Zeb's Hitchhiker's Vue 10/31/2013

I had a good day in the markets today, and I've had a very good month of October.  That is strange to me; indeed it is strange to the universe.  I've lived through a lot of chaos in the markets, and Octobers (remember black Monday 1987) were not very good. 

While I'm very systematic in investments, when I have a very short term trading profit, I believe that Taleb was correct - randomness.  Even long term profits are often random.

I'm out for this month, and have taken my portfolio to all cash.  The markets are still very overbought, and the uncertainty (and the Rand Paul announcement he would fight Janet Yellen is not helping) is rising.

Today in the boring times, I thought about why I write.  Why did I agree to start up the blog again? 

I do not write to sway anyone's opinions anymore; albeit I once thought my writing could make a difference. 

I write to remain with as little sanity as I have.  It keeps me from exploding in rage and despair.  It clears a howling madness that I barely keep at bay. 

For those who care and anyone else who might accidentally come by this, I write to bear witness of what is left of my conscience.  It is only by writing that I attempt to understand the world.  I question my own thoughts and beliefs.  I expand on my comfort zone, and sometimes reach way outside my zone (as I'm doing now). 

If I could learn and expand without writing, I no doubt would.  I've given it up in stretches, but then I receive no feedback from those smarter and more educated than I, I am not blessed.  Then I return, sometimes after some educated banker in NY tweaks my ire. 

And what of those who are less educated than I? 

Then I pray for wisdom, because some of the smartest people I know have little education but a VERY LARGE BUNDLE of COMMON SENSE.  The ability to deal correctly with their lives every day in the circumstance they are in; there goes I if I could - but I can't. 

Every day when I receive responses, I am thankful for what the person shared, even if they disagree (sometimes angrily).  And so I flow and learn, and the more I learn, I find the less I know.

Thursday, October 31, 2013

Halloween, is it a joke, or something really sinister? 

FOMC

The Federal Open Market Committee (FOMC) announced its stance yesterday.  Everyone of you know that QE infinity is still on, and there will be no tapering in the near term.

Here is what FOMC said:

"When the Committee decides to begin to remove policy accommodation, it will take a balanced approach consistent with its longer-run goals of maximum employment and inflation of 2%."

The interpretation by traders world wide?  As soon as the labor market improves, the USA will taper bond purchases.

Overall, the stock market exhibited its extreme rise in volatility, before settling back into some level of normalcy.  There was no rout, and even though the market settled lower, it was lower pretty much from the opening of the NYSE.  Unless you watch the market all day long, you would never know that the announcement caused an up move, a fairly large down-move off the high of that up move, and then a recovery to almost where the price was when the FOMC announced they were continuing to continue. 

From my perspective - the stock market found it a non-event, and the same for Gold and bonds.  (Yes Gold went down slightly, dollar went up slightly.  Bonds and notes went down, which suggests that investors world wide believe QE will keep the interest rates lower.)

Richard Koo, the Chief US economist for Nomura Securities believes FOMC is in a vicious cycle he calls the QE trap.  http://www.businessinsider.com/koo-says-no-one-can-refute-the-qe-trap-2013-10 

I've not read Mr. Koo or studied his work over time, but he has a very good point.  I've written about this previously in my newsletter, but Mr. Koo presents some very compelling graphics to support his point.

I can summarize his article as follows:

• ·         Initially, long-term interest rates fall much more than they would in a country without such a policy, which means the subsequent economic recovery comes sooner.
• ·         But as the economy picks up, long-term rates rise sharply as local bond market participants fear the central bank will have to mop up all the excess reserves by unloading its holdings of long-term bonds.
• ·         Demand then falls in interest-rate-sensitive sectors such as automobiles and housing, causing the economy to slow and forcing the central bank to relax its policy stance.
• ·         The economy heads towards recovery again, but as market participants refocus on the possibility of the central bank absorbing excess reserves, long-term rates surge in a repetitive cycle I have dubbed the QE "trap."

 Here are the facts, however.  Mr. Bernanke introduced "tapering" in June, and that bit of lip flapping caused a huge drop in the stock market.  Interest rates rose in the mortgage market to a level that threatened the housing recovery.  (By the way, the housing recovery seems to be dead.  This may have been predictable as it was not the common person driving the market.  It was the big investment houses that were driving the price up.  Arguably, there are places in the US where the demand for housing by people was high.  These were in areas where companies need employees as Oil and Gas production soared. ) Then it was thought that the Fed would taper in September, and stock market went down.  After the did not, the stock market skyrocketed higher. 

It would seem even lip flapping by the Fed will cause painful correction, and heaven help the markets when and if they taper.   If they ever really taper, then there will likely be a "crash" in all consumer goods, which in turn causes a down turn in nearly every interest-rate-sensitive sector - consumer goods basically.  In turn, the Feds will relax tapering again, and the economy will recover until the next round of tapering.

From an outsider's perspective, the Fed is trapped in exactly the same position as Japan was 20 years ago.  Japan 20 years ago, started a program to stimulate the economy.  After 10 years, they were stagnant, and young people could not get jobs to fulfill the need.  Then Abenomics have taken effect, and Japan went all out to devalue their currency, increase their exports and bring prosperity for all back into Japan.  So far, it appears if we look at all is that the current levels of QE in Japan are ineffective, but the long term costs to the people are going to be devastating.  Last night the Japan Labor Ministry reported.

If we (in great empathy I hope) look at the success of Abenomics on the general improvement in living conditions measured by the only metric that matters - wages - then Abenomics is a disaster.  The nation's salaries extended their slide marking the 16th straight month of decline.

Dear readers, if we consider what I've posted from Mr. Obama's comments on the middleclass decline, you will know that QE in Japan has not worked for the wage earners.  The key for Abenomics success is companies raising wages and employing more people.  It has not happened in Japan, and it will likely not happen here.  http://mobile.bloomberg.com/news/2013-10-31/japan-salaries-extend-fall-as-abe-urges-companies-to-raise-wages.html

Once leadership of a country goes down the QE path, then changing direction will be far more difficult (it appears) than it was to start the program.  Why was QE even attempted?  Due to the issue no 3 experts in economics or finance agree, may I suggest that QE was tried and supported because Greenspan was successful in managing what in hindsight appear to be minor recessions using monetary policy.  Stimulation via of easy money seemed to work. 

Did Greenspan's policy cause bubbles?  Irrespective of what criticism are leveled his way, his policy alone did not cause Bubbles.  The housing bubble had to be caused first by a policy change (and looking the other way on banking regulations) at the President George W. Bush level.  Then Greenspan had to provide the liquidity, and the banking regulations had to be set aside.  Banks then had to invest in ways that were never observed in history (not just in the USA, but in the whole global economy - particularly Europe).  The global financial catastrophe was not the result of one evil (or mistake prone) man.  It was not one company. 

What did cause all the pain and suffering (which China does not seem to be experiencing) globally?  A system of globalized finance, interconnected credit markets and over leveraged economies.  All this was inherently unstable.  If one was to read and reread Taleb's Black Swan, then we would very likely conclude that any baby economic event would turn into a disaterous "Black Swan" event - where "The disproportionate role of high-profile, hard-to-predict, and rare events that are beyond the realm of normal expectations in history, science, finance, and technology"  Nassim Nicholas Taleb 

Until one realizes in hindsight that the global financial systems were unstable.  Until this toxic mix of everything related to everything else that was highly leveraged through super derivatives was developed and enabled by technology, a sub-prime housing market in the USA would not have caused a melt-down in the global marketplace.  And one dark night it happened...  A bank in France said they could not price the value of the assets in the credit swaps. 

That was more like Gladwell's Tipping Point, as most bankers already were extremely worried over the debt that the world had created in a very short time period.  This was the little event that starts a Black Swan event.  On March 5, 2007 HSBC, Europe's largest bank says the US subprime market is unstable and the effect is on HSBC's company earnings.  Within a few days New Century Financial Corp, which specializes in lending to people with poor credit files for bankruptcy after a mass event of customer defaults.  The little bank in France that called "the emperor" has no clothes, is lost now in time.  It is too bad, because in many ways the analysts who were bold enough to point this out should be considered heroes, but if their names were known, they would probably be lynched. 

Since the current (and persistent) USA and Global predicament is the normal business cycle downturn, the current stimulus program has reached the end of the road. 

In order to get short-term interest rates low, the Fed has flooeded the banking system to the point that short-term rates are essentially zero.  However, this liquidity flood is not funding new bank lending. 

If you wonder why, then ask yourself what is the wage earner doing out there?   In general, the job market is not employing, even if the BLS (Bureau of Labor Statistics) says unemployment is going down.  Foodstamp enrollment has grown substantially.  Basically at the wage earner level (more than 80% of the people in the USA) has deleveraged through either paying off loans, or defaulting. 

In turn, the wage earner has cut back in spending as well.  This greatly worsened the economic crises of 2008. 

Then as one expects in supply side, the supply of goods must decrease as no one buys.  That leads to companies large and small to not borrow either.  Many public companies are sitting on piles of cash and excess production capacity -- supply and demand.

As I observe all this, I can't help but think the excesses of the US government over the last 80 years is coming home to roost.  We, the People, are going to have to pay the debts or default.  Of course, the argument goes that the USA can inflate the debt away, but that is not working out so well for Japan is it?

QE either ends up as excess bank reserves or seeps into the financial markets.  Neither event is likely to be effective in the economy gaining momentum that is self sustainable. 

In hindsight, dropping money from a Helicopter would have been much more likely to stimulate demand which in turn would have stimulated production.  

How to unwind?  It will be painful for the people.  The rich in the Presidency, FOMC, Congress and Senate do not get it.  Giving money to the rich does not stimulate the economy.  They (all of them) have devastated the middle-class and the poor wage earners.  Those classes of earners are not coming back anytime soon. 

It will not be pretty, but we must figure a way to unwind the Federal Reserve Tapering, and at the same time figure out how to pay off the debt. 

And if you think this will be easy, then turn to studying city government.  Detroit is not the only city with major league problems.  Just a little turn up in the interest rate, and the cities of this nation are going bankrupt - not just a few; many many many of them.

October 30, 2013

1. When is Halloween?  Oh well...

I think today I will provide several snippets.  What I really want to do is to suggest to people how to learn to invest.  Certainly there is no lack of people that will inform you how to invest.  Most of what is being told is bogus, and one comes to learn not to trust anything that Goldman Sachs, Deutsche Bank, JP Morgan, Bank of America, and so on provide as input.  I cannot even stress (in this blog anyway) how strongly I feel about this.  The whole banking sector is so against the vast majority of the people world-wide interest.  This of course, from my viewpoint includes the Federal Reserve of the USA.

FOMC (Federal Open Market Committee) started meetings yesterday.  They will announce nothing I suspect, and the markets will like that.

It may be interesting to look at speculations from the news in Binary Options marketplace as well as international news.

1. The Financial Times is of the opinion the Fed is going to begin tapering of QE infinity in December.
2. Wall Street firms are sure it will begin in March (or April) at the soonests.  
3. Society Generale thinks the Feds will increase tapering this month, and they are using the Retail Sales numbers in the USA and Europe as justification.  Now that is going out on a limb, and I doubt their money is where their forecast is.

Retail sales were extremely awful last month.  We have disruptions in the economy from the shutdown.  FOMC has all the ammunition it needs to raise the QE bar by a few billion (temporary you understand).  

Here is Fed Head Fisher:  "it would be hard to taper in light of the fiscal shenanigans."

Ha, that is plain as mud.  It very likely means FOMC is not going to do anything rash one way or another.  

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CANADA!!!  

I live on the Canadian Border, and I use to love to go to Canada (almost everyday).  I rarely go now as crossing the border (both directions) is a hassle.  The Canadians seem to be worried I will bring my pocket knife in, and oranges of all things.  The USA side is worried that I will bring in Oranges and drugs.  Sheesh... 

The reason for this blurb is that the new head of the Bank of Canada, Stephen Poloz is at odds with the Finance Minister.   

Mr. Poloz is a "trade side" supporter, which of course means he would support weakening the Canadian dollar.  Mr. Flaherty has spoken out strongly against QE for Canada, and seems to support the supply side. 

Yesterday Mr. Poloz in testimony before the MPs gave hints he would drop his tightening bias (which one could have guessed all along he would do since he is "trade side").  Dropping tightening because HE thought inflation was too low is a very poor excuse to show his true colors.  

Most of the MPs left confused on whether he would act independently of the Finance Minister in weakening the Canadian dollar.  Internationally, the markets may dictate what Mr. Poloz is actually able to do.  

To we observers outside Canada, we are all to familiar with the story Mr. Poloz told yesterday.  With all that talk of inflation being too low, the conclusion people "MUST" draw is that the Central Bank is the only ones with the knowledge to deal with trade problems.  Bankers everywhere are convinced (contrary to hundreds of years of evidence against) that they are the only ones that know how to manage the economy and their respective currency. 

However, we only have to look first at the USA and second at Japan to suggest that it does not work over very long term periods, it never has, and it never will.  Then look at Brazil, Argentina, and a host of others, and that does not work there either (meaning the central banks interfering with the currency in order to drive the economy).  If you disagree, please post and inform how it works, and be sure to use all the instances in history where fiat money that is inflated helps make an economy better.

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You can fool some of the people most of time, but Corporations can fool all the people all the time (until they can't)

September Retail Sales unexpectedly fell .1% which reversed an increase of .2% in August.  In addition PPI (which measure wholesale inflation) fell.  The report focused on a drop in consumer food prices.

Somehow we are all fooled, and the most fooled are the poor and middle class.  If wholesale prices are falling, we would think consumer prices would be falling.  Food prices are stable, but here is where corporations are fooling every one (food, clothing and any basics).  They are shrinking the size of what you get for the same price.  Or said another way what we can buy for current dollars is less than it was 4 years ago by a significant amount.

All that shrinking size for the same dollar is inflation.  It is all there before your eyes, but you don't hear about it in the papers, the TV or even radio.  However, it is inflation hidden from view.

If that kind of inflation was being measured and reported, people would be UP IN ARMS.  But they are not because that kind of inflation is felt NOT by Politicians WHO MEASURED AGAINST MY WEALTH ARE ALWAYS EXTREMELY WEALTHY (No exception).

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Government Motors (otherwise listed as General Motors)

Reuters is reporting a story (kind of on the back page so to speak) about a Congressional Report on General Motors.  I can't help remembering how Mr. Obama pumped his fist when GM paid off part of their loan with another government loan.  Haa!  http://www.reuters.com/article/2013/10/29/us-autos-gm-treasury-idUSBRE99S0WL20131029  

$9.7 billion loss on General Motors bailout

"The U.S. government has booked a loss of $9.7 billion on the nearly $50 billion bailout of U.S. automaker General Motors, according to a quarterly report to Congress on Tuesday.
In 2009, the U.S. Treasury extended $49.5 billion in loans to GM in exchange for $2.1 billion in preferred stock and a 60.8 percent equity stake.
Treasury has since whittled down its stake in GM through a series of stock sales. Those sales have all taken place below the price Treasury needed to break even on its GM investment, resulting in the loss, according to Tuesday's report from the Special Inspector General overseeing the $700 billion Troubled Asset Relief Program.
Treasury has sold its preferred stock and reduced its equity stake to 7.3 percent. Treasury owns 101.3 million GM shares as of September 26, the most recent date available.
The U.S. government has said it plans to sell its remaining GM shares by April 2014. Some analysts said Treasury could even unwind its position by year end.
The exit of Treasury will eliminate the stigma of government ownership that has hovered over the automaker since the bailout, which prompted some critics to dub the company "Government Motors."

I just have to shake my head readers.  Oh, well, the Labor Unions were kept happy for a while.  

And then:

"To inform people is hard slugging. Everything is lined up against the public being informed, or the policymakers for that matter. News is contaminated by its service to special interests and hidden agendas. Many scientists or their employers are dependent on federal money. Even psychologists and anthropologists were roped into the government's torture and occupation programs. Economists tell lies for corporations and Wall Street. Plant and soil scientists tell lies for agribusiness and Monsanto. Truth tellers are slandered and persecuted. However, persistence can eventually win out. In the long-run, truth sometimes emerges. But not always. And not always in time."  Paul Craig Roberts

  

Wednesday October 29, 2013

ObamaCare Systems Issue

I've worked in the computer field for all my adult life.  I refuse to rejoice in other people's problems.

Yes, the ObamaCare systems have problems, and that is causing significant pain from President Obama on through the IT.

I have this observation for your input (if you like).  I've never met anyone in Information Technology that was not overly concerned about the systems they were working on.  These are not teenagers who care nothing about consistency, accuracy and errors.  They are humans that make mistakes, and most of the time will work very very hard to correct those mistakes.  

1. People want to succeed, where success in IT is a working system with minimal problems.
2. People will work around the clock to solve their problems. More often than not this leads to mistakes that cause other problems (unforeseen consequences).  Traders (and Investors) know that once emotions (like fear) enter the picture, the mind becomes irrational.  Mistakes, devastating mistakes, are made.  
3. More money given to people (who are usually not motivated day to day by money - unlike many of the rest of us) will not solve the issue.  And it is also rare to solve the problems via more people.  The people who built the system know the system better than anyone else.  

Having been an architect and programmer in very large systems (but nothing the size of the ObamaCare systems), there are huge technical issues that must be solved.  For example, a large system that requires update capabilities will have record locking issues, and if record locking is not accomplished down to the record / column level, computer people know they can lock out whole sections of the database.  Of course, we know after many years how to solve that issue; until?  Until the problem is locking at the object level somewhere above the database.  

I have no idea how the ObamaCare system was architected - where architecture means, Business, information, and technical architecture.  If you are unaware, then simply, a system at run time is a full interactive across process, functional, and technical components.  They do not work in isolation even if the system was architected  for components to work in isolation.  This means (to me) one could test a component and it works fine.  Test with 100 interactive components, and it does not work.  

It appears from reports that security is a major issue for the ObamaCare system.  If that is true, then the system should be removed from use until that is solved.  There is way too much individual information that would be useful for the bad guys.  Stealing your identity would be extremely lucrative.  That means ObamaCare has to have world class security because it is a government program and every single Chinese and Russian hacker is going to try to get into the system.  Therefore, when an architect builds such a system, Security becomes the number one principle (and concern) in the system.

Now here is why...  Because Security is not part of functionality.  Security affects every single layer (or component of the system), and to change the design after the fact has a high probabiliyt of causing catastrophic change to the whole system. Possibly, no reader of my blog understands how much trouble can be caused by lack of security at some level. Rarely if ever have I found an executive that understands (or cares).  They just want it to work. If security is designed and implemented incorrectly, then it affects every single log-on in the system and anything to do with log-on security.  But security only starts there.

We are told the Government has spent $634 million, and they will likely spend much more to fix all the issues.  A system as large as ObamaCare requires a design that will handle distributed computing.  Disaster Recovery requirements are critical.  Last week the system crashed, and 14 states could not operate.  This is another design principle.  These principles are part of design (architecture).  

I know you do not what to think about that problem, but that system has to handle a user logging in from anywhere in the world, authenticate them (if they have created and account), and route them.  That is a lot of single points of failure to design around before the user even gets to doing useful work.  

The point is, there are many very difficult computer science and engineering problems with a system that must support millions upon millions of users every single day.  My best wishes go out to the people, as I've been there.

Nobody likes stuff that does not work, however. And so far the rollout of Obamacare’s health insurance exchanges make the Facebook IPO look like a gigantic success.

On the other hand, executives are responsible for systems that do not work.  While it is painful, they must be willing to take the system off line until they are sure the problems they know about are fixed.  The Democrats can blame it on the Republicans, but in the end, Mr. Obama is responsible.  Now he will find that winning on implmenting ObamaCare over the Republican shouting over it, is not a game.  No body is winning, and this fiasco is causing harm to Mr. Obama as an executive.  Please do not rejoice over that either.  

If ObamaCare was repealed (which it will not be), conservatives should/could rejoice.  Do not rejoice where you may think it will cause ObamaCare to fail.  IT systems do not on the whole cause businesses to fail, and with the amount of money the Government has, IT will not cause Obamacare to fail.  The systems will cause consternation and anger at all levels, there is no doubt what-so-ever.  However, their systems may cause Obamacare to be delayed if the Democrats can find a way to spin the story such that it does not cost them in the 2014 elections.  

In hindsight, there are likely only four corporations available to the US government that could have designed and built such a system in such a short time-frame: Google, IBM, Amazon or Microsoft.  This does not mean their normal consulting arms could have done it either. My experience with Microsoft consulting is it could not have built this system, and it is highly unlikely that IBM's consulting arm could have either.  The second tier corporations would have been Oracle (with BEA and SUN), SalesForce, and a few other extremely large SaaS/PaaS successes.  

To the systems people, I empathize with the your problems.  To the President of the USA - delay Obamacare until Google or IBM concurs it will work.  That may take a good long time in the context of human pressures (a year or more), but every one of us must be assured the system is secure and accurate.  

THERE IS NO ROOM FOR ERRORS - NOT ANY ERRORS - identity theft, lost records, information that is shared accidentally, and so-on.  We turn to you Mr. President, to realize that a huge complex system like this cannot be used by We, the People until we have those assurances.

More Troublesome for Obamacare than IT

White House spokesman Jay Carney admitted Monday some Americans won't be able to hold onto their current healthcare plans under Obamacare — despite the president's 2009 emphatic promise "if you like your healthcare plan, you'll be able to keep your healthcare plan. Period."

"So it's true there are existing healthcare plans on the individual market that do not meet those minimum standards and therefore do not qualify for the Affordable Care Act," Carney said in response to a question about an earlier remark by David Axelrod, a senior adviser to President Barack Obama during his first term, the Weekly Standard reported.

What the president said and what everybody said all along is that there are going to be changes brought about by the Affordable Care Act to create minimum standards of coverage, minimum services that every insurance plan has to provide, so that an individual shopping for insurance, you know, when he or she purchases that insurance, knows that maternity care is covered, that preventive services are covered, that mental health services are covered, that the insurance policy you buy doesn't have [an] annual limit or a lifetime limit, that there are out-of-pocket expenses capped at a maximum level, both annually and for a lifetime."

The new requirements have prompted some insurers to raise the premiums — dramatically in some cases, according to the The Washington Post — for people who bought bare-bones plans on the individual market.

Why is this not disturbing to more people?  I just sigh...  I don't know why there are not marches everywhere; civil unrest everywhere; and hope that we can clear up the political fiasco before blood is spilled.   

From my observation, ObamaCare has been an obfuscation from the very beginning from things being call fines (instead of taxes) to service costs that are direct taxes as stated by the Supreme Court. 

  More from the news:  (all this comes from an NBC report with quotes NBC received from the Washington Post)...

"Remember: The President didn’t say if you like your plan and we approve it you can keep it," Stewart wrote, the Post reported. "He promised that if you like your plan, you can keep it, period— “no matter what.”

Yet the NBC report said the government knew that wasn't true, saying that buried in regulations from the July 2010 law was an estimate that because of normal turnover in the individual insurance market, “40 to 67 percent” of customers will not be able to keep their policy.

And because many policies will have been changed since the key date, “the percentage of individual market policies losing grandfather status in a given year exceeds the 40 to 67 percent range.” 

Monday 10/28/2013

I spent the weekend thinking about Totalitarian Governments.  I was told by a family member that some of our family members are considering that a Totalitarian Government may be the only solution to our problems.  This upset me greatly, for no one (not even in a Totalitarian Government) should want to be governed by Totalitarianism.  However, what really upset me is that the Government of the USA is so close to being a Totalitarian Government while the vast number of citizens still believe in the facade of democracy.

That is discouraging to say the least.

Changing away from the negative to the positive.

There is a perfect formula to avoid losing money in the stock market.

As my newsletter subscribers know, I impress and reiterate the importance of having the "big picture" in Global Economics.

I contend, we should read and discuss all the macro stuff gong on, the Federal Reserve (which all attention is on this week), tax laws, Obamacare and interest rates.

Taleb, author of the Black Swan, suggested that when investing we forget all the marco views.

Then it follows that one should look for great businesses (in the US and abroad) trading at bargain prices, irrespective of the macro view.

This of course, is the Warren Buffet viewpoint.  Mr. Buffet says he and his business partners have never discussed the economy.  The company just buys bargains.

Taking this view is a long term investment strategy, and it also takes GREAT EMOTIONAL CONTROL.

I submit we must still have a global view in order to understand how to allocate risk across our portfolio.  However, when you find a great business at a bargain price, then do not let the macro issues cloud your judgement.  

I won't go into how to find these companies, but they are always right there for anyone.  They are not the companies that are glitzy, with skyrocketing stock prices.

Of course most investors don't follow this line of reasoning, and if they do, they likely will fail to hold their investment when the whole stock market goes down.

Recently, the USA government shutdown fears caused stock prices to fall.  All of a sudden, the big companies who pay excellent dividends over many years became cheap in relationship to small cap stocks.

Often, when discussing investing with the common person (friends and family) they lack a systematic way to invest.  They do not know how to find an investment (except by hearsay).  They do not know when to enter. They have no tactics for controlling risk and understanding how much to invest with the risk, and they don't know when to exit.

Well, dear readers, there is no magic bullet to any of those issues.  What one finds when they read long enough is that every investor needs a trading plan.

Exiting an investment seems to be the hardest emotional issue (for me and everyone I know).  Exits seem to be pretty arbitrary, but the common investor would be well served by have a stop loss.  By having a stop loss when entering, you know the risk you are willing to take.  This "risk" then tells you how much you should buy of any asset.  Does that make any sense?  If not, comment, and I will provide you with a simple calculation to calculate your position size.  

However, my newsletter subscribers often take me to task about how they might automate trailing stops.  In the stock market, most sophisticated trading software will allow you to set trailing stops that are good until cancelled.  These are often based on some percentage of price.  For those that do not have software like that, Tradestops.com provides a service where you enter your positions into TradeStops.com system.  Every time a stop is hit, they send you an email.  The basic service costs $149 per year.

China (as I've wrote about in this blog) has both opportunity and huge risk. One is tempted to invest in Chinese companies.  However, Chinese accounting standards are not transparent and company reporting (as well as government reporting) is prone to fraudulent practices. I suggest it is best to invest in an ETF (exchange traded funds) that specializes in purchasing the best companies.  Your job would be to set up entry, sizing and exit strategies for the ETF (not the companies who you cannot know if they report fraudulently or not).

In many ways at this point, the US Stock Market is overly exuberant and titillated about Yellen taking over the Federal Reserve.  She is seen as someone believes in more stimulus - not tapering.   There is significant reasons to invest in stocks in the USA and Europe as the economy improves.

But the perfect formula?  Invest in large undervalued business; for example Intel.  Study their financial statements (boring I know), and find those that are undervalued.  Read "The Intelligent Investor" by Benjamin Graham.  Mr. Graham influenced Warren Buffet, and there is much to learn from Mr. Graham's book.

Best wishes to you.

When you think about supporting some person who is touting a Totalitarian form of government, please remember this statement from Winston Churchill:

“We can always count on the Americans to do the right thing, after they have exhausted all the other possibilities.”

Thursday, 10/24/2013  Employment Data

I was going to blog about why I own gold.  I still may, but for this post the employment data was not good.  In the old days, before QE, this would have been a large drag on the stock market, and the market was down slightly.

Employment Data Yesterday

	Prior	Prior Revised	Consensus	Consensus Range	Actual
Nonfarm Payrolls - M/M change	169,000	193,00	185,000	155,000  to 240,000	148,000
Unemployment Rate - Level	7.3 %		7.3 %	7.1 % to 7.4 %	7.2 %
Average Hourly Earnings - M/M change	0.2 %		0.2 %	0.1 % to 0.3 %	0.1 %
Av Workweek - All Employees	34.5 hrs		34.5 hrs	34.4 hrs to 34.6 hrs	34.5 hrs
Private Payrolls - M/M change	152,000	161,000	184,000	154,000  to 245,000	126,000

"The payroll data and household numbers were mixed in September at the headline level but soft in detail. Markets were looking over their collective shoulder at the Fed. Total payroll jobs in September advanced 148,000, following a revised increase of 193,000 for August (originally up 169,000) and after a revised gain of 89,000 for July (previous estimate was 104,000). The consensus forecast was for a 184,000 gain for the latest month. The net revisions for July and August were up 9,000."  ECONODAY

The Obama Administration month after month is telling the readers in the USA that fiscal policy is fixing the jobless rate.  That the USA is not in a recession, and we are moving to "fully employed" (which the Federal Reserve has defined - arbitrarily it seems - as 6.5% per BLS (Bureau of Labor Statistics). 

Something seems terribly out of whack as the people applying for Welfare type programs continues to increase substantially.  The number of jobs being created is not even enough to employ the young people coming into the labor market.

As I've talked about in the blog, QE is transferring money from the lower layers of the economic stratum to the uber-rich.  

With the data being so bad, Wall Street bought the equity markets, driving the markets to new heights.  Yesterday it rested a bit, and today (as of 6:36 PDT) the market is above yesterday's close.  

Why is this?  Well from an outside observer's view, Wall Street sees bad news as good news for the stock market.  The rational (if it is rational) seems to be that the Federal Reserve will have to delay tapering.  Of course, the decline in the number of unemployed from 7.3% to 7.2% should be disconcerting. 

From Goldman Sachs: "this report makes it more likely that the Fed pushes the first reduction in the pace of its asset purchases into 2014... we think that March is the most likely date under our economic forecast."

What is very disconcerting to someone trying to understand the big picture is the Labor Force Statistics. (I attempted to put the graph here, but at the time of posting, Google has a problem.  Here is the link to BLS:  

http://data.bls.gov/pdq/SurveyOutputServlet

As we can observe, the labor force participation rate is back where it was in 1978. Does this not indicate that something is odd about the Obama Administrations communication that jobs are being created by the millions?  Would not the labor force participation rate be increasing if real jobs were being created?  

Possibly (actually factually) the unemployment rate (which is just those on the extended unemployment program) is dropping because people are dropping out of the work force; not because they got jobs.  BLS reports the U-3 number, and this is the number that is the HEADLINE number.  The U-6 number is the unemployment rate the BLS uses as the broadest unemployment measure.  This includes those forced to work part-time because they cannot find full-time employment.  Actually, if one was to go back to the '70s and '80s, and use the calculation for U-6 they used, the unemployment rate would be higher yet. 

The official U-6 number is 13.6% (although this is falling which is good news - not for Wall Street, but for my fellow man). 

What is not good news, is that unemployment should be falling rapidly if we were truly out of a recession.  Not only should it be falling, people on welfare programs (foodstamps, Social Security Disabled, full Welfare) should all be falling, and exactly the opposite is happening. 

Then why would Wall Street be up approximately 150% since the low in 2009?  As others have concluded, the Federal Reserve of the USA QE has driven asset prices out of sight (and it is not only in the stock market - it is also housing). 

 The results for the lower economic strata (below upper middleclass) are the value of the dollar has decreased, wages have decreased, and almost every consumable is more expensive since 2009.

Well, that is the way I see it. (And as the quote from Mr. Obama yesterday show, he also is beginning to see it.)

Post Office $5.6 Billion Default Raises Urgency of Reforms

The third default on the down-payment in just over a year underscores the necessity of much-needed reforms for the beleaguered Postal Service.

I don't have to tell you this is another piece of bad news, as the Post Office is part of Government.  This will not only require stamp price increase, but a bailout from the taxpayer.

This Just in For What it is Worth:

Since Congress reached a deal to suspend the Gov't's debt ceiling until Feb (just one week ago) the Treasury Dept has racked up $375 Billion in new debt. IF they continued on that pace until February, our national debt would reach $22.7 Trillion.

Wow... adds up quickly does it not?

Come on citizens...  This is crazy even for the most liberal socialized citizen out there.

Wednesday, October 23, 2013

“’The folks in the middle and at the bottom haven’t seen wage or income growth, not just over the last three, four years, but over the last 15 years,’” the president said.”

— http://money.cnn.com/2013/09/15/news/economy/income-inequality-obama/

Good morning Readers: 

It is a wonderful fall day outside. I have so many things to write about, I can't decide.  I'll address socialism, and maybe tomorrow I will tell you why part of my asset portfolio includes gold (and silver).

President Obama's statement on the middleclass is really interesting.  When the Democrats say they are for the poor and at the same time, the middleclass, I can't help but wonder what that means.  

Folks, I do not know the meaning.  Socialism finds it very hard to support even the idea of a middleclass as we've observed "middleclass" in the USA.  Are there any readers that are Democrats that believe the Democrats are Capitalists and they believe that free market driven by demand and supply is the way to build middleclass?  And why would socialists even strive for a middleclass, because ultimately under Socialist philosophy every one would have equal assets to everyone else (no economic layers).  (Where assets include one's income, since in fact income is an asset.)  

Sadly, as an observer over 50+ years of adult life, the whole world (not just the USA) is moving toward Socialism even though Socialism is achieved through different forms of government which includes Communism, Nazi, and others.  I will refrain from writing and supporting a thesis about how these always turn into Totalitarian states.  I will point out, the difference between our forefathers of the USA and Socialism turned around the idea of individual rights, verses only the state has rights, and grants privileges to its people.  At the heart of individual right of the USA is property right.  (You can read other things in this blog to show you how I believe property rights no longer exists in the USA, destroyed by all the rulings of the Supreme Court over time.)

Please, please read what I think our Forefathers set up.  

They established the right of the individual which meant strict enforcement of property rights; property rights that could not arbitrarily be removed by the ruling party of the country.  

A USA citizen could count on property rights to protect their capital investment.  Remove that right, and you do not have the country our forefather's envisioned.  

The world "Capitalism" brings up an emotional picture of "The Sum of All Evil", and if you have watched USA movies for long, you know that the "BAD" guys are the capitalists. (Unfortunately, our bankers have proven the movie story's point - bankers are bad dudes and they never go to jail.)  Even the opponents of Socialism are dominated by socialists ideas.  If I may be so bold (and timid at the same time), I will point out to you George W. Bush push to sub-prime mortgages is where what appears to be a conservative Republican, is shown in practice as no more than liberal financial Democrat, with conservative moral values.  (A wolf in sheep's clothing among the conservative people. The destroyer of liberty and individual rights as no President before him.)  

The women on the street who see little or no difference between Democrats and Republicans are correct.  Both parties would seem to argue (as shown by actions not rhetoric) the system of economic and social organization which is based on private property in the means of production does not SUFFICIENTLY consider the interests of the community, and ownership serves the purpose of only a single strata.  In turn, this ownership limits productivity of the country.  

This philosophy (which I am asserting has totally penetrated the USA, Europe, Canada and all the world) demands (with support from various "social-political" and "social reform" movements) interference in all fields of economic life.  No matter what party rules this country, the only difference in the attitude is what program(s) they are going to force the people through taxation to endure. 

Then you will not have to study very deeply that these programs of either party are the fundamentally accepted principles of the Socialist Program.

May I then conclude (with certainly arguments against this position will be forth coming by you), that Socialism is not confined to China Communism (and Communism in general), or the members of the numerous socialists parties in the USA and the world.  Look no farther than Germany, and understand the current leaders of Germany come from East Germany (Communists), and their party the Christian Democratic Union is made up almost exclusively of parties that have "socialists" in their name.  


All those parties mentioned are socialists who consider the socialistic order of society economically and ethically superior to that form of society based on individual rights and private ownership as the means of production.  For one reason or another the current rulers will make a temporary compromise (as Angela Merkel has done) between their socialistic ideal and the specific interests they believe themselves to represent.


If we broadly accept this definition of Socialism, then we would have to conclude that the vast majority of the people in the USA and even more so in the world are Socialists.

Those who confess the principles of private ownership as the means of production ARE FEW INDEED.

Just suppose (for discussion sake only) that you were fed up with the USA socialist state, and you want to leave for a country that is based in individual rights.  Where would you go?  What government that is currently out there supports the idea (to a fault) that individuals have rights that supersede the right of the state to usurp his or her property?  

Return for a moment then to Mr. Obama's statement about the middleclass. The assertion was that the middleclass (and the poor) have not seen any wage increases in the last 15 years.  I suspect he is correct, although I cannot point to any scientific reports on that subject.  We do know (factually) that people asking for and qualifying for Foodstamps has exploded since Mr. Obama took over as President.  

How can there be any stratification (poor, middleclass, rich) in a Socialists state?  How can the government "force/plan" any movement at all between these strata if production is owned by "private enterprise"?   May I suggest, if one is a Socialists, one has to come to the conclusion "private ownership" is bad, and only the government knows how to allocate resources. 
While I won't go into a long diatribe here, think about Communist China.  Why have they privatized so much of their industry?  Why is that, and why is it that is so successful in the world market place?  Hmmm... curious-or, and curious-or

ObamaCare (Mr. Obama's signature law - Affordable Health Care), is Socialism controlled by "private insurance", "private health care groups" - hospitals, etc. The approach is not completely Socialism, probably because even the middle of the road democrats would not have voted for the "single tax payer" system. Of course, I would argue my assertion here could not be proved, and even if you talked to Mr. Obama directly, he would not be able to articulate why the AHC was written the way it was.  However, it is a comprise of the full Socialists ideal; a single payer system.  

While my diatribe is TOOOOOOO long for a blog entry all ready, it may still be valuable to discern how the consumer (not the layers of economic classes) have been faring under Mr. Obama.  

What we would observe is that Mr. Obama's policies (really started by George W. Bush) have been subsidizing the uber rich at the expense of every other economic class.  "Obama admits 95% of income gains gone to top 1%" http://money.cnn.com/2013/09/15/news/economy/income-inequality-obama/

It would seem Socialists compromise (if that is really how to view it) has led to a reverse Robin Hood: steal from the poor (through taxation and inflation and very low return on their investment) and give to the uber-rich (not even the upper middleclass).  

The lower layers of the economic class have very few assets they own, and they become poorer as the real value of their wages decline and their (stress "their") cost of living increases.  The Federal Reserve's (with the Secretary of Treasury blessing) printing of money does not create wealth.  It is a covert and obfuscated way of wealth redistribution from the lower layers of the economic class to the uber-rich.  
How have prices reacted to QE since 2009?

1. One gallon of gasoline in 2009: $2.50 - One gallon of gasoline in 2013: $3.50 A $1.00 increase, or +10% annual price inflation.
2. One pound of coffee in 2009: $3.66 - One pound of coffee in 2011 (latest data available): $5.23.   A $1.57 increase, or +21% annual price inflation. http://www.ico.org/new_historical.asp
3. Cost of health care in 2009: $16,771 - Cost of heath care in 2013: $22,030. A $5259 increase, or +8% annual price inflation.  http://www.milliman.com/mmi/
4. Real average hourly earnings 2009: $8.50 Real average hourly earnings 2013: $8.78  A $0.28 increase, or +0.8% annual price increase. http://www.bls.gov/news.release/archives/realer_08142009.pdf

Atlas Shrugged...














Well, no matter what side of the political debate one sits, we have to side with Mr. Obama's statement, that the gains have gone to the uber-rich.  

10/22/2013

I semi-promised to start up my blog again.  Face it  Ken...  You go through cycles of what you think is worthy to consider by the readers, and worrying that what you say is not valuable to anyone.  Even worse is when you think you have no credibility to say what you believe. 

So today, I will write a blog entry, and over the next few days and weeks, I will observe how it goes.

Yesterday I wrote an interim update to my newsletter.  I stressed China.  Today I will add commentary to the bullet points I put in that newsletter.

China

What is happening in China and China to the outside world is huge, and it appears to an outside observer that the Obama Administration is totally clueless on how important what is going on is to the competitive position of the USA as a country.  However, Ken, answer the question of why as a commentator you should be concerned about the competiveness of the USA?  Answer: Because I'm a USA citizen.  Because I am sixth generation USA born.  Because I was brought up to believe in Christianity and the belief in freedom of religion, and this was one of the few countries (until recently) that practiced what it preached about separation of church and state without persecution.  Because if my country falls, I fall along with my family along with all my family.

When one goes to China mainland you are struck that there are no European or races from European descent visible.  That is certainly true as I toured the factories just north of Hong Kong, and the financial districts of Shanghai and Beijing.  Racial prejudice in countries outside the US is very difficult to overcome.   They of course do not call it racial prejudice, but that is only a difference between how country leaderships want to define racial discrimination, exacerbate it, and set up programs to deal with it.  The USA may want to accept all foreigners and integrate.  China (nor Japan) want to do copy the USA on that. 

Of course, what the USA needs now is two-fold - 1. manage our debt 2. Increase jobs.  Both of these "huge?" areas have humongous headwinds as the USA faces competition for those jobs outside the USA.  Greenspan is proving to be wrong when he said countries that received our jobs would soon come to equal levels of expenses such that the jobs moved back.  That is so wrong on so many levels it is incredibly naive (I think) for someone at his level.   None-the-less, putting barriers in place to protect jobs does not work either, but that is a subject for a long discussion in my newsletter.

General Comments

I will not rehash what I put in my interim update.  I'll make some general points.

• ·         The Chinese are staking many small steps to remove the USA dollar as the standard for settling International Trade.  These steps accelerated with the USA debt crises.  (For We, the People, the foreign affairs and economic leadership of this country is non-existent.  Each party blames the other, when our very survival as a country competing in the Global Market is at stake.)
• ·         Last weekend China and the UK agreed to "direct conversion" between the Yuan and pound sterling.  The UK then is added to the list of countries that have removed the relevancy of the dollar in International Trade.  
• ·         To add to that line of reasoning, London in the UK will be set up as currency conversion center for Europe.  Not only that the BOE (Bank of England) announced they will allow Chinese banks to set up wholesale branches, and in a reciprocal process the UK will set up wholesale branches in China. 

o   (Note: For those who are not familiar with the banking sector, the big five in the US have 3 -- I don't know what to call them - divisions?.    These are Retail, Wholesale and Investment banking.  Wholesale banking is the set of services that deal with large finance (big business), international trade finance business, institutional customers [such as pension funds], and (but not limited to) services offered to other banks.)

• ·         This is HUGE, HUMONGOUS dear readers...  This is something good leaders of the country would educate the constituency on the consequences, the plan to compete, and how the plan would be put in place.   
• ·         The European Union has also signed a Currency Swap Deal with China.  That leaves only the Swiss Franc as one of the majors that does not have an agreement in place.
• ·         Soon, Canada and the USA will also sign a swap agreement with China.  The US will drag their feet, and they will push Canada not to sign an agreement.  In general, why would the US help China remove the US dollar as the Reserve Currency? 
• ·         The US will give in because the Chinese have become rich, and the US is in debt so far it is very difficult to believe that it won't just fall into the abyss as every other country who has had or has fiat currency devalued by debt.  In other words, when you are sitting at the poker table with someone who knows how to play (and assuming you know how), and that someone has 10 times the amount of money as you, you will lose over time unless lady fortune smiles upon you.  Of course, if you have ever gambled, you know lady fortune is fickle, and she changes places with the player in power. 
• ·         Lack of competitive power is what happens when a country, state, local, business and people get into too much debt.  You know that.  I know that. The only ones that do not know that is The Head of the Federal Reserve, The Secretary of Treasury, All the Congress (except the Tea Party), and the President of the United States. 
• ·         We are sitting here watching China move into everything across the emerging countries.  My perception is that no one in Washington D.C. is doing anything about it.  I'm sure there is some Bureaucrat 70 layers down that is wringing her hands, but if the Central Bankers are worried about China's competitive position (and its effect on investment and employment), they are certainly not talking about it.  I find it hard to believe (and so far almost everyone who cares concurs to some degree) QE is NOT helping anything at this point. QE is just keeping the country's nose above water, and the jobs report this morning shows it.  (Discussion of that report will be left to the talking heads on TV.  If you watch the liberal bent talking heads, it will be blamed on the Republican's shutdown of the government.  If you listen to the conservative talking heads, they will just shout "we told you Obama's economic plan is not working.  All this liberal/conservative BS is not helping.  We are freaking noncompetitive and becoming more so every single day, and not one of you so-called-leaders are giving us a whole-listic plan.  (OK, Ted Cruz fans... While I can't study his plan, apparently he has one, but from what I heard of his plan, I would suggest he go back to Texas and suck up to George W. Bush.)

·         Mr. Alasdair Macleod of goldmoney.com on China:  Behind this turn of events is a weaker dollar," writes Mr. Macleod -- pointing to several developments we covered last week. "There is little doubt that as a brand the U.S. dollar has taken a beating. Not only did the U.S. suffer the indignity of airing its washing in public, not only did a ratings agency threaten to downgrade U.S. government debt, but also the Chinese, through their official news agency Xinhua, are calling for an end to dollar and U.S. supremacy. They have backed this up by freezing New York out of the internationalization of the renminbi, choosing London instead. The full implications of all this have not yet been reflected in financial commentary and will no doubt be debated in the coming weeks."

·         

      One can observe the results over time as gold continues to rise and the Dollar continues to fall in value against every currency but Japan.  This set of events (the dollar's fall in value and the gold's rise) is fairly understandable in the context of currency "value" where value in this case is what the US dollar can buy in terms of products abroad.  (Please note: I'm fully aware that gold is vacillating from its bottom 1251 to currently about 1340 per ounce.  If one looks at a daily chart, while that move means a lot of money to some of us, price is chopping between 1366 and 1300 approximately. However, the current rise is impressive off the bottom, which came about after the temporary debt resolution.)

Overall, the Obama Administration's leadership in foreign affairs looks disastrous for long term competitiveness.  What has changed since the USA led the world is that we have gone from a "lender" to the uber-borrower without ever considering there would be a pay-back someday from some competitor out there.  If any reader believes that the USA military can control the world they are sadly wrong, and it becomes even more wrong as the dollar devalues and the price of purchasing military products rise; along with no money in the budgets to let it rise.  Common sense of the common woman/man in the street realizes in general you have to have a lot of money to support the military, and while the common person may not know where the military gets all that stuff, they know it must get more expensive as the dollar devalues.  It all just gets so muddled up with all the other things.  Conclusion: our days of using the military to bully our way into guarantying cooperation is nearly over as Russia and China move to protect themselves from what they view as a threat to their sovereignty .