FIVE PILLARS OF AMERICA’S GREATNESS

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

December 9,2010: With all the economic turmoil in the world, I continue to worry about America over the long term. My concern is driven by a feeling of anxiety created from my perception that there are real consequences that are resulting and will result from the explosion in our budget deficits as far into the future as one can see. Caused primarily by an array of legislation introducing several questionable economic and financial concepts from the 1960′s to the current administration. These consequences could result in the loss of confidence in this great country’s financial and economic leadership of the free world. President Obama and progressive members of his party are pursuing a populist agenda that is naturally appealing to a large portion of our population that has become accustomed to government subsidies financed through the tax system. This is especially true of seniors who believe Social Security is an annuity benefit rather than a wealth transfer from workers to non-working people 67 years of age and older. It also applies to those receiving unemployment benefit extensions years after they ceased working or public employees who’s compensation and retirement benefits are said to be 50% higher than the average worker in the private sector and carry disproportionate healthcare benefits. Add to that the Medicare and Medicaid subsidies, Government food stamps, child support and an array of individual and corporate welfare payments (credits) among others. I believe the passage of these types of an legislation providing broad entitlements for American Citizens by both the contemporary and historical Administrations carry the seeds of eventual destruction of the strengths and goodness of this Nation. With perhaps good intentions but destructive application, politicians have made the citizens of America become a dependency society. Our national Debt has risen to and will soon surpass a level equal to our Annual Gross Domestic Prouduct and unless a better government revenue/expense ratio is forthcoming, could be twice GDP in ten to 20 years. Interest rates we have to pay on this debt are currently lower than usual reflecting the fear of many investors seeking a dollar based currency thought to be the most secure in the world. But is it? Mr. Bernanke, Federal Reserve Chairman says we have no problem with inflation, but the Fed’s decision to pour $600 billions into the money supply, the President’s agreement for the extension of the Bush Tax rates, the lowering of payroll taxes, etc. seem to belie that expectation. Believing that if we just have more cash available to the banks, corporations, and individual taxpayers, our economy will experience dynamic growth and thereby begin to raise the net tax revenues, this government is creating a potential double consequence for the American taxpayers. If this works I’ll be amazed. The bond markets are indicating it won’t work. They are about to go into free fall. Former Chairman Greenspan said on Squawk Box the other morning that the need to finance our steadily rising National debt is or certainly will be crowding out availability of capital to fund long term economic growth. This doesn’t sound like we are going to solve the long term unemployment problem soon. If no progress is made in that area by 2012, a sharp shift to radicalism is not an unreasonable expectation during the Presidential elections in November of that year. The political left is claiming the extension of Bush tax rates are favoring the rich and will do nothing for the “middle Class”. The signs are all there. By 2012, we could have full scale class warfare underway. To get some perspective one needs to see the estimated
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

THE PRICE OF SELF-VICTIMIZATION

On the front pag?e of the USA Today section of the Monday Reno Gazette Journal, there appeared a column written by George Will that described certain statistical facts that are shocking and are having critical impact upon the present and future well being of the Black community here in America.

Various figures denote vexing social problems. They include 10,000 (the number of new baby boomers eligible for Social Security and Medicare every day), 10.2 percent (what the unemployment rate would be if 1.2 million discouraged workers had not recently stopped looking for jobs), $9.9 trillion (the Government Accountability Office calculation of the gap between the expected revenue and outlays for state and local governments during the next 50 years), $76.4 trillion (the GAO’s similar estimate of the federal government’s 75-year fiscal shortfall).

Remedies for these problems can at least be imagined. But America’s tragic number — tragic because it is difficult to conceive remedial policies — is 70 percent. This is the portion of African American children born to unmarried women. It may explain what puzzles Nathan Glazer.

Writing in the American Interest, Glazer, a sociology professor emeritus at Harvard, considers it a “paradox” that the election of Barack Obama coincided with the almost complete disappearance from Public life of the discussion of the black condition and what public policy might do to improve it.” This, says Glazer is the Black condition:

Employment prospects for young black men worsened even when the economy was robust. By the early 2000s, more than one third of all young black non-college men were under the supervision of the corrections system. More than 60 percent of black high school dropouts born since the mid-1960s go to prison. Mass incarceration blights the prospects of black women seeking husbands. So does another trend noted by sociologist William Julius Wilson: “In 2003-2004, for every 100 bachelor’s degrees conferred on black men, 200 were conferred on black women.”

Because changes in laws and mores have lowered barriers, the black middle class has been able to leave inner cities, which have become, Glazer says, “concentrations of the poor, the poorly educated, the unemployed and unemployable.” High out-of-wedlock birthrates mean a constantly renewed cohort of adolescent males without male parenting, which means disorderly neighborhoods and schools. Glazer thinks it is possible that for some young black men, “acting white” — trying to excel in school — is considered “a betrayal of their group culture.” This severely limits opportunities in an increasingly service-based economy where working with people matters more than working with things in manufacturing.

Now, from the Educational Testing Service, comes a report about “the Black-White Ahievement Gap: When Progress Stopped,” written by Paul E. Barton and Richard J. Coley. It examines the “startling” fact that most of the progress in closing the gap in reading and mathematics occurred in the 1970s and ’80s. This means “progress generally halted for those born around the mid-1960s, a time when landmark legislative victories heralded an end to racial discrimination.”

Only 35 percent of black children live with two parents, which partly explains why, while only 24 percent of white eighth-graders watch four or more hours of television on an average day, 59 percent of their black peers do. (Privileged children waste their time on new social media and other very mixed blessings of computers and fancy phones.) Black children also are disproportionately handicapped by this class-based disparity: By age 4, the average child in a professional family hears about 20 million more words than the average child in a working-class family and about 35 million more than the average child in a welfare family — a child often alone with a mother who is a high school dropout.

After surveying much research concerning many possible explanations of why progress stopped, particularly in neighborhoods characterized by a “concentration of deprivation,” the ETS report says:” It is very hard to imagine progress resuming in reducing the education attainment and achievement gap without turning these family trends around — i.e., increasing marriage rates, and getting fathers back into the business of nurturing children.” And: “It is similarly difficult to envision direct policy levers” to effect that.

So, two final numbers: Two decades, five factors. Two decades have passed since Barton wrote “America’s Smallest School: The Family.” He has estimated that about 90 percent of the difference in schools’ proficiencies can be explained by five factors: the number of days students are absent from school, the number of hours students spend watching television, the number of pages read for homework, the quantity and quality of reading material in the students’ homes — and, much the most important, the presence of two parents in the home. Public policies can have little purchase on these five, and least of all on the fifth.

The Jessie Jacksons and Al Sharptons in this country need to redirect their critical efforts inward toward correcting the problems highlighted above rather than complaining about the effects that these problems are having upon American society-increasing attitudes of racism.

One Man’s Opinion- Bud Brewer

Are We Facing Inflation or Deflation?

August 4,2010: Some of the smartest and most successful investment brains are on opposite sides of that question. The right answer matters a whole lot. A simple definition of inflation is too much money chasing too few goods. That’s easy to understand. If lots of people want the same thing and they all have money to buy it, then the seller is in the catbird seat. Looking at the action of the Fed, there is ample evidence that they are keeping monetary policy easy and flooding the system with money. Their hope is that all that cheap money will encourage people to go out and buy things. But it is simply not happening.

In fact, the response to the monetary stimulus reminds me of Japan twenty years ago. The country was in a recession (something unknown in that country since the end of World War II) and the Government was literally giving money to people and asking them to spend it. But they wouldn’t. They put it under their mattresses (literally) and saved it. The Government’s plan to encourage the Japanese consumers to spend their way out of recession was a failure.

It was hard for us Americans to understand the response of the Japanese consumers. Not spend gift money? Unheard of! However, that response should not have been a surprise because the culture in Japan for generations was one of saving, not spending. The Japanese had a 20% savings rate at that time and the insecurity associated with the recession only encouraged them to save more, even when it was free money.

“We owe too much money from the good old days when we borrowed and overspent and nobody told us we had to save. Now we have to mend our ways by simultaneously paying off our debts and increasing our saving.”

So let’s turn to the U.S. today.

We have been a population of spenders, not savers. Heading into the recession from which we are only now emerging, we were spending more than we were saving, i.e. we had a negative savings rate. Then the recession came, with the highest unemployment rate in over a generation, and spending slowed sharply.

In response, Congress enacted an enormous stimulus program to flood the economy with money. In addition, the Federal Reserve logically opened the money spigot to accommodate spending and hopefully to stimulate demand. With our propensity to consume instead of save, that should have been an easy solution. But nothing happened – or at least very little happened.

What is wrong?

Why aren’t we, the greatest spending nation on earth, spending? Why is all that cheap money not chasing the goods and consuming them and forcing the prices up?

Because we, the biggest spending nation on earth, are broke. We owe too much money from the good old days when we borrowed and overspent and nobody told us we had to save. Now we have to mend our ways by simultaneously paying off our debts and increasing our saving. Those two priorities are overriding our want and instinct to spend, and that is good. Well it is good for our financial health in the long run, but it is dreadful in the near term because it acts as a drag on consumer spending which is what this economy needs to gain more momentum.

So despite all the cheap money around, Americans are not, or better said, cannot take advantage of it, which means that there is not too much money chasing too few goods. Instead, there are too many goods – all the things consumers are NOT buying – chasing the few dollars left in consumers’ hands after they have paid their debt and tried to save. That is the opposite of an inflationary environment.

That is deflation. And that is certainly what it appears we are experiencing now and will continue to face in the short run. Unfortunately, there is a positive correlation between paltry demand and high unemployment.

On the positive side, the American consumer appears to have accepted the necessity of restructuring his/her balance sheet and once the savings rate has increased and the debt has been reduced, there will be a significant amount of pent-up demand. Then, and only then will the spectre of inflation raise its ugly head. That may be years from now.

One Woman’s Opinion- Patricia Chadwick

Founder and President of Ravengate Partners LLC

SOME BURNING QUESTIONS

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

HOW DID WE GET HERE