MONEY 191 - SOCIO-ECONOMICS

THIS IS MY 191^ST BLOG ON UNDERSTANDING MONEY TOOLS

July, 2020

www.understandingmoneytools.blogspot.com

In this chapter/blog we are going to continue on from blog 190.  In blog 190 we covered some history in socioeconomics and talked specifically about Nationalism, Fascism and Socialism.  Three individuals stuck out, those being Adolf Hitler and his National Socialist German Worker’s Party- Nationalism, Benito Mussolini the creator of Fascism although the roots began in 1914, and political theorist Saul Alynsky’s writings about Socialism.

(A side note here.  As three of my grandparents came from Germany around 1900, I have always enjoyed the study of German history.  It is amazing that Germany being slightly smaller than the state of Montana almost took over the world in the 1940s.  Today, Germany has a population of 83 million people and Montana has 1 million.)

What initiated the writing of this blog was a morning coffee with a good friend who is a retired professor of agriculture.  He started our morning conversation by stating one of his grandson’s, who has three college degrees and lives in California, told him he was “left wing” slanting to socialism.  My friend asked me for a definition of socialism, and if that tended to be communism.  I thought to myself “if my intelligent friend can’t well-define the difference between capitalism, socialism and communism I wonder how many people are “out there” who also can’t produce a definition.”  This then breaks down into society, politics, laws, money flow and much more.  With that said, let’s start.

Warning:  This blog wanders in content.  Entering you run the risk of gaining knowledge!

CAPITALISM:  An economic and political system in which a country’s trade and industry are controlled by private owners for profit, rather than by a government body.

SOCIALISM:  A political and economic theory of social organization which advocates that production and distribution should be owned or regulated by a community or governmental body.

COMMUNISM:  A political system derived form Karl Marx advocating a society in which all property is publicly owned and each person works and is paid according to their abilities and needs.

Okay, those are text-book definitions.  Let’s bring this into today’s world and reality.  None of these systems work because of corruption and greed at top levels. Sad.  Also, similar to people’s Race and Color being more blended worldwide, the three forms of governing are less distinct and separable today than 75 years ago. 

Let’s take Communism first. Very few true Communist countries remain in the world after Russia and it’s satellite countries self destructed in 1989 when Mr. Gorbachev created a new system of governing.  I looked up today’s Communist countries and only found a handful, those being China, Cuba, Laos, and Vietnam.  Frankly, I see these countries trending toward socialism with an autocratic hand.  Much of this has been forced with globalism and trade.  Communism lacked the individual incentives to succeed. The top controlling parties and individuals in Communist countries became wealthy leaving little for anyone else; there was not fair distribution of capital and net income, as intended.  The assumption was that individuals would take it upon themselves to want to reach out and perform their best for the “state”; didn’t happen, and governments became cruel “big brothers” monitoring each person’s movements for control.

Then, we get to “socialism”.  It is a grand thought that a governmental body could be honest with good intentions for all, but unfortunately a political theory doesn’t know the human being.  Today, we think of socialism and we think immediately of Venezuela; a country that seems to have so much…oil, beautiful beaches, agriculture, and more.  Yet, the ruling party has destroyed the country.  (I suppose I shouldn’t suggest our government and CIA was in there to help the destruction!)  Socialism has great benefits when operated properly, perhaps the best of all socioeconomic forms.

Many people place great countries like Norway, Sweden, Finland, Denmark, The Netherlands, Switzerland, Austria, Canada in the realm of socialist countries but they are defined as “capitalist” countries with many socialistic underpinnings.  For the most part these countries offer a large middle-class, with few rich and very few poor people.  For many, education and health care/medicine are free and the well-being of the people is foremost.  A commonality is they all have a relatively small population, easy to manage, with a strong national binding.  Taxes tend to be high, but quality of life including stability, good wages, happiness and low stress comes first.

With “capitalism” it only works long-term with a truly honest form of government rendering certain socialistic tendencies resulting in a very large middle-class.  Let’s talk about the United States here, calling a “spade, a spade”.  We are supposed to be the epitome of world capitalism, a constantly upward trending economy year after year.  In my viewpoint we have taken the “goose that lays the golden eggs” and shot it.  The goose is our government body, and the golden eggs are our wonderful middle-class people.  With capitalism you can’t have a good country without a financially well-healed middle-class of people.  The average person needs to have enough money coming in to afford basics and then have a surplus of money (discretionary dollars) to spend on goods. We have permitted big business and government to destroy the middle-class.  Henry Ford was one “smart cookie”.  He alienated his big business friends by paying his people three times what the norm was so they could buy his cars.  In the United States today we have the big companies in control, destroying the small businesses that once made America great.  Anti-trust has been destroyed protecting corporate domination, the last residue being seen around 2000 when George W. Bush became president. 

As we know, or should know, big business with their money buys politicians with direct donations or with lobbyists.  Wall Street has “made” certain people incredibly wealthy as with Bill Gates, Jeff Bezos and others.  Without the power worldwide of Wall Street these individuals could not have created their wealth of today.  So, I say we are destroying ourselves because of individual and political greed similar to poorly run Socialized and Communist countries.

Bottom line here is that the world does not have a pure Capitalistic form of government nor a pure Communist system.  The form of government is important as it has an impact on taxes and where the money flows, thus the impact on its people.  Since 2007 we have seen both Socialism and Fascism enter the US.  The US government has created “controlled selective breeding in the corporate world.”  We let certain banks and companies fail, and bailed out others with taxpayer money.  We also participated with ownership as we did with General Motors Corp.  This has been a prevalent habit with the Department of the Treasury and Federal Reserve buying trillions of dollars in US stocks and bonds creating a false economy.

Let’s delve into other things which I think you may find interesting.  Start with our two party political system and its development.  The Democratic Party was started on January 8, 1828 by Andrew Jackson and Martin Van Buren.  The Republican Party was formed on March 20, 1854 in Ripon, Wisconsin.  (I remember that coming from Wisconsin!)  Prior to the Republican Party it was the Whig Party from 1833-1854, started by Henry Clayton.  Typically, over time the Democratic Party has been the “left-wing” more socialistic trending party, and the Republican Party has been more conservative, “right-wing” wanting less national government intervention with decision-making and conservative on spending.  The “right-wing” gives the states more control.  A quick look at the past 50 years and you might re-adjust your thinking on conservative national spending.  Our incredible debt because of the Viet Nam War under Kennedy, then Johnson, then President Nixon forced us to go off the gold standard that supported our US dollar on August 15, 1971.  President Reagan, another Republican, almost bankrupted our government trying to out-do Russia on “military build-up.”  Republican President George H.W. Bush built up more debt with Desert Storm War in 1990-1991.  Continuing with massive debt under Republicans would be George W. Bush entering Afghanistan and Iraq, with us now being in Afghanistan for 19 years.  Currently, President Trump has added $8 trillion to the countries deficit balance sheet in just 3 1/2 years.  Who knows how many more trillions of dollars spent “off balance sheet?”  This has more to do with hegemony than being fiscally conservative.

Let’s back up further and wander more with a couple of things that formed this country.  The Declaration of Independence declared this country to have its own rights and separation from England. (We just celebrated the 4^th of July!).  The next important document was the Constitution.  This formed our government and set forth a basis for laws.

Here is another diversion of interest for you that had great impact on the business world and the world’s people…diseases.  We are now experiencing a terrible disease, the Coronavirus.  If we trace disease back to the “Black Death” or “Plague” starting in 1346, killing somewhere between 75 and 200 million people, then to the Spanish Flu in 1918-1920, then to the H1N1 Flu in 2009 we have something much in common with business.  After each pandemic the result was the transference of wealth to the top wealthiest.  The wealthy have the best health care, and governments have taken care of the larger companies permitting the smaller less capitalized to die off.  Take a look at The Great Recession of 2007-2009 and the approximate $4 trillion in government money going to select companies.  Look at the current recession/depression we are in, however the government refuses to accept that.  Since September, 2019 we have spent about $10 trillion on helping people, saving primarily large corporations like Apple, Microsoft, Carnival Cruise Lines, the airlines, “and” permitting our US government and Federal Reserve to buy Exchange Traded stock Funds and Bond Funds.  We have never in modern history had such a disparity between corporate earnings and stock market values.

Before I end this blog I would like to take another venture into our history of importance, The Emancipation Proclamation of January, 1863.  This declared “all persons held as slaves are, and henceforward shall be freed.” There is great civil unrest today, the outcome uncertain.  One deficiency of our government at that time, including white slave owners, was that they didn’t look forward to see what would happen if they didn’t educate these black slaves and teach them how to become independent on their own.  This was like releasing 5 year olds, who mostly could not read or write, and say “make it on your own.”  Everything is cause and effect!

What to do with money?  Wealthy are exiting the US dollar going into commodities like gold, silver and art.  I think inflation adjusted bonds may be wise.  Once the government no longer supports the money being poured into the stock markets, watch out.  At that point, if you are still in the markets you better buy a large bag of “Depends”!

That’s it for now. I hope you found this chapter interesting and learned something.

(If you want a re-cap of our history based upon cause and effect from a financial standpoint you might enjoy reading my blogs 133-145.  It is long, perhaps 51 pages, but of course I think worthwhile.)

MONEY 190 - SOCIO-ECONOMICS

THIS IS MY 190^TH BLOG ON UNDERSTANDING MONEY TOOLS

June, 2020

www.understandingmoneytools.blogspot.com

In this chapter we are going to delve into socioeconomics.  This is the social science that studies economic activity and how it will affect us and shape our economic future, both here in this country and the world.  Let’s begin with the expression, “What the hell is going on?”

Comment.  A friend commented to me that my chapters/blogs vary too much in specific content, and my punctuation is not the best.  My answer to that is if I don’t vary to a degree within a content range I find it boring.  Secondly, I am not a writer but a “transferor” of information and knowledge based upon my past work.  My job is to communicate. 

As my blogs usually mention money, let me start by saying we have lost control of our free market investing.  John Marnard Keynes economics has prevailed.  The government is printing money, balance sheet and off balance sheet, into oblivion.  Our current balance sheet debt just went over $26 trillion, and growing rapidly.  Our Federal Reserve was never to buy stock in our public companies or support the interest payments on US corporate bond.  Now they are doing so, in trillions of dollars.  You cannot analyze this market.  You can “play” the market, especially with companies going bankrupt, and hope some will survive.  Daily volatility in certain stocks provide a quick “in and out” profit, but risk increases with a hold.  One last comment on finances and then we will go on.  As the world and wealthy are concerned about the future of the dilution of the dollar’s strength they are turning to investments in art like famous paintings and sculptures, as well as gold now valued at over $1700/ounce.  The upward ticks in the markets mean that the government is investing.  About 87% of our stock market is owned by the top 1% wealthiest, therefore mostly benefiting them rather than middle America.

Permit me to say, “do not believe the government and its figures”.  Let’s take a no-brainer as an example.  Two weeks ago the government stated that we had 42 million Americans unemployed.  Then, last week they stated that 2.2 million people were re-employed.  My math gives me a net of 40 million unemployed.  In February we hit a high of 156 million Americans employed.  If you divide 40 million by 156 million you should get 25.6%.  That is the true unemployment figure, not the last reported 13%.

The world is experiencing problems and issues it has not seen in 100 years.  It is monumental, and will affect all of us depending on the outcome.  The outcome will be a different model for the world and no one knows what that will be.  Therefore, in this chapter I have decided to look at some things I believe to be extraordinarily important, and give some history drawing parallels with today’s society and finances.  I will only “wet your appetite” in hopes you have a further interest and do some research.  The media was drawn to the impeachment of president Trump, then Covid 19 and now racial inequality.  If we stay with the topic of racial inequality it brings forth a statement made by Napoleon Bonaparte; “If we open a quarrel between past and present, we shall find that we have lost the future.”

History repeats itself, cause and effect.  Let’s go back 100 years.  World War One had ended. The Spanish Flu of 1918-1920 killing 500 million people was ebbing.  Today we have the Coronavirus 19.  Europe was a disorganized mess.  Germany ended WWI with the Treaty of Versailles.  Part of this agreement and surrender was to pay the Allies reparation for the costs of WWI.  Germany could not meet the financial obligations.  By 1923 Germany was printing money like crazy and the currency inflated beyond belief.  “Debt will kill!”

Two individuals started gaining strength from the turmoil in Europe, these being Adolf Hitler, an Austrian and Benito “ Il Duce” Mussolini.  Hilter’s first try for power ended him in jail in 1924.  Prior to, Hitler became the leader of the National Socialist German Workers’ Party in 1921.  While in prison he wrote Mein Kampf (My Struggle).  Mussolini, the father of Italian Fascist Party, came onto the scene in 1921.  Hitler became Chancellor of Germany in 1933 and Mussolini took over power in 1922.  Both built their reputation and control from lies to the citizens. Too good to be true!  The characteristics of the times are so similar of today.  Hitler was all about Nationalism and Mussolini about Fascism (a political group).  In this writing we will tether many social and economic issues together, notice the suggested and possible outcome and finish with Saul Alinsky’s 8 steps to socialism.

Hitler gained the public’s approval with unity and the building of amazing buildings and our first highway system called the Autobahn.  He created a car for all, the Volkswagen.  Mussolini also created beautiful buildings and created a common mode of transportation for the public, the Vespa scooter created from spare aircraft parts.  The Vespa became popular throughout Europe.

Leading up to these two individuals taking power was dissatisfaction of the populous, protests and immigrations of foreigners.  Especially in Germany  immigration came from the Jewish people leaving Russia and Gypsy traveling tribes that came in from northern India.

Now, in my viewpoint all three main socioeconomic forms of government will fail with the wrong people in power, these being Communism, Socialism and Capitalism.  Power, greed, corruption, expansionism and lack of a strong, healthy middle class will destroy any of these three.  

Let me talk about another form of government mentioned above, Fascism.  It started in 1914 in Italy.  It is a political movement. It exalts a nation above the individual, similar to Hitler’s Germany, and stands for a centralized conservative government with a strong leader or dictator.  Many times the government will participate financially with the country’s business affairs.

The last degree of Fascism was in Spain.  General Franco led Spain until 1973.  Franco defeated the true Spanish fascists during a civil war, however became a tough right wing nationalist.

Most everyday we here about “Anitfa”.  This is a political militant protest movement against fascism and other forms of right wing ideology.

Let me draw all this together.  Above we mentioned several things.  I believe the populous of our younger generation wants to go in the direction of socialism.  Let me end by introducing political theorist, Saul Alinsky and his 8 steps to socialism written in 1971.

1)    Healthcare - Control healthcare, you control people.

2)    Poverty - Increase poverty, poor people are easier to control and less educated.  Do away with the middle-class.

3)    Debt - Increase debt to an unsustainable level.  Increasing taxes creates more poverty.

4)    Gun control - Remove the ability to defend.

5)    Welfare - Take control of necessities like housing, food and income.

6)    Education - Take control of what people read and media.

7)    Religion - Remove religion and belief in God in schools, government and churches.

8)    Class welfare - Divide people into two categories, wealthy and poor.  The wealthy then have control of the poor with no middle class.

Does this all sound familiar from Hitler, Mussolini, General Franco and our current government?  You must remember who makes the laws, the US Congress and Senate.  Over 50% of these members are wealthy millionaires.

MONEY 189 - STOCK ANALYSIS

THIS IS MY 189^TH BLOG ON UNDERSTANDING MONEY TOOLS

June, 2020

www.understandingmoneytools.blogspot.com

In this chapter/blog let’s look at stock investing.  Stock markets are supposed to be in direct relationship to economies; earnings, income, balance sheets, etc; unless something false is happening.  This is in-line with my old saying that “everything is cause and effect”.

We must first look at the evil done by “Coronavirus/Covid 19”.  The reality was, and is, that not just the USA, but the world, was living on borrowed time with insurmountable debt.  The only other country in the G-8 with a worse debt to Gross Domestic Product ratio is Japan.  Covid 19, although we all know very well the detrimental affect, is giving the world an “out” for their financial ineptness, especially over the past 20 years when we last had a balanced budget in the US.  All Covid 19 did was “throw gasoline onto a fire that already existed”.

There are undeniable parallels between today’s economies and the Great Depression.  In the late 1920’s the US was living the “high life”.  People were living beyond their means and celebrating.  Stock markets were up, and in 1929 unemployment was 3.2%, the same as a few months ago.  By 1933, US unemployment was 25% similar to what I believe we will report second quarter in July.

In my past blogs I have taught the readers the basics of analyzing income statements, balance sheets, the “ins and outs” of the markets, various ratios for analysis, how Wall Street thinks and so much more.  We have altered the ability to analyze a stock or market to make money.  A good example is Berkshire Hathaway, Warren Buffett’s company.  He is now feeling the affect from using historical fundamentals of buying into companies and industries that have long time been solid.  Recently, an article called his stock picks and holdings “duds”.

Permit me to explain why this is happening. About 20 years ago computers and programmers started coming on strong with Wall Street and hedge funds.  Today, 70% of all stock trading volume is created with “Algorithmic” trading.  This is “high-frequency” trading meaning very large volumes of trades in a very short time period based mainly upon momentum.  Hedge funds are noted for this, and it will cause the daily gyrations that we see in the markets.  There is such big money to be made that it justifies paying “short-term” income taxes.

Am I saying that in today’s market to make money “throw out the analytics”?  Yes, I suppose so.  In my last blog I wrote that a person can either “invest in the market or play the market”.  The people making money are “playing” the market in very sophisticated ways and with big bucks.  Not too dissimilar to Las Vegas. With Algorithmic trades the hold may last a few seconds or less.  They may be shorting a stock or buying long.

There are various terms used in all of this.  Here are some for your understanding:

-       Algorithms - A process or set of rules to be followed in calculations and problem solving normally using a computer.

-       Matrix - Something develops, hopefully profit.

-       Metrics - A method of measuring something used in Algorithms.

-       Paradigms  - A model used in replication.

The stock markets are moving upward, however be cautious.  This is not a “real” market.  The government is buying trillions of dollars in stocks.  The US Treasury and the Federal Reserve are purchasing bonds of corporations that “stupidly” issued debt/bonds to buy their own stock.  Some of these industries are being destroyed e.g. oil/gas, airline and cruise-line industries.  As an example, American Airlines used 96% of their available cash over several years to buy their stock.  Now, they are broke.  Our government is saving many of these issued bonds by making payments on the interest so once A rated bonds do not become “junk” rated (B- or below).

The US government is making payments to people to make up for the Covid 19 experience.  The first was our $1200 Coronavirus checks to all.  Secondly, came the US government supporting unemployed workers with a $600 weekly payment, and states added to this.  What I am witnessing is that  workers do not want to come back to work as they are making $700 or more per week not working.  Before this, a worker had to work 2 or 3 jobs to make $400-$600 per week.  We need to obliterate the financial inequalities in this country, help build back a wide-band of middle class, all making a good wage so they can make purchases and build America back.  One way of doing this is to follow the Works Programs of the 1930s.  Yes, we are printing more money, yes this is artificial, however take a look at the infrastructure of this country including roads, bridges, water/sewer lines and systems, mass transit, etc.  They are terrible and neglected.  This major repair is needed.  I have traveled Europe and Asia several times.  You don’t see this in Japan, Switzerland, Singapore and other countries.

What do I see in the not too distant future? 

-       High unemployment continuing.

-       Government subsidizing people and largest companies.

-       Government continuing to print more money.

-       Deflation versus inflation because middle class does not have money and if the dollar remains strong.

-       Small businesses not re-opening and bankrupt.

-       People not desiring as many luxury items nor spending like they were accustomed prior to March of this year.

-       Stock market sinking once a true market returns as the government cannot cover all expenses and maintain this false Ponzi Scheme.

-       Real estate foreclosures hitting highs, especially commercial retail and office. 

-       Employees of companies having the ability to work at home or anywhere.

-       Banks, once again, in financial trouble as loans become delinquent.

Here is a bit of financial advice.  Try to avoid collateralized loans, like “home equity” credit loans.  These loans in the 2008-2010 were called immediately “due and payable” even though the term of loan had not matured.  Banks are not your friends!  In 2008-2010, banks foreclosed on real estate, many homes, and then sold these properties to wealthy people for 20 cents on the dollar or less.  The wealthy are now sitting with cash on hand to duplicate this situation.  It is better to use a credit card with no encumbrance on your assets, even though interest rates are high; better than losing your home.  You can always walk away from a bank credit card, although your credit score will go down.  Protect yourself and your assets!

Again, the parallels exist to the 1930s’ economy and Franklin D. Roosevelt creating work programs to keep the country afloat until the 1937 Congress put an end to the spending, and we were sinking back into a depression. This situation ended with December 7, 1941.  I hope you remember that meaningful date.

MONEY 188 - NEWS/ECONOMICS

THIS IS MY 188^TH BLOG ON UNDERSTANDING MONEY TOOLS

May, 2020

www.understandingmoneytools.blogspot.com

I find it is a very appropriate time to write a blog.  The Coronavirus, or Covid 19, is causing not only health issues but major financial issues here and around the world.  In this long chapter/blog we are going to discuss three important elements in today’s world, Covid 19, economics and finances; all interrelated.  I hope you find this writing of interest.  These are tumultuous times.

CORONAVIRUS:  First let’s discuss Covid 19, derived from published facts.  To the best of my knowledge and research the comments I make below on this topic are true.

-       The Coronavirus has been studied for several years.  You probably have seen the 2015 video of Bill Gates speaking about a vicious virus that would cause a pandemic.

-       Our National Institute of Health, NIH, gave the Wuhan Lab in China $3.7 million to study the Coronavirus on animals between the years 2014 and 2019.  Another round of grants amounting to $3.7 million was to be granted in 2019.  Because the caves in the Wuhan region have bats, this was the logical living mammal to experiment upon.  This sharing of information worldwide is not unusual.

-       The Wuhan Lab has been known for laboratory leaks over its history.

-       If you read, or have read, my blog 186 I write about Francis Boyle who drafted the US Implementation Law of Biological Weapons Convention pointing out that the US and other countries are in violation of this pact.  The US has spent over $100 billion on biowarfare since 2001 in 400 labs around the world.  “Play with fire, someday you will get burned.”

-       Dr. Anthony Fauci, an immunologist and Director of the National Institute of Allergy and Infectious Diseases since 1984 knew about the Covid 19 for several years, including the lab testing in Wuhan.

-       Why is it called 19?  Because the virus apparently came from the Wuahn Lab, or a bat from the lab, and spread the virus within the population of Wuhan in the fall of 2019.  What came first, the bat or the virus?  “The chicken or the egg?”

-       Countries that were proactive, like Germany, started making protective masks and hospital ventilators for their population; this happening in November, 2019, giving them a better control over the spread of disease. 

-       Countries like Italy where the disease devastated the northern Lombardy area did not have medical supplies in place nor hospitals situated to accommodate stricken patients.

-       America was not at all proactive and waited until mid-March to tighten controls to restrain the spread of the disease.  Americans are not true nationalists and do not take orders from government bodies well, dissimilar to Germany, Austria, and Switzerland.  In China with an “autocratic” controlling government contained the virus well around the Wuhan area.

-       “Spooky”!  Dean Koontz, a novelist writer, wrote a book in 1981 called “The Eyes of Darkness”.  In the book he described a lab created virus called the Wuhan-400 to hit the world in 2020.  One dissimilarity  in his book in relation to the current virus was the incubation period of a mere 2 hours, and our Covid 19 is about 14 days.

-       There are roomers that China released the virus on the world to hurt the US economy.  My position is crazy!  First, if China did such a thing they killed the goose that lays the golden eggs.  We are the largest buyers of Chinese goods.  Secondly, why release a virus to hurt our economy when all they would have to do is sell billions of US bonds into the world markets.  China owns over $1 trillion of our US bonds/debt and Hong Kong owns an additional $300 billion.  China, the largest holder of US debt, has done this to assist in keeping our economy afloat.

-       As of my writing on April 29^th the US crossed over 1 million cases of the virus and 58,900 deaths.

Enough background here, let’s see how this may play out in our economics.

ECONOMICS: I think everyone has seen the detrimental effects that the isolation, unemployment, home confinement, etc. is having on the economy.  Our government’s first quarter earnings ending March, 31^st should be released soon.  Our government will most likely say the economy is still healthy.  Wait, what?  A quarter has 12 weeks in it.  The real retraction to the economy did not begin until mid-March so you have a result of 10 weeks of fairly decent business and economy in the model.  Now, prior to Covid 19 the world’s economy was sinking, and the US economy was pictured as reasonably healthy because “we” were lending money like crazy, and pumping billions/trillions of dollars into banks shoring up capital requirements (including “repos”)…and, putting billions and trillions into stock markets.

Mr. Trump and Secretary of the Treasury, Mr. Mnuchin, have mentioned publicly they are prepared to cover financial distraught areas of the economy up to approximately $11 trillion, and perhaps go higher.  I have spoken for years about the stupidity and “game” it was to permit major companies to borrow low interest money from issuing bonds and then buying their own stock back.  Now, that stupidity is coming to roost.  Corporations can’t pay the interest on their bonds, and the bonds are sinking into the “junk” classification; airlines a prime example with some airlines having put up to 95% of their free cash back into buying their stock.  Of course, this pumps up the stock market and Mr. Trump and the government economy appears better than in actuality.

I will repeat that the economy has been built on a deck of cards since The Great Recession, definitely favoring the big companies and wealthy individuals.  We lent cheap money to corporations, student loans, personal loans, auto loans, housing loans and not inexpensive but plentiful credit card lending.  This money revolved into our economy buying goods and services, thus showing somewhat favorable Gross Domestic Product, around 2%-3%.  Much of this money was spent not on improving manufacturing plants here and paying middle class workers a good income, but starting new plants in Mexico and China where labor is cheaper.  Now, our government is not only covering the large corporate bond interest payments, but actually buying in the junk bonds.  You will note on the balance sheet of the Federal Reserve that they are showing considerable losses, about $450 billion as of early April!  Not only that but the Federal Reserve on April 6^th held about $5.2 trillion in US debt and within two weeks that expanded to $6.8 trillion. 

I had a discussion this past week with a friend and an “insider” that some corporations being bailed out on bonds are using that money to buy their stock.  This is not supposed to be permitted, but is happening.  How could this be done?  Well, immediately my mind goes to the tactic that large companies may own a hundred of more companies, they are really “holding companies”.  These “subsidiary” companies may be publicly traded or private.  All a major company would have to do is loan one of their companies money after being bailed out and show it as a loan on their balance sheet.  Then let their subsidiary make the purchase holding it as an asset.

And, all this newly printed money is being transacted between the Treasury and Federal Reserve “off balance sheet”.  By this, I mean the money going out to each individual (approximately $1200), money going into the stock market, making the banks whole, covering the bond debt of large corporations and small business loans to tide small companies over until the pandemic is not recorded in our US debt.  (By the way, small businesses are considered those employing 500 or fewer people.)  I looked this morning at the US Debt clock and we show a debt of $24.7 trillion, therefore all of this new spending is not accounted for.  How it is transacted, I do not know.

As of my writing there have been about 2.9 million people sickened from the Covid 19 and 215,000 deaths worldwide.  In comparison the H1N1, Swine flu, in April, 2009 there were a total of 575,000 deaths.  My mind, without proven relevance, flashes back to “Wag the Dog”.  That expression comes from diversionary tactics used to avert a person/people from more important problems or issues…then a Great Recession and now a coming world depression.  A similar situation of diverting attention from a government setting would be our war in Yugoslavia in 1999.  It combined NATO troops but was an unnecessary war taking attention away from the Bill Clinton impeachment process with the topic of lying to Congress about the affair with Monica Lewinsky.

Mr. Trump believes we will have a “V” curve in the economic outlook, strong downturn and quick up turn by fall.  Personally, I believe the virus will hang around a while, perhaps coming back in the fall with a vaccine a good year or more off.  Fear is a greater emotion than greed, so people’s habits of protection….masks, not going into large crowds, more isolation, being sensitive to their surroundings will remain for a long time.  Retailers, especially the small ones, are significantly hurt, many not re-opening. Thus, I believe our economic future will look different from the past. You cannot have a healthy economy without a “large, well healed” middle class that is daily disappearing.  The layoffs and unemployment has been devastating, and has drained the savings of millions of Americans.  Many of these lost jobs will never return.

FINANCES:  Now, let’s look at finances and investing.  I see two ways of attempting to make money in the stock market.  One is “investing” in it, and the other is “playing” the markets.  As stated before in prior blogs I would not be investing in the market and with what is happening in the world I would be timed out for now.  Analysis is out the window.  You don’t know what the government will do, or how long they will continue to fund the bond and stock markets.  Japan’s Central Bank now owns 5% of their Nikkei stock market, and say they will continue funding as long as the virus is around resulting in a weak economy.  It appears our government has the same plans, as long as Mr. Trump is president.  What happens if Mr. Biden wins?  The unknown.  When you have this at play, stay safe and in cash. The current stock market is being played, one day up, one day down.  This is mainly caused by government buying stocks, hedge funds trading and companies with cash buying their stock back.

Just today a friend asked me advice on Disney stock and showed the brokerage firms recommendations.  Number one, I tell all, don’t listen to brokerage firm’s recommendations.  I have seen “market maker” investment firms who sit with millions in a stock recommending a “Buy” when they should recommend Hold or Sell. They do this so that they can “unload” their positions and get their money out of the stock letting the public buy them out…sad, but true to the industry.  Disney is for the most part a “public” type of business meaning Disney parks and entertainment including movies.  Currently, the parks and movie theaters are closed.  Movies are not being made.  Netflix is doing well with home viewers.  My recommendation on Disney, a good company (a stock I have bought and sold over the years), is wait until second quarter earnings come out and see how this summer goes.  Disney is a company you “invest in”, not “play” for a quick buck.  Stay away from companies in the entertainment arena; if you do invest, invest with staple companies that deal in necessities.  You see what happened with toilet paper, paper towels, food items, etc.  Stay away from oil stocks right now, unless you want to speculate; same with cruise lines and airlines.  There has been speculation the government may take over the airlines and nationalize them.  Stay away from Real Estate Investment Trusts; many shopping centers and malls may never recover.

Let’s talk about a couple ways to make some money in the stock market.  Play the market.  One friend has selected two or three stocks he knows as well as the temperament of his wife.  These stocks are solid companies, lower priced in the $20-$30 range, and have huge daily swings.  He has charted the highs and lows and the result continues in the same range, so he has “baselines” or history.  He knows the low days will be followed shortly by the government or hedge funds coming in and raising the price to his high baseline.  He makes a very good income “playing” this strategy, buying and selling every couple of days.

In the late 1990s I “played” the market and invested with professional managers.  My portfolio was balanced 50-50 between those two.  How I played the market was subscribing to three publications from stock gurus that supplied me with reliable information, not from stockbrokers.  Then, I kept no more than 20 stocks in my “played” portfolio, each one having the potential for something meaningful to happen and take off.  These were all “smaller cap” stocks in the $5 to $25 range.  I wanted a hold period of about one month.  If nothing significant happened, I would sell out and replace the stock with a new company.  You won’t get significant short-term increases in prices from “large cap” expensive stocks.

Each person should develop their own strategy; a strategy they believe in and works thus makes money.  Don’t deviate from a winning strategy, and if it is not working, amend it.  Perhaps join an investment club, or group.

That’s it for now.

MONEY 187 - NEWS

THIS IS MY 187^TH BLOG ON UNDERSTANDING MONEY TOOLS

March, 2020

www.understandingmoneytools.blogspot.com

Regarding our government, let’s begin with the premise, “if it’s too good to be true, it is too good to be true”! 

The stock markets are in a correction mode from a normal rebalancing of value assisted by the Coronavirus.  The week of March 23^rd was very volatile, new lows then days of correction.  Why?  The government was again buying stocks to support markets, and they were issuing new bonds to raise money, and printing more money.  The Federal Reserve buying these assets now holds well over $5 trillion, according to recent news reports.

Another reason the government is buying heavily in stock markets is to eliminate the “short sellers” who bet the markets will further deteriorate.  When the markets go up “short sellers” need to cover their loss positions and come up with cash; they get killed on the strong “up tick” days.

In my estimation,  it would be very stupid to buy into this market, it should go significantly lower.  As stated in my last blog, the unknown factor is the government.  How far will they reach financially to support free market downward movements?  Federal Reserve Chairman, Jerome Powell, stated “they will go to any degree financially to help”; this leaves a lot of guessing room.

Another reason for my theory the free market should retract is that corporate earnings should be significantly lower, thus many corporations will have fewer available dollars to buy back there own stock.

Many people are going to cash positions and low risk, so banks are flooded with money, this includes money markets and our short-term Treasury Bills for 30 days and 90 days, that are now at negative rates of interest.  This is quite common with the G-8 countries.  This again reiterates the fact that the only buying going on in the markets today is the government, further supported by an election year.

How has this affected mortgage rates?  Mortgages compete financially with bonds, especially the 10-year bond.  If you hold an “adjustable rate mortgage”, adjusted annually, you find that the new rate is 3.25%, which is the same as the “prime rate”.

Stock markets?  Well, the DOW closed at 22,208, March 30th with a price to earnings ratio of 23.5 to 1.  Granted, I’ve been beating this to death the last 3 years of writing these blogs however, it is so important to note that the average P/E (price to earnings) should be 14 or 15 to 1, proven by history since 1896.  This means the markets are still way over-priced. This includes the NASDAQ at 7,500 and the S&P at 2,550.  I will repeat from my last blog that if the government was not stepping in with trillions of dollars a normal “free traded market price” for the DOW should be 14,000.  Also, with the Coronavirus added in, Goldman Sachs is predicting a GDP of negative 24% instead of our most recent positive 2%.  This means earnings should be way off and buying of stocks should be based upon earnings, especially in the DOW Index of the most solid companies.  This factored into the equation should result in a DOW pricing at 10,000; (14,000, the norm, minus 25-30% drop for the Coronavirus effect).

What investors don’t seem to realize is that a price to earnings ratio of 23 means that you would not see your invested dollars back in a company for 23 years.  Also, that computes to your buying a company with a 4.2% return on investment; pretty lousy considering risk/reward. (That is computed by dividing 23.5 into 100.)  

When buying stock or a fund consider:

-       Price paid.

-       Earnings.

-       History of growth in earnings.

-       Good management.

-       Company bringing forth new patents, products, advancing in new areas.

-       Variables that might upset future growth.  Consumer’s wants/needs of products.

-       Commissions charged by money managers and funds.

I truly hate to see this, but it will happen again and again.  The wealthy started selling out of risky investments like the overpriced stock markets over 3 years ago raising cash.  When solid corporations and countries around the world start getting into trouble, not being able to pay on bonds and debt, the wealthy will step in and buy the best assets for pennies on the dollar.  They did this during our Great Recession, and the very obvious situation when Greece could not pay their debts to the International Monetary Fund and World Bank a few year’s ago.

Remember, fear is a stronger emotion than greed.  Our lives have changed with the Coronavirus.  Our new daily habits our becoming ingrained including lifestyles, wants and investing.  It will be a long time for “us” to return to the old, if we ever do.

That’s it for this blog.

MONEY 186 - DISCUSSIONS

THIS IS MY 186^TH BLOG ON UNDERSTANDING MONEY TOOLS

March, 2020

www.understandingmoneytools.blogspot.com

Several friends have called me having a discussion as to my thoughts on various fronts.  In light of this, I thought I would write a blog/chapter.

Tumultuous times; Coronavirus, interest rates, bonds, stock markets.  Let’s discuss all of these as they are interconnected.

Coronavirus:  I am certainly not a doctor, but read about the virus as you do.  A person I follow on editorials is Dr. Paul Craig Roberts.  Dr. Roberts was appointed by President Reagan as Assistant Secretary of the Treasury for Economic Policy.  In a recent article he recaptures an interview with Francis Boyle who drafted the US Implementation Law of Biological Weapons Convention.  This is associated with the years 1972 and 1989.  According to Francis Boyle we and other nations are in violation of the Convention and the US has spent over $100 billion since 2001 on “dirty warfare”.  We now employ over 13,000 people in 400 labs around the US creating viruses that are not curable.  Regarding the Coronavirus perhaps “the rabbit got out of the hatch” either here or in China?  Would it have been to hurt economies?

In 2009 during the “Great Recession” we had the H1-N1 Swine Influenza virus; 10,000 Americans died.  We have forgotten that and the Zika and Polio viruses in the 1950s.  This Coronavirus is more easily contracted, and can have long-term negative affects to the lungs.

We now have an economy in a worldwide, strong “correction” mode.

I can make certain assumptions regarding the Coronavirus.  Because of the severity of the impact on mankind and disruptions it will take a long time for us to fully recover, even if a vaccine is found in the near future.  Fear has always been a stronger emotion than greed therefore, economically it has impeded growth of all economies and has and will have a huge impact.  This includes buying habits such as going out for dinners, entertainment, shopping as well as large purchases.  It will also have a bearing on investments and the types of investments.

Interest Rates:  In the last two weeks Jerome Powell, Chairman of the Federal Reserve, has dropped interest rates down to a benchmark of 0% to .25% interest, (zero to 25 basis points). This means that the most popular bond, the 10 year Treasury bond, may go lower as well as the 30 year bond. Ironically, on March 13^th the 10 year bond yield was .5% and on March 18^th it was 1.13%.  Perhaps people are looking at the weak US economy and therefore wanting a higher interest/yield rate.  There is such a demand for “risk free/low risk” investment like government insured investments and money markets that we can offer these with no, or little, return on investment.  We may even go negative as some of the other G-8 countries.  It is usually about supply and demand.

Let’s go for some question/answers:  (Approach this section as if “you” are asking me the questions.)

-       Question:  Federal Reserve interest rates have dropped.  Will this have an effect on all loans?

-       Answer:  It should on most loans that are commercial based such as loans from banks.  The “spread” between institutions borrowing money and lending of money has just become larger.  This should adjust.  Risk of a loan must always be considered, whether or not there is collateral or good/poor credit. 

-       Question:  What is a bond?

-       Answer:  Quite simply, an “IOU”. 

-       Question:  Is there risk on a country’s bond?

-       Answer:  Yes, but if a country has a strong economy like the G-8 countries there is little risk.  The US dollar remains strong even with  the printing of new money and borrowing/debt.

-       Question:  It appears that the Coronavirus has really depressed the stock market, is this the only factor?

-       Answer:  The Coronavirus only tossed gasoline onto the fire!  If you look at the 4 parts of a business cycle (growth, peak, correction and trough) we were only held at the peak because of the government putting in “insane” amounts of money holding the peak at a high.  We, in a “free market” economy, were already in a correction portion of the cycle.

-       Question:  Where do you see the bond market going?

-       Answer:  To negative interest rates like other countries.

-       Question:  Where do you see the stock markets heading, and a trough?

-       Answer:  Tough question.  In a free market the DOW Jones Average should have topped at a price to earnings ratio of about 17 to 1.  Because of government intervention and promotion of the markets it went over 30 to 1.  What does this mean?  Simply put the DOW should have peaked around 16,000 instead of 30,000, that would still equate to 20% over what the norm was.  The NASDAQ is also way overpriced.

-       Question:  Why were the stock markets able to reach irrational highs like in 1929 and 1999?

-       Answer:  Greed for one.  Two, would be the government, banks and corporations buying stock.  Through these vehicles the government has pumped trillions of dollars into a false economy since The Great Recession.

-       Question:  Where do you see the DOW going?  It is around 21,000 now. (March 18)

-       Answer:  Down, unless the government keeps replacing the private sector money leaving the stock markets.  Let’s be realistic here.  The 125 year average for the DOW is 14 or 15 to 1, (14:1) based upon earnings.  Investing should be based on earnings not gambling!  Americans have used the stock markets the past 10 years as their own ATM machines pumping out annualized returns of 12% or more.  This is crazy and unrealistic.  Free market theorists like Adam Smith, Milton Friedman and Friedrich von Hayek would all be turning in their graves if they could see what is going on in our socialistic/fascist society!

-       Question:  What do you mean by stating “government intervention”?

-       Answer:  Let’s take a look.  Since 2010 the government has pumped trillions of dollars “somehow” into the stock markets.  Check your trading volatility.  One day up, one day down.  The down days are the days the private sector is exiting the markets, the up days the government through the Feds and banks buying for support.  As an illustration on March 16^th it was public knowledge on the news that the government was placing $150 billion into shoring up markets.  On March 17^th the government added another $500 billion and we had another rally in the stock market.

-       Question:  Do you currently own stock?

-       Answer:  No.  I am conservative.  Based upon what I mentioned above on investing according to earnings of companies, the DOW should be at a reasonable pricing of about 14,000.  I would have exited my stock holdings in the DOW before it hit 16,000.  With the Coronavirus facing us and earnings definitely coming down, I can see the DOW around 10,000 or less.  We have never, in my lifetime, seen a pandemic like this shutting down most parts of the world, and its economy.  Another reason for not owning stocks the past few years is the government insertion of money into the markets.  To what degree are they willing to go and how many trillions of dollars?  I do not know, but taking the risk on shorting the market is above my tolerance level.

-       Question:  Mr. Powell, Chairman of the Federal Reserve, has stated along with our Treasury Department that they will do “all that is necessary to stabilize and calm the markets”.  What does he mean?

-       Answer:  Pump money into the banks, stock markets and economy.

-       Question:  Were you ever heavily into the stock markets?

-       Answer:  Yes, I had considerable money in the markets, from the “penny markets” of the early 1980s to mostly conservative investments in the 1990s as I grew older.  I am more a tangible type of investor so I placed most of my money into things I controlled like oil and gas and real estate.  You will find that most investors either like tangible investments or stock markets.  Stock investors, for the most part, forget that buying a stock has zero value if there are no investors to take them out of that stock.  With oil and gas you have the oil in the ground under your wells as long as you own the mineral rights, and in real estate have land or rental property.  Working along with Wall Street and Securities for 20 years I was “well connected”.  I normally invested with “reliable information” from “reliable sources”....that could be called “insider information”.  In 1992 I retired for the most part.  Then, my stock analysis was different, and what yours might look like. First, everything comes with a price.  In the 1990s I did make quite a bit of money in the stock market, but I spent about 3 to 4 hours a day analyzing stocks.  I do not invest on “momentum theory” nor typically on companies that do not produce a profit.

-       Question:  What was your philosophy and strategy on investing in stocks?

-       Answer:  In the 1990s and out of the investment banking/corporate finance arena, I needed to get my own information and do my own analysis.  I subscribed to about 3 of the most respected publications for stock analysis, and then did my own work.  Typically, I was a “monthly trader” holding a solid company with the likelihood of something great happening (like a medical patent approval or potential buyout) within a two month period, and then selling, paying my short-term capital gains tax and being happy with that.  As a stock moved up in price over my buying basis I would many times place a “stop loss” on it or buy a few “put options” for a hedge.  I balanced my portfolios between good funds and individual stocks.  In the late 1990s a Senior VP of investments at a major bank said my portfolio was one of the best he ever saw.  Great, however then we had the crash of 1999 and I lost about 40% of my money with Janus Funds. (Tom Bailey, who started Janus Funds in 1969, and I worked together for Vail Associates in the latter 1960s. I respected his analytical ability to a great degree, therefore had a considerable amount of money in that fund.)  I also lost a lot with the solid old companies like Motorola and General Electric, which have since been failures.  Once you have a format that works for you stick with it, don’t compromise in that.  If your strategy is not making money change it.

-       Question:  Did you, or do you invest in bonds?

-       Answer:  Yes.  I always invested with top bond funds.  The manager of the fund is what is most important.  If a manager leaves you should also.  When interest rates were trending up like in 1978 to 1981 I went into “open bond funds” where they were buying new bonds.  When interest rates trended down like about 1983 through the 1980s I bought “closed bond funds” where they weren’t buying new bonds into the funds at lower yields.  Today, with low interest rates I think a person can do better waiting, then buying a quality stock with a low price to earning ratio and paying a good dividend.  You hopefully will get a nice “kicker” from the stock price rising.

-       Question:  What is a “stop loss” and is it always a sure bet?

-       Answer:  A stop loss is where you protect your profit by placing a sell order in at a given price.  Example: A stock is bought at $25/share.  Your stock rises to $32/share and you want to protect the downside.  You place a stop loss at $29/share.  I have done this many times and here are two ways you can lose.  One, with the example above the stock on a bad day slides down through $29/share and you are out, then the next day the stock goes up to $34, but you no longer own the stock.  The second way of losing is that some really bad news comes out on the company and the stock slides quickly down to, let’s say, $24/share, as there were no buyers until the stock reached that level.  (I got caught on that one with Imclone medical stock.  Remember Martha Stewart got caught on insider trading because the CEO tipped her off.  She went to jail.)

-       Question:  Do you time the market?  I have heard this isn’t wise.

-       Answer:  Most investment managers and planners don’t want you to time the market primarily because “they” don’t want to lose control of your money.  It is wise to time markets looking at trends or you give back the profit you made.  I have told you that the market has peaked and only fools would remain in the stock markets.  A correction has to follow.  Then, the unknown factor is the “trough”; how far down it will go under a free market.

Additional Notes:  Here are some things to ponder.  If the government and large banks keep buying stock in the markets they will become major shareholders and in control of corporations.  The government through lending money to the banks and regulations already control the investment banks, trust companies and commercial banks.

With all the “shut downs” of cities and commercial enterprises the government is talking about “giving” people money.  How much?  When could this happen?  Will this money be taxed at the end of the year?

We have many things to resolve right now, and I suspect many unforeseeable things will be forthcoming.  I think cash will be “king” for quite some time.

As with all my chapters/blogs, I hope you got something out of this one.