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.