THIS IS MY 188TH BLOG ON UNDERSTANDING MONEY
TOOLS
May, 2020
I find it is a very appropriate time to write a blog. The Coronavirus, or Covid 19, is causing
not only health issues but major financial issues here and around the
world. In this long chapter/blog
we are going to discuss three important elements in today’s world, Covid 19,
economics and finances; all interrelated.
I hope you find this writing of interest. These are tumultuous times.
CORONAVIRUS:
First let’s discuss Covid 19, derived from published facts. To the best of my knowledge and
research the comments I make below on this topic are true.
- The
Coronavirus has been studied for several years. You probably have seen the 2015 video of Bill Gates speaking
about a vicious virus that would cause a pandemic.
- Our
National Institute of Health, NIH, gave the Wuhan Lab in China $3.7 million to
study the Coronavirus on animals between the years 2014 and 2019. Another round of grants amounting to
$3.7 million was to be granted in 2019.
Because the caves in the Wuhan region have bats, this was the logical living
mammal to experiment upon. This
sharing of information worldwide is not unusual.
- The
Wuhan Lab has been known for laboratory leaks over its history.
- If
you read, or have read, my blog 186 I write about Francis Boyle who drafted the
US Implementation Law of Biological Weapons Convention pointing out that the US
and other countries are in violation of this pact. The US has spent over $100 billion on biowarfare since 2001
in 400 labs around the world.
“Play with fire, someday you will get burned.”
- Dr.
Anthony Fauci, an immunologist and Director of the National Institute of
Allergy and Infectious Diseases since 1984 knew about the Covid 19 for several
years, including the lab testing in Wuhan.
- Why
is it called 19? Because the virus
apparently came from the Wuahn Lab, or a bat from the lab, and spread the virus
within the population of Wuhan in the fall of 2019. What came first, the bat or the virus? “The chicken or the egg?”
- Countries
that were proactive, like Germany, started making protective masks and hospital
ventilators for their population; this happening in November, 2019, giving them
a better control over the spread of disease.
- Countries
like Italy where the disease devastated the northern Lombardy area did not have
medical supplies in place nor hospitals situated to accommodate stricken
patients.
- America
was not at all proactive and waited until mid-March to tighten controls to
restrain the spread of the disease.
Americans are not true nationalists and do not take orders from
government bodies well, dissimilar to Germany, Austria, and Switzerland. In China with an “autocratic” controlling
government contained the virus well around the Wuhan area.
- “Spooky”! Dean Koontz, a novelist writer, wrote a
book in 1981 called “The Eyes of Darkness”. In the book he described a lab created virus called the
Wuhan-400 to hit the world in 2020.
One dissimilarity in his
book in relation to the current virus was the incubation period of a mere 2
hours, and our Covid 19 is about 14 days.
- There
are roomers that China released the virus on the world to hurt the US
economy. My position is
crazy! First, if China did such a
thing they killed the goose that lays the golden eggs. We are the largest buyers of Chinese
goods. Secondly, why release a
virus to hurt our economy when all they would have to do is sell billions of US
bonds into the world markets.
China owns over $1 trillion of our US bonds/debt and Hong Kong owns an
additional $300 billion. China,
the largest holder of US debt, has done this to assist in keeping our economy
afloat.
- As
of my writing on April 29th the US crossed over 1 million cases of
the virus and 58,900 deaths.
Enough background here, let’s see how this may play out in
our economics.
ECONOMICS: I think everyone has seen the detrimental effects
that the isolation, unemployment, home confinement, etc. is having on the economy. Our government’s first quarter earnings
ending March, 31st should be released soon. Our government will most likely say the
economy is still healthy. Wait,
what? A quarter has 12 weeks in
it. The real retraction to the
economy did not begin until mid-March so you have a result of 10 weeks of
fairly decent business and economy in the model. Now, prior to Covid 19 the world’s economy was sinking, and
the US economy was pictured as reasonably healthy because “we” were lending
money like crazy, and pumping billions/trillions of dollars into banks shoring
up capital requirements (including “repos”)…and, putting billions and trillions
into stock markets.
Mr. Trump and Secretary of the Treasury, Mr. Mnuchin, have
mentioned publicly they are prepared to cover financial distraught areas of the
economy up to approximately $11 trillion, and perhaps go higher. I have spoken for years about the
stupidity and “game” it was to permit major companies to borrow low interest
money from issuing bonds and then buying their own stock back. Now, that stupidity is coming to
roost. Corporations can’t pay the
interest on their bonds, and the bonds are sinking into the “junk” classification;
airlines a prime example with some airlines having put up to 95% of their free
cash back into buying their stock.
Of course, this pumps up the stock market and Mr. Trump and the
government economy appears better than in actuality.
I will repeat that the economy has been built on a deck of
cards since The Great Recession, definitely favoring the big companies and
wealthy individuals. We lent cheap
money to corporations, student loans, personal loans, auto loans, housing loans
and not inexpensive but plentiful credit card lending. This money revolved into our economy
buying goods and services, thus showing somewhat favorable Gross Domestic
Product, around 2%-3%. Much of
this money was spent not on improving manufacturing plants here and paying
middle class workers a good income, but starting new plants in Mexico and China
where labor is cheaper. Now, our
government is not only covering the large corporate bond interest payments, but
actually buying in the junk bonds.
You will note on the balance sheet of the Federal Reserve that they are
showing considerable losses, about $450 billion as of early April! Not only that but the Federal Reserve
on April 6th held about $5.2 trillion in US debt and within two
weeks that expanded to $6.8 trillion.
I had a discussion this past week with a friend and an
“insider” that some corporations being bailed out on bonds are using that money
to buy their stock. This is not
supposed to be permitted, but is happening. How could this be done? Well, immediately my mind goes to the tactic that large
companies may own a hundred of more companies, they are really “holding
companies”. These “subsidiary”
companies may be publicly traded or private. All a major company would have to do is loan one of their
companies money after being bailed out and show it as a loan on their balance
sheet. Then let their subsidiary
make the purchase holding it as an asset.
And, all this newly printed money is being transacted
between the Treasury and Federal Reserve “off balance sheet”. By this, I mean the money going out to
each individual (approximately $1200), money going into the stock market,
making the banks whole, covering the bond debt of large corporations and small
business loans to tide small companies over until the pandemic is not recorded
in our US debt. (By the way, small
businesses are considered those employing 500 or fewer people.) I looked this morning at the US Debt
clock and we show a debt of $24.7 trillion, therefore all of this new spending
is not accounted for. How it is
transacted, I do not know.
As of my writing there have been about 2.9 million people
sickened from the Covid 19 and 215,000 deaths worldwide. In comparison the H1N1, Swine flu, in
April, 2009 there were a total of 575,000 deaths. My mind, without proven relevance, flashes back to “Wag the
Dog”. That expression comes from
diversionary tactics used to avert a person/people from more important problems
or issues…then a Great Recession and now a coming world depression. A similar situation of diverting
attention from a government setting would be our war in Yugoslavia in
1999. It combined NATO troops but
was an unnecessary war taking attention away from the Bill Clinton impeachment
process with the topic of lying to Congress about the affair with Monica
Lewinsky.
Mr. Trump believes we will have a “V” curve in the economic
outlook, strong downturn and quick up turn by fall. Personally, I believe the virus will hang around a while,
perhaps coming back in the fall with a vaccine a good year or more off. Fear is a greater emotion than greed,
so people’s habits of protection….masks, not going into large crowds, more
isolation, being sensitive to their surroundings will remain for a long
time. Retailers, especially the
small ones, are significantly hurt, many not re-opening. Thus, I believe our
economic future will look different from the past. You cannot have a healthy
economy without a “large, well healed” middle class that is daily
disappearing. The layoffs and
unemployment has been devastating, and has drained the savings of millions of
Americans. Many of these lost jobs
will never return.
FINANCES: Now,
let’s look at finances and investing.
I see two ways of attempting to make money in the stock market. One is “investing” in it, and the other
is “playing” the markets. As
stated before in prior blogs I would not be investing in the market and with
what is happening in the world I would be timed out for now. Analysis is out the window. You don’t know what the government will
do, or how long they will continue to fund the bond and stock markets. Japan’s Central Bank now owns 5% of
their Nikkei stock market, and say they will continue funding as long as the
virus is around resulting in a weak economy. It appears our government has the same plans, as long as Mr.
Trump is president. What happens
if Mr. Biden wins? The unknown. When you have this at play, stay safe
and in cash. The current stock market is being played, one day up, one day
down. This is mainly caused by
government buying stocks, hedge funds trading and companies with cash buying
their stock back.
Just today a friend asked me advice on Disney stock and
showed the brokerage firms recommendations. Number one, I tell all, don’t listen to brokerage firm’s
recommendations. I have seen
“market maker” investment firms who sit with millions in a stock recommending a
“Buy” when they should recommend Hold or Sell. They do this so that they can
“unload” their positions and get their money out of the stock letting the
public buy them out…sad, but true to the industry. Disney is for the most part a “public” type of business
meaning Disney parks and entertainment including movies. Currently, the parks and movie theaters
are closed. Movies are not being
made. Netflix is doing well with
home viewers. My recommendation on
Disney, a good company (a stock I have bought and sold over the years), is wait
until second quarter earnings come out and see how this summer goes. Disney is a company you “invest in”,
not “play” for a quick buck. Stay
away from companies in the entertainment arena; if you do invest, invest with
staple companies that deal in necessities. You see what happened with toilet paper, paper towels, food
items, etc. Stay away from oil
stocks right now, unless you want to speculate; same with cruise lines and
airlines. There has been
speculation the government may take over the airlines and nationalize
them. Stay away from Real Estate
Investment Trusts; many shopping centers and malls may never recover.
Let’s talk about a couple ways to make some money in the
stock market. Play the
market. One friend has selected
two or three stocks he knows as well as the temperament of his wife. These stocks are solid companies, lower
priced in the $20-$30 range, and have huge daily swings. He has charted the highs and lows and
the result continues in the same range, so he has “baselines” or history. He knows the low days will be followed
shortly by the government or hedge funds coming in and raising the price to his
high baseline. He makes a very
good income “playing” this strategy, buying and selling every couple of days.
In the late 1990s I “played” the market and invested with
professional managers. My
portfolio was balanced 50-50 between those two. How I played the market was subscribing to three
publications from stock gurus that supplied me with reliable information, not
from stockbrokers. Then, I kept no
more than 20 stocks in my “played” portfolio, each one having the potential for
something meaningful to happen and take off. These were all “smaller cap” stocks in the $5 to $25
range. I wanted a hold period of
about one month. If nothing
significant happened, I would sell out and replace the stock with a new
company. You won’t get significant
short-term increases in prices from “large cap” expensive stocks.
Each person should develop their own strategy; a strategy
they believe in and works thus makes money. Don’t deviate from a winning strategy, and if it is not
working, amend it. Perhaps join an
investment club, or group.
That’s it for now.
