THIS IS MY 156TH BLOG ON UNDERSTANDING MONEY
TOOLS
January, 2019
First, I must apologize for an error in my last blog. I write these blogs fairly quickly. The error, which has been corrected,
stated Pi incorrectly. For 60 years I have known Pi as 3.14159, however in my
typing I put it down as 1.14159.
To adjust the last blog it should be the “3.14159 times 4, the radius
used in the example, resulting in an area of 12.56636 miles, rounded to 12.6
miles.
This blog is about “Things”. “Things” may not be cohesive or focused, however
covering a variety of issues, topics and thoughts it may have constructive
benefit for you.
Now, to a comment on stocks and the markets. It boggles my mind. You can take all the analyzing of
principles one has learned over the years and throw them out the window. The stock markets defy rational/logical
thinking and analysis. Very
frustrating for me, and others.
With the problems and issues at hand politically and financially we
should continue in a downtrend pattern, but have not done so over the past few
weeks. I could present more analytical tools, but it
is immaterial at this juncture. At
some point basics of economics will need to “kick in”; I don’t know when
considering the manipulations happening.
Presently, for instance, Apple stock is down. People do not need a new iPhone at $1,000 every year nor a
new computer. Samsung, selling
computers and appliances, is also down.
Continuing with stocks, every fund in the world holds the
“FANG” stocks; those being Facebook, Amazon, Netflix and Google. Access to private and personal
information may continue although some countries are fighting this
intrusion. I remember so well
companies that were once very successful now in a failure mode or gone. I knew the guys in Denver who started
National Demographics and Lifestyles. They were the first in the 1980s to have
people fill out cards on their “lifestyle” habits and you mailed them in,
postage paid. That information was all computerized and sold to companies
according to area or zip code. (National zip codes came into being in 1963.)
The owners sold out and made a few million, not nearly what Facebook and Google
are valued at! Sears had a
wonderful catalog, you could buy a ton of items. Sears is bankrupt.
Jeff Bezos entered the 21st century duplicating the concept
representing the world of product.
Will Amazon remain years from now?
Even Jeff Bezos has learned from history and doubts that. As Netflix surges I think of
Blockbuster stores for video and movies.
They are long gone after a huge rise in stock price. Will Netflix remain?
I thought it might be interesting to look at our past
presidents over the past 40 years and see how general stock investing might
have been favorable viewing each president’s stance on economic issues. Let’s
start with peanut farmer, Jimmy Carter in 1976. He was facing OPEC (oil) and inflation problems. He was a Keynesian thinker as free
markets carried inflation extremely high.
He believed in regulations of industries like oil/gas and adjusted
interest rates with the Federal Reserve.
He implemented pricing standards for various types of oil and gas
drilling which helped the independent US producers. Interest rates were adjusted upward to the 16-18% range with
then Chairman of the Federal Reserve, Paul Volcker, who remained in office
until 1987. Investments in
regulated industries like utility companies were good along with oil and
gas. By 1979 you wanted to be out
of real estate.
Next in line was Ronald Reagan in 1980. He was voted into office with the
backing of big business, and coming from California the defense industry. Reagan was a “free market”
economist. He slowly did away with
oil/gas regulations instituted by Carter destroying the independent oil and gas
producers. By the mid-1980s he had
depleted the power issued to the Sherman Anti-Trust Act of 1890 and the
Glass-Steagall Act of 1933. I
strongly believe these were two of the most important Acts ever voted in by
Congress and the Senate, but because of big business and money, politicians
caved in. (I have covered both of these Acts thoroughly in past blogs so to
understand more please go back to my blogs, or use Google for
information.) Investments during
Reagan years would have been to sell out of oil and gas by 1983, and by 1986
investing in or buying banks.
Note: In 1986, I was hired as a consultant for 6 months to advise a
large investment banking firm. We
knew the 1986 Tax Reform Act was opening the door for changes. One, was the significant drop in
passive income taxes, thus more money investing in private companies. Two, interstate banking was going to
pass favoring the biggest banks, unfortunately hurting the local and state
owned smaller banks. Point three
was that big companies through mergers and acquisitions were only going to get
larger and more controlling. Wall Street loved this.
In 1988, George H.W. Bush entered office. Can’t say much for
investing here. War means money
for defense and stocks in that industry.
We had a Gulf War in Iraq after Saddam Hussein invaded Kuwait.
In 1992, Bill Clinton moves into the White House. He and Hillary attempted a national
health care program. I would have
bought (which I did) medical, drug and health stocks. As that turned into a failure mode, I would have shorted
most of these same stocks, but I wasn’t smart enough to do that! The end of the 1990s was “go, go” times
for the Dot.com stocks. This was
one of the three highest priced stock markets in history including 1929 and
today’s markets. It would have
been “get in”, “get out”.
In 2000, George W. Bush was elected president. A person didn’t need to be smart to
know because of the Bush family and their connections to the Saudi Arabia Royal
family on investments that oil was going to take off. (A past partner of mine in the oil and gas business
contacted me wanting me to get back into the industry with him. I was involved with two real estate
developments, plus got burned once, not again.) During Bush’s term oil went up to about $145/barrel, much of
that pricing due to Wall Street future’s trading. The stock markets cratered in the 2008 era when banks were
failing. Few people predicted the
extent of this. Of course, it
would have been wise to get out early, let’s say 2005-6, and then have the
fortitude to buy back in when the DOW reached approximately 6,800…especially
buying the big bank stocks.
In 2008, Barack Obama was elected president. Uneventful years in the markets so
could not see strong direction.
In 2016, Donald Trump was elected. Trump is a New Yorker coming from one of the wealthiest US
families. Wall Street “loves”
Trump. You knew the stock market
would get a tremendous rally.
Whether you are a Democrat or Republican you should thank what Trump did
for the stock market. The “Trump
Bump”, as it was called, accounted for a rise of about 7,000 points to the DOW,
without a real change in earnings to date, only the price per earnings went
through the roof!
This “Trump Bump” was one of the greatest examples of
“perceived value” versus “real value”.
Time will tell, but I think the lowering of tax rates for corporations
to 21% from 35% will not be enough incentive for companies to bring back their
cash into this country and pay that tax.
The wealthiest also received a tax break down to 35% from 39%. Sounds
nice, but the wealthiest have such good tax lawyers and accountants they rarely
will pay that amount.
For capitalism to succeed we need to be able to constantly
acquire things (goods or services) with money; infinite economic growth. Money has been growing (M-1) through
printing more money, and lending (debt) to government, corporations and private sectors. After one or so good growth years we
will most likely lower our growth (GDP) expectancy to the 2 plus % range. Over the past 35 years with annual
inflation about 2% it reflects “no growth” for the past 3.5 decades. To grow you need a very strong middle
class of people with real money, not borrowed money. We have a shrinking middle
class. The wealthy are greedy and don’t get long-term economics for
success. Actually, they get it,
but don’t care! It came out this
week that the 26 wealthiest people in the world held as many assets as the
lower 3.2 billion people in the world.
Is this success? In my mind
it is atrocious, and the world is doomed if we do not change economics and our
ways. The birth rate for the
smartest people, in the most successful countries, continues to fall; not good.
I hear people talking about China going into recession, give
me a break! Let’s take a peek
here. China’s 2018 GDP dropped to
6.6%, yes, the lowest in 28 years. They have a fast growing middle class to buy
their own goods, so does India.
Our trade imbalance with China hit another high going up 11.3% in 2018
when President Trump is trying to correct the situation. He won’t. China “owns” the USA.
They own over $1 trillion in our government bonds, and many companies
here in the US. In the US they own
such companies as Smithfield Foods, the largest pork producer. They own car companies like Volvo in
Gothenburg, Sweden. They have
acquired a vast majority of the world’s lithium for batteries including the
areas of Bolivia and Peru. Right
now, Kenya can’t pay them back on debt so they may take over country owned
assets. They are building/built $6-8 billion in real estate in downtown Los
Angeles. And, they are a big buyer
of gold on the market. On and
on. China is wealthy and still
growing at an incredible rate! The
last time we had a GDP close to their low right now of 6.6% was in 1984!
The auto industry leaving the US? I predict because Asia needs to import oil for gasoline,
China and Korea will be the first to really take over the electric car
industry.
Politics and the closed Federal Offices? I empathize with the employees. They
are the ones made to suffer through the shutdown, and don’t receive paychecks
every two weeks. It doesn’t hurt our politicians one bit. The Federal workers do have a union to
protect them to some degree, however only 100,000 of the 800,000 workers are
members. Some theorists speculate
this gives reason for the government to get rid of employees, thin down the
payroll, and hire new workers at lower pay levels. Who knows?
Staying on the subject of politics, I am a firm believer
that politicians should be serving the people of this country. Politicians should serve a one time, 6
year term, then out, and not become lobbyists. We need to put a constraint over lobbyists and their money
buying politicians. Politicians
should receive only a minimum salary, and no special retirement/health benefits
once out of office, similar to the rest of us Americans. Just like the illegal drug trade we
need to remove money from this equation.
Money breeds greed, greed breeds power, power breeds corruption and
dishonesty.
I hope you got something out of this blog.
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