June 29, 2010

Greeks Strike to Protest Pensions, Labor Law Overhaul - BusinessWeek

Greeks Strike to Protest Pensions, Labor Law Overhaul - BusinessWeek: "Greeks Strike to Protest Pensions, Labor Law Overhaul"

Click on link above:

This is what happens when a government is close to defaulting on its debts - it's currency's value plummets, deficits soar, and people protest the outcome. Therefore, little gets accomplished that would help turn the economy around...in this case it's Greece.

Although less severe, the Americans are undergoing the same situation as the Greeks. Our currency's value is falling, deficits are soaring, and people are protesting. Think of the ongoing/recent strikes by pilots in the airline industry, or the teacher strikes in Oakland, California?

Some cities are also on the verge of bankruptcy:

Detroit, Michigan
Harrisburg, Pennsylvania
Jefferson County, Alabama

Has government made us powerless? Needy? Less innovative? Back in the old days people provided for self and their communities - and goverment was small. When government becomes "too big to fail" or expands too quickly, it puts pressure on its citizens to cover expansion costs by raising taxes, cutting pensions, trimming salaries, devaluing its currency, etcetera. This causes unemployment to go up, deficits to increase, strikes, etcetera. We don't want goverment too small (as in non-existent), but an oversized government reaps disaster.

June 24, 2010

Seesaw Economics

The market is up a few days…then down the next few days. European debt is solved…and European debt is a problem. US government is cutting spending…and US government raises the debt ceiling. The dollar is strong…the dollar is weak again. Gas prices go down…and gas prices are up. Get the picture? Recession or not – people all over the world will have to get comfortable with a seesaw economy. When governments bailout a company, country, and/or raise the debt ceiling – it’s viewed as a temporary solution to a long term problem. However, in the short term, markets go up when the government excessively intervenes...but, inevitably, markets will go down in the long term.

As a country’s government borrows money, this increases the deficit or debt that must be paid back eventually – and because the government doesn’t produce wealth itself, it must raise taxes on its citizens or cut spending in the long run to pay back what it has borrowed. Governments are extremely reluctant to cut spending, and instead will resort to increasing taxes or perhaps equally as bad – create inflation.

In the short term – government borrows money to support whatever objective it deems necessary. However, in the long term – raising taxes to reduce the deficit puts increased undue pressure on its citizens…which means less money for personal consumption (i.e. savings, education, health care, business expansion, or any desired purchases).

Why the fluctuations? Why seesaw economics?
FIAT money. A monetary system based on faith…if people lost faith (declared a currency to be worthless) then the value or worth of that currency will collapse. In essence, the government can eventually grow to “control” its citizens, because it “controls” the currency. By increasing taxes or continuously printing dollars that devalue the currency, the government can theoretically create workers that: don’t have enough for savings, will never retire, and can’t afford healthcare, can’t afford to own any assets (i.e. a home). Yet simultaneously, the government will increase the entitlement or welfare programs that are just enough to keep the populus working…without retirement until death.

Thomas Jefferson said, "I place economy among the first and most important virtues, and public debt as the greatest of dangers to be feared. To preserve our independence, we must not let our rulers load us with public debt. We must make our choice between economy and liberty or confusion and servitude. If we run into such debts, we must be taxed in our meat and drink, in our necessities and comforts, in our labor and in our amusements. If we can prevent the government from wasting the labor of the people, under the pretense of 'caring for them,' they will be happy."

To keep an economy strong, a nation’s citizens must focus on restoring sound economic policies and to minimize the government’s intervention in the private industry.

It’s your life. BE FREE.

June 21, 2010

Wall St jumps on China yuan promise | News | Business Spectator

Wall St jumps on China yuan promise News Business Spectator: "Wall St jumps on China yuan promise"

Looks like China is going to play ball - and stop artificially lowering their currency to make their goods cheaper than anyone else. Imagine how the global market will change as China becomes more of a consumption based economy and not just an export-based one?

Time for US manufacturers/entrepreneurs to step up!

June 20, 2010

Just a quick thought from Adam Smith and I

A dollar today is better than a dollar tomorrow…..

However, most people are saving dollars today that will be worth considerably less in the future. Yet – we hope we have enough depreciating dollars to live off of in retirement. How foolish are we? Why would anyone try to save water in a bucket that has a hole in it?

We’re constantly told that we must save for retirement – especially since corporations have decided to do away with pension plans and require employees to be more responsible for their own retirement. (So, as the pension plan and guaranteed retirement was sliced…in comes the 401K and tentative retirement as employees have to save enough money while working incessantly to keep up with inflation, debt, and those darn taxes.)

Adam Smith (often dubbed as the Father of Economics) 1723-1790, in his interpretation of the Wealth of Nations, discovered that “wealth was an annual flow of goods and services, not an accumulated fund of precious metals.”

Putting that in today’s words – having wealth, or a comfortable retirement for that matter, means that you must have multiple income streams and not just an accumulated amount in your 401K, 403b, IRA or whatever. Don’t let your 401K be your sole means of retirement – it is only designed to be a supplement source of wealth to help fund your retirement.

It’s your life. BE FREE.

June 10, 2010

What's the deal with luxury vehicles?

Just a quick thought of mine...

Why do people spend their hard earned money to buy luxury vehicles?  Just to put them in traffic on the same roads with people who might've spent $500 or less on their vehicle...?  And to make matters worse - there are some nuts on the road!  People act as if cars are assets - when indeed they're just a liability and an expense.  Purchasing a car between $30K - 100K makes no sense at all to me...especially if your income doesn't justify the purchase and you have to take out a 72-month note to drive it home.

I'm sure someone may try to justify the purchase of an expensive automobile by saying (in their most snooty voice....or ghetto voice) "well I've got the best insurance money can buy to protect my investment in the event of an auto accident".   And my response would be "yes - they can repair it after you've first paid the deductible and the value of your car will have dropped considerably"....and hopefully it runs the same afterwards.

Nevertheless, why would you want to pay the high maintenance costs associated with these vehicles?  Brakes are more expensive, tune ups, transmission, electrical, paint jobs, insurance...all are more expensive than purchasing a more common car - say a 3 year old -base model Chevy Impala, or a 3yr old F-150.  With these "common" vehicles the purchase is cheap, maintenance is cheap, and you don't have to worry about parking 2 miles from any other car because you're afraid it will get scratched or bumped.  When you're not spending your money maintaining a luxury vehicle - you have more discretionary income to use for things that matter...like your home, land, and other REAL investments.

Think of the few new or recent models of Lexus, Mercedes, BMWs, Audi, etc. (people seem to associate foreign vehicles with luxury for some reason) that you may see on any given highway and on any given day...then think of the all the other vehicles that could damage it.  The top 5 selling vehicles of all time are:
  1. Toyota Corolla
  2. Ford F-150 (F-series)
  3. Volkswagen Golf
  4. Volkswagen Beetle
  5. Ford Escort (discontinued)

Chances are - if you have a luxury vehicle - you will be getting hit, scraped, or bumped by one of these top 5 cars listed above.  Now why don't you just be smart and get a "common" vehicle?  Let's stop trying to "buy in" or lease a lifestyle and get things we can't afford.  The average millionaire next door drives a common vehicle...not a luxurious money pit.  So...What's in your driveway?


June 4, 2010

What's going on with the markets?

What’s going on with the markets?

As the market goes up and down, so does people’s retirement plans and 401k’s – with all of the so-called “experts” out there, not too many of them are getting good results (or as they call it, “finding alpha”) in this economic environment.  And there are a plethora of problems out there causing a fear factor and massive sell offs of equities and a rush to buy up treasuries, bonds, CDs, and other “safe” investments.  How do you protect your assets from the Euro debt crisis?  What about the on-going deficits and future tax burden of the US?  What’s the best strategy to invest your money?  There are some people making a ton of money out there…with this much volatility in the markets – hedge funds, day traders, and a few others should be having somewhat of a field day.

There are several alternatives to suggest – but my best suggestion would be to invest in companies that are paying dividends and then select another stock or investment vehicle to act as a hedge.  First let’s talk about the dividends…Yes I know this sounds old school – but anytime you can receive an extra buck it’s a good thing, right?  …Especially when that extra buck doesn’t require you to “clock in” to earn it.  There are several companies that have been paying dividends consistently that I like for my portfolio: BP, PWE, MO, and DTE to name a few. (Of course, depending on your tax bracket, the Obama administration is going to potentially tax this unearned revenue to help fund his new healthcare overhaul.)

Nevertheless, you can still have your money work hard for you by paying you dividends while you keep your day job for now.  The Federal Reserve is keeping interest rates artificially low in order to restore the economy – which means that the money in your savings account is not earning much interest at all (go ahead and check…you’ll see that I’m right).  Why is this?  Well – it’s because the government doesn’t want you to save right now…Uncle Sam wants you to spend!  When Americans spend – the economy rebounds because consumer spending is more than 60% of our GDP.

Therefore, if no one spends, then companies won’t make any money and inventory builds up, bank lending freezes over, and unemployment remains high.  So the Federal Reserve reacts by dropping interest rates, which means banks will pay us next to nothing to keep our money in savings… so consumers react by taking their money out of savings and most likely will invest their money in equities, or company stock.  Companies begin to see an increase in their bottom line due to the inflow of cash from consumers’ investment – which means it will hire more people to expand operations, or maybe acquire another company.

When more people have jobs – then we can assume the more people will spend – and the economy will rebound.  (This is only but one watered-down economic theory out of several different schools of thought.)

Anyway, what is hedging? And why would you hedge against your investments?  Whenever the market exudes such volatility and has extreme “DOWN” and “UP” swings, then you are going to want to protect your assets and practice “alternative” strategies.  A Hedge Fund is not an asset class – but merely a fund that uses different strategies that are applied to make sure an individual is able to profit in “DOWN” and “UP” markets!

To be brief and simple – whenever you buy a stock, you are going “long”, or expecting the market to go UP…on the contrary, if you’re expecting the market to go down then you would buy a “Put Option”.  A Put Option increases in value as the market goes down…plain and simple.  This is one a simple form of a hedge…it gets more complicated – but that is outside of my scope today.

 So, back to my previous stocks DTE, BP, PWE, and MO – if you owned these stocks and wanted a simple hedge – then buy Put Options for these stocks or any other stock that you may own for that matter.  A good hedging strategy is the best way to make a profit in these volatile markets.


June 1, 2010

Review & Outlook: The Union Pension Bailout - WSJ.com

The Union Pension Bailout

via Review & Outlook: The Union Pension Bailout - WSJ.com.

Here's an article from the Wall Street Journal about bailing out those who have pension funds...

OK - this is REALLY getting out of hand folks.  Something has got to be wrong here....will increased government intervention stifle innovation and growth here in America?  Let me know your thoughts.