Sunday, June 22, 2014

Summer Break Message of Hope

I'm taking a brief week or so summer break from blogging.

Probably be back at it by the 4th of July.

In the meantime, don't worry about America and our prospects.

Be happy and positive about the outlook.

We the People are in charge.

That said, Pogo said something memorable as well, "We have met the enemy and he is us."

And if something can't go on forever, it won't.

Republicans promise low taxes. Democrats promise to protect and even grow existing unaffordable "entitlements."

Meanwhile, the nation's and household debt levels continue to grow and ever increasing national debt (due to ongoing fiscal deficits) is in the picture as far as the eye can see ---- and even farther than that.

Something has to change, so it will ---- someday soon, and for the better, let's hope.

Thanks. Bob.

Saturday, June 21, 2014

Can You Top This One? ... The V.A. "Outperformers" are Plentiful Indeed ... We the People and our Nation's Vets Take it on the Chin Again

Fantasy Island is real, and the V.A. headquarters serves as home base. Only in Washington can this stuff happen.

But let's cut to the chase.

Some stories speak for themselves. Here's one.

Every Senior V.A. Executive Was Rated "Fully Successful" or Better Over 4 Years says the following:

"All of the 470 senior executives at the Department of Veterans Affairs received annual ratings over the last four years indicating that they were “fully successful” in their jobs or even better, according to data released at a congressional hearing on Friday, despite delays in processing disability compensation claims and problems with veterans’ access to the department’s sprawling health care system.

None of the department’s senior executives received either of the two lowest of five possible job ratings, “minimally satisfactory” or “unsatisfactory,” in any of the past four fiscal years.

The data also showed that in 2013, nearly 80 percent of the senior executives were rated either “outstanding” or as having exceeded “fully successful” in their job performance, and that at least 65 percent of the executives received performance awards, which averaged around $9,000. Only about 20 percent received the middle of the five ratings.

Veterans Affairs officials sought to play down the data, saying that only 15 senior executives across the entire federal government had received either of the two lowest ratings in the most recent year — suggesting that the high ratings enjoyed by V.A. officials were not out of line with those of their counterparts at other government agencies.

But the data, which were a focus of a House Veterans Affairs Committee hearing, angered lawmakers who said they provided further evidence that the highest reaches of the department were out of touch with problems in the system and that there was a lack of accountability for poor management.

“Do you think that’s normal in business, that nearly every executive is successful?” Representative Phil Roe, Republican of Tennessee, asked Gina S. Farrisee, the department’s assistant secretary for human resources and administration. “That means you put the bar down here, so anybody can step over it.”

Representative Ann McLane Kuster, Democrat of New Hampshire, likened the numbers to grade inflation and said they reminded her of Garrison Keillor’s fictional Lake Wobegon, where “all of the children are above average.”

In all, the department paid performance awards to senior executives that totaled $4.7 million in 2010 and $2.7 million in the most recent fiscal year.

The bonus system was originally intended to reward high performers and to help the department retain its best employees, and it is widely viewed as having helped professionalize the V.A. in the 1990s. As reports of problems accumulated this year, the department suspended the awards for senior health care executives.

In her written testimony, Ms. Farrisee said the department needed to do better in holding executives accountable, but defended the awards generally. “Our ability to allocate performance awards to our highest performers is vital to hiring and retention,” she said.

But the system has come under harsh scrutiny in recent years, most recently in connection with revelations that employees had used a variety of machinations to cloak the long wait times many veterans faced to see physicians.

Many administrators’ bonuses were tied partly to whether their facilities met patient wait-time goals, including being able to see a doctor within 14 days. When a shortage of doctors and other factors made it impossible for many facilities to come anywhere close to those standards, many administrators and patient schedulers manipulated data and used other tactics to make the numbers look better than they were."

Summing Up

But it's not just V.A. executives who benefit from "grade inflation" or just plain cheating by manipulating the data in government offices.

As described hereinabove, they were just doing what everybody else does in government as only 15 senior officials throughout government received unsatisfactory performance ratings in the most recent year.

Only in Washington can such crap not be surprising, and I'm not surprised. Are you?

We the People keep getting ignored and even screwed by our government's elitists.

So do many of our nation's wonderful and patriotic veterans.

That's my take.

Thanks. Bob. 

Friday, June 20, 2014

Paul Ryan Talks About the Lack of Truth Telling and the IRS Habit of Lying to Congress and We the People

Paul Ryan is reputedly a straight shooter. And he certainly demonstrated that shoot straight trait on Friday when questioning the head of the IRS.

Notable & Quotable tells the tale:

"Rep. Paul Ryan (R., Wis.) and IRS Commissioner John Koskinen at a Ways and Means Committee hearing, June 20:

Ryan: I am sitting here listening to this testimony. . . . I don't believe it. That's your problem. Nobody believes you. The Internal Revenue Service comes to Congress a couple of years ago and misleads us and says no targeting is occurring.

Then it said it was a few rogue agencies in Cincinnati. Then it said it was also on progressives. All those things have been proven untrue. This committee sent a criminal referral of possible criminal wrongdoing, just a month ago, to the Justice Department and we've heard nothing. You bury, in a 27-page letter to the Senate, asking for them to conclude the investigation, that you've lost Lois Lerner's emails during the time in question because of a hard drive crash. . . . Monday our investigators asked your agency whether any other hard drives crashed and we learn that six other hard drives of the people we are investigating were involved. . . . you didn't tell us that!

Koskinen: We told you on Monday.
. . .

Ryan: You told us on Monday because we asked you whether any other hard drives crashed. This is unbelievable. You told us in May that you were going to give us all of Lois Lerner's emails and you learned in February that this crashed.

Koskinen: I did not learn in February of the crash and we told you on Monday.

Ryan: I'm not asking a question, I'm making a statement.

Koskinen: I'm sorry.

Ryan: You are the IRS. . . . You learned about this months ago, you just told us, and we had to ask you on Monday. This is not being forthcoming. This is being misleading again. This is a pattern of abuse, a pattern of behavior, that is not giving us any confidence that this agency is being impartial. I don't believe you."

Summing Up

Did Mr. Ryan call Mr. Koskinen a liar?

And that the IRS has engaged in a consistent pattern of lying to both Congress and We the People as well?

Sure sounded that way to me.

And it sounded right to me as well.

We need more straight shooters in government. Many, many more, in fact.

That's my take.

Thanks. Bob.

Thursday, June 19, 2014

Illinois Politics Is an Ongoing Joke .... But a Very Sad and Very Troubling One

The following editorial about Illinois politics, chickens, Governor Pat Quinn and the shape of the state's finances and future prospects is both entertaining and sad. Mostly sad.

To paraphrase another Illinois public figure, the now famous Chicago Reverend Jeremiah Wright, In Illinois the chickens are coming home --- but evidently not to roost.

Little Hens on the Prairie is subtitled 'The further hilarious adventures of Illinois Gov. Pat Quinn:'

"Illinois GOP gubernatorial candidate Bruce Rauner performed a public service last week by highlighting some of Springfield's wasteful spending. For example, $181,730 to fly in chickens on state aircraft from Kansas. After they drive out taxpayers, maybe liberals are intending to return Illinois to its native prairie state.

According to an AP report, the Illinois Department of Natural Resources spent $7,363 this spring on 16 flights for 91 endangered greater prairie chickens, or about $81 a bird. Do the chickens qualify for frequent-flier miles? The three-year relocation program is funded by $337,500 in federal grants, $181,730 in state revenues and a $30,000 donation by the Audubon Society. About 60% of the money pays for personnel who transport the birds. In other words, this is more a support program for government workers than for endangered species.

Governor Pat Quinn's office defended the program by noting that the state share comes out of recreational fees paid by hunters, not general tax revenues, as if state funds weren't fungible. The program's putative goal is to restore the state's greater prairie chicken population to more than 300 from about 70.

Trouble is, the chickens don't seem to like it in the Prairie State. According to the state Department of Natural Resources, Illinois has been working to preserve greater prairie chickens since 1940, yet the population has since fallen by more than 95%. Hundreds of chickens were relocated in the 1990s, but most died due to Illinois's severe climate.

Chickens might get some sympathy from state taxpayers over the inhospitable living conditions. According to a Gallup poll earlier this year, 50% of Illinois residents said they would flee if they had the chance—more than in any other state. Between 2012 and 2013, a net 40,000 Prairie Staters flew the coop, which was also a nationwide high. Earlier this month,  Caterpillar announced it is closing three plants in Illinois and shifting production to right-to-work Michigan.

Meantime, the legislature has passed a budget that increases the state's backlog of unpaid bills to vendors by $2 billion. "The budget doesn't avoid the tough decisions," said the Governor's spokeswoman Brooke Anderson. "It just postpones them." If Mr. Quinn wins re-election, a tax hike is virtually guaranteed in the lame-duck session.

And in other news, the Department of Natural Resources has announced it is planning a survey to gauge the public's opinion toward black bears. Illinois doesn't boast a black bear population, but a cub was recently spotted in the state. Biologists suspect he was lost, not unlike the Governor."

Summing Up

When it hurts too much to cry, it's time to start laughing.

So sit down, take a deep breath and then laugh loudly, Illinoisans.

After that, please resolve to do the right thing for yourselves and your fellow citizens by pressuring the "public servants" to act responsibly.

And when all else fails, try the voting booth at the next election.

Otherwise sooner rather than later it's likely to be game over.

That's my take.

Thanks. Bob.

Wednesday, June 18, 2014

What Retirement Savers and Individual Investors Need to Know ... How to Avoid the "Investor Gap" and Achieve Superior Investment Returns the Easy Way

It doesn't sound right to most people, but it's true. When individuals invest, it is actually very easy for go-it-alone individuals to beat by a wide margin the performance of the typical individual investor who is being "aided" by stock brokers and other so-called professional stock pickers.

The reason is simple --- the 'expert' aid never comes cheap and it generally doesn't help performance returns either.

To achieve the top tier of investment returns over time, we don't need to be experts. We simply need to know ourselves. In sum, all the knowledge required for exceptional returns is to know how most people play the investing game, and then play our own different game instead.

And that's due to two simple facts --- the rule of 72 (principal is twice as high in 18 years if annual average investment return is 4% greater -- 18 X 4 = 72), and don't react to short term market volatility by trading that volatility. In simple terms, the overall general market returns will double our hard earned money over time compared to what most experts will achieve.

7 reasons why you made less than the market should be required reading for anyone with a 401(k) or related investment vehicle:

"Each year, Dalbar publishes the Quantitative Analysis of Investor Behavior. This study analyzes mutual fund inflows and outflows to determine investor returns and compares them to benchmark indexes.

The 2014 study covers the 20-year period from Jan. 1, 1994 through Dec. 31, 2013. During these two decades, the Standard & Poor’s 500 Index yielded an average annualized return of 9.2% while the average domestic stock fund investor earned a 5% average annualized return.

This 4.2% shortfall is called the “investor gap.”

The investor gap was 6.9% last year. Most stock investors, delighted with their 25.5% average return in 2013 were blissfully unaware of the magnitude of their underperformance.

Here are some self-induced causes of the investor gap:
Investors are unskilled

Dalbar insists that attempts to correct poor investor behavior through education have failed: "The belief that investors will make prudent decisions after education and disclosure has been totally discredited."       

In other words, investors are financially illiterate and unaware of the long-term consequences of their emotionally driven, short-term investment decisions....                                       

Portfolio peeking

Studies of investor behavior show that the more you look at your portfolio, the more you’ll trade.... investors who traded the most experienced the lowest returns. . . . The more you trade, the more Wall Street makes — which is why there are stockbrokers in every village, hamlet and town in America.                                        

Having no plan . . . . 

Good financial planning requires an understanding of capital markets, tax law, employee benefits, insurance and estate planning. Most people lack the time or interest to study these subjects and don't know how to create a financial plan. There's no shame in asking for help. Before accepting investment advice from a financial professional, demand a written financial plan that incorporates your income, expenses, goals, time horizon and risk tolerance.                                        

Performance chasing

Investors are repeatedly told that past performance is no guarantee of future returns . Unfortunately, most investors (and their advisers) disregard this warning under the naive assumption that they can find tomorrow's winners by analyzing past performance.

Most will soon find themselves learning a new lesson in reversion to the mean.


Many investors with whom I speak express firm opinions about what the stock market, a particular stock or the economy will do in the near future. I wish I could be so confident.                                         

A study of investors published in Why Inexperienced Investors Do Not Learn: They Do Not Know Their Past Portfolio Performance revealed that 70% of investors judged themselves to possess above average investing skill and overestimated their portfolios' past returns. The study concluded that most individual investors are incompetent and overconfident — a dangerous combination, to say the least.

Portfolio dissecting

Your portfolio is the sum of its parts. Don't micromanage it by obsessing over the recent performance of each holding. A well-diversified portfolio will always have assets that have recently underperformed expectations. Use periodic rebalancing to reinvest in its underperforming components.


The Dalbar report notes that the average investor holds a stock fund for just over four years: ”At no point in time have average investors remained invested for sufficiently long periods to derive the benefit of the investment markets.”       

Investor behavior creates the investor gap. Studies of investor behavior reveal that our instincts lead us astray — we trade too much, make poor market timing decisions and are seduced by strategies and products that promise market beating returns. What investors needed these past 20 years, and will need in the years ahead, is prudent advice about how to receive market equaling returns – not speculative advice on how to beat the market.                                        

Is your financial adviser following Dalbar's advice and focusing on planning, diversification and maintaining a long-term perspective? Or do conversations with your adviser focus on short-term performance, new investment products and market predictions? One process will minimize the investor gap; the other will perpetuate it. You are forewarned. The choice is yours."

Summing Up

It's our money and our future financial security that are on the line when we save and invest.

So let's be smart long term investors.

And by all means, let's get a plan.

As an important part of that plan, let's only incur reasonable fees to develop and maintain a long term plan and monitoring vehicle, and let's not pay people to do what we can do better ourselves.

That's how we'll make sure we achieve solid long term investment results.

Because that's what matters.

That's my take.

Thanks. Bob.

Monday, June 16, 2014

Why Politics Sucks ... Keystone Pipeline Indecision and Hillary Clinton's Unwavering Position of No Comment

Most of us need no more proof that American politics sucks, but some things are simply too good not to pass along. So here goes.

We need a greater domestic energy supply, and we have the clear and present opportunity to become substantially less dependent on countries such as Iraq, Iran, Russia and Venezuela and others for both our energy supply and national security. And in addition relying on ourselves for more of our energy supply, our close friends from Canada very much want to help us to do just that.

Added to that, we need more good high paying jobs and a growing and much healthier U.S. economy too. So you'd think that achieving energy independence would be a front burner issue among Americans in general and for American politicians in particular.  But if you took that common sense approach, you'd be wrong in this wild and crazy disfunctional American world of politics today.

Clinton on Keystone is subtitled 'The Democratic nominee in waiting can't tell you what she thinks:'

"Hillary Clinton's presidential, er, book tour hasn't gone well, but not because she isn't trying to avoid controversy. Asked last week by the Toronto Globe and Mail if she believes the U.S. should build the Keystone XL pipeline, she replied: "I can't respond."

Who knew an oil pipeline was classified information? As the former Secretary of State explained, "I can't really comment at great length because I had responsibility for it and it's been passed on and it wouldn't be appropriate." If she told you, she'd have to kill you. Or, to put it differently, if she told you, some Democrats might try to kill her presidential chances.                 
Former U.S. Secretary of State Hillary Clinton discusses her new book "Hard Choices" in Toronto on Monday.

Mrs. Clinton knows the State Department made its final environmental assessment of Keystone XL in January. It found that the pipeline would have little net impact on global greenhouse gas emissions. State's final recommendation to President Obama rests with current Secretary John Kerry, so Mrs. Clinton is free to speak her mind as she pleases.

She certainly speaks on other issues, such as gay marriage, where she now exudes the zeal of the convert, having changed her mind only a year ago. She's also more than happy to revisit her 2003 decision as a Senator to support the invasion of Iraq, something she now regrets at every opportunity. And she's perfectly happy to distance herself from President Obama's decisions that are turning sour, such as refusing to support the moderate opposition in Syria.

All of which suggests that her Keystone reticence is an attempt to dodge the Democratic divide between unions that support the pipeline for its jobs and billionaires like Tom Steyer who brook no dissent on climate change. By ducking now, she can see what Mr. Obama decides (if he ever does), test the political wind, and come out on the side that offers the most political benefit. You can't say she didn't learn from all those years with Bill."

Summing Up

If it weren't so sad, all this government knows best pandering to the base nonsense would be funny.

But then again, it's pretty much just another example of politics as usual as practiced in America these days.

And the saddest part is that We the People may very well elect Hillary as our next President.

Heaven help us.

That's my take.

Thanks. Bob.

Saturday, June 14, 2014

Happy Father's Day .... Billy Graham and Life's Biggest Surprise

Billy Graham was once asked what had been life's biggest surprise. In reply he said simply, "The brevity of it." I'll vote for that.

When we are young, old age seems like it will never come our way. But faster than our younger self once thought possible, we quickly reach oldster status, and then we marvel at how very quickly it has arrived. At least that's what happened to me.

Time inconsistency simply means that we tend to value the here and now more than the future when taking actions, no matter what logic may dictate. In other words, satisfying the pleasures of our present self is often and incorrectly deemed substantially more important than being in a position to fulfill the needs of our future self, and that's not a good thing.

To wit, that 'bird in the hand over the bush' preference generally works to the long term detriment of ourselves and our families.

So now let's enter debt and its debilitating impact on our lives into the discussion right alongside the dangers of time inconsistent choices and behaviors.

In our younger years, we tend to sign up for the maximum in student loans, take out credit cards, and borrow for that first new car. Then to top it off, and with the "help" of a realtor and complicit bank, we proceed to borrow more than we should to purchase a more expensive house than we can afford.

And this home purchase, like the student loan, is aided and abetted by incentivizing government loan guarantees, mortgage interest deductions, property tax deductions and so forth. That's not good for us, but we don't learn that most valuable lesson until much later in life.

So now we have interest on the newly assumed debt as well as its principal to begin to repay. As a result, we don't begin to set aside enough money for our old age in the form of savings and IRA or 401(k) investments.

The benefit of saving early in adulthood is well explained in High Cost to Focusing on Student Loans Over Saving:

"{The} household tug of war for every dollar a family earns has not been a big part of the discussion of the long-term impact of the trillion-dollar student loan debt overhang. . . .

It’s hard for new college graduates — let alone teenagers making the initial borrowing decisions — to wrap their heads around this possibility when the shortfall is 40 or 50 years away. The whole world is telling them that they should go to college, and they should. But taking on debt to do so leads hundreds of thousands of new graduates each year to forgo saving money for years afterward. The long-term cost ought to be part of the bigger conversation....

Assume that two people graduate from college in the same year and get a job earning the same $45,000 salary, with equal raises over time. (Let’s stop here to allow for the fact that plenty of people take on debt without ever graduating, and plenty more get their degrees but end up in low-paying jobs that don’t require one.)

One individual has a pile of student loan debt and spends the next 10 years single-mindedly paying it down before saving anything for retirement. The other starts saving 4 percent a year (plus an annual 4 percent employer match) and increases it by a percentage point each year until reaching the $17,500 annual pretax maximum that the federal government sets for workplace retirement savings plans. The person with the debt starts saving the same amount at the same rate at age 32, once the student loan balance is zero.
Both people earn 5 percent annual returns on their investments over time. By the time the pair turn 65, the individual with the 10-year head start will have $1,829,571 in a retirement account in today’s dollars. That’s $396,039 more than the $1,433,532 in the account that belongs to the person who spent a decade paying off student loan debt before saving....

                Savings Gap       

The difference between starting to save for retirement at age 22 and putting it off for 10 years while you pay down student loan debt can be a large gap in what you could potentially accumulate by age 65.

AT AGE 65:
Two scenarios of
saving for retirement

Again, the case for college is clear. . . . the earnings gap between American college graduates and everyone else has never been higher. People with a diploma now earn 98 percent more per hour on average than those without a degree.

So go to college. But parents of teenagers ought to consider several possibilities to keep their children out of debt and out of the eventual retirement savings hole: community college for two years instead of four years at a public university; working in college in lieu of additional debt; living at home during college; not taking on debt (especially private loans that aren’t from the federal government) to attend a more expensive college, even if it is a dream school.

Parents who want to assist their recent college graduates might consider doing so with contributions toward an Individual Retirement Account. And grandparents who expect to have a bit of money to pass on to heirs might advance some of that money to young adult grandchildren, who can benefit from a half-century of compounded interest if they put the money away and leave it alone. . . .

This is not the news anyone wants to hear. It is hardly fair that millions of young adults should be saddled with debt at the same historical moment when they’re increasingly responsible for paying for retirement and health care.

But this is the world we live in, where college is necessary but a mild five-figure student loan debt can lead the unaware into a six-figure shortfall later on."

Summing Up

Let's all be good fathers and encourage the youngsters to minimize debt, get an education and then save and invest regularly for the distant future, which we oldsters now know isn't all that distant.

Taking care of our future selves is essential to a life well lived.

That's my take on this "Happy Father's Day."

Thanks. Bob.

Friday, June 13, 2014

The Lessons of History .... Will We Ever Learn?

To paraphrase what former President Harry Truman said, the only thing new in the world is the history we haven't yet learned.

In that regard, a childhood friend of mind recently sent along the following quote by Cicero which was made almost twenty one hundred years ago:

"The Budget should be balanced, the Treasury should be refilled, public debt should be reduced, the arrogance of officialdom should be tempered and controlled, and the assistance to foreign lands should be curtailed, lest Rome will become bankrupt. People must again learn to work instead of living on public assistance."

Cicero 55 BC

Evidently we've learned nothing at all over the past 2,069 years."

Summing Up

Maybe someday we'll learn the lessons of history, but then again, probably not.

There is no such thing as a free lunch or a government that can ever hope to pay for all the entitlement promises we have made to ourselves.

Nevertheless, we continue to believe as well in an ethos of individual responsibility and self-reliance accompanied by a growing and prosperous debt free economy.

In other words, we just keep saying one thing and doing another.

We keep trying to do the impossible.

That's my take.

Thanks. Bob.

Tuesday, June 10, 2014

Don't Worry --- Be Happy

Some things we can control and some we can't. Put the short term gyrations of the stock market in the things we can't control camp.

That said, the ultimate human freedom has been described accurately (at least in my view) as our ability to always choose how we will react to whatever happens to us along life's way, while recognizing that we often won't be able to control what those happenings may be, good or bad.

In simple terms, while frequently we have no control over what happens, we always have complete control over how we react to what happens.

And that freedom applies to the stock market's short term gyrations and all other financially related matters as well.

Let Go of the Money Worries contains great advice for all of us:

"How many times have you had a conversation when you or the other person said something like:

“I’m so worried about the stock market.”

“I’m so worried about retirement.”

“I’m so worried about the value of my home.”

Assuming you have said or heard a derivation of one of these statements, ask yourself a big question: How has that worked out for you? Can you think of a single time when the act of worrying about the stock market, retirement, housing prices or anything else in your financial life has helped?

The act of worrying actually hurts, not helps. Last year, Joseph Engelberg and Christopher A. Parsons published a study that looked at worrying about the stock market specifically. They wondered what impact a drop in the market had on investor psychology, and they found something interesting in hospital admission records.

After looking at nearly three decades of data, Mr. Engelberg and Mr. Parsons ... found that a sharp decline in the stock market was followed by a higher rate of hospitalizations over the next two days. Mental conditions, like anxiety, were particularly prevalent in these situations....

This is a case where simply being aware of the negative impact of worrying is part of the solution. Worrying becomes a habit. It is something we often do without even recognizing that we’re doing it. If we can simply learn to recognize what worrying feels like, with time and practice, we can become more aware of this useless habit and change it by asking ourselves a few simple questions:

What am I really worried about? Is it something in my control?

If it’s in my control, could I resolve my worrying by doing something differently?

If it’s not in my control, do I gain anything by worrying about it?

While it sounds simple, the answers to these questions can reveal not only what’s really bothering you but also a way to help remove some of the worry. I can’t promise that you’ll never worry about anything again. But before you decide to waste time worrying, I suggest you remember what Calvin Coolidge told Herbert Hoover: “Mr. Hoover, if you see 10 troubles coming down the road, you can be sure that nine will run into the ditch before they reach you and you have to battle with only one of them.”

That seems like good advice. It may even help keep you out of the hospital."

Summing Up

So don't worry --- be happy.

Investing in a low cost diversified portfolio of blue chip stocks over the long haul will in the end make us happy.

And that way of saving and investing is the best way to provide ourselves and our family members with adequate funds to enjoy a comfortable retirement.

And besides, we can't control the short term moves of the market anyway.

We can, however, always exercise control over how we react to those fluctuations, choose not to worry about them, and simply stay the course.

That's my take.

Thanks. Bob.

President Obama's Student Loan Forgiveness Proposal Explained in Simple Terms ... And My Contrasting and Simple Proposed "Debt Free" Solution

President Obama proposes to help more Democrats get elected in 2014 by forgiving more student loans and also reducing the interest rates on those loans. The future taxpayers will get the bill, but more on that later.

What he hasn't proposed is reducing the cost of attending college by limiting the cost of government subsidies. In other words, government subsidies, both direct grants and indirect grants such as Pell Grants and student loans, create funds for colleges which in turn enable them to raise tuition and related charges to sky high levels. They then use these additional funds  in large measure to increase compensation to college employees. You see, the free market with free customer choice doesn't apply to higher education in America. It's a government knows best 'thing.'

Thus, government backed, aka taxpayer, subsidies and guarantees, are currently being used extensively to make the cost of attending college prohibitively high for most taxpayers, students and their families alike. And it's all being done in the name of government helping the students. That's simply not true.

The facts are simple: the blank check endorsed by the taxpayers approach to college costs is politically created and has to change.

And so is the solution a simple one: We the People need to get the government knows best bureaucrats out of the way.

The Latest Student-Loan Charade says this in relevant part:

"You can tell an election is coming, because President Obama is promising more student-loan relief to young people who are growing less enthralled with his economic record. The latest exercise unveiled Monday is also supposed to make these young people forget the loan burden that earlier free lunches supposedly provided. The taxpayer losses will come on some other President's watch.

Specifically, Mr. Obama announced an expansion of the burgeoning disaster known as his Pay As You Earn program. This gift from taxpayers caps monthly student-loan payments at 10% of a borrower's discretionary income, regardless of how much the borrower owes. Even better, the borrowers have their debts entirely forgiven after 20 years—or merely 10 years if they work in government or nonprofits. Those who work outside the profit-making economy don't even have to report the forgiven loans as income. . . . 
The President also tried to help Democrats struggling to hold the Senate by endorsing still another expansion of student-loan subsidies. Majority Leader Harry Reid plans to hold a vote this week on Massachusetts Sen. Elizabeth Warren's bill to allow borrowers to refinance their old federal or private loans into new government loans at lower rates.

The Congressional Budget Office says the Warren bill would increase federal spending by $58 billion over a decade. But as CBO has repeatedly warned, its official scores by law must underrate the risk of defaults in such federal loan programs, so who knows what this latest election-year pander to young voters will ultimately cost. . . .

Which brings us to the common political secret of the Obama and Warren proposalsthey aren't aimed at aspiring college students hoping to matriculate but rather at former undergrads who are now suffering the economic hangover from Mr. Obama's previous policies. Thanks to a series of federal loan expansions supported by first Sen. Obama and then President Obama, student debt outstanding has nearly doubled since 2007 to more than $1 trillion.

A lot of these borrowers can't generate the income to service this debt, especially when so many of them can't get decent jobs. The left-leaning Center for Economic and Policy Research recently noted that among recent college graduates age 22-27, a full 45% were underemployed in 2013, meaning they were either unemployed or doing jobs that typically don't require a four-year college degree....

Democrats claim to care about inequality, but kids who don't go to college are in even worse economic shape than college kids, with even higher unemployment rates. Yet when the cost of defaults and debt forgiveness finally comes due, it will be paid by all taxpayers, including those who didn't go to college. So the townies with jobs will end up paying more in taxes to give former college kids and grad students a break on their student debt.


The Warren bill has no chance to pass the House, as Democrats know. The Warren bill and the Obama debt-forgiveness-by-fiat are attempts to change the subject from the cascading examples of government failure—the VA scandal (see nearby), the Taliban prisoner swap, the rising cost of health insurance under ObamaCare. In the Obama era, government failure is never a failure. It's another political opportunity to call for more of the same. "

Summing Up

Here's the deal.

A recent survey disclosed that 96% of political contributions from college employees go to support the election of Democrats. It's a "progressive thing."

And of course, public sector workers usually vote for Democrats, and the public sector unions to which they belong are huge financial backers of Democrats.

Accordingly, President Obama now proposes that for public sector employees any outstanding student loan balances would be forgiven after ten years. He proposes that private sector employees would have to pay for at least twenty years --- twice as long. In short, private sector workers are to be treated as second class or 50% citizens.

And here's an even bigger deal.

Expensive government failures always result in one sure thing --- calls for more taxpayer support and more expensive government knows best help and intrusion into the lives of all Americans.

And the future -- not the current -- American taxpayers are always the ones who are slated to get the shaft in the end. It's a political 'thing.' And those future taxpayers will get those remaining bills only after many of the current crop of elected officials, including the President, have left their elected offices, of course. That's the game.

But here's the biggest deal of all.

Former college students with jobs are taxpayers. So are  many of their fellow working high school classmates who didn't attend or graduate from college. Some of these jobs for both former college students and non-students alike will pay well, but many won't.

And that's because for both those former college students (graduates or not) and for their high school classmates who didn't attend college, the jobs market is tough. The economy is weak and job creating programs such as the Keystone XL Pipeline are left unapproved. Yet President Obama feels the young people's 'pain.'

Here's what I propose.

Let's get the government bureaucrats out of their present roles as 'all-knowing' experts and give the choice and power of college decisions directly to the students and their families. It's a 'voucher thing.'

Competition works. So does free choice. So will non-debt creating vouchers. Let's trust the American people.

And in so doing, we'll stop providing colleges with student signed and taxpayer endorsed blank checks.

Let's instead make vouchers a reality and cease and desist from taxpayer aided and abetted ever escalating college costs.

We the People deserve that. So do the students and their families. And the non-students as well. It's an American thing.

That's my take.

Thanks. Bob.

Monday, June 9, 2014

Individual Investors ... Buy Low Cost Index Funds ... It's the Smart Way

We get lots of advice from time to time the time, with some of it being good and most of it being well intentioned.

That said, much of it isn't so good nor is it so well intentioned either.

Gathering the salient facts and then seeking the counsel of an objective adviser often can help us discover what will work best for us and be in our long term best interests as well.

And so it is with investing for the long haul.

Stock pickers add higher fees and little value tells it like it is, so let's pay close attention:

"A rising tide lifts all boats, or so they say. That's the inherent promise of indexing for retirement.

But an important corollary should be mentioned: A leaky boat sinks in any tide. Investment fund expenses will kill your retirement plan , no matter what kind of market is ahead.

That's the takeaway from the latest study of mutual-fund performance from Morningstar's Russel Kinnel. . . .

Kinnel found in his latest study that, once again, fees strongly signaled outcomes , whether the market was gently rising or in a period of significant transition. The lower the fees, the better the return—bear or bull market, growth market or value market, in his words.                                        

The cheapest funds killed it and the priciest funds lagged behind, as Kinnel found in an earlier study . For domestic stocks, choosing low-cost funds effectively doubled your success rate in 2008. In 2009 and 2010, as markets bottomed and then soared higher, the pattern continued. To quote Kinnel:                                        
"Vanguard founder Jack Bogle has pointed out that markets don't have to be efficient for low costs to work. We know that mutual funds as a whole will get roughly the market's return minus fees and trading costs. Those that charge less are naturally more likely to outperform than those with high costs."

Put more bluntly, active management is less than worthless. The idea that you need an “agile” manager when markets are moving is unsupportable. The dividing line between OK returns and great returns is cost, plain and simple, in any market.

So why not buy an index fund and be done with it? Well, some people like the idea of having a financial adviser. They need, perhaps, a guiding hand who will start them off in an age-appropriate, well-designed portfolio and then rebalance it with discipline. They need, maybe, a voice of reason who will keep them from selling it all in a market decline.

What people do not need, and Kinnel's data shows it, is a stock picker, someone who purports to be able to “beat the market” by selecting a small number of securities and then actively trading that portfolio ad nauseam. A balanced portfolio of cheap index funds or index-style ETFs would do better.                                        

First of all, stock pickers can't beat the market consistently enough to matter. Second, if they do beat their benchmark once and again, they don't beat it by enough to justify the fees they charge year in and year out.

Third, and most important, the active manager is very unlikely to provide anything like personal financial advice."

Summing Up

When it comes to individual investing, it's essential to recognize the financial benefits we receive from being associated with an objective value adding personal financial adviser compared to the wasted money we spend with a value destroying 'expert' stock picking active manager, often known as a stock broker.

Because when as individuals we are investing for the long term, we usually don't get what we pay brokerage commissions for --- in fact, we're likely to get dramatically less.

Thus, the best advice is to not pay much for what we don't get and only to pay for what's of real value.

Such a low cost value added approach may be boring, but it works. And that's what counts.

That's my take.

Thanks. Bob.             

Sunday, June 8, 2014

Actions, Words, Honor and Patriotism ... The Secret to Leadership and Heroism is In the Doing ... Not the Talking

Actions speak louder than words.

In fact, one of my all time favorite expressions is the following, "What you do speaks so loudly that I can't hear what you say."

Politicians say a lot of things, and most of what they say is posturing for their supporters' consumption and approval.

Or as Jean-Claude Juncker, the former prime minister of Luxembourg once put it, "We all know what to do, but we don't know how to get re-elected once we have done it."

So let's get refreshed and hear an action based and genuine heroic leadership story that Senator John McCain related about what Henry Kissinger once did for, and not to, him. It will help us to remember what real leaders and heroes are called upon to do.

Notable & Quotable is subtitled 'John McCain remembers how Henry Kissinger helped preserve his honor as a prisoner of war:'

"Sen. John McCain's toast at a 90th birthday celebration for Henry Kissinger in New York, June 2:

To do justice to the life and accomplishments of Henry Kissinger would take—as Henry would be the first to agree—a vehicle longer than my few brief remarks. A mere single-volume biography couldn't really manage the task competently, could it, Henry?

So I'll limit my remarks to recalling one anecdote that I think illuminates the character of my friend.

For several years, a long time ago, I struggled to preserve my honor in a situation where it was severely tested. The longer you struggle with something, the more you come to cherish it. And after a while, my honor, which in that situation was entirely invested in my relations and the reputation I had with my fellow POWs, became not just my most cherished possession, it was my only possession. I had nothing else left.

When Henry came to Hanoi to conclude the agreement that would end America's war in Vietnam, the Vietnamese told him they would send me home with him. He refused the offer. "Commander McCain will return in the same order as the others," he told them. He knew my early release would be seen as favoritism to my father and a violation of our code of conduct. By rejecting this last attempt to suborn a dereliction of duty, Henry saved my reputation, my honor, my life, really. And I've owed him a debt ever since.

So, I salute my friend and benefactor, Henry Kissinger, the classical realist who did so much to make the world safer for his country's interests, and by so doing safer for the ideals that are its pride and purpose. And who, out of his sense of duty and honor, once saved a man he never met."

Summing Up

What John McCain said last week, and what Henry Kissinger did in Hanoi many years ago, are both appropriate and timely reminders that all Americans can carefully reflect upon in today's ultra politically wordy and apparently leaderless do nothing environment.

Timeless too.

That's my take.

Thanks. Bob.

Truth Telling and Friday's Continuing Weak Employment Report ... Putting The Jobs Story in Its Ugly but Proper Perspective

With Friday's release, the reported unemployment rate remains at 6.3%, salary increases continue to be low, and new jobs created for May stand at roughly 217,000.

But what all does this mean? Let's put things into context.

The Fed Plays With Fire on Jobs contains some much needed and helpful clarifying information:

"The job market is in a very deep hole . . . .

The U.S. added 217,000 payrolls last month, the Labor Department reported Friday, finally pushing the total job count above the peak set in early 2008 as the economy entered recession. Yet since that time, the population ages 16 and over (and not in institutions like the armed forces, prisons or nursing homes) rose by about 15 million, many of whom would be working if given the opportunity. . . .

 The peak in the unemployment rate following the 2001 recession was 6.3%, hit in June 2003. {NOTE: That prior 'peak' is the exact same number as the current 'good news' rate released Friday.} . . .

The employment cost index . . . was up 1.8% in the first quarter from a year earlier. . . .

A slow expanding economy with little inflation is an economy at risk."

Summing Up

Putting a politician's spin on the employment situation, I guess the good news is that the jobs news isn't getting any worse and that new jobs are being created.

But truth telling requires an admission that the level of employment isn't getting much better and that the new jobs being created aren't all that great either.

For the score keepers, we've caught up with the total number of jobs that existed in 2008, and we "only" have 15 million more to go to get back to even, considering the growth in the number of potential job seekers since then.

And in addition to that, many of those new jobs are low skilled entry level jobs for which many underemployed workers are overqualified.

Accordingly, while labeling the economy and jobs market as weak isn't much fun at this stage of the so-called "economic recovery," umpires must call 'em as they see 'em.

That's my take.

Thanks. Bob.