THIS IS MY 87TH BLOG ON UNDERSTANIDNG MONEY TOOLS
We have covered a considerable amount of information going
back through time on this blog. The wording “understanding money” is very
explanatory. By my intended
definition, “tools” relates to
“implementation or instruments of”. To recap we have covered a myriad of
industries from real estate, to stocks/bonds, minerals, precious metals, and
the pros and cons of investing in each.
From actual investing and understanding industries
potentials and pitfalls I have been moving the blog more toward economics, as
that in today’s market place seems to be most important. Economics and analysts’ opinions are listened to by so many
people, however tracking history there is little relationship between
predictions by the smartest to actual outcomes. Economists try to be “bullish”
or positive, but the world we live in is a real world. One example is that
between the years 2000 and 2015, economists never predicted one negative year;
take a look at 2001 and 2008-9!
We’ll write this blog on January 12, 2016 trying to recap
what is more accurate than what you receive on the news. Again, this is an election year and the
media is given information that can be distorted or half the information rather
than a full understanding. My job here is to fill in some of the blanks.
The economy is stated to be healthy; the Federal Reserve
raised interest rates 25 basis points.
Let’s look at our government as “you” and see how financially stable you
are. For income you would have to state you have considerable income, however
you always spend more than you make, and you have huge credit card debt. (Even
with an approved balanced budget by Congress we run negative because we have
about $500 billion to pay annually on bond interest and it is growing.) Then, a banker asks you for a balance
sheet listing your assets and liabilities. You show zero assets! (Yes, our short and long term
liabilities for the US are about $100 trillion, and all of our US assets total
about $100 trillion. We were doing better before 2008-9 and the Great Recession
wiping out trillions especially real estate values.) Would your bank give you any kind of loan? No. The US government ran to the Federal
Reserve in 2008-9 and received a huge loan, in the trillions of dollars with no
collateral to stand behind it. Prior to August 15, 1971 we had gold in Fort
Knox as collateral, but no longer.
Can the US ever pay off the current debt, no. Our US debt is now climbing toward $19 trillion.
Employment numbers came out a few days ago showing new
employment at 292,000 new jobs created. Two economists I follow stated
misleading information. First, the
quality of jobs; only 11,000 were high paying jobs, the balance in the $20,000/
year range. The government
estimated the numbers from past years; Holiday Season, part time and lower pay
scale employment and came up with these figures. Some of the employment does include public sector jobs that
grow, especially in that we now employ over 30 million in our health, education
and welfare industries. That is
not going to carry the economy. The oil industry employed many higher paying
jobs in North Dakota and Texas.
There has been a huge industry layoff, and the price of oil is still
trending downward with no end in sight.
Many, like Goldman Sachs, see $20/barrel oil. I watch, to some degree, the options markets and people are
still buying puts at $20./barrel oil.
This bodes well for us drivers, however we sacrificed an industry.
Let’s take the stock market. So easy to find fault. The first week was disastrous,
however reality may be setting in; $1 trillion lost in US stock markets, $2.3
trillion lost worldwide. Was it lost? No.
It was current downward valuations of stocks. You don’t take a loss
until you sell a stock, for one. Point two, the markets are made up of phony
money. Our Federal Reserve printed $4.5 trillion since 2009 and gave this money
to various entities they selected like certain banks, GM and others. Is this
real money, free market, no! About
85% of the stock market’s money is made up from large institutions (like the
our big banks) and the very wealthy. One thing to remember, these institutions
and banks are not on your side, however operate to make money for
themselves. Wall Street firms make
money as long as there is volatility, if the market goes up, they go long, if
the market appears to be trending downward they short. For the last 25 years the market has
been “traded”, not “invested” in.
The one statistic that is important here for the year is that January
historically dictates the outcome for the year. What I mean is that 75% of the
time if January closes with a higher market price than when the year started
then we usually end the year higher, and vice-versa. What I see is the markets finally correcting to historical
norms with P/E’s in the 15:1 range, not 22-23:1. You can do your own math where that would have the DOW
settle in! Don’t forget that
whether you are in ETF’s (Exchange Traded Funds) or individual stocks there are
options for you to hedge the overall market conditions. Some analysts are recommending
gradually buying long-term government bonds over a period of time, thus cost averaging. Remember that if the Federal Reserve
raises interest rates the market value of bonds goes down, face value held to
maturity does not.
I heard Holiday spending was pretty solid, but people wanted
60% or more off from retailers. I’ve been associated to that industry for some
time so let’s take a look. A
retailer buys either from the manufacturer or wholesaler, then they look at
retail market in terms of
“keystone” plus “X”. What
does this mean? Keystone is
doubling the price of cost. If retailers needed to discount 60%, or more, to
sell was there any bottom line? In
our example above, let’s assume a product was priced at retail $100. however
the price was lowered 60% to be able to sell, so that is out the door at $40.
plus tax for the government.
Typically, to sell an item for $100. the retailer will pay about $40. at
cost, then keystone it to $80. and add $20; this would be referred to as
keystone plus 20. I don’t see how retailers made any money with these kinds of
discounts unless they were buying old inventory, or seconds, thus permitting a
larger profit margin. Train the
buying public to only buy when goods are discounted and that is what you will
get in the future!
Do I think we are going to have a good 2016 or a tough
one? I think a tough one for the
following reasons:
- Historically
we have recessions about every 7 years, and we are due for one.
- Interest
rates were raised by the Federal Reserve late in the cycle and when the economy
is very tepid to begin with.
- Higher
interest rates slow growth of any economy and strengthen the country’s
currency. This hurts exports and adds to US debt in terms of US Bonds.
- Transportation
industry is down in the US (check train transports of oil, iron ore, and
commodities that manufacturing would need.) International transports are way off also, e.g. manufactured
goods from Asia to South America and Europe.
- Higher
US Dollar is going to pop the emerging countries bubbles of debt.
- US
manufacturers are going to have surpluses. Take a look at Apple, which I highly
regard. Their stock is way down
from highs and their manufacturing capabilities are much higher than predicted
absorption.
- The
US real estate industry has been quite good, especially aided by wealthy
foreign buyers utilizing our EB-5 programs to get residency and permit them to
buy US real estate. The Northeast is seeing Russian and Middle East buyers,
Florida is seeing Europeans and South Americans and our West Coast is seeing
Asian buyers. Although this has been a strong industry there is overbuilding in
some commercial markets as well as residential.
- Europe’s
economy is not good and with immigration will only get worse. Immigration will
backfire, tourism is way off, and the costs of supporting immigrants will drain
most countries. This in turn may break up the European Union from what it was
intended to be, including devaluations to the Euro currency.
- Most
South American countries are in recession or poor financial condition.
Well, that pretty much wraps up another blog. Best wishes.
No comments:
Post a Comment