MONEY 86 - THINGS

THIS IS MY 86^TH BLOG ON UNDERSTANDING MONEY TOOLS

Let me start out with an explanation. I call my blog Understanding Money “Tools”,  it could have been Understanding Money “Things”.  I thought that “tools” was a practical application for topics discussed where “things” is pretty broad, and also mundane.

We’ll hit two topics in this blog. The first has application in today’s world; where we are headed, the second is more from a historical, interesting note.

In the latest blogs we looked at tremendous private and public sector world debt, and how this has happened with the World Central Banks and our Federal Reserve printing unheard of amounts of money.  Because of this situation we’ve looked at the possibilities that should occur down the road, these being inflation, and a tightening of money with a liquidity problem, thus the inabilities to pay debts.  Now, let’s look at the world in terms of how we obtain our world gross domestic products in relationship to exports.  No conclusions will be handed out as I am wrong more than right these days! (A good example of that statement is the day the Feds raised interest rates on December 16, 2015. The stock market should have reacted with a downward trend, the DOW closed up 245 points, go figure.)

If the G-20 countries are going to continue with economic strength the strongest being the US, China, Germany and a couple others, we need to see where the money for goods comes from and what percentage is from exported goods. It is no hidden news that almost every country has weakened in the past few years and many in downright financial trouble. If a country can “self-sustain” there are fewer variables. If a country relies on selling product around the world, the variables increase….makes sense?  Even though the USA is not in great shape with the weakened middle class and so little savings by the average person, we are in better condition than many.  Exports account for 13% of our Gross Domestic Product.   The strongest country in the European Union, Germany, has two opened ended variables, these being the estimation of costs with current immigration, and secondly their exports make up about 45% of their GDP.  If the world doesn’t buy their premium goods, they could be in trouble. I thought China would have been comparable or above Germany, but it is not close at about 23%.  China has such a growing middle class absorbing goods and services they are way behind Germany in this respect.

There are a whole “slew” of countries in the 30% range on exported goods, some being Russia, Italy, Britain, and France.  I would have thought Japan was quite high, but it isn’t at about 15% along with Brazil at 12%.

I recently noticed Germany has hired 8500 teachers to teach their immigrants German. I surmise that part of the immigration intent is to create a false internal economy supported by taxpayers. This will help absorb a tremendous amount of goods and services, lowering the economic need to export as much; it is estimated that Germany’s commitment to the immigrants will cost $1 trillion US over time.  Also, this will keep their Euro circulating within Germany. To a lesser degree perhaps the same may be true for the immigration to the USA. It is good for basic business essentials; everyone needs housing, clothing, food and medical/pharmaceuticals.

Except for nationalism many traits of Fascism have developed here and around the world. Fascism was started by Mussolini in Italy, then adopted by Hitler in Germany and Franco in Spain in 1947. In the US with the economic collapse in 2007-8 the government selected which commercial banks and Wall Street investment banks would survive and which would not be “bailed out”. Certain large companies were given government “hand outs” including money for expansion in foreign countries. Down goes Democracy and the rights of the middle class, and the financial burden lies with the middle working class.

The next topic concerns our Constitution and taxation. This came to me via a book I recently read, but thought it so interesting that I would relate the highlights to you.

Up until 1913 there were no Federal Income Taxes. Two important dates here are 1909 and 1913. 1909 was the writing of the 16^th Amendment to the Constitution permitting the Government to have the ability to Federally tax the people of this country. It took until February, 1913, for the states to ratify the Amendment (Ratify: to sign or formally consent).  Many of the politicians at the time were Republicans and didn’t think the required number of states, 36, would make it law. President Taft, a Republican, was president when written. The tax would have been very low at about 5% and only affect a few very rich.  Thomas Woodrow Wilson, a Democrat, won the presidential election in 1912 and a more liberal point of view was taking shape. (Don’t forget that 1913 was also the year we started the Federal Reserve Bank and system.)

Here is the kicker.  Was the ratification legally binding, and is the 16^th Amendment law?  Many people have contested the legitimacy of the Amendment and lost.  There were a few things that happened with the ratification process bringing question; one was the number of states needed and secondly a couple states changed the writing and format of the ratification.  Any changes were against the law; two states in question here were Kentucky and Tennessee.

People and companies have lost in court over contesting federal taxation. The court/judicial system right to the top is caught, and can’t do anything but stand behind the ratification. Can you imagine if it was overturned the amount of tax dollars, plus interest, that would need to be returned to all the people and companies; trillions!

In regard to this topic you might find it interesting to look into Haym Salomon who was a broker and helped finance the Revolutionary War converting French loans to cash, and supposedly lending to the War efforts, including some personal money.  You will find a memorial to him in Philadelphia, Pennsylvania.  He stands out with the next person I address.

One individual who contested that he owed taxes was Andrew Mellon, Treasury Secretary from 1921 until 1931. He was very wealthy and an advocate of low or no taxes, questioning the validity of the 16^th Amendment.  A grand jury declined to indict, although a fight over personally owed taxes with the US Government and his adversary President Roosevelt continued until after his death in 1937.  His lawyers and heirs won all legal actions. Andrew Mellon believed that we might also owe Mr. Salomon money all the way back to the Revolutionary War.

I hope this blog including a brief bit of history was of interest.

MONEY 85 - FEDERAL RESERVE

THIS IS MY 85^TH BLOG ON UNDERSTANDING MONEY TOOLS

This past Wednesday, December 16^th, 2015, the Federal Reserve Bank raised the interest rates 25 basis points (1/4 of 1%).  Let’s have some fun discussing the Federal Reserve with some basic understanding.  The Feds have not raised interest rates in almost a decade, last time being in June, 2006. We’ve been in an economic downturn (recession), a banking collapse (2007-2010) and then, I love the word spun these days, “tepid” growth ever since.

Who is Chairman of the Federal Reserve Bank?  Janet Yellen. The person heading up the Federal Reserve is always referred to as Chairman whether a woman or man. Please forgive me if some of this information is repetitive of prior blogs, but I am getting older and can’t remember what exactly I wrote in the past.

I realize I’ve covered this before.  The Federal Reserve Bank has 12 regional districts in the US.  The “Fed” acts similar to world Central Banks for other countries. The Fed is a depository for money, non-profit, money is borrowed inexpensively, it transfers money to the US Treasury as needed, provides liquidity, buys and sells securities (bonds), and attempts to balance financial markets, thus hopefully avoiding financial disruptions including recessions and high inflation.

Is this need for a bank new in this country, no.  After the Revolutionary War  we were starting a new country with a new currency; we had banking needs and discussed a “central bank” concept.  Every war ends with costs/debt that puts a country in dire straights. The Revolutionary War no exception, and every war since.  The Federal Reserve Act was passed when President Wilson was in office on December 23, 1913.

Let’s look at the possible reasoning the Feds raised interest rates (besides throwing darts at a target, or perhaps a ouija board).

-       The Feds say the economy is “robust”. One of the longest periods of growth, however there is almost no growth to speak of being below 2%, and that is not ideal. If we look at growth cycles and recession cycles we are ready for a recession. If the Fed raises interest rates quarterly in 2016, they can lower rates in the future to help the economy; supposedly.  ( Low interest rates haven’t helped over the past 7 years so why now? Our good economy from the oil and gas business in Texas and North Dakota is now “bust”.  75% of rigs are idle and unemployment sky high in that industry. That is why the government is not including farming and oil/gas in their new economic numbers.)

-       Concerns about high inflation down the road. Reality check: to have inflation in a country there needs to be more money (M1) which there has been to the tune of about $4.5 trillion.  Then, there needs to be availability of money to the masses of people, which there hasn’t been. Then, money needs to circulate “V”, standing for velocity, and there hasn’t been any. Money needs to circulate through a society one to six times a year, each time it is taxed for goods and services by the US Gov’t, State Gov’t, County Gov’t and finally City Gov’t. The dollars also need to remain within the country not be given to other countries and used on wars outside the US.

-       Even though the Feds sold $21 billion in bonds in October at zero      interest rate yield showing the perception of US strength, if the US weakens or if there is an alternative strong currency to the US Dollar we may not be able to sell bonds at low rates. The Feds would like to sell off up to $2 trillion in bonds over the next couple of years and get that amount off the balance sheet. Up until the need for the Treasury to print huge amounts of money in 2008 (Quantitative Easing) the Fed never had such exposure to debt as they do today.

-       A token higher interest rate should help older people on fixed incomes in the hopes that banks will pay something better on savings accounts and certificates of deposit.

-       Unemployment dropped to 5%, close to “full employment”. (Truth of the matter is that there are now over 94 million worker age people, many desiring work, but no jobs except the lowest paying, thus a total of 144 million Americans on some sort of government benefits. Average worker week dropped from about 34.7 hours to about 34 hours, meaning new job reports reflected part time, low wage jobs and employers avoiding paying benefits and pensions.)

What are some of the negative issues with the rise in interest rates?

-       It will strengthen the already strong US dollar.

-       A stronger dollar will make exports more expensive and less attractive. Our trade imbalance with foreign countries will increase especially with the new Pacific Trade Agreement.

-       Companies will need to pay more for everything, thus cut back on spending and improving equipment such as computers and machinery. With less spending inflation will be brought down to nothing and perhaps go negative.

-       More likely the rise in rates will precipitate a recession.

-       Less employment, not more.

-       Emerging countries borrowed money with bonds getting paid mostly in US dollars, thus they will need to pay back more money as their currency has weakened.  This eventually will make them less likely to be able to pay their debts permitting large companies and the wealthy to “cherry pick” their assets.

-       The US debt will increase. Newly issued bonds and sold will carry higher interest rates.  Current interest on our debt is about $500 billion/year.  The newly passed budget doesn’t reflect anything toward interest payments. The US debt is reaching $19 trillion, and when future US obligations are placed on top the total comes to around $100 trillion. No way out except if you are a magician.  The other options are ugly, default on bonds, restructure debt, or keep printing more money eventually being very inflationary.  Raising taxes only diminishes growth, GDP.

Higher interest rates will affect you and me in these areas:

-       Adjustable Rate Mortgages “ARMS” will go up.

-       Auto loans will be more expensive.

-       Credit card interest will go up.

-       Financing computers and office equipment will go up.  All short term financing!

Long term mortgages (30 year mortgages) and debt have already built the rise in interest rates in quotes.

There is a big liquidity bubble happening. Private equity money is diminishing, and that includes private venture capital for new companies. The “big boys” are getting very concerned. In countries around the world including the USA both private and public debt has reached phenomenal highs, this being measured as debt to Gross Domestic Product.  The highest being in Japan right now.

Let’s hit upon a couple more things while on this blog. Economically we can’t get our rears in gear. There are some reasons obvious to me.

-       Much of the world is in recession, why should we be an exception when we are in a world economy?

-       We killed a couple of the most purposeful Acts in our history in my eyes, these being the 1894 Sherman Anti-trust Act to prevent the “big boys” meaning the wealthy and large corporations from killing middle class small companies and consolidating, and the very important Glass Steagall Act of 1933. The Glass Steagall separated financial industries to keep specialization in and collusion out.

-       Paul Voelker meant well as Fed Chairman under President Carter and controlling hyper-inflation brought on mainly from oil pricing in the late 1970’s (for those of you who remember 20% interest rates). Voelker re-entered the scene after the banking crisis of 2007 and helped design and pass the Dodd-Frank Wall Street Reform and Consumer Act of December, 2013.  (Wow, exactly 100 years after the passing of the Federal Reserve Act.) The Act meant well but has impeded growth and logical bank lending. It was written to prevent banks from speculative loans, and proprietary investing by Wall Street Banks. What happened, tons of paper work, the need to document everything, banks deciding not to loan at all, and the shrewd managers with the Wall Street firms leaving and forming hedge funds which are not controlled by banking laws….reminds me of the great movie, “Dumb and Dumber”!

Here is an example of bonds gone bad/a country needing money/banks not lending. I am sure you have heard that Puerto Rico couldn’t make payment on bonds. They are now going to hedge funds in NYC and elsewhere and these hedge funds want 20% interest. Like sharks whether it is Puerto Rico, Greece or someplace else, there is always money to rape and pillage!

Viva the Federal Reserve, hope they made the right decision raising rates!

MONEY 84 - PLANNING

THIS IS MY 84^TH BLOG ON UNDERSTANDING MONEY TOOLS

We have talked about planning in personal life as well as planning in the corporate world.  I thought I would address those two subjects in a different light. Recently, I had a discussion about this with a retired successful businessman.

We have referred to the “New World Order” in past blogs.  As many of my blogs are written relating to my history of common sense, analysis, and rational thinking I do agree times have changed.  Everything and everyone is moving so fast these days, next to impossible to keep up. Planning seems to be difficult, and I am starting to agree with that.

For the individual the best words of wisdom would be is to continue education and keep up with “cutting edge” technology.  Show loyalty to yourself first, and keep your eyes open for opportunities, move on the opportunities quickly, some will be successful others not.  Stay in motion and interact with people, don’t get too absorbed into your own world staring at your computer at Starbucks!

On the corporate side of things we also talked about planning, basic structure, pro-formas, etc. The same applies here as with your personal life, hard to keep up.  There are so many mergers and acquisitions in today’s world, plans set forth three months ago may be out the window today; prices change, interest rates go up, world currencies change to the US dollar.  What was deemed to be an equitable return on investment may not apply.  Business presentations are all electronic received on cell phones and computers, no longer hard copy using paper products.  The business technical structure has brought with it expected huge returns on investment; gross profit margins especially technology products made in Asia can be huge. 

The allocation for technology running your company versus the human being may change very quickly. Dominance in an industry sector is all-important, or a nitch in that sector.  Younger people think of new ideas, get in, get out.   That is why the venture firms are also referring to “outs”.  Make money, get a good tax law firm to legally circumvent paying as much tax as possible and move on to the next idea.

As you need to get abreast of market needs when being a consultant or possible employee of a company, let’s approach two subjects from a learning standpoint.

In our first example, you have probably heard of Anders Ericsson’s 10,000 Hour Rule?  If not it basically states that it takes 10,000 hours to really learn a new subject, complex situation or to be a great athlete in a given sport. That is a lot of years! You don’t have that much time, and as stated things change. In Ericsson’s Rule, know that the Rule is to be the “best of the best”.  The learning curve is exponentially upward at first in almost everything, and then starts tapering off. Bottom line here is get good at what new endeavor is necessary, but you don’t need to be the very best. Many times you can finish that final learning on the job.  If this is to make money, knowledge has to serve a purpose.

The next learning subject is how and when we learn.  I’ll revert to Piaget’s Theory of Development; at what ages you mentally and physically change and learn.  Hate to tell you this, but your greatest learning, about 80%, comes in the first 8 years or so of life.  In ages 4-7 curiosity takes over and a person really learns.  I realize you are older than that if you are reading this boring blog, however you can take a look at your current environment and with whom who you socialize and hang out with. Look out for yourself.  Are you “hanging” with the types of people and in the environment where you want go?

Good luck!

MONEY 83 - STOCKS/WORLD THINGS

THIS IS MY 83^RD BLOG ON UNDERSTANDING MONEY TOOLS

As I am in one of those moods to write, I thought I should grab the opportunity and write about two things, the current stock market again and world thoughts.

First, this morning (12/7/15) while in conversation with an astute business friend he reminded me that we are in a “New World Order” when it comes to investment models and paradigms of value. There has been so much money printed worldwide, that the old no longer holds true.  In venture capital it is called “outs”, with many stock investments it is last sucker out takes the fall.  We used to invest in stocks, now we gamble.

Let me cover a synopsis of some of the economic letters I receive. The stock market values have stabilized at such highs something needs to break.  Perhaps Silicon Valley has reached highs with the stocks we have mentioned before. One stock I didn’t touch upon is Uber, $50 billion capitalization and wanting to borrow more money, and no profits.  It is a great concept in a very socialized environment, however in the USA is it real? Many people who sign up to be Uber drivers don’t realize they should contact their auto insurance agent for extra coverage.  They are now a “commercial driver”.  I spoke with my insurance agent in regard to Uber and Lift. Here is the scoop.  When you as a driver pick up an Uber passenger the app connect to Uber then insures for liability, but only for that drive. If you had an accident while in service, your auto insurance company would most likely deny collision insurance coverage on your car, and an injured passenger could sue you and Uber or Lift up and above their liability policy.  The business model is “nice” but should it have much value, realistically no, it is just another service business with no real assets.  The other note here is that the US is the most litigious country in the world. Don’t have any doubts that a lawyer would go after you in an accident.

Some of these over-valued companies are taking their stock to banks around San Francisco and pledging it for hard money debt. With this money they are entering into building real estate.  These stocks have no value except when there are buyers who will pay a certain high price.  If that goes away there is no value, and I don’t want to see the middle class, including myself, having to bail the banks out again. Bottom line Silicon Valley in most senses has reached bizarre highs.  We are entering a presidential election year so be very wary of what the media and government puts out; same goes for Wall Street. What should happen?  Weakening, unfortunately and perhaps recession in 2016.  If the Federal Reserve raises rates, a stronger dollar increases the likelihood of recession.  A lot of pressure is being placed on the Feds to raise interest rates to help the elderly with bank savings accounts, and because we haven’t raised rates in many years.  The US sold about $20 billion in short term, 3 month, bonds at a zero interest rate in October, however the longer-term rates are higher expecting an interest rate hike or inflation. The 30 year mortgage rates went up about 15 basis points some time back expecting the Fed to raise rates, however whatever happens the rates may come down slightly again. Higher rates hurt home sales and the economy.

China is printing more money, same with the European Union while dropping interest rates.  That alone could push us into recession. What compounds this being very real is many countries are going to negative interest rates for investors to warehouse money.  If the Federal Reserve raises interest rates, I believe it is only a matter of time and it will be forced to lower rates; perhaps start printing money again.

We should see money in the stock market seeking stable quality blue chip companies, thus large cap stocks with solid assets should outperform smaller capitalized stocks.  Risky bonds and emerging country bonds should be hit hard.

Employment numbers were pretty good, unemployment stated at 5%. October manufacturing also looked pretty good. A closer look tells us employment may be part time with the average work week at 34 hours, a long ways from a normal 40 hours, and no benefits.  October’s build up of inventories most likely is attributable to the expected Christmas and Holiday buying. We will see if manufacturers can unload product. Higher paying jobs accounted for very little.  Again, look at the entire economic picture, not what the government presents.

As mentioned before, I communicate daily with some pretty healthy minded people on various topics. I thought I would relate some of it through this blog, although I am not sure how it pertains to Understanding Money Tools. Perhaps it can be used to think ahead with economies and industries that may be the best for jobs and more.  Much of this is my personal opinion, your thoughts may differ greatly.

We start with what is current and on so many minds, the worldwide immigration mess. We took out the “queen bees” in several Middle East countries and the bees have flown, long-range outcome not determined or well thought out. We all know some of these countries being Afghanistan, Iraq, Libya and Syria.  The long-term financial obligations are astronomical. These cultural changes especially in Europe, and to some degree here, will offer opportunities, such as in the health care and pharmaceutical industries. Those industries have to love this as many of the immigrants have diseases and are sick; this includes a high degree of mental illness and stress. Another employment opportunity will be in the education, training and teaching arenas including languages for these people. 

I don’t want this blog to go on too long, but I will comment further. We’ve made some poor decisions especially over the last 15 years that appear there is no recovery from. The four countries I mentioned above from the Middle East had dictators, but that has always been their custom. They were all contained countries in “no fly zones”.  To me it seems that no political figure in this county who makes decisions on foreign matters has ever been educated on history, prior to making monumental world decisions. Everything boils down to “cause and effect”. 

Permit me to explain.  There have been several “empires” during the past 2500 years, some being (according to Google):

-Greek Empire-800BC to 600AD

-Roman Empire-753BC to 27BC and then 64AD to 1453AD, the strongest being in 117AD

-Spanish Empire-1492-1800’s

-English Empire-1851-after WWI, by 1922 it controlled over 1/5 of the world’s population

-French Empire-1804-1815 and then 1852-after WWII

The commonalities for each Empire’s failure was the same, these being hegemony, power, greed, imperialism, expansionism, multi-cultural, lack of unity and nationalism, high taxation, and more negatives.  Apparently, and unfortunately, this is human nature.  Economically, there is normally an inverse relationship between taxation and growth and the welfare of a country (today we measure it in terms like gross domestic product). Most of these Empires, toward the end, taxed the hell out of the people.  All the money went to the kings, queens and royalty; no such thing as sharing for the betterment of the masses.  Not much has changed over the last 2500 years, has it!?

America has followed many of the same mistakes.  Major mistakes were made by politicians after two big wars, WWI and WWII.  Stupid decisions were made in the many of the Middle Eastern areas dividing countries the way “Western Powers” wanted them divided, but made no practical sense based upon tribal cultures, languages, and religions.  For instance, we divided out Iraq into one country when you had three distinct tribes that were basically at war for years. Iraq should have been divided into three areas or countries.

We see the power and greed in the Middle East over oil and gas. We watch the various controls and power plays in this area, one being the Syria–Iran-Iraq pipeline.  Another is a pipeline from Qatar to Turkey. Joe Biden’s son, Hunter, is on the board of directors of the Ukrainian gas company (Burisma Holdings) to help secure oil and gas rights for US companies. Trace a lot of Ukraine’s problems back to US major international companies like Monsanto, Dupont and Cargill well positioned in the 8^th largest agricultural country in the world. Our hegemony is played out all over the world.

I hope you find some of this information of interest.

MONEY 82 - JOBS/THINGS

THIS IS MY 82^ND BLOG ON UNDERSTANDING MONEY TOOLS

It seems that to arouse my interest to write one of two things has to happen, something peaks my interest, or irritates me. In this blog we’ll hit both.

Irritation.  A neighbor and friend of mine talked to me last week about their son, age 50, surprisingly being laid off from a very senior management position with a major company.  To help you on your employment quest and career I want to address this issue as it is all too familiar.  This “son” had been devoted to a major publicly traded company for years and believed job security existed, and that he someday would retire from the company with a beautiful pension and health benefits forever; wrong.

I believe we have covered most of this in prior blogs, but let’s cover it again so that it is fresh. Today, there is no such thing as job security.  When you reach the age 45 with the big companies, watch out. A few things are occurring: you’ve reached a high salary level, you are closer to vesting in your pension, you are getting older and health issues may start happening thus lost days at work, workman’s comp, liability and health insurances are higher with more aged employees, and more. Unless your talents fit a select position with another company, human resources is most likely not going to consider you for a position if you are over the age of 50. Discrimination, yes, against the law, yes, but that is the way life works.

The bigger the company the worse it gets. Everything is about stock price with public companies. Who usually owns a great deal of stock?  The wealthy and the Board members.  Who selects the Board of Directors? The stockholders. What does the Board do in hiring the very top management, favoritism. Right below the very top management are the “expendables”.

It is quite unfortunate that America has turned out to be this way. What happens many times with an “expendable” is at that age they can’t find employment equal to what they had, and many times not in the same capacity. Many of the big public companies own several hundred small or subsidiary companies and you are “blackballed”. If you don’t know the expression, it means untouchable. Why is that?  You carry so much information in your head and out the door, other companies are afraid to hire you. If you use similar information, design, marketing, business paradigms, etc. with a new employer you and that company could be sued.  Many times lawsuits are brought forth only to impede progress for another company, or that individual.

This same situation happened to my youngest brother who was the youngest employee ever to head up an international division of one of America’s biggest companies. The company had him downsize the division worldwide over a couple years, laid him off, and everyone was afraid to employ him as his former company owned over 300 other companies and his knowledge would be carried into a new company. He had to change careers later in life. Another prime example was a good friend and my financial planner working for one of the major US banks.  Around 40 years old he had an opportunity to buy into an investment group under a broker/dealer being a competitor of the investment side of his bank. He had a family with four children and needed to grab onto the opportunity. He left the bank, did not solicit any of his clients, however I, and many others, followed him out the door. As you can surmise the bank sued him and the broker/dealer for “stealing” clients. It was ludicrous, but took about a year to resolve with legal assistance. They impeded his progress in this profession and tried to starve him out.

What can we learn form this?  Foremost in life, a very good education or training is necessary. Then, try to structure your life somehow on a “flowchart”.  Unless you are lucky, or unlucky, enough to have family money you need to work to make money.  I referred to “unlucky” because easy money may take away healthy stress and pressures that make you need and want to be successful on your own, and max out whom you are as a human being.  The two avenues you have are to be an employee or an independent contractor. These are in your earning and learning years.  On your “flowchart” you should have two other elements that cover your ass later in life around that 45-50 age bracket.  One is to start your own business to leverage your time and knowledge, and two is to have accumulated enough money that you can live from investments.  Sometimes easier said than done!

Savings for investments. Unless corporate America wakes up and pays employees more, people in America will not be able to purchase product.  There is an old story regarding something similar. Many of Henry Ford’s friends couldn’t understand why he paid his employees more than anyone else. His retort was simple, but truthful, “so they can buy my cars”!

As mentioned by me several times, two very important Acts of Congress have disappeared over past years, the 1890 Sherman Anti-trust Act and the 1933 Glass Steagall Act.  Both these Acts protected smaller companies, the welfare of the Middle Class and competition in business and pricing.  The Anti-trust Act prohibited monopolies in business and large companies getting so large they could destroy small businesses through pricing. The Glass Steagall Act was created after the financial crash of 1929 separating banking and commercial activities. Specialization in the financial arena, and the idea of too big to fail. (As we all saw and felt in 2008.)  Big business and the large banking/finance corporations lobbied until politicians and Presidents cratered and these Acts no longer exist.

Okay, so the above are my irritants, let’s get on to investments and something a bit more interesting.

Wall Street continues to amaze me with their dribble. The weakest world economy since the Great Depression and all seems to be fine at 11 Wall St, New York City.  The market’s strength is held up with basically fewer than 6 companies, those being the likes of Amazon, Facebook, Google, Netflix and let’s toss in Twitter.  Well over $1 trillion in market cap, and so little to show. 

Junk bonds and bonds from emerging countries that borrowed far too much based on their commodity assets are coming to terms; the most bankruptcies since 2009, every company and country went out to borrow money. Emerging countries hard asset commodities like gold, silver, copper, and oil all through the floorboards. Many of these bonds will never get repaid. Some countries in order to maintain their interest payments have had to increase yields 200-300% and sell more bonds; Ponzi schemes at their best.

Here is what many don’t realize. Let’s take oil as the commodity of choice. Oil is hovering around $41 per barrel. Perhaps some countries can break even at that price for production, however many need the price to be $70 to over $100 per barrel to pay their debt and bonds. It doesn’t bode well for them.  The same goes for copper and precious minerals.

The next thing that is current and I find interesting is the expected increase of interest rates by the Federal Reserve and consequences to the economy, stock market and world trades.  Interest rates are normally raised if the economy is very strong. This time rates have not increased in years and it has hurt the elderly living on fixed incomes; no interest paid by banks on savings.  Even Ralph Nader has gotten into the mix on this issue.

Along with the expected increase in interest rates, the strength of the dollar should go up.  This will hurt our exports, and increase bond defaults if refinancing is necessary.  Also, it will be of interest to watch the International Monetary Fund to see if they admit another currency or two to their existing basket. With China being the supposed second largest economy in the world their currency, the Yuan, may be admitted joining the likes of the US Dollar, European Euro, Japanese Yen, and Britain’s Pound Sterling.

So much for this trivial pursuit.