Sunday, November 30, 2014

Young People Need Not Fear the Stock Market ... Its Lifetime Benefits Are Huge

The numbers tell the story. At age 65, money invested in the stock market at age 22 will become more than 6 times greater than that same amount of money not invested until age 50.

The conclusion is simple and the consequences are huge. Nevertheless, our young people still aren't investing in stocks for their future financial health and security. That has to change.

Many oldsters now wish that they would have known as youngsters that which we now know to be true. But now it's too late.

However, it's not too late for the young to avoid the simple unforced error of not balancing the legitimate needs of our future selves with the desires of today. So let's look at what the young should be doing with respect to achieving old age financial security and independence the self reliant way.

All that's required is that when we begin our working years, we immediately initiate a regular pattern of saving and investing a portion of our earnings in stocks for the long haul. Of course, that also means foregoing the 'opportunity' to splurge, spend and borrow to the hilt.

If the young will just do that, the stock market will be their long term friend, and in the long term financial security and independence will be theirs.

An open letter to millennials: the market is your friend contains some sound advice from one young person to another:

"A recent study. . . shows that U.S. adults under age 35 spend, in aggregate, 2% more than what they earn. This finding has been the subject of much hand-wringing about (millennials), which is sometimes defined as anyone born from 1980 to 2000.

But people are concerned for the wrong reason. Our savings isn’t the problem; it’s our attitude toward stocks. . . . 52% of millennials are “not very confident” or “not confident at all” in the stock market.

When we invest on our own, we put 59% of our assets in cash and bonds, and 28% in stocks, a recent survey by UBS Wealth Management found.

“This is directly counter to traditional long-term investment allocation advice,” which is that younger investors can afford to take greater stock risk when investing for retirement because they won’t need the money soon, UBS notes.

Our attitudes are important because many of us are expected to play a different role in investing for retirement than some older generations, who were more likely to have a workplace pension. . . .

We millennials have time on our side. It’s an asset older investors can only dream about.

We have time to endure market crashes. We have time to not care about what the market is doing this month, this year, or even this decade. We can tune out the noise and take the long view. The stock market is practically made for people like us.

Since 1871, the stock market has earned an average annual return after inflation of 6.8% . . . . During that period, there were 29 recessions, a Great Depression, two world wars, a flu pandemic, various financial crises and multiple market crashes. Past performance doesn’t guarantee future returns, but 6.8% a year is as close as we have to a benchmark for what to expect over the long run, chaos and all. . . .

Starting at age 22, every dollar saved compounded at 6.8% annually will be worth $16.90 by age 65. Start at age 50, and each dollar is worth $2.70 by age 65."

Summing Up

Time lost is gone forever. And with respect to young adults beginning to save and invest in a basket of high quality stocks, that's especially true.

So if you're still young, start a lifetime habit of consistently saving and investing a part of each paycheck in a diversified portfolio of blue chip stocks for the long haul.

And if you're now among the older and 'wiser' ones, please tell the younger ones to get going down the path to financial security the easy and painless way.

And because time flies, make sure they realize that they need to start down that path now.

That's my take.

Thanks. Bob.

Saturday, November 29, 2014

Summarizing "The Week That Was" in the Oil Patch ... In the Long Term, U.S. Consumers, Businesses and Competitive Free Markets Will Be the Big Winners

Let's wrap up a historic week in the global oil patch by simply saying that we've witnessed the end of monopolistic pricing by OPEC and friends, and the resumption of competition based free market pricing. The days of global energy price setting by the OPEC cartel are finally over.

In the future, competitive market based low energy prices will be the norm. How low will prices go? Nobody knows. Global competition and the U.S. government's policies toward domestic energy exploration, production and transportation will determine that.

In other words, free market based competition and pricing based on the law of supply and demand, coupled with the cost of delivering that energy, and especially fracking costs, will reveal exactly how low that future 'low' will be. However, whatever the case, the equilibrium price will be a whole lot lower than the current 'low' pricing. And today's current pricing is already a whole lot lower than has been the case for many years.

So although the obvious question is where prices will stabilize, the answer is that reaching equilibrium pricing by balancing global supply and demand won't come for quite some time. And assuming our U.S. political leaders will allow the free market in energy to work, prices are headed lower, despite what President Obama and his band of government knows best 'greenies' may wish. Electric car makers, solar companies and the other heavily government subsidized alternative renewable energy providers 'of the future' are going to be in a world of hurt.

In short, when we look back in future years, this will definitely prove to have been "The Week That Was." This will have been the time when energy policy began to change for the better in the U.S. and free markets globally took the reins from OPEC and U.S. government control.

The New Oil Order is appropriately subtitled 'OPEC feels the squeeze from the U.S. shale boom:'

"America’s unconventional oil boom continues to yield major benefits—economic and geostrategic. The latest evidence is OPEC’s decision on Thursday to defy expectations and maintain its current oil production target despite the steepest price decline since the 2008-2009 recession. The price of Brent crude, the global oil benchmark, plunged as a result to about $70 a barrel, continuing its decline from a peak of nearly $116 in June. {NOTE: Prices fell 10% in the U.S. Friday, closing at ~$66 per barrel, the lowest level since 2009.}

Not too many years ago the Organization of Petroleum Exporting Countries might have cut production to maintain higher prices. The cartel’s countries have long sought to keep prices high at a level consistent with a growing global economy, not least to keep the revenue flowing into government coffers. Rogue states such as Venezuela and Iran desperately need the cash flow.

But the cartel has lost much of its pricing power thanks in part to the revival in U.S. oil production. Horizontal drilling and hydraulic fracturing—business innovations done mainly on private land—have pushed U.S. oil output to its highest level since the 1980s.

The Energy Information Administration says U.S. production reached more than nine million barrels a day this year and is expected to keep climbing. OPEC is afraid that demand for its crude will keep falling as U.S. supply continues to grow and more of it makes its way to the global market as American export barriers fall.

One way to read the OPEC decision is therefore as a price war to shake marginal U.S. producers from the market. The U.S. shale boom and high global oil prices have encouraged new areas of production with widely varying break-even price levels. Much of such proven areas as the Bakken Shale in North Dakota can remain profitable even at $50 a barrel, by most estimates. The Eagle Ford Shale in Texas also has a relatively low break-even. But newer areas with higher exploration and development costs could suffer if prices keep falling.

That’s how markets are supposed to work, with supply and demand rather than a cartel of dictatorships setting prices. A lower oil price will mean pain for some U.S. producers, and it is showing up in lower share prices for energy companies.

But no boom lasts forever, and lower prices will discipline American drillers to focus their investments on the most promising areas and innovate further to reduce costs. A shake-out might have long-term benefits if it doesn’t go too far.

Meanwhile, lower oil prices are an unmitigated boon to American consumers. The average gasoline price per gallon in the U.S. fell to $2.79 on Friday, down 50 cents from a year ago. That’s a big difference to the average family filling up the SUV each week, especially wage earners who haven’t had an increase in their standard of living during this entire economic expansion. Consumers who feel less pinched might open their checkbooks for non-energy purchases.

Lower prices will also add to the economic pressure on some of the world’s worst dictators, notably Vladimir Putin . Russia doesn’t belong to OPEC but it has benefited to the extent that the cartel’s production controls have kept prices high. Already under pressure from EU and U.S. sanctions, Mr. Putin’s ability to buy domestic political support will decline along with oil prices.

All of these benefits are flowing from a U.S. oil boom that government didn’t predict and had almost nothing to do with. The political class has force-fed subsidies to renewable energy with little economic benefit. The new oil order is a reminder that markets and American ingenuity are better economic pillars than all the schemes of government planners."

Summing Up

The market works when given a chance to do so, and a 'Drill, Baby, Drill' policy in the U.S. will mean lower global energy prices.

Accordingly, the combined long term prospects for rational energy pricing and sustainable economic growth in America are a cause for optimism.

We can also be hopeful (albeit not yet certain) that U.S. government 'leadership' won't make things any more difficult for America's energy finders, drillers, producers and transporters than global free market conditions dictate.

If the competitive free market is allowed to work, the outlook for American producers, businesses and consumers is bright.

Finally, and in addition to higher employment and solid economic growth, our U.S. national security will be strengthened, and many billions of energy driven tax dollars will flow to our government's coffers.

So other than the tree huggers, Russia, OPEC, and President Obama's gang of greenies, We the People in the U.S. will be the biggest winners in the global energy market.

That's my take.

Thanks. Bob.

Friday, November 28, 2014

DRILL, BABY, DRILL ... Oil Prices Keep Falling after OPEC Meeting Ends in "No Decision" on Cutting Production Levels

Yesterday we commented that the oil prices had fallen overnight in anticipation of the OPEC cartel's not being able to reach a consensus in reducing their production levels. Well, that happened as predicted. As a result, oil prices have dropped another 6% or nearly $5 in early trading today.

Except for the countries like Russia, Saudi Arabia, Iran and Venezuela that depend on high oil prices to finance their governments and economies, this is definitely great news for the rest of the world's economies.

Since the U.S. is both an oil producer and a diversified economy with consumers keeping the 'plate' spinning for companies and government alike, we are the big gainers at OPEC's and Russia's expense. It couldn't happen to a better bunch of thugs.

We need a middle class tax cut, and we just got one with the falling price of oil. Now all we need is for the crazies in government who are blocking the Keystone Pipeline, the export of crude oil and discouraging a "Drill, Baby, Drill" response to OPEC and gang, to get out of the way and let the free market take care of the rest.

OPEC Holds Production Unchanged; Prices Fall has the continuing good news story about prospects for economic growth and consumer spending heading into the important Christmas selling season and beyond:

"The oil cartel OPEC decided on Thursday not to cut petroleum production, despite the plunge in prices in recent months that has indicated the diminishing clout of the organization.

On news of the decision by the Organization of the Petroleum Exporting Countries, the price of Brent crude oil, a global benchmark, fell an additional $4 to a four-year low of about $73. American crude dropped below $70, an even more significant threshold. . . .

Prices have come under pressure as global output of crude oil outstripped demand this year. Analysts forecast excess supplies of crude to continue to build in 2015.

The main new source of supply is oil extracted from shale in the United States, which is expected to add about one million barrels a day of oil production this year and an additional one million barrels a day in 2015.

OPEC seems at a loss about how to cope with this new source of competition and is also struggling to influence other big producers outside the organization like Russia and Brazil. Unable to come up with a strategy for handling these new developments, the cartel has decided not to intervene, evidently hoping that low prices will eventually curb production in the United States. . . .

Even though lower prices will hurt oil producers in the United States, the American economy will probably benefit as consumers have more money to spend and companies’ energy bills decline. Europe and Japan, both large oil importers, are also likely to get a boost from lower prices, although in Europe high taxes on energy limit gains for consumers.
Lower prices, on the other hand, could be very painful for OPEC producers, who depend heavily on oil revenue. . . .

Analysts say that Thursday’s announcement signals a radical change on the part of OPEC. Bhushan Bahree, an OPEC analyst at the market research IHS firm, called the announcement “a major tactical shift.”. . . Analysts say that at least some OPEC powers appear to have recognized that lower prices may prevail for a considerable time. In that situation, the organization needs to work on regaining market share. . . .

Analysts say the surge in supply from the United States poses particular challenges to OPEC because there is little the producers’ group can do but hope that lower prices will eventually discourage investment in drilling in the United States, thus reducing production.

The dynamic has shades of the early 1980s, when new crude supplies emerged from the North Sea, Alaska and Mexico, sending prices falling and squeezing OPEC’s market share."

Summing Up

If the U.S. government will stop blocking American oil companies, we will enjoy lower oil prices and a stronger economy in the coming years and decades.

The world is getting a taste of what increased supply means to prices as U.S. shale and other energy output is growing each day.

Why our government wants the bad guys to rule and the good guys to suffer is beyond my comprehension. Our political leaders are the 'stupid' ones.

Jonathan Gruber had it wrong concerning the stupidity of the American voter. It's our political 'leaders' who are the clueless ones.

And in time President Obama, Jonathan Gruber and the rest of their elitist and clueless cronies will be widely recognized as being wrong about the 'wonderful virtues' of big government mandated ObamaCare and other 'helpful' programs as well.

Capitalism, individual freedoms, free markets, competition and prosperity go together, regardless of what the 'stupid' politicians may want us to believe.

And lower oil prices are once again proving that simple point.

"Drill, Baby, Drill." That's my take.

Thanks. Bob.

Thursday, November 27, 2014

One More BIG Thanksgiving Blessing ... Today's OPEC's Meeting and Falling Oil Prices

OPEC is meeting today, and oil prices have fallen another 2% per barrel in this morning's global trading. So while it ain't over 'til it's over, of course, it still looks very much to me like they won't be able to come to an agreement to reduce production levels. See As OPEC Members Meet, Outcome Remains Unclear.

Thanks to the fracking revolution in the U.S., OPEC's reign on price fixing is coming to an end. And let's be thankful that free markets led by American ingenuity and entrepreneurship are stronger than than the monopolistic and totalitarian cartels. The laws of supply and demand will work when given a chance to do so.

Now we need the Keystone Pipeline's approval, the green light to export U.S. oil and the bullying behaviors of Russia, Iran and Venezuela to take a back seat to our own national security, financial well being and private sector leadership. And lest we forget, let's hope the U.S. government doesn't act 'stupid' and continue to support the bad guys at the expense of backing the private sector players and good guys in the U.S., Canada and Mexico.

Americans, let's be thankful that U.S. oil is pulverizing OPEC has the good news story:

"Americans will give thanks for just about everything this weekend, and most of all for one another.

I’ll save a toast for George Mitchell, the man who more than any other is enabling America to wipe the smirks off faces of a lot of people who have deserved it for an exceedingly long time.

Mitchell is the pioneer of hydraulic fracking, the breakthrough that has increased U.S. crude oil production by 80% since 2008. Combined with more conservation, and growth hiccups of varying severity in emerging economies, all that oil has pushed the price of crude down nearly 30% since July even as U.S. economic growth picks up.

That brings us to this week’s meeting of the Organization of the Petroleum Exporting Countries, and all the lousy regimes whose suffering it will lay bare.

Some numbers, first. In 2005, the U.S. produced about 5 million barrels of oil a day, in a market of about 90 million barrels a day then dominated by the 12 OPEC nations, including Saudi Arabia. And — this is the key part — even with all the growth in Asian nations and a recovery in the U.S., demand for oil is only growing about 1% a year.

As fracking made it possible to extract ever more oil from shale rock, (by 2020 the) estimate for shale alone is now up to 12.1 million barrels a day. . . .

This doesn’t even count the . . . Keystone XL pipeline (which may carry) . . . another 4 million or so barrels by then, up from 2 million last year, the Canadian Energy Research Institute says.

So you have a market with probably 20% to 25% more supply than in 2005 and about 15% more demand — if that. . . . Thankfully, the highest-cost, smallest, most-vulnerable world producers are exactly the jerks who have made U.S foreign policy such a chore.

No such discussion would be complete without mentioning Vladimir Putin’s Russia, which Sen. John McCain has aptly described as a gas station masquerading as a superpower.

Russia needs $101 crude to balance its budget, not the $79 Brent price on Tuesday, Goldman says. Russia’s finance minister recently said the crude crash is costing them $90 billion to $100 billion a year, and Western sanctions over Putin’s Ukraine adventurism cost another $40 billion.

No wonder Russia’s economy is stalled, with the ruble down nearly 40% this year."

Summing Up

OPEC's state of disarray is indeed a blessing this Thanksgiving, thanks to American entrepreneurialism. 

Now if we can just keep our U.S. government 'leaders' from messing things up for us, which they are prone to do.

For today, drive safely and inexpensively. Low gas prices and an abundant energy supply are here to stay. They have been a long time coming.

Maybe by next Thanksgiving, and for a long time thereafter, we'll see that prices at the pump have fallen to ~$2 per gallon or below.

And that would mean more money in our pockets instead of OPEC's and Putin's.

Isn't that another Thanksgiving blessing and a happy thought for Christmas shoppers?

That's my take.

Thanks. Bob.

Tuesday, November 25, 2014

E Pluribus Unum ... A Note of Thanksgiving

{NOTE: At Thanksgiving each year, two thought provoking editorials appear in the Wall Street Journal. They remind us of the unique and wonderful nation we inhabit and tell the story of how "The Desolate Wilderness" of 1620 became the "Fair Land" circa 1961. The U.S.A. today is still by a very wide margin the "Fairest Land" in the world. At least that's my view. I expect it's yours as well.}

The Desolate Wilderness:

"Here beginneth the chronicle of those memorable circumstances of the year 1620, as recorded by Nathaniel Morton, keeper of the records of Plymouth Colony, based on the account of William Bradford, sometime governor thereof:

So they left that goodly and pleasant city of Leyden, which had been their resting-place for above eleven years, but they knew that they were pilgrims and strangers here below, and looked not much on these things, but lifted up their eyes to Heaven, their dearest country, where God hath prepared for them a city (Heb. XI, 16), and therein quieted their spirits.

When they came to Delfs-Haven they found the ship and all things ready, and such of their friends as could not come with them followed after them, and sundry came from Amsterdam to see them shipt, and to take their leaves of them. One night was spent with little sleep with the most, but with friendly entertainment and Christian discourse, and other real expressions of true Christian love.

The next day they went on board, and their friends with them, where truly doleful was the sight of that sad and mournful parting, to hear what sighs and sobs and prayers did sound amongst them; what tears did gush from every eye, and pithy speeches pierced each other’s heart, that sundry of the Dutch strangers that stood on the Key as spectators could not refrain from tears. But the tide (which stays for no man) calling them away, that were thus loath to depart, their Reverend Pastor, falling down on his knees, and they all with him, with watery cheeks commended them with the most fervent prayers unto the Lord and His blessing; and then with mutual embraces and many tears they took their leaves one of another, which proved to be the last leave to many of them.

Being now passed the vast ocean, and a sea of troubles before them in expectations, they had now no friends to welcome them, no inns to entertain or refresh them, no houses, or much less towns, to repair unto to seek for succour; and for the season it was winter, and they that know the winters of the country know them to be sharp and violent, subject to cruel and fierce storms, dangerous to travel to known places, much more to search unknown coasts.

Besides, what could they see but a hideous and desolate wilderness, full of wilde beasts and wilde men? and what multitudes of them there were, they then knew not: for which way soever they turned their eyes (save upward to Heaven) they could have but little solace or content in respect of any outward object; for summer being ended, all things stand in appearance with a weatherbeaten face, and the whole country, full of woods and thickets, represented a wild and savage hew.

If they looked behind them, there was a mighty ocean which they had passed, and was now as a main bar or gulph to separate them from all the civil parts of the world."


And the Fair Land that we now call home:

"Any one whose labors take him into the far reaches of the country, as ours lately have done, is bound to mark how the years have made the land grow fruitful.

This is indeed a big country, a rich country, in a way no array of figures can measure and so in a way past belief of those who have not seen it. Even those who journey through its Northeastern complex, into the Southern lands, across the central plains and to its Western slopes can only glimpse a measure of the bounty of America.

And a traveler cannot but be struck on his journey by the thought that this country, one day, can be even greater. America, though many know it not, is one of the great underdeveloped countries of the world; what it reaches for exceeds by far what it has grasped.

So the visitor returns thankful for much of what he has seen, and, in spite of everything, an optimist about what his country might be. Yet the visitor, if he is to make an honest report, must also note the air of unease that hangs everywhere.

For the traveler, as travelers have been always, is as much questioned as questioning. And for all the abundance he sees, he finds the questions put to him ask where men may repair for succor from the troubles that beset them.

His countrymen cannot forget the savage face of war. Too often they have been asked to fight in strange and distant places, for no clear purpose they could see and for no accomplishment they can measure. Their spirits are not quieted by the thought that the good and pleasant bounty that surrounds them can be destroyed in an instant by a single bomb. Yet they find no escape, for their survival and comfort now depend on unpredictable strangers in far-off corners of the globe.

How can they turn from melancholy when at home they see young arrayed against old, black against white, neighbor against neighbor, so that they stand in peril of social discord. Or not despair when they see that the cities and countryside are in need of repair, yet find themselves threatened by scarcities of the resources that sustain their way of life. Or when, in the face of these challenges, they turn for leadership to men in high places—only to find those men as frail as any others.

So sometimes the traveler is asked whence will come their succor. What is to preserve their abundance, or even their civility? How can they pass on to their children a nation as strong and free as the one they inherited from their forefathers? How is their country to endure these cruel storms that beset it from without and from within?

Of course the stranger cannot quiet their spirits. For it is true that everywhere men turn their eyes today much of the world has a truly wild and savage hue. No man, if he be truthful, can say that the specter of war is banished. Nor can he say that when men or communities are put upon their own resources they are sure of solace; nor be sure that men of diverse kinds and diverse views can live peaceably together in a time of troubles.

But we can all remind ourselves that the richness of this country was not born in the resources of the earth, though they be plentiful, but in the men that took its measure. For that reminder is everywhere—in the cities, towns, farms, roads, factories, homes, hospitals, schools that spread everywhere over that wilderness.

We can remind ourselves that for all our social discord we yet remain the longest enduring society of free men governing themselves without benefit of kings or dictators. Being so, we are the marvel and the mystery of the world, for that enduring liberty is no less a blessing than the abundance of the earth.

And we might remind ourselves also, that if those men setting out from Delftshaven had been daunted by the troubles they saw around them, then we could not this autumn be thankful for a fair land."

Summing Up

Reading these editorials each year reminds me how lucky I am to be an American.

I trust that it has had a similar effect on you.

Our troubles today are not even close to those confronted and overcome by prior generations of Americans.

So here's my take --- we shall overcome --- each of us --- together as one.

E Pluribus Unum.

Happy Thanksgiving. Bob.

Monday, November 24, 2014

Borrowing Too Much and Saving Too Little is the Wrong Plan ... Investing in Stocks for the Long Haul is Simple, Easy and the Financially Savvy Thing to Do

Too many Americans don't save and invest for the future. They spend and borrow instead.

If we simply make the effort to consistently save and invest a portion of our income from the outset of our work lives, we will complete our journey down the road with plenty of time and money to spend on whatever we choose. But if we spend and borrow from the outset instead of saving and investing for the future, we'll never be able to escape the pile of debt and deep hole that we'll dig for ourselves.

With that simple truism in mind, let's examine what consistent savings coupled with the investment of those savings for the long term in stocks will do for us. It's the tried and true and too seldom traveled common sense road to financial freedom.

All that's required is that from the beginning we take into account our future needs and not indulge ourselves completely in the financially unhealthy pursuit of today's pleasures. In other words, balancing the interests of our present and future selves is the 'trick.'

And if that balance of today's and tomorrow's needs is the path we take, we'll emerge as financially secure winners. Following such a common sense approach to individual investing for the long haul can be both simple and easy, and 8 lessons from 80 years of market history tells us how:

"What do you think is the most important thing that investors do?

Keep their expenses low? Hire a superstar manager? Avoid taxes? Have perfect timing? They’re all significant, but arguably the very most important decision is choosing what kinds of things to invest in. Asset class selection is the fancy name for this.

(Actually, setting aside some money to invest in the first place is the absolute most essential step. But if you don't do that, then you're not even an investor.) . . . more than 90% of your ultimate investment return depends on your choices of asset classes. (This assumes that you invest money and leave it invested. If you move in and out of your investments, then your results are totally unpredictable.) . . .


The following are 10-year annualized percentage returns for the S&P 500 Index, U.S. Large Cap Value, U.S. Small Cap and U.S. Small Cap Value. Returns are in %s.
 Asset Class: 30-39 40-49 50-59 60-69 70-79 80-89 90-99 00-09 1930-2013
S&P 500  Index -.
Large-Cap Value  -5.712.718.49.412.920.616.84.111.2
Small-Cap 2.314.919.
Small-Cap Value   -2.619.819.614.414.420.116.212.814.4
Includes reinvestment of dividends. Source: Dimensional Fund Advisors. . . .
  • It is obvious that, when measured in 10-year increments, the market was up most of the time. The table shows 32 10-year returns; 28 of them were positive, and only four were negative (and three of those four occurred way back in the 1930s).
  • The market can have many successful decades in a row. Most investors remember that the 1990s produced very high returns for equities, but this table shows even better returns in the 1980s.
  • Leading and lagging asset classes sometimes change places. This makes it hard to pick just one and be confident it will always be on top. . . .
  • The first 10 years of this century has been regarded as a “lost” decade for stock investors, largely because of large-cap growth stocks and a couple of serious bear markets. But in that decade, a portfolio that was divided equally among these four asset classes wound up being a moneymaker, with an average gain of 6.7%. . . .
Because of the third lesson (above), it's impossible to know which asset class will do best next week, next month, next year or even next decade. But there's magic in combining all four of these in one portfolio. Over 84 years from 1930 through 2013, this Group of Four boosted the annual return from 9.7% to 12%.

If you think that's not a big deal, here's the math: A $1,000 investment in 1930 (equivalent to $14,084 in today's dollars) grew to $2.4 million at 9.7% -- or to $13.6 million at 12%."

Summing Up

Most of us borrow too much and save too little during our adult lives.

And of that amount which we do save, we often squander the opportunity to achieve real financial security and independence by not investing in the long term "safety" of the stock market. We do that because we mistakenly believe stock market investing to be too risky. The truth is just the opposite. 

So let's all wise up, face facts, and adopt a winning long term savings and investment program by taking the time to learn, earn, save and invest in a diversified basket of stocks.

For the long haul, that's the winning financial formula.

That's my take.

Thanks. Bob.

Sunday, November 23, 2014

Poor and MIddle Class Americans Need Less Government "Help"

Winston Churchill said this about income inequality and the profound differences between capitalist and socialist systems of governance:  "The inherent vice of capitalism is the unequal sharing of blessings. The inherent virtue of Socialism is the equal sharing of miseries."

The opportunity to achieve high standards of living that we desire for all Americans is a purposeful and wonderful pursuit, but the means chosen to achieve those earned results are even more important. While we may wish that every American (especially the poor and middle class) will come to enjoy prosperity in his or her personal life, how we each individually and as a nation choose to go about accomplishing that is of critical importance.

The sad reality today is that real inflation adjusted wages have been flat lining or even declining for the past several years, the U.S. economy continues to muddle along, and the poor and middle classes are suffering.

But why is that happening in America and, even more important, what can each and all of us do about it? In my opinion, the obvious answer is that the government's playbook needs to change.

Winston Churchill also said this, "A fanatic is one who cannot change his mind and won't change the subject." And this, "Socialism is a philosophy of failure, the creed of ignorance and the gospel of envy."

We should listen carefully to those words of wisdom from Sir Winston, and so should President Obama and his team of do-gooders. Now let's review some facts.

More Redistribution, Less Income is subtitled 'Obama has spread the wealth, but the poor and middle class haven't benefited' has this to say:

"One reading of the midterm election wave is that voters have concluded that President Obama’s answer to falling incomes and slow growth—higher taxes on the rich and more redistribution—is tapped out. These policies have been up and running for six long years but the middle class is no better off as a result.

On taxes, Mr. Obama often claims that the rich don’t pay their “fair share,” yet the most affluent one-fifth of taxpayers on average supplied 68.7% of federal revenue for 2011. That’s according to the Congressional Budget Office . . . .

As for the top 1%, they funded 24% of everything the government does in 2011. The CBO also estimates that the end-of-2012 fiscal cliff deal that lifted the top marginal income tax rate to 39.6%, plus ObamaCare’s taxes on high-income individuals, increased their average federal taxes by 4.3 percentage points to 33.3% of income. The Warren Buffett minimum-tax rule asserted that no millionaire should pay an effective tax below 30%. Mission accomplished.

. . . but the bigger news in the CBO numbers is that wealth is being spread with little to show for it. According to the CBO, the lowest 60% of earners all collect more in benefits on average than they remit to the Treasury. Yet even the supposed beneficiaries of Mr. Obama’s policies ended up with less in 2011 than 2007. . . .

Liberals will respond that at least redistribution reduced after-tax income inequality, though that abstract achievement is little comfort to the people with less actual income at their disposal. Recall Mr. Obama’s comments as a primary candidate at a 2008 debate that he favored higher taxes in the name of equity, never mind the consequences for revenue or the economy. Well, he got that . . . .

The main lesson in these statistics is not about dependence on government. Rather, it is a verdict on Obamanomics. Presidents who put reducing inequality above increasing prosperity end up with less growth and opportunity that benefits everyone, and thus with more inequality.

There’s also a lesson about the exhaustion of the liberal tax agenda. As a matter of arithmetic in a tax system as tilted toward the high end as America’s, the rich aren’t nearly rich enough to finance progressive ambitions. . . .

Our guess is that most Americans would prefer to exit this tax-and-redistribute treadmill and simply earn more market income."

Summing Up

Facts are stubborn things.

That's my take.

Thanks. Bob.

Being an American Means Individual Freedoms Trump Group Rights ... And What Descartes, Ayaan Hirsi Ali and Spud Webb Have to Say About It

Are we a nation of individuals or a nation of individual groups?

Of course, we are both, but that's not the question du jour.

Which is more important to each of us on a daily basis as we go through life?

This brings to my mind Descartes's famous quote, "I think, therefore I am."

But there's a slightly different take on that quote which I prefer, "I think, therefore I can change what I am." Because by changing how we think, we can change what we do, how we feel and even what we become.

In other words, in America what happens to each of us is largely up to each of us. The power to choose our own direction and destiny is for us to determine as individual Americans.

From time to time, I remind myself of this unearned blessing that comes by being born an American.

Notable & Quotable: Ayaan Hirsi Ali has this to say about that:

"From remarks by Somali-born writer Ayaan Hirsi Ali at the Independent Women’s Forum’s Women of Valor Dinner, Nov. 19:

It is a hard fight. It’s extremely difficult, day after day, when you face people and say, “If Sharia law is taken to its logic this is what things are going to look like” and you come across people who say, “you got it all wrong.”

I had a Q&A in a setting like this one with the vice president of our country. He said, “ISIS had nothing to do with Islam.” I said, “I beg to differ.” He said, “Let me tell you one or two things about Islam.” I politely left the conversation at that. I wasn’t used to arguing with vice presidents. . . .

I come from a culture and background, and I spent my youth, in an environment where everything and absolutely everything reminded me of being a woman, being female, and being inferior.

And I didn’t realize until I came to the West that we actually are first and foremost not collectives. We are individuals. We are individual girls with our different characters, with our likes and dislikes.

And before you assume the collective, assume the individual. That is the greatest thing about the idea of America."

Summing Up

As former basketball player Spud Webb put it, "If you  can dream it, you can do it." And so it was with him when several years ago at 5'7" he won the NBA dunk contest.

In America, We the People are in charge of our destiny -- each of us -- not the government.

And with all the issues and problems we are facing today, sometimes it's necessary to reflect on how lucky we are to be Americans.

Today is one of those 'thankful' days for me as I try to figure out what to do with the rest of my 'working' life.

That's my take.

Thanks. Bob.

Friday, November 21, 2014

Individual Freedoms Are Undeniably Linked to Overall Prosperity ... So Who's in Charge? ... We the 'Stupid' People Operating in a Free Market or Elitist Government Officials Acting as the Omniscient Ones

Lots has been written about our U.S. economic woes and those of the rest of the world as well. In much of the rest of the world, citizens have few individual freedoms. Unlike us, they are unable to write their own life stories or own the property on which they live.

At the same time, there has been far too little discussion concerning the strong linkage between individual freedoms and a nation's overall prosperity. In general, prosperity and the individual freedom to choose life's path are integral pieces of a free market based economy whereas poverty and a lack of personal freedoms are the norm in government controlled societies.

The conclusion is unmistakable and straightforward --- absent anarchy and assuming that the rule of law prevails, the more freedom individuals have in any society, the more economic prosperity they and that society will enjoy as well.

So we can think of freedom and prosperity versus government intrusion and control as a pendulum with anarchy at one extreme and totalitarianism at the other. Things are always in flux and the pendulum is constantly moving back and forth, albeit hopefully always closer to where individual rights are the norm rather than government dominance.

To repeat, as government influence grows and those in power assume more control for decision making, individual freedoms and a nation's prosperity suffer. And when individual freedom of choice is missing, poverty abounds, except for those few who run the government.

A healthy society is one where individual freedoms flourish and private property owning citizens and entrepreneurs are acting freely in a market based economy. Then poverty will drop, the middle class will prosper and government will be restricted to protecting the private property rights of individual owners, maintaining order and keeping the citizens safe and secure. It's really that simple.

Singing About Fighting Poverty, Slightly Off-Key is subtitled 'Concerts to help the poor are fine, but too bad no one sounds a note about freedom. That's the path to prosperity:'

"Two crowds gathered on opposite sides of the world (recently). The first crowd was for the celebrity concert in New York's Central Park featuring Jay Z, BeyoncĂ© and Carrie Underwood, fighting against global poverty. The second crowd consisted of citizens of Hong Kong who are still staging a sit-in protest, fighting for their freedoms against a recent decision in Beijing to deny them previously promised free elections for Hong Kong's own government.

The sad thing is that the crowd for the first cause in Central Park showed little awareness or sympathy for the cause of the second crowd in Hong Kong. . . .

There is a kind of apartheid in economic-development efforts in the West that perceives people in the Rest as only having material needs, but not also having aspirations to realize their rights. The view is tragically misguided, because prosperity and liberty are inextricably linked.

Pro-democracy demonstrators gather in front of embattled leader CY Leung's office in Hong Kong on Thursday.                
Pro-democracy demonstrators gather in front of embattled leader CY Leung's office in Hong Kong

Those who focus on global poverty don't bestir themselves about the Hong Kong demonstrators because Hong Kong citizens already enjoy material comfort. Yet Hong Kong is more prosperous than the rest of China precisely because of its relative freedom from Beijing's interference; how safe is that prosperity if China now interferes much more?

Many believe that the discussion of poor countries should focus only on poverty, not oppression, without considering whether the second might contribute to the first. Thus the development establishment of celebrities, policy wonks and aid agencies is eloquent on material poverty—with China even hailed as a poverty eradicator—while remaining silent on freedom, as in Hong Kong, where China is the enemy of democracy and individual rights. . . .

Extreme poverty in China has been reduced over the past few decades precisely because Beijing permitted the freedoms of a market economy to infiltrate a communism-blighted society. If the regime's repression now worsens, count on the end of the country's high growth rates. . . .

Yet freedom is arguably central: first, as an end that people want for themselves, and, second, as the most well-proven path to escaping poverty. . . . It is time that celebrity fighters for material economic development started also singing the praises of liberty."

Summing Up

The more government intrudes into the lives and free decisions of a society's citizens, the less freedom the members of that society enjoy.

The less freedom individuals have, the less prosperous are both the overall society and its individual members.

A free society values the ownership of private property, and displays proudly the signs of a nation of private property owning individual risk takers.

On the other hand, the governing elite rule an autocratic society, and government dominates and poverty reigns throughout the land.

So let's be very careful when wishing that our government would do something about fixing what ails our U.S. economy. Hasn't it done enough already?

That's my take.

Thanks. Bob.

King Barack's Unconsititutional and Divisive Executive Action on Deportations ... Lessons for the U.S. from Japan's Struggles with Debt, a Decades Long Stagnant Economy and the Perils of Deflation

President Obama described his illegal and unconstitutionally based executive order granting amnesty to 5 million illegal immigrants in a nationally televised speech last evening. In so doing he said the Constitution was no restraint on his unilateral actions.

So let's chalk another victory up for the small minded and mean spirited partisan politics that is pervasive in America today.  And this wrongheaded and intentionally divisive decree came from someone whose views and policies were just 'shellacked' at the polls by We the People. And from the same person who once taught constitutional law at the prestigious University of Chicago.

Political gamesmanship as practiced by our elitist President Obama still reigns supreme throughout America. In other words, the views of Congress, the duly elected representative of We the People, and the constitutional rule of law be damned.

The King has spoken, and the minions, aka We the People, must obey. Screw the Founding Fathers, the Constitution and the very idea of presidential restraint through the constitutionally decreed doctrine of separation of powers. By intentionally setting aside the basic rules of our Constitutional democracy, the President has simply decided to make law rather than enforcing and duly executing the laws as written by Congress.

Personally I'm all for opening the borders to those who wish to come to America, work hard and raise their families in a free, safe and open society, and I don't know anyone who doesn't feel the same way. But what about the more than 300 million American citizens today? Aren't we, our kids and grandkids also entitled to fair treatment by a President who will focus his efforts on working with Congress to get our borders secure, our laws enforced and our economy moving again? Aren't we entitled to getting an elitist and intrusive big spending government out of the way?


Here's the real problem. Our President is the biggest elitist of all. Along with other Jonathan Gruber types in his administration, he believes that We the People are the stupid ones. He says he's tired of waiting for Congress to act on immigration. Well, why didn't he act in 2009 or 2010 when his party controlled Congress? Or prior to last month's election, which he said he would until his party asked him to wait for the results of that election? And we all know how that ended.

Well, I'm tired of him talking down to us stupid ones. I'm also tired of waiting for him to act on Keystone, middle class tax cuts, government waste, fixing or repealing ObamaCare, government spending on education from K-12 through college, the Benghazi investigation, IRS abuse, and more. Yet he wants to score political points and fight with those who don't agree with him. He's a load, and here's why.

Our country is in a mess economically, but the fundamental attention of our politicians will now be focused on immigration policy and the President's Constitutional authority.  While President Obama continues to ignore jobs and the need for economic growth and in lieu thereof concentrates his efforts on illegal immigration and deportations, the rest of us should take some time to focus on the U.S. economy.

So let's discuss America's and the world's economic state of affairs. In the rest of the world, it's a troublesome situation, to say the least, and especially in Europe and Japan, although things seem to be weakening substantially in China as well. We're the cleanest dirty shirt in the world's soiled economic laundry right now, even though we have many challenges of our own to overcome.

For those who remember the high inflation of the 1970's, it's hard for us to accept that inflation may be dead. It's particularly difficult to believe that inflation is behind us since we've been printing money like it's going out of style for many years now. And yet inflation isn't our problem right now and won't be for many more years at least. Not even close.

Our problem instead is a slow growing economy with high levels of debt, high unemployment and weak wage gains. We've tried 'stimulating' the economy with large amount of government spending, but the economy stays weak. We've tried 'stimulating' economic growth with low interest rates, but the economy stays weak. Yes, this time is different.

So while the politicians are debating immigration, let's look at Japan and what it has to teach us about the dangerous possibility of debt driven deflation. What's happening in Japan could happen right here in the U.S. if we don't get a middle class tax cut, government spending under control, our economy growing at a healthy clip and lots of good jobs being created.

As evidenced by the Keystone Pipeline fiasco, U.S. energy policy sucks, but unlike Japan's situation, domestic energy  policy can be in large part a way out of our long-in-the-making economic troubles. So while both countries have aging populations and heavy debt loads, we have less relative debt and lots of energy there for the taking -- two big advantages that must not be wasted or taken for granted.

With all that as background, let's turn to Japan and see why its lessons of a weak economy, an aging population and enormous debt burdens are very much worth taking the time to study.

We are the world's largest economy that operates as a democracy. Japan is the second largest, and it has many lessons to teach about growing government spending, an aging society and a debt ridden and moribund economy. At some point demographics and an ever increasing debt load combine to form an effective roadblock to resuming the kind of economic growth that is linked to a healthy, prosperous and forward looking society. When that occurs, implementing tax increases only serves to make a bad situation worse, and no additional revenues to pay down the debt will be forthcoming to the government's coffers.

Yes, Japan is facing a huge long term mess, and there is no simple or easy way out of it. The situation in Japan today offers many worthwhile lessons for America. Continuing down the path of bigger government and its tax and spend Keynesian ways will lead us straight to Japan. And straight to Europe too, for that matter.

Japan's Keynesian Recession is subtitled 'The familiar advice to spend more and raise taxes fails again.' It's a lesson that teaches where following the Keynesian road of tax and spend will take us:

"Shinzo Abe has made little secret of his plans to postpone next year’s consumption-tax increase and call a snap election. Monday’s third-quarter GDP statistics show why the Japanese Prime Minister may be rediscovering his political backbone. Japan’s economy contracted at a 1.6% annual rate, meaning the country is officially in recession.

The numbers surprised analysts, who had predicted a bounce after the April 1 consumption-tax increase tanked the economy in the second quarter. Instead consumption barely budged and is still down 4.7% since April. Companies chose to play it safe and drew down inventories rather than increase production. The real economy contracted more severely than the GDP numbers suggested, since a fall in imports inflated the trade surplus.

The third quarter continues a depressing pattern. This is Japan’s fourth recession since 2008, and even when the economy is technically growing it remains on life support. Annual growth has averaged 0.85% since 1992. Annual growth has averaged 0.85% since 1992.

This year’s contraction is much worse than that of 1997, the last time Japan increased the consumption tax. That recession was dismissed by the Ministry of Finance mandarins as a fluke or the result of the Asian financial crisis. They were wrong. . . .

The Prime Minister desperately needs to re-establish his economic-policy credentials as growth slumps and his popularity declines. Mr. Abe raised hopes in 2012 that he could reinvigorate Japan, and voters gave him a large majority in parliament. So far he has squandered that opportunity by setting the wrong priorities.

Mr. Abe overcame resistance within the Ministry of Finance and Bank of Japan to appoint BOJ Governor Haruhiko Kuroda, who has pursued aggressive monetary bond-buying. But inflation has barely budged and lending is flat; businesses complain that they’ve been hurt by the weakening yen. Mr. Kuroda doubled down on Oct. 31, but so far he has only delivered more proof that monetary policy alone can’t sustain economic growth. . . .

Since Japan’s bubble economy burst in 1990, Tokyo has tried to spend its way back to prosperity.

Government expenditure has risen to about 40% of GDP from 30%, and national debt has swelled to 227% of GDP. The additional spending provides only a temporary growth blip, but debt rises and then taxes rise to finance it, harming growth and further increasing debt.

In the snap election, voters are likely to trim Mr. Abe’s 61% majority in the lower house of the Diet. But he should get a second chance to turn an electoral mandate into national revitalization. To do so, he has to deliver on the most important part of his economic program, the stalled “third arrow” of reform to liberalize the domestic economy and cut tax rates.

More than Japan’s future is at stake. Since 2008 the U.S. and most of Europe have copied Japan’s strategy of government-driven growth, and the result has also been bigger governments with less growth. Having tried everything else, Mr. Abe will have to embrace supply-side reform if he wants to fulfill his growth promise."

Summing Up

America needs a big middle class tax cut to get our economy back on track and give our families hope for the future and confidence that our kids and grandkids will live in a free, prosperous, safe and healthy society.

King Barack has chosen to ignore the needs of our middle class citizens and their kids and grandkids, and instead concentrate his efforts on the divisive topic of illegal immigration and deportations. In my opinion, he's doing that in no small part to change the topic of political debate in America.

Our national debt is suffocating, our economy is slow, our jobs are few and our population is aging. And while we aren't anywhere near Japan with respect to how much national debt we've accumulated, we need to pay attention and make a special  and concerted effort not to replicate what they have done to themselves.

To repeat, America needs a middle class tax cut and a big one at that. Many of us, both young and old, need to go on individual debt diets as well.

We also need less government spending and a serious reduction in its unaccountable, wasteful and non-productive partisan ways.

Good intentions and happy talk are no substitutes for responsible behavior.

Our public schools, our colleges, our postal service and health care, including ObamaCare, are a just a few of the areas where we need to implement common sense based changes.

Means testing entitlements is also an idea whose time has arrived.

In Japan the fat lady is already singing, and in America we need to listen up.

Let's get our American act together before the tax and spend debt bomb ruins our economy and makes paupers of us all.

Sorry for all the rambling but that's my take.

Thanks. Bob.

Thursday, November 20, 2014

Car Loans Are Too Costly and Too Lengthy ... Home Mortgages Too ... Watch the Total Dollars, and Not Just the Monthly Payments

Lenders are in business to loan money at a profit. Sellers want to get as high a price as possible in each transaction, so they try to 'trade up' the purchaser to the 'best' and highest priced item in a good-better-best offering.

On the other side of the table, borrowers should be taking on as little debt as possible, and for as short a time period as possible, in order to get the lowest total payments and interest rate possible for the duration of the loan. They probably should buy the 'good or better' item and not the highest priced 'best' one with all the bells and whistles attached.

Unfortunately, that's not the way things tend to work out in the real world. As a result, sellers and lenders generally 'win' at the expense of the borrowers.

When borrowing, we tend to look solely at the monthly payments required and ignore the length of time it will take to repay the loan.That's what all lenders encourage borrowers to do, and it works to the benefit of the lender and seller, while disadvantaging the borrower.

The less we borrow and the shorter the time we owe the money borrowed, the less total dollars we pay to own free and clear the asset we're purchasing. It's that simple.

In fact, the 'easy affordable' monthly payment often takes center stage in lending negotiations and the total amount of dollars needed to repay the debt obligation is largely ignored by borrowers. As a result, low monthly payments lead to bigger purchases in dollar amounts, which in turn lead to longer term loans, all resulting in more money received by lenders and more money paid by borrowers. Taking more time to repay the principal of a loan may result in more affordable 'easy' monthly payment obligations, but it also leads to much more in total dollars paid by borrowers over the term of the loan. That's good for the lender and bad for the borrower.

{NOTE: We'll use the car loan example herein, but the exact same logic applies to home mortgages and other term loans. Individuals should make as big a down payment as they can handle, then borrow the remainder of the purchase price for as short a time period as possible and receive a lower interest rate on the money borrowed. That way less total interest is paid, and the entire debt is retired relatively quickly.}

More Expensive Cars Are Leading to Longer-Term Loans has the story:

"It used to be that a car loan lasted three or four years. After 36 or 48 months of payments, you could drive debt-free for a few more years, before deciding if you wanted to get a new vehicle.
But times have changed in the automobile buying world.
Six-year loans are now typical . . . . the average length of a new-car loan (is) 66 months, or five and a half years . . . . About 41 percent of loans were for five to six years and about a quarter were for six to seven years. . . .

Longer-term loans, particularly 72-month loans . . . have become the new norm. . . . available across all makes and models, and for borrowers with all sorts of credit scores. . . .
Ron Montoya, consumer advice editor for Edmunds, said buyers were spreading out the time over which they pay for their new cars to achieve lower monthly payments. “Cars are getting more expensive,” he said, and longer loan terms give consumers more room in their budgets....

The downside of longer loans, however, can be considerable. Longer loan terms . . . carry higher interest rates, which will increase the total cost of buying the car. If you’re paying off the car loan for seven or more years, you’re more likely to be tired of the vehicle and trade it in immediately for another one once it is paid off, starting the debt cycle again. “The average person gets tired of their car at around six years,” Mr. Montoya said. “The idea is to actually own it and have zero payments at some point.”
And the value of the car, once it’s finally paid off, will be less after six or seven years than after four or five years. That means you’ll have a car of lower value to sell or trade in toward a new car purchase.
Anthony Giorgianni, associate finance editor at Consumer Reports, said buyers should avoid long-term loans. “The auto industry and the dealers have everyone focused on the monthly payment,” he said. “People really need to look at the bottom line.”
For instance, if you borrow $30,000 at 3 percent over four years, your monthly payment will be about $664 and your total interest will be $1,873, according to an auto loan calculator on With a 72-month loan at the same rate, your monthly payment would be $456, but your total interest cost would be $2,818, or an increase of $945. (Also, rates on a longer-term loans are generally higher, so the actual cost will be even more.)
For that reason, Mr. Giorgianni suggests that buyers make a down payment, say, 15 percent. And if consumers need to stretch a loan to six or seven years to afford a particular car, he said, they should consider a less expensive model. Mr. Giorgianni drives a 1992 Explorer for which he paid cash, he said. “It’s a wonderful thing.”"
Summing Up

Purchasers should buy only what they can reasonably afford, and they should focus on the total payments required to retire the debt, including interest and principal, instead of the required monthly payments.

That means a reasonable down payment should be accompanied by a loan of relatively short duration. In the case of a car loan, the term should be not more than 36 to 48 months (15 to 20 years for a home mortgage, with the interest rate adjustable rate every five years to get the lowest interest rate possible).

The asset will then be owned free and clear, and unencumbered by burdensome debt, and the borrower/buyer will be relieved of the obligation to make future payments. Perhaps the then happy and debt free buyer will be able to purchase his next car by making a really big down payment and assuming very little if any debt.

That should be every car buyer's long term goal.

That's my take.

Thanks. Bob.

Wednesday, November 19, 2014

Too Many INDEBTED College 'Students' Should Still Be in High School ... It's a Harmful, Stupid and Costly Taxpayer Subsidized Charade

We are a nation of debtors, and there are too many enablers, including our government, who encourage us to borrow, borrow and then borrow some more. And all that 'encouragement' is not accompanied by teaching our youth the often negative lifetime effects and evils associated with taking on too much debt. That has to change.
Assets are different than liabilities. Assets are good. Liabilities undertaken to acquire those good assets represent the money (and time) invested in order to possess the desired assets.

Education is an asset. Debt is a liability which must be repaid, and interest payments on the debt are only part of the obligation. Assets without debts attached are totally different than assets offset by debt obligations. Getting an education (asset) with no or minimal short term debt attached should be the young student's goal.

The more assets we receive without incurring liabilities along the way, the better off we will be later-in-life. So let's take a look at what's happening to too many of our young college students who spend money they don't have by borrowing and then proceeding to borrow even more in order to spend more. 

Yet the student and his family aren't the only ones borrowing and spending to pay for this education. Meanwhile, let's not forget the taxpayers. Because in order to pay for this public spending extravaganza, taxpayers are spending money they don't have as well. As a result, debt grows for both individuals and the nation as a whole.

For far too many of newly enrolled college students, the pursuit of higher education is largely a repeat of the high school courses that they failed to master while in high school and presumably were preparing for their college days. As a result, many new students are borrowing and paying for college but only receiving the high school instruction they failed to get earlier. Simply put, much of the money spent in K-12 is wasted.

But the waste doesn't stop there. The college will now collect tens of thousands of additional dollars from a combination of government funds and the payments and additional borrowings of unprepared enrolling students. The game is that the taxpayers keep paying, the students pay and start borrowing, and more money and time are wasted, as most of the unprepared students will never graduate from college. But in the entire maddening process, they do become indebted in a big way and at an early age.

Lots of liabilities and no assets is a lousy way to begin adulthood.

Remedial Courses in College Stir Questions Over Cost, Effectiveness has the story of how much of the money spent on education in America these days isn't money well spent or borrowed, as the case may be. Neither is it time well spent:

"College students are increasingly spending federal financial aid and taking on debt for high school-level courses that don’t count toward a degree, despite mounting evidence the courses are ineffective and may contribute to higher dropout rates.

The number of college students taking at least one remedial course rose to 2.7 million in the 2011-2012 academic year from 1.04 million in 1999-2000, federal data show. During the same span, the amount of federal grants spent by undergraduates enrolled in at least one remedial course rose 380%, after inflation, Education Department figures show. There was also a drastic rise in remedial students taking on student debt.

The trends reflect a sharp rise over the past decade in enrollment at community colleges, which disproportionately serve low-income, minority and older populations. About 40% of students entering community colleges enroll in at least one remedial course, according to the Education Department; only about 1 in 4 of them will earn a degree or certificate.

“You clearly see that a big part of the problem is that students of color, first-generation students in low socioeconomic status are getting stuck” in remedial courses, said Eloy Oakley, president of Long Beach City College in Southern California. “They’re getting placed in these courses and they’re not coming out.”

Students are typically placed in remedial courses for English and math and because they score poorly on standardized tests. Federal law permits them to spend financial aid on as much as a year’s worth of remediation....

Multiple studies have concluded that, for most students, remediation either hurts or has no effect on their odds of earning a college degree or certificate. The studies have compared the outcomes of borderline students—those just above and just below the cutoff for getting into college-level courses. . . . students who appeared to have been misplaced in remediation were 8% more likely to drop out than those who went directly into college courses.

Some critics say schools should do away with open enrollment to steer more aid toward students who are college-ready and much more likely to graduate. . . .

The amount of federal Pell grants—the federal aid program for modest-income Americans—awarded to remedial-education students, in today’s dollars, has more than quadrupled since the 1999-2000 academic year, amounting to $4.6 billion in 2011-2012. That reflected 14% of all Pell grant aid."

Summing Up

Taxpayers spend ~$150,000 on 'educating' our K-12 youth.

Upon graduation from high school, too many of these 'students' are unprepared to succeed in college.

Yet colleges enroll them, more taxpayer money is spent, the enrollees spend and borrow, and then they drop out in their new roles as debtors.

And this unnecessarily time wasting costly charade continues to weaken America's competitiveness while unnecessary and unproductive debt levels grow for both individual student borrowers and American society as a whole.

That's my take.

Thanks. Bob.

Tuesday, November 18, 2014

Oil Price Below $75 per Barrel Today ... Gas Prices Have Further to Fall

Oil is selling below $75 per barrel today, signaling that significantly lower gasoline prices lie ahead. We could soon be seeing prices at the pump below $2.50 per gallon and continue toward $2.25 per gallon, or perhaps even lower.

And even if the oil price per barrel doesn't fall much further from its current level of $74.62, gasoline prices will keep falling for two reasons: (1) the below $75 per barrel hasn't moved completely through the wellhead through wholesale to retail delivery system yet; and (2) gas stations have kept for themselves a considerable amount of the drop that has already moved through the system. In other words, they have been slow to pass on to consumers much of the drop in prices that has occurred --- at least so far.

Gas stations were slow to pass on oil-price slide tells the 'good news lies ahead' story about concerning falling gasoline prices:
"Revenue for gas stations dropped sharply in October as oil prices have tumbled. But even as gas stations cut the cost at the pump, they kept some of the oil-price savings for themselves.

That’s according to the latest data from government sources. . . . the Labor Department on Tuesday reported that margins for fuel and lubricant retailers jumped by 26.1% in October, in a month when gasoline prices fell to an average of $3.12 a gallon from $3.46 in September. The rise in margins is the largest since May 2010.
Paul Dales, the senior U.S. economist at Capital Economics, said he’s not sure such margin-padding will last.

“The question is whether this is temporary as wholesalers and retailers just haven’t got round to cutting their prices yet, or whether they are hoping that the strength of demand will mean they don’t need to. Our feeling is that a lot of the widening will be reversed in the coming months, although the strength of demand will mean that a more gradual and modest widening in margins takes place over the next year,” he said."

Summing Up

Gas prices continue on their way toward $2.50 per gallon and then lower.

Where will they stop? Nobody knows.

Is OPEC in control? It doesn't look that way to me.

Are we in control? We could be if our government ever gets its act together and allows the free market to work its magic.

In any event, stay tuned for a happy and low cost Thanksgiving holiday driving weekend.

And that will be in no small part due to the lower gasoline prices at the pump, which will result in a better consumer mood and spending pattern for the Christmas season too.

That's my take.

Thanks Bob.

Monday, November 17, 2014

Employing the KISS Method of Saving and Investing ... Sage Advice from Legendary Index Fund Proponent and Vanguard Founder Jack Bogle

For the majority of individuals, investing for the long haul should be inexpensive, boring and simple. And for those individual savers and investors who set aside money consistently to invest in their long term financial security, low cost passively 'managed' index funds definitely provide the best and easiest route to long term financial independence and security. Besides, why make something hard that could be easy?

{NOTE: Although I'm no longer an index investor myself, I invested in the S&P 500 index for many years. I now am a DIY investor and own a diversified portfolio of individual blue chip stocks. And if you're interested in what my crystal ball is saying, things continue to look good for stocks into next year and well beyond that. At least that's the way I see it. But since all predictions are dangerous, and especially those about the stock market's future, let's now return to the 'down to earth' and more mundane and relevant topic of stock market investing by individuals. In other words, that's enough of my 'dangerous' predictions for now.}

Sticking to what I do know instead of what I am predicting, here's the deal. I firmly believe that a low cost passive simple indexing approach works best for the vast majority of individual investors. So unless you have the time or expertise to engage in DIY investing, stick with the low cost index funds for the long haul. You'll outperform a high percentage of the so-called professionals, and you won't have to pay high fees and expenses along the way to long term success.

Jack Bogle's advice to worried investors: Shut your eyes and let the indexes work offers straightforward advice which if followed will perform wonders for the average investor's long term financial health and well being:

"Jack Bogle has some advice on how to tackle what’s about to happen next: Close your eyes.

Bogle, the founder of the Vanguard Group, the world’s largest investment company, and patron saint of low-cost, long-term index investing, has not changed his tune in the 40-plus years since he started the company. . . .

{In a recent interview about smart individual investing here's a sampling of Bogle's solid thinking.}

On markets:

“What’s going on in the market is domination of short-term speculation over long-term investment,” he said. “Long-term investors simply are not affected by the comings and goings of the market ....

“As I have said before, the daily machinations of the stock market are like a tale told by an idiot, full of sound and fury, signifying nothing,” Bogle added. “One of my favorite rules is ‘Don’t peek.’

Don’t let all the noise drown out your common sense and your wisdom. Just try not to pay that much attention, because it will have no effect whatsoever, categorically, on your lifetime investment returns.”

On why investors should ignore the noise and just aim for the index return over a lifetime:

“Returns are created not by the stock market, they are created by U.S. business, our corporations,” he explained. “The formula I use for that is today’s dividend yield, which is around 2%, and the subsequent earnings growth which could be around 5% — we’re not sure but that’s probably not a bad guess — and that’s a 7% nominal rate of return on stock in terms of fundamentals.

“If you go back and look at the history of American business over the last century, you will find the [price/earnings] effect of stocks is zero. All of the returns are created as investment returns, dividend yields and earnings growth, and p/e effect — the speculative return — goes up and goes down and goes up and down for 100 years and ends up just where it started.

“So try to ignore these machinations and stick with getting the underlying returns that provide stocks as good investments,” Bogle said.

On how many experts have declared indexing the winner over active management: . . .

Over the long run [indexing] should beat the competition by 150 to 200 [1.5% to 2.0%],” Bogle said."

{NOTE: Although 2% may not seem like much, please remember the rule of 72 which holds that a 2% annual rate of return difference over 36 years will result in the average indexer having roughly twice as much as the owner of an actively managed account.}

Summing Up

Individual investing isn't a game for 'cowboys.'

It's a serious endeavor for those interested in long term financial security.

Consistently saving and investing those savings in a basket of blue chip dividend growing stocks or in a low cost S&P 500 index fund are great ways to build a nest egg and achieve financial independence over time.

Let's not make investing for the long haul complicated. Invest with patience in good companies for the long haul, and don't pay the so-called 'experts' much to try to match the market. Besides, most of them can't do it.

That's my take.

Thanks. Bob.

Breaking News ... Japanese Stocks Fall Hard ... Young People and Their Future Financial Security ... Investing in Stocks for the Long Haul is the Best Plan

Surprising economic news from Japan caused its stock market to fall 3% overnight, thus setting up perhaps an interesting day for trading in the U.S. market. (See Japan Stocks Slide After Gloomy GDP Data.)

While the Japanese economy continues to struggle against deflation and is in recession, that will create what traders call a 'headwind' for other markets. Long term individual investors in the U.S. should take advantage of any severe reaction to the downside (if one happens) by U. S. stocks and treat it as a buying opportunity. In other words, while markets are volatile and often trade lower during 'headline' world news events, that's not a reason for long term investors to panic and sell. It's another reason to buy, because their favorite securities are temporarily 'on sale.'

All baseball players, from Little League forward, know that it's impossible to steal second base without first taking your foot off first base. That's just my rather simplistic way of saying that "Risk is." If we stay 'safely' on first, we're never going to score. On the other hand, if we try to steal second, we may get thrown out and record another 'out' for the good guys. But that out is a temporary setback, because we're still very much in the game.

And just like running the bases, there are no guarantees in life. Risk is simply a fundamental and necessary part of life's game.

Of course, the reward associated with successfully stealing second base is that the base runner is then in position to score on a single. A proper assessment of the risk/reward ratio before attempting to steal is all that's required.

And it's the same thing with saving and investing for the long term. While there's no such thing as a free lunch or big risk free rewards when investing, it's pretty close to a no-brainer if we are willing to consider the long term and be willing in the precious present to treat our future self with respect.

Here's how millennials need to think about retirement offers this solid advice to our young friends:

"Most young people are conservative with their money because they grew up in the midst of two financial and market crises — in 2000 and 2008 — that remain imprinted on their brains. Surveys suggest that millennials who have investment accounts prefer the apparent safety of cash to the apparent risk of stocks.

But cash isn’t going to get anyone to a secure retirement. So with decades to go before they stop working, what should millennials do now?

The best plan is to buck conventional thinking by flipping the traditional retirement pyramid on its head, reversing a decades-long fall in the personal savings rate, and using those savings to invest in stocks instead of keeping it in cash. . . .

Many millennials still think . . . that Social Security and home equity will be primary sources of wealth and income during retirement. But there are two problems with the base of this pyramid.

First, the fate of Social Security is out of our control. The cost of the entire program is about to skyrocket because of a rapidly aging population . . . . Today there are about four workers (i.e. taxpayers) for every retiree. When millennials reach their prime earning years, there will only be about two workers per retiree. It’s impossible to predict whether Social Security will support millennials to the same degree as it does current retirees. . . .

Second, real estate in fact has been a poor investment over the long term. Real home prices (that is, adjusted for inflation) were lower in 1997 than they were in 1894, according to the Case-Shiller Home price index. Zero return for 103 years is pretty lousy (and houses don’t pay dividends).

Save more, invest more

The best solution for millennials is to invert this pyramid by emphasizing personal accounts and in so doing reducing our reliance on Social Security and on our homes. Doing so would require that we reverse a decades-long trend in the personal savings rate. Double-digit savings used to be the norm; now we are saving less than 5.5% of our income. . . .

Millennials should focus first on their employee-sponsored retirement programs. It may require lots of personal austerity, but making the maximum contributions to your 401(k) early on (especially if your employer matches contributions) is one of the best things you can do for your long-term financial health. Once those are channels maximized, start building your "other assets," which can include investment brokerage accounts.

Focus on stocks

So if we save more, what should we do with that cash? The best long-term solution has always been the global stock market, but millennials are reluctant. . . . In a recent generational survey conducted by the Investment Company Institute, millennials were less willing to take risk than Gen-Xers or Baby Boomers. Just 21% of those under age 35 said they had “above-average” or “substantial” willingness to take risk.

But millennials must change their definition of risk. We all tend to define risk as the choppiness of an investment or the potential that it will hurt us badly in the near term. But the whole point of investing in the stock market is for the long term. If you need to spend whatever money you are investing in the next five years, maybe even the next 10 years, then you should have less of it in stocks. But if your goal is to invest for later in life — for retirement, or your kids' education — then the least risky asset has always been the stock market.

Consider this. If you are 25 years old, you have roughly 40 years until retirement. Compare that time horizon against more than eight decades of data for U.S. stock returns. Over those eight decades, the worst-case scenario for every dollar invested in stocks over a 40-year period was $1 growing to $4.50 — after accounting for inflation.

Keep in mind, this worst case scenario includes the Great Depression, World War II, and many severe market downturns. In sharp contrast, the worst-case real return for cash — the asset we think of as secure — was $1 being worth just 30 cents (because inflation slowly erodes the value of cash)....

There are many things we cannot control. What we can control is our savings and investing. We should of course do our best to grow our personal value and income, but at the same time we can carve out 10%-20% of our income and plow it directly into retirement and brokerage accounts. This is hard to do, but it’s worth it."

Summing Up

Too often we confuse share price volatility with a too risky investment environment for patient individual investors interested in their long term financial health. Rapidly changing stock prices, both up and  down, in the short run are not representative of the stock market's long term performance, and the long term is what matters most.

The plain truth is that owning stocks is the only clear winning way for an individual' investments to outperform inflation and achieve substantial real inflation adjusted returns over time.

And that long term we call tomorrow is just around the corner, no matter how far off we may wish it to be.

That's my take.

Thanks. Bob.