Any Chance of a Fair Election in 2016?

Although getting any sort of unanimity on political issues is impossible, you can come close when asserting the need that elections be free, open, and honest.  By that I mean that when someone casts his or her ballot for a particular candidate, that voter should have no doubt that the vote will be counted and counted accurately.  Even those candidates who might like the idea of rigging the ballot in their favor a bit will still publicly claim to support fair elections.

Without Fair Elections, Our System of Government is Sunk

This all makes sense.  After all, if the balloting process is corrupted and people find out, the winning candidates will lose legitimacy and their tenure in office will be under a cloud of suspicion.  None of this benefits the office holders, the voters, or our system of government.  Quite the opposite.  Office holders are then seen as usurpers, and thus their decisions are viewed as invalid even if followed.

All that aside, reality seldom matches the ideal.  So it’s reasonable to expect that when counting tens of millions of votes that there will be some errors.  And there will also be a few shady stunts pulled as well.  As long as the margins between the winning and losing candidates are large enough, irregularities are usually just brushed aside as unfortunate, but not enough to have impacted the outcome.  If the margin of victory is wafer-thin, then it’s a very different story.

Two Twentieth Century Elections as Examples

Restricting our discussion to the last half of the twentieth century, there are two presidential elections that stand out:  1960 and 2000.

1960:  Kennedy vs. Nixon

The 1960 election between John F. Kennedy and Richard M. Nixon is instructive partly because of the alleged voting fraud in Chicago under the supervision of the Daley political machine.  In this case, the possible irregularities were significant since Kennedy’s vote tally in Chicago essentially awarded him the presidency.  It is also instructive because even with allegations of a rigged election and vote counting process, the country as a whole accepted the results of the election and the presidency of JFK as valid.

2000:  Bush vs. Gore and the Hanging Chads

The 2000 election between George W. Bush and Al Gore is interesting for a very different reason.  The controversy that erupted on election night didn’t center on accusations of voter fraud by one of the campaigns, but rather on the inability of the ballot counting system to generate an accurate result.  So the election result was not called into question primarily because of fraud, but due to mechanical failure.  Hence we had the notorious case of the “hanging chad.”

For those who might have missed all of this, machine vote counting used in this election depended on each spot on the punch-card ballot being either left solid or punched cleanly through by the voter depending on his or her choice.  What went wrong was that some of the punch cards were not punched properly by the voters, leaving the intended choice of candidates in doubt as the machines couldn’t determine the voters’ intentions without cleanly punched holes in the ballot cards.

With the difference in the vote totals between the two candidates measured in the hundreds, and Florida being the state at that point that would decide who became president, the pressure became intense.  We can remember the images of election judges examining each punch-card in an attempt to determine how the voter actually intended to cast his or her ballot.  As soon as things get that subjective in counting the ballots that will decide who goes to the White House, the decision will wind up being determined in the courts.

With one recount barely favoring George W. Bush, the Supreme Court intervened and ruled against Al Gore’s claim and ended the recounting, effectively giving Bush the presidency with a majority of Electoral College votes while a minority of the popular vote.  It was a recipe for continuing controversy and accusations that Bush’s presidency would be illegitimate.  And that’s what Americans got.

Clinton vs. Trump

This election has been extraordinary for so many reasons.

Neither candidate has a positive popularity rating, and much of the disapproval approaches downright hatred.

Groups like WikiLeaks and Project Veritas have given an unprecedented look into the inside workings of the campaigns, especially the Clinton campaign, and have revealed what are, if accurately reported, criminal actions to rig the vote.

One candidate, Mrs. Clinton, as well as her associates, have been under a continuing investigation by the FBI for fraud.  The email scandal involves  allegations that Mrs. Clinton, during her tenure as secretary of state, stored and transferred classified materials using private, non-secure means which is a felony.

Her and Bill’s Clinton Foundation is also under investigation for influence peddling and “pay to play” schemes where large foreign donors to the Foundation were given preferred access to the secretary of state and other favors from Mrs. Clinton.

We also have the spectacle of the Clinton campaign hiring thugs to disrupt Trump rallies, and in particular to bully women who would dare to betray their gender by showing up to support Trump.  This isn’t a matter of theory, either.  Officials of organizations retained by the Clinton campaign have been fired when leaked emails and hidden videos recorded by Project Veritas revealed their perfidy.

The investigations are continuing through election day.

Mr. Trump has not been immune from damaging revelations either.  A tape turned up that was made eleven years ago revealing some highly offensive comments made at the time by Mr. Trump about women.  The effort may have been made to write it off as juvenile “locker-room” talk, but the damage was done.  Mr. Trump was portrayed as a man who had a pretty aggressive sexual appetite.

Not to be outdone in the sexual scandal arena, old allegations of sexual abuse and rape allegedly committed by Bill Clinton surfaced.  It is questionable just how much impact this had, but it did serve to remind voters of the sleaze that never seems to be far from Mr. Clinton.

I could go on and discuss things such as the bizarre sexual behaviors in which both John Podesta who is Hillary’s campaign chairman and Anthony Weiner who is the husband of Hillary confidant Huma Abedin have been implicated, but it’s safe just to say that this has been one of the sleaziest and most viciously fought campaigns in memory.  Campaign ads and statements by the candidates themselves only reinforce the negative opinion the majority of voters have regarding both candidates.

So Will There be a Fair Election in 2016?

I doubt it — and writing that does not make me happy.  Crooked elections are a disaster for the Republic, compromise the legitimacy of the winners, and humiliate the country in front of a world that closely watches what happens in America.  And bogus elections infuriate the voters.

There are already reports, in the mainstream media no less, of electronic voting machines flipping Trump votes to Clinton.  Officials might point out that these are problems that can and will be fixed, but you have to wonder why the reports are only of Trump votes flipping to Clinton and not the other way around. (The election is in progress as this article is being completed.)

And it’s unlikely that media outlets like CBS are only reporting the instances of Trump voters having trouble getting the machines to register their votes for their choice.  After all, these media organizations are much more likely to be supportive of Mrs. Clinton.  So if Clinton votes were being flipped by these infernal machines to Trump, reports of this would clearly be hitting the news sites.

How We Get a Fair Election

Honestly, I see really only one way that this year-and-a-half-long ordeal ends fairly.  And that’s if one candidate wins with such a blow-out total of electoral votes that all the problems with voting machines, illegal campaign tactics, and outright voter fraud are not large enough to make a difference.

On the other hand, if we have a close election, where the decision rests on one or two states with extremely close popular votes, we can expect legions of attorneys filing an equally unprecedented number of lawsuits that cast doubt over the results for perhaps weeks on end, much like we experienced in 2000.  It’s not a happy prospect with a happy ending.

May we be spared of that fate.

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Why Don’t Our Experiences Match Government Statistics?

If you buy groceries, you might notice a disconnect between what you experience at the store and the number you read in the news regarding inflation.  If you receive Social Security you may wonder why your benefits seem to buy less even though you get no increase because price inflation is supposedly extremely low.
The answer is simple.  Government economic statistics are wrong.  Or, at least, they don’t match the reality people experience.
The good guy who runs explains it all to us.  (I am a subscriber only and receive no benefits if you purchase a subscription.)
In a nutshell …
If you figure unemployment stats they way they were prior to 1980, the number would be about 22% which is almost Great Depression levels.
The reason we don’t see bread-lines in the streets is because almost 60 million are on food stamps which works out to about 1 in 6 in the United States.  Great economy you have rolling there Barak.
And inflation is deliberately massaged down using “hedonics” and other voodoo so the government doesn’t have to give Social Security recipients cost-of-living increases.
Can a nation thrive with all the fraud going on?  If so, how long?  I don’t know.
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Retirement Rescinded – Part Two

In Part One of what is now starting to look more and more like a diatribe against tax-sheltered retirement plans, I discussed some of the problems that I believe are common to employer-sponsored, defined-benefit pensions plans as well as IRA and 401k plans.

Part of my issue with IRAs and 401k plans has to do with what I believe is a long-term bias that can turn into a disaster.

Of course these vehicles are a terrific way to reduce taxes during your earning years while allowing those funds to grow unmolested by taxes.  On the other hand there is no guarantee what the tax rate will be at the time of retirement when withdrawals begin.  So while there should be a net tax savings, that amount cannot be determined for certain prior to retirement.  Tax laws and rates change.

For young people these financial instruments are great.  And a market crash correction is a blessing for those in their 20s and 30s as they get to load up their funds with stocks when they are cheap. And the longer stocks stay depressed, the better.

(It is highly improper any more to speak of a market “crash.”  These declines are now just “corrections.”)

The situation folks approaching age 60 and beyond face is a very different one from those just beginning their careers.  A market that drops 40% the year you retire followed by ten years of moribund growth can be a disaster as your time horizon is very different from the 30 year-old.

And here’s my gripe.  Due to the regulations governing IRA and 401k accounts, there is a limited set of strategies individuals can employ to hedge against a major correction.  And a hedge is something that could be wise as people near or enter retirement.  Should that crash correction happen — and they do, you know — things could get unpleasant really fast.

I keep saying it — people forget how risky common stocks can be.  If you’re a retiree or hope to be one in the next 10 years, look yourself in the mirror and answer these questions:

  • Do I have a plan in place to reconfigure my portfolio, whether tax-sheltered or otherwise, to preserve my wealth in the event of a 40% to 50% market crash correction from which the overall markets will not recover for 10 years?
  • Will I be able to time the implementation of this strategy so I miss most of the draw-down from the crash correction?
  • Or will I do what many do — sit there and hope things turn around?
  • Or will I wind up selling at the bottom in desperation to preserve what’s left?  This is too often what happens.

Maybe you have so much money that a 50% haircut doesn’t matter to you.

Remember that bonds are not immune to market moves.  And the interest US treasuries earn doesn’t even keep up with inflation – if you use honest inflation figures.

I’m very worried.  But maybe that’s just my nature.

My point is simple — the long-term bias that served the IRA and 401k investors so well for decades might turn around and bite them just when they need those funds.

Being in a tax-sheltered fund limits the options to “tail-hedge,” or otherwise take specific actions to keep from being road-kill when the next crash correction arrives.  There are tail-hedging strategies that involve derivative plays and other vehicles that simply cannot be employed in a tax-sheltered fund.

So in an effort to supposedly reduce the amount of risk permitted in your IRA, those making the rules might have instead actually prohibited you from reducing that risk.

I’ll get more specific on this in the next post in this series.

As always, thanks for reading.

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Retirement Rescinded – Part One

What is the likelihood you’ll receive in your retirement the amount you anticipated?  And just how safe are your retirement funds?

It should come as no surprise that all retirement plans depend on earning returns on the principal while funds are being added during working years as well as when funds are being withdrawn during retirement.  If those earnings are below what was anticipated, then the plan has been under-funded and something has to give.

I’ve previous discussed in this blog the massive under-funding of government retirement plans and, indeed, health care plans such as Medicare. Anyone who is not aware that these programs are in serious financial trouble is just not paying attention — or just doesn’t want to think about it.

Even Alan Greenspan, not one of my favorite persons, is sounding an alarm, “Alan Greenspan, former chairman of the Federal Reserve, said the global economy’s inability to produce goods and services efficiently is going to cripple the ability to pay for pensions and health programs for the elderly.”  Alan, where were you when the alarm needed to be sounded at least a couple of decades ago?

And a sluggish economy contributing to reduced investment returns is only one of the problems besetting these government programs.  Over-promising benefits would be another.

Okay, so chalk off Social Security and Medicare.  Not entirely, but at least at their promised benefit levels.  That’s strike number one against our current and future retirees.

Plans sponsored by businesses and unions aren’t in much better shape as the 400,000 members of the Centrals States Pension Fund have learned.  As I’ve pointed out before, this education regarding under-performing pension funds is going to be spread far and wide in the coming years.  Central States is just one preview of coming attractions. Grandmas and grandpas today are not going to have as carefree of retirements as my grandparents enjoyed simply because defined benefit pension plans have not generated the returns needed to provide the benefits at the levels promised.  Strike two.

But what about IRA and 401k plans? What’s the deal with these?

Well, to start off with, there’s a mindset out there bordering on hysteria that suggests that these retirement funds might be frozen, seized, have their terms changed by government regulation, or otherwise rendered less valuable than anticipated due to a national financial crisis. Lurid possibilities are presented typically accompanied by the recommendation that folks should close these accounts, take the tax and/or penalty hits, and stuff the money in gold bullion held personally. Nonsense.

Well, almost nonsense. Sort of.

I’ll assume my readers know what 401k and IRA plans are.  If you’re unclear, just click on the terms in the previous sentence and the folks at Investopedia will get you up to speed. These plans offers a highly desirable means for building funds for retirement unmolested by taxation until it’s time to draw out funds in the golden years.

So what can go wrong?  Plenty.

First, a 401k or IRA can suffer from the same problem as the other retirement plans I just mentioned – investment returns below expectations resulting in either an accelerated draw-down rate during retirement, or a shortened time horizon over which the retiree can expect to receive benefits.

Second, if you are paying someone to manage this for you, they are taking fees which reduce your returns. Of course those performing this service deserve their pay, especially when successful. Advisers will have several model portfolios and will recommend the one that their research indicates looks best for your particular situation.

That said, I believe there is a bias present which defines success as beating a particular index. Which means that if the index to which your fund is compared drops by 4% and your fund drops by 3%, your investment is deemed a success for the relevant time horizon.

There’s also a long-term investing bias. For those beginning their investment careers, this can be a great thing, and these folks get to buy low during market corrections.  (We are no longer allowed to have “crashes.”)  And one can take the perspective that the deeper and longer the correction the better – when you’re young.

But if you’re 60 t0 65 and your fund takes a 35% haircut, it will be years before you get back to even.  This will result in sleepless nights.  And the possibility of corrections in the amount of 35% or more have not been repealed.

I’ve said it before, people do not realize how risky common stocks can be. And if your IRA or 401k are full of the things, your retirement, to the degree you are depending on withdrawals from those funds, is in danger of disappointing very badly.

I will quickly be remonstrated for not pointing out that folks near their retirement years should have a very different portfolio than someone who’s 25. Okay, I just pointed it out, and I agree.

But I will also point out that this is not my grandparents’ market where satisfactory returns can be earned on 10-year treasuries, bank certificates of deposit, and utility stocks. Try stuffing your fund with those now and you had best have a much larger principal on which to draw interest and dividends than most have.

So people chase yield.  Or attempt to trade the equity markets in their retirement funds in the hope of ramping up the return to something that allows withdrawals to provide the living standard they had hoped for when they started the plans.

I’m going to let those thoughts sink in for a while before I continue with some specific reasons I dislike IRA and 401k plans – which I’ll do in Part Two.





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Retirees Are the New Endangered Species

Sunday morning here in the Midwest sees the local iHop busy with folks just getting out of church. Many of those customers are senior citizens –  retirees. If I’m right, this will change over the next few years. Why and it what way are topics I plan to address in the coming months.

People underestimate the probability of things going terribly wrong for the economy or for their own finances. Maybe they don’t have the capacity to work through what they would do if their finances blew up. Perhaps they think that their pensions, 401k and IRA funds, and Social Security are secure. Perhaps they have no point of reference when it comes to mass failure of institutions on which they had placed their financial hopes.  Whatever the reason, the hope and confidence that millions have placed in financial intermediaries and governments for a secure retirement are going to turn to disappointment and despair.

Thing are already getting frayed at the edges. For example, how many members of the Teamsters Central States Fund expected to get a cut in retirement benefits by at least 60%?  Can other pension funds blow up?  Of course.  And they will.  We just don’t know who’ll be next and when.

Pension funds are massively underfunded, just like Medicare and Social Security.  Benefit cuts are assured.  Retirees need to have at least a Plan B if not a Plan C to implement in case they are determined to be “too wealthy” to continue to receive full Medicare or SS benefits.  Means testing is likely.

There is no agency that can backstop even a very small percentage of private pension funds if they go insolvent.  Well, the government could just print the billions or trillions needed and put the money into people’s bank accounts.  But we know what that would cause.

I’m not the first one to say it, “The most endangered species in the US is the retiree.”

Surviving this pension fund pile-up is more a matter of getting the underlying causes of market moves and disruptions right so the right strategy is employed at the right time.  Such information will likely not be provided to the retail investor by the brokerages.  I mean, did they issue the warning in 2000 or 2006-08?  Okay, so why would one think they would do so now?

So we all have to ask ourselves what we’d do if the value of the income we receive in our retirements were to drop by 50% or more.  What if the components of one’s IRA or 401k cratered and the government stepped in to “bail you out” by replacing the securities in your retirement fund with 30-year Treasuries earning 3% that cannot be sold or redeemed until maturity?

Maybe it won’t happen.  Maybe it will be worse.  Even if I were a world-class expert at analyzing macroeconomic data and government statistics, what good is that if the data is manipulated?

Those of us who are not yet retired need to get to work on this at once.  One possibility is creating a micro business that one can carry into retirement.  After all, there are only so many stores that need greeters.

I the pension disaster materializes as I expect, Grandma and Grandpa will be off to iHop one Sunday morning, but this time as employees rather than as customers.

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Russia, Israel, Iraq, Goldman, Sex and More

(The following is one of my “classics” that was written in July of 2014.  I post it now as a testimony to our government’s inability to fix the world since most of it reads like it could have been written today. See what you think.)

I feel compelled to write to you tonight. But on what topic shall I write? I’m pulled in so many directions. I try to avoid being classified as “doom enthusiast,” but it’s tough to ignore the things that are going wrong world-wide. Some of them might very well smack us right in our tail-ends. Let’s take a brief inventory and see if I can pick something out on which I can focus my meager analytical abilities.

  • Iraq is deteriorating into just about what one would expect: a failed state. Now this ISIS outfit seems to have reached Baghdad, and unconfirmed reports claim it has either taken or is shelling Baghdad International Airport. So much for trillions of dollars and a whole lot of injured or dead U. S. soldiers over the years. Not to mention the horrible conditions the people of Iraq have had to endure. The area is no stranger to religious wars, so what did the fools who started and perpetuated all this Iraq war stuff expect? World improvement is not a discipline in which governments have had many successes. But persist they will. Blockheads.
  • Closer to home, our southern border with Mexico is solid as a sieve. If there’s a policy for handling those streaming into our country, I sure cannot discern what it is. It’s not even clear who is responsible for dealing with the situation. I’m all for people having the opportunity to pursue a better life. In fact, I happen to be in that category. But this is out of control. And shouldn’t the leadership of Mexico be embarrassed by the fact that so many want to get out of their country?
  • Hamas is launching its notoriously poorly-directed rockets into Israel. I’ve never seen one of their rockets, but they must sort of be like jumbo-sized bottle rockets. You set the thing off and are just happy it doesn’t turn around and hit you in the butt. Israel has no such limitations. They have plenty of munitions that can hit the target. And they’re not afraid to use them. For some strange reason each fool who takes over the White House makes a magnificently futile effort to fix this problem between Israel and the Palestinians. It’s like some ritual they have to follow. Lemmings, the bunch of them.
  • President Putin made some remarks in the last day or so that could be considered to be distinctly uncharitable to the U. S. government. I recommend you read those remarks. I also recommend caution in dealing with him. Unlike Hamas, Mr. Putin’s weapons are unlikely to miss their targets. I actually have respect for Mr. Putin. Not that I’d want him as our leader, but he actually makes statements that sound like they make sense. And he hasn’t invaded Ukraine yet, and that makes me happy. So, at great risk to my reputation, I’m prepared to accept that he might not be a blockhead. Perhaps he’s being sincere. Or perhaps he’s just playing a very carefully planned game of chess. But I’m pretty sure he should not be ignored.
  • While on the subject of Mr. Putin, reports are that he’s trying to create an anti-U.S. dollar alliance of countries. Not that I blame him. Anyone who wants to sit on a pile of federal reserve notes or US treasuries is a lunatic in my opinion. The monetary and fiscal policies being pursued in the US are certainly not dollar positive. The great masses of US citizens are blissfully unaware of all of this. Although they are starting to figure out from their visits to the grocery store that something’s not right with the economy. I suspect they will be given plenty of additional evidence of the weakness of our economy in the near future.
  • I know very well what hyperinflation is. It’s not just jumbo-sized inflation, but rather a repudiation of the currency itself. The value of the currency drops so dramatically in so short a period of time that it collapses into worthlessness, devastating the country. I’ve been listening to well-educated and well-informed economists and investors predict hyperinflation for the US for some time. It seems like the date of its predicted inception keeps getting pushing into the future by these economists making us wonder how serious the threat really is. Since I’ve been accused of being a “doom enthusiast” I’m not going to declare the threat of hyperinflation to be just a phantom. I’m prepared to believe the threat is real — it’s just that timing problem again. Why do I believe the threat is real? Because many of the factors that have lead to hyperinflation in other countries are firmly in place here. John Williams seems like a level-headed and very bright economist. His site can be a big help for those exploring this disturbing topic.
  • Another disturbing topic is the current news about Goldman Sachs. They stand accused by a group of former female employees of, well, I’ll let you read an excerpt from the Bloomberg news story yourselves: “Women report a ‘boy’s club’ atmosphere, where binge drinking is common and women are either sexualized or ignored,” according to the [court] filing. While I abhor this behavior, if it did indeed happen, the lunacy of this is that of all the things Goldman could be accused of… You can finish that sentence yourselves.

See? Look what happens. I don’t even scratch the surface in making a list of the things gone haywire only to find that this blog post has gone on long enough. I clearly need to do a better job of planning what I want to say to you. I recognize the struggle it must be for you to plow through my musings. I only hope you are rewarded in some way or another for considering what I’ve laid out before you.

Thank you for reading. Peace.

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Is Indifference Shaping Our Future?

I am troubled tonight. Not so much over the loss of freedoms we’ve experienced in this country, although that deeply concerns me. Not even the economic crises I see in the future. It’s a bigger problem because I believe it feeds that loss of freedoms, both political and economic.

So please excuse me if my writing is a bit disjointed. I’m writing more from the stirrings of my heart than from an attempt at creating logical arguments. And since I understand how dangerous that can be, I thought I ought to warn you first.

I’m troubled because we seem to be encountering something of a stilling of what used to be called the American spirit. I find something else. Indifference. Willful ignorance.

When visiting with various friends and acquaintances recently, I was struck not so much by the dismal lack of knowledge of world events we encountered, or even by their indifference. What’s worse is I encountered people who are not only ignorant of what is happening in their own country, but are hostile to even discussing or learning about national or world affairs. For example, I was remonstrated for even bringing up Iraq as though I’d uttered some vulgarity. That I had callously invaded their most personal thoughts. I assure you, such was not our intention or desire.

And what causes me so much disquiet is considering this attitude of indifference in the context of a famous quote by Thomas Jefferson — a man for whom I have great respect.

“Those who expect to be both ignorant and free, expect what never was and never will be.” ― Thomas Jefferson

Happily, I also did find some folks who were very eager to discuss world events. I’m not sure I added a lot to the inventory of knowledge, but it somehow made me feel better to be in the company of people who care. Even an honest, civilized disagreement is better than being met with silent voices and blank stares. For that brief time I was part of a community — people engaged in a common project who were eager to draw on each others’ thoughts as a means of furthering our progress in that common project.

I wonder what causes a desire to be divorced from society’s ongoing discourse?  I’ve chosen not to attempt to answer that question as such possibilities that run through my mind could be classified a distinctly uncharitable. And I’m just not going there tonight.

What concerns me the most is that if Mr. Jefferson is correct, we could be in more trouble than I thought.

I’m under no “Middle School Civics Class” delusions. I realize that much of what is spoon-fed to students about how the political and legislative processes work is more wishful thinking than factual. The real world of politics is utterly divorced from the propaganda the kids are fed. Most figure that out pretty quickly. Where they go with that realization is of prime importance.

Perhaps it’s because neither compulsory military service nor confiscatory taxation are parts of young people’s lives that they acquire a certain indifference to national and world affairs.

But for adults, taxation, military adventures, and economic policies do impact them profoundly and do affect their ability to enjoy the results of their labors. And I predict that those government policies and their results will impact all of us even more in the years ahead. Especially those who are nearing retirement. That retirement will be repealed for many Americans I consider to be an established fact.  I don’t expect that to go over well.

So I’ll classify this brief essay as a plea for engagement in society’s ongoing discourse. Not some wild plunge into political campaigns — I’d never suggest people do things I would never consider. Just to be aware of what’s going on and to be prepared to think about and discuss those events.

Anyway, don’t you want to know why things are happening to you that you might better formulate your own actions the better to improve your lives? I truly hope so. And to the degree that you pursue that enlightenment, I wish you the very best and all the happiness in the world.

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The US Government Hoarding Disorder

We’re all familiar with those poor souls who are plagued with what’s called a hording disorder. You’ve seen them on television specials, perhaps. Or maybe you live with one.  Their entire houses are often filled with junk that is remarkable in its volume and uselessness. And sometimes it gets so severe that it’s hard for family members to find any space even to live. I believe its one manifestation of Obsessive-Compulsive Disorder or OCD.

I have some friends who’ve had to deal with this illness, and it can have disastrous consequences.  The wife/mother kept so much junk that whole areas of the garage and basement not to mention closets were inaccessible.  Her case was relatively mild in that they did have rooms with enough free space that family members could have a bed and get some sleep.  But not much else.

The problem resolved itself, at least temporarily, when the house finally caught fire, effectively cleaning out her stash of junk.  Fortunately, no one was injured.  All in all it was a small mercy.  Insurance to the rescue.  However it remains to be seen if the house, now reconstructed, will once again get filled with useless items.  Unless her problem has been dealt with, the answer is probably yes.

It occurs to me that our federal government has the same problem.  Only instead of hoarding junk it hoards programs and departments that have no relevancy to current needs.  Unlike a room full of junk at home, maintaining useless programs and departments have a real financial cost.

The excuses are so similar.  “Well, it might come in useful someday,” would be one.  “You never know when we’ll need that and it would be awful to be without it,” is another.  Examples?

One would be the Selective Service System.  Right now a debate is raging as to whether the nation should register women as well as men.  What about a debate as to whether we still need an agency that has had nothing to do since the early 1970’s?  Do we really think a military situation is going to erupt that will require the rapid infusion of new draftees?  Especially when such a large portion of top military brass wants nothing to do with conscripts but vastly prefers volunteers?

I just happened to choose Selective Service since it’s in the news.  You can choose the programs and agencies you wish for further examples of Government Hoarding Disorder.  In fact, you should do that.  Not only you, but so should your friends and acquaintances.  Suggest it to them.

Why?  Simple.  People commonly have their “special programs” that they don’t think the nation can do without.  And if citizens have those preferences, you can guarantee that legislators, not to mention those leading those government agencies and programs, feel even stronger.

Assuming elected leadership agrees and wishes to satiate its limitless desire for growing the government, Government Hoarding Disorder will be yet one more contributor to national bankruptcy.

Of all the presidents who served within the collective memories of those living in the US today, Ronald Reagan is probably remembered as the foremost exponent of limiting the size of government.  In fact, in his campaign against incumbent Jimmy Carter, candidate Reagan criticized the Department of Energy as useless.  Yet, somehow, that department continues today.

If Reagan was unwilling or unable to get rid of a department he deemed useless, what’s the chance of one of the current contenders for the office of president doing so?  Nil.

Hence it may well be that our case of Government Hoarding Disorder will continue until our national financial house burns down.

By the way, who is it who said that there is nothing so permanent as a temporary government program?

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Betting on the Horse or the Jockey?

Anyone who knows much about my views on the markets is aware of my belief that the precious metals sector offers some excellent opportunities for price appreciation, especially after having been beaten with the ugly stick for the past few years. That said, there’s no doubt that mining is a nasty business. All sorts of things can, and often do, go wrong.

Precious metals miners can be devastated by a catastrophic mine collapse. Their assets can be confiscated by hostile governments. Environmental regulations can stop a project dead, or hang it up in negotiations with authorities for years. Their activities create toxic byproducts. Financing is a problem. Labor relations are a risk.  Volatile energy costs are a big factor. Speaking of volatility, the prices of gold and silver are subject to dramatic moves. And if the company survives all of this there may be nothing at the bottom of the hole.

On the other hand, if what’s found at the bottom of the hole is what they’re looking for, it is valuable.  In fact, it’s very valuable. And it has been in demand for thousands of years.

Given all these factors it’s no surprise that the mining stocks are some of the most volatile stocks in the market.  Even buying an ETF such as GDX is to engage with volatility.

If you’re willing to accept the volatility and risk, individual precious metals miners can be — well, they can turn out to be gold mines. One such firm that’s worthy of consideration is McEwen Mining (NYSE:MUX).

McEwen Mining Inc. is a growing gold and silver producer in the Americas. Rob McEwen, Chairman & Chief Owner, owns 25% of the outstanding shares. The Company’s goal is to qualify for inclusion in the S&P 500. – taken from MUX’s website

After getting a warning some months ago from the NYSE that MUX would be delisted if didn’t get its stock price back above $1.00 per share, CEO Rob McEwen lead the company to accomplish exactly that.

McEwen is something of a legend in the precious metals mining industry having built Goldcorp (NYSE:GG) into the company it is today. Will he do the same for McEwen Mining? He has good reason to. His salary is zero, and he owns 25% of the company.

Not surprisingly, the firm isn’t profitable although its annual losses have declined the past three years. Even with negative earnings, note how little long-term debt the company carries.  One other positive is that it operates in relatively safe jurisdictions thereby reducing much of the country risk.

Would I buy a company in any other industry with the financials MUX has? Without some strong, countervailing positive factors, probably not.  But McEwen is lead by McEwen, who has a phenomenal record of leading such firms and has a ton of his own skin in the game.

This is a case of where I’d bet on the jockey more than on the horse.

(Disclosure:  Craig is not a licensed or registered investment investor, but is simply a private speculator with an opinion who manages only his own money.  At the time of the writing of this article Craig had no position in any of the mentioned securities.)




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Yellen Calling

April 1, 2016

Gold is still stuck in this trading-range between 1210 and 1242. The drop today coincided exactly with the release of the non-farm payrolls report, bouncing right at support at 1210.30 before recovering about half of its daily loss, taking us back to where we were a couple of days ago. Once we get a good, solid close above 1250 that holds for a couple of days we should start to see some fireworks to the upside.

In the, “And you thought we had freely-trading markets” department, the Fed has released Yellen’s daily schedule. So happens that a few days ago she made two telephone calls, one to the president of the Bank of England and another call to the president of the European Central Bank. Each call was for 40 minutes. Just coincidentally, of course, the S&P 500 was in decline just before those two calls.  And again, just coincidentally, it rallied  substantially immediately after those calls were concluded.

Once manipulation destroys the price-discovery function that is what markets are supposed to be all about, you have a broken financial system with traditional analysis methods rendered much less useful. I don’t know how this all will end or when, but it’s not going to be good. On the other hand, maybe things will just continue with this phenomenon, just shifting from one market to another – seems hard to believe, though.

I have a hunch that the market will tire of being pushed around, and will rebel.  It’s going to be really interesting to see what that looks like – something I look forward to with great eagerness.

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