Perry Glasser

Posts Tagged ‘Wall Street’

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!

 

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.

DEFLATION, OIL PANIC, AND THE SKIDS #1

In Business, Economics, Economy, EDUCATION, Finance on January 7, 2015 at 12:59 pm

Ever aware that Dollar$ primary mission is to educate and only occasionally pontificate, let’s talk about prosperity, gloom, and deflation.

Economic activity is based on expectations. You buy your new car because you expect you will need it before the old jalopy breaks down completely; you buy health insurance because you expect you will someday, somehow, need it; you buy baseball tickets in January because you expect to go to  the game in April.

Balance means stable prices.

Balance means stable prices.

Prosperity

Shared expectations influence supply and demand, and therefore influence prices. If International Widget (IW) expects to sell many widgets in the forthcoming year, it will hasten to make more widgets, perhaps borrowing money to increase productivity. Under the expectation of prosperity, IW may hire more workers, and if long-term expectations are high, IW may even build a brand new, more efficient widget plant.  If widget demand increases even beyond IW’s ability to create supply, the widget shortage will drive the price of widgets higher. IW will respond by increasing volume and price, reap profits, pay dividends, employ yet more people, give key employees wage increases, and the Buccaneers who direct IW may pay themselves  bonuses that look like telephone numbers, including area codes. They will buy Caribbean islands or condos in Manhattan.  The spiral upward is called an inflationary spiral; rising prices are not terrifying if wages and employment keep pace.

Gloom

saupload_The-Deflationary-SpiralBut suppose IW’s best leadership expects the market for widgets is spiraling downward. Perhaps there are insurmountable problems in the supply chain. Perhaps bankers are unwilling to part with loan money for fear of never getting paid back. Rather than pay people for playing pinochle while their widget machines stand idle, 10 percent of the IW workforce is fired. The Manhattan condo market freezes, and the IW private jet makes fewer flights to the Caribbean. The price of widgets will plunge because the people who use widgets know that to meet the slowdown, IW will cut prices and hope to make up in volume what they are losing in price. The spiral down is called deflation; falling prices are not terrifying if they are gradual and do not continue for any great length of time.

The gloom and prosperity scenarios are the ordinary stuff of economic life, but Dollar$ readers only need to bear in mind that in both cases today’s economic decisions are made based on expectations of tomorrow’s conditions.

The Past

The general tone of American economic life for more than 20 years has been cautious optimism because the range of change in economic life has been modest, sure, and steady. Sure, there have been bubbles and crashes, but there is a reason that in 20 years the Dow Jones Industrial Average has risen 400 percent, from roughly 4,000 to today’s levels well above 16,000. Call it the Goldilocks Economy—it’s neither too hot nor too cold, but is just right.

Home invader and thief, but she knows what she likes.

Home invader and thief, but she knows what she likes.

But America has suffered an extended deflationary spiral, a decade’s worth in the 1930s called The Great Depression. Despite interest rates at virtual zero for most of a decade, from 1992 to 2000, Japan has been in a deflationary spiral.

Playing the expectations game, in an inflationary spiral you spend or invest your money as fast as you can. After all, everything will probably be more expensive tomorrow. It’s best to buy your house, car, 100 shares of IW, or personal jet today.

But in a deflationary spiral, the expectations game makes cash King. What fool would spend a dollar today when the cost of the item tomorrow will be $.90?  But wait… suppose it will drop to $.75? Or $.60?

Where’s my Magic 8-Ball when I need it?eight_ball

What Now?

Does the slide in the price of oil herald of worldwide deflation?

Dollar$ will weigh in soon.

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

 

 

 

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!

MINIMUM WAGE AND JOBS – PITY THE WEASELS!

In Business, Economics, Economy, EDUCATION, Finance, Political Economy, Politics, TAXES on March 29, 2014 at 10:59 am
FINANCIAL RHETORIC

FINANCIAL RHETORIC

Business leaders and their in-pocket legislators are raising their voices to crescendo levels about how a rise in minimum wage laws will destroy jobs. This contempt for logic once again brings Dollar$ to the keyboard to dispel the fog of self-serving rhetoric.

Raising the minimum wage reduces profit; it has nothing to do with the number of jobs. Dollar$ knows of no successful business operated as a public service to create employment opportunities.

Weasels are chasing their tails in fits of anxiety. On the one hand, all those underpaid Citizens vote, on the other hand, Buccaneers fund re-election campaigns.

What to do, O what to do?

Pity the poor Weasels!

This Weasel is so terrified of exposure, it is disguises as a  mongoose.

This Weasel is so terrified of exposure, it is disguises as a mongoose.

Minimum Wage

Minimum wage laws are safeguards against worker exploitation, allegedly set at a level that guarantees a living wage. What constitutes a living wage is open to debate, but whatever that may be, it stands to reason that over time, as inflation makes the cost of living rise, minimum wages must rise to keep pace. They are regional, as they should be, matters of state law. Federal guidelines for federal workers set a benchmark. The current federal minimum wage for non-military projects is $7.25 per hour and goes back to July, 2009.

Everyone knows this. Even Weasels and Buccaneers.

Everyone also knows that the purpose and function of business is to make profit. Dollar$ loses no sleep over this, and Dollar$ implores you to sleep soundly as well. Making money threatens nothing you hold dear. Profit is the engine of every aspect of our society. Irving Berlin wrote music to make money; Shakespeare wrote plays to sell tickets. Michelangelo sold his skills to Renaissance patrons who bid for his services.

Organizations pursue profit like water flows downhill or electrons through wire, following the path of least resistance. Effective management will deploy labor in the most efficient way possible to maximize profit. That’s simply good business practice.

Everyone knows all this, too.

The Buccaneer-Weasel Chorus

So Dollar$ reads with wide-eyed wonder when the Buccaneer-Weasel Chorus lifts their voices to sing about the perils of a raise in the minimum wage laws and how that will cost jobs.

Even Weasels and Buccaneers know this cannot be true.

If it were so, then lowering the minimum wage would create more jobs, and none of us believe for a minute that Ronald McDonald, Mickey Mouse, or your kid on the corner selling lemonade would be hiring if they could pay the help less: they would, instead, be pocketing the difference in wages as increased profit.

No real Buccaneer runs an organization to create jobs. True, the pursuit of profit will make a successful organization expand, and this expansion will incidentally create opportunities and jobs for employees, but Mickey Mouse does not open theme parks in China, France, and Tokyo as a public service to out-of-work Chinese, French, or Japanese workers—Mickey sails under the Jolly Roger and owes allegiance to no nation.

Flag of Business Loyalty

Flag of Business Loyalty

  • Like Mickey, your kid is selling lemonade on the corner because your kid wants profit. Like Mickey. your kid sets prices by calculating the cost of sugar, water, lemon juice, and ice, and then calculating a sales price that makes her labor worth her time—that’s the pursuit of profit.

Neither Mickey nor your kid hires additional labor as an act of charity or public policy because the pursuit of profit requires efficient deployment of labor.

Why hire three lemon-crushers when one will do? What’s the minimum number of ticket-sellers at the gates to the Magic Kingdom on a Fall day in Tokyo?

Raising the Minimum Wage

  • Raising the minimum wage will not put high school kids dishing ice cream out of summer work—someone has to do it because summers do not last.
  • Raising the minimum wage will not put sales people out of work at WalMart—WalMart hires no floor help as an act of public spirited charity; they already hire the fewest number of people they can.
  • Raising the minimum wage will not mean be fewer people in food services—someone still has to flip the burgers and Ronald already they already hire the fewest number of people they can.

Raising the minimum wage reduces profit, and this is why Weasels are chasing their tails. On the one hand, all those underpaid Citizens vote, on the other hand, Buccaneers fund re-election campaigns.

What to do, O what to do?

Pity the poor Weasels!

Send your personal Weasel a note indicating you are willing to pay a nickel more for your next cheeseburger so that the person serving it to you can buy her kid eyeglasses or can make the rent.

Who among us would not?

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 #2 – BURN YOUR PILLOW CASE

In Economics, Economy, EDUCATION, FINANCE FOR THE CLUELESS, Personal Finance, Wall Street on March 19, 2014 at 12:30 pm

“OK, Dollar$, I have a few bucks in the bank, I have no significant consumer debt, and I have steady cash flow from a secure job. I have measured my risk tolerance in terms of my age and psychology, and I am persuaded that I want to get rich slowly to meet specific long term goals, such as buying a house, putting as yet unborn children through college, preparing for my own old age.”

Congratulations, Bunky! You are a grown-up! Its time to take your money out of a pillowcase.

photo-92-e1319326132194Tell your broke-ass friends who insist that the rich own the system and that they know they cannot get ahead that you have decided to join the Dark Side. Dollar$ adored Occupy Wall Street for its goals–who can argue with Justice? but Dollar$ sadly notes the “movement” lasted less than a year. So why not become one of those degenerate rich? While your friends bitch and moan, lusting for the next video game unit, having succumbed to the Consumer Culture that pollutes the mind by implanting false needs, you have decided to take control, take responsibility ad will rise above that.

You will never spend money frivolously or self-indulgently—that’s what children do—but you have goals, you have ambitions, and like it or not, all of us live in the sea of financial life.

You can choose to drown, float, or construct a ship to set sail.

Dollar$ wants you to set sail.

First, you’ll need to build a ship.

Save or Invest?

If you meet the Dollar$ profile, it will be plain that simply saving will have you sink not far from the dock. You work hard, so should your money.

Money in the bank is not working hard; however, it is totally liquid. You need to have some there for ordinary bills and expenses.

Dollar$ Recommendation: a balance of at least 3 months for the young (under 40), and as much as 6 months for the not very young. The Book of Ecclesaistes tells us:

I returned, and saw under the sun, that the race is not to the swift, nor the battle to the strong, neither yet bread to the wise, nor yet riches to men of understanding, nor yet favour to men of skill; but time and chance happeneth to them all.

Or, as Dollar$ interprets The Good Book: Shit happens.

So DO Insure and save against the ay you will have bad luck. Everyone does. Do not let time and chance happenth on your watch.

Say you are minding your own business at a stop light when you get your leg crushed by a cement truck with failed brakes. If you have a disability policy or disability rider on your auto policy that kicks in after 6 months, it is a LOT less expensive than a policy that kicks in after 6 weeks. No sweat for you if you have some liquid assets in the bank, but a disaster if you are living check to check.

If you believe you are trapped, read Dollar$ on how to save more.

The Name of the Game is Averages

If someone offer you Magic Beans and a quick rich scheme, run. But the simple fact is that stocks show an average return of near 10 percent per year over the long term.  In this chart, the red lines are averages: notice, however, that some years are awful, and others are terrific.

Now you know what AVERAGE means.

avg-mkt-rtns-1926-2008-600x409

Some years are dogs; some are stellar.

Compare that average to current bank account returns, which as Dollar$ writes are less than 1 percent. Taking on some risk to average 10 percent seems mandatory instead of accepting a pittance.

Since you are following the Dollars motto, Get Rich Slowly, year-to-year gains and losses are of mildly passing interest. If losses of 10, 20 or even 40 percent trouble you—reset your gauge of Risk Tolerance.

The Marathon

We do not quit running after 2 miles because of a leg cramp. Shooting for an AVERAGE of 8 percent each year is realistic, possible, and will make you rich—slowly.

Think not?

This chart from JP Morgan shows three investors compounding their investments over time. One of them, Susan, starts at 25 and quits at 35.  She still winds up with a mere $850,000, enough dough to rent a tennis pro or two.

Growth over time

 

Dollar$ RecommendationWHAT ARE YOU WATING FOR????

Reassuring the Nervous

Suppose you are 25 years old and are able to invest $2,000 each year, maybe in an IRA, maybe in stocks–just keep it out of that pillowcase.  And after five years, you look with pride at your tidy pot of money. You are now 30, but just then the stock market crashes. They are leaping out of buildings on Wall Street. It’s as bad as the Great Depression—maybe worse.  The Depression lasted 12 years; it was 15 years of investor misery.  What happens to your Dollar$ plan?

Well you are all of 45 years old, a good 20 years from a youngish retirement.  If you’ve maintained investor discipline, you’ve accrued 15 years of investments at bargain basement prices. When the stock market recovers–and it will, since the United States is not going bankrupt any time soon– you may be lucky enough to enjoy a year like 2013, a whopping 32 percent gain in a single year.

All those cheap investments you made for 15 years are paying off! Buy cheap; sell dear! as log as you are dedicated to Get Rich Slowly, down markets are a buying opportunity, Bunky!

The sissie who bailed in 2008-09 go screwed. Those were bad years, and those investors with short term vision took it in the neck. They ran for the exits and took permanent losses because they took the short term view.

Now before someone tells Dollar$ that they were protecting themselves and, perhaps, were too close to retirement, Dollar$ will remind readers that being 65 these days is not old. Folks who are retired should prepare for at least 20 years more of life and so accept judicious risk. Any investor was over 70 in 2008 and had a significant pot of cash at risk….why? What are you? Invulnerable?

For the Dollar$ reader, the Clueless who are not H0peless, the lesson is plain:  Buy and hold, and do not let the vagaries of the markets year to year bother you.

Take a lesson from Monty Python.

Never bury what ain’t dead yet.

Convinced?

Watch for Finance for the Clueless: Investing #3 – Nuts and Bolts

BITCOIN IN WONDERLAND

In Business, Economics, EDUCATION, Finance, Personal Finance, Political Economy, Wall Street, Wall Street Journal on March 14, 2014 at 10:37 am

Curiouser and curiouser!’ cried Alice (she was so much surprised, that for the moment she quite forgot how to speak good English); ‘now I’m opening out like the largest telescope that ever was!

Bitcoin Speculator

Bitcoin Speculator

Just when Dollar$ though the Bitcoin story was dead and safely buried, someone nibbles a few crumbs of Bitcoin Cake and we are back in Wonderland.

Beware of strange substances that are labeled Eat Me.

The Wall Street Journal reports that a Silicon Valley startup called Xapo is trying to become “the Fort Knox of bitcoin.”

Start with how the Journal ought to employ fact-checkers. Xapo is headquartered in Hong Kong, safely away from pesky US regulatory agencies. Sure, they’ve got offices in California, but so does every other financial firm in the world.

Magic Beans

The bitcoin business proposition is like the story Jack and the Beanstalk. (When it comes to bitcoins, metaphors from fantasy and fairytales are unavoidable.) Give us your real cow, and we will give you magic beans! Overnight they will grow to the sky! When you get up there, you’ll meet a giant who wants to devour you! To survive the giant, you have to be a thief and run like Hell!

Bitcoin: Give us your real money! Bitcoin value will grow to the sky. All you need is the heart of a thief!

The Xapo Proposition

Xapo claims to have raised $20 million to construct physical vaults, “the company says are in mountainous regions.” The vaults are to be guarded 24/7. You’ll need an eye scan to enter. Once each day, employees will descend into the vaults to verify passcodes for daily transactions. Indeed, Xapo indicates it will require 24 hours to complete any transaction.

There are no physical coins, of course. What will be down there will be computers Xapo promises will never be connected to the Internet.  The mountain locations are, naturally, top secret. They may, in fact, be in the back of your Mom’s lingerie drawer. What could be more secure?

Xapo has several competitors, testimony to the idea that a lot of people sell snakeoil.

Liquidity

The bottomless credulity of the cyber-community originates with vitamin deficiencies caused by a steady diet of cold pizza and Red Bull for breakfast, watching Goldfinger too many times, the conviction that one can get rich without ever getting out of a chair, and an unshakeable libertarian belief that the arms merchants, sex traffickers, and drug dealers MUST have an untraceable non-government issued currency for money laundering.

Bitcoin Banker

Bitcoin Banker

Criminals are famous for patience and trust. What 3rd World potentate on the lam requires liquidity? Money launderers of all sorts will  have no issue with a 24-hour waiting period.

Security

Xapo’s website reads, “The Xapo Vault offers fully insured storage for long term savings.” The Xapo website indicates that the insurer is “Meridian Insurance.”

Dollar$ best efforts to find Meridian came up with a few casualty and auto business insurers in the Silicon Valley area. There is no chance that any of them could sustain a few million in claims should Xapo somehow go under, never mind the billions in catastrophic losses made possible by the disappearance of an exchange like the late unmourned Mt. Gox. Could Xapo be arranging employee dental care with Meridian?

But Dollar$ wonders most what currency Meridian or any other insurer will use for indemnification. Will your stolen bitcoins be replaced by dollars, yen, or more bitcoins?

Criminals will stick with fiat currency or gold. Only the naïve and stupid will pursue their bitcoin dreams in Wonderland.