Friday, January 30, 2015

More Proof That Politics Sucks .... President Obama's Version of 'Middle-Class Economics' Is a Farce

In recent days we've written that President Obama's vote getting attempt to introduce legislation purportedly helpful to the middle class was in reality a politically driven farce.  Now the president's liberal allies come forward and put forth numbers that confirm his proposal to help the middle class is nothing more than a phony cheap political stunt.

In fact, much of what Obama says these days is 'unserious' stuff and in reality is sad to witness. Really sad.

'Middle-Class Economics' is worth quoting at length:

"President Obama is disguising his latest tax increase as “middle-class economics,” no doubt because it sounds better than calling it income redistribution. So it’s instructive that this false political front has already been exposed by no less than the President’s political allies at the Tax Policy Center.

This week the liberal think tank analyzed the tax proposals in Mr. Obama’s State of the Union with one of those familiar distributional tables that attempts to estimate the after-tax results across the U.S. income scale. Surprise, surprise, the middle 20% of earners—people making between $49,000 and $84,000—would see their taxes rise by $7 on average in 2016.

In selling his proposals in Kansas the other day, Mr. Obama said that middle-class economics is about “lowering the taxes for working families by thousands of dollars, putting money back into their pockets so that they can have a little bit of cushion in their lives.” Paying $7 more isn’t much of a cushion.

The same goes for the second and fourth income quintiles. According to the think tank, the taxes of those groups would rise by 0.1% on average. The tax changes of note would come at the bottom and top of the income scale, with a 0.7% average rise in tax liability for the top 20% of earners, and a 1.2% boost in after-tax benefits (largely from tax credits) for the bottom 20%. Mr. Obama’s middle-class economics, in short, applies to everyone but the middle class. . . .

The main point of cutting taxes is to help the economy, and to let all taxpayers keep more of their hard-earned money. It is not to redistribute income. . . .

No modern Presidency has been worse for average American incomes than Mr. Obama’s, and his new tax proposals are more of the same."

Summing Up

There's nothing more to say about President Obama's version of 'middle-class economics.'

The President's supporters at the Tax Policy Center have already said quite enough about it.

You can't make this stuff up. And here's what is so sad about it. He's serious.

At least that's my take.

Thanks. Bob.

Thursday, January 29, 2015

President Obama's "Freebies" Grounded Middle Class Fairness Proposals are Fairy Tale Grounded Peter Pan Economics

President Obama wants everybody in America to get a fair chance and have a fair shot, whatever that means. My guess is it means more government control and lots of populist vote getting pandering efforts designed to make the Democrats look good. It's another example of why 'superficial' politics sucks and individual freedoms suffer when government takes over, in other words.

Obama's Peter Pan Economics is subtitled 'Other than the president, perfect fairness is an obsession mainly among children.' It's another sample of the childishness in American politics today as President Obama works hard to replicate the failed policies and programs of government knows best programs in Europe, China and elsewhere:

"Barack Obama is touring the country . . . talking about something he calls “middle-class economics.”. . .

(Here's the President offering his description of middle class economics.) “That’s what middle-class economics is—the idea that this country does best when everyone gets their fair shot, everyone does their fair share, and everyone plays by the same set of rules.”

Let’s try to unbundle this sentence.

It sounds familiar, until one notices that Mr. Obama has added something—the word “fair.”

In the traditional version, everyone at least gets a shot and does their share. But what, exactly, does the President of the United States mean by a “fair” shot and “fair” share?

Other than the president, the one other slice of the American population that obsesses over fairness everywhere is children. Every parent knows that about the age of four, kids in groups start saying, “That’s not fair.”

If you have a birthday party and cut pieces of the cake for all, one of them will say, “Her piece is bigger than mine. Why is she getting a bigger piece? That’s not fair.”

And parents, ever since Adam and Eve left the Garden of Eden, have felt obliged to instruct their children on the reality. Life isn’t going to be “fair.” And the path into the future requires more than envy, tantrums and grabbing what belongs to others.

Cradle-to-grave fairness may be infantile, but the idea lives on, especially in politics and most of all in Mr. Obama’s mind.

He says middle-class economics means “two years of free community college, so we can keep earning higher wages down the road.”

How can community college be “free” for everyone? This isn’t middle-class economics. It’s Peter Pan economics. . . .

In Mr. O’s world, . . . Middle-class economics “means making it easier to afford childcare, college, paid leave, health care, a home, and retirement.”

Unraveling the Obama belief system is a challenge, so let’s take the lower, simpler road and agree with conventional wisdom that “middle-class economics” is mostly about where the votes are. . . .

The first indication that politicizing the American middle class carries peril for pols who claim to be its champion came this week when the White House deserted its plan to tax 529 college-savings accounts.

Across millions of kitchen tables since the plan to tax “upper-income” savers was announced, 30- and 40-something spouses said: “He wants to do what?” Even Nancy Pelosi , grandmother of six, went rogue and reportedly asked the White House to drop the idea.

The one datum driving the middle class into the spotlight of presidential politics is that median, inflation-adjusted household income has fallen, from about $54,000 in 2008 to below $52,000....

U.S. elections are run on the conceit that America’s problems, including stagnant incomes, are unique to us. But we should look beyond the U.S. to see where we don’t want our politics to go.

China? The Wall Street Journal reported that two-thirds of middle-class college grads there want to work for a state-owned company or the government. Why? They say senior bureaucrats make all the important decisions. We’ve had that model in the U.S. recently, and economic growth collapsed.

What of Europe and its social-market economies so admired by Democratic progressives in the U.S.? Much of Europe’s educated, middle-class youth are permanently unemployed because subsidies that absorb half the continent’s GDP prop up and pay for the lifestyles of their parents. Call it jobless fairness....

Forget fair. Start with work. The rest will come."

Summing Up

We don't want America to be like the entitlements based societies of Europe or the government dominated Chinese. 

So let's commit to working hard at getting our fellow Americans to understand that 'the harder we work, the luckier we'll become.' And that self help is the best help of all.

And while we're at it, let's agree that the more government promises to do to 'help' the middle class, the worse off the middle class and America will become. 

We each need to work hard and row our own boats, but all the while knowing that to the extent we need help with the rowing, we can rely on getting that help from our fellow Americans.

E pluribus unum (out of many, one) isn't just an empty platitude. It's what America represents.

Freedom and equal opportunities aren't empty platitudes. They accurately describe what we get just for being Americans.

And my take is that that's more than fair.

Thanks. Bob.

Wednesday, January 28, 2015

Obama's Robin Hood Approach is in Reality a Take It from the Middle Class Willie Sutton Strategy ... Where the Money Is ... Middle Class Economics, Income Inequality and Broad Based Prosperity ... Opportunities vs. Outcomes

President Obama likes to play Robin Hood. He believes that's the politically astute way to win elections. He's been right about that, having won two presidential elections, and our U.S. economy and We the People have suffered and continue to suffer as a result.

The plain fact is that equal opportunities never lead to equal outcomes. It just doesn't work that way in a freedom based individualistic meritocracy, which is what America has long been and the vast majority of Americans still want it to be.

President Obama also claims to be an advocate and supporter of the middle class. In fact, he has invented the term 'middle class economics' as evidence of his concern. But the simple truth is otherwise. He's really following a Willie Sutton bank robber approach of 'going where the money is' --- the middle class. Evidence of this can be seen by his offering up and then abruptly surrendering the recently floated plan to hike taxes on that same middle class he says he's trying to help.

Obama's 529 Surrender is subtitled 'But the middle-class should realize they're where the money is:'

"Well, that must have polled badly. The White House on Tuesday dropped its proposal to tax 529 education savings accounts, a week after President Obama floated the idea in the State of Union. . . .

Mr. Obama wanted to tax 529 plans to finance a more targeted college subsidy program that politicians could better control. The 529 plans put the power in the hands of parents. The political problem is that 529s have become popular with, well, the middle class; there were some 11.8 million accounts and the average balance was $20,671 as of last June.

House Speaker John Boehner had called on Mr. Obama to withdraw the proposal, and the Ways and Means Committee was already rolling out legislation to force Democrats to go on record for the 529 tax increase. “Given it has become such a distraction, we’re not going to ask Congress to pass the 529 provision,” a White House official (said) in a a classic of political rationalization.

It’s a shame there won’t be a vote, because the 529 tax increase is a rare example of the President’s policy sincerity. Liberals sooner or later must raise taxes on the middle class because taxing the rich alone can’t possibly finance all of the Democratic Party’s entitlement schemes. The middle class is where the real money is. So while taxing 529s may die for now, it’s only a matter of time before liberals are back with a carbon tax or value-added tax or something. That’s the real meaning of “middle-class economics.”

Obama's Robin Hood economics won't help the middle class tells the opportunity vs. outcome story in common sense fashion:

"If the president really wants to help the middle class, he will stop trying to mandate equal results and concentrate instead on legislating equal opportunity.

Once again it comes down to a case of the have-nots versus the haves. The president is upset that some people make more than others. In this year’s State of the Union address, he asked lawmakers whether they will “accept an economy where only a few of us do spectacularly well, or will we commit ourselves to an economy that generates incomes and chances for everyone who makes the effort?”

He must fancy himself as today’s Robin Hood, since he wants to take from the rich and give to the poor. How else can you explain what the president calls “middle-class economics”? He wants Congress to adopt a series of measures that would redistribute income which he thinks will help what he calls “America’s struggling middle class.”

The president forgets one thing: Unequal distribution of income and wealth is an inevitable result of the workings of our capitalist system. Interfering with it by raising taxes on the rich to give to others is like throwing a monkey wrench into the gears that turn our economic engine.

Besides the Democrats, the president’s views are beginning to resonate with a number of Republicans as well. If this persists, it would be bad news for our economy, since it suggests that this could become part of the government’s philosophy no matter how the 2016 elections turn out.

Actually, one of the quickest ways in which the president can help make incomes more equal is to encourage the production of oil and gas.

Approving the Keystone pipeline and encouraging fracking are two ways to get quick results. They will add middle-class jobs while also lowering gas prices. In turn, this will help consumers, especially those in the middle to lower class. People in this bracket spend a greater share of their incomes on gas and oil than those who earn more.

Getting back to income inequality, I would remind you that this is nothing to be ashamed about. After all, capitalism is all about taking chances and working hard with the expectation of a reward if the right choices are made. And many wealthy people do share the rewards of their wealth by being charitable.

That said, I would like to raise the question of what exactly constitutes income inequality? In other words, how equal must wealth and income be to avoid being called unequal? I am not sure, but one thing I do know is that we can never have shares of wealth and income divided equally across the population. No economy can produce this result — not even the most socialist. . . .

Wealth and incomes are also affected by the ownership of stocks, bonds and homes. Would those who worry about equality of wealth have the government regulate the ability to buy and sell these items?

What about schools? . . . Should the government require schools and colleges to admit students who are not qualified?

Simply put, the best way to boost middle class incomes is to employ the right policies that would boost overall economic growth that help everyone. As another Democrat once said years ago: “A rising tide lifts all boats.”"

Summing Up

Yes, a rising tide indeed lifts all boats.

Obama's redistributionist Robin Hood programs are actually targeted toward growing the government at the expense of the private sector. If the government is growing, the private sector is shrinking. It's that simple.

To the extent Mr. Obama and his gang of 'government do-gooders' (an oxymoron, of course) are successful, the middle class will be harmed due to a stagnating economy and lower overall economic growth. In other words, we need economic growth for one and all, and more government programs aren't the answer.

While sound bites may work to win elections, populist rhetoric won't ever create broad based middle class prosperity.

Sherwood Forest this ain't, and Obama's 'middle class economics' is a farce. So be on the lookout for Willie Sutton. He's coming after your money.

That's my take.

Thanks. Bob.

Tuesday, January 27, 2015

Americans Generally Agree on What's Important

Americans aren't happy with the way things are going today, and rightfully so.

On the other hand, we're pretty much agreed on the important priorities that need our focus and attention, as well as the focus and attention of our political class.

But while we agree on the WHAT, it's the HOW that will prove problematic. In other words, how the various problems need to be addressed is a completely different matter than what are the problems for us to solve.

In any event, agreeing on the definition of a problem is the first critically necessary step to finding a solution.

Democrats and Republicans Agree on More Than You Think & Why That Matters for 2016 has the story:

"By now, everyone knows that our political parties are deeply polarized—and the American people only somewhat less so. Does that mean that we can’t even agree on the problems we need to address?

To some extent, according to a recent Pew Research Center study, the answer is yes. There are issues that Democrats care deeply about—global warming and the needs of the poor, for example—that are far down the list of Republican priorities. Similarly, Republicans care about strengthening the military and dealing with moral breakdown a lot more than Democrats do.

But a closer analysis of the Pew data reveals that in addition to these partisan agendas, there is an American Agenda of “top priorities” supported by majorities of Republicans, Democrats, and Independents and by a super-majority (60% or more) of all Americans. Ranked in order of overall support, they are:

To agree on the problems is not necessarily to agree on solutions, of course. But the fact that despite their differences, the American people can endorse a shared agenda of top priorities should help focus the forthcoming presidential campaign. . . .

After decades of school reform, Americans are still worried about the condition of our educational system. . . .

The sooner elected officials begin addressing the problems that concern all Americans, the faster we will begin to reweave the tattered fabric of our politics. Trust in government would begin to rise from its historic lows."

Summing Up

Terrorism, the economy, jobs, education, Social Security, fiscal discipline and health care costs are the agreed upon priorities of We the People.

Hope springs eternal that our feckless politicians will sooner rather than later get that message.

And if and when they do, perhaps those same politicians will be deserving of our trust and confidence.

It's doubtful, of course, but why not dream big dreams?

That's my take.

Thanks. Bob.

Monday, January 26, 2015

IBM Denies 100,000 Job Cuts but Doesn't Deny Cuts are Coming

Let's update the morning's earlier post on IBM and its pending, albeit unannounced, job cuts.

IBM Dismisses Report of Massive Layoffs has this correction to the rumors making the rounds today:

"International Business Machines Corp. dismissed a report stating that massive new layoffs were coming this week for the computing giant.

A report in Forbes on Thursday said the company was preparing to cut its workforce by 26%, which would amount to the largest workforce reductions in IBM’s history and affect more than 100,000 employees.

In an emailed statement, an IBM spokesman reiterated management’s comments following its fourth-quarter financial results that a much smaller number of IBM employees are leaving the company as part of “rebalancing” actions, which are designed to create job openings to be able to hire people with new skills.

“IBM does not comment on rumors, even ridiculous or baseless ones,” the spokesman said. “If anyone had checked information readily available from our public earnings statements, or had simply asked us, they would know that IBM has already announced the company has just taken a $600 million charge for workforce rebalancing. This equates to several thousand people, a small fraction of what’s been reported.”

The spokesman added that the company currently has job openings as part of the rebalancing process."

Summing Up

The cuts are coming.

Thousands of them.

Just not 100,000 of them.

Stay tuned.

Thanks. Bob.

Free Market Competition, Creative Destruction and Populist Grounded Unionized Government

Free markets are sometimes harsh. Winners become losers, and new competitors unseat the former leaders. IBM, Sears, A&P, Montgomery Wards and American Motors come to mind, as do Apple, Google, Wal-Mart, Amazon and Ford.

But that's just the 'creative destruction' of the marketplace at work bringing better things to a growing and prosperous middle class grounded society.

Alas, such is not the case with government. Populist measures and socialism stand in the place of freedom and taxpayers substitute for the demands of customers and shareholders. The public sector's employees are 'protected' from the rigors of the marketplace and its 'creative destruction' as long as taxpayers are willing to foot the bills.

Rumors abound this morning about the biggest layoffs in history coming from former stalwart and industrial kingpin IBM. They cause me to wonder what would happen if city, state or national government took the same approach. Of course, no government will do so, and it's just a mental exercise of mine.

IBM's stock gains amid reports that a massive layoff is coming has the story:

"Shares of IBM are rising 1.2% in premarket trade Monday, on the heels of reports that the technology giant is prepping for a reorganization that will lead to the largest corporate layoff in history.

Reports from multiple sources suggest Big Blue will slash its global workforce by 26%, which would represent about 112,000 of the approximately 431,000 people IBM employs globally.

IBM's stock, a component of the Dow Jones Industrial Average, has slipped 0.7% since it reported last week earnings that beat expectations but revenue that missed. IBM has missed revenue expectations in 12 of the past 14 quarters. The stock has lost 3.8% over the past three months and 13% over the past year, while the Dow has gained 5.2% and 11%, respectively."

Summing Up

Capitalism is harsh. It also creates prosperity for a nation's citizens.

I wonder what the Greeks think about all this.

I wonder too about what Senator Elizabeth Warren thinks.

And I wonder what President Obama thinks about saving the middle class through government action.

But mostly I wonder about what my fellow Americans think --- and will do.

Will we prefer socialism, public sector dominance, more government control, educational shortfalls and a stagnant to declining standard of living for the middle class?

Or will we embrace prosperity, individual freedoms, income inequalities and the harsh and uneven results that will inevitably occur?

The choice is ours.

That's my take.

Thanks. Bob.

Sunday, January 25, 2015

Unionized Government ... Who Works for Whom? ... The Correct Answer is Harmful to Our Nation's Health

Here's the question du jour: Does unionized government work for We the People, or do We the People work to pay for unionized government?

Public sector workers, including teachers and others, often are eligible to retire in their early 50's with substantial guaranteed pension and health care income benefits for the rest of their lives. And the number of remaining years for the rest of their lives may well last as long or longer than the number of years they worked. Nice deal if you can get it --- especially if the taxpayers will pay for it.

The problem is that these benefits at the local and state levels are underfunded by approximately $4 trillion currently, and probably much more than that. Future taxpayers beware.

Labor union membership falls in U.S. in 2014 tells the tale of two American work forces:

"The rate of U.S. union membership fell slightly in 2014, continuing a trend that suggests the labor movement will have to step up efforts to rebound from its decades-long slide.

See: Public-sector workers are nearly six times as likely to be union members.

Figures released Friday by the Bureau of Labor Statistics said the combined rate of private- and public-sector union membership was 11.1% last year, down from 11.3% the prior year. Membership in the private sector fell to a rate of 6.6% in 2014, from 6.7%, while public-sector representation rose slightly to 35.7%, from 35.3%.

Unions managed to collectively add about 41,000 members in the private sector, led by industries such as construction and leisure and hospitality, but it wasn’t enough to keep pace with total private-sector employment, said John Schmitt, a senior economist at the left-leaning Center for Economic and Policy Research."

Companies in the private sector compete with each other to get and keep customers. They must do so productively and profitably, or they cease to remain in business. Customers rule.

In the public sector, however, customers aren't in charge. Government officials negotiate with themselves when public sector union officials sit down at the bargaining table with their bureaucratic no-skin-in-the-game taxpayer paid public counterparts. The result over the years has been generous non-market based salary increases which contribute to later higher pension benefits as well as a non-productive, non-customer oriented workforce.

Then when the inevitable financial shortfall occurs down the road, taxpayers are asked, if not forced, to pay some more for this unionized government.

Unlike companies operating in the competitive private sector, school districts and similar government entities, cities and states don't cease to exist. That's why taxpayers will pay. This will all end someday, and it won't be a pretty picture.

Public employee unions are funded by taxpayers, and their members receive substantial pay packages which, taken as a whole and including retirement packages, are greatly underfunded.

The real 'bargain' is simple -- the public employees pay dues to the union which will be used in substantial part to elect public officials who will negotiate with these union officials to enrich public employees with pay and benefits unattainable in the private sector.

The effects of globalization are real in the private economy. We the People have worked hard to pay for unionized government, but sadly 'we ain't seen nothin' yet.'

The economy will underperform as long as the public sector is favored over the private sector.

That's my take.

Thanks. Bob.

Saturday, January 24, 2015

Food for Thought ... Lessons We and the Young Should Learn from McDonald's, Government, Employment, and Minimum Wage Legislation

McDonald's is struggling to simplify its menu and get customers to return. {See McDonald's Extends Slump.}

Government laments the lack of good paying jobs and wants to raise the minimum wage while implementing ObamaCare universally.

The solution is simple for McDonald's: simplify the menu, implement productivity enhancing measures and reduce its number of employees.

Will this help the young get jobs and learn about showing up and taking care of customers, aka those with the money? Of course not. Europe here we come.

'Secular Stagnation' and the Cheap Burger has the story:

"Europe, Japan and the U.S. have been desperate to stir private-sector growth and yet refuse to consider how they treat their private sectors. Europe gave itself austerity in which the private sector shrank and the government didn’t. . . .

Nobody asks: How can we make our societies ones in which people find opportunity? They worry about the distribution of income but not the absence of income-creating opportunities for individuals.

The lesson of Sheldon Silver is that this phenomenon has mostly to do with a self-interested machine protecting its own privileges.

Mr. Silver . . . is the long-serving speaker of the New York state assembly, a man the New York Times calls the state’s “most powerful Democrat” and the capital’s “most powerful figure.” He was arrested Thursday for millions of dollars in graft. Two decades of his “service” is why upstate New York is America’s microcosm of France, a place of permanent stagnation. . . .

McDonald’s has had two bad years, and sales are down sharply in the U.S. . . . its real future may lie more in cost control than in imitating the boutique burger chains like Shake Shack and Five Guys.

McDonald’s has decades of experience in Europe and Japan, and can see where things are going. Our youth unemployment may be half of France’s, but it’s twice the rate that prevailed at a similar point in the 1990s recovery. Our new business formations are the lowest in 35 years, more like Europe than the U.S. According to Gallup, companies are dying faster than new ones are being born.

The administration’s Affordable Care Act raises costs for businesses like McDonald’s that hire thousands of full-time workers at a low wage. Its labor enforcers are overturning settled law to make McDonald’s liable for alleged violations of its independent franchises.

A writer for the New Yorker applauds academic studies showing that hikes in the minimum wage have only a small impact on overall employment, “usually confined to teenagers and unskilled workers”—i.e., McDonald’s workers.

President Obama himself, when he keeps intoning that every job should pay enough to support a family of four, is essentially saying McDonald’s jobs shouldn’t exist.

Though McDonald’s would never put it this way, the company has already started adapting. McDonald’s once filled its U.S. menu with salads, wraps and fruit options that few customers buy. The idea was to appease its foodie critics. Now the company is “simplifying” its menu and giving franchisees freedom to drop non-sellers—and the disproportionate staff needed to support them.

McDonald’s customers were never keen on customizaton, preferring speed and a cheap price. But now the company is introducing customization-friendly automated and smartphone ordering—because it allows franchisees to cut counter staff.

The essence of Europe’s malaise has long been a politics tilted heavily toward protecting those who have jobs from those who want them, where the biggest losers are the young and unskilled, and where stagnation is the general fate.

Even with the bad news of recent years, McDonald’s U.S. stores still generate twice the sales of its competitors, even Burger King. But they also employ twice as many workers, upward of 50 per store.

Look for that to shrink as McDonald’s adapts to an America becoming more like Europe, with an economy unwelcoming to the unskilled and unprivileged trying to find an entry into the world of work."

Summing Up

More 'help' from the government doesn't help our young people in need of help. They need opportunities.

More private sector innovation and the 'creative destruction' of the marketplace do help grow the economy. They also create both more entry level as well as high paying jobs.

Education and effort are the keys to individual and societal progress and not government programs.

We became the nation with the highest standard of living the world has ever known by following the basic principles of freedom, education, hard work and innovation. Not by government dictates.

Will McDonald's succeed in reinventing itself through innovation and productivity enhancing programs designed to better serve its customers? Probably but that's not the important point of the story.

How about our young people starting out? Will they succeed? Not if they depend on government to make it happen. What they need to learn about climbing the ladder of success are the keys --- showing up' and then 'working hard' to improve their position on the ladder. But first they have to be able to get on that ladder.

It's all about learning the most important personal habit of all --- the habit of improvement. The result is self reliance.

That's my take.

Thanks. Bob.

Friday, January 23, 2015

Globalization ... Let's Put First Things First in Improving America's Educational Outcomes ... 'Free' College Isn't the Right Priority ... K-12 Outcomes Need Our Focus

Regarding our system of education, President Obama is trying to answer the wrong question. Instead of debating the pros and cons of taxpayers providing a free community college tuition program, he should be focusing on K-12 global competitiveness.

Accordingly, along with President Obama, here's the question We the People need to ask ourselves with respect to education: How do we get better, faster? So while President Obama wants to discuss making community college attendance tuition free, I have a better idea. Let's choose our priorities wisely.

In other words, why not first exert every effort to make our K-12 system of education globally competitive before making community college free? Let's clean up our act and do first things first.

Cradle to Ivory Tower reveals the comparative large shortfall of the educational attainment of our nation's high school graduates compared to the rest of the world. And here's the real shocker --- the global competitiveness problem is most severe with the very people Obama wants to help --- America's "middle class" students:

"{There's} one big problem with the proposal for free community college that President Obama recently outlined and described anew in his State of the Union address on Tuesday night.
It’s awfully late in the game.
I don’t mean that he should have moved on it earlier in his presidency. I mean that our focus on getting kids to and through higher education cannot be separated from, or supplant, our focus on making sure that they’re prepared for it. And we have a painfully long way to go in that regard.
College is somehow tidier to talk about . . . . It’s an attractive subject for several reasons. . . .

And it comes with handy metrics: specifically, data showing that the acquisition of a college degree translates into various benefits over the course of a lifetime, including higher earnings. So we look to, and lean on, college as a way to increase social mobility and push back against middle-class wage stagnation. That’s important context for not only Obama’s frequent invocations of college but also for a new report, “Expectations and Reality,” by America Achieves . . . .

Using a survey of hundreds of parents and looking at college graduation rates, the report concludes that middle-class parents who expect their kids to finish four-year college degrees are wrong more than half the time.
The same survey . . . revealed some cold-eyed realism amid that unwarranted optimism. More than 70 percent of parents expressed the worry that their children’s chances of achieving a middle-class lifestyle would be diminished if their pre-college education didn’t become more challenging.
They’re right. We need to raise standards. . . .
The goal is to lift children from all income groups up — and to maximize their chances of success with higher education. . . . there’s a significant difference in graduation rates between students who need remediation after they’ve enrolled and those who don’t. The failures of elementary, middle and secondary schools shadow them.
Those failures persist, and they’re demonstrated every three years when PISA tests — which compare 15-year-olds in countries around the world — are done. American kids tend to perform in the middle of the heap. . . . While American kids from middle-class families haven’t markedly improved their international standing in math and science over recent years, kids from poorer families have done precisely that. . . .

The moral is this: Education is a continuous concern and must be a continuous investment, cradle to Ivory Tower. If we don’t recognize and act on that, our reality will never meet our expectations."
Summing Up

{NOTE: The report "Expectations and Reality" by 'America Achieves' referenced and linked above is worth taking some serious time to review. And after reading the report, if you don't come away believing that the right 'educational' question to be asking is centered around K-12 learning and "How do we get better, faster? --- well, I'll be very surprised. You'll probably also wonder why your local school district isn't a member of the Global Learning Network. The report is definitely a thought provoking and myth destroying eye opener.}

In sports it's harder to have a good game without having a good first half.

And it's harder to have a good first half without being ready to play when the game begins.

Similarly, it's harder to do well in college without being adequately prepared upon entering.

And racking up debt and then dropping out of college will make it even harder to do well financially in adulthood.

So let's get on with the serious work of properly preparing our kids for college success before worrying about how we're going to pay for that 'higher' education.

What I'm proposing may not sound as good and may not be as much of a 'vote getter' as President Obama's offer of 'free' college, but it will be a much better approach for helping both America's 'middle class' and Americans as a whole, including our kids, our economy, our global competitiveness, and our current and future taxpayers.

That's my take.

Thanks. Bob.

Thursday, January 22, 2015

Housing Sales, DEBT (Both Individual and National) and Student Loans Remain Big Headwinds for Strong Economic Growth

The U.S. economy is still healing from the recession of many years ago, but it's definitely not strong. In fact, this has been the weakest economic recovery in our nation's history and the only one in which median household income dropped. Let's explore a few of the reasons why.

Housing sales are improving but still remain ~50% below their peak in 2006. One big problem is the relationship of excessive debt to income for too many consumers and otherwise first time home buyers. And unpaid student loans coupled with no or low paying jobs are the elephant in the room.

Although it's the historically high debt levels and the weak economic recovery that are weighing heavily on both the housing market and lack of good paying jobs for the young, President Obama never once uttered the word DEBT in his 'save the middle class' State of the Union address Tuesday evening. I guess it doesn't worry him as he waxes on about piling on more debt with more government spending for 'free' college and raising the minimum wage. Either that or he doesn't want us to think about what's happened on his watch. Oh well, truth is truth and facts are stubborn things. So with that in mind, let's reveal some basic problems associated with housing and the young.

Economists See Housing-Market Pickup has the story:

"Economists at the International Builders Show said that while 2014 proved disappointing they expect construction and home buying to accelerate in 2015, driven by strong job growth and improving consumer confidence.

Housing has been unusually slow to recover from the housing crash and recession. Economists typically expect the housing market to surge when the overall economy picks up strength.... Single-family home starts peaked in 2006 and haven’t come close to that level since.

The health of the housing market has implications for the broader economy because home sales and construction stimulate job growth directly through construction jobs and indirectly through many products and services that support housing. And when consumers buy homes, they often also buy furniture and many other home equipment and supplies. . . .

Still, the economists noted that the market continues to face significant challenges.

David Berson, chief economist at Nationwide Insurance, noted that 10% of homes with mortgages remain underwater, or worth less than what the borrowers owe on the home. He also noted that household formation—the biggest indicator of future home buying—remains sluggish, particularly among homeowners in their 20s, 30s and 40s.

The economists also pointed to student loan debt as a looming cloud over the housing market .... with more than 40% of households between 20 and 29 with student debt as of 2013.

Moreover, those with student debt now tend to have less education making repayment more difficult. In 2001 more than 70% of those indebted households had at least a graduate degree, compared to about 35% in 2013."

Summing Up

The 'good old days' in the housing market are gone. The bad new days of excessive debt are here.

Debt is the biggest problem facing our economy, and our nation's overall enormous indebtedness (student loans, car loans, credit card loans, home equity loans and home mortgages, as well as the national debt, both recognized and ignored) will make the ongoing economic recovery weaker and longer than historically has been the case.

We've borrowed and spent the money that we didn't have to spend. It's time to pay the piper.

That's my take.

Thanks. Bob.

Wednesday, January 21, 2015

Middle Class Economics ... Obama Style

President Obama lectured the nation last evening on what he referred to as "Middle Class Economics."

Let's review a few relevant facts. The Gaslight Presidency is subtitled 'Obama's policies have crushed middle-class incomes, and he proposes more of the same:'

"The President has suddenly discovered that middle-class incomes have plunged on his watch, and he’s demanding that Congress address this with more of the same policies that have done so much to reduce middle-class incomes. . . . Mr. Obama has spent six years trying to redistribute income, but all he’s done is make the income gap between rich and poor wider.
The nearby chart shows the real income of the median American household since 1984. Earnings soared 14.5% during the 1990s to $56,800, then dipped during George W. Bush ’s first term. They rebounded smartly in 2007 almost to the 1999 peak, and then plunged as expected amid the recession.

The brutal difference of the Obama years is that incomes continued to fall and didn’t rebound with the recovery as they did in every other expansion. Only in 2013 did they finally pick up, ever so modestly. . . .

The Congressional Budget Office reports that total transfer payments to the middle 20% of taxpayers increased 25.9% on average between 2007 and 2011, the latest year for which data are available. The average tax liability for this group fell 24.4%.

Yet their after-tax income nonetheless fell by 1.9% over the same period. That’s what happens with years of subpar economic growth."

Summing Up

Facts are stubborn things, and the truth is the truth.

More of the same class warfare based policies are not what Americans, including members of the 'middle' class, need from President Obama and his band of  redistributionists.

And to paraphrase Forrest Gump, that's all I have to say about that.

Thanks. Bob.

Tuesday, January 20, 2015

Will "Free" Community College Be Free? ... Graduation Rates Are Dismal ... What's Being Represented As Free Isn't Free At All

President Obama wants to make community college attendance free for 'serious' students. And what exactly does he mean by the word free?

Assuming the teachers won't work for no pay, who will pay the teachers? Who will pay the administrators, cafeteria workers, custodians, security guards, coaches and the like? Taxpayers, of course. Thus, tuition and fees for attending students won't be free.

But what about all the other costs for students like transportation expenses? Books? Food? Lodging? And lost opportunity costs such as no income due to starting work later in life? And repaying the borrowed student loans?

And upon entering, will these newly enrolled students be fully prepared to take advantage of their "free" community college opportunity, or will they need to take remedial courses due to a lack of  adequate preparation during their "free" K-12 years?

Support Our Students has an interesting take on things:

"All college commencements are happy, but community-college commencements are the happiest of all. Many of the graduates are the first in their extended family to have earned degrees. . . .

So when President Obama unveils his community-college plan in the State of the Union address Tuesday night, it represents an opportunity — an opportunity to create days like that for more students.

Obama’s headline idea is to make community college free. It would reduce two years of tuition costs to zero for students with decent grades and who graduate within three years. . . .

The problem is that getting students to enroll is neither hard nor important. The important task is to help students graduate. Community college drop out rates now hover somewhere between 66 percent and 80 percent.

Spending $60 billion over 10 years to make community college free will do little to reduce that. In the first place, community college is already free for most poor and working-class students who qualify for Pell grants and other aid. In 2012, 38 percent of community-college students had their tuition covered entirely by grant aid and an additional 33 percent had fees of less than $1,000. . . .

The smart thing to do would be to scrap the Obama tuition plan. Students who go to community college free now have tragically high dropout rates. The $60 billion could then be spent on things that are mentioned in President Obama’s proposal — but not prioritized or fleshed out — which would actually increase graduation rates.

 First, you’d focus on living expenses. Tuition represents only a fifth of the costs of community-college life. The bulk is textbooks, housing, transportation and so on. Students often have to take on full-time or near-full-time jobs to cover the costs, and, once they do that, they’re much more likely to lose touch with college. . . .

You’d figure out the remedial education mess. Half of all community-college students arrive unprepared for college work. . . .
In short, you wouldn’t write government checks for tuition. . . .

We’ve had two generations of human capital policies. Human Capital 1.0 was designed to give people access to schools and other facilities. It was based on the 1970s liberal orthodoxy that poor people just need more money, that the government could write checks and mobility will improve.
Human Capital 2.0 is designed to help people not just enroll but to complete school and thrive. It's based on a much more sophisticated understanding of how people actually live, on the importance of social capital, on the difficulty of living in disorganized circumstances. The new research emphasizes noncognitive skills — motivation, grit and attachment — and how to use policy levers to boost these things.
The tuition piece of the Obama proposal is Human Capital 1.0. It is locked in 1970s liberal orthodoxy. Congress should take the proposal, scrap it and rededicate the money toward programs that will actually boost completion, that will surround colleges, students and their families with supporting structures. We don’t need another program that will lure students into colleges only to have them struggle and drop out."
Summing Up
Some version of Human Capital 2.0 is necessary for K-12, community college and four year colleges as well.
We are spending too much money for far too little benefit.
Throwing more money at the current broken and expensive system of American education is following the road to insanity by doing the same thing over and over and expecting a different result.
More money isn't the answer. More government control isn't the answer either. 
Vouchers may make the most sense, but they probably won't happen in my lifetime. 

Instead we're likely to get more of the same old lip service and inferior results, while spending more money that we don't have to spend.

For both our young folks and taxpayers, it's sad but true.
That's my take.
Thanks. Bob.

Monday, January 19, 2015

Food for Thought .. Quoting Martin Luther King, Jr.

Here's a quote worth memorizing.


Martin Luther King, Jr.

State of the Economy ... "Saving the MIddle Class"

By the politicians' definition, the middle class has the most votes. Accordingly, the middle class voters, however the class may be defined and by which group of politicians, will invariably determine who wins elections.

Accordingly, all politicians pay lip service to serving the needs of the vast middle class. That strongly suggests to me that the political discussion about the causes and solutions to the problem of growing income inequality will be the subject of an intense and ongoing  24/7 political debate throughout America.

President Obama will undoubtedly make this the central topic during the State of the Union address Tuesday evening. He'll take credit for what's gone well and assign blame to others for what hasn't. It's the political way.

The State of the Economy, in Eight Charts, is presented below to provide some perspective and fact based background information:

"When President Barack Obama delivers his annual State of the Union speech on Tuesday, the economy will be as strong and bright as it has been in years.

Although the economic recovery is clearly accelerating, the improvements did nothing for the Democrats in the November midterm elections. Nor is it likely the economy will much help Mr. Obama’s ability to pass his legislative agenda through the Republican-controlled Congress.

In anticipation of his remarks, here are eight charts that describe the state of the union in economic terms.
For the duration of his presidency, Mr. Obama has sparred with House Republicans over the budget. Over calendar year 2014, the budget deficit was the smallest since 2007.
* * *
While large in absolute terms, as a share of the economy, neither spending or revenue are extraordinarily high at the moment.
 * * *
One of the most welcome pieces of news for many consumers, especially those with long commutes, is the plunge in gas prices.
In this week’s speech, Mr. Obama can talk about some of the lowest gas prices of his presidency.
* * *
The jobless rate is far lower than when Mr. Obama first took office.
Unemployment and underemployment were at their worst around the time of Mr. Obama’s 2010 State of the Union. Both measures have come down significantly and are now the lowest of Mr. Obama’s presidency by a significant margin.
* * *
While unemployment has come down, this hasn’t translated into rising incomes for most families. The median household income in the U.S., adjusted for inflation, climbed as high as $56,800 in 2000 and has since been in decline.
Income is still significantly lower than the $54,059 during Mr. Obama’s first year in office.
* * *
Different industries always have different growth rates. Under Mr. Obama’s presidency, professional and business services and health and education services have done especially well. Leisure and hospitality and retail trade have also added many jobs, though traditionally these industries can be low wage.
Manufacturing, construction and state and local government all continued shedding jobs several years into Mr. Obama’s presidency. These industries have begun to grow again in recent years, but have fewer jobs than when Mr. Obama took office.
* * *
Mr. Obama has often talked about a renaissance in U.S. manufacturing. While manufacturers have been adding jobs, the sector remains a diminished piece of the U.S. economy, with no signs of significant turnaround.
* * *
Mr. Obama’s presidency had the worst two initial years of any president since John F. Kennedy, though since then Mr. Obama has gained ground, surpassing the total number of jobs gained during President George W. Bush‘s two terms, and passing the (briefer) presidencies of Mr. Kennedy, Gerald Ford and George H.W. Bush."

Summing Up

Get ready for the 'save the middle class' conversation.

To paraphrase what the famous bank robber Willie Sutton said when asked about his reasoning for bank robbing --- that banks were where the money was --- politicians know what's most important to their success and popularity --- the middle class voters --- they have the most votes.

Politicians have two goals: (1) to get elected; and (2) to get reelected.

Based on simple math, all politicians of both parties will go for the 'middle class' votes.

That's my take.

Thanks. Bob.

Saturday, January 17, 2015

Individual Investors Should Stay With Blue Chip Dividend Paying Stocks for the Long Haul .... In Addition to Long Term Share Price Appreciation, It's a "Current Income Thing" as Today's Cash Dividends on High Quality Stocks are Higher than Interest Income on High Quality Bonds

2015 has been a rough ride for individual stock investors thus far. After another volatile ride this past week, stocks rallied Friday but still finished lower for the week. See U.S. Stocks Rise Sharply.

So now what should individual investors do? My view is that long term individual investors should relax and enjoy the ride to financial security, as uncomfortable as it may be from time to time.

And for those of you who aren't finding the current ride to be any fun at all, then don't watch. Simply close your eyes and try to think of something else that's more pleasant. But keep riding and in due course, you'll learn to relax during the bumpy times as well. It's an experience thing.

How to Play Stocks Now contains some timely and great fact based advice for individual investors:

"One day, the six-year bull market in stocks will end. This past week’s sharp price swings suggest many investors fear that time is now, and unexpected turmoil in the currency markets is rattling nerves further. . . .
For all the compelling arguments that stocks are poised for a fall in 2015, there is a case to be made that stocks will resume their rise. It hinges on these four basic reasons:

Investors Get Paid

The S&P 500 has almost tripled since March 2009, and many investors worry the gains have run their course.

Yet dividends paid out by companies in the S&P 500 have been rising at the same time .... The S&P 500 rose 65% from December 2010 through December 2014 . . . . In that same period, dividends per share went up 74% . . . . Investors have been rewarded not just through the rise in the value of their stocks but also through dividend payouts. . . . low interest rates make bonds a dismal alternative . . . .

The Fed Is Patient

Investors have been worrying for a long time about what might happen when the Federal Reserve starts to raise short-term interest rates, as the central bank’s extraordinary efforts to stimulate the economy since the financial crisis are widely believed to have given share prices a major boost.

Many economists expect the moment of truth to arrive midyear. If the Fed moves sooner than expected, or increases rates to a greater extent than expected, though, the stock market could get a jolt. . . .

So it is worth noting that recent comments coming out of the Fed have indicated that the central bankers are trying to avoid any sudden movements that might spook investors. . . .

Recession Risk Is Low

The last six times the S&P 500 produced negative annual returns, including dividends, the U.S. economy was in or near a recession. The most recent example was 2008; the others were 2002, 2001, 2000, 1990 and 1981.

“If you want to know what hurts earnings and takes down markets, it’s a recession,” says Tobias Levkovich, chief U.S. equity strategist at Citigroup .

That is important because economic data don’t seem to be signaling an imminent recession. Low gasoline prices, strong auto sales and the potential for more housing construction should keep the economy afloat....

Sharmin Mossavar-Rahmani, chief investment officer at Goldman Sachs Group ’s private wealth-management unit in New York, said a recession likely won’t occur until the economy is growing so fast for so long that the Fed raises interest rates high enough that they start choking off growth.

“That’s in the distant future,” she says.

Investors Could Calm Down

In October, the S&P 500 fell 5.4% in a week. Investors then were worried that falling oil prices were a sign of economic weakness. They also were nervous about what the Fed would do. Europe, Japan and China seemed to be struggling, to boot. Stocks eventually recovered.

There was a similar drop in mid-December, and again stocks bounced back to records.

None of that is a guarantee that the current turmoil also will be short-lived. But it does indicate there are a lot of investors primed to sell at the first sign of trouble. . . .

At the same time, what matters to many investors isn’t just the news, but the news relative to expectations. If the situation turns out not to be as bad as they think it might be—which has happened more than once since the financial crisis—nervous investors may calm down. . . .

Investors should weigh all four of the above reasons to be optimistic about stocks.

If . . . you are the type of investor who doesn’t handle uncertainty well, you should contemplate lowering your anxiety by trimming the amount of stocks you own. . . .

Now also could be a smart time to shift money into stocks that pay healthy dividends, which offer investors compensation for the risk that there could be a significant downturn in the market. . . .

In that sense, investing is a bit like flying a jumbo jet. The typical flight is an unexciting affair and everything works just fine on autopilot. But there are also moments of extreme danger when lives depend on whether the pilot stays calm.

Don’t double down on stocks because there are bullish arguments to be made, and don’t let the fretting of others force you to stash your savings under your mattress.

Instead, stay invested in stocks to the extent you are comfortable, and no further, so that you can react rationally when the moment of chaos arrives."

Summing Up

Individual investors should look past current market noise and instead focus on the long term.

Blue chip dividend paying stocks are solid investments over time, and today they are paying cash dividends greater than income received from government bonds.

Here's the 1-2-3 deal --- (1) For current income, blue chip dividend stocks are the place to be. (2) For income growth in the form of increased cash payments over time, blue chip dividend stocks are the place to be. (3) And for inflation beating asset price appreciation over time, combined with dividends received, blue chip dividend stocks are the absolute best place to be.

So we long term oriented individual investors should sit back, take a deep breath, relax and allow the operating heads of the blue chip companies that we 'own' do the heavy lifting. The long term rewards of share ownership will be worth our time and invested money. 

That's  my take.

Thanks. Bob.

Friday, January 16, 2015

Inflation Dead?

For those of us who remember the high inflation days of the 1970's, the prospect of low to no inflation is a little difficult to internalize. That said, the likelihood that prices will drop instead of rise is not only likely --- it's here.

Consumer inflation posts biggest drop in six years has the breaking news this morning:

"U.S. consumer prices fell 0.4% in December, the largest drop since the end of 2008, hit by tumbling prices for gasoline and other types of energy, according to government data released Friday.... Energy prices plunged 4.7% in December, the biggest drop since the end of 2008, as gasoline fell 9.4%, the U.S. Labor Department reported. Excluding the volatile categories of food and energy, the "core" reading of inflation showed that prices were unchanged in December, compared with a gain of 0.1% in November. . . . Consumer prices grew 0.8% in 2014 -- the second smallest calendar-year increase in the last five decades. Inflation-adjusted average hourly earnings rose 0.1% in December."

Summing Up

Inflation may not be dead, but it's definitely no longer a threat.

Economic growth and the ability of government  and individuals to live within our means, and stop from expanding, let alone repaying some of that huge debt, are huge issues facing America and the rest of the world as well.

Growing government debt and ever higher consumer borrowing levels won't help. It's time to face facts and deal with reality.

There are not now, and never really were, any free lunches out there. Somebody always has to produce and pay for what we 'eat' --- at least eventually

That's my take.

Thanks. Bob.

Thursday, January 15, 2015

Global Deflation Ahead? ... Cash Dividends are a Big Part of Successful DIY Investing ... Dividends Yields on Blue Chip Stocks are Higher Today than Interest Rates Paid on High Quality Bonds

We definitely are living in interesting times. In financial circles, deflation has replaced inflation as the worry of the world, and existing global debt levels make the problem worse. Living in a world of price stability, or even outright deflation, is vastly different than a world where price levels increase continuously. Debtors and currency traders beware.

Stocks got hammered yesterday, falling nearly 200 Dow points. And it look like more trouble in global markets today as fears of deflation take hold across the world. See Swiss National Bank Abandons Minimum Exchange Rate Against Euro.

So what's a long term focused saver and  individual investor to do? Well, let's take a close look at the role of dividends in investing successfully.

Today blue chip dividend paying stocks are offering higher current yields (~3%) than those on high quality bonds (10 year government bonds yield less than 2%). For several individual examples of blue chip dividend paying stocks, see the 'Summing Up' portion of our post dated January 12 titled "Stock Market Volatility and Falling Oil Prices ...."

And the current unusual situation of high dividend yields relative to interest rates could stay that way for many years as inflation and interest rates remain at historic lows and companies continue to grow their sales and earnings. Thus, owning a basket of relatively high yielding dividend stocks makes sense to me.

Why dividend growth is important for young workers tells the story of why it may make sense for you as well:

"When investing in stocks, it's important to understand the role that cash dividends play.

Over long time frames, dividends have been responsible for more than 40% of the total return of some of the major indexes. Dividend paying stocks also tend to be good performers.  . . .
Three YearsFive Years10 Years
S&P 500 Index 20.41%15.45%7.67%
Dividend Aristocrats 21.43%18.28%10.55%

Individuals in the accumulation phase of saving and investing for their long term needs should definitely strongly consider the effect of rising dividends. . . .

Now let's take a look at hypothetically investing in the Dow Jones Industrial Average . . . . Assume that you purchased one share of DIA (Dow Diamonds fund) on Jan. 20, 1998 for $77.81. At the end of 1999, your first full year owning the fund, you'd have collected $1.53 in dividends for a realized yield of 1.98%.

As of Dec. 26, 2014, over a period of about 17 years, you would have collected $40.96 in dividends, which means that over 50% of your initial investment would have been returned to you in cash payments. For the calendar year 2014, you would have collected $3.45 in dividends. So, your realized dividend yield for 2014 based on your original investment of $77.81 would have been 4.44%.

The important concept here is that in your 17-year holding period, while the price of the fund has more than doubled, so has your dividend yield. Your dividend yield has increased from less than 2% to more than 4%. Dividend growth can affect your future income stream in a very profound way."

Summing Up

Dividend yields on many dividend paying blue chip stocks today are considerably higher than interest rates on government  bonds.

Interest rates are at historic lows and likely to stay that way for several years.

Inflation is non-existent and likely to stay that way too.

Oil prices have fallen dramatically and will remain relatively low over time.

The U.S. economy is performing reasonably well while other countries are definitely struggling to avoid deflation. That means the U.S. dollar should remain strong and U.S. interest rates should stay low.

To repeat, cash dividends on U.S. blue chip stocks currently yield more than bonds, and regular increases in those dividends are likely over time. As earnings increase over the years, share prices should rise too.

Thus, I'm sticking with blue chips and prepared to ride out the storm.

Thanks. Bob.

Wednesday, January 14, 2015

Unfunded and Unaffordable Public Sector Pension Promises Require More Taxes or Lower Benefits ... The Magnitude of the Government's Deceit and the Hidden but Very Real Abuse of Future Taxpayers

Government spends more money that it collects from taxpayers. In addition, it makes promises to spend money in the future for which it doesn't provide for in the present. Someday that's unsustainable and that day is approaching rapidly as the nation ages, its work force slows, its unfunded promises grow, its receipts fall short of its outflows and its promised payments come due.

With that in view, President Obama proposes a new federal program to spend more taxpayer money on providing young students free community college education. See post of January 10 'Paying for an Affordable Community College Education ....' And he also wants the government to spend billions more with the intention of improving K-12 education throughout America. See Education Secretary Outlines Central Federal Role in Policy.

But what if more federal government control and additional taxpayer money isn't the answer to our educational woes? What if instead it just serves to make the financial problems of individual taxpayers, our nation, and cities and states worse than they already are? And what if it's really a head fake where the money is used for pension payments instead of using it to attempt to better educate our children?

Does there ever come a point when truth telling and reality is acknowledged, when the federal government is not running the show, and when we admit to ourselves that taxes are too high and educational outcomes are too low?

The Pension Sink Is Gulping Billions in Tax Raises has the tax and spend, and tax and spend, and then tax some more story of public sector governance and where the money really goes:

"California Gov. Jerry Brown sold a $6 billion tax increase to voters in 2012 by promising that nearly half of the money would go to bolster public schools. Critics argued that much of the new revenue would wind up in California’s severely underfunded teacher pension system. They were right.

Last June Mr. Brown signed legislation that will require school districts to increase funding for teachers’ pensions from less than $1 billion this year in school year 2014-15, which started in September, to $3.7 billion by 2021, gobbling up much of the new tax money. . . . California taxpayer advocate Joel Fox recently observed that no matter what local politicians tell voters, when you see tax increases, “think pensions.”

Californians are not alone. Although fiscal experts have warned about the worsening condition of government pension systems for years, many taxpayers felt little impact from the rising debt—until now.

Decades of rising retirement benefits for workers—some of which politicians awarded to employees without setting aside adequate funding—and the 2008 financial meltdown have left American cities and states with somewhere between $1.5 trillion and $4 trillion in retirement debt. . . .

Under growing pressure to erase some of this debt, governments have increased pension contributions to about $100 billion in 2014 from $63 billion in 2007 . . . . But the tab keeps growing, and now it is forcing taxes higher in many places. . . .

In April two-dozen Illinois mayors gathered to urge the state to reform police and fire pensions, which are on average 55% funded. The effort failed, and municipalities subsequently moved to raise taxes and fees. The city of Peoria’s budget illustrates the squeeze. In the early 1990s it spent 18% of the property-tax money it collected on pensions. This year it will devote 57% of its property tax to pension costs. Reluctant to raise the property levy any more, last year the city increased fees and charges to residents by 8%, or $1.2 million, for such items as garbage collection and sewer services.

Taxpayers in Chicago saw the first of what promises to be a blizzard of new taxes. The city’s public-safety retirement plans are only about 35% funded, though pension costs already consume nearly half of Chicago’s property-tax collections. . . . But the city’s pension bill will double next year to more than $1 billion, so a massive property tax hike is still on the table.

Chicago residents also face an enormous state retirement bill. . . . if the Illinois Supreme Court sustains a lower-court decision overturning 2013 pension reforms, Illinois taxpayers will pay $145 billion in higher state taxes over the next three decades.

Burdened by so much debt, taxpayers in some places are unlikely to see relief soon. When California passed its 2012 tax increases, Gov. Brown and legislators promised voters the new rates would expire in 2018. But school pension costs will keep increasing through 2021 and then remain at that elevated level for another 25 years to pay off $74 billion in unfunded teacher liabilities. Public union leaders and sympathetic legislators are already trying to figure out how to convince voters to extend the 2012 tax increases and approve “who knows what else” in new levies, says taxpayer advocate Mr. Fox. It’s a reminder that in some places the long struggle to pay off massive government pension debt is just starting."

Summing Up

When it comes to improving educational opportunities and outcomes, more taxpayer money is touted by our public officials as the answer to our problems, but the truth is that it's never been the answer, and neither is it now.

Kicking the public sector underfunded pension can down the road has become a favorite game of too many public officials and public sector union officials. They've been playing this game of charades for a very long time now.

And an essential part of the game has been keeping hidden from taxpayers the true costs to properly fund the 'negotiated' retirement benefits. By so doing, that enabled public sector employees to receive immediate and substantial 'negotiated' compensation increases and 'future' promised retirement benefits while not confronting taxpayers with what future tax increases would be required to pay the pension bills down the road.

Now more people are reaching retirement age (often early age retirement with full benefits), the 'fat lady' is beginning to sing all across America, and the money to pay these early and large benefits is nowhere to be found.

Thus, the new game is to tax the citizens in the name of improving education.  But that's not what's really going on behind the scenes. The real reason for the tax hikes is that real money is needed to pay the retirees their promised but currently unfunded retirement benefits.

And what will the kids get out of all this under the radar game playing? Well, down the road today's kids will become tomorrow's adults and be forced to pay their teachers' retirement benefits previously agreed upon by government and public sector union officials in the dead of night.

It's sad, but it's true. That's my take.

Thanks. Bob.

Monday, January 12, 2015

Stock Market Volatility and Falling Oil Prices ... What to Do? ... DIY Ownership of Dividend Paying Boring Blue Chips Beats Fund Managers' Performance

Oil prices dropped a huge ~5% again yesterday, while stock prices fell considerably less than 1%. Oil companies were the big losers. Oil prices are lower again early this morning by an additional ~2%. See Oil Extends Selloff on UAE Minister's Comments.

January has already been a most interesting month as oil prices have fallen almost 20% in less than two weeks of trading. How low will they go? Nobody knows, of course, but two things are virtually certain: (1) they will fall more, and (2) they will end the year higher than they are currently.

That's likely to be the case for stock prices, too. We will likely experience lower share prices at some point this year, but they will be substantially higher than current prices by year end. At least that's how I see things.

So with all this volatility and uncertainty early in 2015, what to do is the relevant concern now for many individual investors. And in my view, the simple answer is to invest for the long haul in boring blue chip stocks that pay decent and growing cash dividends, then just sit tight and watch the money grow.

Key to Beating the Benchmark in 2015? Try 'Big, Old and Ugly' Stocks' contains this solid advice for individual investors:
Only 19% of active large cap active funds beat the Russell 1000 last year, according to Lipper Analytical Services and BofA Merrill Lynch US Quantitative Strategy.

"Active stock pickers lagged badly last year, that much we know.

Bank of America Merrill Lynchs’ Savita Subramanian says that just 19% of large cap active managers topped the Russell 1000 by total returns, while only 14% bested the S&P 500.

But why? Subramanian says that one culprit was low volatility that dominated for the first three quarters of last year. Calm markets tamped down performance dispersion to a record low in 2014, meaning that the spread of returns across all managers fell into an unusually tight range:
“Even with the benefit of hindsight, if one owned the best performers, the outperformance spread touched the lowest level we have seen in 2014.”
Combine low volatility with the fact that the most crowded trades of last year did badly. Subramanian writes that the most 10 overweighted stocks by active managers underperformed the most underweighted stocks by 3.2% last year.

And, since many active managers seek their fortunes in off-the-radar names, weakness in small caps all year dinged performance (large-caps bested small by the widest margin since 1998).

What does it all mean? Subramanian says that managers will have more chances to outperform this year should volatility rise. Beyond that, the stodgiest stocks might be worth a look, she says. Of course, buying into these names might reduce how differently funds might look from the benchmark, making it harder to justify higher fees:
“If large caps outperform small again in 2015, as we expect, managers may need to revisit their persistent underweight in mega-cap stocks. We think ownership may also continue to matter, and thus some of the ‘big old and ugly” stocks – cheap large caps which have been shunned by managers and are more likely to be shorts than longs by hedge funds, but many of which are high quality and offer attractive cash return and growth potential — could be the route to outperformance.”
Unfortunately, Subramanian’s report doesn’t come with an itemized menu for which big, old and ugly stocks to pick."

Summing Up 

In my view, some of the blue chip dividend paying stocks that are worth owning are Boeing, GE, Honeywell, Apple, Microsoft, Intel, Cummins, Cisco, Chevron, Exxon, Pfizer, Merck, Johnson & Johnson, Ford, WalMart, Cummins, Wells Fargo, JP Morgan, US Bank and Whirlpool.

There are others, but these diversified holdings serve as a good example of a diversified personal investment portfolio of common stocks.

Thanks. Bob.