MONEY 126 - REALITY

THIS IS MY 126^TH BLOG ON UNDERSTANDING MONEY TOOLS.

November, 2017

We are going to take a look again at real value and perceived value.  It appears to me that people in the USA as well as the world are not looking at real values and are disconnected.  This can take so many forms from tangible hard assets and money to morals.  For this blog let’s discuss tangible assets that will reflect on your monetary well-being, now and in the future.  Morals?  I am not the one to judge.

It is impossible to differentiate between what is the truth and what are un-truths/slanted or blatant lies coming from companies, advertisements and the government.  I get information from what I consider reliable sources and academic friends and then put my opinion into that matter.

Let’s take a look at some things to get the mind working.  First observation is that there are “bubbles” about to burst, or should burst, all around us. 

Let’s start with the biggest in dollars, the stock and bond markets; trillions.  We’ve been crushed before, it will happen again.  Bonds are debt, right?  Wall Street takes money from households around the world (private money) and creates instruments of debt.  No brainer.  Now, a good deal of this money has been lent out by Central Banks around the world to countries that don’t have a chance to ever pay off the debt. A big bubble problem.  The “perceived’ value that there exists assets behind these countries has become a big problem, and a “real” value of next to nothing.  As an example, let’s take our Territory, Puerto Rico.  They have huge bond debt, into the billions.  Hurricane damage has destroyed the island and it has no chance of paying their debt. (Side track:  I love this.  Goldman Sachs was sent down to restructure Puerto Rico’s debt.  From what I read their fee was, in my eyes, an incredulous $1.6 billion.  These were the same “boys” sent to Greece to restructure, and Greece won’t be able to pay back debt either.  Here is my take on it.  Goldman Sachs knows that Puerto Rico can’t pay their fee.  However, the highest corporate tax in the USA is 35%.  Goldman stands a better return on their time to say that the fee is an uncollectible receivable and write off the fee against legitimate income; thus benefiting by $560 million.)

Stock markets:  Yup as you know up 20% year to date since Donald Trump came into office.  All Democrats should be thanking their investment advisors at this point for voting Trump.  Total “perceived” value as President Trump has nothing to do with it other than the thought that one day down the line finances will come into order. Has there been much change, no.  Can alignment of debt happen, no.  The markets believe he is a miracle worker, but in actuality he can’t change much.  The US government works on a fiscal accounting basis rather than calendar.  This means our annual accountability on money happens September 30^th of each year and a new year starts October 1^st of each year.  As reported recently 2017 government debt rose another $666 billion, much higher than most years since the great recession.  (I wonder if the government purposely stated this number  symbolic to the devil?)  The government reported Gross Domestic Product or growth in the USA rose 3% at the same time, but it doesn’t take much intelligence to assume that our growth came from easy lending practices and government spending. A bit false that real growth came about, especially private sector versus government spending.  Today, history is repeating in that you can buy a house with little or no money down, the same with cars and furniture.  Ads are abundant that loans are available with no credit.  This means “you have no credit, no money and shouldn’t be buying in the first place”! None of our politicians seem to read history books!

Stocks remain at all time highs and the same goes for Price to Earnings ratios.  The top financial gurus gave up giving statements about stocks and bonds a little over a year ago.  They realize none of this makes sense and will not stick their necks out to be cut off. “Hocuspocus”!

Real estate, our next big industry to look at.  Real estate should have real value.  “Perceived” value abounds. People trying to sell real estate in such places as Los Angeles, San Francisco, New York, etc. for over $100 million.  Real value of this tangible asset is pretty simple economics.  An assumed market value in a suburb for a stand-alone home is about $350,000.  You take the builders costs plus options and that is about $300,000.  The difference of about 14-15% is their profit. Simple.  Now, a dump of a home in San Francisco can cost $1 million or more. Yes, there is supply and demand, but also “perceived” value.  There are people today who have jobs in San Francisco living in their cars because they can’t afford housing!  As I have mentioned for a long time in blogs commercial/retail centers are coming way down in value with on-line buying increasing.  Watch out for  REIT’s (Real Estate Investment Trusts).

Figures show that housing rentals in the USA have greatly grown since the Great Recession.  Rents have gone up.  Many people don’t want to own, especially after the banking debacle of 2008.  Now, non-payment of rents and late payment of rents are sharply on the rise.

Let’s take the oil industry.  Great example of erroneous statements and miscalculations of true values and hype.  Many of the commodity industries have great fluctuations in pricing.  One miscalculation has come from supply and demand.  50 years ago engineers stated that the world would run out of needed oil by the year 2000.  We have new technology that has discovered huge deposits of oil all over the world and drilling capabilities to extract much more than we did 50 years ago.  When President George W. Bush was in office oil briefly hit about $145/barrel. What many people didn’t realize at the time was that Wall Street energy traders accounted for about 1/3 of this price in futures trading on speculations oil would go higher.  Oil is now in the $50/barrel range, most likely still too high as alternative sources for energy continue to come to the market place.  Recently, the turmoil created in Saudi Arabia with a new King has caused oil to rise (the unknown).  Saudi Arabia is a different tribe and religious faction from Iran, another huge oil producer.  Both countries are Muslim, however many people don’t know the number of distinct differences within the religion and various tribes. Sunni is the most common making up 75-80% of the religion.

15 years ago I made these statements that debt kills every empire and nation on earth.  This collapsed the Greek and Roman Empires. More recently the expansionism of the English, Dutch, Spanish, French, etc.  Reading books on Napoleon Bonaparte, he made one statement I will always remember and that was, the best way to unify a country is a war, the easiest way to destroy a country is a long war.  Debt comes from it.  Our hegemony has done the same here, and we doubtfully can pay down our debt let alone pay off our debt.  Our wars in the past 15 years has increased our debt about $5.6 trillion.  This helps our defense industry and thus our economy.  Sad way to prosper!  (Our US debt was approximately $6.5 trillion, without future obligations/entitlements in the year 2000, now it has crossed over $20 trillion.)  This is reality.

Here are two more of the biggest bubbles and we have not seen much news on them.  One is auto loans.  New car sales have been coming down over the past couple of years.  The auto industry is subsidizing loans to people who should not be receiving loans just to keep the industry afloat.  It is now over $1 trillion.   Student loans are right up there with auto loans at over $1 trillion.  Many of these loans are being restructured or not being paid.  There is an economic impact here if the government pushes too hard on collections.  If loan repayment is adhered to how can these young people buy homes, cars and have money to spend on staple goods?  Education has gone from truly educating an individual so he can become a professional and earn a good living to a business endeavor to make money.

I could go on here with more concerning illustrations. Reality versus perceived values. Bottom line, I think the world has gone crazy on materialism, borrowing, and morals.  The younger generation has not experienced hardship and sacrifice.  Too many people have copied Hollywood and our politicians.  The attitude is that if the one percentile can do it, I can do it and get away with it.  Not good for the future.

I am not pessimistic with my blogs, but a realist.  “2 plus 2 needs to equal 4”.  “Cause and effect”.  “ We will reap what we sow”.  That in “reality” is what the outcome will be.  Love those old expressions!

MONEY 125 - GLOBALISM

THIS IS MY 125^TH BLOG ON UNDERSTANDING MONEY TOOLS

October 3, 2017

In this blog we are going to discuss the pros and cons of globalism/globalization. 

Many people lump the two terms together.  I differentiate between the two.  Globalism to me is the theory or ideology of bringing together countries for a commonality/ideology on an international scope of trade and mutual understanding including product, pricing, tariffs, taxes, currencies, politics, transportation including importation/exportation of goods and much more.  Globalization is the quantitative measurement of globalism.

There are so many terms bantered around on this subject including globalist versus nationalist.  I am afraid globalism will destroy our heritages and allegiances to the country we were born; this is the nationalist within me.  Personally I like uniqueness and not for world homogeneity. True nationalism and being self-sufficient in today’s world is long gone.  A big start in the direction of globalism happened with the passing of NAFTA, North American Free Trade Agreement.  It was drafted under President George H. W. Bush and passed through the Senate under President Clinton in 1993.

I was not an advocate of NAFTA, nor am I a proponent of globalism.  As much propaganda as you hear on how wonderful it is let’s take a look at the benefits and deterrents. The hard cold truth of the matter is that globalism mainly helps the big corporations, wealthy and Wall Street.  There is no such thing as “trickle down” and helping the poor and lower class citizens in any country.

Pros of globalism:

-       Free trade, reduced barriers of trade.

-       Agreed upon taxation, although may differ country to country.

-       Cheaper goods.

-       Opening up new markets for product.

-       The thinking that it creates jobs.

-       Great for multi-national companies.

-       Larger profits for companies favoring stockholders.

-       Increased competition, although we all price set and subsidize products.

-       Infused capital to emerging countries.

-       Possibly more democracy.

-       More understanding of the varied cultures.

-       Countries more quickly connected on information, including the internet and manufacturing of products.

Cons of globalism:

-       Even though the media states that globalism is good for emerging      countries and the lower classes, this is false; it benefits the wealthy and large corporations.

-       Large corporations use emerging countries to skirt environmental protection laws like we have in this country and many of the G20 countries.  As an example, Monsanto uses chemicals to control weeds in these countries and in South America that are recognized to be cancer producing.

-       Large companies create agreements with these emerging countries so that they have complete control, and produce goods in very poor worker conditions that would normally be banned in the G20 countries.  These include sub-human working environments and child labor.  OSHA type laws do not exit that would protect and improve workplace safety.  There are essentially no worker rights, few lawsuits representing workers, no insurance, no disability compensation if injured in the workplace, no set hours, no overtime pay and no set vacations.

-       Taxes including “value added taxes” as in the European Union have not been diminished but increased.

-       Currency wars have only increased to make a country’s products seem less expensive.

-       No question about it, it has robbed American workers of their jobs.  We have become a service economy, and other than technology and pharmaceuticals we produce little.

-       Countries like China welcome our technology and companies, then steal proprietary patent rights and copy product.

-       Globalism doesn’t work for most of the world.  Inequality and discrimination have only increased over the past 30 years.

-       Countries that have borrowed from the International Monetary Fund and World Bank owe heavily.  If these countries can’t make payment, settlement is normally having to sell off their country’s best assets to the wealthy and big corporations. We have seen this with Goldman Sachs Investment Banking firm being sent to countries for restructure of debt.  Prime examples are Greece and most recently Puerto Rico.  With the recent financial disaster caused by hurricanes in Puerto Rico I have no idea how they will ever make themselves whole.

-       Perhaps the spread of diseases which were not common in many of these countries prior to globalism, with international travel made easier. 

-       An excuse for large companies to set up off-shore trusts so that earnings and profits do not filter back to the USA, nor do they pay taxes on these monies providing they set up the trusts legally with good law firms.

Since 1993-1994 when NAFTA took a foothold in agreement between Mexico, the USA and Canada, you witnessed inexpensive, subsidized American corn go to Mexico displacing thousands of Mexican agricultural workers.  No wonder Mexicans have flooded into the US! Our dairy farmers see inexpensive milk come in from other countries like New Zealand.  Plentiful lumber comes across our northern border from Canada.

I hope this gives some insight as to why I am against the euphoric thinking that many have on this subject.