THIS IS MY 126TH 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 30th of each year
and a new year starts October 1st 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!
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