MONEY 50 - EDUCATION

THIS IS MY 50^TH POST ON UNDERSTANIDNG MONEY TOOLS

After writing Blog 49 my brain had a volcanic eruption and I wanted to cover other aspects of two separate topics, these being student loans/cost relating, and how several other countries deal with it.

First let’s hit education and student loans. Education has become very expensive in the last 30-40 years placing a great burden on young adults wanting to go to higher education. We realize there is a lack of job opportunities currently available and therefore the student graduates from college with a significant amount of debt. Hopefully, Congress will see that interest rates remain relatively low. Total student loan debt in the US is about $1 trillion dollars. Sustained lack of employment or higher interest rates will bring on defaults and this huge bubble will burst. Older people from 40 to 60 are now going back to school to try to get re-employed. In previous Blogs we discussed this and all the on-line educational opportunities.  I have a close friend in this situation. He is smart, needs new training and is 61 years old. He had no problem receiving a student loan quickly. The loan is enough money to help him live. Many Americans are resorting to this form of getting a loan, as banks are not lending money. Technology and employment demands are changing so quickly it is difficult to decide on which courses to take that will help a person get a job.

Where am I going with this?  I think the government needs to do more in support of higher, affordable education for America’s future. Many people want smaller US Government, until there is a crisis or need and then they cry for assistance. Human nature. A more efficient, honest government is all -important that supports education. A transformation is needed, and money needs to be spent in the right places.

Too many young kids are shying away from education. It’s the formative years that are important between birth and years 12, or so. The child needs to explore, imagine, have passion, emotion, and be mentally adventurous. Rote memorization like in a history class is fine, but we need minds that explore. There is good peer pressure and bad. The child needs mentors, parents and grandparents who encourage this.

As a personal example of this we were raised in a middle to lower income family as my father had gone bankrupt when I was about 7 years old. My brother who has since passed away got the top of the gene pool in the family, however we all strived to make something of ourselves. We did it on our own. My brother went into education as he saw needs, quit the regimented stereotype Milwaukee Public School System, moved to Oregon and started an alternative state approved school teaching progressive learnings, and mainly how children learn. He recognized that we are all individuals and each person learns and absorbs information differently. As he became more recognized, he taught at the high school level where most of his students went on to college, taught at the U. of Oregon, Eugene, in the summer, and was asked to teach for a summer in a special program in Russia. He elected to take along his oldest daughter and they loved the experience. The educators in Moscow and other cities arranged a tour of the country for them.

What did he have to show for his accomplishments as money was never the goal, but both personal satisfaction and awards. Until today he is the only teacher in the state of Oregon, to my knowledge, who has won “teacher of the year” twice and in different subjects, math and biology. He is also an award winner of the coveted Milken Foundation for better education. In addition he was asked to be part of, and then trained by NASA in Houston to teach math for aeronomics, which has its own specialties. If he can do that other people can do that.

We need to remove many of the fears associated with current education; failure, not being able to afford, being crushed by the education debt load, etc.

In the last Blog we brought up Germany in the context of education and a division at a certain age between going on to learn a trade or attending a university. In many European countries education is greatly subsidized by the government.  Do they have higher taxes, questionable.  Socialism, higher taxes?  You get what you pay for? Do we pay less in taxes than Europe and other countries?  We pay federal taxes, state taxes (in most states), county taxes, city taxes, alternative minimum taxes, special assessment taxes, sales taxes, and the list goes on. We define our taxes differently than other countries do, but in all we pay about the same.  In a similar way we hide real unemployment numbers.  Do most people think we have a lower unemployment than many countries in Europe? We say our unemployment is 6.3%, however there are so many people that aren’t included in this count that in reality unemployment is perhaps 18-20%. We are no different than Europe.

There are foundations that study demographics including peoples’ happiness. Do you know where we find these countries?  They are mainly Scandinavian countries. They have high taxes, their standards of living are high, but people are happy. The countries provide a standard of living that is comfortable, eliminate fears, provide health care, dental care, education, and more. We should learn, take the best from them and be more efficient. Do they have a relatively high suicide rate, and are drugs legal? Yes in some places. I do think that some of this is due to lack of natural light, as these countries are very far north of the equator. Darkness brings on depression.

China also is experimenting with better education. In many schools each student has a computer. Instead of each classroom and school having a separate teacher for the same subject they have the “best of the best” teacher on-line teaching. There is an administrative person in each classroom for organization and assistance. Not a bad idea, and maintains high standards. If you look at Silicon Valley, check out all the companies founded by Orientals and Asian Indians.

MONEY 49 - ECONOMY

THIS IS MY 49^TH POST ON UNDERSTANDING MONEY TOOLS

In this blog let’s cover several topics including the economy and jobs approaching some new things.

I meet with some people socially who have good minds and fortunately like to debate.  One recent topic of discussion we have discussed before in our blogs.  It is a controversial topic; the future of America, its people, economy and jobs. With the 1980s and early 1990s we starting seeing more jobs drift overseas. President George Bush drafted the North American Free Trade Act (NAFTA) before he lost the presidential race in 1992, and President Bill Clinton worked with Congress and it was passed. To my thinking this aided Mexico far more than helping the US or Canada. Of course, since then we have outsourced much of work to foreign countries at the sacrifice of the US worker. In the past several years we have seen union labor crushed, and robotics replacing human workers. Moving forward we will have more robotics.  Here’s the debatable point. What do we do with all the available manpower in this country, some educated, some not?

My friends who remain positive on this labor issue sight that America has seen higher unemployment before dating back 150 years, the “industrial revolution”, the invention of the steam engines, and computerization after World War II. Thomas Watson Sr. the founder of IBM, stating that we may have a need for a handful of computers. Wow, if he could see where we have come. We will work through this.

I am a bit more negative than some of my friends for various reasons. One reason is the transference of great US wealth to the top 1%, and to have a healthy, prosperous country the wealth needs to be broadly distributed with the middle class….the spenders of money who buy goods hopefully made in the USA.  If the money and assets are with the top 1% they will need to invest the money back into this country with new companies, helping rebuild our very depreciated infrastructure of roads, buildings, water/sewer lines and more.  A second reason for negativity is education and training in this country. We have not really changed our educational structure and system in over 100 years. We lack advanced technical training for young people, provide expensive college education, and there are gaps.

Germany is doing very well. Let’s take a look at the basics of their educational system. When a student enters high school,  “Gymnasium” in German, depending on his/her desires in life and mental capabilities, that person will choose to either go to a university or go to a technical training school. Not everyone should go to college, however everyone should be given a chance to make a very good living in life.  Many doctors and lawyers in foreign countries don’t make the salaries that they do in the United States. A wider spread of money to reach more people. A factory auto tech in Germany now makes about $75/hour.

A third negative point is that we are very diverse in nationalities, religions, cultures and more. We lack unification. Daily we see agreements but more likely the lack thereof in Congress and the Senate, and therefore nothing gets accomplished.

Bottom line, will the US prosper and build new companies here, will the top 1% wealthiest people look beyond immediate gratification, and view this country 25, 50 and 100 years in the future?  A country that would be good for everyone? Without foresight we can’t have much of a promising future.

It has been noted that 95% of the stock market gain and monies made over the past 7 years has been made by big companies, big banks and the top wealthiest people. Can big companies buy their own stock back in when they consider it inexpensive?  Yes, they certainly can, and do, to make more money.

Let me give you an example of companies pushing employees and thinking only bottom line. Not too long ago I saw an ad for a part time employment position offered by a major US retailer. I was curious so I called to inquire. First, this major company outsourced the hiring and I spoke with a person on the East Coast. Here is what they offered. The closest location to my home was about 65 miles each way, or 130 mile a day drive through the city. The part time job was for a 3 hour shift, they ran 3 shifts a day. The reason for a 3 hour shift was to get the maximum energy out of a person; no breaks, no lunches. After 3 hours most people get tired and sale’s effectiveness will drop. They paid $8/hour plus commissions on sales so the expected employee would make $12-13/hour.

Let’s look at the reality of this from a prospective employee’s point of view. First, $13/hour for 3 hours a day is $39. Now take myself and the drive time.. The US Government says that it costs an average of $.55/mile to run your car. This includes depreciation, gas, oil, tires, insurance and more. Another consumer source I read said it costs closer to $.57/mile. If I took this job I first would need to take into account my driving time. Then, 130 miles times $.55/mile for the cost of driving my car would be $71.50. But I only am making $39 for the day. America’s big business is squeezing the bottom line and workers too hard.

While on the point of auto mileage and business there are a couple points I want to address. There are some jobs and employment where you can deduct this mileage expense and some you are not permitted. If you are a W-2 employee going to and from your company’s office location, you can’t deduct mileage expense. If you are a contract employee such as a tech person, real estate agent, etc. and receive a 1099 for taxes you can in most cases deduct mileage. I have heard employers say you drive an older car so it doesn’t cost $.55/mile because the auto is depreciated. There is a cross over on mileage expense, one being mainly depreciation the other being auto maintenance and repairs.  On a new car maintenance is next to nothing, but depreciation (lost value) is high. Then, as the car ages depreciation is minimal but maintenance goes way up.

Let’s take a look again at the middle class. This past week a TV newscaster spoke about middle class family incomes and purchasing power that has dropped since 2000 to now. In 2000 they reported that the average family income was about $57,000 and today it is approximately $53,000. That is approximately a 7.5% drop. I don’t think most families with children had much disposable income even at $57,000. Now, this is where I said I need to look at “time value of money”, “present value of money”, “future value of money”. All those mean the same, just how you are looking at it. Where am I going with this? The newscaster and network forgot about how inflation has affected the purchasing power over the past 14 years in these figures.

To get a more accurate picture on these dollars and the financial standing of the middle class in 2014 I went to Google and put in “what is the dollar worth today versus year 2000”? Several sites come up that calculate year to year inflation and how it has eroded the dollar. (This is really cool. You can go either way. For instance, you can put in a dollar amount today and find out what the dollar was worth in a given year, or reverse the procedure.) The site I went to could calculate back to 1913. It asked what year to start and what year to end. The result for the years 2000 to 2014 was that the US dollar is worth 38.4% less today. Let’s take that into account with the middle class family and the news reporter. The average family should now be making $78,000/year to stay constant with year 2000 earnings; not even close to $57,000. What a shame, and no wonder people can’t afford to buy things.

MONEY 48 - STOCK MARKETS

THIS IS MY 48^TH POST ON UNDERSTANDING MONEY TOOLS

In this blog we are going to talk about the stock market and the real world. I would imagine most people who buy stocks or mutual funds believe that it operates under the principles of an honest free market made up of buyers and sellers from all over the world. These buyers and sellers place orders through stockbrokers, investment banking firms, banks, or through on-line services. The vision comes to mind of each night’s news drawing to a close showing the floor of the New York Stock Exchange and traders with slips of paper in their hands yelling out buy orders or sell orders at requested prices.

Did you see the segment on 60 minutes August 17, 2014 on the stock market and how “rigged” it is? I hate to bring the bad news to you, but it is both rigged and crooked, and so are so many things in life.  Like most industries trades of stocks and options are mostly not placed with the human element any longer, but with computers in fractions of a second. Permit me to digress. I have been on the floor of the New York Stock Exchange several times and had wonderful lunches in the “member’s dining room of the New York Stock Exchange. One close friend owned two seats on the exchange and leased them to Bear Stearns, and loved working on the floor as a trader. What a blessing to love your work. He was awarded the “oldest person” to work on the floor in his later years.

World investors aren’t interested in making money by purchasing a stock and holding it for 6 months, or a month, week or day; it’s get in, get out, make money. As 60 Minutes pointed out it is now down to faster cable lines and connections. I’m not selling 60 Minutes, however some time ago they did a similar segment. The owners of an investment and trading company knew nothing about stocks and bonds, however they were very good at designing computer software that would permit their computers to trade in fractions of a second when certain variables were favorable for a trade that made money.

Is this rigged and making money new? Heck no.  Unfortunately, greed is a human element. Fear is one of the only human emotions stronger, and of course politicians use it every day. The opportunity at one point to buy Microsoft was at hand in the 1980s. I passed knowing nothing about high tech. Then, missed again because of names of companies, Yahoo, Apple, Google and more. Who would buy a stock with such names? Answer is wealthy people today.  I let fear in. 

In the late 1960s and 1970s I lived in Vail, Colorado,  surrounded by the wealthy. In about 1971 I was at the home of one of these wealthy families for dinner. I was tipped off on a particular stock by a New York stockbroker, so I asked the patriarch of the family what he thought about my buying the stock. His words I will always remember, “don’t get involved with the purchase, we have several floors of employees analyzing stocks and companies and most times we have bought and sold a particular stock and  made money before you and others get in”.

I have worked for several wealthy US families. How do many make their money in the stock market?  They remove variables. How do you remove variables?  They primarily deal on qualified inside information. The network of the inside “boys” is extensive, but it doesn’t reach you nor me.  When you work for these families you typically sign confidentiality agreements so that no information goes out the door, so with that said I will leave the topic.

Money managers running top funds are just as bad. They regularly have conference calls to see what corporate information has been leaked at the clubs and cocktail parties. These wealthy families employ young business graduate students from top colleges to assist in gathering of information for analysis. Several of the “wealthy” have at least two separate stock departments, one for buying a stock and going “long”, and another for selling stock and selling “short”. We have discussed these techniques of investing in previous blogs.

Is this the end of the stock markets being rigged? No. I have been privy to much more including using phony names, telling companies you are interested in buying the stock, wanting to talk to the CFO telling him/her you are interested in buying a big block of their stock, when in actuality your employer is intending to substantiate information to warrant shorting their stock.

Over my work career I have been retained as a consultant for a large regional investment banking firm. Here is another note of corruption that historically happened. As I have covered in prior blogs when a company goes public there is a managing investment banking firm. That firm also acts as a market maker, or controller of the price of the stock. That firm allocates certain amounts of stock to other investment firms and “institutional” buyers. Some of the wealthiest families are designated institutional.

If a company’s financial performance deteriorates normally the managing investment firm will know. If they have hold a lot of such a company’s stock it has been known that they will tell their top brokers who have performed well for clients to lay off and recommend this stock so the “house” does not get stuck with the loss. So much for ethics. This behavior goes on regularly and yet no one has gone to jail since at least 2008 because of corruption.

Now, the news is that Wall Street is heating up again with the same derivatives that took down the US Banks and some countries around the world like Iceland. Regulation of the financial industry has only hurt the middle class with tight money and restrictions, while Wall Street and the large banks go unpunished even after the US taxpayers bailed them out.

After hours trading?  You may think the stock market is open certain hours during the day.  Trading goes on around the clock. You buy what you think of as a safe stock, and all of a sudden the next morning you check the price and it has lost major value.  Happens all the time.  Negative news slipped out, and people sold the stock overnight, unbeknownst to you. You can use techniques of trading place a “stop loss” or a “market sell order” at a specific price. The only problem here is that I have used especially the stop loss to hedge on my market downside and protect profit only to learn that a stock slipped past my stop loss sell price, and then headed back up again, thus I was out of the stock and albeit making a bit of money was out of any future profit in the market price rising.

To place a hedge to protect your profit in a long stock position, you can use stock options. You can buy a put option or sell a call option, both are betting that the stock will go down. I believe we have discussed this in previous blogs.

Ending on a note of market direction…who knows. This past week George Soros, one of the biggest hedge fund managers,  shorted $2 billion worth of a well-known index to hedge his long positions in stocks. He and his partner in Singapore, Jim Rogers who I have followed since the 1970s and early 1980s when he cruised the world on his motorcycle looking at companies, should know which direction the markets are going but they don’t.

MONEY 47 - ECONOMY

THIS IS MY 47^TH POST ON UNDERSTANDING MONEY TOOLS

I began this blog site a couple of years ago with the intent of relating mostly facts with minor disruptions for opinions.  Then, through time I have noticed that I am taking facts that I see happening with the economy and adding my subjectivity to the topics. In the “new world order” things have changed in the past 5 to 8 years including types of work, the way work is done, where work is done, and how finances are analyzed and handled.  In this blog we’ll take a look at the economy again, and the employment situation.

First, to the economy it ran in recession/negative territory first quarter this year, and all the brilliant economists said growth projected to be 3% the balance of the year thus perhaps a 2% overall annual tepid growth. Now, they are at 1.7% for the year.  Numbers out this week of August 11, 2014 show flat growth, thus we will never make the 3% projections and be lucky if we attain over 2%. June’s hiring numbers were good, but they are for the most part temporary and lower paying jobs. Many times part time means 4 hour shifts.  Frankly you can hardly pay your auto expense and gas to and from work for this pay.  The economy has improved in certain areas of the country, these being primarily big government and wealthy pocket cities like NYC, Washington DC, and Los Angeles on south…..;.100 miles in from water. The other areas are the energy arena in Texas and North Dakota. I live in Arizona and it was on the news this week that for full time work we rate as the third worst state in the country, not good news.

I’ll say it again, the recovery has come from low paying part time work, unsustainable. Jobs overseas. The big recent topic has been US companies buying or merging with offshore companies and “domiciling” in foreign countries. Some of these companies now say their headquarters are in a European city and yet they only have a handful of employees in those offices. They are still doing most for their business out of a US city. Companies hire the best tax lawyers and they are finding ways to get around paying any taxes; off-shore corporations and trusts. They don’t care if the corporate tax rate is 35% in the US as they aren’t going to pay close to that anyway.  If people are true capitalists they won’t find fault with any of this, but how does this help America and the majority of Americans long term? It doesn’t and it can’t. Money is still not circulating and I have mentioned this many times. US fiscal policy is to blame and needs fixing.

Companies are not investing in the US. We have created artificially low  interest rates that are regulated through Quantitative Easing. There is no inflation to speak of except for produce and oil/gas. Spot oil prices are just under $100 per barrel.  The US is producing more oil today than it has for over 27 years. The high for oil pricing for its day was in the early 1980s when we hit about $38/barrel, then it slid to about $9/barrel in around 1987, putting the independent oil producer out of business and shutting in many of our domestic wells. Right now we have an excess of oil worldwide however, as the world economy is expected to improve in 2015 demand should increase.

What is interesting is that about 18% of all our oil usage goes to the military. We have great support in Congress to vote for larger military budgets. I found an interesting article in Business Insider recently. The more world turmoil the better our manufacturers of military equipment love it. We now supply about 57 countries in the world with military weapons. We are the biggest exporters of weapons by far. Also, what is of interest is the unbelievable cost of this equipment. For example, a warship now costs $2 billion, a F-22 Raptor plane costs $350 million, a Thunderhawk Cruise Missile costs $1,410,000. The more break up of countries the more opportunity to sell weapons to the various factions.  And, we don’t have money for better education!

Corporations feel no need to invest now as things look like they are not inflating in price so why spend the money now when the same capital items should cost about the same two years from now? No pressure to spend money. The same holds true for real estate and it is affecting the new home building market, quite stagnant except for the key areas and cities I mentioned above. Poor fiscal policies and uncertainties lingering with ObamaCare continue to retard investing here.

Worldwide there has been easy money with all the central banks lending to countries and big business. This bubble might bust worldwide. China has overbuilt in many cities, and the only logical way out for them would be to privatize more assets including real estate. The same exists in several of the Middle East countries.

The US stock markets, well, I’ve been wrong again. I thought the “bears” would come in over a year ago and correct the abnormal highs, however two main things have proved me wrong. One, all the Quantitative Easing money and big banks investing in the stock market, and two, world problems and unrest. Wealthy people living in foreign countries being torn apart with civil unrest are pulling the money out of their banks and bringing it to safe-havens like the US. What would I do? Well, the great gurus of the investment field are divided; many say we’ll slip into a worldwide recession because of all the easy money lent by central banks around the world, others predict a significant upturn in 2015. In light of insanity here I’d go more cash being more liquid. In securities I would look for only the best companies and look for high dividend yield where I have income and can hold onto the stocks through rough weather and a downturn. I do think inflation will return at some point and that will hurt the bond market, so I wouldn’t go there unless I was happy with yield and could hold the bonds to maturity. Interest rates can’t go lower than they are  today.  The discount rate is still only a few basis points. This means that the market value of bonds stands a far greater chance of going down than ever going higher than current day.

The rise in the stock market has primarily aided the wealthy, but not middle America. Middle Americans are having to tap retirement funds to live and that in the long term will result in older people needing to work low paying jobs without the ability to spend money. Similar fear and uncertainty elements relate to the early to mid-1930s here in the US after the Great Depression.

It seems like I repeat myself in these blogs however, so little has truly been accomplished since the banking crisis in 2007-8. We have politicians on both sides of the isle who refuse to come to terms with doing the right thing for all Americans and moving the country ahead. We need new infrastructure badly, meaning bridges, highways, sewer/water/gas lines, but we don’t have the money or votes for it. And yet, we give a ton of money away to foreign countries and always vote for a bigger military budget when that money could be used right here.

Other tidbits: We have talked about gold in the past blogs. Production costs plus administration expenses are still less than $600/troy ounce and yet gold is selling at just over $1300 per ounce. It boggles my mind that a mundane commodity can sell for over twice what it costs to produce, albeit a commodity used in trade for centuries. Some gold bugs think we will see many multiples of the current price within 5 years. In light of this, perhaps it is best to take a small portion of the money you invest and buy a bit of gold. You can buy gold either as bullion, a specific stock or in a gold index fund. The Asian Indians were the biggest buyers of gold especially women for jewelry, but import tax changes and a weak Rupee have had a downward impact on that. China the second largest buyer of gold has also slowed their acquisitions because of internal economic weaknesses showing up.

Some economists think we should go back on the gold standard backing up our dollar as Switzerland is intending to do, however I believe that would strengthen our dollar to the point that USA goods produced here would be too expensive to sell on the international market, thus pushing us into another recession.

The Euro currency has remained quite stable over the past few years at around $1.35 Euros to the US dollar. Germany always amazes me; strong national unity, production of some of the finest automobiles and goods, and a strong economy. It is the backbone of the European Union. Germany and other European Union countries are quite socialized compared to the USA with somewhat higher taxes yet the standard of living is higher, education far better, health care a standard and more.

Recently reported by CNN was that the average CEO of large US companies earns 354 times the average employee wage, Walmart being one of the examples.  Put this into perspective. That means it will take the average employee 354 years to make what one CEO makes in a year. I don’t think I would live that long! Other countries don’t pay their CEO’s, doctors, lawyers as much as we do here in the USA while the middle class dwindles. Again, Germany is very successful and as an example of wages the average auto worker makes $67 per hour, a sum of money so he/she and their family can live well.

The middle class in the USA is no longer the strongest in the world, countries like Canada, Sweden, Norway, France and Germany have now surpassed us.

Wow! I could keep writing about the corruption of the stock market, the misconceptions of where the US is in rank with world rank in education and health care. I better write another future blog on this. I have either known or consulted for many wealthy families in the US and signed confidentiality agreements, but the public should know what is happening.