Saturday, May 30, 2009
The two postage stamps, Obama and Vanity Fair, I have decided to place them together as one piece and call it a diptych. If they accept that, then I can enter one more piece. That now appears to be the big piece made from Styrofoam, cardboard, cereal boxes, paper mache, glue, gesso and acrylic paint, titled Mother & Child. I worked on this piece for several months in 2007 and 2008, and I also think it fits for the theme of the show. So, today I will put up four pieces, two of which are to be hung together side by side.
Friday, May 29, 2009
Today I am going to talk about something I know very little about, the auto industry. I figure that so many people on TV talk about things they know little about, why not me too.
GM and Chrysler and their bankruptcy is in the news this week, but I can not help myself from taking a more historical perspective of this whole problem of the American auto makers.
Coming out of the Second World War, the United States participated in the United Nations and came up with the Marshall Plan to rebuild Europe. The Cold War with the Soviets was underway, and the United States was locked in a struggle for the hearts and minds of Europe and Asia. By 1949, China was lost to the Communist block and the chess game was set for the next several years. How many more pieces from the board were we going to lose? Certainly without the Marshall Plan to help rebuild Europe, there is no sure bet that capitalism would have won out over an even bigger socialism. Would the rest of Europe go Communist as well?
It was our foreign policy of Containment of Communism, to see to it that democracy and capitalism won out in Europe as Eastern Europe had already been lost, that drove our commitment to Western Europe and Japan.
Against this back drop comes the American auto industry and the economic playing field that would emerge over the second half of the 20th century. It is my opinion that foreign auto makers had an economic advantage over the American auto manufacturers and that this advantage got bigger and bigger with each decade. The trade policies with regards to those countries that were selling their cars in the United States were hardly a level playing field for a variety of reasons. Could we even sell our American made cars in their countries?
Books can be written and will be written about the American auto industry from the historical perspective, but I am not the person to do it. All I know about cars is how to drive them and how to fill the tank with gas. Yes, I also know how to put in the oil, but beyond that I have no interest. Cars, for me, are a means of transportation, and in my mind, a perfect world, would have trains running everywhere.
Thursday, May 28, 2009
We live in an era of being entertained. We have radio, TV, movies and even cable and network news programs to entertain us. What about the not so sexy stuff that gets discussed in MONEYTHOUGHTS?
The subject of investing and its relationship to fiscal and monetary policies is not something that can be discussed in a few quick sound bites, and so these subjects are left alone. How entertaining can the purchasing power or the decline in the purchasing power of the U.S. dollar be? To discuss what we talk about on MONEYTHOUGHTS requires a vocabulary of investment and economic terms. How many people take the trouble to learn something about the language that holds their financial security?
There is a relationship with everything that is touched on in MONEYTHOUGHTS, but the ability to connect the dots for those that do not see that there is a relationship is a whole other story. Too few in America today see how the several pieces fit together. And, it is because, as a nation, we do not hold our representatives' feet to the fire that we are in the position we are in today. Yes, campaign money talks and bull shit walks, but a knowledgeable electorate can over come the people with the money and access. Even when we have the votes, as in Ohio in 2004, there are those that would try to defeat the will of the people through depriving them the opportunity to vote.
Those that read and understand and agree with the discussions on MONEYTHOUGHTS need to spread the word. They have not taken the Internet away from us yet.
Our Federal Government has a responsibility to protect the investor whether he be an individual or an institution representing millions. Given that under our system of a central bank, known as the Federal Reserve Bank, and our fiscal policies that come from our Congress, the Federal Government has a duty to protect the investment game. If inflation is a fact of life in our system of economics and banking, and saving money does not provide anyone with the chance of financial security, then laws, regulations, oversight, transparency and enforcement must be implemented to protect the investments of the American people. Anything less is economic treason.
Wednesday, May 27, 2009
Yesterday I talked about actuaries, actuarial assumptions, financial consultants, investment advisers, portfolio managers and finally, but not mentioned, total rate of return.
Over the last several months, I have talked about money, credit, inflation, decline in purchasing power, monetary policy, fiscal policy, the Federal Reserve Bank, the U.S. Treasury Department and U.S. Treasury notes and bonds. Investing, but why invest? Why not just save?
The actuaries will tell you that you can not just save and expect to have the financial resources, I love those words, if you simply save your money. That is why individuals and institutions invest their money with money managers in the hope of out performing the market .
Unfortunately, there is another game going on at the same time. Let us not worry about giving it a name, but rather first let us try and understand what this game is.
Let us say you bought a house 40 years ago to live in, and you paid $20,000 for your home. Now 40 years later the value of the house has risen because of inflation. Inflation caused by government fiscal policy and the monetary policy of our central bank the Fed. 40 years latter, the annual property taxes on your home has risen to the point that equals 20% of your original purchase price. That makes your annual property taxes now $4,000 a year. Your home still is the same size and provides you with the same utility, a roof over your head, as it did the day you bought your home 40 years before. The only difference now is that it is costing you 20% of the original purchase price of your home in annual property taxes to remain in your home. Naturally, gas and electric and water and sewage have all gone up in cost as well. The insurance that you carry on your property has gone up right along with all the other expenses. The inflated value of your home has little to do with your decision to buy that home, but has a lot to do with the government’s fiscal policies and the Federal Reserve Bank’s monetary policies and the expansion of the money supply and the continuous inflation and decline in purchasing power that afflicts us all.
The only prayer millions of Americans have to hold onto their homes and keep a roof over their graying or bald heads is to invest their money in the bond or stock markets. Yes, perhaps they were smart enough to buy an Andy Warhol in the 1960s or early 70s and hold onto it. Warhol’s silk screen prints have gone up in value and have preserved the purchasing power of those collectors. Art is another form of money, ask anyone that has realized a huge capital gain from a piece of art.
But, for the most part, the financial markets is where people invest their money. Unfortunately, our Congress does not see their responsibility to the people that invest any better than they understand what their fiscal and monetary policies do to our money.
American people, you are be taken for a ride, and not a very pretty ride at that. The important issues of your financial survival are being played with while the bull shit issues that boil your blood are tossed about. The issue of a woman’s health should not be the business of the Federal Government unless she is being denied health care. Whether a woman has a bump on her head or a broken toe, or anything in between, it is her business and that of her doctor. Unfortunately, the politicians on both sides want to keep everyone tied in knots about issues relating to health care so you are unaware when they remove your wallet from your back pocket.
Wake up America, your Federal Government is cheating you and you deserve better. Your financial survival demands a more level playing field. The laws and regulations that protected the American investor were torn down by the Congress. Demand that the protections against wholesale fraud by Wall Street be put back in place.
Tuesday, May 26, 2009
It is once again time to go back to work, and my work is to continue to try and spread the word, ask the questions that no one else is asking, and try to get more people thinking about money and what happens to their money.
Money or should we say purchasing power comes in many forms. As someone who enjoys art and reading stories about people and their art, I have a favorite story. A few years back an elderly couple was making plans to sell their home and move into something smaller like an assisted living facility. The couple had been married back in the 1930s in the United States. The bride’s father did business overseas and a man he had done business with sent a small painting as a wedding gift. The young couple hung the painting in their home as they liked the painting and it was a wedding gift. Then when it came time to sell their home, they were encouraged to find out something about the small painting that hung in their home all those many years. So, they sent a photograph of the painting to an auction house in New York city. The auction house could not be certain about the painting without actually inspecting the painting, but thought the painting was done by Vincent Van Gogh. The elderly couple sold the painting at auction for over a million dollars and I would guess at their age they probably put the money in the bank and lived comfortably for the rest of their lives. Unfortunately, not everyone gets a small painting in their life so they can convert its value to cash and live the rest of their life without the worry of how they will take care of themselves after they retire and in their old age.
What does this have to do with money? My answer is everything. Money that is saved for a lifetime in a bank that pays a few dollars a year in interest, and whose purchasing power declines with each passing year, will hardly give anyone the kind of financial security that we all want or need in our later years. But, as I have written before, our system of banking and government has made inflation a by product of that very system. Inflation in the United States is a fact of life. The money you save for 40 years in a bank savings account will not maintain its purchasing power over those 40 years. The need to invest ones money for their retirement is not an option, as simply saving money will hardly get the job done.
Public and private pension funds hire actuaries and financial consultants and finally investment advisers/ portfolio managers to meet or beat the actuarial assumptions that make it mandatory for large pools of money to be invested rather than simply placed in a savings account.
So, where is the problem if everyone knows how the game is played? The object of the game is to beat the rate of inflation over the long haul so that the pension funds have the money (cash money) on hand to meet their obligations to their pensioners. Now multiply this by 50 states and you can see you have several very large pools of invested funds.
Enter Wall Street and the politicians who sell their vote for those sacred campaign contributions. The rules that were written to protect the investors and the large pools of money are suspend and all hell breaks out, we have a financial crisis, a bond market meltdown, a collapse of the stock market, an economic recession that spreads around the world and everyone points the finger at the other guy.
I know what happened and you do too. I have written about what happened and I have even written what needs to be done to fix the problems Congress created. The problem, as I see it, is that we do not have enough people knowledgeable enough to bring the kind of pressure to bear on the politicians to make the kind of changes that will repair the investment game.
Since not everyone is going to find a small Van Gogh painting on their living room wall when it is time to retire, I suggest that we bring the kind of pressure on our politicians that let them know that the investment game they helped rig is not appreciated by the majority of the people. If we must invest our money, if we are going to have any chance of a secure retirement, should not the investment game protect the investors and the large pools of pension money invested around the country? Wall Street and the politicians that helped to create the financial crisis will not give up their position of power easily, people, you will have to take the battle to them if you are going to have any chance of fixing the investment game.
Sunday, May 24, 2009
The weather is warm in the Queen City this weekend. The painting is from 1988-89. One of my first pieces on board done in oil and enamel paint. I don't paint big stuff (4'x4') anymore as, where do you put it when no one buys this great fine art? I hope everyone is enjoying this holiday weekend. If you are not an American, I hope you are having a nice weekend too.
Saturday, May 23, 2009
This Memorial Day Weekend I will post the three paintings I plan to enter in a juried art show here in my city of Cincinnati this summer. At my age, I don't like to have my work judged. I paint what interests me. Cincinnati has a long tradition when it comes to some great American artists, or, more correctly Cincinnati and Northern Kentucky artists. Some of these artists' works may even be in your local art museum. The theme of this art show is the American Spirit, and a few people have thought this would be right up my alley. Well, when it comes to Cincinnati, I am not so sure anything here is up my alley. But, nevertheless, for the $25 entrance fee, I will send in my 3 photos and take my 3 chances. The 3 paintings are done in acrylic. The titles are: OBAMA: The American Spirit of 2009; Vanity Fair Covers It; and Mother & Child: Level Playing Field Out The Window. Your comments are always appreciated.
Have a safe and happy holiday weekend.
Friday, May 22, 2009
As you are having fun this weekend, and I hope everyone has a nice weekend, take a moment to remember all the men and women that have served this country in uniform. Even as we enjoy our free society, there are other places on this planet where people are not so fortunate. Freedom and liberty are not free. That is why we should all take a moment this weekend to remember that.
Even now, we are locked into a war to preserve our way of life in the United States. Many have sacrificed so that we may enjoy the life we have in America today. And, while we may disagree about how we should hold on to the safety we seek to enjoy, make no mistake, the enemy is real. Our basic philosophy of life, our values as a people will be challenged in the days ahead. Let us hope our leaders can give us the leadership we all deserve to continue to protect our nation from harm.
Thursday, May 21, 2009
The price of gasoline is going back up. Gas is a commodity and like all other commodities, gas goes up and down in price depending on supply and demand. Or, is it that simple? For the most part, when the demand for gas goes up, the price of gas goes up as well. However, like most commodities there is the spot price and the future price. Those that think the demand for gas will go up as the economy improves might buy future contracts in the hope that they can sell those contracts after the price of gas goes up and make themselves a nice little profit. There is nothing wrong with making a profit especially if you invest your money in a future contract to take delivery of gas on a certain date. The Memorial Day weekend may be one reason the price of gas is going up. Other reasons may be because there is an increasing demand for gas as the world’s economy starts to get back up to speed. Gas, like other forms of energy, drives the economy.
It is important that the United States reduce its dependence on foreign oil. Buying foreign oil is bad for our balance of trade. We already import so much stuff from aboard that the last thing we need to do as a nation is to import more oil each year. I remember the first oil embargo in 1973. I also remember thinking at the time that getting America away from importing foreign oil would be a smart thing to do. Unfortunately, the politicians who were running our government at the time were not concerned with what was good for the country in the long run, but rather what was good for them keeping their seat in Congress. Not much has changed since 1973, except that America imports more foreign oil than they did in 1973.
Now here we are 36 years later and we have pretty much the same situation. The big difference is that after 9-11, Americans appear to be more aware of our dependence on foreign oil. Perhaps after 36 years and all we have experienced as a result of having to import so much of the oil we use, that the politicians are ready for change. I sure hope so.
Wednesday, May 20, 2009
Yesterday, a friend told me that she heard them talking about the credit rating agencies on National Public Radio (NPR). This is good news. With the recent vote in the Senate (95-5) for credit card reform, perhaps, now that all the BS issues have been played out, we will see a new direction being taken, and that the issue of bond credit ratings coming from public or privately held corporations will be debated.
I do not think that there are many people in the United States that would argue that credit cards are not a vital piece of our domestic economy. Just about everyone has at least one credit card. If you travel and check into a hotel, the first thing they ask you for is your credit card. If you go on-line to buy a plane ticket or anything else, such as a book, a pair shoes or even an HDTV, you need to use a credit card to complete the purchase. Credit cards facilitate, and credit in the 21st century in America is money. That the credit card receivables can be bundled and securitized, made into a security that can be sold and traded in the bond market, is yet another dimension of what in the old days was referred to as money and banking.
Now that we have established the importance of credit to our domestic economy, perhaps the issue of the credit rating agencies, and their relationship to the mortgage bond market, the underwriters of mortgages into mortgage bonds will be debated. Financial bubbles are facilitated by the flow of credit, and the credit rating agencies that place their triple-A rating on mortgage bonds enables that bubble to grow. The problem, and I have made the case several times, is that the credit rating agencies are public corporations whose need to grow their bottom line, and their executive’s greed for bigger salaries and bonus, leads to their triple-A rating being given to mortgage backed bonds that should not receive this highest of bond credit ratings.
It is my opinion, that without the responsibility of bond credit ratings being placed with the Federal Reserve Bank, so they can no longer be shopped by the underwriters, that it is just a matter of time before the next financial bubble will occur. While I have no illusions about the difficulty of the Federal Reserve Bank being true to their responsibility, if they took over the responsibility of placing credit ratings on mortgage backed bonds, I think that if the penalties are severe enough, say hanging if convicted, that this should act as a deterrent.
People that play with our economy, and have the opportunity to make the big bucks, should also know that if they break their responsibilities they will pay a price. Too many Wall Streeters, in my opinion, have committed fraud and are not being prosecuted. This kind of behavior is only encouraged if no penalty is required.
Tuesday, May 19, 2009
What is fair? What is just? When is a nation’s currency not fair or just? Who should be protected? Who should fall through the cracks? Does it matter? What about those not smart enough to invest? Should saving money be enough? What if you do not make enough money to save? What if you do not want to invest? What responsibility does the Federal Government have to protect the purchasing power of their currency, the U.S. Dollar? What are the responsibilities of the Federal Government to insure that her people are not ripped off when they save, or when they invest?
While I may have an answer to each of the above questions, and my answers may work for me, too many people have not even gotten to the point of asking the right questions. For change to occur, people need to start asking questions. What we in America need is more people asking questions. Without people asking questions, answers are irrelevant.
Monday, May 18, 2009
What if I told you that I had developed a machine that would give a false weight and measure, but that it would certify that a pound was a pound and a mile was a mile. And, that furthermore, I was going to sell this machine to companies that sell products by weight, and charge for services by distance. The buying public of these products and services would never know the true weight or distance because my machine, that I will call the TRIPLE- A RATING MACHINE, would conceal the correct weight and measure from them. My only selling point to those that would buy my machine would be that they would pay for my machine by cheating all their customers out of their true weight or distance, and, in a short time the machine would permit them to defraud thousands of their customers every day. I would further protect my machine and my company by making large political campaign contributions to those members of Congress that were involved with commerce and weights and measures. I would also set up a corporation outside the United States and sell my machine in other countries as well. My TRIPLE-A RATING MACHINE will make me very rich, but unfortunately, in time, it will cause all kinds of problems throughout the whole economy as formulas and other scientific mixtures fail to operate the way they are supposed to because the weights and measures are all screwed up.
Can you understand the implications of the above paragraph? Do you see what would happen to our economy if such a machine was developed that would give false measures and weights? There is such a machine on Wall Street and it does give false measures and weights. This machine is called the TRIPLE-A RATING MACHINE and it has caused the financial markets to have a meltdown and it has produced a financial crisis here in the United States and around the world. This machine is still operating and the Congress, the press and TV news still have not covered this story. This is some kind of shit that the one factor, credit ratings and the privately controlled credit rating companies that brought us the present financial crisis and the bond market meltdown has not been held accountable.
At some point, this story about the credit rating companies and what they have wrought on our economy has to come out. Why it has not come out up to this point, I do not have an answer. This story must get told and changes need to be made. Without changes in the credit rating system, we are all headed back to the same disaster in the near future.
Saturday, May 16, 2009
Drawing from live models is quite a challenge, at least it was for me, and if I tired it again I know it would still be. Drawing from a picture where you can copy what you see is much easier as you have the photograph and its points of reference right before you. When you are drawing a live person before you, you, the artist, must establish what you are going to put on the page. Believe me, it is a whole different ball game, much much more difficult. These three sketches were done before 1996, and at the time, I thought they were good enough to frame. If you think these are bad, you should see the really bad ones. Drawing, for me, takes concentration. You are so busy getting the proportions right, head, arms, legs, and the angle of the body that the fact that you are drawing a nude figure does not even register. Painting for me starts with a good sketch, and I am grateful for the opportunity to develop my limited abilities in the 1990s. Perhaps some day I might return to sketching again, as it certainly makes you use your brain to see.
Friday, May 15, 2009
When I was a little boy, Fridays were a special day for me. The last day of school for the week before the weekend. But, it was the fact that our LIFE magazine would be waiting for me when I got home from school that really excited me. There was no Hebrew school on Friday after public school because families were getting ready for the sabbath. That LIFE magazine was my window to the world, and I would get on my knees on the living room floor and turn those big pages of that oversized magazine and study the photographs page by page. There was no TV in those days, and when there was TV, I watched 15 minutes of news brought to you by Camel cigarettes and John Cameron Swayze.
Fast forward 60 years to 2009 and cable news running 24 hours a day seven days a week. And with all that information, Wall Street with the help of Congress has put us in a bigger a deeper hole than we were 60 years ago, even after coming out of the Second World War. People will have to do more than have tea bag rallies to straighten out the problems and the abuse.
Drop down the page and read the last four postings I wrote this week. They are short and to the point. They contain all you need to know and a road map of what you can do. Americans need to take as much interest in the political-economy of this country as they do in the weather. You can not change the weather, but you certainly can try to stop the corruption and the fraud that has covered this nation from coast to coast from Wall Street, and the greed of the commercial banks.
Thursday, May 14, 2009
Most Americans do not understand Money and Banking. Many Americans understand that they need to invest their money if they are going to have money for retirement, because Social Security is not enough to take care of anyone.
The trade off between an economy that has a highly developed system of credit such as we do here in the United States, and an economic system where credit is unavailable is easy to understand. People will take the economy with the highly developed system of credit over a cash economy any time. Credit makes it possible to buy those goods and services now and enjoy the use of that economic purchase in the present and pay for it in the future, or pay for it over a period of time. I think everyone can understand that if everyone had to go with cash money in hand to make every purchase of goods and services that the type of economy that we now have come to enjoy would not exist.
Credit and credit cards are a fact of life in America in the 21st century, and hopefully some of the more blatant abuses by the credit card companies will be reigned in by Congress in the not too distant future. But, make no mistake, if we are going to bring back our domestic economy and regain full employment, a system of credit must be alive and well in these United States.
But what about Wall Street? That nut will be a little harder to crack. The men and women on Wall Street have the money to fight Congress from putting in place a better regulatory system. This is were the American people need to get up to speed and take this fight to Congress. Congressional representatives need to be pounded on the issue of more regulation, oversight, transparency and enforcement as it concerns the investment business in the United States. Americans can not ignore this battleground, for their future and the future of their retirement will depend upon the Wall Street abuses being reigned in. All of us have suffered financially as a result of wide scale fraud from the biggest producers on Wall Street. It is time to let your Congressional representatives know that you know which end is up. Write them. Call them. Let them know that you are tired of being a mark.
Wednesday, May 13, 2009
Asking questions can be as important as having answers. In fact, answers to the wrong questions is of no help either.
Let us start with the most basic question, Why do we need money? That seems pretty simple on the surface, we need money to purchase goods and services. Who prints our money? The Federal Government prints our money, but if our money became worthless, other forms of money, or other foreign currencies would take its place. Who influences the expansion or contraction of the money supply? The Federal Reserve Bank using the levers of monetary policy influence the expansion of the money supply. Inflation is the reduction in purchasing power of our money. The Federal Government can trigger inflation by printing too much money, or, restricting the production of goods and services, thus causing the cost of goods and services to go up in price.
When there are repeated years of inflation of the money supply and prices keep rising for goods and services, the psychology of saving money goes from savings accounts are a good idea to “cash is trash”. When inflation is really bad, people spend their money as fast as they get their hands on it.
Where does credit come in? Credit enables people to spend future earnings for goods and services before inflation raises the price level of those same goods and services. Credit in the form of cash, also known as demand deposits in your checking account, can further the expansion of the money supply as commercial banks once creating a new demand deposit can create more credit and further expand the growth of the money supply.
Yet the reality remains that money needs to be put away for retirement because Social Security alone will not take care of anyone in 2009. Therefore, we invest our money in pension funds, IRAs and 401-ks and the like. If we measure inflation over a period of 40 years in the United States, it becomes quite clear that saving money in a money market fund for retirement will not give us the total rate of return that would permit us to maintain the purchasing power of the dollars we saved 40 years ago. As a result, investing becomes a significant piece of the security puzzle that everyone is trying to obtain.
The Federal Government that formulates FISCAL POLICY, through Congress and the administration, MONETARY POLICY, through the Fed, and the budget of the Securities & Exchange Commission through the Congress, is suppose to have the responsibility for protecting the U.S. Dollar and the investment arena for all the people. They have fallen down on the job miserably. Look around, no one in Congress is out of work. The prior administrations have failed the people and this administration has not shown us that there is going to be the changes that are needed to correct the arrogance, the corruption and the frauds permitted to occur on Wall Street. I call for a Glorious and Bloodless Revolution. It is time for regulation, oversight, transparency and enforcement of the laws and the creation of better and more comprehensive laws to deal with the investment game in the 21st century here in the United States. Our battle cry to the Congress and the administration should be loud and to the point. “STOP FUCKING WITH OUR MONEY!!!”
Tuesday, May 12, 2009
Since February 13, 2008, Moneythoughts has been trying to put together a picture, piece by piece, much the same way that a large stained glass window is put together. Each piece, surrounded by many different pieces in shape and color, but viewed as a whole, presents an image that can be recognized for what it is.
We have all heard of the letters “C.Y.A.” and know that that means “cover your ass”. There is a not too well known cousin to “CYA” and that is “C.C.T.A.”. C.C.T.A. stands for Congress Covers Their Ass. Let me explain: however, for those of you who regularly read MONEYTHOUGHTS, no explanation is necessary.
Congress is responsible for passing the budget. Congress votes on the Federal Budget. That is called FISCAL POLICY. Fiscal policy is a fancy word for spending tax dollars. Far too often, tax dollars the Federal Government does not have on hand. So, like everyone else the Federal Government borrows money. The Treasury Department borrows money for the Federal Government by issuing Treasury Bills, Notes and Bonds.
Congress created the Federal Reserve Bank, and the Federal Reserve Bank makes MONETARY POLICY. Monetary policy is involved with the expansion of the money supply and protecting the purchasing power of the dollar. Some where along the line the primary mission of the Fed got changed to helping the economy maintain full employment and help the sitting President get reelected.
Congress created the Security & Exchange Commission. The SEC is supposed to protect the investor from the greedy bastards that sell the investment products to the public from Wall Street. The SEC has a budget which is funded by Congress. If the SEC does a poor job of policing Wall Street, Main Street gets it in the back of the neck, and in the pocket as well. The financial crisis, the bond market meltdown and the bank bailout known as TARP, are all with us as a result of the poor job done by the SEC.
When you put all the pieces together and take a few steps back, as you would when you look at any large piece of art, the smaller pieces of the mosaic start to come into focus. Our job as citizens of this great country is to keep the mosaic in focus and enlighten those who are having trouble focusing. That is what the press and TV news is supposed to do. Congress, on the other hand, does not want us to focus on the whole picture, but would rather we get all hung up on meaningless pieces of the bigger picture. Because, if we focused on the big picture, they might be voted out at the next election. We all need more light on this big stained glass window. More light, more light, more light.
Monday, May 11, 2009
Leverage, inflation and total rate of return, three concepts and how they have brought us to where we are today.
The term leverage as it is used in the field of finance and banking is something that has been with us since the beginning of time. Leverage is simply borrowing, but big leverage is borrowing big and this is where the trouble comes in. Most of us borrow to buy a house or a car, businesses borrow for an assortment of reasons. The more you can borrow, in most situations, the more you can make for the bottom line. Problems emerge when the ability to meet current debt service (interest payments) becomes a problem. Leverage enables the economy to grow. How many of us would own our own home if we had to save 100% of the purchase price of our home before we could buy it. Businesses use leverage to expand, build new plants and buy equipment. Developers of real estate borrow money to build homes or offices. They too use leverage. Banks use leverage too, as they borrow from individuals and others that buy certificates of deposits known as CDs. Some of these CDs can be for several years. Smart banks match assets with liabilities and this is called asset/liability management. Banks can leverage too much just like individuals and corporations. In an ideal world, the Federal Reserve Bank and the Federal Reserve District Banks would monitor the leverage of commercial banks in their district very closely. Yes, more regulation and oversight, but we would not be bailing them out either if we had had decent regulatory authority.
Inflation is a concept that is not too difficult to understand. Money has purchasing power, and if all else remains the same, but the cost of goods and services go up in price, then we say that we have inflation. Economists have broken down inflation into different types, but for our purposes that is not important. What causes the inflation, whether it is too much money in circulation because the government prints too much money, and we have too much money chasing too few goods is not the point here. Inflation eats into the purchasing power of our dollars. Where once we spent 30 cents for a gallon of gasoline, we now spend over $2. The gas at $2 is essentially the same gas, chemical composition, as the gas we once bought for 30 cents. This is inflation. Deflation is the flip side of the coin. Prices can come down in a recession, or prices can come down as a result of better productivity. Prices can come down for a number of reasons. Look at the prices of TVs and their improved quality over the years.
Total Rate of Return is an investment concept and is also fairly easy to understand. The difference between what the cost of an investment is, less the expenses to make that investment, minus taxes, equals the total rate of return over a specific time frame.
Under an inflationary environment, leverage works for those that use leverage in a big way. Let me explain. Developers borrow to develop real estate and they realize that over time, under mild inflationary conditions, they can pay back what they have borrowed in inflated dollars. While at the same time, the value of their development has gone up in price (market value). This then translates into a bigger total rate of return for the developer and those that invest with the developer. The developer can then go and borrow more money based on the “market value” of their developments and create more leverage. This process can go on until a recession hits, or the developer decides it is time to cash in his chips.
Banks enable developers and for this reason, banks need to be supervised. Executive compensation, salary and bonus, is based on the growth of the bank’s bottom line, but lack of oversight by the Fed can mean bailout. How much is too much regulation? In my opinion, this whole financial crisis could have been avoided if the Congress had met their responsibility to the American people.
If inflation is a fact of life in our monetary system, and if fiscal policy is going to make sure that inflation is a problem, then the least we should expect from the government is a sound and well regulated banking system. to fall down on both counts is inexcusable. We all deserve a better regulated banking system and that starts with a more active Federal Reserve Bank.
Sunday, May 10, 2009
The conditioning process is coming along. While my legs are getting most of the workout, the rest of my body seems to be coming along too. Now if I could just lose a few pounds of weight this rider doesn't need or want, and the rest would be a piece of cake. I did put new road warrior tires on my bike this week, and they make a big difference. The mountain bike tires needed to be retired as I am not riding on any mountain bike trails. These new tires with 85psi pressure roll nicely, as I can work in at least one higher gear for the same grade of incline. And, the Saturday ride to downtown Cincinnati, to the parks along the river, demonstrated for me that these road warriors by BONTRAGER get the job done. Now with only 35 days left to train, until the ride to raise money for BREAST CANCER RESEARCH for the Barrett Cancer Center of the University of Cincinnati, I am confident that this old body will be ready to ride.
Saturday, May 9, 2009
Saturday is for art, and why not. The rest of the week many of you work to put food on your table and a roof over your head. This past week we have had a lot of good discussion of some of the issues we discuss on MONEYTHOUGHTS. Those that are followers, and read the posts and comments this past week, know what I mean.
Today I am going to post more paintings dealing with the "Level Playing Field" because much of the conversation this past week dealt with this simple issue. If we are going to have fiscal policy that creates deficits, and a monetary policy that is aimed at growing the economy through low interest rates and an expansion of the money supply, and if inflation is going to eat up the purchasing power of our money, and savings accounts are only paying .25% interest, then should not it be the responsibility of the Federal Government to see to it that the investment game is on the level? What choice do we have to save for our retirement or our children's education, if interest rates are so low that they can not possibly give us a total rate of return, less the loss of purchasing power of our money from inflation, if we do not invest our money in the stock or bond markets? So, it falls to the Federal Government to protect the individual and institutional investors from being made marks and being the victims of fraud. Unfortunately some of our leaders are as corrupt as some of the people on Wall Street that create the frauds in the first place. Millions of people and families have been hurt financially as a result of the wide spread frauds that leaked their poison into almost every part of the investment field. The People must make their feeling known to the politicians, if there is any hope that change for the better will take place. The little guy on Main Street is pushing the boulder up hill. It is going to take a lot more than pushing to bring the kind of change that is needed. The people on Wall Street are not going to give up their life style without a fight. The time to knock a few heads is here. It is time to get past Left, Right or Center and protest for real change.
Friday, May 8, 2009
For some reason, I am very tired this morning. Perhaps it is the work I was doing yesterday. On Tuesday, Wednesday and Thursday I wrote what I thought were three very well written posts about the kind of stuff we discuss here on MONEYTHOUGHTS. If I say so myself, I think they are worth reading again. Copy them and send them to your friends. Copy them and send them to your elected representatives. At some point, some one some where will help us spread the word. The TV news will not talk about this stuff, as they would rather talk about affairs. But one man's affair is not going to keep this economy down. We need to direct more people to the bigger issue of the LEVEL PLAYING FIELD for the rest of us. So, today I am going to post a few pictures that I have painted over the years that are still in the news today. The basic issue of fairness as it relates to the treatment of the individual investor has not been dealt with satisfactorily.
Thursday, May 7, 2009
My background is very much my father’s hardware store. In the ‘50s and ‘60s, a hardware store sold tools. The job is a lot easier when you use the right tool. Do not take my word for it, ask anyone that works with tools all day. I remember asking my father why he sold so many different weight hammers. Why was not one or two hammers enough. I learned that each hammer has a purpose and each weight makes a difference if you are swing that hammer all day. The bottom line, use the right tool for the job.
A private equity fund is a tool. Private equity funds over the years have provided the seed money for a number of great and vital companies that have grown into international companies. Yes it is important to understand what a private equity fund is.
Yesterday, I received a comment and an article about the use of private equity funds to buy into national banks. While on the surface that idea may sound good, the problem, as I see it, becomes apparent when you realize that the first duty of the private equity fund managers is to the private equity fund investors and not to that which they have invested in. How does that differ from a mutual fund investing in a bank? The big difference is that the mutual fund will never take seats on the board of directors. If the mutual fund does not like the way the bank’s management is running the bank, they can sell their stock in the bank. Depending on the size of their position and the volume of that bank’s stock that is traded every day, the mutual fund can be out of the stock in a matter of minutes or at the most a few days. Not so for a private equity fund. Private equity funds usually take a fairly large position in the equity of the company and as a result would get one or two seats on the board. Those who took seats on the board would have a conflict of interest from the start. Whose interests do they serve first? The bank’s interests, or, as a participant in the private equity fund, as all partners of the private equity fund are usually required to have some of their own skin in the game, the good of the fund? I am no Einstein, but for me, I have a problem with that. The private equity fund partner can not serve two masters at the same time.
If Secretary Geithner caves to the pressures from the private equity fund partners that want this rule change to permit them to invest private equity fund money in national banks, then I think we are in for 40 more years of wondering in the desert. I can not believe that Paul Volcker is sitting at the table where this is being discussed and not raising these same points. Where in the hell is Volcker? Has anyone seen or heard from Paul Volcker in a while? The Obama administration trotted him out there at the beginning and I have not seen or heard from him since.
Bottom line, in my opinion, this is an example of the wrong tool for the job. Private equity fund money should not be going into national banks. Banking, because of its position in the economy, please do not make me write a book about why this is the case, just take my word for it this time, should not be a recipient of private equity money, period.
Wednesday, May 6, 2009
Yesterday I wrote what I thought was one of the best posts I have written since I started this blog MONEYTHOUGHTS. I have read it over several times, and each time, I was looking for a thread that I could develop in more detail. But, after reading this piece over and over, I believe the strength of the piece is in its simplicity, and the fact that it is devoid of numbers, formulas and a lot of Wall Street jargon.
If we Moneythought Heads are going to have an effect on the greater population of the United States, and perhaps even the world, as we do have readers from other countries, then it is important that everyday ordinary people are not turned off by a lot of the technical talk about the growth of the money supply and all the acronyms that are thrown around when discussing money, monetary policy and investments. Perhaps I have been going about this, the process to inform the people of the United States as to what caused the financial crisis, bond market meltdown and the resulting economic recession, all wrong.
The numbers are not what is important. The men behind the numbers and policies are not important. What is imperative is for people to understand that the process was corrupted. Corrupted and loaded against the interests of the American people, and tilted in favor of a very small, yet well financed few. The game of investing, which is no game if you understand that a savings account is not investing, has been corrupted and aided in that corruption by the Congress of the United States.
Regardless of whether you are politically left, right or center, in order for all of us to invest for our retirement or our children’s college education, we must have a playing field that is not controlled by a corrupt few. The knowledge that was gained more than 70 years ago from the Great Depression, and the laws that were passed in the 1930s and 1940s to protect the investor from abuse at the hands of the investment community were plowed under by our own Congress. Congress gave Wall Street the green light to steal and commit many frauds.
Until people get wise to this fact, and realize that this political left, right and center stuff is just so much bull shit, the sooner corrective action will be taken to restore the balance between Wall Street and Main Street. Given that inflation is a fact of life in the 21st century and that monetary policy and central banking and deficit spending are practiced in the United States, then it must follow that a level playing field must be restored if the American people are going to lift themselves up. The investment game must be repaired. The American people should not be made marks, nor should our Congress be promoting or protecting such behavior by the Wall Street community.
Tuesday, May 5, 2009
What if I told you that it is because of policies that cause us, as a nation, to run huge deficits, that there is such a huge emphasis on Wall Street, and in fact, on Main Street, to take more risk with our investments. The growth of investment products, such as hedge funds, happens for a reason. People and institutions feel the need to take more risk to grow their investment portfolios as a hedge against inflation.
If monetary policy, as implemented by the Federal Reserve Bank, is concerned with being the “custodian of the nation’s money”, then why is saving our money in a savings account in a bank a losing proposition? No doubt you have read in a newspaper or heard on TV about the low savings rate in the United States for many years. The argument is often presented that Americans spend too much and save too little. Consumption does drive the economy, and I think we can all agree upon that. But, what about savings? Is putting your money into a savings account a sound way to save for your retirement or your children’s college education?
Inflation destroys the incentive to save. Anyone that has been an adult through the 1960s and 1970s, and lived in the United States, knows what inflation can do to the purchasing power of their money. For example, anyone that bought a home in the ‘60s or ‘70s has seen the price of that home rise in value with inflation over those many years.
Why does our nation, on the one hand talk about how people need to save and not consume so much, while on the other hand see its currency lose purchasing power almost every year?
It is my opinion, that it is because of politics and policies regarding spending that does not take into account the detrimental effects that deficit spending has on our currency, the growth rate of the money supply, and ultimately the high degree of risk which is taken in investing, which is thrust upon those with the responsibility to hedge against the inflation that eats away at the purchasing power of our money each year.
As I doubt that national policies with regards to deficit spending is going to change, as both political parties spend money on their pet projects, it is my argument that if inflation is a fact of life in the United States, then it is imperative that regulation, oversight and transparency be present to protect the investor from the greed of Wall Street. As anyone with half a brain, me included, can see from history, that putting money into a savings account is no way to save and protect the purchasing power of their money over the long term. Then it is up to government and government regulations to be the firm hand to protect the American worker/investor against investment fraud. When that protection is dismantled and taken away, a financial crisis occurs and the bond market meltdown of toxic assets is the result.
When enough Americans wake up to how the game is played and how the game is deliberately broken to enhance the greed of the few, then real regulation will take place. Until then, we can expect more of the same and for history to repeat itself.
Monday, May 4, 2009
This morning I am going depart from my usual ranting about the economy, the markets, and how the politicians are in the pockets of Wall Street’s greedy bastards, and make my own plea for money.
Here in Cincinnati, we have a bike ride, a single day event the kind of bike ride you pedal yourself, that is called RIDE CINCINNATI. This bike ride was started for the purpose of raising money for BREAST CANCER RESEARCH at the Barrett Cancer Center of the University of Cincinnati. The man that started this ride, Dr. Harvey Harris, lost his wife to breast cancer after a 15 year battle. I knew his wife as I went to high school with both of them in the 1950’s. She was a lovely person.
I rode the first year the ride took place in 2007, and the second year 2008. This year I decided to try and do more than just do the ride and pay my entrance fee. I thought that I would form a team on one, myself and try and get people to donate to this important cause. With more money, there can be more research and hopefully some day we can eliminate breast cancer.
So far I have raised $220, that is 44% of my goal to raise $500. The ride date is Sunday June 14, 2009, and I will be out there. You do not have to be from Cincinnati to donate, as you can donate on-line directly to my team. Here is how you can donate to RIDE CINCINNATI. Google RIDE CINCINNATI, then go to DONATIONS. My team name is FRED ZIGLER and my code is 215716.
Breast cancer can attack both men and women, though it is more of a problem for women. Cincinnati has a great past when it comes to fighting disease as the live Polio vaccine was discovered in Cincinnati by Dr. Albert Sabin back in the 1950s. I hope everyone will give what they can. Thank you.
Saturday, May 2, 2009
Friday, May 1, 2009
Today, I am going to take the day off from talking about the economy, the markets and my favorite subject the credit rating agencies, and talk about the soon to be new opening on the Supreme Court. First, let me say that I am not a lawyer, never have been a lawyer, nor taught constitutional law. Almost 50 years ago, I took a course in the political science department on constitutional law and have always found The Court’s decisions interesting.
The pendulum swings back and forth in our Supreme Court’s interpretation of our constitution. Some may say that the court under President Obama is ready to swing back to the left, or a more liberal court. I remember some of the justices on the Supreme Court from the 1960s, and even the 1950s. For me, those were some great years for the Supreme Court. Civil Rights was a big thing then, and back then as today, that grabbed my attention.
You see civil rights is for everyone. Civil rights are not just about protecting the rights of minorities, people of color or people of any other orientation, or, however you wish to slice and dice us up as people. Growing up in the late 40s and 50s, left me with a special interest in the way a government treats all of its people. While the Second World War was behinds us, for me, as a little Jewish boy, living in a country where Jews made up about 2% of the population, the government’s willingness to protect and defend the civil rights of all its people was very important to me. This for me was not something to be taken lightly.
And so, the Supreme Court and its decisions with regards to civil rights captured my attention and I followed their decisions and their reasoning very closely. Without those men that sat on the Supreme Court in the 50s and 60s, I do not believe we would have a President Obama in The White House today.
So, now it is President Obama’s turn to nominate his choice for our Supreme Court. Before becoming President, Barack Obama taught constitutional law, so we know he knows something about the history of the Supreme Court. In my mind, civil rights needs to be protected and defended every day and every generation. I hope President Obama will feel the same way. I hope he will nominate a person who believes in the importance of civil rights for all people, because that is what civil rights is all about.