MONEY 172-A - MISTAKES I MADE

THIS IS MY 172^ND BLOG ON UNDERSTANDING MONEY TOOLS

July, 2019

www.understandingmoneytools.blogspot.com

BLOG 172-A

This blog is going to be similar to a blog I wrote several years ago recapping my mistakes and issues in my business career.  They may not be exactly what you might incur, but try to relate them to what is going on with you, or your company so it saves you money and agony.  Timing, government regulations, capital, size of projects, zoning, demographics of town or city, and corruption are all underlying factors that will impact your successes or failures.

I was only a fair student until I started taking graduate business school courses; they had more context and relationships to projects so I understood meaning, and relationship in life.  I try to write these blogs with a story theme in hopes they hold more interest and you can relate, then apply.  Different from text book learning.  I also try to give the exact occurrences and finance information.  These blogs aren’t meant for everyone.

As this blog turned into something long, I decided to write it in two blogs, Part A and Part B.

Let me start off with a statement from one of my best friends, who passed away in February, 1992.  His name was Jack Whitehead (Edwin C. Whitehead to be exact).  In 1967 he went public with his company, Technicon, the first real blood analysis machine, and the day of going public it made him the wealthiest man in the USA.   He was on the cover of time magazine, and in many publications.  So, when Jack and I brainstormed over the years until his death I paid attention. I also worked with him on special projects.  His memorable statement to me was, “it’s easier to make money, than to keep money”!  I think it is more like, “it is hard to make money, and harder to keep it”!  This is true of so many people.  Look at all the silver, gold and oil/gas kings (commodities) who went broke.  Look at the many once successful corporations that have gone down the drain,

Remember, if you are lucky to get money or earn quite a bit there are always people around who will be happy to relieve you of it; these include banks, stock brokers, investment firms, unethical business partners when times get tough, and even relatives.

With that said, let me proceed with my experiences for you to learn from and some advice.  One first premise I should have followed was an offensive move may be much wiser than a defensive move.  In business it is “stay on top of the game”, and be proactive or you may be out.  Another suggestion in the big picture of your life is that if you are lucky enough to make some “big bucks”, stash some of the money so that you aren’t continually re-investing and have money for retirement or a rainy day.

Let’s start with the “macro”/big picture.  If you are thinking of taking a risk with a business, perhaps starting your own business, look at the business cycles.  We have now pushed back the normal free market business cycle growth to 9 years; which historically is about 6 years.   We’ve prolonged it with borrowed money on all levels.  On the national level Mr. Trump has taken us another $3 trillion into deficit spending to keep our country going.  As I have stated over and over, there is no way out except for restructure of our debt, including world debt, or default.  Eventually, continual printing of money catches up with a county.  We can’t re-build our way out of the debt we have incurred over the years. (If you are interested in this, please read my blogs 133 through 145 where I have recaptured the picture of our debt from the standpoint of wars 1772 to present.  The blogs are fairly long, 50 pages, but I think you will find them of interest.)  Our government fiscal year ends September 30^th.  The government was to run out of money again before that date, but it was agreed upon by Congress and the president this week in July to increase the budgets.  Never ending deficits.

Not only US government debt, but city, county and many state programs including pensions are under-funded.  So, if you are thinking of taking a risk right now, it may not be the right time…be careful.  Tough to start a new endeavor when the cycle curve has maxed out, and a downturn invariably will happen.  If considering working for a government position, will you ever receive a promised pension?

This first topic you may think terrible, but it is real.  If you are married or thinking of marriage you might want to keep assets separated rather than enjoin them.  I had a female partner in 2001 and after.  We thought about marriage, but consulted with my personal lawyer.  He advised “don’t”; set up trusts, life insurance and even call her your wife, but don’t get married.  I had two large real estate projects developing.  In 2005 we started retail stores for “my better half”, and I assisted with these.  If a person marries both parties are liable for financial failure, and lawsuits of any kind associated with business like personal injury, workman’s comp, etc.  In these cases both of you could lose your money.  I have known happily married couples who were advised to get divorced to separate assets and protect each other from damages from outside parties. You still live together, and most things remain the same.  If you are younger, considering a family this is a different matter and seek legal advice on protection of assets.

I’ll take some of my experiences chronologically in life.  I was successful after college in real estate in Vail, Colorado.  Then, OPEC (oil) hit in 1973 and I couldn’t finance projects and difficult to sell real estate that I was involved with.  Resort areas were “red lined” meaning no regulated financing.  I sat on lots I owned in Vail and Frisco, Colorado area.  Tough to make a living, look at cycles, the unknown happenings that may occur and move on to other endeavors or cities.  Look at other pastures!  There are only about 5 cities creating the real economy; these being San Francisco, New York City, Boston, Minneapolis, with the “old line” companies and perhaps Houston because of oil and refineries.  Remember with successful cities comes competition, and it isn’t easy to just start anew without great contacts.

Next, I was managing a well-respected real estate company in Denver.  In this occasion I did the right thing, moving from Vail, but took too long to do so.  Federal Reserve Chairman, Paul Volcker, was raising interest rates to double digits and the real estate business nationwide fell off significantly. The owner of the real estate company did the right thing, selling the company.  Buy low, sell high or if the near future looks dim.  All commodities were running a bull market, oil, gas, diamonds, silver and gold.

I went into the oil business.  If you read my past blogs you know I helped build up one of Americas most successful oil companies, Energetics, from a few people to hundreds and went public on the NY Stock Exchange in March, 1983.  Then, another mistake of mine, I furthered my energy holdings when President Reagan was de-regulating the industry.  Few realized the deleterious effect over many years this would have on the US independent oil/gas producer.  Pricing cratered, thus companies went bankrupt.  A friend saw the handwriting, I did not.  My friend bought up farms in Nebraska proactively and went into producing organic grains like wheat for fine pastas.  By 1988 and being married I lost most of the significant money I had built.

Right after Energetics, I started several companies, still having some money and contacts.  These included the financing and business plans for various industries.  In retrospect permit me to consolidate my thoughts versus explaining each situation.  When times get tough, partners can turn greedy. Be extra careful.  I witnessed more ways than I could ever imagine on how to steal money, unfortunately a great deal from me.  Get outside audits regularly, have two signatures required on check amounts or money transfers over a certain amount. You think partners are your trusted friends, and they can be, but be smart and back up your finances with good accounting and audits.  I owned 18 oil/gas wells in Texas with a couple partners.  The managing partner explained why our cash flow was off about $250,000 within a short period of time.  He explained this to be the result of operations in the field.  An audit by us discovered he had added two companies to “division orders” (percentages owned in wells and how you get paid).  These two companies were owned by him.  He made the grave mistake of not adding different addresses from his main corporation’s mailing address; all mail and checks to him.  He admitted the felony, but had transferred all his assets including his wife’s to an irrevocable trust 12 months in advance of starting the theft.  Colorado has a 12 month statute of limitations, so we lost our money.

Here’s a newer “gig” happening all the time.  Recently, I watched a development project in the Phoenix, AZ area built that made little sense. The developers took a ton of money out during the years of build-out and then the project went under.  This is happening in so many cases; boils down to the developers financially raping projects on management fees or specifying certain “A” grade quality and substituting “C” quality.  Smart banks and REITS are auditing developers so that the materials going in are of the same brand and quality as the specifications call for. I worked a brief time for a real estate development company in Denver owned by a friend.  It was discovered, through audit, that the architect/project manager built a beautiful new home for he and his wife ordering more materials than needed for the development.  Before investing in a project ask about money management.  Managing partners are so frequently using business money for their personal entertainment, travel and other uses.

Let’s end part A of this blog here.  Please follow the next one where we continue.

MONEY 172-B - MISTAKES I MADE

THIS IS MY 172^ND BLOG ON UNDERSTANDING MONEY TOOLS

BLOG 172-B

Let’s look at demographics and making a living.  Millennials are moving to the socialistic Northwest.  They will find it harder than they thought to find a job, and more expensive.  Let’s take Phoenix area where I live.  For the past few years, after being eaten alive in 2007-10, it is one of the top areas in the country.  Sounds good except that it is very difficult to make good money.  Service jobs are plentiful, at low hourly rates.  Big money and corporations have moved in for my areas of expertise like real estate and development.  Unless you are a big corporation, or have multiple millions of dollars you have been pushed out of the market.  Sell real estate?  Nope.  Everyone has a license; about 90,000 licensed real estate agents in Arizona.  I have a friend who was a homebuilder who went out of business in 2007-2010.  He is now a professor of real estate and does consulting in Nevada, Colorado and South Dakota where he has developed a niche to make a living.  Point here is that what sometimes looks like a hot economy, will not let you in to make a living.

When going to work for a company, plan with management where you could go within the company, pay levels, type of retirement plans and benefits. Somewhat similar if you start your own company.  When planning and working on a pro-forma, also think about your exit strategy; are you building a business for your children to run one day, how many years you want to work, buy/sell agreements, keep the company private or try to go public, etc.  Are you planning enough cash flow and asset reserves for normal business cycles and downturns, which will occur?

Timing is all important for success, I don’t care if it is real estate, stocks, gold, diamonds, precious minerals, or sex…timing the markets is where you  will make money.  Here is another situation where timing moved away from me.  I put two farms together outside Milwaukee, Wisconsin, for a total of 200 acres and worked closely with the Wisconsin Department of Transportation on the western side of the city. The State purchased 65 acres from me for the 4 lane highway and overpass.  I did my permitting and land work along with the State. I controlled all four sides to the interchange and the 135 acres remaining.  My law firm at the time had big developers in mind for this land and wanted me to sell.  Two things stood in the way of this.  One, my law firm wanted 25% of the deal to sell it off at a very high price.  Two, I was a developer and thought I could get an extra multiple in value if I completed much of the fill, grade land work estimated to take 3 years.  In 2007 the highway opened, a lot of my work and expenses were out of the way, but The Great Recession hit and buyers disappeared.  I still sit with the land wondering what I could ever do with it.  Never saw the calamity coming.  Timing!  Buy low, sell high when times are good and before everyone else wants out.  Strike while there are buyers who will pay top dollar.

Here is another experience.  In 2004 I joined a small group of people to form a partnership to finance custom homebuilders in Arizona, mainly Phoenix area.  It was a 5 year limited partnership formed with $7.5 million, lending money short term at 11% interest.  We encumbered each piece of real estate with a “first” deed of trust.  One would think nothing bad could happen, and the managing partner had a solid 20 year track record.  What happened was The Great Recession in 2007.  By 2008 builders were walking from homes partially built and the lots we lent money on.  What made it worse was that the managing partner in 2005 borrowed an additional $1.5 million without the partners’ knowledge or voting approvals.  Things happen!  Our loan was called due and payable by the bank therefore we needed to sell our lots that we foreclosed on at a great reduction in price.  Ouch!  The partnership was to be terminated in 2009 (5 year term) and the US and banks were in terrible financial shape, especially Arizona real estate.  The partners, including myself, voted to continue the partnership.  The normal person thinks land and lots without debt are cost free, wrong.  You have real estate taxes, regular maintenance of the lots to meet city, county and regulatory standards like spraying of weeds, fill for erosion, etc.  Also, the managing partner needs to pay his corporate rent and employees maintaining records.  Move to 2019.  The partnership is still going.  The partners still get to vote each year to see if we want to continue the lending of money, and the vote is always a majority “yes”.  If you want to sell out, it is only permitted to an existing partner with approval, and usually at a 50% discount.  Do I need to say “ouch” more often?

Let’s talk encumbrances and collateralization of assets.  Take an example of being on the other fence of lending money.  When borrowing money the first question a bank or private party will ask is, “what do you own to collateralize this loan”?  Bottom line, try not to over-encumber the loan up to its value or up to 125% of value.  If you are improving a property and it goes up in value, have releases in writing from the original collateralization to bring that amount down.  Here is an example that happened to me.  I was a partner on a large ranch acquisition for development in Arizona; paid $15.5 million cash for the ranch.  We collateralized the operating loan with the entire property.  Over 7 years we did considerable work, and had major contracts in place to close once our work was completed; 1800 quarter acre lots with major home builders and a 39 acre parcel with Westin/Marriott Hotels.  The project was approved for 6600 lots plus custom lots, once 2 golf courses were laid out by Nick Faldo. The land work was to take another 2 years, to meet contracts.  2007 rolled around and Citi Bank, our lender, called the loan due and payable immediately.  We had two appraisals by outside companies and both came up with a net asset value of $150 million…serious money!   We requested Citi Bank to separate out some of the land under contract, they would not.  Two passive partners bought out the loan, and then foreclosed on us.  (We had paid these two partners 1% of loan amount at time of loan with Citi Bank to guarantee the loan, for a lower rate of interest and limit our personal liabilities.)  We went to court and lost.  In hind site we should have hired our planner first, as we had the financial capabilities, then taken the ranch and divided it immediately into several parcels before borrowing money.  In today’s world set up separate legal entities for each subdivision.  Also, form a separate corporation for the land development and the construction/builder group.  In the end everyone lost. Once our corporation went Chapter 7, the new land-owners lost everything we had completed from planning to approvals for water and sewer taps.  City and county development and building codes also change over time.

One last point to make.  Try not to do business with family members, unless there is no option.  My brother came to me for a loan in 2004 for $100,000.  What I did was permit him to borrow that amount on my home in Milwaukee as a line for credit.  The home was worth three times that, and free and clear of debt.  M&I Bank was willing to do this if I signed a letter authorizing the loan and my brother holding an interest in the property they could encumber.  I thought safe enough.  As it turned out, once M&I Bank was sold to Harris Bank in Chicago, and M&I loan documents were no longer accepted by Harris Bank.  The loan of $100,000 was called immediately due and payable.  I wasn’t informed a thing until I was served foreclosure papers; no one kept me in the loop.  Bottom line here is what starts out sounding low risk can turn into something major.  In addition my brother had a large “judgment” loan against him by another bank.  In court Harris Bank was permitted to “Piggy Back” the loans, and I lost my home and entire value.

I could write quite a bit more, but I hope you learned a few things from this blog.

MONEY 171 - FINANCE/STOCKS

THIS IS MY 171^ST BLOG ON UNDERSTANDING MONEY TOOLS

July, 2019

www.understandingmoneytools.blogspot.com

This blog may be a supplement to my last blog 170.  Someone asked me where does all the money come from driving the stock market higher?  Good and logical question.  Here are some answers:

-       The markets are controlled by the wealthy and institutions around the world, up to around 85% of market’s value.

-       You can borrow money from your investment firm, called “margin”.

-       Younger people have seen their home prices rise so they are taking out home equity lines of credit and buying stocks.  Dangerous!

-       Wealthy from unstable countries are placing their money in the USA and markets.

-       Older people holding companies that are going down like Sears, JC Penney, K Mart and others are selling the losers and putting the money back into the markets, rather than bonds as they pay little in interest.  Foreigners as well as people in the US, are buying US bonds with discretionary income; bond yields rising.

-       Another thing you need to watch for is volume of shares traded on a given day, on a given exchange.  The market might have moved higher or lower, but on weak volume.  That is an indicator of weakness, or buyers/sellers staying on the sidelines waiting for signals of direction.

What else is driving the markets?  Let me explain in more depth, but let me mention my authority on this topic.  I held 4 security licenses for about 20 years; overkill.  However, I like finance, numbers and economics.  Most of these years I worked in conjunction with Wall Street.  I try to write these blogs rendering practical, current information unlike what you might receive reading a book on finance and other industries. I also try to write in an informal, wordy mood trying to make the information interesting, simple to understand and somewhat fun.

The financial business is an enormous international industry, mainly controlled by the big Wall Street investment banking firms, and their joint commercial banks and trusts.  Every financial planner, stock broker or whoever the name is has their licenses with a principal, that being through an investment banking firm.  They are employees and regulated.  These individuals are registered with the Securities Exchange Commission and the National Association of Securities Dealers.  They have passed tests to have these licenses (usually Series 7 and 63), and “should” obey the principles and practices as a fiduciary.  Many casualty insurance company people hold a Series 6 License to sell mutual funds and annuities.

Because of the “hot” stock markets everyone has jumped into the business.  35 years ago after the Glass-Steagall Act of 1933, (separation of all financial industries from one united), went out the window with the 1986 Tax Reform Act commercial banks placed people within their banks to be financial planners/advisors for their customers.  Wall Street firms have branches in most financial centers around the world.  This increases the sales of more stock.

Wall Street and the wealthy want to make money.  Easy to drive the market up like it has been going when you have millions of employees and brokers/agents working on it.  It makes sense that the more agents worldwide the higher the market should go.  Agents need to make a living! These brokers/agents/financial planners have families to support and quotas to meet, they need to sell, sell, sell!  Just watch TV ads, every other advertisement is a financial company, mixed in with law firms and drug companies.  The big firms tell their brokers what to buy and sell through recommendations.  These are not necessarily accurate or honest.  For the past few years it has been “buy” recommendations.  Then, it may go to “hold” recommendations and then to “sell”.  Rarely do they say “sell” as they don’t want to lose control of the money from accounts, or blemish their reputations with companies. 50 years ago, and prior to, we only had “stockbroker” designations handling trades, and not the numbers of people involved of today.

If Wall Street thinks it is time to get out of the markets typically they will get their big customers and themselves out first, or do “puts” or “sell orders” to make money, before the customers/the public, you and me have knowledge.

Permit me to make an illustrative comparison happening the past few years to Wall Street and the stock markets.  Let’s pick any of the “FANG” stocks, that is Facebook, Amazon, Netflix and Google.  Take the first, Facebook.  It started as a social media site sharing people’s photos and interests.  Then, they gathered personal information and sold it to companies to make their advertising more direct.  It was mentioned this week that Facebook now has a capitalized value of $585 billion.  They were just fined an extraordinary $5 billion.  Does anyone realize this amount is less than 1% of their value?  Ridiculous!  People keep buying the stock.  Let’s say a person has a fairly unique Chevrolet auto that sells for $25,000.  Assume auto dealers get together and determine they can sucker the consumers into paying $1 million, then $5 million, then $10 million for this type of car and it seems to be never ending.  That is what’s happening with many of the stocks today.  No fundamentals, no real value, but an amazing amount of “perceived” value!

I feel I must touch upon this topic quickly, and it involves media, news and perceptions.  It just came out with headlines, “China Growth Slowest Since 1992 as Beijing Struggles”.  You might think China is tanking?  The article then states that China’s growth, or GDP, is currently 6.2%.  Does anyone realize that is 300% larger growth than the USA?  Also, India is coming on fast with success and financial growth.  It was just released that in the past 10 years India has brought 270 million people out of financial poverty. Impressive.  Can we make these kinds of statements here, no.  It’s time for reality to set in. The pundits argue you can’t draw comparisons as both these countries have so many more people.

Hope you got something out of this short blog.

MONEY 170 - FINANCE/ECONOMY

THIS IS MY 170^TH BLOG ON UNDERSTANDING MONEY TOOLS

July, 2019

www.understandingmoneytools.blogspot.com

In this blog we are going to discuss essential knowledge for stocks, and hit upon our current economy.  In regard to the fundamentals of stocks much of which I have covered in previous blogs it may be redundant.  I feel that if you have incorporated a business, bought stocks/thinking of buying stocks or just interested in the make-up of stocks that account for much of our economy you should have a basic understanding.

A friend recently asked me how I would evaluate the value of stock they purchased in relationship to the value of the company itself.  Good question, and I have answers.  The most accurate and simplistic answer I gave him is “zero”.  The same goes for the stocks you own!  First, have you ever taken possession of a stock certificate showing ownership in that company?  If you have a private company you have a stock certificate and may have placed it in safe keeping in your safety deposit box at your bank. If you lose the certificate it’s gone. (You should have at least annual meetings and the secretary of your corporation would have ownership records.)  If it is a public company the company has your ownership of record.  You have the right to show ownership in your name rather than “street name” with your brokerage account and take possession of the certificate.

If you look at a certificate in the upper right hand corner it will most likely show the value to each share of stock the company states it is worth.  It states, “Common Stock, Par Value of $.01 Each.”  That is your value, “zippo”.  You only realize true value when you sell the stock at a given price to a willing buyer, and that is under a “bid/ask” basis.  This means that Wall Street, or investment banker hopefully has buyers and sellers for your stocks.  If you want to sell, you “ask” a price, someone offers you a “bid” and you come together in agreement.  In reality with a brokerage firm it happens instantly, or you can place a “sell order” for your stock only at a given price or better.  If there are no bids, you do not have a sale.  Simple!

Now, what other ways do we give value to a company?  Let’s try “break-up” value.  It’s happening to a degree to Sears stores, right?  The CEO has been trying to place a value on the various “hard assets”, such as real estate, inventory, and accounts receivable (which I doubt they have) to buy them out. Not successful so far that I know. 

How about “bankruptcies”?  Any assets over liabilities?  Doubtful, but sometimes under a Chapter 11 restructure of company. It’s used all the time.  You may have “hard assets” like real estate, furniture, etc.  Does this company have “Proprietary Products” like software and patent rights to assets such as medical devices and drugs? These add value.

In the real world law firms get involved and creditors stand in line.  If the creditors are of the same kind they are in line to get paid according to when they filed as a creditor. This usually is with the country clerk and recorder.  In the case of a larger company the bondholders get paid before stockholders. With present stockholders they get paid according to class of stock such a “A” Class, “B” Class, etc.  When I have been involved with public stock bankruptcies I received a letter from a law firm representing stockholders in a “class action suit” for “X” millions of dollars.  Perhaps a year or two later I received another letter that stated the law firm won and my proceeds check was enclosed.  In my cases it has been ridiculous and not worth the time.  The law firm takes almost all the money and you receive less than one cent on the dollar.

Let’s move on with fundamentals. You want to form a corporation to protect yourself from creditors and liabilities. You then decide on how many shares you want to “Authorize”; a lot!  Then, you “Issue” stock from the Authorized shares to key company people and for stock options, etc. holding back perhaps millions of shares. If you think you want to one day go “public” with your company, you want to authorize more shares than a small private company.  Your lawyer or accountant will discuss this with you.  You want the company to either be “tightly controlled” with fewer shares issued for trade, or highly traded with more shares in the “float”.  The term float is the daily amount of stock that is tradable in the market place.

Another way of discussing valuations of a company is to determine the number of shares in the float and issued, times the price of a single share of stock.  Example:  Let’s say company “xyz” is priced at $100/share. It has 1 million shares issued and has a value in the market place.  What is the “Capitalization” of the company or value?  $100 million.

The stock market in general this week again boggles the mind, higher yet, not because of earnings or real gained assets of companies, just more money chasing stocks.  In the last few months we went from a price to earnings of the DOW Industrials from 26:1 to 28.9:1.  120 year average for this P/E has been 15:1, therefore the market is overpriced by 100%.  Be very careful.  To me this smells of Herbert Hoover being elected a Republican president in 1928 during the “Roaring 20’s” followed by the crash of 1929 and a decade of The Great Depression.  If you are old enough to remember the stock markets of 1999 when the economy was doing well, stocks re-adjusted and the values were cut in half!

Let’s talk economy.  Economics is the “financials” of a country or government looking at the big picture and longer term.  The US economy since The Great Recession has been built on a “Ponzi” model, one photo of this statement is the above regarding our stock markets.  The Ponzi Scheme comes to bear as we have printed money, lent it to banks, they lent it to mainly big companies (now individuals) so they can buy “things” or stocks that are taxed so we create revenue and economy known as Gross Domestic Product (GDP).  Then, we print more money as the economy needs dollars to cover US debt and lend more money out, etc.  A big circle of false economy, expressed in simple terms. 

Another problem is that large businesses didn’t share income or higher wages with middle class workers, so in the last few years the middle class has had to borrow money for student loans, car loans and using high interest credit cards because they couldn’t earn enough money working to support themselves.

Once again, we went from tighter credit in 2012 to loose credit now.  We do not have income verifications in many cases, and have lowered necessary credit scores for purchases and borrowing ability.  Tell the banks your income is $200,000, even though it isn’t, and you will receive a credit card with a huge credit line!  That is what’s happening, and it will backfire on the US once again, and be larger than what we witnessed in 2007-2009.

Is our economy in great shape?   In my eyes it is in terrible shape and I will continue with my premises.  We ended 2018 with a Gross Domestic Product of $20.5 trillion.  Our current US Government debt as of July 1^st is $22.5 trillion.  Simple math shows that we have a debt to GDP ratio of 110%, higher than any G20 country in the world.  (There is a US Debt Clock, to the second, in Manhattan, NY on West 44^th Street, or you can save the airfare and go to Google and get “US Debt Clock” receiving the same figures for revenue and expenditures. Fascinating! There are Debt Clocks for many countries in the world where you can get these financial figures.) You have to watch media and government statements very carefully.  We are the largest economy in the world, but one of the “sickest” in the world, with no way out.  On September 30^th we end the government fiscal year completely broke once again, and needing Congressional approval to print more money to pay bills.  Current yields are going up for both short-term bills and notes and long-term bonds.  Will the investors behind the Federal Reserve Bank want to “swallow” up more of our debt/bonds?  The market value of bonds just took a hit. (Interest rates and the market price of debt instruments always work inversely to one another!)

Fed Chairman, Powell, is caught.  Inflation should be at 2%, but now appears increasing so he wouldn’t want to lower interest rates.  The stock markets are adjusting for a lower rate.  The government needs to raise more money from instruments especially 10 and 30 year bonds, however we, the USA, is weakening and other countries might want a higher rate interest.  Will the biggest buyers like China keep buying?  They have a healthy economy with a great debt to GDP ratio of about 50% or less.  China currently holds $1.3 trillion of our US Bonds, and separate Hong Kong owns $300 billion of US Bonds.  President Trump and the US don’t have China over a barrel, they have us over a barrel as we need them and other countries to buy more of our debt!

Can we keep printing money to keep our doors open and economy going?  Doubtful.  Remember what this did to Germany in the mid-1930s.

A couple other points.  We have alienated many countries like Germany, France and Canada telling them whom they can trade with.  This is going to start closing down the US Dollar markets in the long term.  BRICS plus Iran unified some time ago (Brazil, Russia, India, China and South Africa) plus Iran.  Many countries want to start diverting from the universal US Dollar to other currencies, including BRICS for oil trading and more. Watch our dollar slide in the next 5 to 10 years unless something drastic is done.

The US has also sanctioned trading to over a dozen countries including Russia, North Korea, Libya, Syria, Venezuela, Iran and more.  It’s hurting our friendly nations as well cutting down their trading abilities, hurting economies.

I hope you got something from this blog.  I wish Americans were more interested in finances and economics as that is your future in the hands of mostly very inept people.

MONEY 169 - JUBILEE YEARS

THIS IS MY 169^TH BLOG ON UNDERSTANDING MONEY TOOLS

July, 2019

www.understandingmoneytools.blogspot.com

Are you part theorist?  Are you interested in longer-term finances and economics?  This leads to the question, “do you know what financial Jubilee years are?”  They have affected economics, finances and demographics of countries for 700 years or longer.

It is a resetting of debt worldwide approximately every 25-50 years.  It is even mentioned with some translation in the “Old Testament”, Book of Leviticus, Chapter 25, so it is greatly part of the Jewish tradition.  Even Popes back to around the 1300s spoke of this.  It deals with the remission of sins and universal pardon according to Wikipedia; equalizing, forgiving of debts and financial shake-ups.

As I reflect back through recent history we certainly had Jubilee years in 1929-1933.  Many of the wealthiest lost their money in the stock market and businesses during those years.  We also saw this happen around 1969-1972 when we entered a recessionary period affecting the stock markets. The US went off the gold standard on August 15, 1971 because of our US debt caused mainly by the Viet Nam War and the breakup of the Bretton Woods Agreement established in July, 1944, between countries which formed a new international monetary system.

A Jubilee could also refer to The Great Recession here in the US in 2007-2009.  However, during those years and after it didn’t “equalize money”, but did forgive some debts of mainly wealthy people, big business and banks.  It  crippled the middle classes.

Are we infringing on another Jubilee in the near future?  I believe we could be and we asked for it, especially when I view the extreme wealth of the top 1%, the lowering of taxes for the top wealthiest and middle class incomes not rising in over 40 years.  Don’t be fooled by new “employed” numbers each month.  These include part time workers at minimum wage.

I watched the Democratic Convention debates as many Americans did.  The political platforms espoused were definitely models to a Jubilee year.  Perhaps the next president will come from the Democratic ticket, or America may wake up and realize we are broke and taxes need to be raised.  During the past 9 years we have been living on debt more than anytime in history.

We did have income taxes on the wealthy as high as 94% in 1944.  The

Economic Recovery Act of 1981 slashed highest tax brackets from 70% to 50%, and then the Tax Reform Act of 1986, under President Reagan, dropped the top rate to 28% in 1988.  In the 1990s we raised this rate to 39%.

I have stated my premises in other blogs, but here they are again:

-       Everything needs to make sense at some point.

-       Everything revolves around “cause and effect”.

-       Debt kills.  This relates to economies of countries as well as people.

-       Perception is of greater value than reality.

-       Don’t trust bankers, governments or politicians!

We need social responsibility for people and companies before profits now more than ever.  President Eisenhower warned the US of 3 areas to be watchful over when going forward, and we naturally fell into the trap.  These 3 concerns are:

-       Enormous political powers.

-       Banking industry and the financial powers.

-       The huge defense industry/machine wanting war and hegemony worldwide for profiteering. I will add my own take here and that is, “built in fear”.  Fear of Communism after WWII into Viet Nam and Asia, fear of the strength of other nations like China, Russia and others today.

Let me pounce again on the markets.  Reuters News recently released an article and I will repeat a few of the salient and most disturbing points. As you might be aware the stock markets hit new highs with about $40 billion new money coming in this year alone.  Does this relate to profitability of companies earnings; no.  What concerns me further is the passivity of the American investors becoming accustomed to 15% compounded annual returns, when the historical norm is around 7%.  The attitude is “just add more money into my fund or stock account.”  At some point this must end.  Will we have a Jubilee year in 2019 or 2020? 

According to the article and investment firm J.P. Morgan about 80% of money flowing into markets goes to “passive investing” meaning into computers and algorithmic modeling on trends, not active (human) analysis.  Much of this is based on momentum driven trading, with no rationale based upon earnings and hard assets.

As a final side note, a couple months ago I mentioned gold as one of the hedges to the markets.  At that time gold was trading at about $1295, today it is at $1400 and above.  The Chinese and the Russians have been on a buying spree.  “Smart people” worldwide are becoming concerned about economic times.

Once again, I hope you learned something from this blog.