THIS IS MY 175TH BLOG ON UNDERSTANDING MONEY
TOOLS
September, 2019
In this blog we are going to talk markets and money.
MARKETS: In
this context we will cover stock markets.
“Insanity” captures it all well in my mind. Permit me to draw a parallel. I envision the stock markets as a merry-go-round wildly
spinning too fast with children aboard.
The children are the middle classes of people investing. At some point the children do not
realize it, but they are going to be tossed aside and hurt badly.
The markets are way too high, assisted by our president Mr.
Trump who states if Federal Reserve Chairman, My Powell, would lower interest
rates the markets would jump another 10,000 points. I am an independent voter, however voted for Mr. Trump. I probably know more about Mr. Trump
than many as I lived part-time next to him and his first wife, Ivana, at 66
Vista Dr., Greenwich, CT. while working with NYC investment bankers my 20 years
in financing deals and corporate finance. I did not own the home owned by a
close friend, but always welcomed a stay on 8 acres situated on Long Island
Sound.
Mr. Trump inherited much of his money from his father and
their trusts. Mr. Trump has
monetarily bankrupted more companies than any other person in America,
including taking (from what the news reported a couple years ago) a $950
million dollar write-off for his bankrupt Atlantic City casinos. He had little, if any, “skin” in the
game as the casinos were financed by “junk bonds” bought by “little old ladies”
who carried quarters around while gambling. Even my Ernst and Young accountant doesn’t know how he
pulled that one off…fantastic lawyers and accountants who you and I can’t
afford. Mr. Trump lends his name to projects for payment or carried interest in
the projects. He is our President,
please don’t listen to him on finance. He is a politician who wants
re-election.
Let’s list the markets and indexes. The first and least risky is the DOW
Jones Industrial average. It is
comprised of our top 30 matured companies, and mostly companies with the least
downside risk, but least upside as well.
This index includes Merck (drugs), Walmart (retail). Exxon.Mobil (oil/gas/diversified), American Express, Microsoft, Goldman
Sachs (financial services), 3 M, Home Depot and more. The Dow Jones was started by two individuals Mr. Dow and Mr.
Jones in 1896. It has a historical average for price to earnings ratios of 14
or 15 to 1. As of September 13th
this year it now carries a 29 to 1 price to earnings ratio. What does this tell you? Earnings have not changed much, as
expected, however the price is twice as high as it realistically should
be. What concerns me with all
market highs is the promotion these days.
Every evening when watching TV, the advertisements are either drug
companies or financial institutions luring in more users or investors…scary!
The next most stable market or index is the Standard &
Poor’s, or S&P consisting of 500 stocks, all solid companies.
After this and gaining in risk would be the NASDAQ comprised
of 3300 stocks, many of which are technology. In 1999 when the markets corrected, I was heavy in
technology. The NASDAQ dropped
from 5200 to 2800 and I lost a ton of money. I did not time the market, I just stayed in.
Following the NASDAQ in the line of risk is the Russell 2000
holding 2000 “small cap”, (meaning capitalized) companies.
Next in line would be the “penny stocks” under a couple of
dollars per share, and “pink sheet” stocks.
People today think only one thing, the markets trend
upward. They forget about 1929,
1987, 1999 and 2008. You might
lose 30-40% of your money in a conservative DOW Index, however you might lose
70-80% in some of the riskier markets.
Smart money has left the stock markets for the most part
seeking cash or bonds for liquidity or low risk. Cash is your big asset to be able to buy in on the next
downturn, which is forthcoming.
I have mentioned this before, but will again here. Don’t be fooled by the market rebounds
after downturn days. Since March,
1988, the government can step in with our largest banks to buy stocks and reach
market support. Mr. Trump in
conjunction with Treasury Secretary, Mr. Mnuchin, has authorized this. Very dangerous in my eyes, as at
sometime in the future these banking institutions will again have to “mark to
market” their asset holdings and loans, and may very well be “underwater”, with
tax payers bailing them out as in “The Great Recession” of 2008-2010.
The next recession will be more debilitating than “The Great
Recession” because it involves much more debt from more sources. Private debt in the USA now stands at
$14.6 trillion. Divide that figure
by the 320 million, men, women and children in the country and it is about
$45,000 per individual. People
don’t have that kind of money.
Beyond that said figure is the corporate debt where companies have
borrowed to the “hilt” to buy their stock “back in” at high prices. These are loans from Wall Street. What if their revenues shrink, stock
prices fall and can’t pay back Wall Street and investors? Do the taxpayers need to pick up that
tab, as we did with General Motors in the last recession?
I watched the Democratic Conventions. Most platforms are to give the people a
lot including free education, forgiving student debt, free medical, etc. We, as a country, are too far
gone. These candidates need to
moderate to win. For one thing, if
we proposed this type of borrowing to fulfill promises the World Bank and
International Monetary Fund would step into the picture as the world currently
trades in US dollars.
There are two very fundamental principles I believe in, and
they are “everything is cause and effect” and “debt kills”. You can see where we are today, and the
violations to my principles.
MONEY: My blog
is based around “understanding money as a tool”. Money is both an asset and a tool. The reason for my writing is this past week I heard a woman
say “I would love to win the lottery, I love money”. I grew up with my mother telling me to “like” material
things including money, but love people and God. Money can come and go, as a reflection in my life. I have been lucky to have made quite a
bit of money (in most people’s standards) during my life, and also lost a lot
of it. My true friends stuck by
me, my money did not. Yes, during
those times I was able to buy a new Corvette, Porsche and BMW with cash. I
worried about them getting a scratch, and parking away from my shopping
destinations. What happened was
perhaps a lesson. My Corvette and
BMW were stolen. The BMW was
stolen from a country club parking lot in Denver while I was inside dining.
I went from the expensive cars to two new Saabs in a
row. In the 1980s I lost about 7
radios to thieves who broke my windows, broke the dashboards to steal radios
that they would “hock” for about $25.
Now, I drive an old car, license plates cost me a mere $30 a year, I
don’t worry about a scratch in the paint and could leave the keys in the
ignition and no one would steal the car.
Peace of mind!
Where am I going with this thought process? Having any asset, including money, is a
burden and it takes work to keep it and keep it nice. Many people do not realize this. You have a responsibility if you have money, or another
asset to keep it in good health and working order. People who win the lottery don’t realize the stress and bane
it can cause. Look at pro athletes
who make millions and are broke by old age. Many of the rich, or people who win these lotteries regret
their money; they, or their children, turn to alcohol or drugs. They lost focus on the values of
life. All their relatives and
friends want money. Who are their
friends? They become paranoid.
Okay, you get lucky, make some money, want “things”. Quite common and normal. You buy a Rolex or Omega mechanical
watch. Recommended service by a
watch dealer is every 3 to 5 years and will set you back about $1,000. Buy a Richard Mille watch for $1
million, and I bet service is a lot more!
Love this one. You are
quite well off and buy a Bugatti auto for $2.2 million. A general service runs $22,000, and you
are to change tires every 2,500 miles, (yes, 2,500 miles) for a cost between
$30,000 and $42,000!
Money is the same.
Your financial advisor wants a piece of you, your lawyers and
accountants setting things up want, and then people maintaining things want a
piece of you, etc. You buy an
expensive home, and you forget that it costs thousands of dollars each year in maintenance…and
the headaches. People who take
care of your possessions don’t show up, they steal from you, etc. How many athletes and movie actors
blame their agents for losses, many justifiable.
Bottom line here is be prepared for the work that money brings
to the table. Without working on
preservation of any asset, it will go bye, bye! This includes you!
God or something brought you into the world as a baby with a beautiful,
healthy mind and body. Take care of it or it will fall apart!
Hope you enjoyed this blog.
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