Financial Planning Blog
Ouch! 15-percent loss on two-percent move
"In our view, however, derivatives are financial weapons of mass destruction, carrying dangers that, while now latent, are potentially lethal."
~Warren Buffet, Letter to Berkshire Hathaway shareholders, February 21, 2003
Why am I bringing up an old Buffet comment about derivatives? Why does Hank Brock continue to warn people about their potential for causing or aiding financial chaos? Why are his warnings often disregarded as negative or pessimistic—especially when looking at stock market performance over the past few years?
News headlines confirm that “Big Brother” is watching
As I read the news headlines the past week, I became increasingly concerned about our government’s appetite for abusing its power to accomplish its political objectives. The news stories are only further proof of the need for global diversification.
Make no mistake about it; this is not an issue of left vs. right or Democrats vs. Republicans. This is an issue of government vs. its own citizens. Everybody should be concerned. You never know when “the opposition” might be in power. Worse, it is increasingly apparent that any American could become a victim of “friendly fire.”
Keep those printing presses going!
The Bureau of Labor Statistics released inflation data, yesterday. Over the past 12 months, the Consumer Price Index increased at an annual rate 1.1%. This is the smallest 12-month increase since November, 2010. Decreases in gas prices during the months of March and April caused declines in the index.
With the Federal Reserve Bank pumping liquidity into the system through its Quantitative Easing (QE) program, the low inflation numbers raises concerns about a slumping economy. The Fed keeps talking about tapering off its QE bond purchases. What happens to a lackluster economy if The Fed takes it off life support?
Pondering the ratio of those who make and those who take
As I go about my work, I end up bookmarking so many websites that its very purpose gets lost in the process. I end up with so many bookmarks that I cannot find anything (Thank you, GMark for saving me from myself)! After viewing a couple websites, today, I went back to one of my favorites, the U.S. National Debt Clock.
I am both mesmerized and sickened as I watch the numbers rapidly change. Amongst all the fast-changing dollar amounts, two are fairly static: 1) Debt per person; and 2) Debt per taxpayer. These two stand out because they are not rapidly changing, but also because of their signficance. As I write, this website tells me that there is $53,254 of federal debt for every person in America. More frightening is the second number telling me that the amount is much larger—$148,084—per actual taxpayer.
The Dow was up nearly 50 points, today. We should all be happy that our stock portfolios have recovered nicely over the past few years. Yet, I cannot get as excited as I have been in past bull market runds.
We have made it no secret that we are worried about the various “Dominoes” that could start falling and send us into financial chaos. As far as we can tell, much of what sent us into the “death spiral” of 2008 still exists, today.
As clients and those familiar with Brock and Associates know, we like to point out the dangers lurking around the corner that could negatively impact people's financial security. However, on Fridays, I like to highlight reasons for optimism. So, here goes:
I have always felt that one the primary functions of our federal government is to provide a strong military defense. If that makes me a “hawk” in the eyes of some people, then a hawk I am. However, I am not for unlimited military spending.
U.S. Gross Domestic Product
In the research that I have conducted, a stable environment of modest growth, combined with modest inflation, would be the preferred long-term scenario for the stock market. Today, the Bureau of Economic Analysis released an advance estimate of first-quarter GDP increasing at a rate of 2.5 percent.
Time for Real Change
Remember when the Department of Defense used to lobby congress for more money? Oh, how times have changed. Now, we have congress not allowing the military to close bases, retire equipment, or make other cuts. Why?
Not surprisingly, the politicians do not have enough backbone to tell their constituents that cuts might mean a base closure, reduced personnel, or otherwise impact the local economy. It is back to the NIMBY (Not In My Back Yard) mentality—politicians accusing each other of overspending, but none of them willing to accept budget cuts that might affect those who they count on for re-election.
As Foxnews.com reported (Congress forcing military to keep unwanted assets, programs despite spending cuts, report says) on April 23, 2013, “lawmakers are forcing the services to keep ships, aircraft, military bases, retiree benefits and other programs that defense leaders insist they don't want, can't afford or simply won't be able to use.”
Will somebody please stop the insanity? We keep racking up trillion-dollar deficits, yet nobody is willing to take leadership in efforts to balance the budget. The one line in the Fox article that best describes what is going on in this country is the one that states, “Harrison said the Pentagon needs to do a better job explaining and selling it arguments for such politically unpalatable cuts.”
Really? We are bleeding red ink, and somebody has to do a better job of selling reduced budgets? That would be like saying the crew on the Titanic should have done a better job selling lifeboats. How about this unpalatable change? We vote somebody else into office that will make the cuts necessary to restore fiscal responsibility in Washington.
For those who are interested in restoring the financial health of America, it is time to contact your elected representatives and let them know you want the military to be able to make cuts like the ones described in the Fox News article.