Thank You to all who have served and/or paid the ultimate price. As for me and my family, we will never forget and will fervently attempt to be ever mindful of the price you have so selflessly paid so others might enjoy the life that you forfeited. May God Bless You and may you forever Rest in Peace.
Wednesday, April 20, 2011
Gold, Budgets, and Down Grades...Oh My!
What a week!! S&P (Standard & Poors), a company that specializes in assigning credit ratings to corporations and companies (sort of like a Free Credit Report.com for big companies and governments), came out this week and officially stated that the future outlook for the US is negative. This means that they see problems in the future as it relates to our country being able to pay its debts! My use of exclamation marks are to express my amazement, not to celebrate or underscore my unbridled enthusiasm at the impending fiscal disaster we are facing. But come on, this is historic stuff. I understand that it's scary and disheartening, but we are firsthand witnesses to unprecedented economic occurances. In addition to the S&P downgrade, the head of HSBC bank came out this week and stated plainly that Americans are in debt denial. I know I have promised to avoid politics but all of these historic developments have forced my hand. We as a country, must wake up to the fact that we are out of money. We owe nearly 15 trillion dollars and are forced to pay interest on that ghastly amount every year. We are adding to that debt to the tune of 1.6 trillion a year. You are going to hear so much political nonsense on both sides of the aisle as it relates to this budget issue. The truth is simple: cutting spending isn't cruel, mean, heartless, greedy, or unfair. Reducing our spending is a necessity. Let me ask you a simple question: what good are we to ANY ONE of our downtrodden or needy citizens if we default on our loans and experience catastrophic fiscal collapse? This is not a political issue. It's a reality issue. Anyone that tells you ANYTHING else is either uninformed, illiterate, dishonest, or attempting to use this disaster as political leverage. Focusing on any other issues in the political arena at the moment would be the equivalent of arguing about the color of paint on the walls while the house is on fire. Both parties must get serious about this issue unless they want to relegate the US to third world status. It really is that simple.
Despite all of this bad news, the market goes up. It may sound strange, but the market is going up because of our problems, not despite them. The weaker the dollar gets, the more investors will migrate from federal and municipal bonds into stocks with the hope of making money faster than our currency is depreciating. Also, many money managers, myself included, are terrified of the unavoidable interest rate hikes that are coming our way. You see, as the dollar continues to weaken, the fed will be forced to raise rates to keep our debt attractive. In an effort to get out ahead of this, we are abandoning our bonds and migrating to stocks and commodities. This migration is forcing the market higher.
I cannot tell you how many times I have been laughed at over the past five years whenever I expressed my belief that gold would rise to $2,000 an ounce. Well, we have hit $1,500. I have talked about gold ad nauseum in this blog so I will keep it short. This meteoric rise is simply due to the diluted US dollar. I'm not forecasting $5,000 gold. However, I'm certainly not confident in our politicians' intestinal fortitude that will be needed to reign in this riotous spending. Until that happens, stay long gold. This same scenario holds true for oil. While the threat of Middle East unrest resulting in supply disruptions has certainly propelled oil higher, the falling dollar was already pushing it in that direction.
If you want to be a real market geek, pay attention to the VIX going forward. Just type in VIX in whatever tool you use to look up stock market prices. The VIX is the volatility index. It measures the number of Put option contracts that are being purchased. Put option contracts are just instruments that pay off in the event that a stock goes down. It's like placing a bet that a stock is going to lose. The VIX is historically low which has me worried. As Warren Buffet says, "be greedy when everyone else is afraid, be afraid when everyone else is greedy." This economy and country are on very shaky ground and everyone is being VERY greedy. I'm not freaking out and selling every stock we own. However, we continue to proceed with caution.
Despite all of this bad news, the market goes up. It may sound strange, but the market is going up because of our problems, not despite them. The weaker the dollar gets, the more investors will migrate from federal and municipal bonds into stocks with the hope of making money faster than our currency is depreciating. Also, many money managers, myself included, are terrified of the unavoidable interest rate hikes that are coming our way. You see, as the dollar continues to weaken, the fed will be forced to raise rates to keep our debt attractive. In an effort to get out ahead of this, we are abandoning our bonds and migrating to stocks and commodities. This migration is forcing the market higher.
I cannot tell you how many times I have been laughed at over the past five years whenever I expressed my belief that gold would rise to $2,000 an ounce. Well, we have hit $1,500. I have talked about gold ad nauseum in this blog so I will keep it short. This meteoric rise is simply due to the diluted US dollar. I'm not forecasting $5,000 gold. However, I'm certainly not confident in our politicians' intestinal fortitude that will be needed to reign in this riotous spending. Until that happens, stay long gold. This same scenario holds true for oil. While the threat of Middle East unrest resulting in supply disruptions has certainly propelled oil higher, the falling dollar was already pushing it in that direction.
If you want to be a real market geek, pay attention to the VIX going forward. Just type in VIX in whatever tool you use to look up stock market prices. The VIX is the volatility index. It measures the number of Put option contracts that are being purchased. Put option contracts are just instruments that pay off in the event that a stock goes down. It's like placing a bet that a stock is going to lose. The VIX is historically low which has me worried. As Warren Buffet says, "be greedy when everyone else is afraid, be afraid when everyone else is greedy." This economy and country are on very shaky ground and everyone is being VERY greedy. I'm not freaking out and selling every stock we own. However, we continue to proceed with caution.
Friday, April 8, 2011
Where's The Recovery???
Here's a challenge: turn on any news channel or stock market show and see if you can go five minutes without hearing some Ivy League blue blood opining about this incredible bull market and the continuing recovery. They cite earnings, balance sheets, employment numbers, and a plethora of other "Wall Street" stats. It's actually pretty convincing, at least until you talk to your neighbor who hasn't worked in ten months and who is raiding his IRA in a futile attempt to keep his house out of foreclosure. So, why the huge discrepency? Why is this magical land of 7 figure bonuses and penthouses overlooking Central Park that we call Wall Street seem to be swimming in cash while the rest of us are hawking family heirlooms so we can afford to fill our gas tanks? Before I attempt to answer that question, lets go over what has been taking place in the market.
For the most part, stocks continue to go up. The relentless upward trend continues but is failing to keep up with rising commodity prices such as gold, oil, timber, silver, and natural gas. As I have said before, this trend will continue as long governments, namely ours, continue to print money and devalue our currency. Personally, I don't see any sign of the money printing subsiding. We continue to love gold and oil. Natural gas seems to be gaining some momentum as our brilliant politicians begin to reluctantly accept the fact that wind and solar technology are nowhere near being able to power this country. Domestically, the US has more natural gas than the Middle East has in oil reserves. What fuel, other than natural gas, do you know of that you can burn in your home 24 hours a day without sacrificing the quality of the air that your family breathes? Natural gas is clean and is just as effective in providing power as coal and gasoline. Natural gas will be a vital part of our energy independence going forward. Silver continues to move sharply upward as investors continue to believe it is undervalued compared to gold. Be careful with silver. Rising inflation should push silver higher but don't expect it to keep up with gold. A lot of people out there are misunderstanding the difference between the two metals. Gold is being traded and treated as if it were an actual currency. It is seen as a shelter from all of the currency devaluation. Silver may go higher for many of the same fundamentals that are pushing gold higher. However, simply put, silver isn't gold. When the proverbial excrement hits the fan, governments and institutions want to own gold. Gold is in much shorter supply than silver and is a hallowed and intimate aspect of both Chinese and Indian cultures. Gold is the true currency hedge. Be wary of higher silver prices. In my humble opinion, silver is riding golds coat tails. Companies will begin to announce first quarter earnings in the near future. I'm paying close attention as I believe that these higher commodity prices will begin to erode corporate earnings. In the short term, I expect this market to continue to drift upward. BUT, I'm being very careful as global conflict and rising material costs could bring an ugly and sudden end to the party.
So, where is the recovery? Why are companies posting record profits while the rest of us are sucking wind? Well, in an attempt to "save" the economy, the government has been pumping unheard of amounts of cash into the market. Why isn't this money filtering down to the average worker? Well, if someone handed you a million bucks right now, would you be lending it out or purchasing businesses in this market? I certainly would not. I would be investing in inflation proof assets and staying liquid in case this economy and market takes another tumble. Well, corporations are doing just that. Business is just as hazardous and precarious as it was 3 years ago. Costs are going up and tax rates are just as penal as they were before the crash. Washington, in their infinite wisdom, have stuffed the pockets of corporations hoping that money would filter down and feed into the economy while taking no measures to decrease the cost and risk of doing business. In my humble opinion, we would have been much better off cutting corporate taxes and employment taxes. This would make the cost of doing business much less and encourage companies to actually do more business and make more money. In other words, to benefit from lower taxes a company MUST do more business. In order to do more business you have to hire more people. As companies begin hiring more people, they begin to compete for talent and are forced to raise wages to stay competitive. Corporate America would still be able, through lower costs, to build up the large cash stores they currently enjoy but only by actually doing more business. As it currently stands, they have all the cash WITHOUT having to take the risk and do anymore business. Essentially, this money pumping is actually preventing corporations from hiring and expanding; they simply don't need to. Many of the politicians claim we can't afford more tax cuts. Well, that is true only because we have spent ourselves into oblivion through all of this "stimulus" spending. If we are going to spend the money one way or the other, why not spend it in a way that actually encourages investment and expansion rather than hoarding? But, now I'm assuming that politicians actually make sense and are capable of making rational decisions. Who's the idiot now??
For the most part, stocks continue to go up. The relentless upward trend continues but is failing to keep up with rising commodity prices such as gold, oil, timber, silver, and natural gas. As I have said before, this trend will continue as long governments, namely ours, continue to print money and devalue our currency. Personally, I don't see any sign of the money printing subsiding. We continue to love gold and oil. Natural gas seems to be gaining some momentum as our brilliant politicians begin to reluctantly accept the fact that wind and solar technology are nowhere near being able to power this country. Domestically, the US has more natural gas than the Middle East has in oil reserves. What fuel, other than natural gas, do you know of that you can burn in your home 24 hours a day without sacrificing the quality of the air that your family breathes? Natural gas is clean and is just as effective in providing power as coal and gasoline. Natural gas will be a vital part of our energy independence going forward. Silver continues to move sharply upward as investors continue to believe it is undervalued compared to gold. Be careful with silver. Rising inflation should push silver higher but don't expect it to keep up with gold. A lot of people out there are misunderstanding the difference between the two metals. Gold is being traded and treated as if it were an actual currency. It is seen as a shelter from all of the currency devaluation. Silver may go higher for many of the same fundamentals that are pushing gold higher. However, simply put, silver isn't gold. When the proverbial excrement hits the fan, governments and institutions want to own gold. Gold is in much shorter supply than silver and is a hallowed and intimate aspect of both Chinese and Indian cultures. Gold is the true currency hedge. Be wary of higher silver prices. In my humble opinion, silver is riding golds coat tails. Companies will begin to announce first quarter earnings in the near future. I'm paying close attention as I believe that these higher commodity prices will begin to erode corporate earnings. In the short term, I expect this market to continue to drift upward. BUT, I'm being very careful as global conflict and rising material costs could bring an ugly and sudden end to the party.
So, where is the recovery? Why are companies posting record profits while the rest of us are sucking wind? Well, in an attempt to "save" the economy, the government has been pumping unheard of amounts of cash into the market. Why isn't this money filtering down to the average worker? Well, if someone handed you a million bucks right now, would you be lending it out or purchasing businesses in this market? I certainly would not. I would be investing in inflation proof assets and staying liquid in case this economy and market takes another tumble. Well, corporations are doing just that. Business is just as hazardous and precarious as it was 3 years ago. Costs are going up and tax rates are just as penal as they were before the crash. Washington, in their infinite wisdom, have stuffed the pockets of corporations hoping that money would filter down and feed into the economy while taking no measures to decrease the cost and risk of doing business. In my humble opinion, we would have been much better off cutting corporate taxes and employment taxes. This would make the cost of doing business much less and encourage companies to actually do more business and make more money. In other words, to benefit from lower taxes a company MUST do more business. In order to do more business you have to hire more people. As companies begin hiring more people, they begin to compete for talent and are forced to raise wages to stay competitive. Corporate America would still be able, through lower costs, to build up the large cash stores they currently enjoy but only by actually doing more business. As it currently stands, they have all the cash WITHOUT having to take the risk and do anymore business. Essentially, this money pumping is actually preventing corporations from hiring and expanding; they simply don't need to. Many of the politicians claim we can't afford more tax cuts. Well, that is true only because we have spent ourselves into oblivion through all of this "stimulus" spending. If we are going to spend the money one way or the other, why not spend it in a way that actually encourages investment and expansion rather than hoarding? But, now I'm assuming that politicians actually make sense and are capable of making rational decisions. Who's the idiot now??
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