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FIVE PILLARS OF AMERICA’S GREATNESS

admin — Tue, 06 Sep 2011 05:14:27 +0000

Sunday September 4, 2011: On Meet the Press, hosted by DAVID GREGORY, TOM FRIEDMAN, Wall Street Journal columnist, PAUL GIGOT, Historian and author, DORIS KEARNS, Political Strategist MARK MCKINNON, and Representative MAXINE WATERS sat down and had a very interesting discussion regarding where we are as a country, how we got here and how can we progress toward more positive times. I found the ideas and explanations regarding economic and political development in our country quite interesting, some controversial but for the most part intellectually stimulating. At least ideas expressed by those other than Maxine Waters. Poor Maxine, she is like a broken record voicing political hyperbola that plays well in the Black Caucus but in the real world is of little value other than to stimulate the cheers of her constituency, which is highly dependent upon government financial and political subsidies. Here is her position on how to get the economy growing:

REP. MAXINE WATERS: “Before we get to, before we get to the next level, we’ve got to recognize that there are big problems in this country. Foreclosures, the banks will not do loan modifications, and we have not come up with a program by which we can [keep] people in their homes. We need to be bold enough for the President to say to the bankers, “You come into this office Mr. Banker, we’re going to talk about how you are going to write down loan principal, how we’re going to keep people in these homes, how we’re going to make sure the interest rates are no more than 4 percent.” People want to hear the answers about how they’re going to have just a decent quality of life.” The President will bring a plan to create jobs this coming Thursday and we can only hope that it includes investment and increases in revenues by raising taxes on the rich. We have to invest more to get our people jobs not cut spending by $1.5 Trillion as proposed by the Special Committee of Twelve.”

Sure Maxine, let’s tax and spend more. Let’s have all the banks write down the unpaid face value on all their mortgage loans or other commercial paper on their balance sheets so that borrowers will have more money in their pocket to spend on some other need or want. Let’s continue to spend beyond our means. That will really stimulate growth and get the economy rolling again. But wait a minute, these loans were originally written to extend credit based upon the expectation that they would be repaid in full with an agreed amount of interest for the use of the money lent. Government mandates requiring lenders to write down balances or change the terms of interest is in effect a forced gift from lender to borrower and was in no way intended by the lender when they made an investment in your constituent’s dream of owning a home. Once we start going down that road, why would anyone enter into an agreement to invest their capital in a loan collateralized by an asset that in the event of a default, under your scenario, may not be taken by the lender to liquidate and recover their capital? That is how business is done. For a loan, the lender and borrower execute a note describing how and when the loan and interest thereon will be paid to the lender. If a borrower fails to perform in accord with the terms, they lose; harsh consequence? Sure, but without this process the people you say you are so concerned about would have no, zip, nada access to a loan enabling them to buy a home or any asset for that matter.

After these comments by Ms. Waters, the group got back to reality and began to exchange views on how we got here and where are we going as a nation. I liked the explanation given by Tom Friedman when he stated “America didn’t get to be a great country by accident. We had a formula for success that you could actually date back to Hamilton. It was five pillars: First: assure education for our people up to and beyond whatever the level of technology is, whether it’s the cotton gin, the super computer, or the internet; Second, immigration, attract the world’s most talented and energetic people. Third, infrastructure, have the world’s best infrastructure. Fourth, market capitalism, have the right rules in place for incentivizing capital formation and risk-taking and preventing recklessness. And last, government-funded research, put those together, stir, bake for 200 years, and you get the United States of America. Now, if you take all five of those pillars, and you look at the last decade, which we should call the “terrible twos”, possibly one of the worst, if not the worst decade in American history, what do we have? Education quality is declining; infrastructure is deteriorating; immigration policy is a disaster; rules for capital investing totally missed the subprime fiasco; government-funded research and development has become almost totally disoriented with deficit explosion.

So all five of our pillars of success have been weakening, maybe even beyond recovery. But if we are going to slow or stop this slide into becoming a second rate country, and that’s what we’ve got to be looking at, the president’s has got to be out there defending his policies as being consistent with rebuilding these pillars or changing them and providing the kind of leadership that reflects a private-government partnership to restore our foundation of greatness. If he elects to ignore what needs to be done, we can only pray that we have time to restore respect and confidence in the Government after the electorate votes to change direction in 2012. As frustrating as it is to have people in Congress like the Maxine Waters of the world, and as disappointing as it is to have a weak President, we can reverse the direction of our seeming socio-economic destiny in the coming election in 2012. Let’s hope we find the way up out of this dilema.

One Man’s Opinion- Bud Brewer

UNREALISTIC EXPECTATIONS

admin — Wed, 31 Aug 2011 05:12:14 +0000

August 30. 2011: The link below is to a video of a Frontline program billed as the “Madoff Affair”. While the crime of this man has been well covered since discovery about 4 years ago, and there have been several media stories describing his elaborate Ponzi scheme, I was struck by the comments of those individuals who gave this man, directly or indirectly, billions and billions of dollars to manage for them. But I was more surprised, nay shocked, that the fudiciary executives and trustees of institutions like Kentucky University, the Women’s Zionist Organization of America, Steven Spielberg’s Wunderkinder Foundation, the Lappin Foundation, the Stony Brook University Foundation, the Elie Wiesel Foundation and the James Harris Simons family foundation had done the same. The reason for my reaction was the words these people were using in interviews as they described their shock, surprise and disappointment when they were told that most if not all of their investment with Bernie was gone. Not one of them took personal responsibility for what had happened to them. They kept saying: “How could he have done this to me” or “What made him do it”, “he took our very last dime “. The individuals would go on to say “We have to sell our ocean front home in Palm Beach” or our membership in the Club, or our New York Apartment and it is all the fault of this horrible man!” Fault? Well I guess so, but I wonder, did these people ever take a business course or a class in economics when they were going to school? Did they really believe that an investment manager could produce returns of almost 2% per month even when the stock market was falling 20-30%? Wouldn’t you think that they might get a little suspicious that something didn’t look quite right when the returns showing on the monthly statements were always within a 1-2% spread from 19% per annum? The Dow Jones Industrial Averages and the Standard and Poor Stock Index were moving up and down as much as 25% in one or more years during this span of years but on average they rose smoothly from 1986 until 2000 when the Hi Tech bubble burst and the country fell into a recession with the GDP declining and the market in a swoon. Nevertheless Bernie Madoff Client statements showed that they were earning 19% per annum.

I guess if directly or indirectly you had turned over all or most of your wealth to a man who was a member of your church or your social club, was well respected by those who knew him , and who sent reports to you saying that you were earning almost 20% per annum on your money he was managing, unless you had a good understanding of how business works and how the financial markets work, you just might believe that he was a superstar and had a method that generated consistent results that were not only better than anyone else, but they never varied more than 1% or 2% per year. Why should you question them? Well you were not alone. Trustees and Fiduciary Executives responsible for billions of dollars in Foundations, or College Endowment funds were doing the same thing as you were, looking the other way believing that Madoff, the mystery man, was just a better money manager than anyone else. Well he didn’t and couldn’t produce the kind of returns that he was reporting to you and if you or those derelict executives and trustees had remembered anything they learned in courses in economics or business you and they would have realized that what allegedly was happening was impossible and therefore was not true.

Consciously or not, those that placed money with Bernie Madoff knew that they were participating in something that was not right, but the money was so good. The Manifestation of greed can make one deny reality even though they know intellectually that a proposition is not true. But when the truth was known these people denied responsibility for their decision to participate in the process and that is inexcusable.

Everyone should study and understand the simple physical and financial fundamentals of demand and supply relationships leading to transactions. They should learn the effects on business volume or operating profit margins caused by product or service obsolescence or change in behavior, technology or science and appreciate the consequences of such change. Realistic expectations for return on investment are based on the likelihood of whether a proposition can be experienced over and over with little if any interruption in the average trend projected. Finally, the simple arithmetic change in value created by compound growth at a rate higher than that necessary to replace the amount of a base that is consumed plus nominal cost of capital produces a parabolic curve that sooner or later must collapse of its own weight.

No, unrealistic returns are just that, unrealistic! And to expect them to continue reflects a flaw in the individual’s propriety, and an action for which responsibility is their own. Bernie Madoff wasn’t responsible for all these people or institutions losing billions! The responsibility was theirs and theirs alone.

When you have an hour to watch and listen to this video, do so. You will learn something that might just prevent you from beginning a business the success of which depends upon unrealistic expectations or prevent you from giving your hard earned savings to someone whose record is based on that same unrealistic rate. If you have children or grandchildren, insist that they take courses in business and market economics. By this blog I am following that advice for my family.

Bernie Madoff video

One Man’s Opinion- Bud Brewer

FROM BONDAGE TO BONDAGE

admin — Sat, 20 Aug 2011 21:26:42 +0000

August 20,2011: The dictionary says: “Democracy means rule of the people”. As most students of history know, the two most common forms of democracy are direct democracy and representative democracy. In direct democracy everyone takes part in making a decision, as in a town meeting or a referendum. The specific rules may vary: perhaps everyone must agree, perhaps they must be consensus; perhaps a mere majority is required to make a decision. The other, better known form of democracy is a representative democracy. People elect representatives to make decisions or laws. The United States of America is a representative democracy.

Alexander Tytler (1747-1813) was a Scottish-born English lawyer and historian. Reportedly, Tytler was critical of democracies, pointing to the history of democracies such as Athens and its flaws, cycles, and ultimate failures. Although the authenticity of his following quote is often disputed, the words have eerie relevance today: “A democracy is always temporary in nature; it simply cannot exist as a permanent form of government.” His reasoning was that a democracy will continue to exist up until the time voters discover they can vote themselves generous gifts from the public treasury. From that moment on, the majority always votes for the candidates who promise the most benefits from the public treasury, with the result that every democracy will finally collapse due to loose fiscal policy. Some believe that a failed democracy is always followed by dictatorship.

The average age of the world’s greatest civilizations from the beginning of history has been about 200 years. The Pilgrims sailed to America in an attempt to escape the religious bondage of a King to achieve the spiritual freedom of a new world. With the onset of the Revolutionary War, the colonists were demonstrating the courage necessary to move from spiritual freedom to liberty. By demanding their independence and being willing to fight for it, a new democracy was born and this new democracy grew rapidly for nearly 200 years.

But during that period, in 1933, the United States of America, having been thrown into the Great Depression, elected Franklin Delano Roosevelt as president. Facing total economic collapse, Roosevelt took the U.S. dollar off the gold standard. At the same time, Germany, also in financial crisis, elected Adolf Hitler as its leader. World War II soon followed. In 1944, with WWII coming to an end, the Bretton Woods Agreement was signed by the world powers and the U.S. dollar, once again backed by gold, became the reserve currency of the world. After the war, America passed England, France, and Germany to become the new world power and our wartime industries turned to rebuilding the war torn countries of Europe and Japan. Having entered the war late, the U.S. emerged as the creditor nation to the world. Our factories weren’t bombed and the world owed us money. The U.S. grew rich financing the rebuilding of England, France, Germany, Italy, and Japan. The American democracy was transitioning from a period dominated by its willingness to sacrifice to sustain its focus on liberty to a period when it was becoming blessed with abundance — maybe too much abundance.

In 1972 Nixon visited China to open the door for trade. What followed was the biggest economic boom in history — a boom fueled by the United States borrowing money through the sale of bonds to its citizens, its institutions, and it’s trading partners, especially China, one of the world’s poorest countries at that time. The sale of these bonds financed a growing U.S. trade deficit. Developing countries like China produced low-cost goods, and we paid for them with money borrowed from the savings of the Chinese workers. American factory production, which had fueled the American boom after WWII, was in effect being “shipped” overseas along with high-paying, if inflated, American jobs. America was shifting from abundance to complacency. Rather than produce, we borrowed and printed money to maintain our standard of living. We kept borrowing to finance social-welfare programs. Over the next three decades or so, America slid from complacency to apathy.

In 2007 the subprime crisis reared its ugly head. By 2010, unemployment increased to double-digits, and the disparity between the haves and have not’s widened. Many high income earners got richer while many once-affluent people walked away from homes they could no longer afford. America was moving from a period of apathy to dependence.

Today we are dependent primarily upon China and other developing countries to finance our debt as well as fill our stores with low cost products. At the same time, millions of Americans are becoming dependent upon the government to take care of them. From inflation adjusted Social Security benefits to Medicare, to payments to the unemployed, to student loans, to Veteran and disability benefits, if Tytler’s projection is correct, the American representative democracy is presently moving from dependency back to bondage.

Although you will hear many people complain about the way the Chinese do business, we all continue to do business in China. We have to. They’re the next world power. Realists cautiously believe that trade, business, and understanding offer better options for world peace and prosperity than isolationism. The Western world must seek to grow stronger financially as China continues to gain power. To do this, our schools need to offer more sophisticated financial education to children of all ages. This is not the time to be complacent or apathetic. This is the time to think globally. Putting up trade barriers would be disastrous. Instead, it’s time our schools train students to be entrepreneurs who export to the world rather than employees looking for jobs that are being exported to low-wage countries. I don’t fear the Chinese. I fear a government that is self-serving and increasingly restrictive of our freedoms. If we fear anything we should be in fear of our own growing weakness. Only a weak people can be oppressed. Today, America has too many people looking to the government for financial salvation.

Americans may one day need to flee the financial oppression of our own government as our constitutional values become less respected by our representatives. From “Bondage to Bondage“, this is a real possibility unless: “We the People of the United States of America, in order to form a more perfect ……..

One Man’s Opinion: Bud Brewer

THE US GOVERNMENT SHOULD BE SPENDING MORE NOT LESS?

admin — Tue, 26 Jul 2011 05:43:12 +0000

July 25, 2011: According to Robert Reich, an Economics Professor at the University of California, “the U.S. should be spending more money and not cutting its outflows to get the economy going again.” He compares today with the period following the Great Depression when America spent huge amounts of money financing World War II and the 100% mobilization of its people toward victory. Thus, he says, “we emerged from this period with rising employment, and a dynamic economy. We should be doing the same thing today not cutting spending.”

I believe some of what he says is true but like so many who express Liberal thought, comparing today to the period following the “Great Depression” when the massive government spending during World War II pulled America back to full employment and economic growth, there was a single and common purpose for every individual– winning the war! There was no discretionary consumer market driving employment. There was only one principal source of capital-U.S. Treasury using borrowed funds from its citizens, War bonds, Savings bonds, etc. The GDP was made up mostly of materials for war and the labor costs were a small fraction of those costs. What really turned our economy around happened after the war when the Marshall Plan (a real government investment) was put into effect creating a decade of substantial foreign demand for goods and services America supplied utilizing the knowledge and skill of humans anxious to rebuild their private lives. This plan was initiated at the same time as America was converting its massive manufacturing plants and trained labor back to peace driven economy. The pent up demand by its citizens and those in Europe having buying power from savings built up during the war created a huge consumer demand for the new technologies, automobiles and housing following 5-7 years of austere living standards forced by the war.

The U.S. Government did create useful institutions to provide guarantees backing up loans made by banks and private mortgage companies to finance home purchases. The GI Bill was a modest program ($90 per month) for helping veterans get an education was constructive toward further long term growth of our economy. But there is no real comparison of that period with today’s world. In this Global economy, funding massive excessive entitlements to those who would otherwise have to be dependent upon their personal responsibility or that of their family is helping to bankrupt the Country and Government has not only become too big it is terribly inefficient and wasteful. Corporate managements are confused and uncertain of what this government is going to do next to constrain their otherwise normal aspirations to grow their companies. The unknown costs of Obama’s healthcare and consumer protection legislation is making them defensive. It isn’t lack of demand for their product that is causing them not to increase employment and expand operations. Many corporations are showing record revenues. With foreign markets surging ahead in less regulated environments, they can focus their expansion by investing in those emerging countries. Their ability to produce the same or a higher level of domestic production with fewer employers is due to the technology that has been developed in recent years and is contributing to lower employment yet higher productivity.

The real bugaboo in the domestic economy is the real estate market and its affect upon new home construction industry, a large employer of middle and lower skilled labor. All this, is the consequence of a Real Estate speculative bubble caused by both government and the financial mortgage industries responding to unrealistic expectations of individual home buyers. This housing industry will have to find its base before that part of our economy gets back on a “new Normal” path and the building trades start hiring again. No matter how much you throw at the housing market, it will not stick until the Market clears.
Government spending more and more in excess of its revenue is exacerbating the problem. We are in for a very difficult time. Hopefully President Obama and his advisors like Professor Reich will be retired next year from influencing the path to our eventual recovery.

One Man’s Opinion-Bud Brewer

TAKING TO THE STREETS

admin — Mon, 21 Feb 2011 07:54:40 +0000

>February 21,2011:Watching the demonstrations on TV that are taking place in many of the Mideast nations, I am beginning to wonder if we might experience something similar here in America when and as our citizens finally give up on the hope that President Obama and or Congress will face up to the consequences developing in our economy as a result of the “800 pound Gorilla in the room” called our Annual Budget Deficit and the National Debt. I have been having some sleepless nights trying to answer the question “what is the best investment policy for preserving wealth when the currency in which our assets are denominated is being purposely devalued by Mr. Bernanke, Chairman of the Federal Reserve Bank?” Some say just sell your stocks and bonds and buy Gold. Perhaps that would work but somehow I have trouble visualizing my Barber accepting a splinter off a Gold bar I would have to carry around and where would I put it? The Gold bugs are enjoying some increase in value but how do they pay the mortgage with it.

America owes individuals, corporate investors, and sovereign funds over $14 Trillion dollars. This year the Budget deficit will amount something near $1.6 Trillion requiring Congress to increase the Federal debt limit. The interest paid on this Treasury debt is currently over $900 Billion per year and if interest rates rise even just a point or two, that annual burden could increase by 50% or more. But that isn’t the whole problem. The unfunded liabilities of the U. S. Government are approaching $100 Trillion and to date, neither the Democrat nor Republican members of Congress are demonstrating the courage to do anything about it except talk and accuse the other of being disingenuous. If I hear one more Democrat Senator make a speech about how the Budget was in surplus at the end of the Clinton Administration, I think I will throw up. It may be debatable whether or not the Bush Tax cuts helped our economy recover from the trauma of watching two commercial air planes being flown into the World Trade Center Towers and then watch as those two unique stuctures come crashing to the ground trapping over 3000 people, but I think the economy needed a shot in the arm and this certainly did give it that. The terrorist attacks on 9/11, and the sharp declines of the high tech growth stocks early 2001, had taken the wind out of our economic sails and prompted heavy selling of stocks. We needed something done to reassure our small business people as well as large American corporations that we were ok and the world was not falling into another deep economic decline. People were looking toward the Government to do something, almost anything to get the economy going again and at the same time to launch a military response upon those thought to have caused or enabled this terrible tragedy. It was a genuine effort to cope with what was thought by many to be of such dangerous potential that it is hard to judge the Bush Administration’s acts in a negative way other than by 20-20 hindsight. It is a fact that even after the tax rates were reduced, tax revenues actually rose over the next 5 years. But with expanded military operations and the huge Medicare drug plan D llegislation, they were swallowed up by all of that increase in spending. Thus continued the growth of funding new departments in the government all the while without any defined means for paying for this large ratcheting up of our military and the government bureaucracy. The scene was set for the potential collapse of the Global financial system, rising unemployment, major bank failures, corporate bankrupcies and some doubts about the future of capitalism. To the rescue came Obamanomics, corporate bailouts, a mammoth health care bill, stepped up financial services regulation and unbridled social spending leading to deficits sharply accelerating during the first two years of the Obama Presidency. Now we have deficits growing as far as the eye can see.

The story of the global financial system imploding has been well covered so I will not take more time to write about the cause and effect here. But I will say that the Obama Administration apparently did not understand or just didn’t care about what was needed to jump start the economy and get government revenues moving up again as the economy recovered. Thus on the one hand they sharply expanded the role of government by inserting more and more direct and indirect restrictions and mandates upon the private sector that deterred economic expansion and hoped for increases in tax revenue and at the same time passed legislation adding huge amounts of spending thus severely increasing the budget deficit.

So how do we solve this dilemma? Well the midterm elections took the control of the purse away from Obama and the Democrats. With a solid majority in the House of Representatives, the Republicans are going to have to come up with a solution or at least an effort to reverse some of the spending legislation passed by the Democrats (probably not too feasible due to potential Presidential veto) or they are going to have to face up to the fact that we are headed toward the monetary and fiscal destruction of the Dollar and the American way of life.

A small slice of what we may see over the next two years as State Governments try to cope with a history of excessive promises to their public employees and financial engineering of the funding of their state’s expenses is taking place in the State of Wisconsin. That State’s governor and conservative legislators are attempting to pass changes in law requiring public employees to give up collective bargaining, and pay more for their health care along with making greater contributions to their retirement plans. Following the announcement of this plan, the Democrats in the legislature left the State so there could be no quorum for a vote on these proposals and worse yet the public employees, schools teachers and many school children have played hooky and marched upon the Capitol building to join the public employee union’s call for demonstrations.

If this body of disgruntled individuals facing the possibility of having to earn compensation based on individual skill rather than group standards, pay the same as the private sector pays for health care and contributes only half of what the private sector employee pays into their own pension or 401k program, will cause this kind of riot in the streets here in America, what will happen when Congress tries to reduce Medicare, Medicaid and Social Security benefits?

One solution that is apparently being tested is the monetizing of the debt by the Open Market Committee of the Federal Reserve. Just print more money. $500 Billion here or $600 billion there will hardly be noticed, right? Besides, this Keynesian approach in the short term may give a kick to the economy by just increasing the money supply and its multiplyer making it seem like we are better off that we thought. Hmmm?

This is what keeps me awake at night. It is a bit frightening to think about our National debt rising $1.5 Trillion per year or more over the next decade. Some forecasters say our GDP should grow 2-4% per annum over the same period and that computes to a GDP figure of $16-17 Trillion by 2020. But with the deficit adding to the debt at $1.5 Trillion per year, our national debt would be $28-30 Trillion by 2020 or almost twice the GDP. By that time our creditors would be thinking of us as a “Banana Republic and refuse to lend us money at the current rates of 4-5% per annum. If they loaned us money at all it would probably cost 8-10% interest and we would be paying $2-3 Trillion in interest alone or 15% of our entire GDP and 60% of tax revenue. Folks, this doesn’t compute. We are headed toward insolvency if our President and political representatives fail to act now.

One Man’s Opinion- Bud Brewer

Demonizing the Messenger

admin — Wed, 12 Jan 2011 00:10:07 +0000

January 11, 2011: Some nights I find it hard to fall asleep, so I often tune in to MSNBC to listen to the ravings of Ed Schultz, Chris Mathews, Rachel Maddow or Keith Oberman. Its not that one really learns anything from what they say, but it is amusing to watch them say it. Each of these TV Analysts presents a hard view of why Republicans or any conservative is off their rocker. Last evening, Chris Mathews interviewed three Liberals, among them was the 3rd ranking House Democrat from South Carolina, James Clyburn, and Tucson Sherriff, Clarence Dupnik and a good Samaritan who was at the scene of the rampage in Tucson Arizona at which Congresswoman Gabrielle Giffords was shot. The tenor of Chris’s view was that the right wing nuts in the Tea Party were a threat to peaceful assembly because the rhetoric of those like Gen Beck, Rush Limbaugh and Sarah Palin was influencing innocent young people to act in a crazed manner. Sherriff Dupnik added that in his opinion, “The kind of rhetoric that flows from people like Rush Limbaugh, is irresponsible, uses partial information, and sometimes wrong information. He attacks people, angers them against government, angers them against elected officials and that kind of behavior in my opinion is not without consequences.” Dupnik added ” Sarah Palin’s political action committee posted an online map, locating 20 vulnerable House Democrats who voted for the health care overhaul. Each district, including that of Congresswoman Giffords, was denoted with a crosshairs symbol. That’s the kind of rhetoric that led to this tragedy an is just downright irresponsible.”

Chris Mathews brought up the Martin Luther King’s assassination as a similarly motivated act and as an example of what negative and vicious political rhetoric does. His guests all lamented that the cause and effect of such negative political speak led directly to the shooting of Martin Luther King.

If I were to guess, I would estimate that only the liberal media would be in agreement regarding their claim that “frontier rhetoric” created a cause and effect that was the basis for the attack on Congresswoman Giffords. As serious and tragic this act was, reasonable minds will judge that there is really little basis for concluding that there is a direct connection between what people say when expressing their feelings about a politician or a political issue and an act of terror by some maniac. Investigators have yet to determine what motivated 22-year-old Jared Lee Loughner, described by some as appearing to be mentally unstable, to allegedly open fire on the crowd outside the Tucson Safeway. Many students and teachers have reported that Loughner behaved bizarrely in his community college classes, some even going to school officials in fear of their safety.

Clarence Dupnik claimed that teachers and fellow students were physically afraid of him,” Dupnik said. “He was acting in very weird fashion to the point where they had several incidents with him to the point where law enforcement at Pima College got involved and they decided to expel him. And they did.”

So Chris and his guests believe all it takes to turn this social misfit into a mass murderer is for Sarah Palin to write an entry on her facebook page that uses a frontier term like “crosshairs” or Rush Limbaugh to complain that the Democrats in Congress are spending too much or Glen Beck to warn listeners that President Obama’s closest advisors have histories of socialistic behavior, to turn a deranged kid into a gun toting wild man, shooting everyone in sight.

If that is all it takes to stimulate and direct human behavior, I’d say the entire Congress, the Administration and anyone in government better crawl in a hole because there are thousands of mentally deficient people walking the streets today who would be subject to influence of political handlers to carry out some devious purpose.

As terrible as this last week’s occurrence was, it had little connection with what political speak the leaders of the Tea Party have voiced, nor was it a consequence of Rush Limbaugh or Glen Beck’s commentaries. It was simply a deranged mind who having concluded that Ms. Giffords was a danger to his demented sick world, was motivated to carry out what must be described as a tragic but unexplainable act.

One Man’s Opinion- Bud Brewer.

SOME BURNING QUESTIONS

admin — Sun, 11 Jul 2010 18:56:25 +0000

Here are several investment related questions that burn in my mind every day, I would love to develop conviction regarding the answer to one or more of them:

1. Is it possible to have the sovereign debt of the United States continue to grow relative to the current or even prospective GDP of our economy without eventually having to pay higher and higher interest rates on its re-funding?

2. Are the actions of the Federal Reserve (or inaction) likely to result in a devaluation of the U.S. Dollar and cause prices to rise faster than any increased productivity in labor’s output generated as a result of managerial action or improved technology?

3. Some respected money managers predict that the U.S. and other developed economies are moving into what they call a “New Normal”. When asked what does that mean they respond: slower growth rates in domestic industrial production and even a greater shift of emphasis to services requiring intellectual as opposed to physical skills. Asked to give an average growth rate for normal, their response is 1-2% per annum. Can the U.S. maintain its contracted entitlements and pay interest and principal on the projected debt they will cause with this growth rate?

4. We are in a massive rationalization of individual and corporate balance sheets, primarily due to continuing real estate devaluation. At the same time the chaos in Europe and fears elsewhere in the world are contributing to inflows supporting demand for the U.S. Dollar and pushing the U.S. Treasury security bubble ever upward. This apparent circumstance is contributing to the Fed’s ability to keep its low interest rate policies in place without increasing its security purchases. Question, is the risk of this reversing such that interest rates could explode if and when management and individuals decide to invest their huge cash horde?

5. How can we invest comfortably in China, Southeast Asia and Eastern Europe, the emerging and dynamic growth areas, with some degree of confidence that these countries are protecting investor rights and assuring transparency in shareholder financial information?

6. The basic question I think about is: “How do we protect the purchasing power of our wealth without losing reasonable,or at least comfortable, levels of liquidity and convertibility?” I have written on the subject of Gold, but are the other investment vehicles, stocks, bonds, notes, CD’s, Money Market Funds, Commodity ETF, Foreign Currency, Real Estate, Annuities, etc.,more likely to preserve wealth? I don’t know! But I feel less uncomfortable with one or the other and so I have tried to diversify among those with good marketability and liquidity until I am able to develop greater conviction for just where we are going.

7. Of course here is the most important question: “Are Obama, Reid, and Pelosi leading this country down the path of becoming more of a social egalitarian society at the expense of its freedoms and individual’s liberty? I think you know my opinion on that. What bothers me the most about it is that there doesn’t appear to be a real leader in the conservative camp who is strong enough to turn those misguided beneficiaries of redistribution around in their understanding and conviction of which system is best for them in the long run- Free market capitalism (with all its potential exploitive risks) requiring individual responsibilities or a state controlled, highly regulated beauracratic social capitalist system with its loss of freedom and liberty to pursue and benefit from individual aspirations.

These questions keep me awake at night (or rising early in the morning) and motivate my watching and learning from “Squawk Box”.

One Man’s Opinion–Bud Brewer

Buying at Discount “The Short Sale”

admin — Thu, 03 Jun 2010 20:48:04 +0000

June 3,2010: Good investment strategies always call for some cash reserves. In todays real estate markets, those who have cash reserves and are willing to take some unusual risk, the “short sale” offerings in more modest priced neighborhoods could make it possible for those who are looking to buy a home to live in or for investment to make a good relative value purchase. A short sale is a real estate transaction in which the price for a property is below the total amount of morgage loans that exist on it. It is a process by which the lender takes control of the property in cooperation with the legal owner to sell it, usuallly well below the value of the mortgage(s). In some regions, short sales are by far the majority of transactions that are being done in the current real estate market. This is much like 1994-5 when it was common to find properties “under water” due to the recession and the fact that many homeowners had loans taken out during the super high interest period of the early “Eighties”. One case in point was Budor’s purchase of a condominium in Newport Beach in 1995. The property was purchased on a “short sale” for $435k using a personal guaranteed $180k mortgage loan. The existing loans on the Condo totaled $575k so the property must have cost the prior owner $650k or thereabouts. After a $100k remodel and 12 years of net lease income of $24,000+ per year Budor sold the property for $1.3M at the peak of the bubble. Of course we didn’t know it was the top but the demand for Newport real estate was causing some pretty high prices so we elected to take advantage of it. The result was that Budor experienced a solid return on equity over the eleven years of ownership. The key was that the property fit the location, location, location pre-requisite and was purchased for a reasonable replacement cost or 60% of its last sale price. When this criteria fits a real estate property (or stock prices for that matter), it is always worth while having some cash reserve in order to be able to take advantage of any investment selling at a distressed price or where the current fair market value has strayed significantly away from its mean price trend. You want to stick your toe in the water when someone is forced to take big discounts on what they want to sell. In this market nobody is anxious to buy because they are not confident where this Administration is leading the economy. There is plenty to be concerned about regarding the future consequences from fiscal policies of this government, but mortgage rates are artificially low and if the offering prices of a property fit the rental value providing 6-8% cash flow on market value then with a 50% mortgage (reasonable but conservative leverage) an investor could expect to experience an annual cash return of 8-10% on equity even after property taxes and Association fees if any. I wouldn’t speculate that we will have sharp price appreciation soon especially given the probability of high debt caused inflation or currency devaluation in the foreseeable future. Housing prices may even go down in the future discounting higher interest rates, but rental values should hold pretty well, notwithstanding.

Applying the same point of view to the stock market

As I said, the same potential risk investment in stocks would be to buy British Petroleum on the theory that even after paying all the adjudicated damages for the oil spill, the residual value of BP would be worth more than the current market price. Prior to the spill, BP was priced at $60 per share paying a dividend of $3.36 for a cash yield of slightly over 5%. The company has 3.6 billion shares and earned $38.7 Billion EBIDTA in 2009. It currently is $36-7 per share and the decline since April is over $75 billion in market value. That is a pretty big loss in anticipation of damages, law suit awards, clean ups costs, etc. Last year, the company had $265 Billion revenue and a book value per share of $33.00. Now if you believe that the cost and damages attributed to the spill will severely hamper the company’s future profits of $38 billion from producing, refining and distributing oil and oil products, then the company may see its stock price continue to erode, but given their cash position of $6.8 billion, it is hard to conclude that the ability of this company to survive and recover isn’t more likely than not. I think, although clearly a risk given the politics operating, this company will not only recover but in several years will be benefitting from higher oil prices and, strangely, benefitting also from the likely restriction upon deep water drilling by our all knowing government since it will cause the company to stop exploration in this area which is currently causing negative cash flow to the company. BP is doing deep water drilling now even though they are losing money with the oil price at $70 per barrel. Like all oil companies that are successful, they continue a business plan expecting the trend for oil prices to increase to levels where current investment in deep water exploration will enable profitable production in the future.

The risks are that our populace government policies cause Congress to enact higher corporate tax rates, penalty taxes, and some sort of insurance reserve charge or fees for potential spills on all future oil revenue. Our government and most consumers don’t like the oil companies anyway so they may support some pretty drastic(stupid) legislation regarding them especially since the average person thinks oil companies profits are obscene. All these negative risks still don’t seem to justify the severe decline in the price of British Petroleum. But what do I know “I’m only the 200 pound gorilla in the room.

One Man’s Opinion -Bud Brewer

America Faces a New Culture War

admin — Thu, 27 May 2010 22:08:03 +0000

I read an article by Arthur C. Brooks in the Washington Post, Sunday, May 23, 2010 and thought the words so profound and illustrative of my personal fears for the future, I wanted to have them read by every reader of this blog. America is facing a new type culture proposed by a minority of its citizens. This narrative is long but every word is important.

“This is not the culture war of the 1990s. It is not a fight over guns, gays or abortion. Those old battles have been eclipsed by a new struggle between two competing visions of the country’s future. In one, America will continue to be an exceptional nation organized around the principles of free enterprise — limited government, a reliance on entrepreneurship and rewards determined by market forces. In the other, America will move toward European-style statism grounded in expanding bureaucracies, a managed economy and large-scale income redistribution. These visions are not reconcilable. We must choose.

It is not at all clear which side will prevail. The forces of big government are entrenched and enjoy the full arsenal of the administration’s money and influence. Our leaders in Washington, aided by the unprecedented economic crisis of recent years and the panic it induced, have seized the moment to introduce breathtaking expansions of state power in huge swaths of the economy, from the health-care takeover to the financial regulatory bill that the Senate approved on May 20th. If these forces continue to prevail, America will cease to be a free enterprise nation.

I call this a culture war because free enterprise has been integral to American culture from the beginning, and it still lies at the core of our history and character. “A wise and frugal government,” Thomas Jefferson declared in his first inaugural address in 1801, “which shall restrain men from injuring one another, shall leave them otherwise free to regulate their own pursuits of industry and improvement, and shall not take from the mouth of labor the bread it has earned. This is the sum of good government.” He later warned: “To take from one, because it is thought that his own industry and that of his fathers has acquired too much, in order to spare to others, who, or whose fathers, have not exercised equal industry and skill, is to violate arbitrarily the first principle of association, the guarantee to every one of a free exercise of his industry and the fruits acquired by it.” In other words, beware government’s economic control, and “woe betide” the redistributors.

Now, as then, entrepreneurship can flourish only in a culture where individuals are willing to innovate and exert leadership; where people enjoy the rewards and face the consequences of their decisions; and where we can gamble the security of the status quo for a chance of future success. Yet, in his commencement address at Arizona State University on May 13, 2009, President Obama warned against precisely such impulses: “You’re taught to chase after all the usual brass rings; you try to be on this “who’s who” list or that Top 100 list; you chase after the big money and you figure out how big your corner office is; you worry about whether you have a fancy enough title or a fancy enough car. That’s the message that’s sent each and every day, or has been in our culture for far too long — that through material possessions, through a ruthless competition pursued only on your own behalf — that’s how you will measure success.” Such ambition, he cautioned, “may lead you to compromise your values and your principles.” I appreciate the sentiment that money does not buy happiness. But for the president of the United States to actively warn young adults away from economic ambition is remarkable. And he makes clear that he seeks to change our culture.

The irony is that, by wide margins, Americans support free enterprise. A Gallup poll in January found that 86 percent of Americans have a positive image of “free enterprise,” with only 10 percent viewing it negatively. Similarly, in March 2009, the Pew Research Center asked individuals from a broad range of demographic groups: “Generally, do you think people are better off in a free-market economy, even though there may be severe ups and downs from time to time, or don’t you think so?” Almost 70 percent of respondents agreed that they are better off in a free-market economy, while only 20 percent disagreed. In fact, no matter how the issue is posed, not more than 30 percent of Americans say they believe we would fare better without free markets at the core of our system. When it comes to support for free enterprise, we are essentially a 70-30 nation.

So here’s a puzzle: If we love free enterprise so much, why are the 30 percent who want to change that culture in charge? It’s not simply because of the election of Obama. As much as Republicans may dislike hearing it, statism had effectively taken hold in Washington long before that. The George W. Bush administration began the huge Wall Street and Detroit bailouts, and for years before the economic crisis, the GOP talked about free enterprise while simultaneously expanding the government with borrowed money and increasing the percentage of citizens with no income tax liability. The 30 percent coalition did not start governing this country with the advent of Obama, Nancy Pelosi and Harry Reid. It has been in charge for years. But the real tipping point was the financial crisis, which began in 2008.

The meltdown presented a golden opportunity for the 30 percent coalition to attack free enterprise openly and remake America in its own image. While Republicans had no convincing explanation for the crisis, seemed responsible for it and had no obvious plans to fix it, the statists offered a full and compelling narrative. Ordinary Americans were not to blame for the financial collapse, nor was government. The real culprits were Wall Street and the Bush administration, which had gutted the regulatory system that was supposed to keep banks in line. The solution was obvious: Vote for a new order to expand the powers of government to rein in the dangerous excesses of capitalism.

It was a convincing story. For a lot of panicky Americans, the prospect of a paternalistic government rescuing the nation from crisis seemed appealing as stock markets and home prices spiraled downward. According to this narrative, government was at fault in just one way: It wasn’t big enough. If only there had been more regulators watching the banks more closely, the case went, the economy wouldn’t have collapsed. Yet in truth, it was government housing policy that was at the root of the crisis. Moreover, the financial sector — where the crisis began and where it has had the most serious impact — is already one of the most regulated parts of our economy. The chaos happened despite an extensive, intrusive regulatory framework, not because such a framework didn’t exist. More government — including a super-empowered Federal Reserve, a consumer protection watchdog and greater state powers to wind down financial firms and police market risks — does not mean we will be safe. On the contrary, such changes would give us a false sense of security, especially when Washington, a primary culprit in the crisis, is creating and implementing the new rules.

The statist narrative also held that only massive deficit spending could restore economic growth. “If nothing is done, this recession could linger for years,” Obama warned a few days before taking office. “Only government can provide the short-term boost necessary to lift us from a recession this deep and severe. Only government can break the cycle that is crippling our economy.” This proposition is as expensive as it is false. Recessions can and do end without the kind of stimulus we experienced, and attempts to shore up the economy with huge public spending often do little to improve matters and instead chain future generations with debt. In fact, all the evidence so far tells us that the current $787 billion stimulus package has overpromised and under delivered, especially when it comes to creating jobs.

If we reject the administration’s narrative, the 70-30 nation will remain strong. If we accept it, and base our nation’s policies on it, we will be well on our way to a European-style social democracy. Punitive taxes and regulations will make it harder to be an entrepreneur, and the rewards of success will be expropriated for the sake of greater income equality. The new statism in America, made possible by years of drift and accelerated by the panic over the economic crisis, threatens to make us permanently poorer. But that is not the greatest danger. The real risk is that in the new culture war, we will forsake the third unalienable right set out in our Declaration of Independence: the pursuit of happiness.

Free enterprise brings happiness; redistribution does not. The reason is that only free enterprise brings earned success. Earned success involves the ability to create value honestly — not by inheriting a fortune, not by picking up a welfare check. It doesn’t mean making money in and of itself. Earned success is the creation of value in our lives or in the lives of others. Earned success is the stuff of entrepreneurs who seek value through innovation, hard work and passion. Earned success is what parents feel when their children do wonderful things, what social innovators feel when they change lives, what artists feel when they create something of beauty.

Print this out or save it to permanent files. When you begin to think that a Government managed economy is not too bad, take it out and read it again!

One Man’s Opinion-Bud Brewer