BUD BREWER
One Man's Opinion
CHALLENGING THE FIRST AMENDMENT
Distorted Economic and Political Principles
The Calculus of Economic Armegedon
April 17,2011: On today’s Meet the Press program, after interviewing Treasury Secretary Tim Geithner, the Host, David Gregory, led a general discussion among five people including Alan Greenspan, and four others, most of whom really didn’t have an original or rational thought nor I suspect really understand how the economy works.
But I was struck by what Alan Greenspan had to say about the current fiscal crisis and what if any effect the Bernanke Monetary policy was having upon economic recovery, and the ability of the American Economic System to fund the projected level of its treasured entitlements.
The Treasury Secretary had said, referring to private economists, he thinks that unemployment could get to 8 percent or below by the end of 2012 which even at that level seems to be persistently high rate of unemployment. But Gregory stated that “even with this number of people out of work, look at the performance of the stock market while President Obama’s been President. The Dow Jones Index is up from 7949 in 2009 to over 12,000. And as you, Doctor Greenspan, always say on this program, that’s real money, that’s real wealth, and yet we have persistently high unemployment. What is your view? What is the outlook you’re seeing?”
Greenspan said that “the main reason that the stock market and assets in general came off their low in March of 2009 was that productivity improved very dramatically in the business sector. That meant that earnings and cash flow would be engendered in a very substantial amount, which pushed stock prices up to an extent that coupled with their increased contributions, 401(k) s added a trillion dollars to the actual net worth of the individual households that owned them. And they are very big spenders, and that has been a very big factor in keeping the economy going up.”
When asked, when will these companies start spending their cash and creating jobs, Greenspan responded, “The problem basically is that there was a contradiction in those who say that you want one and not the other. What is happening now is that we are beginning to see that productivity growth flatten out, and that is where all those jobs are coming from recently. Increasing productivity, by definition means you are producing more goods with lesser employees. And so that, if you’re asking me where’s the unemployment rate going to be, I would say it’s going to depend on two things. One, there’s a lot of headwinds that are hitting the economy now and slowing it down, and we are in a soft patch. In all likelihood, we will recover out of that. But what I find bothersome is that profit margins are now beginning to tilt downward, and unless we get the momentum that occurs when cash flows are rising and stock prices and equity values are moving on the economy as a whole, we’re going to have some tough problems ahead.”
Gregory asked: “Do you worry about inflation? Do you worry about the Federal Reserve? There is a lot of criticism going around that the Fed is doing too much to prop up the economy, too much money floating around in the system. Inflation or higher interest rates, what do you see?” Greenspan responded, “I think they are fully aware of the fact that they are going to have to withdraw almost all of that excess liquidity to get a stable system going. At the moment, I don’t think it’s had very much of an effect on the economy. I think it’s bloated the balance sheet of the Federal Reserve and bloated the balance sheets of commercial banks that hold deposits at the Federal Reserve. But there is no real evidence yet that those monies are going out and circulating in the economy and being a driving force there”.
Gregory asked, “Dr Greenspan, this budget debate that we’re talking about, what’s realistic in an election year framework? Being serious about Medicare or entitlements? Tax reform? What do you think is possible? Greenspan replied: “You are asking me a political question.” Gregory said “right, but I like to put you on the spot like that.”
Now here is the most important thing Dr. Greenspan said and I am stunned that no one in the media seemed to be picking up on it so far. He said:
“As I watch what’s going on, we have to remember that over the next 10 years or so we’re going to find that the baby boom generation, highly skilled, highly educated, is going to fade from the scene. It’s going to be replaced by a slightly smaller sized generation who are now in school and creating grades which don’t make us look very good in the international spectrum. This means that we are probably dealing with an economy which isn’t going to grow fast enough or create much real resources to fund the entitlement programs that we have already put in place. I don’t consider the issue of cutting back entitlement spending as essentially something which is new. I don’t think we could afford them in the first place. We’re really canceling something which didn’t exist. I believe the Bush tax cuts should be allowed to expire for all taxpayers not just those upper income earners.”
I believe that Greenspan has the most credible reputation of any economist that has dared to say by implication that the Entitlement Program Society promoted by our politically motivated government representatives and supported by a large segment of our citizens is threatening the future wellbeing of all Americans. The system must be changed. Even then, this government may have to reform the tax system so much in order to make it more “simple and fair” (Meaning the wealthy pay World War II rates) that it will introduce the consequences of the Laffer Curve on the actual gross tax receipts it generates. If it doesn’t deal with the bloated Defense Department spending and this President’s unfathomable Foreign Policy along with projected liabilities of the entitlement programs of Medicare, Medicaid, Social Security and others including the new Obama Health Care program, the National debt burden will take an ever increasing portion of those tax receipts thus reducing funding of other desirable and necessary government services. The political pressure to raise more tax revenue will, according the IMF, begin to have a negative effect upon the recovery of the economy thus as Dr. Laffer opines, push net tax revenue even lower. It is just a fact that unless we do this, our Federal Budget will continue to grow by trillion dollar deficits for the foreseeable future and that will put measurable pressure upon the U. S. Dollar based standard of living that has been so beneficial to the American Culture for the better part of the last century.
One Man’s Opinion-Bud Brewer
THE PHILOSOPHY OF BUDGETING
April 13, 2011: No individual family can expect to remain solvent unless they develop a plan to allocate the income available to them over a variety of expected obligations they incur to maintain their life style. Typical needs are food and shelter, transportation, clothing, education, etc. A corporation has the same obligation, a financial plan to disburse its revenue over an array of expenditures like payroll, marketing, general overhead, etc. When individuals or companies make a judgment (correctly perceived or not) that they need to have a bigger house or bigger car or the corporation decides to acquire another company or move into larger facilities, they have to find a means to finance their higher expenses. To obtain the capital necessary to pay for these additions to their balance sheet, it is normal to seek a mortgage or bank loan collateralized by the new asset or by a general claim against their assets. Before doing this most of us will be certain that we will be able to meet the new debt service or we will risk the consequences of a default. Therefore individual and corporate managements normally will resist making purchases or investments that require them to take on an amount of debt that might threaten their continued economic viability and soundness. The threat of bankruptcy, loss of treasured assets or equity interests in a company in the case of a corporation provides a discipline that motivates the average individual or corporate manager to eschew getting over extended in their financial obligations.
Now let’s look at governments, especially our Federal Government, but State Governments too. Our Congressional Representatives, those who manage the distribution or allocation of our tax dollars, do not feel any constraint against voting for spending programs to provide perceived benefits to those who they have concluded have a need, any need. Such needs as the operational costs of running the government, including the Administration and offices of so called Czars appointed by the President, the White House, various Department Secretaries, the cost for Congress, the Supreme Court and Foreign Diplomat Offices, etc. Add to that the costs for retirement benefits provided under the Social Security Act, health care provided seniors under Medicare and Medicare D, Medicaid Grants, loan guarantees for housing provided by Fanny Mae or Freddie Mack, Student Loans, Pel Grants, Welfare Payments, Food Stamps, Public Broadcasting, etc, etc, etc. The list goes on and on. Then there is the military as run by the Defense Department. While all these perceived needs by one group or the other may in fact be constructive use of tax dollars in and of themselves, there is no effort to prioritize the actual or potential expenditures in accord with the amount of tax revenue available to pay for all of them. Individuals have to prioritize their expenses. Corporations have to prioritize their spending of available cash flow. But the Congress does not have to consider prioritizing the expenditure of tax dollar revenue. The House just votes to fund programs on a simple test of “it might be beneficial to someone and it will look good on my record when I run for re-election”. To fund excessive spending, they borrow money and issue I.O.Us with full faith and credit of the United States to back them up. Since there is no end of needs wanted by an increasing portion of our citizens we now have reached a point where government spends 26% of our Gross National Product while tax and fee revenues are only 16% of GNP (The historical norm is 19%). And this annual deficit is growing. So what can be done to correct or at least reverse this trend so that the U.S. will not face some sort of financial disaster like event?
I think the solution is simple but hard to do. Congress or the American citizens need to pass a constitutional amendment that forbids the appropriation of monies to any project that, the funding thereof will cause that year’s expenditures to exceed the total revenue received from taxes and other fees available. Crazy you say? Why can’t we run our government in the same manner as we have to run our own household? Obviously we would have to provide for the possibility that an exception to this discipline could come up. But in that case, we should have to put in place an emergency surtax of some kind payable by every citizen including those dependent upon government entitlement payments for their support. If the government initiates a military action, the cost of that adventure shouldl be assessed to each in a progressive rate of their income or benefit received.
In order to get from here ($1.7 Trillion current deficit) to there, we first need to revise all entitlement programs in order to phase them out or reduce their rate of growth in various ways by “means testing”, more rigid administration for fraud and abuse, etc. As and if excess tax revenue begins to be available, new replacement programs may be approved that are compatible with prospective tax revenue in the future. This will not be achieved without some pain experienced across the spectrum of tax payers and those receiving entitlements. Nevertheless, if we try to solve the problem by burdening the most productive with all of the cost, we will evolve into class warfare and solve nothing on our way to financial Armageddon.
One Man’s Opinion—Bud Brewer
.
Managing Assets to Protect Real Value
March 15,2011:I just got off a telephone conference call with a major professional money manager. The speakers tried to address the economic effect of the earthquake and tsunami that occurred in Japan and the impact that it would have upon many sectors of the Global economy. While subsequent declines in Japanese stocks could present buying opportunities, the largest impact was said implicitly to be upon the attitude of private individuals, government representatives and the champions of Nuclear Power who were beginning to believe that Nuclear Power was a large part of the answer to our energy problems. For the foreseeable future a sharp reversal of progress in the use thereof was predicted. Extensive comments were presented about how the expansion of the world’s middle class offered very positive growth in the GDP for emerging and developed countries around the world. About this time every listener must have had a warm and fuzzy feeling about the potential for their portfolio.
Then the Fixed Income Specialist addressed the prospects for municipal bonds. He offered slight ridicule of those persons who are predicting mammoth defaults and capital losses or bankruptcies in the municipal bond markets. He stated that investors in municipals bonds of the various states should take comfort in the fact that none of the states really have a debt problem. Even California, about which much negative commentary has been heard in reference to their huge budget deficits, has no debt problem. Huh? He said California Muni bonds should be looked at in terms of how big their debt service is as a percentage of the State’s budget. It is only 4% of California’s budget. I don’t agree with that statement and I don’t believe that most investors do either. During the Conference Call’s Question and Answer period, a client asked how the manager felt about Bill Gross’ recent decision to sell all U.S. Treasury issues held in Pimco’s client portfolios. The answer given was basically that the power of long term compounding of interest should be the major consideration for whether to hold or not hold fixed income securities along with the credit position of the issuer. The steepness of the current interest rate curve indicated that the difference in yield captured by investing in the longer term issues compared with the short term was some huge multiple and that implied any preference for short term over long didn’t make economic sense. He said long term strategies for allocation of assets along the curve should not be changed because of short term conditions leading to speculation about rising interest rates.
While demonstrating deep knowledge of the fundamental elements of corporate financial conditions and their value stated in terms of the price of a given security, sector or debt issue, I believe this money manager, by using investment strategies that focus on achieving relative results is overlooking a basic truth. Relative price is not the key element of investment return for any investor. The key element of investment return is “real value” as measured by purchasing power or productivity. Money managers are interested in relative price because this is the basis for how they are measured in doing their job. It is not uncommon for an investment manager to achieve relatively superior results that are negative in absolute terms when measured against an index that is also negative. But from the investor’s standpoint, he is not interested in an index. He is interested in the real value of his capital. Does his capital represent more real purchasing power or does it not.
I was struck by the fact that no mention was made by any of the speakers of the uncontrollable rate of increase in the U.S. National Debt as affected this year for example by a budget deficit of over $1.7 Trillion. Furthermore, this level or higher budget deficits are projected for the next ten plus years. No mention was made about the Federal Reserve Open Market Committee QE2 strategy of actual or potential demonetization of the U.S. Dollar by a process of purchasing U.S. Treasury securities in the amount of $600 Billion. The program is scheduled to terminate this June, but what if the economy begins to slip after then, surely there will be another QE3, QE$, etc. to pump dollars, albeit worth less, into the economy, perhaps another $trillion or so. And then what do they do?
I was disappointed not to hear one or more of the very bright investment management people at least comment on the advisability or non advisability for the individual to convert some of their dollars to gold. The private investor is being bombarded by TV advertisements and “money gurus” as to why the dollar is going to be worth less as our government continues to spend an ever increasing percentage of this country’s GDP. Gold is said to be the best protection. The numbers are frightening.
I do believe investing in the creative minds of people and institutions will enhance or sustain the real value of my wealth but no sound investment plan can or should be structured holding entirely one class of assets. For those of us that withdraw a fixed amount (even if conservative), the cyclical nature of stock price movements can create a disproportionate increase in the percentage of principal actually withdrawn. In some periods, this depletes capital at a pace that threatens sustainability of life style. To avoid this level of volatility we allocate a portion of our capital to fixed income assets, money market securities and cash. But in today’s world there is a question whether or not the dollar investments we created will, after inflation and demonetization, in fact add to the problem of depleting the real value of our capital base. It appears to me that the best way to protect ones real value, if possible, is to diversify among emerging country small cap stocks,(China, India, Brazil), U.S. Multinational Companies especially those infrustructure type companies and companies producing products having inelastic demand, “Junk Bonds” (BB rated or better as an equity substitute), an Oil company ETF. Municipal bonds (7-10 yr maturity), and some Swiss Francs.
One Man’s Opinion – Bud Brewer
TAKING TO THE STREETS
>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
GOVERNING THE COUNTRY IN REAL TIME
January 30,2011: The uprising in Egypt these last few days has demonstrated the power of social media as an element of how rapidly a foreign relationship can deteriorate and how difficult it has become for the Obama Administration and its State Department to set policy or react to what is happening on the ground. President Obama and his advisors have fallen rapidly behind the curve of actions on the ground in Cairo due largely to the speed with which opinions and directions to the masses marching in the streets have been communicated. We used to learn from back channels of State Department contacts when something was about to happen or how serious an event was likely to become before having to make and set policy for our reaction to any incident. When I think back to the post war political battles that took place between the super powers and their satellite nations, I recall that we discovered major changes were occurring by the means of radio, newspapers, or the release of information from our Foreign Embassies. Today it is vastly different. On a recent Sunday news program, the producer created a large TV screen divided into four columns. On those columns there were displayed copies of Twitter messages and Facebook entries. The top one on the list would disappear when a new message was displayed on the bottom of each column. The speed with which transmissions and replies to communications were taking place in this real time demonstration was mind boggling. It was impossible to read one message and create a response and not have a follow up message make your answer to the first irrelevant. The consequences of this development are causing government Foreign Service analysts to become less effective and in some cases downright superfluous.
Supposedly, Egypt is one of our most important friends in the Muslim world. Located smack dab in the center of the Mid Eastern Muslim Nations, and a partner in the Israel peace agreement of 30 years ago, Egypt is considered a rock in our efforts for offsetting the potential rise in influence of Iran, and the Islamic terrorists working out of Afghanistan, Pakistan and Yemen. Mubarak has been gently nudged over the recent years of his increasingly totalitarian regime to begin to initiate a democratic means of choosing his successor. Like a simmering volcano, the citizens of Egypt have slowly built up public opinion in opposition to him and this weekend fueled by Social Media conversations at break neck speed and orders from the Mullahs in the Mosques, the country has exploded with tens of thousands of people marching in the streets battling the Government police forces and breaking in to shops looting and setting fire to government buildings.
In the meantime, caught like the deer in the headlights, the Obama Administration had no idea what to do about the situation. On the one hand Mubarak and Egypt have been one of our closest allies in the area, having participated in the Gulf War and maintaining peaceful relations with Israel. But if we continue to show preference and unconditional support for his troubled regime, our entire Mid East policy could come apart. While some might say Obama and Hillary Clinton are handling it just right, the President’s calls for supporting individual’s rights to demonstrate by expressing opposition to their government’s policies are putting America, the “Dark Vader” in the minds of some demonstrators, in a bad spot. We look on the one hand like we are throwing Mubarak under the bus and other islamic nations are going to be less likely to enter into agreements with us in support of out policies. The President and his State Departent have clearly lost the initiative and are clearly behind the curve in reacting to political changes in the area. The fact that the Sunday talk show guests on NBC and ABC are actually making statements that one acceptable alternative for a change in the Egyptian government would be to have the Muslim Brotherhood organization take control should make the Western Powers very uncomfortable. While this anti America organization is allegedly dedicated to peaceful political and non jihad methodology for exercising political power, their aim is to instill the Quran and Sharia Islamic law as the basis of a society they would govern. The situation appears to be getting worse and although our State Department and the President may be voicing words intended to calm the rhetoric, it appears we have found ourselves in a circumstance where instead of killing the messenger, we should have and should be listening to the message or at least ramping up our efforts to find a solution to this erupting volcano. If we continue to look weak and unresponsive to the dangers developing, the Iranian threat, the future of Israel and our access to the Mid East oil could be jeopardized Obama apologies notwithstanding.
One Man’s Opinion—Bud Brewer
Demonizing the Messenger
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.
A look at the future
Obama & Pelosi
level of Government Revenues, Government Spending and National Debt projections for the coming years. Take a good look at these figures.
http://www.usgovernmentrevenue.com/#usgs302a
The figures are a bit frightening.
Nevertheless, Americans are living better today, are generally healthier even if carrying a few more pounds, and have access to more high tech work saving services and devices than ever before. With increased attention to building our educational standards we could raise the productivity of our labor force even further and thus better compete with some developing nations benefiting from lower labor costs. This would help reduce some of the 9.8% of our work force who are part of the systemic unemployed as of today. But do the student families of today feel motivated to take advan tge of the public education offered? It doesn’t seem so here in Reno.
The American householder will still have to experience some pain or discomfort as they continue to try to cope with the deleveraging and rationalization of imbalances in their financial balance sheet. Our best hope is that some real political leadership will emerge to set the course of recovery based on a more conservative and efficient government with an honest plan to limit, reduce and in some case totally elimninate certain unnecessary departments. Congress needs to resist spending on programs that are politically designed, require some unrealistic projections of revenue to pay for them, or benefit a limited segment of individuals or corporations. Americans will need to accept the distasteful necessity for some greater austerity, reduced government services, increased tax liability accross the board. Americans will also have to decide just how important personal freedom is and what they are willing to endure to preserve it.
The creation of jobs is a long term effort not well suited to four year presidential cycles. The current Administration’s attitude, eschews Reagan and Kennedy like rhetoric that always tried to assure a positive and better tomorrow. President Obama’s preference to voice liberal and progressive type talking points reflecting class warfare is intentional and is a means to deemphasize the values of free market capitalism and all the benefits it has provided as the foundation of our economic success and happiness.
For the business manager to make long term commitments of capital, they must see the likelyhood of positive returns for converting liquid assets into hard assets and hiring more people who are not expected to produce profits for many years. This is the basis for my belief that economic growth next year will be less robust than is becoming common opinion, thus surprising some who believe that with the Congress passing legislation to extend the Bush tax rates, the stock market should rise sharply. What will most likely rise next year are interest rates and they probably will notwithstanding the Fed’s Quantitative Easing #3 and # 4, inflation certainly will pop its head up.
It is with a tempered level of enthusiasm that I look forward hopefully to the prospects for those generations that follow as I wish you a most pleasant Holiday Season.
One Man’s Opinion- Bud Brewer
Investment Strategy Illusive
November 17, 2010: For the year to-date, the investment returns for my portfolios have been unremarkable to say the least. In my 59 years of experience in the investment business, I have never felt less confident to design a strategy that would give me a sense of comfort with what I was trying to accomplish. In the investment business there are a number of corollaries that portfolio managers have depended upon when investing in different kinds of assets. Forces that affected the price of corporate stocks included current and prospective growth in earnings along with interest rates, changes in the outlook for inflation, Federal Reserve monetary and fiscal policies, demographic changes, rate of annual increases and configuration of economic activity, commodity prices, including Gold, Silver, etc., along with the relative strength in securities of developed versus developing countries. While understanding how these variables interact to affect investment opportunity may seem too complex to provide a basis for committing capital to own more or less of a particular asset, it isn’t real difficult if economic, financial and political forces are acting rationally. But today we have many forces that are in conflict with normal (historical) expectations. Most of these conflicts are aggravated by a greater amount of government regulation and oversight of our daily life and a different form of leadership than we are used to. We have a President elected on his promise of “hope and change” but after two years in office aggressively pursuing an expanded social agenda, he has given the impression that he may not be Capitalism’s best friend. We have been mired in a deep recession with the traditional role for consumers and home owners seriously affected by a major melt down in the financial and mortgage banking industry. I suspect most readers are well aware of the de-leveraging process occurring in households brought about by the sharp decline in market prices of what came to be called Sub-Prime mortgages and the huge number of defaults and foreclosures that still provide a black cloud over the real estate industry. The shock of the real estate bubble collapse has brought with it a major reduction in domestic consumer activity. Corporations had to instigate plans for survival that caused aggressive layoffs in attempt to reduce operating expenditures. For two years we have had almost 10% of the work force unemployed and depending on government or family subsidy for their survival. The remaining 90% have changed from negative savings to positive saving rates of 6% or more. This is not necessarily bad but it does change the calculus of consumer spending and thus slow the rate of growth in economic activity. For the past 30-40 years, the American economy has enjoyed an average growth rate of between 3-5% annually. Now with the Consumer backing off his spending rate and with the level of unemployed stuck at 12-15 million people, the economy is facing a more modest growth rate at 1-2% per annum. This rate is insufficient to produce enough revenue to prevent significantly higher budget deficits. In hopes of stimulating a higher rate of growth, the Federal Reserve Chairman, Ben Bernanke, has announced the intention to purchase more Treasury securities Calling it a second “Quantitative Easement Program” (QE2). They are implementing a Treasury bond purchasing plan that is scheduled to be a minimum of $600 billion or more over the next nine months. In effect they are increasing the money supply ostensibly for a short period by purchasing Treasury and Mortgage backed Securities. It is hoped the recipients of the dollars in settlement of these security transactions will spend them or invest them in creating new jobs. Increasing the money supply requires reversing course down the road a ways. Between previous quantitative easing (QE1) and this one called “QE2” the Federal Reserve will hold over $1 ½ Trillion of government or government backed securities on their balance sheet. As I see it, this is the only arrow left in the Fed’s Quill. Having already reduce interest rates to near Zero, the Federal Reserve has taken a risky action that could threaten the credibility of the dollar if: 1) this huge stimulus doesn’t restore the housing market equilibrium, 2) fails to bring sharply higher spending by consumers, 3) doesn’t reduce the level of employment by 3-4 % points, and 4) it doesn’t get our major corporations to start investing some of the hoard of cash they have been accumulating thus reducing the rate of unemployment.
So what is the Problem? Well with our budget deficits running over $1.3 Trillion this year, unless the Congress acts before Jan 1st, tax rates will revert to pre 2003 levels thus taking $700 Billion Billion per annum out of the private sector of the economy. With the Central Bank printing money and the National Debt fast approaching 100% of GDP, you would think interest rates would be above average or increasing rather than holding at Zero. Several European National banks are in serious trouble and the financial condition of Ireland, Greece, Spain and Portugal is close to collapse. Yet mortgage rates are at their lowest for 50 years. Vacancies in commercial real estate are above normal and in some market’s occupancy rental rates are declining. With the financial stimulus being pumped into the economy, you would expect wage inflation to be double digit, but in fact wages are not rising,(except for the Congress and their self approved increase of 3% this year) but corporate earnings are rising. Instead of inflation we have elements of deflation, something not seen for 75 years. Commodity prices however are skyrocketing; crude oil steadily rising, gold up 10 % plus during the past 6 months; grains like wheat, corn, beans, all sharply higher.
In this environment, the stock market has been surprisingly strong and in fact has recovered all that it lost last spring when the market fell 900 points in a two day stretch. Some feel the market was discounting the benefits of the Republicans taking over control of the House of Representatives and the implied voter rejection of the Obama policies. An increasing number of portfolio managers are capitulating and jumping in to the equity market feeling pressure from clients. With the artificially low interest rates in Treasuries, bond prices are still firm and yields on Treasuries continue close to historical lows.
These economic forces are not in sync and I feel very uncomfortable knowing that we have to continuously refinance this huge growing national debt with the likelihood of having to pay higher interest rates. That would mean the likely decline in prices of bonds and mortgage backed securities. We are facing the remote but real possibility that our sovereign debt scheduled to double in ten years will get downgraded from its current Triple A rating. That would be problem of disastrous proportions.
So what do we do? I believe that when one faces uncertainty about the direction of security prices, interest rates, or real property values, it is best to hedge your bets by diversifying the allocation of assets among both domestic medium sized and multinational corporations and attractive companies in emerging economies, large cap and small cap companies, Short term tax exempt bonds and above average amounts of cash reserve buying power. Holding cash provides no income return now but if the political circumstances become more constructive and the new Congress can introduce legislation to give investors a better reason to invest long term, having purchasing power will be welcome. But as I said before, this is a tough time to be trying to guess what our President will decide to do to adjust to the Republicans taking over the House. If he moves to the center, we should be able to have more confidence about the future. If he doesn’t we will probably be best served by staying defensive.
One Man’s Opinion-Bud Brewer
Shave and a Haircut, 2 Bits
November 9, 2010: I was sitting my barber’s chair today and after one or two comments about the weather and remarks like “Gosh, where did the summer go?” he launched into sort of a rhetorical question that went something along these lines. “You know, I don’t understand why our government allows all these big corporations to outsource jobs. If they were forced to keep their production here in the United States, the unemployment problem would go away. After a few additional questionable anecdotal remarks, I asked him: “If all our multinational corporations made a management decision to do all their manufacturing, production, assembly, etc, here in America, and assuming the number of unemployed dropped in half, what do you think the effect would be upon your life style. He gave me a quizzical look and asked what do you mean? I said that shirt you are wearing looks very nice, how much did you pay for it? He proudly said, “I got it on sale at Macy’s for $29.00. I asked him to let me look in his collar and I confirmed that the shirt was made in Costa Rica. If that shirt were made in the United States even by a most efficient company, it would probably cost you twice that price, is that alright with you? He mumbled, but I went on to ask him, do you own a computer, a cell phone, a printer, a camera, copy machine, flat screen TV? Do you put up a Christmas tree for the holidays? Does it have ornaments, strings of lights, or other decorations? Do you have an automobile made by a foreign company or know someone who does? Do you have any clocks in your house, tape recorders, or disc players? About this time he said “yes of course, but what is your point”? How much do you think you would pay for those same products if they were manufactures here in the United States? The average person living here in America enjoys a standard of living well above that of almost every country in the World. But that life style comes at a price and that price is that unless you and I and every person in this country sees that our children are given the best education possible directed toward providing them with skills that are marketable well beyond the boarders of the U.S. and at a price that supports their actual or desired life style, then that standard of living we are so proud of is destined to regress to the mean of the world average.
I said to him, “When I was in Puerto Vallarta, Mexico last month, I went into a barber shop just like this one and asked what they charged for a haircut, facial, manicure and a shoe shine. The answer I got totaled less than I am about to pay you for the high quality but equivalent service. Are you ready to meet that competition in the coming world markets? He laughed and said “that would never happen here. I’ve been in business here for thirty years and have many regular customers”. While it is possible that a loyal clientele will continue to purchase something that takes relatively more and more of their discretionary cash-flow, most will redirect, delay or cease the purchase of what they might decide is marginal to their needs. But, he asked “tell me why my standard of living would go down?” He asked the key question!
The implied limited understanding by my Barber and by many like him for how the U.S. economy works and how it is integrated into a world economy is pretty typical for the average man on the street. Journeymen skilled and semi skilled workers were in demand as U.S. corporations ramped up to manufacture and sell products and services to a world that needed to rebuild the torn vestiges of the most destructive war in history, World War II. Over the next 50 years, that growing demand for manual labor and relatively less skilled work combined with the somewhat less than disciplined exercise by management negotiating compensation and retirement benefits created a dynamic consumer demand seeking the good life. Our workforce, while enjoying a rising standard of living, however, was slowly but surely losing its competitive value as managements sought to increase productivity through the use of rapidly developing advances in technology, special services skills, and yes even the shifting of some manufacturing and service jobs offshore. There began a change in direction for the wellbeing of certain workers and their families. Unknowingly perhaps, their union leaders became shortsighted and their very success in getting increases in compensation and benefits along with restrictive work rules made the American worker non-competitive with the rising skill levels of Japan, Germany and the emerging countries in the world like China, India, Brazil as well as many of the other developing countries with less restrictive and lower costs for doing the same job. Thus in the wake of the worst collapse in the financial markets in our history, the assumption of power by a party and its leader, President Obama, who have questionable ideas about the value of free market capitalism, the managers of our most successful corporations are seeking to preserve their operating margins, by reducing their work force and utilizing the lower costs of foreign workers and business locations to provide product and services for their worldwide customers. Like shareholders enjoying excessively high valuation of the securities they own or like homeowners enjoying the rising value of their homes, the typical American worker enjoyed rising wages and incremental life style, until the threat of collapse of the global financial system and its aftermath pulled the foundation out from under these excesses.
Reality demands that a large segment of the American people like my Barber must come to the realization that our economy is increasingly intertwined with and dependent upon being a part of the global economy. We must develop more competitive skills for our workforce (education and training) and we must reduce restrictive work rules and regulation so that our workforce, when combined with our ever increasing technology, regains their position as the most powerful (productive) nation in the world. Seventy years ago, my grandmother gave me an encyclopedia that I still display on a pedestal in our home, not because of its use for research, computers and Google have changed that source of information, but for the brief saying on the cover sheet, “Knowledge is Power”.
One Man’s Opinion—Bud Brewer