MONEY 160 - RETAIL/THINGS

THIS IS MY 160^TH BLOG ON UNDERSTANDING MONEY TOOLS

March, 2019

www.understandingmoneytools.blogspot.com

In this blog we will recap a bit from a previous blog on retail stores, and cover a couple more things that I think you might find of interest. My intent for blogs is to cover many financial topics that may help you, and offer some advice in each from my past experiences.  I started writing these about 5 years ago.  To seek out a particular topic or industry scroll back through my blogs, and I bet you find one that will benefit you to some degree.  Each blog has a heading.

A friend suggested I include a bit of my life story with each blog.  I have recently been delinquent in this to keep the blogs somewhat concise, but will continue at some point.

Before we start, a worthwhile email came to me from a lawyer and I thought I would share.  It may save you money and hassles.  As more people travel, theft has become more prevalent in the “real world”.  It doesn’t matter where you are, it happens.  I remember once I was in front of the Louvre in Paris; rainy day, wearing a yellow slicker.  A young gypsy girl was begging and poking me with a cardboard tray with change on it…distraction.  As I declined to give her money and turned away, she caught her hand in my front blue jeans’ pocket, where my passport was.  So subtle that I could not feel the intended theft; I was lucky.  In a way I admired that ability and talent, albeit illegal, and a skill she most likely learned from her parents.  On the other hand in Paris, and not so lucky, I have had 3 friends and my brother who lost money or passports.  It could happen anywhere in the world but the tourist spots, and crowded subways, busses, etc. seem to be the hotspots.

The lawyer’s good advice is:

-       Make a copy of all your credit cards, both sides and passport, if you have one.  Keep these photocopies in a separate location.

-       Call your credit card companies immediately, report the theft and stop  credit on those cards.

-       Call your banks immediately.

-       Periodically, in your home take a video of every item and all personal belongings.  In case of theft or damage due to fire or water, you need a record to report to authorities and insurance companies, or you may not be compensated.  This goes for cabinets, appliances and everything.  In travel, list your personal items so if stolen reimbursement can be justified.

-       If your passport is stolen you need to report it to the police and your embassy.  If you are in a foreign country, the embassy can issue a temporary passport.

-       Report the theft to the large credit rating companies. 

I used to travel quite a bit.  I bought a soft, cotton money belt where I kept a few large denomination bills along with a credit card and passport.  It was about 5 inches wide with a fine zipper.   No one would guess I was wearing it, even under a T-shirt.  If you are out in public keep your wallet and passport in your front pant’s pockets, preferably a pair of pants with a closure to the pockets.

Let’s talk briefly about retail again.  You may also want to revisit my prior blogs on the subject.  Retail business in stores is getting more difficult, with on-line buying increasing each year.  Think things through as an inevitable world recession will occur at some point in the not so distant future.  Don’t just jump in without thorough analysis. We covered the need for market study, and how to figure out your intended circumference/perimeter and area.

To repeat the formulas:

-       Circumference/perimeter of a circle is: C=3.1416 Times radius squared (or radius TIMES radius).

-       Area of this circle is: A=3.1416 times the diameter (or radius PLUS radius).

I would keep leased square footage to a minimum, and utilize the footage as best as possible.  Try to minimize the length of the lease, however with renewable options to your advantage.  If you need to close your establishment you don’t want to have the landlord come after you for years of lease payments.  Even though you most likely sign as an officer of your corporation, a big company or bank may come after you personally.

Everything in retail is done analytically and mathematically!  The numbers need to work.  I have seen so many small stores open and fail because the owners wanted to do it their way, versus doing what the market wants and will bear.  Two of the most common mistakes are the wrong location, or paying too much for rent as a percentage to gross income.  Today’s world is tough.  50 years ago you might have gotten away with things, today you can’t.  If you have an item that can be purchased on-line, I probably wouldn’t start a retail store. People will shop you, then buy on-line.  The one business that on-line doesn’t afford is the restaurant/bar business.  Many of the people start these because of egos…let’s hang out at my bar! It is a tough business with long hours and hard work.  I have started two restaurants, both successful.  I put up the money and wrote the business plans, took a one-third ownership in both.  My good friend, Brian Ahern, was manager.  One started in February, 1971 in Denver, and was Denver’s first health food restaurant next to the University of Denver where I went to college.  The second restaurant was a fine continental food restaurant in Durango, Colorado, opened in November, 1983. The latter restaurant fulfilled a lesson to be learned. I spelled out what could happen to my two partners as we held less than 50% interest, and that was that the majority of ownership lay with a lawyer/accountant and he could abrogate our management contract, take over the successful restaurant; we would lose time...and my money.  That is what happened. Be careful accepting an investor who wants controlling interest!  The best advice I can give you on the bar/restaurant business in an urban environment is build the business, market and promote the business, make it successful and “sell out” within 2-3 years.  It is a trendy industry.

I have shared many of the pros and cons of retail and other businesses in previous blogs.  Because of my business background, especially owning a well-respected Denver private equity firm, L. R. Nicholson & Co., it brought  contact with many “deals”.  This history included mergers/acquisitions, initial public offerings as well as utilizing “clean” shell corporations, turn-arounds, private enterprises and more.  Here is a list of a few:  

    

-       Started and operated Shell’s Auto-Care and Amoco’s Certi-Care.

-       Started Auto-Source Ltd., auto-leasing company.

-       Helped start Video Concepts.  One of the first home video/home    

     entertainment retail stores in enclosed shopping malls. 

-       One of first employees to build a US oil company to 300 people (Energetics, Inc.), and managed the initial public stock offering through Rothschild, Inc. to the public.  Our “team” consistently raised $200 million per year in the late 1970s until 1983.  That was when a million dollars meant something!

-       Data National Co., one of the first companies to computer integrate a retail gas stations’ customer base, with accounting and car servicing history.  Took company public via a clean shell corporation.

-       Bought Game-A-Tron Corporation, a computer hardware company to serve Data National Co. with computer hardware/monitors.

-       Warranty Service Systems, Inc., mailing of monthly promotions and “reminder cards” to customers of retail gas stations/convenience stores. Became large and respected as a data company; American Express outsourced work to us.  It was in association with Data National Co.

-       Started and President and CEO of National Pure Water Corp., serving poor water areas, towns and cities, mainly in rural Texas and New Mexico with fast-fill, 5 gallon water stations.  Stations manufactured by a Tucson, AZ, company.

-       Started two successful retail stores in Phoenix, Arizona, area. 

-       Raised capital for and became a managing partner in real estate projects.

-       Raised capital for and became partner in several oil and gas projects.

Enough of that, the above list is intended to illustrate what you might learn from my past experiences, both pros and cons.  Just remember you don’t win at all. It’s easier to make money, than to keep it!  Go back through my 160 blogs.  

Extra:  Love trivia and facts. Someone mentioned presidential executive orders to me recently because of the border wall between the US and Mexico.  I looked it up, and found executive orders quite common.  Here is a list of recent president executive privileges.

-       Bill Clinton: 364

-       George W. Bush: 291

-       Barack Obama: 276, including closing off his personal records to the public two days after taking office.

-       Donald Trump: 96, and counting.

MONEY 159 - ECONOMICS/FINANCE

THIS IS MY 159^TH BLOG ON UNDERSTANDING MONEY TOOLS

February, 2019

www.understandingmoneytools.blogspot.com

In this blog we are covering economics and finance “101”.  If you have read all my past blogs some of this is redundant.

I am a competitive analytic so it bugs me when things don’t turn out as expected.  “Cause” should result in an expected “effect”; two plus two should equal four.  In today’s world you are seeing these results being distorted by controls, regulations and variables by outside sources.  Let’s explore this.  The first thing that comes to my mind is the economy (what we hear from the government and media) and the stock markets; perhaps we should put a bit of mistrust in these!  Don’t I just love to pound the markets!

Let’s start out with a quiz.  What is the difference between an economy, economics and gross domestic product?  An economy is the relationship between production, services and trade and supply of money in a country.  Economics is used by academics and governments to study economies resulting in models and statistics.  Gross domestic (or national) product (GDP or GNP) of a country is the “economic” statistic calculating in world trade (import and exports).  This is why our economic value is so much higher than the GDP value.  Our current outflow of money, imports minus exports, is about $700 billion, a good portion to China.

Economics is the “macro”, big picture mainly dealing with world, national or local finances.  It doesn’t necessarily pertain to you or me, we have little control over this unless we are in the political arena.  However, if you have an understanding of economics you will be more capable of handling your own finances.  In the last blog we mentioned that Christine Lagarde, the managing director of the International Monetary Fund, is very concerned about the world heading toward recession mainly from the considerable debt we all have, personal and country.  Yes, the USA, it’s citizens, take the top honors in that designation!  Around 300% debt to GDP and getting worse.  We have caused this.  We showed an indifference in lending to third world nations, big corporations and people here who should not be borrowing money.  Third world nations cannot pay back the debt and interest accrued.  Corporations will be lucky to withstand the payments if we fall into a rough recession.

In the last couple of days, I heard two comments from people, and would like to approach both.  The first dealt with economics and “why can’t we start a program like Franklin Roosevelt had in the 1930’s to get us out of the mess we are in”?  FDR took office as president in 1933 and held the office until he died in 1945.  FDR immediately started the “Works Progress Administration” when he took office, a hopeful resolve to the “Depression”.  It put mainly unskilled people to work on government projects such as large dams/reservoirs, government buildings and highways.  Congress wanted a slowdown in spending for the program in 1936, although the program lasted until 1942.  Giving up the “works programs” placed the US once again close to recession.  On December 7, 1941, Japan bombed Pearl Harbor.  It saved our rear ends financially, putting a war machine together, men went off to war with jobs such as fighting; women in the factories making weapons and equipment.  Prior to the attack we knew that Japan had a fleet of aircraft carriers near Hawaii in the Pacific, but did nothing.  These ships weren’t out there to catch tuna!

Now looking at this, did we have something similar to a works program since our “Great Recession” in 2008-9, of course.  President Obama along with the Federal Reserve approved of “Quantitative Easings”.  This was the introduction of new printed money into the money supply by the Federal Reserve and Department of Treasury.  In this case, and a big mistake in my eyes, was that the flow of money went first to the largest banks to keep them afloat and meet capital requirements.  This money was then “essentially given” to large corporations at very low interest rates.  There was no “trickle down” to middle America, job creation mainly at low income levels.  Large companies used this money to their own benefit buying in their stock and expanding overseas, resulting in a great diminishing of the middle class sector of our economy.  This was happening when middle class Americans were having their loans called due on mortgages, lines of credit and small business loans.  The greatest robbery of the rich from the middle class in history.  This “Easing” made the wealthy wealthier and large businesses bigger to the tune of trillions of dollars.

In every economic cycle there are four parts: expansion, peak, contraction and trough.  In my eyes we have certainly hit the top of the expansion period and at the peak or in the contraction period; we are well overdue for a significant downturn or recession.  Many times during a contraction the stock markets will have some of their biggest “up” days, don’t be fooled by a turn-around.  A lot of this has to do with Wall Street manipulation of the markets.  I remember years ago when Wall Street firms would issue a “buy” for a stock to the public, when they knew the company was tanking.  They wanted to unload their stock in that company as a “market maker”.  No one ever goes to prison, they are the “untouchables”!

Let’s continue with current economics:

-       Employment numbers solid, however no mention to the quality of jobs, full time or part time nor income levels.

-       Just last week retail numbers out for December, 2018.  Including on-line buying retail down 1.5% the worst in 9-10 years.

-       Last week on the news credit score numbers out.  A total of 220 million people have ratings. Of these, 68 million people have poor ratings under 600.

-       Debt sky high with three categories, student loans, credit cards and auto loans.  All categories over $1 trillion and defaulting on payments significantly increasing.

-       2018 tax refund checks will be smaller than for 2017.  Less money for people to spend in the economy; 30-40% lower!

-       GDP for 2018 projected to be 2.5% down from a high of 4%.

Now, let’s look at finances and see if we can help.  Per the comment way above, the second comment people had was, “the stock market is going down today”!  It was stated as “this is unbelievable”.  Come on, the stock market should be correcting, but has solidly gone up since the beginning of this year with the aid of our government.  Regarding stocks, be prepared for a “normal” downturn, and this one is worldwide.  Revamp your portfolio.  Get rid of your risky stocks, and lean toward “staple” stocks with a high dividend and good history.  Staple means needed items…like food and toilet paper that you use daily!

The stock market has been inching up over the years because companies are buying their stock back with cheap borrowed money.  This drives the market up.  Also, the human resource departments in big companies persuade employees to buy the company’s stock in an ERISA retirement plan (perhaps a 401) and deferring taxes.  If it is a large company e.g. with over 50,000 employees this automatically moves the stock price higher than perhaps it should be every pay period.  Up until 2006, there was an energy company called Enron whose Chairman and CEO was Ken Lay.  He was notorious for this.  Even when he knew the company was going down and into insolvency he was in front of his employees saying “buy”.  He lucked out having a major heart attack and dying in Aspen before he had to go to prison!  Spread your stock investment portfolio out as a hedge.

If you don’t owe the IRS money, but figure close to break-even, perhaps a tax extension should be considered; I always do.  This doesn’t pertain to short-form filers, 1040EZ.  On the other hand, if you expect a large refund, don’t let the government use your money.  Tax extensions buy time so you can better prepare if you itemize.  Your accountant will appreciate it as your returns aren’t due until October 15^th of that year, and he has plenty of time to prepare them, versus rushing the “job”.

As we covered above, if your tax refund is smaller than thought, or you owe the government money, or you had too much withholding deducted from your W-2, get advice from your company or human resource department and adjust your withholding.

Regarding credit scores.  If you are one of the people with a poor credit score, try to get it improved.  Either seek free assistance from your bank, or an advisor.  Banks actually thrive off people who need credit cards, have low credit scores, but a track record for making payments.  A low credit score can push your interest rates to 29% or more. At this rate you most likely can never pay off the credit card.  There are debt consolidation companies.  Seek out good advice, and do the smart thing to get out of debt.  Make a payment toward your balance early in the monthly billing period versus waiting, and pay slightly above the minimum amount due; this will raise your credit score.

Also, if you don’t use credit and always pay off your credit card in full and on time, your credit score will go down as you do not have proven credit.  Best to periodically leave a small amount owing for a month or two and then pay it off.

I hope you learned something from this blog.

MONEY 158 - THINGS

THIS IS MY 158^TH BLOG ON UNDERSTANDING MONEY TOOLS

February, 2019

www.understandingmoneytools.blogspot.com

In this blog we will cover an assortment of “things” including “tools” for making or the preservation of money, and a bit more history on “walls”.

In the last blog we started with “walls”, the big topic and issue between the Legislative Branches, the Republican and Democratic Parties. Before we get into any finances permit me to write about one wall I never covered and that is the Vatican City wall.  I find this history to be wonderfully interesting, hope you do.  I am not Catholic, however most every religion intrigues me.

(If you want a great rundown on religions of the world, I recommend the books or audio books by scholar Huston Smith.  Mr. Smith passed away in 2016, but most libraries have his books available.)

The Vatican is an independent City State surrounded by Rome, Italy.  The head of the Catholic Church resides there.  The Vatican was not a “State” until 1929. It has a population of only 800-1,000.  Popes resided in Avignon, France from 1309 until 1377, including 7 successive Popes.  In 1377 they returned to Rome.  I lived in France for a bit and loved the beautiful city of Avignon.

The first structures on the Vatican site date back to 15 BC.  The Basilica, over St. Peter’s grave, started in the 400’s AD.  The City State is situated on 110 acres.  Very famous artists are related to Vatican City including Michelangelo, Raphael, Pinturicchio and Giotto.  What amazes me is the huge obelisk in the center of St. Peter’s Square.  Emperor Caligula brought it back from Egypt.  He was emperor of the Roman Empire between 37 and 41 AD.  The obelisk stands 84 feet high with a base of bronze lions giving total height of 135 feet.  I wonder how many slaves were used for this task?

The Vatican Wall surrounds most of the 110 acres.  In places it stands 30 feet high. Here is the irony I want to hit upon.  The Pope is all for “globalization”, however he has a huge wall giving him privacy. Everyone who resides there has a specific purpose to the “wealthiest non-profit corporation in the world”.  There are no poor or homeless street people living within this City State! Many wealthy politicians in the US have walls around their homes, like Nancy Pelosi at her Napa Valley home, Paul Ryan, ex-speaker of the House, ex-president Bill Clinton, etc. etc.  All these people speak well of globalism, “as long as it doesn’t incur in my domain”!

Once in Rome, I went to hear the Pope speak in St. Peter’s Square. It was quite crowded, however a remarkable experience.  As a person could not see the Pope well, they had a large video screen so people could view and hear him.  A person needed to enter only at one central point, pass through a screener like at an airport, and closely watched by many Rome policemen.  (You might already know that Popes had their own Swiss guards since 1506 when many men left Switzerland to find work as mercenaries.)  Again, I find it ironic that the Pope can speak of world globalism, however he lives behind one of the most protected “walls” there is on earth.

Equating this wall, and the others I described in my last blog, it boils down to immigration requirements for policies and strict regulations for entering into the USA.  There needs to be incoming and outgoing of people “only” at certain and designated points.  This monitoring of incoming people must include certain health standards, as well as a purpose to reside here in this country.  We must admit at some point that the US is broke, and recovery at our levels of debt is not possible.  If immigrants can’t find work, and are not sponsored on entry, eventually I am afraid they will find other means to make money as they are now doing in Germany, Sweden and other countries.  These “means” are the easier ways out and include gangs, drugs and prostitution.

Now, let’s move on to money.  This example is from an acquaintance in the town where I live.  She is a lovely lady who manages a restaurant. She purchased a new car recently.  After owning the car less than 45 days she was broadsided by another driver who was to blame for the accident, and totaled her car.  They were both represented by the same insurance company.  This lady financed 100% of her new car through the dealership.  As soon as you take delivery of a new car and drive away it depreciates 10-15% in value.  In this case, even though she had full insurance, settlement was based on “market value”.  The market value was $4,000 less than what she paid days before, and therefore owed the finance company this money.  This sum was up and above the insurance coverage, and money she did not have.  She had a “hard lesson” on well-needed “gap insurance”.  If you purchase a new car, it picks up this difference.

Let’s look at my favored stock markets.  As I mention in each blog, I don’t understand valuations, and there is no such thing as current rational analysis of technology companies and relatively new start-ups.  It is unbelievable the stupidity that leads to the market gyrations these days.  If mister Trump combs his hair wrong the markets go down, if he should wear a red tie the markets go up!  In my mind there are only 3 fundamentals you need to concern yourself with, and those are the assets and liabilities from the balance sheet and pre-tax earnings from the income statement.  I have done enough small business proformas to know one thing, and that is projecting growth or lack thereof forward beyond 12 months I will be wrong.  This is why we no longer see companies like Kodak film and Blockbuster videos around.

From my past blogs you learned that our government was stepping into the markets beginning around December 22, 2018 with the “Plunge Protection Team” (Act passed March, 1988) comprised of banks and our Federal Reserve.

I watch the most noted market, the DOW Jones most every day, and several times per day.  Some days I can distinctly tell when the Plunge Protection Team enters the markets.  It will happen on a downturn day.  It is noticeable when there is a sell-off and then a rebound in the market at a certain point, and then another drop to exactly that point again with a rebound; a tell tale sign as to what is happening. It happened this past week at 25,000.  A normal downturn never corrects exactly on a certain figure.  To track this, go to Google (I use Google voice) and enter “price of the DOW Jones average”.  It will give you pricing in current time.

For now, the government and President Trump are protecting the downside to stock markets.  We will see what happens in the future.

Be careful with your investing, and staying in a cash position won’t hurt you.  You may think you are losing “opportunity cost”, but a person is remaining liquid.  This week, Christine Lagarde, the Finance Minister for the International Monetary Fund, gave warning.  The world growth has slowed much more than expected.  We watch China dropping from an 8% GDP to 6%, because they are not selling as much abroad.  Europe is in a financial mess, joined with the others in the European Union like France, Italy, Spain and Portugal.  In Britain, they can’t seem to get their act together for a recognized and approved exit from the European Union.  Not much is said about India, the second fastest growing economy, but I am sure it parallels Asia to some extent.

Here in the US we had a couple successful quarters of growth last year in the 4% range ending the year around 3.5%.  Now, we are hoping for 2.5% and heading lower.  If that parallels past inflation over the years, it shows no growth.

I hope you learned something from this blog, or at least found it somewhat interesting.