THIS IS MY 189TH BLOG ON UNDERSTANDING MONEY
TOOLS
June, 2020
In this chapter/blog let’s look at stock investing. Stock markets are supposed to be in
direct relationship to economies; earnings, income, balance sheets, etc; unless
something false is happening. This
is in-line with my old saying that “everything is cause and effect”.
We must first look at the evil done by “Coronavirus/Covid
19”. The reality was, and is, that
not just the USA, but the world, was living on borrowed time with
insurmountable debt. The only
other country in the G-8 with a worse debt to Gross Domestic Product ratio is
Japan. Covid 19, although we all
know very well the detrimental affect, is giving the world an “out” for their
financial ineptness, especially over the past 20 years when we last had a
balanced budget in the US. All
Covid 19 did was “throw gasoline onto a fire that already existed”.
There are undeniable parallels between today’s economies and
the Great Depression. In the late
1920’s the US was living the “high life”.
People were living beyond their means and celebrating. Stock markets were up, and in 1929
unemployment was 3.2%, the same as a few months ago. By 1933, US unemployment was 25% similar to what I believe
we will report second quarter in July.
In my past blogs I have taught the readers the basics of
analyzing income statements, balance sheets, the “ins and outs” of the markets,
various ratios for analysis, how Wall Street thinks and so much more. We have altered the ability to analyze
a stock or market to make money. A
good example is Berkshire Hathaway, Warren Buffett’s company. He is now feeling the affect from using
historical fundamentals of buying into companies and industries that have long
time been solid. Recently, an
article called his stock picks and holdings “duds”.
Permit me to explain why this is happening. About 20 years
ago computers and programmers started coming on strong with Wall Street and
hedge funds. Today, 70% of all
stock trading volume is created with “Algorithmic” trading. This is “high-frequency” trading
meaning very large volumes of trades in a very short time period based mainly
upon momentum. Hedge funds are noted
for this, and it will cause the daily gyrations that we see in the
markets. There is such big money
to be made that it justifies paying “short-term” income taxes.
Am I saying that in today’s market to make money “throw out
the analytics”? Yes, I suppose
so. In my last blog I wrote that a
person can either “invest in the market or play the market”. The people making money are “playing”
the market in very sophisticated ways and with big bucks. Not too dissimilar to Las Vegas. With
Algorithmic trades the hold may last a few seconds or less. They may be shorting a stock or buying
long.
There are various terms used in all of this. Here are some for your understanding:
- Algorithms
- A process or set of rules to be followed in calculations and problem solving
normally using a computer.
- Matrix
- Something develops, hopefully profit.
- Metrics
- A method of measuring something used in Algorithms.
- Paradigms - A model used in replication.
The stock markets are moving upward, however be
cautious. This is not a “real”
market. The government is buying
trillions of dollars in stocks.
The US Treasury and the Federal Reserve are purchasing bonds of
corporations that “stupidly” issued debt/bonds to buy their own stock. Some of these industries are being
destroyed e.g. oil/gas, airline and cruise-line industries. As an example, American Airlines used
96% of their available cash over several years to buy their stock. Now, they are broke. Our government is saving many of these
issued bonds by making payments on the interest so once A rated bonds do not
become “junk” rated (B- or below).
The US government is making payments to people to make up
for the Covid 19 experience. The
first was our $1200 Coronavirus checks to all. Secondly, came the US government supporting unemployed
workers with a $600 weekly payment, and states added to this. What I am witnessing is that workers do not want to come back to
work as they are making $700 or more per week not working. Before this, a worker had to work 2 or
3 jobs to make $400-$600 per week.
We need to obliterate the financial inequalities in this country, help
build back a wide-band of middle class, all making a good wage so they can make
purchases and build America back.
One way of doing this is to follow the Works Programs of the 1930s. Yes, we are printing more money, yes
this is artificial, however take a look at the infrastructure of this country
including roads, bridges, water/sewer lines and systems, mass transit,
etc. They are terrible and
neglected. This major repair is
needed. I have traveled Europe and
Asia several times. You don’t see
this in Japan, Switzerland, Singapore and other countries.
What do I see in the not too distant future?
- High
unemployment continuing.
- Government
subsidizing people and largest companies.
- Government
continuing to print more money.
- Deflation
versus inflation because middle class does not have money and if the dollar
remains strong.
- Small
businesses not re-opening and bankrupt.
- People
not desiring as many luxury items nor spending like they were accustomed prior
to March of this year.
- Stock
market sinking once a true market returns as the government cannot cover all
expenses and maintain this false Ponzi Scheme.
- Real
estate foreclosures hitting highs, especially commercial retail and
office.
- Employees
of companies having the ability to work at home or anywhere.
- Banks,
once again, in financial trouble as loans become delinquent.
Here is a bit of financial advice. Try to avoid collateralized loans, like “home equity” credit
loans. These loans in the
2008-2010 were called immediately “due and payable” even though the term of
loan had not matured. Banks are
not your friends! In 2008-2010,
banks foreclosed on real estate, many homes, and then sold these properties to
wealthy people for 20 cents on the dollar or less. The wealthy are now sitting with cash on hand to duplicate
this situation. It is better to
use a credit card with no encumbrance on your assets, even though interest
rates are high; better than losing your home. You can always walk away from a bank credit card, although
your credit score will go down.
Protect yourself and your assets!
Again, the parallels exist to the 1930s’ economy and
Franklin D. Roosevelt creating work programs to keep the country afloat until
the 1937 Congress put an end to the spending, and we were sinking back into a
depression. This situation ended with December 7, 1941. I hope you remember that meaningful
date.
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