President Obama wants more government "help" in order that government can take appropriate actions to "save" America's middle class. That's his solution for what ails our great country --- more collective action from government and less individual freedom for We the People.
And he couldn't be more wrong about that.
Thirty five years ago, President Ronald Reagan didn't believe that the Obama approach made any sense. My, how things have changed. By the way, Reagan was right.
Notable & Quotable quotes from Reagan's second inaugural address in 1985:
"When I took this oath four years ago, I did so in a time of economic stress. Voices were raised saying we had to look to our past for the greatness and glory. But we, the present-day Americans, are not given to looking backward. In this blessed land, there is always a better tomorrow.
Four years ago, I spoke to you of a new beginning and we have accomplished that. But in another sense, our new beginning is a continuation of that beginning created two centuries ago when, for the first time in history, government, the people said, was not our master, it is our servant; its only power that which we the people allow it to have.
That system has never failed us, but, for a time, we failed the system. We asked things of government that government was not equipped to give. We yielded authority to the National Government that properly belonged to States or to local governments or to the people themselves. We allowed taxes and inflation to rob us of our earnings and savings and watched the great industrial machine that had made us the most productive people on Earth slow down and the number of unemployed increase.
By 1980, we knew it was time to renew our faith, to strive with all our strength toward the ultimate in individual freedom consistent with an orderly society.
We believed then and now there are no limits to growth and human progress when men and women are free to follow their dreams.
And we were right to believe that. Tax rates have been reduced, inflation cut dramatically, and more people are employed than ever before in our history.
We are creating a nation once again vibrant, robust, and alive. But there are many mountains yet to climb. We will not rest until every American enjoys the fullness of freedom, dignity, and opportunity as our birthright. It is our birthright as citizens of this great Republic, and we'll meet this challenge.
These will be years when Americans have restored their confidence and tradition of progress; when our values of faith, family, work, and neighborhood were restated for a modern age; when our economy was finally freed from government's grip; when we made sincere efforts at meaningful arms reduction, rebuilding our defenses, our economy, and developing new technologies, and helped preserve peace in a troubled world; when Americans courageously supported the struggle for liberty, self-government, and free enterprise throughout the world, and turned the tide of history away from totalitarian darkness and into the warm sunlight of human freedom.
My fellow citizens, our Nation is poised for greatness. We must do what we know is right and do it with all our might. Let history say of us, "These were golden years—when the American Revolution was reborn, when freedom gained new life, when America reached for her best."
Yesterday Barack Obama said pretty much the exact opposite of what Ronald Reagan said in 1985. Obama's Inaugural Intentions puts it this way:
"President Obama wants more government. In his second inaugural address, he masked the message with phrases like "collective action" and doing "things together." But these were stand-ins—euphemisms, really—for a bigger and more ambitious federal government. That's the unmistakable goal of his second term, and his inaugural address was devoted to his determination to achieve it.
Mr. Obama paid lip service to reducing "the size of our deficit." This was followed by a crucial "but" as he went on to defend a series of programs he is unwilling to cut, including Medicare, Medicaid and Social Security. "These things do not sap our initiative," he declared. "They strengthen us."
In effect, Mr. Obama endorsed the entire liberal agenda as the guiding star of his next four years in the White House. . . .
So there won't be a "grand bargain" in Mr. Obama's second term. As for the looming debt crisis, the president didn't give it so much as an anxious nod. His mind was on growing government. . . .
The highly partisan theme was a departure from recent second inaugural addresses. In 2005, George W. Bush talked about spreading freedom and touched on national unity and healing. In 1997, Bill Clinton called for "a government that is smaller, lives within its means, and does more with less." In 1973, Richard Nixon emphasized peace. In 1985, Ronald Reagan advocated "steps to permanently control government's power to tax and spend." (See Notable & Quotable nearby.)
If there is a model for Mr. Obama's speech, it is FDR's famous inaugural address in 1937, when he unabashedly extolled government. "Democratic government has the innate capacity to protect its people against disasters once considered inevitable, to solve problems once considered unsolvable," FDR declared. Mr. Obama was less explicit, but his emphasis was on the virtues of government."
Summing Up
More government means less freedom. Period.
Reagan stood for freedom. Obama advocates government as the solution to our problems.
Get ready for four more years.
Thanks. Bob.
Tuesday, January 22, 2013
Sunday, January 20, 2013
Halt in Posts
My blogger is technically on the blink.
How it happened I have no clue.
But it's too hard to fix, and it's too difficult now to use as is.
That said, I'm technically incompetent so I have no solution to offer either.
Accordingly, my blogging days are now over, at least for the foreseeable future.
Sorry about that.
Thanks. Bob.
Saturday, January 19, 2013
What Young People Underestimate ... Retirement Planning Tips
Young people become old people. No news there. However, old people realize how quickly life goes by, and that's a surprise awaiting younger folks.
As an example, I became old much faster than I ever would have dreamed possible, and most of my "elderly" friends say the same thing.
Once when asked about the biggest surprise in his life, Bill Graham said it was life's brevity.
And so it is with saving and investing for our retirement years. When we're young, we don't think it pertains to us. But that's wrong. So young folks, take note. And old folks, encourage the young folks to do so in a serious way.
The time to begin saving and investing is at as early an age as possible. There's no time like the present, in other words.
Although we all hope and expect to live long enough to retire and then live comfortably, far too many of us don't plan, save and invest properly for our financial future so we can in fact do just that.
11 retirement don'ts for 2013 has some good and some not-so-good advice. The not-so-good relates to not paying for financial advisers and managers. But first, let's see what the financial advisor has to say:
(1) "Don't engage in a financial relationship with someone who seems more interested in your assets and his product lineup than your concerns, your family and your personal financial goals. Amen.
(2) "Don't think of your home as an investment. Once you subtract the cost of repairs, remodeling, mortgage interest, property taxes, insurance, landscaping, selling costs, etc., you'll be lucky if your "investment" keeps up with inflation.
(3) Don't be duped by the Wall Street Promise Machine. Wall Street's big players use advertising as propaganda; attempting to trick you into believing that they are smarter than the competition or have some secret that will give you high returns with low risk. Don't be fooled. Last year, 75% of actively managed stock mutual funds under performed their benchmark index. . . .
(4) Don't waste time feeling foolish or regretting past financial mistakes. Better to spend your time figuring out how to get to your financial goals from where you are today. Get the answer to the most important financial planning question — "How large does my nest egg need to be so that I can retire at the time and in the lifestyle of my choosing?" Investing for retirement is a complex project that requires expertise in subjects that few investors possess, so don't hesitate to find competent help.
(5) Don't overestimate your investment prowess. We (men especially) have a tendency to overestimate our investing skill as well as our portfolio's performance. Few investors know their portfolio's rate of return. Even fewer know how it compares to a comparable portfolio of index funds.
(6) Don't think for a second that you can get quality financial advice at a price that is less than what you would pay for annual lawn care. Much financial advice is being offered for free, or close to it these days. But I don't believe that first-rate financial planning and wise advice are commodities to be purchased from the lowest cost provider. {NOTE: I disagree that cost and quality are inversely related. High quality advice need not be costly advice. In fact, it shouldn't be.}
(7) Don't invest in anything that you don't fully understand. Don't buy any complex or confusing investment product without getting a second opinion from a financial professional who has no economic interest in the transaction.
(8) Don't waste your time trying to find a prognosticator or guru who knows what the stock market will do this year. I'd rather drink sour eggnog than listen to all those stock market predictions that occur this time of year. Unfortunately, on Wall Street, guessing is often mistaken for the gift of prophecy. Your financial advisor doesn't know either. There are three types of financial advisors. The first type has no idea what the stock market will do in 2013 and is not ashamed to admit it. The second type has no idea but won't admit it for fear of losing clients. This type of advisor is dangerous. The third type has no idea but believes that he does. This type of advisor is radioactive.
(9) Don't think for a second that you can jump start your retirement planning by finding the next Apple before its price takes off. Your losing picks will bring financial and emotional despair long before you find your needle in a haystack. Better to buy the haystack by investing in a total stock market index fund. Then you will own the American economy, a more stable and reliable investment than any one stock.
(10) Don't invest in an asset because you think its price will go up. If it doesn't go up in the short run you'll probably sell at a loss, adding one more item to your list of "Financial Mistakes I Wish I Hadn't Made.” Invest in an asset because it will harmonize well with the other assets in your portfolio over the long haul. The best way to save for retirement is not by stock picking or market timing but by saving as much as you can and investing it in a low cost, tax efficient manner. {NOTE: I disagree that you shouldn't buy expecting the price of the asset to go up. Why else would you buy? That said, buy for the long haul and don't concern yourself with daily, weekly, monthly, quarterly and annual price gyrations. Stay the course. Although it's easier said than done, it must be done.}
(11) Don't forget that the most valuable retirement asset that you own cannot be priced in dollars. It is the sum of your character, education, natural talent and experience. For most of us this human capital is our most valuable, yet least appreciated, possession. If you live in America, you have the opportunity, unmatched anywhere else in the world, to bring your human capital to the workplace of your choosing for the benefit of yourself, your family and your community.
Summing Up
The financial adviser's 11 suggestions are definitely words to live by.
The best saving and investing advice that I can offer to younger people is straightforward.
And that is this --- Start saving early in life, keep saving regularly throughout your working years, invest in high quality American dividend paying companies for the long haul, and then sit back and enjoy the "ride" to a successful retirement.
But when prioritizing, remember to work extra hard on complying with admonition #11 --- it's the most important one.
Because life happens fast and you'll be getting old a whole lot quicker than you now think.
Thanks. Bob.
Friday, January 18, 2013
Common Sense Comes to Washington
House to vote on three-month debt limit hike has the breaking good news:
"The House of Representatives will vote next week to authorize a three-month increase in the debt ceiling, House Majority Leader Eric Cantor said Friday. "Next week, we will authorize a three month temporary debt limit increase to give the Senate and House time to pass a budget," Cantor said. Earlier Friday, House Speaker John Boehner said a budget should be passed before there is a long-term increase in the debt limit."
Summing Up
Crawling precedes walking, which in turn comes before learning to run.
As legendary comedian Flip Wilson might have said about our current Congress, "Let it crawl, Rev, let it crawl."
Thereafter they can learn to walk. Maybe even run someday.
Thanks. Bob.
"The House of Representatives will vote next week to authorize a three-month increase in the debt ceiling, House Majority Leader Eric Cantor said Friday. "Next week, we will authorize a three month temporary debt limit increase to give the Senate and House time to pass a budget," Cantor said. Earlier Friday, House Speaker John Boehner said a budget should be passed before there is a long-term increase in the debt limit."
Summing Up
Crawling precedes walking, which in turn comes before learning to run.
As legendary comedian Flip Wilson might have said about our current Congress, "Let it crawl, Rev, let it crawl."
Thereafter they can learn to walk. Maybe even run someday.
Thanks. Bob.
Don't Worry ... Be Happy ... THE GLASS IS AT LEAST HALF FULL
Let's ask ourselves the following question as we begin 2013:
Should we view the economic outlook and "glass" as half empty or as at least half full?
My own view is that it's more than half full, and my reasoning is summarized below.
The Negatives Are Plentiful
First, the bad stuff. Consumer confidence is low, the aristocrats in government have had no clue or even intention to do the right thing on behalf of We the People, unemployment is high, U.S.economic growth is slow, the rest of the world's economies are weak, and deficits and debts are at historical highs. Lots to worry about as we begin 2013.
.....................................................................................
Consumer sentiment declines in January captures the prevalent mood of gloom and doom in America these days:
"Led by gloomier views on current conditions, a gauge of consumer sentiment declined in January, hitting the lowest level since December 2011, according to a Friday report from the University of Michigan-Thomson Reuters.
The consumer-sentiment gauge declined to 71.3 in a preliminary January reading from a final December level of 72.9.
Economists polled by MarketWatch had expected a preliminary January reading of 74.2, with concern lingering over remaining major fiscal issues, such as the debt ceiling. January’s decline follows a plunge in December, when consumers were worried about the fiscal cliff. It can be tougher to rebuild than lose confidence.
“The deterioration in sentiment is a stark reminder of the debilitating impact that the ongoing uncertainty created by the political dysfunction in Washington is having on households' mood,” wrote Millan Mulraine, a macro strategist at TD Securities, in a research note. “If the uncertainty persists and confidence deteriorates further, it is likely to have a more lasting dampening effect on spending.”
The sentiment gauge, which covers how consumers view their personal finances as well as business and buying conditions, averaged about 87 in the year before the most recent recession. Economists watch sentiment data to get a feel for the direction of consumer spending.
UMich’s gauge of consumers’ views on current conditions fell to 84.8 in early January from 87 at the end of December. Meanwhile, a barometer of consumers’ expectations fell to 62.7 from 63.8. Higher payroll taxes are likely weighing on consumers’ moods, analysts said.
“The continued fiscal policy uncertainty could keep confidence depressed for the next few months relative to the levels in October and November,” Barclays analysts wrote in a research note prior to the data’s release."
....................................................................................
The Positives Are Also Plentiful
Our nation's politicians are finally coming to the conclusion that We the People are fed up with their childish and self centered behavior concerning our government's wasteful spending, deficits and debt issues. They may actually begin to address these problems this year.
Our U.S. economy is on the mend.
Housing has bottomed, energy costs are stable to declining and consumer spending may be strengthening somewhat.
Corporate earnings being reported are reasonably strong.
........................................................................................
GE, a bellwether for the world's economic condition and outlook, painted a reasonably sanguine picture today when reporting 2012's earnings.
In GE's Profit Rises 7.5%, CEO Jeff Immelt struck a somewhat optimistic and confident note about his company's performance and prospects:
"Overall, Chief Executive Jeff Immelt called the global economy mixed but said GE is well positioned for 2013, and he stood by the company's previous growth targets. He noted that the Chinese economy strengthened at the end of 2012 and said he expects the trend to continue.
"We saw real strength in the emerging markets, and the developed markets stabilized," Mr. Immelt said. . . .
Mr. Immelt described the conglomerate's order rate as "lumpy" during the quarter and said it remains too soon "to call victory." Still, "the momentum built during the quarter," he said....
GE's industrial businesses, which it has been counting on to drive growth as it shrinks its GE Capital finance arm, also showed improvement. GE's industrial margin finished the year at 15.1%, in line with Mr. Immelt's forecast for a 0.3-percentage-point gain from about 14.8% for 2011. The company has vowed to grow the margin another 0.7 percentage points this year.
The company has been working to rebuild investor confidence following its dividend cuts in the wake of the 2008 financial crisis, many of which stemmed from losses and write-offs at GE Capital. . . .
GE reiterated that it is planning for industrial organic revenue growth—which excludes the impact of acquisitions—of 2% to 6% in 2013."
.....................................................................................
And There Are More Positives To Consider
Inflation is and will remain subdued as energy prices remain stable, if not declining.
And domestic energy independence should become more of a priority for our nation now that the election of 2012 is behind us.
Meanwhile, even the government knows best gang shows signs of acting less irresponsibly about self imposed fiscal cliffs, debt ceilings and the like.
Any show of bipartisan problem solving behavior would be welcome and unexpected by We the People and undoubtedly help instill greater consumer confidence in the years ahead. Although perhaps I'm being naive about this, that's what I see happening.
And around the globe, Europe, Japan and China are all showing clear signs of demonstrable economic bottoming, stability and improvement as well.
Summing Up
So despite all the bad news out there, I'm taking a confident "Don't worry; Be happy" approach to 2013 and beyond. I recommend that you consider doing so as well.
If nothing else happens, at least we'll smile more. And that may prove to be contagious to those around us.
We'll be updating this "glass is more than half full" point of view in future posts, but I wanted to share my growing level of confidence in our country's prospects for the good times that lie ahead.
Besides, somebody has to start believing that we still are who we always have been as We the People.
While we still have lots of problems to solve to create the millions of private sector jobs that are very much needed, I'm betting on that to happen in the next several years as we all learn anew (even the big spenders in government) that spending money we don't have can't continue forever.
So to repeat, Don't worry; be happy.
THE GLASS IS AT LEAST HALF FULL.
Thanks. Bob.
Should we view the economic outlook and "glass" as half empty or as at least half full?
My own view is that it's more than half full, and my reasoning is summarized below.
The Negatives Are Plentiful
First, the bad stuff. Consumer confidence is low, the aristocrats in government have had no clue or even intention to do the right thing on behalf of We the People, unemployment is high, U.S.economic growth is slow, the rest of the world's economies are weak, and deficits and debts are at historical highs. Lots to worry about as we begin 2013.
.....................................................................................
Consumer sentiment declines in January captures the prevalent mood of gloom and doom in America these days:
"Led by gloomier views on current conditions, a gauge of consumer sentiment declined in January, hitting the lowest level since December 2011, according to a Friday report from the University of Michigan-Thomson Reuters.
Economists polled by MarketWatch had expected a preliminary January reading of 74.2, with concern lingering over remaining major fiscal issues, such as the debt ceiling. January’s decline follows a plunge in December, when consumers were worried about the fiscal cliff. It can be tougher to rebuild than lose confidence.
“The deterioration in sentiment is a stark reminder of the debilitating impact that the ongoing uncertainty created by the political dysfunction in Washington is having on households' mood,” wrote Millan Mulraine, a macro strategist at TD Securities, in a research note. “If the uncertainty persists and confidence deteriorates further, it is likely to have a more lasting dampening effect on spending.”
The sentiment gauge, which covers how consumers view their personal finances as well as business and buying conditions, averaged about 87 in the year before the most recent recession. Economists watch sentiment data to get a feel for the direction of consumer spending.
UMich’s gauge of consumers’ views on current conditions fell to 84.8 in early January from 87 at the end of December. Meanwhile, a barometer of consumers’ expectations fell to 62.7 from 63.8. Higher payroll taxes are likely weighing on consumers’ moods, analysts said.
“The continued fiscal policy uncertainty could keep confidence depressed for the next few months relative to the levels in October and November,” Barclays analysts wrote in a research note prior to the data’s release."
....................................................................................
The Positives Are Also Plentiful
Our nation's politicians are finally coming to the conclusion that We the People are fed up with their childish and self centered behavior concerning our government's wasteful spending, deficits and debt issues. They may actually begin to address these problems this year.
Our U.S. economy is on the mend.
Housing has bottomed, energy costs are stable to declining and consumer spending may be strengthening somewhat.
Corporate earnings being reported are reasonably strong.
........................................................................................
GE, a bellwether for the world's economic condition and outlook, painted a reasonably sanguine picture today when reporting 2012's earnings.
In GE's Profit Rises 7.5%, CEO Jeff Immelt struck a somewhat optimistic and confident note about his company's performance and prospects:
"Overall, Chief Executive Jeff Immelt called the global economy mixed but said GE is well positioned for 2013, and he stood by the company's previous growth targets. He noted that the Chinese economy strengthened at the end of 2012 and said he expects the trend to continue.
"We saw real strength in the emerging markets, and the developed markets stabilized," Mr. Immelt said. . . .
Mr. Immelt described the conglomerate's order rate as "lumpy" during the quarter and said it remains too soon "to call victory." Still, "the momentum built during the quarter," he said....
GE's industrial businesses, which it has been counting on to drive growth as it shrinks its GE Capital finance arm, also showed improvement. GE's industrial margin finished the year at 15.1%, in line with Mr. Immelt's forecast for a 0.3-percentage-point gain from about 14.8% for 2011. The company has vowed to grow the margin another 0.7 percentage points this year.
The company has been working to rebuild investor confidence following its dividend cuts in the wake of the 2008 financial crisis, many of which stemmed from losses and write-offs at GE Capital. . . .
GE reiterated that it is planning for industrial organic revenue growth—which excludes the impact of acquisitions—of 2% to 6% in 2013."
.....................................................................................
And There Are More Positives To Consider
Inflation is and will remain subdued as energy prices remain stable, if not declining.
And domestic energy independence should become more of a priority for our nation now that the election of 2012 is behind us.
Meanwhile, even the government knows best gang shows signs of acting less irresponsibly about self imposed fiscal cliffs, debt ceilings and the like.
Any show of bipartisan problem solving behavior would be welcome and unexpected by We the People and undoubtedly help instill greater consumer confidence in the years ahead. Although perhaps I'm being naive about this, that's what I see happening.
And around the globe, Europe, Japan and China are all showing clear signs of demonstrable economic bottoming, stability and improvement as well.
Summing Up
So despite all the bad news out there, I'm taking a confident "Don't worry; Be happy" approach to 2013 and beyond. I recommend that you consider doing so as well.
If nothing else happens, at least we'll smile more. And that may prove to be contagious to those around us.
We'll be updating this "glass is more than half full" point of view in future posts, but I wanted to share my growing level of confidence in our country's prospects for the good times that lie ahead.
Besides, somebody has to start believing that we still are who we always have been as We the People.
While we still have lots of problems to solve to create the millions of private sector jobs that are very much needed, I'm betting on that to happen in the next several years as we all learn anew (even the big spenders in government) that spending money we don't have can't continue forever.
So to repeat, Don't worry; be happy.
THE GLASS IS AT LEAST HALF FULL.
Thanks. Bob.
Stress Reducers, Retirement Readiness and Taking Care of Both Our "Current Self" and Our "Future Self"
Habits are easy to form and hard to break. Both good habits and bad habits.
Eating, exercising, reading, saving, borrowing and so forth. We generally know what we should do, but too often we habitually don't do what we should do. The well being of our "future self" is sacrificed for the pleasure of our "present self." Both deserve equal time and attention, because one day our future self will become our present self.
Let's focus on knowledge and habits with respect to spending, saving and investing herein.
1- People know they need to accumulate enough money during their working years to retire comfortably and be able to enjoy a relatively stress free life in their elderly years. Yet few do so.
2 - People are also concerned about the future of Social Security and whether the benefits will be sufficient to enable them to live comfortably after retirement. And they should be.
3 - People are also concerned about our nation's financial problems and future inflation. We all should be concerned. No doubt about it.
As a result of all of the above, people are saving as much as possible and investing those savings as wisely as possible during their working years. Right? Of course not.
Retirement: Stress less, save more tells the story well:
"Inadequate retirement savings? Just worry yourself into an early grave.
Okay, I'll agree that this sounds insensitive and simpleminded, but if it's such a ridiculous course of action, how come so many people are following it?
Stress shortens lives. It does so in different ways; biochemically (stress hormones, free radicals, damaged DNA) and behaviorally (over eating, smoking, accidents). It's hard to argue that stress doesn't negatively impact health and longevity. It also negatively impacts work performance, which can reduce employment security, which can fuel a downward spiral.
We can't control all the sources of stress in our lives, but when we can control one, shouldn't we?
PwC’s 2012 Financial Wellness Survey found that 37% of Americans surveyed expressed concerns about being able to retire on time, up from 18% the prior year. This is a recent survey of 1,700 working adults. 56% of them reported that their level of financial stress had increased over the past year. A third of these people are currently saving nothing for retirement and 40% are saving less than last year.
So let's see: People are stressed over their retirement prospects, but 33% are saving zero and 40% are reducing their retirement saving. Is this surprising to you? It is to me. Of course, some peoples' backs are to the wall and they can't spare any money for a far-away priority. We wish them well and hope their luck turns, but that can't be the case for 73% of this random sample of American workers.
Let's look at another study, TIAA-CREF's "Financial security and careers in the nonprofit and philanthropic sector,” released November 2012, which surveyed another 1,000 employees. 45% of them are not satisfied with their retirement prospects, yet 66% haven't even tried to figure out how much they need to save in order to achieve a secure retirement.
Why are we worrying ourselves into an early grave over something we can fix? Here's a prescription for reducing stress: If you're currently saving zero, join your employer's retirement plan and start saving something, anything. Start with 1% or 2% of pay or $5 per check, or whatever you can. If you're already saving for retirement, increase your deposits by 1% or 2% of pay. Ideally, ask the plan's adviser for help or use a retirement calculator to see what percent you need to be saving and work in that direction.
Don't get demoralized. It's not “all or nothing.” Do what you can do now, and bump it up every time you can. There's an old saying that, “You should pay yourself first.” It means that you should take a piece off the top for your own future; payroll deduction deposits right into your retirement account. If your paycheck can't cover all your wants, give up something else. Otherwise you're saying that your future security is less important than a game ticket, higher cable tier or a night out.
Moving in the right direction, even at a slow pace, will reduce your stress level, make you happier and more valuable, and help prepare you for a long and secure life."
Summing Up
Taking care of the financial needs of our "future self" is as important as is taking care of our "current self."
It's not an either-or situation. They both need our careful and lifelong attention.
Yet it's a fact certain that on payday far too few of us elect to "pay ourself first" and ensure that our future self is provided for properly.
So let's all resolve to do what's right and get in the habit of saving and investing regularly and sufficiently. We owe it to ourself.
Working diligently to achieve a future state of self reliance will be a habit well worth developing.
Thanks. Bob.
Eating, exercising, reading, saving, borrowing and so forth. We generally know what we should do, but too often we habitually don't do what we should do. The well being of our "future self" is sacrificed for the pleasure of our "present self." Both deserve equal time and attention, because one day our future self will become our present self.
Let's focus on knowledge and habits with respect to spending, saving and investing herein.
1- People know they need to accumulate enough money during their working years to retire comfortably and be able to enjoy a relatively stress free life in their elderly years. Yet few do so.
2 - People are also concerned about the future of Social Security and whether the benefits will be sufficient to enable them to live comfortably after retirement. And they should be.
3 - People are also concerned about our nation's financial problems and future inflation. We all should be concerned. No doubt about it.
As a result of all of the above, people are saving as much as possible and investing those savings as wisely as possible during their working years. Right? Of course not.
Retirement: Stress less, save more tells the story well:
"Inadequate retirement savings? Just worry yourself into an early grave.
Okay, I'll agree that this sounds insensitive and simpleminded, but if it's such a ridiculous course of action, how come so many people are following it?
Stress shortens lives. It does so in different ways; biochemically (stress hormones, free radicals, damaged DNA) and behaviorally (over eating, smoking, accidents). It's hard to argue that stress doesn't negatively impact health and longevity. It also negatively impacts work performance, which can reduce employment security, which can fuel a downward spiral.
We can't control all the sources of stress in our lives, but when we can control one, shouldn't we?
PwC’s 2012 Financial Wellness Survey found that 37% of Americans surveyed expressed concerns about being able to retire on time, up from 18% the prior year. This is a recent survey of 1,700 working adults. 56% of them reported that their level of financial stress had increased over the past year. A third of these people are currently saving nothing for retirement and 40% are saving less than last year.
So let's see: People are stressed over their retirement prospects, but 33% are saving zero and 40% are reducing their retirement saving. Is this surprising to you? It is to me. Of course, some peoples' backs are to the wall and they can't spare any money for a far-away priority. We wish them well and hope their luck turns, but that can't be the case for 73% of this random sample of American workers.
Let's look at another study, TIAA-CREF's "Financial security and careers in the nonprofit and philanthropic sector,” released November 2012, which surveyed another 1,000 employees. 45% of them are not satisfied with their retirement prospects, yet 66% haven't even tried to figure out how much they need to save in order to achieve a secure retirement.
Why are we worrying ourselves into an early grave over something we can fix? Here's a prescription for reducing stress: If you're currently saving zero, join your employer's retirement plan and start saving something, anything. Start with 1% or 2% of pay or $5 per check, or whatever you can. If you're already saving for retirement, increase your deposits by 1% or 2% of pay. Ideally, ask the plan's adviser for help or use a retirement calculator to see what percent you need to be saving and work in that direction.
Don't get demoralized. It's not “all or nothing.” Do what you can do now, and bump it up every time you can. There's an old saying that, “You should pay yourself first.” It means that you should take a piece off the top for your own future; payroll deduction deposits right into your retirement account. If your paycheck can't cover all your wants, give up something else. Otherwise you're saying that your future security is less important than a game ticket, higher cable tier or a night out.
Moving in the right direction, even at a slow pace, will reduce your stress level, make you happier and more valuable, and help prepare you for a long and secure life."
Summing Up
Taking care of the financial needs of our "future self" is as important as is taking care of our "current self."
It's not an either-or situation. They both need our careful and lifelong attention.
Yet it's a fact certain that on payday far too few of us elect to "pay ourself first" and ensure that our future self is provided for properly.
So let's all resolve to do what's right and get in the habit of saving and investing regularly and sufficiently. We owe it to ourself.
Working diligently to achieve a future state of self reliance will be a habit well worth developing.
Thanks. Bob.
Thursday, January 17, 2013
Republicans Getting Sensible About the Debt Ceiling
Several days ago we "suggested" that the Republicans not play dumb and dumber any longer with respect to raising the nation's debt ceiling. {See our post dated January 14 titled "President Obama Is Right About Raising the Debt Ceiling ..."}
Happily, it now seems like the Republicans may be on the verge of coming to the same sensible conclusion.
GOP Weighs Short-Term Debt-Limit Increase has the breaking news story:
"House Budget Chairman Paul Ryan (R., Wis.) on Thursday said Republicans are discussing whether to support a short-term increase in the nation's borrowing authority, possibly linking the debt ceiling to future talks aimed at reaching a major deficit deal.
Mr. Ryan, speaking to reporters at a Republican retreat at the Kingsmill Resort in Williamsburg, said lawmakers are reviewing options for dealing with the trio of fiscal deadlines in the next three months: the debt ceiling, automatic across-the-board spending cuts and the expiration of a temporary measure funding government operations.
Mr. Ryan said no decisions have been made about how to approach the debt and spending negotiations, but that leaders hope House Republicans will reach consensus on a strategy by the end of the week.
The former vice-presidential candidate said "we're discussing the possible virtue of a short-term debt limit" increase that would lead to broader deficit talks with Senate Democrats and the White House. "We hope to achieve consensus on a plan to proceed so we can make progress on controlling spending and deficits and debt," Mr. Ryan said.
Mr. Ryan wouldn't say what he meant by a temporary debt-ceiling increase, declining to give a specific increase figure or timeframe for an extension. But Mr. Ryan said the goal by the end of the spring was to make headway on tackling the country's deficits and debts.
The government was scheduled to hit the $16.4 trillion debt ceiling on Dec. 31, 2012, but the Treasury has begun using emergency measures to allow the government to continue issuing debt. Automatic spending cuts from the 2011 deficit agreement are set to take effect on March 1 and a six-month measure funding the federal government expires on March 27."
Summing Up
That's good news.
Let's get the theatrics off the table and "encourage" both the Democrats and Republicans to come to grips with our government's out-of-control spending and our nation's deficits and debts.
It's long overdue for the aristocrats in Washington to do some real bipartisan work on our country's financial problems.
That's what we pay them to do. Not to play unserious political games.
Thanks. Bob.
Happily, it now seems like the Republicans may be on the verge of coming to the same sensible conclusion.
GOP Weighs Short-Term Debt-Limit Increase has the breaking news story:
"House Budget Chairman Paul Ryan (R., Wis.) on Thursday said Republicans are discussing whether to support a short-term increase in the nation's borrowing authority, possibly linking the debt ceiling to future talks aimed at reaching a major deficit deal.
Mr. Ryan, speaking to reporters at a Republican retreat at the Kingsmill Resort in Williamsburg, said lawmakers are reviewing options for dealing with the trio of fiscal deadlines in the next three months: the debt ceiling, automatic across-the-board spending cuts and the expiration of a temporary measure funding government operations.
House Budget Committee Chairman Rep. Paul Ryan, pictured
on Capitol Hill on Jan. 1.
Mr. Ryan said no decisions have been made about how to approach the debt and spending negotiations, but that leaders hope House Republicans will reach consensus on a strategy by the end of the week.
The former vice-presidential candidate said "we're discussing the possible virtue of a short-term debt limit" increase that would lead to broader deficit talks with Senate Democrats and the White House. "We hope to achieve consensus on a plan to proceed so we can make progress on controlling spending and deficits and debt," Mr. Ryan said.
Mr. Ryan wouldn't say what he meant by a temporary debt-ceiling increase, declining to give a specific increase figure or timeframe for an extension. But Mr. Ryan said the goal by the end of the spring was to make headway on tackling the country's deficits and debts.
The government was scheduled to hit the $16.4 trillion debt ceiling on Dec. 31, 2012, but the Treasury has begun using emergency measures to allow the government to continue issuing debt. Automatic spending cuts from the 2011 deficit agreement are set to take effect on March 1 and a six-month measure funding the federal government expires on March 27."
Summing Up
That's good news.
Let's get the theatrics off the table and "encourage" both the Democrats and Republicans to come to grips with our government's out-of-control spending and our nation's deficits and debts.
It's long overdue for the aristocrats in Washington to do some real bipartisan work on our country's financial problems.
That's what we pay them to do. Not to play unserious political games.
Thanks. Bob.
Long Term Investing, Big Ideas, Inflection Points and Predicting the Winning Investment Strategy for the Next 30 Years
Overview
Turning points in the game are easy to see after the fact. It's when the game is actually being played that they matter.
And so it is with anything in life, including investing for our future needs and comforts.
Recognizing that "big mo" may be beginning to shift (look at the recent housing bubble and think about what it would have meant if people had seen that bubble developing early in the late 1900s or even early 2000s) is needed for long term investing, so let's take a look at our crystal ball and predict what's ahead for individual investors in the next few decades.
Big time difference making investment inflection points are few and far between, especially long term game changing ones.
And sometimes what appears as a big change is merely a head fake. But then again, sometimes the initial signals reflect long term secular change is ahead. I believe such a game changing opportunity for individual investors is at hand now, but of course, I can't know for sure.
With respect to any future predictions that any of us may make, we can't know for sure how it will all work out until much later down the road. Only after the final gun has sounded and game has ended will we know who won and lost.
Nevertheless, it's impossible for a base runner to steal second base without first taking his foot off first base. Risk is everywhere and all the time, so here we go with the future as I see it for individual investors.
A Long Term Trend Has Begun
My view is that we are at a relatively rare inflection point with respect to long term individual investing opportunities and that stocks will be the asset of choice during the next several decades. My view is also that they will outperform other asset classes by a historically wide margin over that period. They'll win big, in other words.
In 1980, inflation and interest rates were both in the double digits and gold sold for $800 per ounce. Inflation and interest rates then began a long descent which still hasn't ended. But my considered judgment is that the party will end sometime soon and interest rates will head back up, albeit moderately. We've bottomed and soon will be headed the other way, and that can mean good things for those who are ready to catch the train on its way out of the station. The next 30 year investing thesis has arrived.
Rates declined dramatically during the past 30 years, and they will increase from here, albeit moderately, during the next 30 years. At least that's my call. But what does that mean for long term investors?
First, let's briefly review what happened to stocks during the great bond bull market of the past three decades. They still outperformed bonds, gold, real estate and all other forms of investment in a several decades long period of declining interest rates.
But the news for stocks, at least in real inflation adjusted terms, will be even better for stock performance during the next 30 years.
Yes, I'm predicting that they will do even better relative to other investment vehicles over the next several decades. But let's review the past before focusing on the future opportunities. OK?
Reviewing The Past 30 years
To repeat, gold sold for $800 per ounce in 1980. So did the Dow Jones Industrial Average.
Today gold sells for close to $1,700 and the Dow trades at $13,500. But gold obviously returned no cash over the past three decades while stocks paid dividends which offset inflation of close to 2.5% annually.
Hence, the $13,500 for the Dow is in reality an inflation adjusted number. On the other hand, gold essentially remained flat at roughly $800 in real terms. {NOTE; 30 years at 2.5% will roughly double the nominal price using the rule of 72.} Stocks won hands down.
So the inflation adjusted Dow at $13,500 is the comparable number to the 1980 gold price of $800. Almost 17 times a much. But I still believe that the best news for long term stock investors lies ahead.
The Next 30 years
And stocks are poised to win even bigger during the next 30 years.
Once More, Awaiting a 'Great Rotation' makes the case for stocks becoming the place to be instead of bonds:
"As 2013 gets under way, one of the biggest questions in financial markets is again bubbling: Will this finally be the year that investors dump bonds and return to stocks?
For years, market watchers have called for what has become known as the "great rotation" out of bonds and into stocks. And for years they have been wrong.
Now, some signs are indicating that maybe, possibly, the tide is beginning to reverse.
Stocks started 2013 with a bang. For the week ended Wednesday, U.S. investors plowed $18 billion into stock mutual funds and exchange-traded funds, the largest one-week total since June 2008, before the worst of the financial crisis hit. . . .
That followed a growing exodus from U.S. Treasury funds. Since late June, investors have pulled $6 billion from the group, including $1.1 billion in the week ending Wednesday.
The moves run counter to a trend that began in 2008, with investors since then pulling money out of stocks and putting $1.1 trillion into taxable government, international and corporate bonds.
Fueling expectations that a longer-term shift out of bonds and into stocks may finally take place is a growing nervousness that bond yields are dangerously low. As 2012 drew to a close, U.S. Treasury yields weren't far from record lows thanks to the Federal Reserve's unprecedented effort to pump money into the financial system through bond purchases. That sent prices up, and yields down.
But, due to a quirk of bond math, losses are exaggerated when yields are low. That risk has been brought into sharp relief since the start of 2013. In just three trading days, long-term Treasurys lost 3.07% in value, more than wiping out the 3% coupon payment they will deliver in 2013, according to Barclays. . . . many observers are saying it is only a matter of time before investors seek out stocks. They note that shares of dividend-paying companies are often providing higher yields than the company's bonds. With high-quality bonds offering yields below that of the rate of inflation, many investors worry that they aren't being compensated enough for the risks of holding them.
Mr. Hartnett is watching for three indicators to determine whether the shift will continue: a falling unemployment rate, a continued drop in returns from fixed-income investments, and a growing belief among investors that the Federal Reserve may end its bond-buying program. These factors could all make Treasurys seem much less attractive. . . .
Other Wall Street firms have also taken note. In a report titled "The Search for Yield—Equity Opportunities," released early this month, Goldman Sachs analysts made the case for buying dividend stocks instead of bonds.
Corporate America, Goldman argues, is flush with cash and pays a dividend yield of 2.2%, compared with a 1.6% yield for the average triple-A rated company bond.
Goldman noted that investors in Treasury and investment-grade corporate bonds stand to lose a lot of money should interest rates ratchet higher. With rates at such low levels, it wouldn't take much of a move to cause losses, analysts say.
![[image]](https://lh3.googleusercontent.com/blogger_img_proxy/AEn0k_ueknD72YbwsKMSmsfRZX2oS6zj9nbVDGdiHncphIiq5akDqSt1X3MYncZLPKg8R4mBJeF7yuIMTqEIT3DmNsAvmVuwcUBvuCT9FhsAEJbYxYr4LIer1MN4ecsq69CKL07mZEjw7s-3or3mifC9M0Zacdg=s0-d)
Analysts on average expect 10-year Treasury yields to rise to 2.15%. That would indicate a 2.5% drop in price. If yields moved up to 2.5%, which some say is possible, the price of the bond would fall by 5.5%. Many investors in Treasurys and investment-grade corporate bonds say they are closely eyeing 2.25% as a threshold that may trigger selling. . . .
And most analysts say that even if investors do continue to lighten up on Treasurys, and possibly investment-grade bonds, 2013 probably won't see a flood of money leaving those funds."
{NOTE; For more on this, please see Analysis: Big Flows Into U.S. Stocks May Be Sign of Things to Come. And if that's not enough, see also Great Rotation May Turn Slowly.}
Summing Up
For long term investors, the message is clear.
Get with solid blue chip, dividend paying stocks in order to outpace inflation and generate substantial real rates of return over time. Avoid bonds.
The way I see things developing with stocks, it's a heads we win, tails we win long term investing situation.
All we have to do is get in the game and then stay in the game when the proverbial fit hits the investing shan from time to time, which it inevitably has done and will continue to do.
And when things do get tough, let's resolve to remember this simple fact.
Stocks outperformed bonds and gold the past 30 years when interest and inflation rates were declining, and they will beat them by even more when interest rates are increasing in a climate of moderate inflation the next 30 years.
In other words, both during periods of disinflation (lower inflation and lower interest rates) and moderately escalating inflation (gradually increasing inflation and higher interest rates), stocks are relatively friendly to long term stock investors. But no form of inflation is friendly to owners of bonds.
Thus, barring out of control inflation, which I firmly don't believe is in the cards, the next thirty years will be a good time to be an owner of high quality stocks.
But even if I'm wrong and the inflationistas are right and inflation does begin to get out of hand down the road, there will be plenty of time for us to see that one coming and adjust course.
So in 2013, let's get with the program, even if we're acting a bit prematurely (which I don't think we are), and that means owning stocks over bonds for the long haul.
Thanks. Bob.
Turning points in the game are easy to see after the fact. It's when the game is actually being played that they matter.
And so it is with anything in life, including investing for our future needs and comforts.
Recognizing that "big mo" may be beginning to shift (look at the recent housing bubble and think about what it would have meant if people had seen that bubble developing early in the late 1900s or even early 2000s) is needed for long term investing, so let's take a look at our crystal ball and predict what's ahead for individual investors in the next few decades.
Big time difference making investment inflection points are few and far between, especially long term game changing ones.
And sometimes what appears as a big change is merely a head fake. But then again, sometimes the initial signals reflect long term secular change is ahead. I believe such a game changing opportunity for individual investors is at hand now, but of course, I can't know for sure.
With respect to any future predictions that any of us may make, we can't know for sure how it will all work out until much later down the road. Only after the final gun has sounded and game has ended will we know who won and lost.
Nevertheless, it's impossible for a base runner to steal second base without first taking his foot off first base. Risk is everywhere and all the time, so here we go with the future as I see it for individual investors.
A Long Term Trend Has Begun
My view is that we are at a relatively rare inflection point with respect to long term individual investing opportunities and that stocks will be the asset of choice during the next several decades. My view is also that they will outperform other asset classes by a historically wide margin over that period. They'll win big, in other words.
In 1980, inflation and interest rates were both in the double digits and gold sold for $800 per ounce. Inflation and interest rates then began a long descent which still hasn't ended. But my considered judgment is that the party will end sometime soon and interest rates will head back up, albeit moderately. We've bottomed and soon will be headed the other way, and that can mean good things for those who are ready to catch the train on its way out of the station. The next 30 year investing thesis has arrived.
Rates declined dramatically during the past 30 years, and they will increase from here, albeit moderately, during the next 30 years. At least that's my call. But what does that mean for long term investors?
First, let's briefly review what happened to stocks during the great bond bull market of the past three decades. They still outperformed bonds, gold, real estate and all other forms of investment in a several decades long period of declining interest rates.
But the news for stocks, at least in real inflation adjusted terms, will be even better for stock performance during the next 30 years.
Yes, I'm predicting that they will do even better relative to other investment vehicles over the next several decades. But let's review the past before focusing on the future opportunities. OK?
Reviewing The Past 30 years
To repeat, gold sold for $800 per ounce in 1980. So did the Dow Jones Industrial Average.
Today gold sells for close to $1,700 and the Dow trades at $13,500. But gold obviously returned no cash over the past three decades while stocks paid dividends which offset inflation of close to 2.5% annually.
Hence, the $13,500 for the Dow is in reality an inflation adjusted number. On the other hand, gold essentially remained flat at roughly $800 in real terms. {NOTE; 30 years at 2.5% will roughly double the nominal price using the rule of 72.} Stocks won hands down.
So the inflation adjusted Dow at $13,500 is the comparable number to the 1980 gold price of $800. Almost 17 times a much. But I still believe that the best news for long term stock investors lies ahead.
The Next 30 years
And stocks are poised to win even bigger during the next 30 years.
Once More, Awaiting a 'Great Rotation' makes the case for stocks becoming the place to be instead of bonds:
"As 2013 gets under way, one of the biggest questions in financial markets is again bubbling: Will this finally be the year that investors dump bonds and return to stocks?
For years, market watchers have called for what has become known as the "great rotation" out of bonds and into stocks. And for years they have been wrong.
Now, some signs are indicating that maybe, possibly, the tide is beginning to reverse.
Stocks started 2013 with a bang. For the week ended Wednesday, U.S. investors plowed $18 billion into stock mutual funds and exchange-traded funds, the largest one-week total since June 2008, before the worst of the financial crisis hit. . . .
That followed a growing exodus from U.S. Treasury funds. Since late June, investors have pulled $6 billion from the group, including $1.1 billion in the week ending Wednesday.
The moves run counter to a trend that began in 2008, with investors since then pulling money out of stocks and putting $1.1 trillion into taxable government, international and corporate bonds.
Fueling expectations that a longer-term shift out of bonds and into stocks may finally take place is a growing nervousness that bond yields are dangerously low. As 2012 drew to a close, U.S. Treasury yields weren't far from record lows thanks to the Federal Reserve's unprecedented effort to pump money into the financial system through bond purchases. That sent prices up, and yields down.
But, due to a quirk of bond math, losses are exaggerated when yields are low. That risk has been brought into sharp relief since the start of 2013. In just three trading days, long-term Treasurys lost 3.07% in value, more than wiping out the 3% coupon payment they will deliver in 2013, according to Barclays. . . . many observers are saying it is only a matter of time before investors seek out stocks. They note that shares of dividend-paying companies are often providing higher yields than the company's bonds. With high-quality bonds offering yields below that of the rate of inflation, many investors worry that they aren't being compensated enough for the risks of holding them.
"I think the 'great rotation' has already started in
terms of flows and returns," says Michael Hartnett, chief investment strategist
at Bank of America
Merrill Lynch.
Mr. Hartnett is watching for three indicators to determine whether the shift will continue: a falling unemployment rate, a continued drop in returns from fixed-income investments, and a growing belief among investors that the Federal Reserve may end its bond-buying program. These factors could all make Treasurys seem much less attractive. . . .
Other Wall Street firms have also taken note. In a report titled "The Search for Yield—Equity Opportunities," released early this month, Goldman Sachs analysts made the case for buying dividend stocks instead of bonds.
Corporate America, Goldman argues, is flush with cash and pays a dividend yield of 2.2%, compared with a 1.6% yield for the average triple-A rated company bond.
Goldman noted that investors in Treasury and investment-grade corporate bonds stand to lose a lot of money should interest rates ratchet higher. With rates at such low levels, it wouldn't take much of a move to cause losses, analysts say.
Analysts on average expect 10-year Treasury yields to rise to 2.15%. That would indicate a 2.5% drop in price. If yields moved up to 2.5%, which some say is possible, the price of the bond would fall by 5.5%. Many investors in Treasurys and investment-grade corporate bonds say they are closely eyeing 2.25% as a threshold that may trigger selling. . . .
And most analysts say that even if investors do continue to lighten up on Treasurys, and possibly investment-grade bonds, 2013 probably won't see a flood of money leaving those funds."
{NOTE; For more on this, please see Analysis: Big Flows Into U.S. Stocks May Be Sign of Things to Come. And if that's not enough, see also Great Rotation May Turn Slowly.}
Summing Up
For long term investors, the message is clear.
Get with solid blue chip, dividend paying stocks in order to outpace inflation and generate substantial real rates of return over time. Avoid bonds.
The way I see things developing with stocks, it's a heads we win, tails we win long term investing situation.
All we have to do is get in the game and then stay in the game when the proverbial fit hits the investing shan from time to time, which it inevitably has done and will continue to do.
And when things do get tough, let's resolve to remember this simple fact.
Stocks outperformed bonds and gold the past 30 years when interest and inflation rates were declining, and they will beat them by even more when interest rates are increasing in a climate of moderate inflation the next 30 years.
In other words, both during periods of disinflation (lower inflation and lower interest rates) and moderately escalating inflation (gradually increasing inflation and higher interest rates), stocks are relatively friendly to long term stock investors. But no form of inflation is friendly to owners of bonds.
Thus, barring out of control inflation, which I firmly don't believe is in the cards, the next thirty years will be a good time to be an owner of high quality stocks.
But even if I'm wrong and the inflationistas are right and inflation does begin to get out of hand down the road, there will be plenty of time for us to see that one coming and adjust course.
So in 2013, let's get with the program, even if we're acting a bit prematurely (which I don't think we are), and that means owning stocks over bonds for the long haul.
Thanks. Bob.
Wednesday, January 16, 2013
Linking Government Spending to Energy Development ... California and The U.S. Both Have the Opportunity to Solve Our Economic and Energy Problems
The self inflicted economic wounds in California represent in miniature what's ailing our overall system of dysfunctional American politics and causing the continuation of weak economic growth as well.
But it need not continue any longer. We can deal with all these problems, including creating jobs, prosperity and energy independence for ourselves. And here's how to do it.
Reduce unnecessary government spending by demonstrating the willingness to tap into a plentiful domestic energy supply. It's that simple.
We spend and don't drill. And hurt our people every step of the way by making energy costs higher than necessary, economic growth much lower than it should be, and incurring deficits and debt levels which have reached dangerous levels.
California Could Be the Next Shale Boom State presents an interesting case of what ails both the governments and citizens of California and the U.S. as a whole:
"Could 2013 find California lawmakers and Gov. Jerry Brown finally making the connection between fiscal challenges and energy markets? The Golden State is well positioned to become an exporter of hydrocarbons and enjoy a gusher of oil revenues. While many Californians will find that hard to contemplate, ideology bends more easily than the laws of physics and the imperatives of economics.
The $6 billion a year in additional income taxes Gov. Brown convinced Californians to approve in Proposition 30 last November won't begin to solve the state's fiscal problems. Last year's State Budget Crisis Task Force, co-led by former Federal Reserve Chairman Paul Volcker, estimated the state's long-term debt at no less than $370 billion.
But California has Saudi Arabia-scale oil resources, notably in its largely untapped Monterey shale field, which stretches northeast for more than 200 miles from Bakersfield in central California. New technologies, especially smart, horizontal drilling and hydrofracturing, aka "fracking," make that oil accessible, and cleanly. The U.S. Energy Information Administration estimates that the Monterey shale field alone holds 15.4 billion barrels of oil, rivaling America's total conventional reserves.
California collects about $15 billion in tax revenues for every billion barrels of state oil production . . . by opening up Monterey oil development—no incentives, grants or state funds required—tax receipts could total $250 billion over the coming two decades. Economists Robert Hahn and Peter Passell, at the American Enterprise and Milken Institutes respectively, point to another $30 billion to $80 billion in broad economic and social benefits that ripple through an economy for every billion barrels of oil production.
Do the math: The overall economic benefits of opening up the Monterey shale field could reach $1 trillion. One can only imagine the impact on California's education system, social programs, infrastructure, and even energy-tech R&D. Moreover, with that kind of revenue, Sacramento tax collections could wipe out debt and deficits. . . .
In the heyday of the 1960s, when the state's education system was first in the nation, California's oil production ranked second nationally, at about 400 million barrels annually. Now with production down 50%, California has dropped to No. 4 in oil production, behind Texas, North Dakota and Alaska. North Dakota's embrace of the shale-oil revolution vaulted it to No. 2 and has led to low unemployment, no deficit, and university funding on the rise.
Still, many believe that innovation can replace hydrocarbons and have invested tens of billions on that bet. They may be right someday, but not in time frames that matter to this generation or the next. Liquid hydrocarbons—diesel, gasoline—remain unmatched in those features vital for cars and aircraft: energy density, safety, ease of transport and storage. Finding alternatives at the scale needed, at any price, has been devilishly hard. . . .
Every credible forecast from the U.S. Department of Energy to the International Energy Agency sees liquid hydrocarbons supplying 80% to 90% of transportation-energy growth for the next two decades. With global vehicle fuel demand expected to grow by the equivalent of adding another United States' worth of consumption, much of that growth coming in Asia, California is ideally suited to become a major exporter.
Oil companies will tell you that they are ready and able to produce that bounty, but leadership has to come from Sacramento in cooperation with the federal Bureau of Land Management, which has subsurface mineral rights for much of the Monterey shale field. Yet there is good news on this front. In December, the BLM sold some 15 leases for thousands of acres of potential shale development—in California. . . .
A savvy politician might also point out the promise of Silicon Valley developing still more advanced hydrocarbon tech. One can foresee a growing array of software, sensor, materials and big-data startups that underpin the smart controls and data processing central to modern oil production.
For California, it could be back-to-the-future, a well-funded future, courtesy of technology again unleashing wealth from natural resources. That would be quite a future to behold, and quite a legacy for Gov. Brown."
Summing Up
If we can dream it, we can do it. It's that simple with American ingenuity, freedom, entrepreneurialism and energy independence all interconnected in an effort to do what's right and what's necessary for all Americans.
The California fracking possibilty brings to mind the following quote by legendary newscaster Edward R. Murrow, "The obscure we see eventually. The completely obvious, it seems, takes longer."
And so it goes in California and the rest of our great country as well.
Eventually we'll all see what's there to be seen, and then we'll all be better off for having recognized that "completely obvious" reality.
Who knows? Maybe Governor Brown and President Obama will do the right thing and leave as their legacies fiscal prudence and job creation, alongside domestic energy independence, as the private sector led growth oriented Governor of California and President of the United States, respectively.
So maybe that's just what they'll choose to do.
And if they do, wouldn't that would be a great way to "save the middle class?"
Thanks. Bob.
But it need not continue any longer. We can deal with all these problems, including creating jobs, prosperity and energy independence for ourselves. And here's how to do it.
Reduce unnecessary government spending by demonstrating the willingness to tap into a plentiful domestic energy supply. It's that simple.
We spend and don't drill. And hurt our people every step of the way by making energy costs higher than necessary, economic growth much lower than it should be, and incurring deficits and debt levels which have reached dangerous levels.
California Could Be the Next Shale Boom State presents an interesting case of what ails both the governments and citizens of California and the U.S. as a whole:
"Could 2013 find California lawmakers and Gov. Jerry Brown finally making the connection between fiscal challenges and energy markets? The Golden State is well positioned to become an exporter of hydrocarbons and enjoy a gusher of oil revenues. While many Californians will find that hard to contemplate, ideology bends more easily than the laws of physics and the imperatives of economics.
The $6 billion a year in additional income taxes Gov. Brown convinced Californians to approve in Proposition 30 last November won't begin to solve the state's fiscal problems. Last year's State Budget Crisis Task Force, co-led by former Federal Reserve Chairman Paul Volcker, estimated the state's long-term debt at no less than $370 billion.
But California has Saudi Arabia-scale oil resources, notably in its largely untapped Monterey shale field, which stretches northeast for more than 200 miles from Bakersfield in central California. New technologies, especially smart, horizontal drilling and hydrofracturing, aka "fracking," make that oil accessible, and cleanly. The U.S. Energy Information Administration estimates that the Monterey shale field alone holds 15.4 billion barrels of oil, rivaling America's total conventional reserves.
California collects about $15 billion in tax revenues for every billion barrels of state oil production . . . by opening up Monterey oil development—no incentives, grants or state funds required—tax receipts could total $250 billion over the coming two decades. Economists Robert Hahn and Peter Passell, at the American Enterprise and Milken Institutes respectively, point to another $30 billion to $80 billion in broad economic and social benefits that ripple through an economy for every billion barrels of oil production.
Do the math: The overall economic benefits of opening up the Monterey shale field could reach $1 trillion. One can only imagine the impact on California's education system, social programs, infrastructure, and even energy-tech R&D. Moreover, with that kind of revenue, Sacramento tax collections could wipe out debt and deficits. . . .
In the heyday of the 1960s, when the state's education system was first in the nation, California's oil production ranked second nationally, at about 400 million barrels annually. Now with production down 50%, California has dropped to No. 4 in oil production, behind Texas, North Dakota and Alaska. North Dakota's embrace of the shale-oil revolution vaulted it to No. 2 and has led to low unemployment, no deficit, and university funding on the rise.
The fracking and smart-drilling revolution that has unlocked "tight" oil and reversed America's 40-year production decline, emerges from the same constellation of information and materials technologies that yielded the iPad and MRI. Bill Gates recently observed that the "one thing that is different today [in energy] is software, which changes the game." Those few words contain more wisdom than most energy tomes.
Still, many believe that innovation can replace hydrocarbons and have invested tens of billions on that bet. They may be right someday, but not in time frames that matter to this generation or the next. Liquid hydrocarbons—diesel, gasoline—remain unmatched in those features vital for cars and aircraft: energy density, safety, ease of transport and storage. Finding alternatives at the scale needed, at any price, has been devilishly hard. . . .
Every credible forecast from the U.S. Department of Energy to the International Energy Agency sees liquid hydrocarbons supplying 80% to 90% of transportation-energy growth for the next two decades. With global vehicle fuel demand expected to grow by the equivalent of adding another United States' worth of consumption, much of that growth coming in Asia, California is ideally suited to become a major exporter.
Oil companies will tell you that they are ready and able to produce that bounty, but leadership has to come from Sacramento in cooperation with the federal Bureau of Land Management, which has subsurface mineral rights for much of the Monterey shale field. Yet there is good news on this front. In December, the BLM sold some 15 leases for thousands of acres of potential shale development—in California. . . .
A savvy politician might also point out the promise of Silicon Valley developing still more advanced hydrocarbon tech. One can foresee a growing array of software, sensor, materials and big-data startups that underpin the smart controls and data processing central to modern oil production.
For California, it could be back-to-the-future, a well-funded future, courtesy of technology again unleashing wealth from natural resources. That would be quite a future to behold, and quite a legacy for Gov. Brown."
Summing Up
If we can dream it, we can do it. It's that simple with American ingenuity, freedom, entrepreneurialism and energy independence all interconnected in an effort to do what's right and what's necessary for all Americans.
The California fracking possibilty brings to mind the following quote by legendary newscaster Edward R. Murrow, "The obscure we see eventually. The completely obvious, it seems, takes longer."
And so it goes in California and the rest of our great country as well.
Eventually we'll all see what's there to be seen, and then we'll all be better off for having recognized that "completely obvious" reality.
Who knows? Maybe Governor Brown and President Obama will do the right thing and leave as their legacies fiscal prudence and job creation, alongside domestic energy independence, as the private sector led growth oriented Governor of California and President of the United States, respectively.
So maybe that's just what they'll choose to do.
And if they do, wouldn't that would be a great way to "save the middle class?"
Thanks. Bob.
Apple Yesterday ... Boeing Today?
Yesterday we commented on Apple's share price and why it may be an interesting time to consider buying its shares ("Time to Buy Apple Shares?).
So far today its share price has rebounded from ~$486 to ~$502 per share. Being lucky always beats being smart, at least in the short run.
So let's push our luck again today. From A as in Apple to B as in Boeing.
Boeing is a great company, as is Apple, and its shares have been pummeled lately, just like Apple's.
Boeing's Slump Continues: 'The Hits Just Keep Coming' says this:
"Boeing can’t catch a break.
“The hits just keep coming for Boeing on operational 787 issues, with this grounding the most dramatic action we’ve seen yet,” says Robert Stallard, an analyst at RBC Capital Markets. “What started as a series of relatively minor, isolated incidents now threatens to overhang Boeing until it can return confidence.”
"Shares recently fell 3.5% to $74.27. The stock, which has had a choppy start to the year, is up 11% since June and roughly flat over the last 12 months.
Yesterday’s emergency landing followed a series of similar technical issues that occurred just days ago, including a fire on a plane in Boston.
“Alarms indicated smoke in the forward area of the plane, which houses batteries and other equipment, the airline said, and there was a “burning-like smell” in the cockpit and parts of the cabin. The plane landed at Takamatsu airport in western Japan, where the 129 passengers were evacuated using the plane’s emergency chutes. The plane also carried eight crew members.
Other analysts are also growing increasingly frustrated. “We’d hoped recent 787 incidents were an aberration and that Boeing would overcome them relatively quickly,” Oppenheimer says. “But following yesterday’s incident…we think resolving recent issues will take not just time, but credible answers and prescriptions. The FAA’s investigation should provide these, but will take months.
“In the interim, BA is probably range-bound.”"
Summing Up
As a long term investor, I like Boeing very much.
And due to the "headline risk," its shares are down another 3% today. That said, they may stay low for some months to come as well.
Trying to catch a falling knife is hard to do, so short term traders beware. Long term investors should take a long look at establishing a position in the company.
Meanwhile, its current dividend yield is 2.6% and it's the best company in the worldwide commercial aerospace industry.
Boeing has a solid financial outlook and a world class management team as well.
Thanks. Bob.
So far today its share price has rebounded from ~$486 to ~$502 per share. Being lucky always beats being smart, at least in the short run.
So let's push our luck again today. From A as in Apple to B as in Boeing.
Boeing is a great company, as is Apple, and its shares have been pummeled lately, just like Apple's.
Boeing's Slump Continues: 'The Hits Just Keep Coming' says this:
"Boeing can’t catch a break.
An
emergency landing in Japan late Tuesday of one of Boeing’s 787 Dreamliners
prompted a voluntary grounding of two Dreamliner fleets, adding to the recent
list of woes that have hindered the aerospace giant’s new generation of
aircraft.
“The hits just keep coming for Boeing on operational 787 issues, with this grounding the most dramatic action we’ve seen yet,” says Robert Stallard, an analyst at RBC Capital Markets. “What started as a series of relatively minor, isolated incidents now threatens to overhang Boeing until it can return confidence.”
"Shares recently fell 3.5% to $74.27. The stock, which has had a choppy start to the year, is up 11% since June and roughly flat over the last 12 months.
Yesterday’s emergency landing followed a series of similar technical issues that occurred just days ago, including a fire on a plane in Boston.
“Alarms indicated smoke in the forward area of the plane, which houses batteries and other equipment, the airline said, and there was a “burning-like smell” in the cockpit and parts of the cabin. The plane landed at Takamatsu airport in western Japan, where the 129 passengers were evacuated using the plane’s emergency chutes. The plane also carried eight crew members.
“ANA said that the exact cause was still undetermined. The event was designated as a “serious incident” by Japan’s transport ministry, setting off an immediate investigation by the Japan Transport Safety Board, which dispatched a team to the scene.”
The latest incident prompted Goldman
Sachs to remove Boeing from its “conviction
list,” although it still retained its buy rating on Boeing. Goldman says it
remains bullish on the fundamentals of the commercial aerospace sector, and
thinks Boeing’s valuation is still attractive. That said:
“We also recognize that there have now been two incidents in a very short window pointing to potential issues related to one part – lithium ion batteries – and the concentration and possible overlap of cause within these events heightens the risk of a potentially more meaningful required change to the aircraft and therefore a possible delay in the pace of the production ramp. This would make near-term outperformance of shares more difficult to see.”
Other analysts are also growing increasingly frustrated. “We’d hoped recent 787 incidents were an aberration and that Boeing would overcome them relatively quickly,” Oppenheimer says. “But following yesterday’s incident…we think resolving recent issues will take not just time, but credible answers and prescriptions. The FAA’s investigation should provide these, but will take months.
“In the interim, BA is probably range-bound.”"
Summing Up
As a long term investor, I like Boeing very much.
And due to the "headline risk," its shares are down another 3% today. That said, they may stay low for some months to come as well.
Trying to catch a falling knife is hard to do, so short term traders beware. Long term investors should take a long look at establishing a position in the company.
Meanwhile, its current dividend yield is 2.6% and it's the best company in the worldwide commercial aerospace industry.
Boeing has a solid financial outlook and a world class management team as well.
Thanks. Bob.
Europe's Current Welfare State ... Our Choice for the Future,Too?
We the People are beginning to catch on to the fact that we can't afford to allow government spending to continue as high as it is without taxing more.
And choosing the higher taxation route won't involve only the relatively few fat cats among us. The "middle class" will be paying much more as well unless we finally get serious about government spending reductions and are willing to control spending on entitlements such as Social Security, Medicare and so forth.
To put it bluntly, something's gotta give. It's either substantially less government spending, higher taxes on all of us minions or a combination of both. That's the future we must pick for ourselves and succeeding generations.
And which path we choose will have a tremendous influence on the the future well being of ALL Americans, rich and poor, young and old. And the middle class and middle aged among us as well. Everybody.
That's because of one straightforward fact of life --- the economic growth upon which prosperous societies depend relies on private sector investment, and the high taxes necessary to support a welfare state deprive the private sector of those investment funds needed to fuel that economic growth.
We only ever have available to spend and invest 100% of what we produce as a nation. That portion which is taken by the government reduces the amount left to the private sector to invest in our economy and create jobs and prosperity for our citizens. It's that simple.
And for a free lesson in government spending and its impact on economic growth and jobs over a long period of time, the post World War II European model provides us with a great example of what happens to societies who choose the welfare state.
As for America, my bet is that soon enough of our "public servants" will be convinced that the big spending welfare state approach of free lunches for one and all must end and that the big spending government knows best high taxation way of life isn't a sustainable way. But the desired outcome is by no means a certainty, and meanwhile the clock is ticking and the debt bomb is closer to going off.
Let's turn to Europe for that lesson now.
Europe's Bankrupt Welfare State has much to say to all Americans:
"The euro survived 2012 intact, and once again Europe's leaders are declaring victory in the fight to preserve the single currency. In a speech in Portugal Monday, European Commission President Jose Manuel Barroso said the existential threat to the euro was a thing of the past. If only. . . .
Some observers will blame the joblessness and lack of growth in the euro zone on the austerity supposedly being imposed on the Continent by Berlin. But the real story is more ominous.
Europe's vaunted social model has struggled to generate growth or jobs for decades. Prior to the creation of the euro, national governments masked this problem with a combination of deficit spending and devaluation. The borrowed money would help pay for generous welfare benefits for those driven out of work by inflexible labor-market rules and economic stagnation. . . .
Germany was a notable exception, pushing through painful reforms of its tax system, labor markets and welfare benefits in the euro's early years, and it is now vilified for its trouble, even as it outperforms its neighbors and helps keep the euro zone afloat.
The discovery of Greece's serial budget deceptions also helped close off Southern Europe's other main release valve—permanent deficit spending. It is commonplace to say that Europe can't afford to keep borrowing and spending the way it's done in recent years, but it's closer to the truth to say it could never afford it. What's changed is that the biggest spenders have run out of palliatives.
And this is Europe's present and continuing danger. Budgets are being cut in places like Greece, and there are halting, reluctant signs of reform around the edges of the welfare state. But there remains no clear consensus, at least outside Germany, that the European way of welfare itself is bankrupt, that it never worked as well as its defenders pretended, and what we're witnessing is the coming due of all the checks kited over decades to keep it afloat.
The euro zone may be enjoying a respite. But the economic evidence shows how little has been fixed. Mr. Draghi's (European Central Bank President) blank check addressed the symptom, but not the cause, of the euro zone's economic woes. And unless those are addressed—with more flexible labor markets, a smaller state and lower taxes—the crisis will be back in the form of social unrest, political populism and a generation of young Europeans who don't know what it is to be able to find a good job."
Summing Up
The truth is the truth. More government spending equals less private sector investment.
And less private sector investment equals less economic growth for a society.
And less economic growth equals a stagnant economy, fewer jobs and less prosperity for the citizens of that society.
For prosperous nations, welfare states are unsustainable. But then again, out-of-control and continuous deficit spending by government is unsustainable as well.
The bills are finally coming due, and We the People will have to pay them.
There's no other way out of this.
But while digging our way out, we should at least take the time to learn the many valuable but painful lessons available from the experience of Europe.
By so doing, we can right the American ship and save the America we know and love for future Americans.
That's my take, my wish, and my view, too.
Thanks. Bob.
And choosing the higher taxation route won't involve only the relatively few fat cats among us. The "middle class" will be paying much more as well unless we finally get serious about government spending reductions and are willing to control spending on entitlements such as Social Security, Medicare and so forth.
To put it bluntly, something's gotta give. It's either substantially less government spending, higher taxes on all of us minions or a combination of both. That's the future we must pick for ourselves and succeeding generations.
And which path we choose will have a tremendous influence on the the future well being of ALL Americans, rich and poor, young and old. And the middle class and middle aged among us as well. Everybody.
That's because of one straightforward fact of life --- the economic growth upon which prosperous societies depend relies on private sector investment, and the high taxes necessary to support a welfare state deprive the private sector of those investment funds needed to fuel that economic growth.
We only ever have available to spend and invest 100% of what we produce as a nation. That portion which is taken by the government reduces the amount left to the private sector to invest in our economy and create jobs and prosperity for our citizens. It's that simple.
And for a free lesson in government spending and its impact on economic growth and jobs over a long period of time, the post World War II European model provides us with a great example of what happens to societies who choose the welfare state.
As for America, my bet is that soon enough of our "public servants" will be convinced that the big spending welfare state approach of free lunches for one and all must end and that the big spending government knows best high taxation way of life isn't a sustainable way. But the desired outcome is by no means a certainty, and meanwhile the clock is ticking and the debt bomb is closer to going off.
Let's turn to Europe for that lesson now.
Europe's Bankrupt Welfare State has much to say to all Americans:
"The euro survived 2012 intact, and once again Europe's leaders are declaring victory in the fight to preserve the single currency. In a speech in Portugal Monday, European Commission President Jose Manuel Barroso said the existential threat to the euro was a thing of the past. If only. . . .
But the euro-zone unemployment numbers out this week are a reminder that the
euro crisis is not so much over as quiescent. Joblessness in the single-currency
bloc hit a record 11.8%. Youth unemployment stands at 24.4% and is above 50% in
Spain and Greece.
Some observers will blame the joblessness and lack of growth in the euro zone on the austerity supposedly being imposed on the Continent by Berlin. But the real story is more ominous.
Europe's vaunted social model has struggled to generate growth or jobs for decades. Prior to the creation of the euro, national governments masked this problem with a combination of deficit spending and devaluation. The borrowed money would help pay for generous welfare benefits for those driven out of work by inflexible labor-market rules and economic stagnation. . . .
Germany was a notable exception, pushing through painful reforms of its tax system, labor markets and welfare benefits in the euro's early years, and it is now vilified for its trouble, even as it outperforms its neighbors and helps keep the euro zone afloat.
The discovery of Greece's serial budget deceptions also helped close off Southern Europe's other main release valve—permanent deficit spending. It is commonplace to say that Europe can't afford to keep borrowing and spending the way it's done in recent years, but it's closer to the truth to say it could never afford it. What's changed is that the biggest spenders have run out of palliatives.
And this is Europe's present and continuing danger. Budgets are being cut in places like Greece, and there are halting, reluctant signs of reform around the edges of the welfare state. But there remains no clear consensus, at least outside Germany, that the European way of welfare itself is bankrupt, that it never worked as well as its defenders pretended, and what we're witnessing is the coming due of all the checks kited over decades to keep it afloat.
The euro zone may be enjoying a respite. But the economic evidence shows how little has been fixed. Mr. Draghi's (European Central Bank President) blank check addressed the symptom, but not the cause, of the euro zone's economic woes. And unless those are addressed—with more flexible labor markets, a smaller state and lower taxes—the crisis will be back in the form of social unrest, political populism and a generation of young Europeans who don't know what it is to be able to find a good job."
Summing Up
The truth is the truth. More government spending equals less private sector investment.
And less private sector investment equals less economic growth for a society.
And less economic growth equals a stagnant economy, fewer jobs and less prosperity for the citizens of that society.
For prosperous nations, welfare states are unsustainable. But then again, out-of-control and continuous deficit spending by government is unsustainable as well.
The bills are finally coming due, and We the People will have to pay them.
There's no other way out of this.
But while digging our way out, we should at least take the time to learn the many valuable but painful lessons available from the experience of Europe.
By so doing, we can right the American ship and save the America we know and love for future Americans.
That's my take, my wish, and my view, too.
Thanks. Bob.
Tuesday, January 15, 2013
Time to Buy Apple Shares?
Apple is a great company.
Its stock has been a great performer the past few years as well.
Now its stock price has hit a pothole and dropped precipitously recently.
This brings to mind legendary and highly successful advice from Warren Buffett. Buy the shares of great companies when other people are afraid and sell when they're exuberant.
Mr. Market, as Buffett refers to stock prices, is like a baseball pitcher throwing strikes and balls all day long and always offering to buy or sell shares at any given price, and Apple is no exception. As the batter, we can decide when to swing the bat. Meanwhile, we wait for the right pitch.
While I have no idea what Apple shares will sell for the next few days (probably lower than today), weeks or months (probably higher than today), my view is that selling at somewhere between $700 and $1,000 per share may well be in the cards during the next several years.
Today it's being offered for sale by Mr. Market at ~$487 per share. It may be a good time to take a swing at the pitch.
Apple shares still below biggest target cuts says this:
"Despite its still-highly favored status on Wall Street, Apple Inc. /quotes/zigman/68270/quotes/nls/aaplAAPL has seen a large number of brokers cut their price targets on the iPhone maker over the last few months, though the stock’s precipitous fall in that time has put the shares well below even the most diminished views.
The most notable change came Tuesday morning, when Nomura analyst Stuart Jeffrey cut his price target on the stock by 20% to $530. He based his move on projections for “weaker-than-expected” sales of the iPhone 5, and added that he believes that gross margins and average selling prices for the iPhone “are unsustainably high.” The note caused even more selling on the already battered stock, which was down 3% to $486.61 at last check.
That was the largest percentage cut to a broker’s price target that Apple’s stock has seen since the company issued its last earnings report in October. That report included a high-profile earnings miss from a company accustomed to blowing away the Street’s targets. The report also triggered a wave of price target reductions as analysts tempered their profit near-term targets, given the launch of so many new products. At least 26 brokers have cut their price targets on Apple since that report, according to data from Thomson Reuters.
However, Apple’s shares have shed more than one-quarter of their value since late September, which has put the stock well below even the most reduced targets. Only one broker has a target price below the stock’s current value of $486.64, the rest are above Nomura’s $530 view. The current median target is $745, and 13 brokers maintain targets above the $800 – with one reaching $1,111.
Peter Misek of Jefferies, who has an $800 price target on the stock, remains upbeat. “We think the stock will rise on the strong CQ4 results, which should dissipate concerns of dramatically slowing demand for Apple products."
Summing Up
And that's what's going on with Apple's share price today.
Just wanted to share the news with you. If nothing else, write yourself a note and recheck its price periodically, beginning a year from now.
At that point in time, you may like or dislike what you see, depending on what you decide to do or not do, as well as what price Apple's shares are selling for at that time.
Time will tell, but for long term investors the risk to reward factor for Apple looks better than it's looked for quite some time.
Thanks. Bob.
Its stock has been a great performer the past few years as well.
Now its stock price has hit a pothole and dropped precipitously recently.
This brings to mind legendary and highly successful advice from Warren Buffett. Buy the shares of great companies when other people are afraid and sell when they're exuberant.
Mr. Market, as Buffett refers to stock prices, is like a baseball pitcher throwing strikes and balls all day long and always offering to buy or sell shares at any given price, and Apple is no exception. As the batter, we can decide when to swing the bat. Meanwhile, we wait for the right pitch.
While I have no idea what Apple shares will sell for the next few days (probably lower than today), weeks or months (probably higher than today), my view is that selling at somewhere between $700 and $1,000 per share may well be in the cards during the next several years.
Today it's being offered for sale by Mr. Market at ~$487 per share. It may be a good time to take a swing at the pitch.
Apple shares still below biggest target cuts says this:
"Despite its still-highly favored status on Wall Street, Apple Inc. /quotes/zigman/68270/quotes/nls/aaplAAPL has seen a large number of brokers cut their price targets on the iPhone maker over the last few months, though the stock’s precipitous fall in that time has put the shares well below even the most diminished views.
The most notable change came Tuesday morning, when Nomura analyst Stuart Jeffrey cut his price target on the stock by 20% to $530. He based his move on projections for “weaker-than-expected” sales of the iPhone 5, and added that he believes that gross margins and average selling prices for the iPhone “are unsustainably high.” The note caused even more selling on the already battered stock, which was down 3% to $486.61 at last check.
That was the largest percentage cut to a broker’s price target that Apple’s stock has seen since the company issued its last earnings report in October. That report included a high-profile earnings miss from a company accustomed to blowing away the Street’s targets. The report also triggered a wave of price target reductions as analysts tempered their profit near-term targets, given the launch of so many new products. At least 26 brokers have cut their price targets on Apple since that report, according to data from Thomson Reuters.
However, Apple’s shares have shed more than one-quarter of their value since late September, which has put the stock well below even the most reduced targets. Only one broker has a target price below the stock’s current value of $486.64, the rest are above Nomura’s $530 view. The current median target is $745, and 13 brokers maintain targets above the $800 – with one reaching $1,111.
Peter Misek of Jefferies, who has an $800 price target on the stock, remains upbeat. “We think the stock will rise on the strong CQ4 results, which should dissipate concerns of dramatically slowing demand for Apple products."
Summing Up
And that's what's going on with Apple's share price today.
Just wanted to share the news with you. If nothing else, write yourself a note and recheck its price periodically, beginning a year from now.
At that point in time, you may like or dislike what you see, depending on what you decide to do or not do, as well as what price Apple's shares are selling for at that time.
Time will tell, but for long term investors the risk to reward factor for Apple looks better than it's looked for quite some time.
Thanks. Bob.
Wal-Mart to Buy More U.S. Made Goods, Too
In addition to its plans to hire veterans, here's another welcome piece of good news from Wal-Mart, the world's largest retailer.
And it relates to sourcing more products from U.S. based suppliers, thus creating more jobs in the process of doing so.
Wal-Mart Makes Pledges on Veterans, Sourcing says this about its plans to buy more U.S. made products:
"Wal-Mart Stores plans to offer jobs to veterans in their first 12 months off active duty and boost domestic sourcing of products by $50 billion over the next 10 years. {See our earlier posting on this today.}. . .
Wal-Mart also said it will take a two-pronged approach to boosting sourcing in the U.S.: increasing what it already buys domestically in categories like sporting goods, apparel basics, storage products, games, and paper products, and helping to bring back to U.S. shores production in areas such as textiles, furniture and higher-end appliances.
"At the heart of our national political conversation today is one issue: creating jobs to grow the economy," Mr. Simon said. "We are meeting with our suppliers on domestic manufacturing and are making a strong commitment to move this forward."
Wal-Mart cited data from its suppliers, showing items that are made, sourced or grown in the U.S. account for about two-thirds of what the company spends to buy products at Wal-Mart U.S. It added that it sees room to do more and has created a senior team within the company to lead the effort and it will sign longer term purchase agreements to give suppliers more certainty."
Summing Up
Good for Wal-Mart.
And good for America and American workers, too.
Thanks. Bob.
And it relates to sourcing more products from U.S. based suppliers, thus creating more jobs in the process of doing so.
Wal-Mart Makes Pledges on Veterans, Sourcing says this about its plans to buy more U.S. made products:
"Wal-Mart Stores plans to offer jobs to veterans in their first 12 months off active duty and boost domestic sourcing of products by $50 billion over the next 10 years. {See our earlier posting on this today.}. . .
Wal-Mart also said it will take a two-pronged approach to boosting sourcing in the U.S.: increasing what it already buys domestically in categories like sporting goods, apparel basics, storage products, games, and paper products, and helping to bring back to U.S. shores production in areas such as textiles, furniture and higher-end appliances.
"At the heart of our national political conversation today is one issue: creating jobs to grow the economy," Mr. Simon said. "We are meeting with our suppliers on domestic manufacturing and are making a strong commitment to move this forward."
Wal-Mart cited data from its suppliers, showing items that are made, sourced or grown in the U.S. account for about two-thirds of what the company spends to buy products at Wal-Mart U.S. It added that it sees room to do more and has created a senior team within the company to lead the effort and it will sign longer term purchase agreements to give suppliers more certainty."
Summing Up
Good for Wal-Mart.
And good for America and American workers, too.
Thanks. Bob.
Which is More Risky? Owning or Not Owning Stocks? ... MANAGING the Unavoidable Elements of Risk and Reward in Our Financial Affairs
Risk is a four letter word. We live with risk all the time.
To steal a phrase from Shakespeare, "To own stocks, or not to own stocks, that is the question." Sorry about that, William, but it seemed like the thing to do at the time.
Risk is with us everywhere and at all times. It's unavoidable. It simply IS.
We risk eating too much or too little, going to college or taking a job instead, working too hard or not hard enough, exercising too much or too little, getting married or staying single, going deep into debt or foregoing that dream house we can't afford, and so forth.
Risk is. It's up to us to manage it.
Thus, since we can't avoid taking risks and be assured of certain outcomes, the trick is always related to how well we manage the inevitable risks in our lives. Pursuing an education, establishing the habit of savings, investing and taking care of our financial needs, both early on and later in life, are all part of the equation.
How many times have I heard that investing in stocks is too risky and that buying a house with a big mortgage is a safe approach. And it's so untrue.
Stock Investing Isn't the Only Risk in Your Life is very much worth reading and then reflecting carefully on what it says:
"Often when we think of risk, we’re only focused on the risk of investing in the stock market. We think, “Oh, the stock market is risky, and it’s a little scary to buy risky things.”
I can’t tell you how many conversations I’ve had with friends — particularly when they get a little older — that are only focused on this one risk. “I don’t want to own stocks because, boy, that’s risky.”
I remember a conversation I had with a friend of mine who lives in a small town. She was telling me how worried she was about the stock market going up and down. Now, keep in mind, she had very little of her money in the stock market. But she had some money in stocks, as is appropriate for somebody who could expect to live for another 15 or more years.
Here’s the interesting part. When she finished telling me about her stock market worries, she told me she was also very worried about how the price of everything seemed to be getting more and more expensive each year.
This gets us to the big point. When you make a decision to avoid one type of risk, you might be exposing yourself to another one.
In this case, my friend was very concerned about the risk of holding stocks. But she overlooked the risk that comes with holding too little in stocks — which can help her keep up with inflation.
It’s going to cost you more to buy the same loaf of bread in 20 years. Just look at prices 30 years ago, when a loaf of bread cost $0.53, and a gallon of gas was $1.36.
I remember when I was a kid, 30 years or so ago, riding my bike down to the gas station and putting a quarter in the soda machine to get a bottle of Fanta Red Cream Soda. Today, if my kids wanted to ride down to the gas station to get a soda, it would cost them at least a dollar. (Bikes are also a lot more expensive than they used to be.)
The point is that we shouldn’t be thinking in terms of avoiding risk. It can’t be done. Instead, we should be considering which risks we’re willing to take on.
The reality of investing is about making these tradeoffs. It’s about raising your hand and saying, “I’m O.K. with taking on this risk over here, in order to get rid of that one over there.” That’s essentially what the market is —- a place to trade risk and reward.
Back to my friend in the small town. (She isn’t unique. I seem to have this same conversation about risk with lots of people.) When I heard her concerns, I told her a story that always seems to help. If you have a well-designed investment portfolio that’s tied to your goals, you’ve already made decisions and tradeoffs about the risks you’re willing to take. We’re better off in the long run sticking with those plans, because once you start looking for a no-risk investing solution, you’ll likely to veer off into some shady, perhaps fraudulent, investment schemes.
So next time you’re nervous about the risk you’re taking with your investments, remind yourself which risks you’ve actually gotten rid of because of those decisions."
Summing Up
We can't avoid risk in our lives. Risk is.
So while risk can't be avoided, it can and should be managed in a thoughtful and intelligent manner by each of us.
While there are no guarantees, of course, there are some things which almost always certainly will prove to be worthwhile pursuits over a lifetime.
Such things as pursuing knowledge continuously after getting a good formal education, working to achieve and maintain good health, building and maintaining strong personal relationships, saving enough money from what we earn and then investing those savings well to at least offset the effects of inflation are all worthy objectives for a life well lived.
And so is managing the level of debt we take on over time. That's because debt service requirements minimize our ability to achieve savings and invest those savings for our future needs.
Stated simply, from student loans to home mortgages, individual debt levels need to be managed just like any other risk.
To repeat, risk is.
Thanks. Bob.
To steal a phrase from Shakespeare, "To own stocks, or not to own stocks, that is the question." Sorry about that, William, but it seemed like the thing to do at the time.
Risk is with us everywhere and at all times. It's unavoidable. It simply IS.
We risk eating too much or too little, going to college or taking a job instead, working too hard or not hard enough, exercising too much or too little, getting married or staying single, going deep into debt or foregoing that dream house we can't afford, and so forth.
Risk is. It's up to us to manage it.
Thus, since we can't avoid taking risks and be assured of certain outcomes, the trick is always related to how well we manage the inevitable risks in our lives. Pursuing an education, establishing the habit of savings, investing and taking care of our financial needs, both early on and later in life, are all part of the equation.
How many times have I heard that investing in stocks is too risky and that buying a house with a big mortgage is a safe approach. And it's so untrue.
Stock Investing Isn't the Only Risk in Your Life is very much worth reading and then reflecting carefully on what it says:
"Often when we think of risk, we’re only focused on the risk of investing in the stock market. We think, “Oh, the stock market is risky, and it’s a little scary to buy risky things.”
I can’t tell you how many conversations I’ve had with friends — particularly when they get a little older — that are only focused on this one risk. “I don’t want to own stocks because, boy, that’s risky.”
I remember a conversation I had with a friend of mine who lives in a small town. She was telling me how worried she was about the stock market going up and down. Now, keep in mind, she had very little of her money in the stock market. But she had some money in stocks, as is appropriate for somebody who could expect to live for another 15 or more years.
Here’s the interesting part. When she finished telling me about her stock market worries, she told me she was also very worried about how the price of everything seemed to be getting more and more expensive each year.
This gets us to the big point. When you make a decision to avoid one type of risk, you might be exposing yourself to another one.
In this case, my friend was very concerned about the risk of holding stocks. But she overlooked the risk that comes with holding too little in stocks — which can help her keep up with inflation.
It’s going to cost you more to buy the same loaf of bread in 20 years. Just look at prices 30 years ago, when a loaf of bread cost $0.53, and a gallon of gas was $1.36.
I remember when I was a kid, 30 years or so ago, riding my bike down to the gas station and putting a quarter in the soda machine to get a bottle of Fanta Red Cream Soda. Today, if my kids wanted to ride down to the gas station to get a soda, it would cost them at least a dollar. (Bikes are also a lot more expensive than they used to be.)
The point is that we shouldn’t be thinking in terms of avoiding risk. It can’t be done. Instead, we should be considering which risks we’re willing to take on.
The reality of investing is about making these tradeoffs. It’s about raising your hand and saying, “I’m O.K. with taking on this risk over here, in order to get rid of that one over there.” That’s essentially what the market is —- a place to trade risk and reward.
Back to my friend in the small town. (She isn’t unique. I seem to have this same conversation about risk with lots of people.) When I heard her concerns, I told her a story that always seems to help. If you have a well-designed investment portfolio that’s tied to your goals, you’ve already made decisions and tradeoffs about the risks you’re willing to take. We’re better off in the long run sticking with those plans, because once you start looking for a no-risk investing solution, you’ll likely to veer off into some shady, perhaps fraudulent, investment schemes.
So next time you’re nervous about the risk you’re taking with your investments, remind yourself which risks you’ve actually gotten rid of because of those decisions."
Summing Up
We can't avoid risk in our lives. Risk is.
So while risk can't be avoided, it can and should be managed in a thoughtful and intelligent manner by each of us.
While there are no guarantees, of course, there are some things which almost always certainly will prove to be worthwhile pursuits over a lifetime.
Such things as pursuing knowledge continuously after getting a good formal education, working to achieve and maintain good health, building and maintaining strong personal relationships, saving enough money from what we earn and then investing those savings well to at least offset the effects of inflation are all worthy objectives for a life well lived.
And so is managing the level of debt we take on over time. That's because debt service requirements minimize our ability to achieve savings and invest those savings for our future needs.
Stated simply, from student loans to home mortgages, individual debt levels need to be managed just like any other risk.
To repeat, risk is.
Thanks. Bob.
Wal-Mart to Hire All Veterans Who Seek Employment
Wal-Mart will step forward today in a big way, offering to hire all veterans who want a job with the world's biggest retailer.
Wal-Mart Plans to Hire Any Veteran Who Wants a Job says this about the upcoming announcement today:
"Wal-Mart, the nation’s largest retailer, will announce Tuesday a plan to hire every veteran who wants a job, provided that the veterans have left the military in the previous year and did not receive a dishonorable discharge.
Company officials said they believe the program, which will officially begin on Memorial Day — May 27 this year — will lead to the hiring of more than 100,000 people in the next five years, the length of the commitment.
“Let’s be clear: Hiring a veteran can be one of the best decisions any of us can make,” Mr. Simon will say in his keynote speech to the National Retail Federation, according to prepared text. “These are leaders with discipline, training and a passion for service.”
In a statement, the first lady, Michelle Obama, who has led a campaign by the White House to encourage businesses to hire veterans, called the Wal-Mart plan “historic,” adding that she planned to urge other corporations to follow suit. . . .
Wal-Mart’s foundation has consistently been among the most generous contributors to veterans’ charities, committing to donate $20 million to veterans’ causes by 2015. “I take this one personally,” Mr. Simon, a Navy veteran, says in his prepared text.
But the company has also been aggressive about hiring veterans because it views them as good employees, said Nelson Lichtenstein, a labor historian at the University of California, Santa Barbara, and the author of the book “The Retail Revolution: How Wal-Mart Created a Brave New World of Business.”
About 100,000 of the company’s 1.4 million employees in the United States are veterans, company officials said.
“They like military people because they have a sense of hierarchy and a commitment to the organization they are in,” said Professor Lichtenstein, who has been a critic of Wal-Mart’s management practices. “And that’s important to Wal-Mart.” In recent years, Wal-Mart has been the target of lawsuits by women, accusing the company of discrimination in salaries and promotions.
Gary Profit, a retired Army brigadier general who is senior director of military programs at Wal-Mart, said the company might not be able to guarantee that every veteran who wants a full-time job will be able to get one. But he said that because of the size of Wal-Mart’s retail operation and supply chain, it is almost certain that the company could find a job — even a part-time one — close to any veteran who wanted one.
“If you’re a veteran and you want a job in the retail industry, you have a place at Wal-Mart,” he said."
Summing Up
Good for Wal-Mart.
Now if the government will do such common sense things as stopping to make it so difficult for the private sector to develop our domestic energy and for companies to invest in job creating growth initiatives by truly reforming the tax code and leaving business in the hands of capable MOM oriented non-government leaders, more individuals and companies will make the investments that will provide lots of new jobs and much needed economic growth, too.
And it won't cost us taxpayers one single dime for them to do it.
Thanks. Bob.
Wal-Mart Plans to Hire Any Veteran Who Wants a Job says this about the upcoming announcement today:
Company officials said they believe the program, which will officially begin on Memorial Day — May 27 this year — will lead to the hiring of more than 100,000 people in the next five years, the length of the commitment.
“Let’s be clear: Hiring a veteran can be one of the best decisions any of us can make,” Mr. Simon will say in his keynote speech to the National Retail Federation, according to prepared text. “These are leaders with discipline, training and a passion for service.”
In a statement, the first lady, Michelle Obama, who has led a campaign by the White House to encourage businesses to hire veterans, called the Wal-Mart plan “historic,” adding that she planned to urge other corporations to follow suit. . . .
The unemployment rate for veterans of the recent wars has remained stubbornly above that for nonveterans, though it has been falling steadily, dropping to just below 10 percent for all of 2012.
That was down from 12.1 percent the year before. The year-end unemployment rate for nonveterans was 7.9 percent in 2012.
That was down from 12.1 percent the year before. The year-end unemployment rate for nonveterans was 7.9 percent in 2012.
Wal-Mart’s foundation has consistently been among the most generous contributors to veterans’ charities, committing to donate $20 million to veterans’ causes by 2015. “I take this one personally,” Mr. Simon, a Navy veteran, says in his prepared text.
But the company has also been aggressive about hiring veterans because it views them as good employees, said Nelson Lichtenstein, a labor historian at the University of California, Santa Barbara, and the author of the book “The Retail Revolution: How Wal-Mart Created a Brave New World of Business.”
About 100,000 of the company’s 1.4 million employees in the United States are veterans, company officials said.
“They like military people because they have a sense of hierarchy and a commitment to the organization they are in,” said Professor Lichtenstein, who has been a critic of Wal-Mart’s management practices. “And that’s important to Wal-Mart.” In recent years, Wal-Mart has been the target of lawsuits by women, accusing the company of discrimination in salaries and promotions.
Gary Profit, a retired Army brigadier general who is senior director of military programs at Wal-Mart, said the company might not be able to guarantee that every veteran who wants a full-time job will be able to get one. But he said that because of the size of Wal-Mart’s retail operation and supply chain, it is almost certain that the company could find a job — even a part-time one — close to any veteran who wanted one.
“If you’re a veteran and you want a job in the retail industry, you have a place at Wal-Mart,” he said."
Summing Up
Good for Wal-Mart.
Now if the government will do such common sense things as stopping to make it so difficult for the private sector to develop our domestic energy and for companies to invest in job creating growth initiatives by truly reforming the tax code and leaving business in the hands of capable MOM oriented non-government leaders, more individuals and companies will make the investments that will provide lots of new jobs and much needed economic growth, too.
And it won't cost us taxpayers one single dime for them to do it.
Thanks. Bob.
It's the Spending, Stupid ... Not the Tax Rates ... California Continues to do the Wrong Thing ... Its Balanced Budget Is All Smoke and Mirrors
Overview
Most States are required by their own laws and constitutions to balance their budgets annually. But in reality they don't even try. It's all cheap talk, short term accounting tricks and no legitimate action.
The proper political spirit and necessary intention to balance state budgets is often missing in action. Gamesmanship prevails instead. So when a state does manage to "balance" its annual budget, it's done with smoke and mirrors.
The balanced budget games played by the politicians and bureaucrats throughout our otherwise great country are performed with the intention to not admit the ugly reality to the voters -- er -- constituents and taxpayers -- that they purportedly represent.
But perhaps even worse than the failure to admit reality by our "public servants" is the fact that We the People sit by and allow it to happen. Ever wonder why? I do.
So now that I have your attention and we're all ready to tell it like it is, let's go deeper into this charade of public sector governance. It could be so simple to balance the budget if the genuine intention to do so existed, and here's how. By the way, this KISS approach would work in Washington, too.
How Simple The Job Of Balancing A State's Budget Could Be
Simply stated, in any serious realistic effort to balance a state's budget, the beginning point would be to formally restrict the upcoming year's government spending to the state's estimated tax receipts. Then we work backward from that number and decide what to spend on what. We establish priorities, in other words, since we have $X available to spend and no more than that.
And as part of the certain to be heavily debated process of what to spend, things like appropriate annual pension accruals and paying the state's bills on time would be officially incorporated in the state's estimated annual spending.
And money which was 'temporarily' provided by entities outside the state, such as federal government "subsidies," would be clearly asterisked since the federal government has no money of its own and the subsidy could be withdrawn in the future. And proper accruals for cash to repay existing debt, both interest and principal, would be included in the estimated spending levels as well. The game of smoke and mirrors would end, the truth would be told and a sincere effort to live within the state's means would become the norm.
At the end of each year, the actual experience versus the initially projected attempt to achieve a balanced budget would be publicized and form the basis for next year's estimated spending levels.
See how easy this could be if anybody actually wanted to follow the "spirit" of the law instead of just taking a wink and nod approach to living within the state's means.
Discussion
The first step toward problem resolution is problem recognition. If a state isn't willing to or in some other way doesn't manage to balance its budget, it's either spending too much, taxing too little, or engaging in a combination thereof.
Putting the emphasis on taxing instead of spending --- the wrong place --- is often the politically popular 'solution,' but in reality it's no solution at all. To the contrary, it is usually where the problem lies.
Then the spending to revenue problem gets bigger and bigger until finally the state's finances are completely out of control.
The lesson is straightforward. When a state raises taxes instead of controlling spending in the farce of pursuing fiscal balance, it's the certain route to spending more than it collects. Because when government and uncontrolled OPM spending is involved, that's what happens.
And in addition, since most people are opposed to paying more taxes themselves, the politicians elect to tax as few as possible of the 'other' voters -- er -- citizens. The so-called 2% of rich and greedy fat cats among We the People then become the target and source of the 'extra' funds. But it's never enough to offset the 'extra' spending. So the problem grows.
Eventually the spend and don't tax enough game ceases and the bills come due. But only after the state has run up billions in public pension obligations, unpaid bills that are pushed into the following accounting year, borrowed for infrastructure and not formally recognized that both the interest and principal on borrowings must be repaid, and so forth. And then there's the final farce when it comes to plugging the hole to balance a state's budgets, the federal government's subsidies to the state for such things as Medicaid, student loans, grants to higher education, unemployment compensation grants, welfare programs and so on.
At the bar, people without money to pay for their drinks often ask the bartender to put it on the tab, and with credit cards, people without money tell the sales clerk to charge it. For government bureaucrats, it's called balancing the budget. And it's all one big lie!
California Is A Great Example Of What Not To Do To Achieve A Balanced Budget
So let's see what the pols are up to in California these days. And if you happen to live in Illinois, Michigan, Ohio, New York, Pennsylvania and numerous other states as well, there's lots of lying going on around you as well. The fact is that almost no state government is making a serious effort to live within its means. And we all know the government knows best gang in Washington isn't serious either.
So in reality the states aren't any better at fiscal management than are the feds. They just pretend they are by "requiring" themselves to balance the budget each year by any means possible, including fiction. As Alice In Wonderland put it so well, the words "balancing the budget" mean exactly what state politicians say they mean; nothing more nor less than that.
Brown's Breakthrough Budget is subtitled 'California's Democratic supermajority gets to work. Let the spending begin:'
"California Gov. Jerry Brown is touting his new "breakthrough" budget that provides $2.7 billion in additional funding for schools, $500 million for universities and a $1 billion reserve fund. For only the second time in the past decade, California has a balanced budget. But can the state's new Democratic supermajority keep it?
Mr. Brown is promising to be a good steward of the cash cow voters gave him on election day, when they approved a ballot initiative (Prop. 30) increasing the state sales tax and rates on top earners. They also okayed a measure (Prop. 39) requiring corporations to pay taxes based on their sales in the state, which will raise $2 billion in new revenues from out-of-state businesses that were using an alternative, more favorable formula. Thanks to these tax hikes, there will be an additional $8 billion to $11 billion flowing into Sacramento each year.
That is, if the projections are correct and lawmakers don't spend themselves into a hole.
The state has borrowed nearly $25 billion over the past decade from special funds, schools, and local governments; $10 billion from the feds for unemployment benefits; and $73 billion from capital markets for infrastructure improvements. Meanwhile, local governments want Mr. Brown to pay billions in reparations to redevelopment agencies, which the governor looted to balance his budget a couple of years ago.
The California State Teachers' Retirement System has requested a $3.5 billion annual infusion to keep the teachers' pension fund solvent. State universities and colleges are clamoring for an additional $600 million. Labor unions aim to renegotiate their relatively austere contracts, and Democrats plan to stuff their budget with sundry provisions such as middle-class college scholarships and dental benefits for low-income individuals.
Meanwhile, Medicaid providers have sued the state for slashing their payments by 20% in the last four years and will want to be re-compensated now that the state has cash to spare (at least in theory) and a Democratic supermajority. The budget proposes $670 million in taxes and fees on hospitals and Medicaid managed-care plans to help fund the ObamaCare Medicaid expansion, which will cost an estimated $350 million this year and grow over time. Note, though, that $350 million is merely a "placeholder for the costs" until a more "refined estimate can be developed" once Washington provides more guidance on rules."
Summing Up
The pigs in California are lining up at the trough for their fair share of the new "free" money.
And when the trough is full of 'new' money, it will be quickly emptied.
And it's highly likely that the trough won't even be filled to the rim since the money raised by increased taxes won't be nearly as much as it's projected to be. That's because the politicians' revenue projections are phony and also due to the fact that people will find ways to pay less in taxes now that the tax rates have been raised. They always do.
In any event, after the new money has been spent, then more money will be needed to refill the trough again and create more free food for all the hungry pigs.
Thereafter the cycle will continue and there will be an ongoing and periodic need to raise taxes again and again to keep the trough full and feed even more pigs in addition to feeding the same pigs more.
Then the politicians will work hard to balance the budget Alice in Wonderland style by not paying bills on time, borrowing more money, ignoring future pension obligations, getting more free money subsidies from the feds and so on.
But, of course, the feds don't have more money to "subsidize" the states any longer. They've run out of borrowing capacity, too.
So maybe it's just possible that we have a spending problem and not a taxing problem.
Maybe that's the reality. And maybe once that reality is recognized widely enough, maybe the states and We the People will finally be forced to deal with it.
That's my bet, because more and more of us are beginning to acknowledge that we have a spending problem. Then we can tax enough to make the imbalance in the budget disappear.
But not before we come to grips with the out-of-control spending throughout the states, including the state of California and many others as well. And Washington too, of course. But you already knew that.
When all that happens, but not before, balancing the budgets at the state level won't be an Alice in Wonderland fictitious exercise any longer.
Thanks. Bob.
Most States are required by their own laws and constitutions to balance their budgets annually. But in reality they don't even try. It's all cheap talk, short term accounting tricks and no legitimate action.
The proper political spirit and necessary intention to balance state budgets is often missing in action. Gamesmanship prevails instead. So when a state does manage to "balance" its annual budget, it's done with smoke and mirrors.
The balanced budget games played by the politicians and bureaucrats throughout our otherwise great country are performed with the intention to not admit the ugly reality to the voters -- er -- constituents and taxpayers -- that they purportedly represent.
But perhaps even worse than the failure to admit reality by our "public servants" is the fact that We the People sit by and allow it to happen. Ever wonder why? I do.
So now that I have your attention and we're all ready to tell it like it is, let's go deeper into this charade of public sector governance. It could be so simple to balance the budget if the genuine intention to do so existed, and here's how. By the way, this KISS approach would work in Washington, too.
How Simple The Job Of Balancing A State's Budget Could Be
Simply stated, in any serious realistic effort to balance a state's budget, the beginning point would be to formally restrict the upcoming year's government spending to the state's estimated tax receipts. Then we work backward from that number and decide what to spend on what. We establish priorities, in other words, since we have $X available to spend and no more than that.
And as part of the certain to be heavily debated process of what to spend, things like appropriate annual pension accruals and paying the state's bills on time would be officially incorporated in the state's estimated annual spending.
And money which was 'temporarily' provided by entities outside the state, such as federal government "subsidies," would be clearly asterisked since the federal government has no money of its own and the subsidy could be withdrawn in the future. And proper accruals for cash to repay existing debt, both interest and principal, would be included in the estimated spending levels as well. The game of smoke and mirrors would end, the truth would be told and a sincere effort to live within the state's means would become the norm.
At the end of each year, the actual experience versus the initially projected attempt to achieve a balanced budget would be publicized and form the basis for next year's estimated spending levels.
See how easy this could be if anybody actually wanted to follow the "spirit" of the law instead of just taking a wink and nod approach to living within the state's means.
Discussion
The first step toward problem resolution is problem recognition. If a state isn't willing to or in some other way doesn't manage to balance its budget, it's either spending too much, taxing too little, or engaging in a combination thereof.
Putting the emphasis on taxing instead of spending --- the wrong place --- is often the politically popular 'solution,' but in reality it's no solution at all. To the contrary, it is usually where the problem lies.
Then the spending to revenue problem gets bigger and bigger until finally the state's finances are completely out of control.
The lesson is straightforward. When a state raises taxes instead of controlling spending in the farce of pursuing fiscal balance, it's the certain route to spending more than it collects. Because when government and uncontrolled OPM spending is involved, that's what happens.
And in addition, since most people are opposed to paying more taxes themselves, the politicians elect to tax as few as possible of the 'other' voters -- er -- citizens. The so-called 2% of rich and greedy fat cats among We the People then become the target and source of the 'extra' funds. But it's never enough to offset the 'extra' spending. So the problem grows.
Eventually the spend and don't tax enough game ceases and the bills come due. But only after the state has run up billions in public pension obligations, unpaid bills that are pushed into the following accounting year, borrowed for infrastructure and not formally recognized that both the interest and principal on borrowings must be repaid, and so forth. And then there's the final farce when it comes to plugging the hole to balance a state's budgets, the federal government's subsidies to the state for such things as Medicaid, student loans, grants to higher education, unemployment compensation grants, welfare programs and so on.
At the bar, people without money to pay for their drinks often ask the bartender to put it on the tab, and with credit cards, people without money tell the sales clerk to charge it. For government bureaucrats, it's called balancing the budget. And it's all one big lie!
California Is A Great Example Of What Not To Do To Achieve A Balanced Budget
So let's see what the pols are up to in California these days. And if you happen to live in Illinois, Michigan, Ohio, New York, Pennsylvania and numerous other states as well, there's lots of lying going on around you as well. The fact is that almost no state government is making a serious effort to live within its means. And we all know the government knows best gang in Washington isn't serious either.
So in reality the states aren't any better at fiscal management than are the feds. They just pretend they are by "requiring" themselves to balance the budget each year by any means possible, including fiction. As Alice In Wonderland put it so well, the words "balancing the budget" mean exactly what state politicians say they mean; nothing more nor less than that.
Brown's Breakthrough Budget is subtitled 'California's Democratic supermajority gets to work. Let the spending begin:'
"California Gov. Jerry Brown is touting his new "breakthrough" budget that provides $2.7 billion in additional funding for schools, $500 million for universities and a $1 billion reserve fund. For only the second time in the past decade, California has a balanced budget. But can the state's new Democratic supermajority keep it?
Mr. Brown is promising to be a good steward of the cash cow voters gave him on election day, when they approved a ballot initiative (Prop. 30) increasing the state sales tax and rates on top earners. They also okayed a measure (Prop. 39) requiring corporations to pay taxes based on their sales in the state, which will raise $2 billion in new revenues from out-of-state businesses that were using an alternative, more favorable formula. Thanks to these tax hikes, there will be an additional $8 billion to $11 billion flowing into Sacramento each year.
That is, if the projections are correct and lawmakers don't spend themselves into a hole.
California Gov. Jerry Brown
The state has borrowed nearly $25 billion over the past decade from special funds, schools, and local governments; $10 billion from the feds for unemployment benefits; and $73 billion from capital markets for infrastructure improvements. Meanwhile, local governments want Mr. Brown to pay billions in reparations to redevelopment agencies, which the governor looted to balance his budget a couple of years ago.
The California State Teachers' Retirement System has requested a $3.5 billion annual infusion to keep the teachers' pension fund solvent. State universities and colleges are clamoring for an additional $600 million. Labor unions aim to renegotiate their relatively austere contracts, and Democrats plan to stuff their budget with sundry provisions such as middle-class college scholarships and dental benefits for low-income individuals.
Meanwhile, Medicaid providers have sued the state for slashing their payments by 20% in the last four years and will want to be re-compensated now that the state has cash to spare (at least in theory) and a Democratic supermajority. The budget proposes $670 million in taxes and fees on hospitals and Medicaid managed-care plans to help fund the ObamaCare Medicaid expansion, which will cost an estimated $350 million this year and grow over time. Note, though, that $350 million is merely a "placeholder for the costs" until a more "refined estimate can be developed" once Washington provides more guidance on rules."
Summing Up
The pigs in California are lining up at the trough for their fair share of the new "free" money.
And when the trough is full of 'new' money, it will be quickly emptied.
And it's highly likely that the trough won't even be filled to the rim since the money raised by increased taxes won't be nearly as much as it's projected to be. That's because the politicians' revenue projections are phony and also due to the fact that people will find ways to pay less in taxes now that the tax rates have been raised. They always do.
In any event, after the new money has been spent, then more money will be needed to refill the trough again and create more free food for all the hungry pigs.
Thereafter the cycle will continue and there will be an ongoing and periodic need to raise taxes again and again to keep the trough full and feed even more pigs in addition to feeding the same pigs more.
Then the politicians will work hard to balance the budget Alice in Wonderland style by not paying bills on time, borrowing more money, ignoring future pension obligations, getting more free money subsidies from the feds and so on.
But, of course, the feds don't have more money to "subsidize" the states any longer. They've run out of borrowing capacity, too.
So maybe it's just possible that we have a spending problem and not a taxing problem.
Maybe that's the reality. And maybe once that reality is recognized widely enough, maybe the states and We the People will finally be forced to deal with it.
That's my bet, because more and more of us are beginning to acknowledge that we have a spending problem. Then we can tax enough to make the imbalance in the budget disappear.
But not before we come to grips with the out-of-control spending throughout the states, including the state of California and many others as well. And Washington too, of course. But you already knew that.
When all that happens, but not before, balancing the budgets at the state level won't be an Alice in Wonderland fictitious exercise any longer.
Thanks. Bob.
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