Perry Glasser

CITIZENS & TUMBLING STOCKS

In Business, Economics, Economy, EDUCATION, Finance, FINANCE FOR THE CLUELESS, Personal Finance, Politics, ROBERT REICH, SOCIAL MEDIA, Wall Street on February 5, 2018 at 7:27 pm
jimmy-stewart

investor

Dollar$ readers have asked for a comment on the recent path of stocks falling off a cliff. Though Dollar$ seldom references perturbations in the market, in this case he will make an exception because any number of people with brains of tapioca or in possession of advanced degrees will point to this event to declare it political, a referendum of sorts on Donald Trump for whom they hold unsustainable rage.

 

THE AXE OF RAGE 

Rage as a political stance is unsustainable because it consumes its object as well as those who revel in it. We grind that axe at our own peril.

That won’t bother pundits such as Robert Reich at Berserkely. Expect his gloating to surface in a day or two while his cadre of unsalaried graduate student do his work for him.

After all, Reich persuaded thousands of Facebook followers that Spring rain, the demotion of Pluto from planet to rock and back again, and your most recent dose of athlete’s foot, were all ploys by the rich to separate you from your money because there is no bottom to the depth of their greed. (Except for St. George Soros, who sends wheelbarrows of Canadian cash to political causes in the United States out of simple generosity, something that most of us would find curious if the cash came from Outer Slobbovia or Russia.) The Professor has yet to mention the President’s promise to go after Big Pharma or his championing “the right to try” to give the sick access to medications stalled in the FDA’s long system for approval. How could Reich do so? His followers might dial back their rage, and then who’d buy the Professor’s books, subscribe to his videos on Netflix, or line up to enroll in his one class per year in a lecture hall packed with the beneficiaries of privilege, those students at Berserkeley who on cue wildly applaud before marching to deny free speech to someone else?

To be sure, Professor Reich will neglect to mention that the trillions lost on world markets in the past few business days have mostly been lost by the rich. Who did you think owned the shares of companies? Your barber?

Also, make certain you know, that Dollar$ believes our President to be at base a lout, a racist, sexist, and probably a compulsive adulterer who happened to revolutionize American politics by seizing on social media as a means to create a bridge between himself and voters when his own party and the American press gave him all the chances of a balloon in a pin factory.

Benjamin-Franklin-U.S.-$100-bill

Chastity?

None of that, by the way, makes him unfit to join the ranks of John Kennedy, Franklin Roosevelt, Dwight Eisenhower, or Bill Clinton. There were many others; the folks who brag about zero tolerance for white male sin remain eager to rewrite history by expunging ordinary men from the presidential rolls. God help us if they figure out what the Founders did with their time when separated from spouses for months, and that rascal, Benjamin Franklin, was not know for his chastity.

Fortunately, The Donald did not run for Pope.

STOCKS

Dollar$ is happy to report the sky has not fallen, at least not in my neighborhood. If Jemima Puddleduck races past your front door, Dollar$ urges you to unwrap that shotgun you received as a gift from Grandpa. Go bag yourself an inexpensive cheap chicken dinner.

Responsible financial advisers will tell you to do nothing: Dollar$ agrees, unless you have a working crystal ball in which case Dollar$ would appreciate a call. All the elephants could not get through the door without the house collapsing. That’s what happened today.elephants

DECISIONS

What now? Better to ask: Where would your money be better off?

The world economy is peachy.

The American economy is also peachy, showing healthy signs of continued growth.

Do not confuse the economy with the stock markets. After a run-up of 21% in a year, market algorithms were bound to get nervous.  (Algorithms don’t properly get nervous, but the notion of market sentiment is a joke when upwards of 90 percent of all market transactions are conducted by computers.)

The American economy is in danger of suffering wage-inflation. Prices will rise because Joe Doakes, his cousin Joe Six-Pack, and their cousin, Jane Doe, are earning more.

O, the Horror! What will Reich say if people are earning more?  What fraud is being perpetrated that will need a decade to play out?

RELAX

The past week has seen a drop of 5 percent. More is coming.

Bear in mind that historically, a 7 percent gain in a year is good news. If after the carnage we saw today and can expect for a few more days your 401-k, your kids’ 509, and your savings ratchet back to a “mere” 12% annual gain, try not to swoon.

Stay  the course. There are bulls, there are bears, and there are pigs. People who try to time the market—that is, sell now with the hope and expectation of buying it all back when things have settled—are pigs , and like pigs will be slaughtered.

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  1. Greeting professor. I enjoy my email posts from Dollar$, and I would like to know what Dollar$ thinks about what this writer believes about the purported huge disparity in the growth of income between corporations and their executives, and regular wage earners over the past couple decades -and the resultant accumulation of wealth of our nation’s economy into the hands to a very few powerful people who then use that wealth to steer policy (of every sort) to enhance that disparity in their favor.

    And to focus Dollar$ impending lesson to this economic naïf, let me ask these foundational questions:

    Does Dollar$ believe that the disparity described is a real phenomenon?
    If yes, does Dollar$ believe this is a problem that should be addressed?
    If yes, does Dollar$ have any ideas about how that problem might be addressed?

    Perhaps Dollar$ could assign me some homework, point me to previous Dollar$ posts on this issue, or other relevant writing on the matter.

    I am not naturally of the pitchfork and torch crowd, but, I am genuinely concerned. And I respect Dollar$ opinions on such matters.


    Scott Stroot
    Professor of Theatre
    Western Kentucky University
    270-745-5845

    I refuse to believe that corporations are people until Texas executes one.

    From: dollar$
    Reply-To: dollar$
    Date: Monday, February 5, 2018 at 5:27 PM
    To: Scott Stroot
    Subject: [New post] CITIZENS & TUMBLING STOCKS

    Perry Glasser posted: ” Dollar$ readers have asked for a comment on the recent path of stocks falling off a cliff. Though Dollar$ seldom references perturbations in the market, in this case he will make an exception because any number of people with brains of tapioca or in pos”

    • Dollar$ believes the growing disparity between executives and line workers is a national scandal, one that undermines our society and capitalism.

      By and large, this column has avoided politically fraught topics as it was begun as an organ for education. There may have been a column about CEO pay some years ago, but I am not sure. If I can find it, I’ll get back to you.

      One of the conundrums about exec pay is how to calculate multiple revenue stream and how to value them. Chance are, you and I are familiar almost exclusively with salary, and if we are fortunate maybe a smattering of dividends and interest if we hold bonds (or our retirement accounts do), which are the 3 ordinary means of how large corporations share profit with stakeholders.

      Dividends have been eschewed by corporation over the past two decades because of unfavorable tax treatment. The dollar that is taxed as corporate revenue is ALSO taxed when paid out to a shareholder. That seems like bupkis to most of us, but if you own several million shares you begin to want a scheme that will bypass double taxation, and there are a bunch of them. One is to keep dividends artificially low (Apple, the largest corporation in the world) paid $0 in dividends for most of its life, accumulating close to a trillion in cash that stayed on its books and so was reflected in the soaring share price. Same for Google. Without looking up actual figures for you, imagine that if you paid $100 for a share of stock that when you bought it, $35 of the share was in fact cash–so you were only undertaking $65 of risk (assuming the folks who ran the company did not choose to piss away your cash, which they might, on a merger or acquisition, the so-called “war chest” in M&A)

      Other mechanisms to avoid taxes as part of remuneration was a path blazed again by technology companies, the odious stock option as part of executive compensation. This gives the IRS and accountants fits. If XYZ Corp hired a new Exec VP, they might lure the VP onboard with an outright stock grant as a signing bonus, but to sweeten the deal they’d also grant stock options which, to avoid getting too technical here, meant the exec had the option to buy more of the stock at a future time (usually after 2-3 years) at a fixed price. Suppose for example XYZ is selling at $100/share the day the VP comes on board. We give him 20,000 shares outright, logical as we want him (or godforbid her) to have an interest in corporate success, but we ALSO give another 20,000 stock options which cannot be exercised for 2 years. Two years later, XYZ is selling for $400 per share (think Google) but our Exec has options at $100, making an instant, taxable profit of $300 per share if the options are exercised. If the stock had gone down or stayed stable, well, the exec just waits. The options do not expire and can be exercised at any time. But back in Year #1, when the options were granted, what were they worth? The IRS ruled they could not be taxed at all since they had no intrinsic value, a decision that left tech-execs giddy with compensation that eventually might be worth more than several Central American countries–and I do not use that as a figure of speech. On the other side of that coin–what is the prospects of a company if a few people hold options to buy several million shares at what is likely to be a bargain price, thus diluting the value of the company at this time. People buy stock with an eye to the future–how can you proceed if there is a “mortgage” hanging over the company’s head? Eventually, accounting rules were changed–but not retroactively. There are still billions of rights and warrants waiting to be exercised, most hiding in individual trusts and accounts to be left to the execs kids who can’t make do with less than 2 Ferraris.

      Finally, the biggest theft of all is performance salaries that give cash and bonuses to executives that rest on the company’s stock performance. An exec could watch a company spiraling down the bowl for a year or two, then see the economy turn around, and take credit for the sudden upswing, even after doing nothing at all. The only penalty for poor performance is to be fired, and that is not likely to happen if it can be shown that the general economy sucked. No one expects miracles–BUT if the general economy did turn around, in that tide that floats all boats, the exec gets the performance bonus, perhaps several million dollars worth after having done borscht to earn it.

      Nice work if you can get it.

      That said, Dollar$ prefers the systems used in several European countries where no executive can receive pay in excess of 250 or 300 times a line worker’s. That doesn’t solve rapacious options, but until someone succeeds in learning how to value them at origination, its a start. Performance bonuses should simply not exist. They give individuals motive to plan all business to be a short term proposition. Who gives a flying f*** about 10 years from now when your bonus depends on the next quarter?

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