Tag Archives: Plan

Socialized Heathcare… Do we want this?

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First Step: Watch this video on Canadian Healthcare

Did you watch the video?  I would embed it so you can watch it here, but it seems that due to technological limitations (or decisions) that isn’t going to happen.  And no I’ve decided against figuring out how to circumvent such actions.  So, click the link already.  It is only 20 minutes out of your life to watch a humorous yet somewhat painful video on the realization of socialized health care.  Don’t believe me then click the link.

Obama Plan: How do we pay for it?

You may be wondering what my take on the Obama plan is.  Well, firstly I want to know how we are going to pay for it.  Really, Social Security is going in the red, and so is Medicare.  Last I check in the red means that it isn’t profitable, and also means that there is no money to fund it.  Tax reciepts are down significantly, not to mention State Tax receipts.

So, the “income” that the Federal Governement receives is down.  Remember that the government doesn’t actually make or produce anything and is soley funded by us the taxpayer.  So, to pay for this we are going to go further in the red.  We already have a trillion plus deficit for 2009, which means borrowing or printing substantial sums of money.

While Univeral Health Care sounds wonderful, but again to pay for it we have to get the money from somewhere.  That somewhere is from the “rich”.  Maybe you feel entitled to health care, maybe not.  Essentially what is going to happen is that money will be siphoned from those with high incomes to subsidize the plans.  This is a blatant transfer of wealth, which is what the government does.

At what point do high income earners decide that enough is enough and decide to earn less?  If I were taxed at say 60%, which means I get to keep 40% of my income my incentive to earn more declines.

Rationing: Supply and Demand

Here is where socialized health care gets interesting.  Let’s say there is $100 billion dollars allocated to public health care per year.  For the moment don’t worry about the exact sums of money as this is an example.

With that $100b services can be provided up to that point.  Once that point is reached or even if we start to near that point where if anything else is spent then the program is in the red.  How might the administrators prevent that from happening?

1) You have to wait in line for your turn… these lines could get really long

2) Deny you service… bummer looks like you don’t get that MRI

3) Rationing, where there is a limited number of services available

So, in a perfect world we would all be healthy, and have 100% health care.  As much as I’d like that to be a reality we have to be realistic.  The only thing we get for free is the air we breath.  Anything else requires work, which then can be exchanged for a good or service.  I’m not saying our present system is perfect, by no means, but I don’t think this is the way.

Guns and Ammo

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So, I’ve heard about the legislation that doesn’t have sponsors at this point on gun control. I’m talking about H.R. 45. You can find the link here: http://thomas.loc.gov/cgi-bin/query/C?c111:./temp/~c111tCkvxA

Essentially the bill will severely limit gun rights once again impinging on our freedoms. Don’t expect this to pass unless we have a national emergency. The financial deterioration could have such implications.

I wasn’t all that suprised to learn about this bill, but I was recently suprised to learn about various states introduciing legistalation tracking all ammo purchases via a database and having a laser imprint on all ammo.

So, essentially there will be a record of all your ammo purchases including which calibers your purchased. There are other details about owning non-coded ammo and taxes that vary per each state proposing the laws.

Check it out here: http://ammunitionaccountability.org/

I just can’t help but wonder 1) the implications if such legislation is passed, and 2) why such legislation is being proposed.

Something is amiss and doesn’t feel right. All I can say is that it isn’t for the better. We are about to hit the transition period in the crisis. It is the inflection point where the crisis was only affecting various groups of people to affecting almost everyone.

I think many people are still in denial that anything is wrong or if they realize something is wrong they think it is a temporary blip in the timeline. They don’t understand the global reach and implications of the present crisis, what caused it or when it began.

All I will say at the moment is that subprime is only a piece of the puzzle.

Now is the time to start taking actions. Now is the time to think about various scenarios that may or may not happen. Think about planning for a major natural disaster and that will give you some food for thought. Hey if nothing happens at least you prepared for the possibility and if an earthquake hits you will be ready.

Withdrawal Symptoms

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If my emotional barometer is any indication of where people’s minds are at the moment then I can only label it as coming down or recovering from a major hangover. It is the Sunday afternoon after a big night out sipping on your bloody mary to ease the pain.

We have been living on credit and tons of it.  At some point it becomes unsustainable and the house of cards tumbles down.  

Getting back to my analogy, think of drinking a ton of alcohol or coffee.  You keep wanting more and more when you finally get to a point where your body is completely dependent.  Any reduction in the drug will cause mild to severe withdrawal symptoms, any increase doesn’t do anything. 

This is what happens with credit expansion.  Too much and everyone goes on a spending spree with all the cheap money.  Take away the cheap money and people stop spending, jobs vanish, incomes decrease, and the previously incurred debt can’t be paid off.

So, instead of going through withdrawal you decide to take a lesser amount of the drug to make your hangover go away or slightly abate. However, you are still hungover. This pattern will continue until either you are completely free of the drug or your tolerance is now much lower enabling you to start increasing the amount as it now has a new profound effect as it did when you first started.  

It seems to me that we are in the post-crash hangover stage, but we aren’t completely free from the addiction.  We have taken a bit of the drug to ease the suffering.  The more of the drug we took the more likely we are to repeat the cycle.  We still need the drug to continue, otherwise we are going to feel like crap.  Hence, we still have a ways to go before we can recover.

If all goes as planned we will have a new President tomorrow and no longer will have to listen to the political banter at least for a while.  One piece of the uncertainty puzzle will be put into place, and we can focus on other issues.

In a NY Times article:

“We don’t know if it’s the end of the bear market yet, but it looks as though the bear has taken a nap,” said Sam Stovall, chief investment strategist at Standard & Poor’s equity research. “So investors are thinking, let’s enjoy a bit of a relief, both from the market’s lows and from the endless pre-election rhetoric.”

Other factors seemed to be playing into the rally as well, including a continuing round of coordinated interest rate cuts worldwide, the ongoing thaw in the credit markets, and the increasing resiliency of the markets to the daily drumbeat of bad economic news. The extreme volatility of recent weeks has calmed in recent days, though trading volume remained light.

Yes, the bear is taking a nap, but we are still very hungover and have taken a bit of the drug to help relieve the pain.  People haven’t completely capitulated and given up on equities.  They are hesitant yes, but still hopeful that things will turn around.

There is a major bear lurking around the corner and it isn’t just in the US.  They are giving birth around the world and China is no exception.  In a Financial Times article:

Wen Jiabao, China’s prime minister, warned that high growth was needed to maintain social stability as fresh evidence emerged on Monday that China’s economy was slowing quickly.

…

“We must be crystal-clear that without a certain pace of economic growth, there will be difficulties with employment, fiscal revenues and social development . . . and factors damaging social stability will grow,” he wrote in the magazine, Seeking Truth.

So, while equity markets recover mildly on noticeably low volume, bears are growling from afar.  Manufacturing is way down, consumer’s aren’t spending, banks still are reluctant to loan, major exporters are slowing.  I’d call this a worldwide slowdown of massive proportion.  We still have credit cards right?

What lies ahead…?

Recession, higher interest rates, massive inflation, higher commodity prices, continued decrease in housing, rising unemployment, and eventual devaluation of the United States dollar.  When will all of these things play out?  

My crystal ball has a few cracks, but for inflation to take hold we have to complete the current phase of de-leveraging and disinflation (which is bringing down prices).  Once this phase is complete all the newly created money will directly cause inflated prices.

Banks are lending — NOT

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The theory was beautiful (well in the abstract)…

Give troubled banks more credit and they will lend it out and the economy will stop its free-fall.  Now, that sounds like utopia to me.  Create credit and we will all be saved for unemployement, slowing production, decreased consumer spending, and rising interest rates.

HOLD ON… let’s put a toe back on the plane of reality…

Banks aren’t lending much more than before eventhough they are being handed gobs of cash.  Why wouldn’t banks lend out free money?

What if…

  1. there aren’t any borrowers worthy of getting loans? — Let’s say during a recession!  Oh right the economy slows WAY… DOWN.
  2. there are more troubled banks and unknowns on banks balance sheets.
  3. banks are holding the cash knowing full well that there is another storm on the horizon

I didn’t pull this out of thin air like the Fed does with money.  An article in the NY Times starts with

The banks aren’t lending. And despite what you have heard, they probably won’t start just yet.

Sorry Paulson your plan isn’t working.

“Our purpose is to increase confidence in our banks and increase the confidence of our banks, so that they will deploy, not hoard, their capital,” Mr. Paulson said in a statement Monday. “And we expect them to do so, as increased confidence will lead to increased lending. This increased lending will benefit the U.S. economy and the American people.

Of course, with a $250 billion injection into America’s biggest banks — not all of which were troubled — Mr. Paulson has a political sales job to do. And no requirements to lend were attached to the money. (Some banks may use the money to buy others.)

But Mr. Paulson is making a big assumption about confidence, because until the real economy recovers — which could take more than a year — lending to Main Street is unlikely to return rapidly to normal levels.

“It doesn’t matter how much Hank Paulson gives us,” said an influential senior official at a big bank that received money from the government, “no one is going to lend a nickel until the economy turns.” The official added: “Who are we going to lend money to?” before repeating an old saw about banking: “Only people who don’t need it.”

Again banks don’t want to lend into a very uncertain future.  They want confidence in the economy — there isn’t any and the opposite is occurring.  People are spending less as they become more concerned about the safety of their jobs.  Most Americans have no savings cushion to fall back on.

Roger Bootle and Jonathan Loynes of Capital Economics in London wrote a sobering note on Monday about the cash infusions into European banks that may apply here as well. “We expect rising loan defaults and further asset write-offs over the next couple of years to practically wipe out the governments’ capital injections, leaving banks back at square one,” they said. “Given that banks will need to increase their capital in order to expand their lending book, these measures on their own are unlikely to prevent bank lending from stagnating.”

Wait a minute… all that money being put into the system to restore confidence and spur lending may just vanish?  So at the end of the day more banks fail, the economy continues to contract, available credit continues to contract, unemployment rises, and interest rates eventually rise.  This isn’t what Paulson sold to us with his bailout plan.  Were we duped?

Nah, the individuals responsible for the government’s actions are always in need of votes and making a horrible situation look not so bad or at least feasible to fix.  At the end of the day our failed bailouts will have a disastrous effect.  The consequences are a HUGE debt burden, a larger interest payment on that debt, the world losing confidence in the value of the dollar, and a prolonged recession probably followed by major inflation.  I’ve been singing this song for a while and it will take time to play out, but as you can see this is a VERY rocky road.

Banks win with T.K.O!

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If I had to place a bet on who would win… The major banks or the taxpayer… The BANKS win!!  Hooray the institution is saved!  Round after round of talks end in someone getting bailed out or should I say supported or prevented from failing so the whole economy doesn’t come tumbling down.  The markets seems to be happy with the results of the weekend’s coordinated world-wide effort to support the financial industry.  The Dow is presently up 585 points and we are green across the boards.  

However, treasuries are losing ground quickly and Jim Rogers is shorting them.  I took that position earlier, but was too early and also got out too early.  Live and learn right?  I plan to reestablish that plan shortly.  Additionally, I don’t see how this is the “bottom” of the current crisis.  At every point along this decline since last October every time there is intervention the market rallies and then continues in is downward trajectory.  

I’m not watching CNBC, but I imagine everyone is talking about how last week was bottom and we are off to the races.  For a bottom to be in place we needed much more despair and hatred towards the markets.  Regardless of the long-term outlook (just wait for earnings season to really kick in) there is no point swimming up a waterfall.  Therefore I closed out a large position of ultra short index ETFs.  My bias is still short, but I’m not going to be surprised if we see an intermediate rally followed by the final shit storm of destruction.  Remember the fundamentals haven’t changed, only the fact that the world’s leaders are trying to hold things together to avoid a complete collapse.  This weekend only restored confidence to get people lending to each other again, and to prevent runs on the banks.

And alas it’s my 30th Birthday!  What a month to have a birthday eh!  I couldn’t have asked for a more excited, and hairbrained ride…

Disgusted

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Amusing yes, depressing yes… Therefore I ask are we just pawns in a game. A host to a virus that will keep us alive to survive. Do we go about our merry lives content with how things are and vote or not — knowing it doesn’t matter? Or worse voting and thinking that it makes a difference? If I am that absolved to complacency then I might as well live on the isle of Gauntlett, an ecosphere… self-sufficient, self-sustaining, and apart from all. Ron Paul lies it out all out in Revolution: A Manifesto, but as I’ve mentioned people don’t want to listen, and are complacent with being robbed and then blaming it on corporations when the culprits are government officials. I want freedom, personal rights, and property rights with a just law. Without those how can I plan for the future. What incentive do I have to invest if the rules are continually changing? 

If someone continually takes a penny from pocket at an ever increasing rate what motivation do I have to produce pennies or for that matter anything?  

India and China

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I’m going to start a section on India and China, which I will eventually turn into its own section. For now this is mainly my mental vomit.

So, the Shanghai stock market is down about 60% for the year, China is seeing factory closures, and what will the gov’t do? If they keep money cheap China will see what we are seeing. However, to compare China’s situation to ours is foolish. We are the largest debtor nation in the world and China the largest creditor. Regardless of the depth and length of their recession the eventually outcome will be massive growth. India will be another to keep an eye on. If I were Jim Rogers I would probably buy now and hold on through thick and thin. Also, looking at my previous post I’d be a bit contrarian and buy now. However, given the global outlook, which seems to be weakening I’m going to hold off.

However, I do plan to diversify into the Yuan. From a debt analysis I’d rather have my money in Chinese Yuan than US dollars. EverBank looks to be a decent option, and the easiest at the moment shy of opening an account in China.

Any ideas here will be appreciated!

Questioning Your Investments

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So, investing is an art form much like any of the other “things” we do in life. If you are a musician you must practice until you become proficient, and then to become a master takes many years of dedication. Even then there will be people above and below you in terms of proficiency and skill, but that doesn’t mean you aren’t great.

As each day passes I look to myself trying to figure out what investment style will suit me best, and I’m coming to the conclusion that an intermediate to long-term perspective will probably be best for me at least for now. That doesn’t mean that short-term trading won’t be a part of what I do, but it will be minimal.

Why? Well, the longer-term trends make more sense. Say for example with our current credit crisis at hand. The USD is being devaluated at an alarming rate. As the Fed continues to pump money into the system (mind you it is created out of thin air) thus each dollar is worth less due to there being more of them in circulation. Well in that case what do you do if the dollar continues to fall? Well, purchase other currencies that you think will be stronger against the dollar and / or purchase commodities as they are valued in the dollar. As the dollar weakens the commodities go up in value. However, you have to be careful as you are also dealing with supply/demand issues when it comes to raw materials. To say there are hard and fast rules is dangerous. For example while it may be supposed that an increase in gold is a indicator that inflation is coming, to abide by that rule in every situation may get you in trouble.

Okay so I’m almost finished with Harry Browne’s Investment Strategy and wanted to write about the questions we need to ask about our investments and the questions we normally ask, which lead us astray.

1) RISK: Is there any risk?
Well there is always risk in any investment. The only risk-free investment or the closest thing to it is T-Bills, which is considered the risk-free rate.

If risk is inherant in any investment then what?
1) What economic conditions will cause the investment to decline in value?
2) Are any other investments inversely correlated with this investment to compensate for its decline?
3) What is the most you can lose? (Generally this is 100% of what you put in, but remember that if you are using leverage you can go beyond 100%. Imagine futures for example and you are locked limit down if you are long. You can’t get out and may end up having to pay your broker even after your sell.)

Safety: Is this investment safe?
Well, safety is somewhat misleading. The cash in your bank account is safe as long as your bank doesn’t collapse, and if it does hopefully the FDIC will have enough capital to guarantee your account. But say inflation is at 10% and you are earning 3% interest your capital is depreciating at 7% per year. Yikes!
1) Under what circumstances would I lose a substantial portion of my capital — say 20% or more?
2) What would cause my entire investment to be worth nothing?
3) Can I lose more than my investment. (See #3 under Risk)

INCOME AND CAPITAL APPRECIATION: What is the investment yield?
Your investment can appreciate in 3 ways (sometimes a combination of a, b, c):
a) Price appreciation
b) Interest earned
c) Dividends

Also, there is a tradeoff between income and appreciation with regard to taxes. b and c provide immediate income with a tax liability, while a also provides income, but taxes are deferred until you sell thus generating income.

Chasing high yields means chasing a risker investment as the general rule is that the higher the yield the greater the risk. So, if a T-Bill is yielding 3% and a corp AAA bond is yielding 6% the corp bond has a greater risk of default. I’m not saying that the corp will default, but the possibility is greater. Also, with high inflation purchasing a bond at 6%, while inflation is at 12% means as I stated earlier that you are losing money.

1) Under what circumstances, if any is the investment likely to appreciate?
2) Under what circumstances, if any is the investment likely to depreciate?
3) In good circumstances for the investment, will the overall return — yield plus capital appreciation — help your portfolio?

Note about mutual funds: You want the fund paying the lowest yield. Any dividend paid simply reduces the price of the fund by a comparable amount. You also have to pay taxes on the dividend, whereas it could have stayed in the fund invested being compounded.

TRACK RECORD: How did this investment perform in recent years?
Investments go up and down, the economy expands and contracts. There is no written rule that says if it has been going up for the past number of years that it will continue to do so in the future. You may be buying at the top and selling at the bottom. The same may hold for an investment advisor. They may be hot, and by the time you invest with them they went cold.

1) What kind of economic climate should cause this investment to prosper. (IE: Inflation and Gold)
2) When the climate HAS existed, DID the investment prosper?
3) If this investment is for a balanced portfolio will it give you too much exposure to one category of investments?
4) If this is a speculation, do you think we’re heading into an economic climate favorable to this investment?

SPONSORS: Who things this investment is about to rise?
Nobody can predict the future! I don’t care what anyone says, but they can’t. All we have a various indicators, past events based on similar circumstances, and the moon!

1) Why is this person recommending the investment? Do their arguments make sense?
2) What do they believe it will add to your portfolio?
3) What will have to happen for their forecast to come true?
4) Do you want to bet on that event with funds you can afford to lose?

TAKING THE PLUNGE: How much should I invest?
Nobody can tell you how much to invest because we all have different objectives, and risk tolerances. I will say however that for risk management Van K Tharpe has some helpful information. One book I would recommend in this area is Trade Your Way to Financial Freedom.

Balanced Portfolio:
1) How much of the investment do I need to provide the proper balance against my other investments?
2) How large of an investment would overexpose me to some potential event?

Speculation:
1) The entire investment could be lost. How much can you afford to lose?

TAKE OVER CANDIDATE: Is this company a potential takeover candidate?
If you are acting on the possibility of a takeover or some other event materializing such as a product being successful… if it doesn’t happen there will most likely be a drop in its price as it failed to meet expectations.
1) Do you interpret the widely known information different from what most people believe?

Investing with the crowd isn’t much of a profit maker. Generally the price of the asset already reflects what is widely known. Therefore if something is out of favor or not on the radar screen of everyone, if it performs you could make out quite well. ie: where will the next bubble be? Can we say the green movement?

Unpopularity isn’t a guarantee of profits, but it is a prerequisite.

POPULARITY: If this investment is so good, why don’t I see it recommended in newsletters or Money magazine?
1) If you are discussing an off the radar investment with someone are they trying to help you decide if it is right for you? Or are they simply guessing that the investment will go up in price?

If the latter ignore the price — remember the future is unknown.

TECHNICAL ANALYSIS: Do the technical factors favor the investment now?
Technical indicators have a chance of being right or wrong. There are a vast number of indicators people believe in. Some may be correct due to the self-fulfilling prophecy. If enough people believe in them and use them to trade or invest then they will exist.

1) Is there something more interesting on TV that in the charts?

SUMMARY:
You must be able to define what you are trying to achieve. HAVE A PLAN! Without a plan you will be riding a very large wave without anyway out, only to later be crushed. To have a plan will enable you to ask the right questions. A plan also will enable you to evaluate what you see and hear. Lastly, you will be able to decide if an investment is in line with your goals.

–Most of this was a paraphrase of Harry Browne with a few of my opinions added in. Most of it is common investment wisdom, but alas from what I can tell most of us are looking for the Holy Grail. Van K Tharpe talks about the Grail… It isn’t what you think. There is no magic answer, there isn’t a system that is fool proof, and again we can’t predict what will happen with certainty. Good Luck!