Perry Glasser

Posts Tagged ‘Finance’

CONSPIRACY THEORY

In Business, Economics, Economy, Finance, Political Economy, Politics, Wall Street on February 12, 2016 at 1:09 pm
Janet Yellen

Wizard-in-Chief

Dollar$, always eager to explain the inexplicable world of Finance, that realm in which Wall Street Wizards and Corporate Buccaneers run rampant in their never-ending struggle to own, pervert, master, and control Political Weasels, has developed a theory.

 

Why should Plain Money Talk  be any different from every other blog?

 FACTS

2015 saw:

  • unemployment drop to new lows,
  • minimum wage adjusted up,
  • auto sales rise to recent highs,
  • home sales rise to recent highs with no speculative bubble,
  • the cost of gasoline and heating oil sink to new lows,
  • the United States become an oil exporter.

The Fed is so concerned at all this good news that Janet Yellen has begun to tighte credit, a tactic employed to throttle growth and forestall inflation. Yes, the Wizard-in-Chief, Janet Yellen, is worried things are too good.

Some apologist is sure to point out that the second largest economy in the world, China, is hurting. Dollar$ will give that point of view some quick attention.

CHINA

China’s weakening economy should mean the cost of living in the US will drop, meaning you and I will have more money in our pockets to pay off debt or buy more stuff, everything from furniture to T-shirts at Wal-Mart. The US – China trade balance is heavily weighted toward China—the US imports far more goods from China than China imports from the US. If those good become less expensive, the American consumer benefits. This does NOT harm American business.  Maintaining profit margins at lower prices is easy to do. The cost of commodities the world over is dropping because of the slowdown in Chinese demand. Commodities are the stuff that comes out of the ground from tin to lumber and to gold, the stuff from which everything else is made. Everything should be getting cheaper. Every time Wizards predict that Apple will stop selling iPhones in Shanghai, Apple sells another few million units, but at a lesser price. With inexpensive gasoline, Citizens will be driving  to Disneyworld this year, and they will be able to afford the Mouse’s uptick in prices.

This phenomenon confounds the Wizards., who have learned that bad predictions are clickbait, and clicks drive revenues. No one watches CNN until the shit hits the fan and the shelter under the table grows crowded and cramped.

In the face of positive economic news, the US stock market should be soaring. Instead, the Dow-Jones average has stepped off a cliff in 2016, shedding 2,000 points in 8 weeks, more than a trillion dollars worth of value has been erased from the books.

THE CONSPIRACY

Cui bono?

For the past 30 years,  at every presidential election, commentators complained of the choice between Tweedledee and Tweedledum. But this year, it ain’t so.

weasel candidates in days of yore.

US Presidential Candidates Since 1964

 

This year, on the one hand, we have a wealthy, self-funded foul-mouthed injudicious narcissist celebrity never elected to anything anywhere who is much favored by people who have felt disenfranchised for a generation. On the other hand, we have a New York Jew now from Vermont who has never accepted a dime from Buccaneers or Wizards. An older man, his followers are youth because he demands payback from the banks and companies who were too big to fail and in the past 20 years have sucked the economy dry, indenturing students with education debt. On the third hand, we have a woman who is indebted to the old politics, and on the fourth hand, we have a clown car of interchangeable Republicans who lacking economic issues promise to disallow what your neighbors do in their bedrooms while coyly ignoring that for those promises to be fulfilled they will have to rollback several Supreme Court decisions by what by any account has been a conservative court.

Dollar$ sees the common threat. The two leading candidates are not in thrall to Wizard or Buccaneers. Should either get elected, the summer house in the Hamptons, the private jet, and the 10-room Manhattan  condo are all in jeopardy.

How to dissuade Citizens from voting for either?

Scare the piss out of them. Scare the piss out of them by manipulating stock prices downward. It’s only temporary, and it’s not as tricky as it sounds.

  • Claim good news is bad.
  • Threaten us with defunded pensions, evaporating college savings, and the elimination of savings toward the American Dream, a house.
  • Imply that unless Citizens vote the status quo and allow rapacious policies to continue, grass will grow on Main Street as economic activity collapses.

The stock markets should be soaring, but never forget that 90 percent of all trading is electronic and that computer algorithms engage in a global battle to take advantage of a quarter point’s worth of arbitrage. There is no longer any such thing as investor sentiment. As they now say in Wizard country, My algorithm can beat up your algorithm!

Fear is the most potent means of keeping the harridans out of the White House. Without the creation of synthetic Terror, Weasel Business As Usual will come to a halt.

O the horror!

 

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DEFLATION, OIL PANIC, AND THE SKIDS #2

In Business, Economics, Economy, EDUCATION, Finance on January 8, 2015 at 10:05 am
imagesHI5F8ZBL

Is the past our future?

 

 

Dollar$ gazes at the skid in oil prices and asks:  Does the precipitous drop in oil prices presage a worldwide deflationary spiral? Is the world economy contracting so as to calcify economic activity?

In a word: No.

No one will be selling apples on the street any time soon.

 

Oil.

Oil is a commodity, which is to say, like lumber, cattle, gold, and copper, it comes out of the ground to be used to create more sophisticated products like jet fuel, gasoline, nylon, and plastic. Like all commodities, oil’s price is strictly set by supply and demand, a fact less true for many goods and service where supply and demand can be artificially manipulated.

Hatless in the cold.

Hatless in the cold.

Slide11-1024x767

The entire Marketing industry, Prevaricating for Profit,  is devoted to creating false demand. When in 1933 Clark Gable wore no undershirt, the men’s underwear business went into a tailspin. John Kennedy in 1960 insisted on wearing no hat when he spoke at his presidential inauguration; the men’s hat industry has never recovered.

To be sure, hats and undershirts are not commodities. Their worth changes as a matter of fashion, not supply and demand.

OPEC

OPEC is the international oil cartel that has controlled oil’s supply for a generation, but the game changer is a recent innovation. Fracking, it turns out, is cheap enough and ideal in north central United States and southern Canada.

The cartel is losing its grip. The US is going from oil importer to oil exporter. To compete for those petro-dollars, OPEC and especially Saudi Arabia can no longer manipulate supply, but pumped as much as it could. Supply soared. Oil has become a glut on the market.

But at $40 per barrel, fracking becomes uneconomic.  Make no mistake, OPEC would like to see a price for oil that once again leaves OPEC as the only game in town. If that means bankrupting oil exporters not part of the cartel, such as Russia, so be it.

Bye-Bye Putin!

Winners in a Price War

It’s an old-fashioned price war, nothing more. As with all price wars, consumers benefit. Estimates put as much as $1,500 per year in the pockets of ordinary American citizens.

Never forget that the US economy is consumer driven—we like to spend on stuff because we are blessed to be in a places where there is stuff to buy. Expect discretionary products to fly out of stores. That new refrigerator is coming home soon.

The demand for stuff made in the USA will increase in the USA; expect hiring. Elsewhere, not so much because that strong dollar will make US goods seem expensive.

When you read dry-mouthed dire predictions of European disaster because hard-working Germans are tired of supporting spend-thrift Greeks, remember that the GDP of Greece is about 25 percent of New Jersey’s GDP. The drama is interesting, but the world economy is not going down any drain in Athens.

Since the US is an oil exporter, the US dollar grows stronger every day. Would you rather own dollars or euros?  You can’t pay for US oil with euros–it’s really not a choice. For the American consumer, tourist destinations overseas that were prohibitively expensive last year are going to seem to be on sale. Book the flight! Greece needs you money!

Big US oil consumers can lower their prices and still make big profits. Airlines and cruise lines will soon compete on price, instead of competing on service.

Losers.

What’s that Binky? You ask who are the losers? You ask why the stock market plummets with  the price of oil?

Well, oil companies aren’t happy. Along with Big Oil  the losers are the very rich, the institutions and people that had been positioned to enjoy high oil prices. Sheiks and hedge funds are madly selling to gather cash, the better to buy US stocks  when they believe oil prices have bottomed, which will be about $43 per barrel which is where OPEC can comfortably reinstate its hegemony. Much higher than that, and North Dakota gets rich–again.

So the stock market plunge does not presage a deflation spiral, but it seem that for a while we can expect a new set of winners.

WIZARDRY EXPOSED

In Business, Economy, EDUCATION, Finance, Personal Finance, Wall Street Journal on January 6, 2015 at 1:42 pm
WIZARD OF FINANCE

WIZARD OF FINANCE

Financial Wizards feel compelled to offer explanations for any and all stock market perturbations. After all, what’s the point of being a Wizard if you possess no magic?

Besides, how can a Wizard separate a Citizen from hard-earned cash by offering sage advice despite being clueless?

Cohorts of Wizards are in the business of blowing red smoke, green smoke, and blue smoke to impress the rubes that the world of finance is too mysterious and hard to understand for mere mortals, a falsehood that precipitates money.
Nevertheless, smoke remains smoke.

Wizardry Exposed

Wizard advice comes in four flavors:

Subjunctive Mood Mavens: Solemn pronouncements in subjunctive mood are consultant-speak, the language of baseless prognostications, crystal ball gazing bank economists, and other members of  the OUIJA board school of investment advice. They can never be wrong. Dollar$ notes for those who need a grammar refresher that subjunctive mood expresses an idea that is untrue or a wish. Subjunctive mood is especially helpful when waffling. The stock market may go down this year is an utterance that suggests it may also go up. Subjunctive mood is a favorite of the Wizard Street Journal headline writers who have the odious task of filling column inches on days when there is no financial news — which is most days. Greece May be Forced from the Euro Common Market!  Yes, well, it might not be, too.

Hysterics: We pay for slasher movies because we like a good scare; we ride rollercoasters for the same reason. The Wizard who cries “Wolf!” on a near daily basis, unlike the boy in the story, will always find listeners. Like the owner of the clock that stopped who bragged his timepiece was correct twice each day, Doomsayers gather an audience despite being wrong most of the time. Readers who doubt this may want to note that even adjusted for inflation, the Dow Jones Industrial Average, the measure by which most people assess stock the US markets, has gone from below 4,000 in 1994 to hover near 18,000 now. Even adjusted for inflation, any schmuck should realize listening to Doomsayer Hysterics can cost a bundle. If Henny Penny urges you to make your appeal to Foxy Loxy because the sky is falling, don’t be surprised if you turn into Foxy Loxy’s main dinner course.Henny_penny

Snow-Blowers: Ruminating over arcane charts and using an esoteric vocabulary about cups, cliffs, breakout and support levels, peaks and valleys, Snow-Blowers sell unwary Citizens advice based on the premise that graphical patterns in the past will repeat in the future. Such soothsaying is about as accurate as your average racetrack tout who examines past performances. While racetrack touts and technical analysts will leave you equally broke, racetrack touts use a transparent vocabulary. You might also consult the entrails of birds.

Screamers:  When you have to fill a 30-minute TV time slot for five days each week, the only way to maintain an audience is to scream at them.  That’s 200 days each year, a total of 100 hours of annual financial advice. When every study shows that the best way for investments to thrive is a modest, infrequently varied buy-and-hold investing approach, it’s hard to imagine just what there is to scream about, other than trying to draw the audience that draws the advertisers.  I mean, what can Cramer do? Name seven stocks every January and shut up for a year? His bad calls are legendary, but he does not have to be right, he has to be loud.  It’s just show-biz, folks.kramer7

 

 

 

ESCAPE THE STUDENT DEBT TRAP??

In Business, Economics, EDUCATION, Finance, Personal Finance, Wall Street Journal on June 14, 2014 at 10:04 am
St Milton, Nobelist  in Economics, Doyen of the Right.

St Milton, Nobelist in Economics, Doyen of the Right.

Finding new ways to pump money into education as Miguel Palacios seeks to do in today’s Wall Street Journal, is no more than leaning on the bicycle pump with greater vigor to inflate the tire. We saw it in real estate with substandard loans: now we are seeing it again with financial schemes that do little more than bleed profit from students ill-equipped to endure debt no matter how it is structured. Income-share agreements a la Milton Friedman will not rescue higher education until higher education rescues itself, and higher education will not rescue itself until it has incentive to do so. Friedman’s idea was fine, 5o years ago, but the pump today is attached to a balloon already stretched to contain trillions. How much longer can it inflate?

First, let’s address the proliferation of “professionalized” administrators whose experience of classrooms is nil, and let’s limit their compensation to a single-digit multiple of teaching personnel. We can do this at any US school accepting US money—which is all of them, public and private. Should any private school express horror, all it needs to do is stop accepting Federal funds in the form of student loans: then the Trustees can then pay a president anything they wish.  If it is good enough for Harvard, it is good enough for Oral Roberts University.

Second, let’s reconsider what we want higher education to be. Do we have the courage to stop equating “education” with “training?” Are our children empty vessels to be filled so they may take their places at the machine, or do we want to train our children to be thinking leaders?

Third, outsourcing job training to prospective employees has to stop. “Hit the ground running” is a metaphor drawn from images of troops dropped into combat from helicopters, but business leaders whose strategic horizons rarely extend beyond the next quarter have to close their copies of Sun Tzu and stop thinking of employees as conscripts. At these prices, youth will eventually not enlist. When that happens, business throughout America will go into a death spiral. Who will be buying the goods and services when an entire generation is already so underwater no one can borrow to buy houses and cars? Before we demand that youth borrow tens of thousands of dollars to mold themselves to a vision that business itself will discard in a heartbeat, and before telling laid-off employees to “retool,” let’s see the return of ad that read, “College grad wanted. Will train.”

Another productive college grad.

Another productive college grad.

Fourth, scrub campuses clean of cruise ship personnel, those pleasant folks who for 10 months each year deliver non-teaching services to students. They account for more payroll than all teachers. Can’t a campus go forward without offices devoted to diversity, racial and ethnic education, and the rest of the panoply of politically correct educational goals with no cognate in the real world? Can an academic year pass without barbecues, fairs, or Frisbee competitions?No wonder kids are lured into majoring in Women’s Studies or Conflict Resolution: they’ve gotten the notion that such careers exist.

Finally, for those of us who demand American employees be competitive and fear they are not, consider the long view on American education. Literacy meant mandatory education through 6th grade, then 10th grade, then 12th grade. Do we have the vision to acknowledge that American prosperity and security at this time requires a population that can access education through the 14th grade? Are we brave enough to say it? — education is an entitlement because it promotes a public, widespread good.

The question is not whether we can afford it, but whether we can continue to pretend that we cannot.

STUDENT DEBT – THE NATIONAL ROAD TO PALOOKAVILLE

In Business, Economics, Economy, EDUCATION, Political Economy, Politics on May 7, 2014 at 11:05 am

Buccaneers, those captains if industry who have offloaded their training costs to trainees, are sending themselves and the United States on a one-way trip to Palookaville.

If we create a generation that cannot afford new housing, cannot afford new cars, are unable to purchase or  enjoy the fundamental goods and services our economy provides, hesitate to marry, delay child-bearing, we will arrive in Palookaville.

The American economy is choking itself to death, and is doing so at the expense of youth.

The Crisis

Evidence that we face a crisis abounds. Dollar$ does not have to work hard to make the case. Student debt is now greater than all credit card and mortgage debt, surpassing a trillion dollars.

student tuition earning Fortune Magazine

student tuition earnings
Fortune Magazine

 

Dollar$ does not imagine this calls exclusively for a financial remedy.

Yes, for a decade and more, the cost of higher education rose faster than any other sector of our economy. Policies pump money into Education with no incentive on Education to reduce costs. Administrators proliferate, non-teaching personnel pop up faster than toadstools in Oregon after rain, the teaching-productivity of professors decline.

But blaming the greed of higher education for the debt crisis is like complaining that ticket prices at sports events are too high because professional players are overpaid.

This is America: wages and compensation are set by markets, and the rule of markets is whatever the traffic will bear. Every CEO loves that rule.

Mortgage and Students

Consider: when money was pumped into the mortgage market, the resulting balloon and eventual collapse rocked the world economy in ways from which it has still not recovered.

The similarities between that mortgage market and the market for student debt are breathtaking—quasi-government agencies, favorable loan rates, and loose regulation.

But there is a difference: a mortgagee can walk away from real estate and leave banks owning worthless property, students cannot walk away from their education. They get to keep what is in their heads.

In fact, we have passed laws that safeguard student debt — not students — even in bankruptcy.  Should a former student go broke, they can seek financial relief in Bankruptcy Court, but no court will release anyone from student loans.

The only way out of student debt is death.

So with apologies to followers of Senator Elizabeth Warren, other well-intentioned Weasels, and the legions of Wizards ever-eager to brew a new potion of loan and grant combination to foist on youth, Dollar$ maintains the solution is not to make higher education “affordable.”

The solution is to champion higher education as an entitlement.

Education must be free.

The Platform

Access to two years of higher education is a right of every citizen.

This is no money giveaway, though the usual Blue Meanies will choke on it.

The program is necessary for the preservation of our democracy, the maintenance of our standard of living, and to liberate forthcoming generations from a lifetime of debt.

In 1944, The United States passed the GI Bill, which promised every veteran free tuition and living costs while in school. Who among us would call that bad policy?  The United States embarked on a rising tide of growth that benefited every economic class.  The lesson was plain: general education benefits us all.

If Buccaneers tell us the United States is engaged in economic war, why are we taxing only youth in our war effort?

Why do the same patriots who grouse that in terms of education “America is falling behind,” insist that the cost of keeping educational pace with the rest of the world is one that must be borne by students?  When did accruing debt to the point of guaranteeing a lifetime of indentured servitude become an act of patriotic obligation?

Why do the same Buccaneers who grouse they cannot find sufficient employees with the “right” job skillset insist that the cost of training be borne by trainees who are speculating about what higher order skills will be needed in the near and distant future?   When did the phrase “will train” drop from the language of employee recruitment?

 Dollar$ calls for free higher education through the 14th grade.

 

FINANCE FOR THE CLUELESS: INVESTING –THE EIGHT DO’s

In Business, Economics, EDUCATION, Finance, FINANCE FOR THE CLUELESS, Personal Finance, Wall Street on April 23, 2014 at 12:17 pm

If you are unsure you should dip your trembling toe into investment waters, reread FINANCE FOR THE CLUELESS: INVESTING – THE DON’TS right here at Dollar$.

 CAUTION TO THE HARDHEADED 

If you are persuaded that the game is rigged and that age hates youth, deliberately having made money management and life-planning a cruel losing joke, consider that the bad guys will someday kick the bucket.  When they do, will you be among ageing schmucks still claiming injustice or do you want to position yourself to take your place as a leader?

The choice is yours.

If you are a twenty-something ready to grow up, or a thirty-something ready to take your share of the American Dream, you have  come to the right place.

Dollar$ will not equivocate. Here is what you must do to GET RICH SLOWLY.

Should you discover you need to get rich quickly, Dollar$ urges you to bet on race horses. At any racetrack, you will breathe fresh air, find friendly company, free parking, and can probably purchase a half-decent meal. You will quickly go broke, of course, but during the 1:12 it takes for a decent thoroughbred to run 6 furlongs you can scream yourself silly and dream of riches. Quarter horse racing is even faster!

OPEN AN ACCOUNT

Choose a brokerage like Schwab or Ameritrade, any organization that fits your digital lifestyle. Investigate apps or web sites; choose the brokerage that seems most navigable to you for research, purchasing, and tracking your holdings. You will want more as you learn more, but you need to be comfortable with an interface.

The Internet has leveled the cost of doing business, about $7.95 for any online stock trade, so in terms of costs brokerage firms are interchangeable.  At issue for you is service and minimums.

Most brokerages require a minimum amount to open an account: as this is written, Schwab is asking for a measly $500—perfect for the Clueless.

FEATURES

  1. Options. If you can get approved for Options trading, get it.  You will not use this until you have considerable wealth, but it costs nothing to check a box.
  2.  Margin.  Again, check it off and leave it the hell alone until you know what the hell you are doing, and even then think very, very, carefully about borrowing money from your broker to make an asset purchase—which is what Margin trading is about. Remember, your broker is not your partner. Your gains are your gains alone (W00t W00t!), but your losses are your losses alone. If you owe a margin debt, you will owe what you owe no matter what happens.
Margin accounts may have uses, but can be dangerous.

Margin accounts may have uses, but can be dangerous.

You know Tony down at the docks? The guy who lends money to people with no collateral? He is happiest when you pay him, but he does not care if your team lost, the deal went south, or your honey made off with your boodle—he only wants his money and interest back. When he does not get it, he becomes surly. He makes you sell your car, cash in in your kid’s college fund, and if necessary persuade you to these measures by realigning your knee caps with a baseball bat he keeps handy for just that purpose.

Think of your Margin account as Tony. Don’t let anyone get medieval on you.

3. Check Writing. Take it.  Add a measure of liquidity to your assets. You can write an emergency check if you need to—which you should not, but shit happens.

4. Reinvest Dividends. Absolutely. Dividends are how companies share profits with shareholders. Dividends are not interest, but in effect, reinvesting dividends is how your account will draw compound interest.

“He who understands compound interest , earns it ... he who doesn't ... pays it.” Einstein

“He who understands compound interest , earns it … he who doesn’t … pays it.”
Einstein

 

THE EIGHT DO’S AND WHY

1. Buy stock in at least 3 companies traded on either the New York Stock exchange or the OTC (Over the Counter) markets. Be sure these companies are in very different economic sectors. In other words, do not buy 3 media companies, or 3 retail companies, or 3 technology companies, but perhaps buy 1 of each.

You require a measure of diversity. You can buy diversity in a mutual fund, of course, a basket of stocks managed by professionals, but then you pay fees for professional management. Dollar$ cautions the clueless, who by definition are starting small, that the fees will bleed you white. Why start your financial life with a tapeworm?

Diversity is insurance against misfortune. While one sector of the economy may take a hit from unexpected circumstances—such as a change in a government regulatory posture or a political event in a faraway country— the only circumstance that will affect all 3 of your sectors are changes in the overall economic picture, such as a change in interest rates.  For the investor who wants to GET RICH SLOWLY, those dips can be shrugged off because unlike you and me, companies that sell goods and services can within limits raise their prices to recoup what was lost. The price of lumber goes up, the furniture business takes a hit, but next year the price of furniture rises. It’s not as though people will start sitting on the floor.

What constitutes a sector is very subjective. Is Walt Disney a service company or a media company?  Different online research will yield different sector guides. Here is one website that will allow you to bore down to Market Cap leaders by sector.

The final arbiter of what is what is you, Binky, so give special considerations to companies that are conglomerates. General Electric, the oldest company in the Dow Jones Industrial Average, founded by Thomas Edison, makes washing machines, jet engines, and runs an insurance business.  What sector is that?

2. Buy stock in companies that are at least 20 years old.

Ten-year-old companies have a modest track record of survival; twenty-year-olds are even better.

Yes, Dollar$ is aware that young companies are set to grow quickly, but they frequently are headed by untried management and are closer to going broke. Most corporations live little more than a person’s lifetime though the exceptions are remarkablebecause they embrace a culture of change and innovation. 3M Corporation was founded in 1902 to make sandpaper; now they make Post-It notes and Scotch Tape.

Young companies will also gather imitators, which mean ever-increasing competition will drive revenues, but not costs, downward. Someone is bound to improve on the original idea.  If the good Lord in 1985 had whispered in your ear, “Computers,” you may have chuckled at the Divine Wisdom that loaded your portfolio with Kaypro, Atari, Commodore, and Wang. Like last winter’s snow, those companies are now gone.

Avoid the bleeding edge.

3. Buy stock in at least two companies that are multinationals.

DSC_0230Doing business in places where general economic growth is not dependent on the value of US currency is simply prudent. Dollar$ would never bet against the financial muscle of the United States, but Dollar$ is aware that infrastructure build-out in the 3rd world is inevitably followed by consumer demand for a higher standard of living. You do not have to buy stock in a Chinese company to participate in the Chinese economy; you do not need to need to buy stock in a Chilean company to participate in the Chilean economy.  Logos and trademarks Americans see every day are all over the world: UPS, Disney, Starbucks, Pizza Hut… the list is endless.

If you have qualms about such things and think they are imperialistic, ask the folks in Red Square how they like burgers at McDonald’s, or ask Chinese citizens if the prefer iPhones to ‘Droids.

4. Buy stock in companies that pay dividends or, even better, have a history of raising regularly dividends.

Many companies do not share their profits with shareholders via dividends because managers hoard cash for future business investment. While Dollar$ respects the managerial strategy, Dollar$ notes such companies do not suit a strategy to get rich slowly. The Clueless want an opportunity to have their dividends accrue ever more stock.

Better yet, companies that pay dividends suffer less in a downturn because their dividends offer investors a yield, a cushion against losses.

5. Buy and Hold—even if it means going white-knuckled.

On September 16, 2008 the general stock market as measured by the Dow Jones Industrial Average crashed 10 percent in a single day. The Buccaneers who ran major financial institutions were competing to take greater risks for greater profits than any responsible bank should, fudging on what “banking” meant. On Sept 12, 2008 the DJIA was at 11,421.99.  By November 21, it was down to 8046.42 a breathtaking loss of 29 percent in 6 weeks.

Iceland went broke, Lehman Brothers went out of business, and for the first time ever, US citizens heard the phrase, “Too big to fail.”

Anyone who sold to defend his or her assets for fear of total ruin took themselves out of the game. They may have felt safer, but by doing so, they gave up any chance of recovery.

As Dollar$ writes, the DJIA stands above 16,000—which means sellers in 2008 have missed 100 percent gains measured from then, only six years. By selling into a panic, they gave up every opportunity to gain back all they lost and more.

True, if you owned stock in Lehman Brothers you took it in the neck, but if you had a diversified portfolio, over all, you survived and may have even made money.

A wise man once said, “You can’t go broke on a small profit.”

6. Buy shares and add to your portfolio regularly.

Ideally, you may be able to invest with a check-off system from your salary, an arrangement that will allow even those of us lacking personal discipline to take advantage of the maxim: Pay Yourself First.

Regular investing will allow you to take advantage of “dollar-cost averaging.” When stocks are up, you’ll buy fewer shares: when stocks are down, you’ll buy more shares. On average your cost will be somewhere in between. Free yourself from trying to guess if today or tomorrow are better days to buy; let time be your friend.

If your companies thrive and move steadily upwards, your average cost will always be below their current price level.  Over the long haul, stocks historically have gained 7-9 percent annually. Never try to time the market—just be a steady buyer and Get Rich Slowly.

7. Buy Mid and Large Cap companies.

“Cap” refers to capitalization, the sum total of the value of all the shares issued by a company.  Every company issues a different number of shares, so a company floating a million shares priced at $100 per share is worth $100 million dollars, but a company with 5 million shares priced at $50 per share is worth $250 million.  That’s right, the company trading at the lower price is worth more.

Large Cap companies are slow as battleships, but not likely to sink quickly; Mid Cap companies are more nimble and want nothing more than to grow to be Large Cap. They will take more risk, but have a record for taking risks and winning because they really were once Small Caps.

There are plenty of Small Cap companies, and investing in them is a respectable strategy, but Dollar$ does not recommend that to the Clueless: one needs a larger portfolio to overcome the inevitable losses small companies encounter. While a few Small Caps will experience spectacular growth, more will fail or stay stagnant. On average, an investor might do well, but only if the investor has a sufficiently diverse portfolio, unavailable to the Clueless without professional management—which must be paid for.

8. Sell when the reasons you bought a company change or the fundamentals of the business change.

You selected  XYZ company for your portfolio for reasons. Maybe you personally liked the product or the service; maybe liked the company’s competitive position; maybe you liked the company’s record for paying dividends; maybe you read and were persuaded by  the company’s strategic plans; ideally, you liked some combination of all of those.

But if those any of those change, why are you still holding the company? Never fall in love with a stock; review your portfolio regularly, at least every 3 years. Save your loyalty for a lover.

NOW WHAT

Discovering companies that fit the Dollar$ profile from the universe of thousands of companies is, in fact, easy.  You chose your broker because it offered digital tools for Research. Try the “screening” or “filtering” system—pick an economic sector, indicate your requirements in terms of dividends, choose from Large Cap or Mid Cap, etc.

  • Read about the company’s businesses. If you do not understand what they do, go no further. Invest only in what you understand.
  • Invest only in companies that sell services or products you would buy whether you were a business or a consumer.
  • Buy shares in companies that are ranked first or second in their industries.  
  • Be disciplined. Avoid trendy and hot stock tips, whether from your Uncle Fred or a TV pundit who is obliged to scream “news” at an audience every evening. Near term, they may be right: let someone else make that money while you sleep soundly.
  • Invest and relax—let your money work while you sleep and pay no attention to daily, monthly, or even annual trends. You are going for the long haul, and the long haul is steadily upward and has been for hundreds of years.

FINANCE FOR THE CLUELESS: INVESTING – THE DON’TS

In Economics, Economy, EDUCATION, Finance, FINANCE FOR THE CLUELESS on April 5, 2014 at 12:24 pm

OK, Binky, let’s check.

  • You have:
  • Paid off your consumer debt;
  • Are paying off your leveraged debt, such as student loans;
  • Measured and understand risk tolerance as a function of age and psychology;
  • Have wrestled the Beast of Consumer-Celebrity Culture to a stand-off and so are able to resist its psychological hold on you to impulse-buy consumer goods you neither want nor need,
  • Have for emergencies banked at least 3 months of expenses in a purely liquid account (6 months is better);
  • Insured against catastrophe—possibly through your employer; and
  • A reliable flow of revenue.
  • Accepted the Dollars$ plan to GET RICH SLOWLY.

Should you lack any of the above, Dollar$ wishes you well, but advises you to take control of your financial life before attempting to aggregate wealth by investing.

SHOULD NEVER HAVE SET SAIL

SHOULD NEVER HAVE SET SAIL

You do not want to attempt to sail across a stormy ocean in a vessel that leaks. If you are sailing with a partner, you may also risk thinking you need to jettison the love of your life—but that won’t plug the leaks in your boat.

Dollar$ is well aware of the gazillion investment gurus offering all manner of “free” advice designed to give the Clueless investor an illusion of control by suggesting investment strategies that invite Wizards into their lives. Wizards cast arcane spells that universally reduce to one spell.

Binky, since you are too stupid to be a Wizard, give us your money and for a modest fee we will take care of your investments for you.

Dollar$ maintains that  the basics of money management are simple enough for a carrot; he is also certain that Wizards blow smoke the better to separate the Clueless from their money. Further, he does not doubt for a moment that their pals, the Weasels, elected officials, structure American education so that Citizens remain ignorant of how they are getting screwed by Buccaneers.

Dollar$ fights the Power.

Expensive Necromancy

Wizards who take what seems like a pittance: 1.5 percent each year for money management are parasites sucking your lifeblood.

But they are not stupid. If they bleed you to death, they will require a new host. It is far better from the Wizard’s perspective to keep you walking around in a weakened state. That way, they feast forever.  They have this philosophy in common with tapeworms.

If the stock market goes up 7 percent in a year, but a Wizard takes 1.5 percent of that, the Wizard is skimming more than 20 percent of your gains. By the way, if the stock market goes down, the Wizard will mumble apologies, and still take his percentage, accelerating your losses. Your Wizard partner wins even when you lose.

Avoid Wizardry!

It’s your LIFE we are talking about!  If you are unwilling to take control of it, someone surely will!

DON’T hand your money over to someone or some institution, not even a mutual fund manager. If the benchmark of a mutual fund performance is, say, the S&P 500, or the Dow Jones Industrial Average, it stands to reason that managed funds MUST do worse almost every year because no manager is taking a percentage. In fact, 70 percent of all managed mutual funds under-perform their unmanaged benchmarks.

The Exceptions

Nothing beats an employer-sponsored retirement plan—a 401k for example. 401ks have rules that require professional money-management, so accept that.

Nothing beats an enforced, pre-tax investment vehicle for wealth accrual. Pony-up every dime you can up to the employer sponsored maximum. Tattoo on your leg the Dollar$ maxim: LEAVE NO MONEY ON THE TABLE. If your employer is matching even as little as $.25 on the dollar, why would you leave it in your employer’s pocket?

Even better, since a 401k is pre-tax money, it reduces your Federal taxes. Look, Binky, if you are in a 20 percent tax bracket, you have no other investment that pays a guaranteed 20 percent the moment you make the investment.

So let professional money management manage your 401k. If you are young, this is no time to be timid. Create a mix of aggressive mutual funds. When you get to 45-ish, you can become more defensive. But there will only be one time in your life when you can sustain and endure bad luck–NOW.

The other exception to resisting professional Wizard management is after you accrue $100,000 in investable money. Dollar$ would then reconsider your portfolio, as life will get complicated and you do not want to be worrying about finance while you are sipping rum drinks from coconuts on your vacation.

Then again, if you accrued $100,000, you are no longer among Clueless, are you?

DON’Ts

DON’T shake with envy over someone making a killing on a hot stock—your goal is to get rich slowly. Congratulate them; take solace in your slower but surer path to a comfortable old age or to aggregating the down payment for that first house.

DON’T pay attention to TV personalities who nightly scream about investments: they are under compulsion to say something new 5 nights each week. Surely, the investment landscape does not change so radically every 24 hours that yesterday’s strategy should be thrown out today.

DON’T pay attention to annual columns in magazines, online, or newspapers in which a bevy of Wizards name their top 3 or top 5 picks for the coming year. How is it that no two Wizards name the same list? Are they throwing darts or do they have a strategy? Could it be the publications want to annually run a second column about how they offer great advice because one of their professional touts will pick winners?

DON’T churn your portfolio. Make strategic plans and review them every 3 years. Markets will go up and down. Hold for the long haul.

DON’T sell in a sharp downturn: they call such moments “Panic” for a reason. Once you sell, you cannot recover. Investors who panicked in 2008 when the markets dropped and the Dow Jones Industrial Average left investors gasping after a plunge from above 14,000 to about 6,500 saw losses of 55 percent! Aaaagh!  Barf!  Rats! If they sold to defend what was left, they missed the subsequent rise that a mere 6 years later has the DJIA over 16,000.  What might have happened if they’d stayed the course and at deep discounts bought more?

If you are among the Clueless but setting out in a secure rowboat, pull at the oars and do not let the occasional storm swamp you.

There will be storms.

You will survive them.

 Coming Soon: The Dollar$ The Dos!

PERSONAL FINANCE FOR THE CLUELESS: INVESTING, THE CAPITAL MARKETS

In Business, Economics, EDUCATION, Finance, FINANCE FOR THE CLUELESS, Personal Finance, Wall Street on March 26, 2014 at 12:27 pm

Dollar$ is well aware of the gazillion resources online where some union of Wizards and Buccaneers blow rhetorical fog that is an alleged explanation of stocks and bonds.

Dollar$ submits that these explanations are deliberately arcane, part of the investment community’s strategy to hunt and bag the Clueless. After making what is simple appear complicated, up pops a talentless sales goon who for a small fee offers to manage your money.

 

WHERE WIZARD HIDE

WHERE WIZARDS LURK

Dollar$ seeks to dispel the fog.

When the Clueless understand what anyone can see, the Clueless are no longer clueless. No situation terrifies Buccaneers and Wizards more.

These are the same stalwarts that over a generation persuaded America that job training is a cost to be borne by the trainee and that education and job training are synonyms. An entire generation has accrued so much debt that they are indentured servants.

It is time to turn the table on the bastards.

Leap beyond the jargon of P/E ratios, large cap, small cap, technical analysis, book value and all the rest, grasp the basics, get started, refine your wisdom as you accrue wealth, seek financial and emotional independence.

A Fantasy

Suppose you are downloading 3 seasons of the Walking Dead because you are far too cool to watch broadcast TV at scheduled times, planning a long weekend of beer, pizza, a fluffy blanket, and a lover watching monsters eat brains. What could be more romantic?

Suddenly, as if in a vision, you imagine a way to supply the world with a new and better widget. Your lover shows up, you describe your plan, and your lover enthusiastically says, “We’ll need some money to get started, but eventually we will make wheelbarrows of dough.”

Hot damn!

Nothing comes easy, but after two years of running the business on a shoestring at 16 hours per day, you’ve proven the concept. You can make and deliver a quality widget for less. You need now to expand enough to get out of the basement. You want to hire some old-school experts in widgetry, and you need 10 employees. You are figuring with the profits that are forthcoming, eventually you will have 10,000 employees. The sky is the limit.

Scariest start-up ever

Scariest start-up ever

Do not laugh. This is how Amazon.com started, with Jeff Bezos sitting on the floor wrapping packages. This is how Facebook started, with Mark Zuckerberg gathering a cadre of code-writing geeks in a Harvard dorm. This is how Hewlett-Packard began—in a garage in Palo Alto. Maybe the scariest start-up in recent history was Fedex: on the first day in business in April 17, 1973, Fedex required 14 jets and 389 employees to deliver 186 packages to 25 cities. The idea was to compete with the US Post Office by charging MORE.

What lunatic would invest in that????

Ideas turn into goods and services that make our lives rich and our wallets fat. This is the miracle of America capitalism.

Capital Markets – Access the Money!

Participation in the public capital markets are the only way for Citizens to partake in that miracle.

Businesses go to the Bond Markets to borrow money. When a Citizen participates in the bond market, the Citizen becomes a lender. Lenders are guaranteed income determined by the face value of the bond, interest based on the rate of return, and an eventual return of principal at a predetermined date. Since part of the investor’s risk is the bankruptcy of the issuing organization, the rate of return (interest) is determined by how solid the issuing organization is.

Note that the investor does not participate in the growth of the issuing organization.

Note, too, that some organizations are not businesses promising interest based on future profits, but are municipalities promising interest payments based on future tax revenues.

Dollar$ hastens to point out that bonds are appropriate for investors with low risk tolerance—the aged and the nervous.

 

Citizen

Citizen

Dollar$ also points out that no investment is without risk. Ask Citizens who held bonds issued by the City of Detroit. Mostly, those bonds are held by large organizations such as labor union pensions funds, but when the fog lifts, those are Citizens. Instead of interest and eventual payment of principal, investors in Detroit’s bonds hope to get twenty cents on the dollar.

Businesses go to the Stock Market to sell shares in the company to willing investors who expect or hope that the good idea will make the value of the shares rise with the good fortune of the company. At some point, if the shares of stock are traded, the investor makes a gain or, if the value of shares goes down, incurs a loss.

For citizens to participate in the stock market requires only that the citizen have a broker, a clear idea of the advantages and disadvantages of different stock investment vehicles, and an investment strategy.

Dollar$ will be writing more soon.

FINANCE FOR THE CLUELESS: INVESTING – BASICS 1

In Economy, EDUCATION, Finance, FINANCE FOR THE CLUELESS, Personal Finance, Political Economy on March 15, 2014 at 12:45 pm
Get Rich Quick Wealth Generators

Get Rich Quick Wealth Generators

Dollar$ Disclaimer

Wall Street Wizards are touts. Touts are eager to sell you the names of winners. On Wall Street, thy will sell you the names of companies that will be fracking the shale deposits deep beneath Central Park once they obtain regulatory permission. They can supply you with the names of organizations accepting reservations for tourism to Mars; they have a list of companies exploring time travel. As wizards, they often use rhetoric that is in the subjunctive mood. They employ a lot of if, maybe, and might.Dollar$ will name no companies. If you want a tout, there are plenty online.Dollar$ Readers seeking to own a Caribbean Island before their 30th birthday are advised to select very wealthy parents or to take all their hard-earned cash and place it on a three race parlay of horses at odds of greater than 10:1, a payoff of a cool million with an initial wager of $1,000.  Bookies will welcome you! The Wolf of Wall Street, a film based on fact, details the life of a Wizard who preyed on investors seeking quick and extraordinary profits.Such investors in the trade are known as “Suckers”; such investment counselors are known as “Millionaires.”

Wall Steet Tout

Wall Steet Tout

Dollar$, therefore, suggests that the Clueless embrace two principles of investing:

Get Rich Slowly

Know It Ain’t Complicated

Indeed, Wizards’ claim to wizardry and Buccaneers guard their freedom to pillage the economically ignorant precisely because they seek to keep Citizens befuddled.

  • “Give us your money so we may guide you!”
  • “Buy shares in International Widget so we may be richer than gods while you struggle to make ends meet!”
  • “Pay us for financial education!”
  • “Do not ask for explanations: It requires higher math!”

Sounds familiar?

Dollar$ writes to  frustrate the bastards.

Should You Have Skin in the Game?

Money in a pillowcase is not secure. Never mind the risk of theft, that money draws no interest, and as such it decreases in purchasing value over time because of inflation.

Dollar$ notes that inflation is not, like Gravity, a Law of Nature. Japan for much of the past 20 years has experienced the opposite, deflation, a fearsome economic consequence of the untrammeled boom Japan enjoyed in the 1980s. Yen in a 20-year pillowcase can no buy more Tokyo real estate than it did two decades ago, which may seem like a great thing unless you bought your Tokyo condo 20 years ago, in which case it is now worth less than cheap sushi. In 2009 the US experienced a year of deflation—which (rightly) scared the piss out of people.

The Fed in the US has lately employed several strategies to avoid deflation tand maintain a comfortable inflation rate of around 3 percent. One strategy is to keep interest rates so low that businesses and consumers perceive Savings as having all the economic advantages of a pillowcase.

If you want more, perhaps it is time for you to consider Investing.

Drop that phone!

Investment Readiness

Not so fast, Bunky.

Investing means placing money at risk.

Never forget that risk-reward correlated. Your insured accounts have almost zero risk, and therefore pay near zero. Up to $250,000 in a US bank covered by FDIC cannot be lost. However, that 3-horse parlay of nags at 10:1 or more pays at so high a rate because it never happens. The true odds are 1,000:1. Someone may win the gazillion dollar lottery, but that’s called gambling, not investing.

You have no right putting your money at risk until.

  • You have a secure job that supplies enough cash flow to meet your expenses.
  • You have NO consumer debt.  If you remain ignorant of the difference between consumer debt and leverage, Dollar$ forgives you, but insists that you reread Dollar$ on How to Spend. The math is simple: should you invest in pursuit of earning 7 percent, or pay off debt where you are forking over 20 percent?
    • For the record, student debt is leverage.
  • You have at least 3 months of expenses in liquid accounts. Liquid means you can get your hands on it quickly.
    • Everyone thinks their job is secure until they show up at the office and find the doors padlocked.
  • You have assessed your risk tolerance.

Risk Tolerance

Glad you asked. Your tolerance for risk consists of two factors that measure your willingness to experience catastrophic losses.

Age. The younger you are, the more willing you should be to undertake risk. If you are in your 20s, if the US goes through 20 years of hard times, such as the Great Depression or Japan’s Deflation Agony, you will be in your 40s when the sun breaks through the clouds, still two decades from anything like retirement, and if you have maintained the Dollar$ steady get-rich-slowly program, you will have amassed assets at bargain basement rates.

Psychology. Never invest in any financial vehicle that will force you to lose sleep. Let someone else make that fortune: you have a life to lead, and your lover, children, and co-workers do not want you to be some sleep-deprived zombie lashing out at them because the $1,000 you put into International Widget has fallen to $800.

Are you ready to go forward?

What to do and when is coming soon!

FINANCE FOR THE CLUELESS:  INVESTING – BASICS 2

PERSONAL FINANCE FOR THE CLUELESS– SPENDING #2 CREDIT

In Business, Economics, EDUCATION, Finance, FINANCE FOR THE CLUELESS, Personal Finance on March 14, 2014 at 12:00 pm

imagesKQE1806T

Credit Card?  Debit Cards?

Spending gets dangerous when the naïve, foolish, and young believe that the plastic in their hand is free money. The problem is so chronic in America that an industry has grown up to rescue people from the consequences of their own lack of control. Never mind that the lack of control is imparted by Consumer Culture.

This is America. If we get you in trouble, we will blame you, but we will always be eager to take your money to get you out of the trouble we put you in.

Dollar$ will save you the rant and the familiar charts, but instead give you the rules.

Never use a Debit card.

There is no exception to this rule because there are no circumstances where a debit card is accepted that a credit card is not.  In fact, those same places accept cash, as well. The less cash you carry, the less likely you will succumb to impulse-buying.

Vendors LOVE debit cards because they transfer your bank balance to their pockets instantly. But a credit card affords you as much as a 3 week float, the time delay between the moment you buy and the moment you pay. In that 3 week period, your money snoozes, perhaps makes your checking account free, perhaps draws interest. It may not be much, but isn’t that nickel better off in your pocket than somewhere else?

If you overdraw with a debit card, your bank will impose usurious fees;

A lost debit card carries large liability if you do not immediately notify the bank of its loss; After 2 days, if your debit card has been in use by a thief, your bank will only offer you suspicion and may hold you responsible for up to $500. But should you lose a credit card, by law, you are only liable for $50.00.

Never ever carry a balance on a credit card.

This is your life we are talking about. Fees and interest mount. The catastrophic results will cripple your economic life, cripple your romantic life, and harm your children as you struggle for years to pay for goods and services you only thought you needed because of the compulsions of consumer culture.

If you have self-discipline problems, throw your plastic away.

If you are carrying credit card debt, pay it off first

You have no financial obligation more pressing, not even saving for retirement. If the leeches are into you for upwards of 20 percent per year, you are like a runner in a marathon bleeding from an artery. The harder you run, the more you bleed. You will eventually drop dead and never cross the finish line. Close your wounds! Spend less until you are free.
There are no services that can pay off your debts other than debt consolidation, a plan that may put money in your pocket month-to-month, but extends the life of your loan. Use debt consolidation if you must, but it’s even better to PAY IT OFF!

Good Debt

Dollar$ make a distinction between taking on debt in a good way vs. taking on debt like a runaway teenager set loose in a mall.

Consumer debt. Borrowing money to satisfy the false cravings instilled by Consumer Culture is always a bad idea. The satisfaction is temporary; the object or service bought will quickly need to be replenished; the payments will go on long after the object is of any use or pleasure.

Leverage. Borrowing money to invest in ways that will create revenue at a faster rate that the interest accrues is always a good idea.  Dollar$ knows you are not General Motors, so we are not talking about durable goods that will pay for themselves by producing more cars sooner. However, Citizens can avail themselves of some opportunities.

untitledReal estate. You have to live somewhere, and mortgage interest is about the last substantial tax deduction available to a Citizen. Mortgage rates are historically low; do not buy a home unless you expect to live in it for more than 5 years. If you are buying residencies as investments with the expectation of putting in sweat equity, Dollar$ salutes you. If you are buying real estate in hopes of a quick flip because prices are soaring rapidly, Dollar$ reminds you of the vast tracts of empty homes in Las Vegas where speculators were left with unfinished projects because real estate boom was swamp gas.

Auto. You need a car, and it is indeed an asset that will enhance your revenue opportunities because it will take you to and from work. In some places, however, automobiles and parking spaces constitute luxuries. You don’t need a car if you live and work in lower Manhattan.

Education. There is no better investment than in yourself. Your earning power over a lifetime soars with a college degree. Dollar$ does NOT subscribe to the Buccaneer mantra that you learn the skills their businesses need right now because these loons cannot predict the future beyond the next quarter.

Dollar$ urges you to major in what you love, but minor in how you will make a living.  Become a Graphic Designer with a minor in Business. Study Literature and minor in Computer Sciences.

Commodities Speculator

Become a generalist: in the digital economy of the 21st century, you will have 6 – 7 careers. You will need to be flexible. If you study a specific vocational skillset, your job will, eventually, be either automated out of existence or outsourced to the 3rd World. Buccaneers will tell you otherwise, but they are the very same people who will be outsourcing your job, expressing regrets, and suggesting you borrow money to return to school to retool.

Screw them. Take control. Lead the happy and productive life.