Blowing Gas

Things sure do change.  Several years ago the personnel working the freeway off ramps in Long Beach, California, were immigrants from Mexico.  They were selling oranges and roses to working stiffs on the way home from their cubicle jobs.

These days you’ll find recent college graduates, who haven’t broken into the professional world, strumming guitars for pocket change.  Obviously, it’s plain bad luck to graduate from college, with a bunch of student loan debt, at the very moment a 60 year economic expansion runs out of gas.  But if the economy sputters long enough, people will take to doing strange and dangerous things for money.

About a decade ago, while visiting several in laws – and outlaws – in Mexico City, we witnessed some remarkable street corner performances.  While at a stop light, for example, one shirtless lunatic wandered out in front of the car with broken glass wrapped in a towel.  He then quickly laid the towel and the broken glass on the asphalt street and rolled around on it. Continue reading

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The Malady of the Federal Reserve

Ben Bernanke and his pals at the Federal Reserve are meeting today to come up with their next plan for manipulating credit markets.  Tomorrow they’ll let us know their grand designs for monkeying with the money supply and interest rates.  Of course, you can count on more money at cheaper prices…it’s what they always do.

If only more money equaled more wealth.  Then we’d all be rich.  After all, the Federal Reserve’s added $2 trillion dollars to its balance sheet and pushed the federal funds rate to practically zero since mid-2008.

Unfortunately, more money does not automatically equal more wealth.  Sometimes more money equals less wealth.  In fact, the typical American family’s net worth fell 39 percent between 2007 and 2010.  What gives?

The fact of the matter is more money, by way of cheaper credit, does not equal more wealth.  It equals more debt.  More debt, especially when used for consumption, equals the exact opposite of more wealth; it equals less wealth. Continue reading

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Are You Ready?

There are fantastic abnormalities taking place in front of our very eyes.  The 10-Year Treasury Note is yielding just 1.58 percent and gold, despite a recent pullback, stubbornly sits above $1,700 per ounce.  In other words, people are simultaneously expecting deflation and inflation.

Then there’s the stock market.  One “analyst” says it’s poised for a fall.  Another says it’s consolidating for its next great run up.  Both are right – and wrong – as far as we can tell.

The S&P 500, if you hadn’t noticed, is below where it was at the turn of the millennium.  Back then everyone knew that, over the long run, stocks always go up.  But these days the long run is understood to be much longer than it was back then.  But how long is the long run?

Over in Japan, for instance, they’re exploring just how long the long run really is.  On January 29, 1989, almost 23-years ago, the NIKKEI 225 closed at 38,916.  Yesterday it closed at 9,545…down over 75-percent after all this time. Continue reading

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Economic Reduction

One of the more aggravating things about the forthcoming tax hikes is the proposed increase to dividend income.  Since 2003 the top tax rate for dividends has been 15 percent.  Under President Obama’s proposed plan dividends will be taxed as ordinary income.  Top income earners will pay 39.6 percent tax on stock dividends.

Unfortunately, this is coming at a time when dividends have never been more essential to capital management and preservation.  The Federal Reserve’s zero interest rate and quantitative easing policies have pushed the yield on the 10-Year Treasury Note down to 1.61 percent…that’s less than the rate of inflation reported by the Bureau of Labor Statistics.  This makes government debt, as an investment option, a guaranteed wealth dissipater.

Thus, over the last several years, high dividend yielding stocks have become indispensable to those saving and investing for retirement.  Regrettably, President Obama wants to strangle this reliable means of investment income…and for what? Continue reading

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