Archive for August, 2013

Mid-Aug 2013 Blog Update of THE GREAT DEPRESSION of DEBT

August 11, 2013

My novel “The Child Remover” is available on Amazon as both a paperback and in a Kindle version. 

This will be my final blog update.  Thanks to all of you who have stayed with me and shared thoughts over the years.  For many reasons, doing these updates, with all the required work, is no longer as rewarding as it used to be.  Also, watching the future economy is going to be more like tracking a moving train rather than the rocket it was when we were heading to the breakdown of our economy due to the debt, mortgage, housing, and banking issues.

POLITICS

I believe that politics will be a key mover in our economy in coming years.  I have already covered in great detail why I think we are heading towards energy independence.  But that could actually reverse if the government would suddenly cancel its stance on higher MPG for vehicles.   That could happen if a Republican gets elected president and he/she decides that one way to stimulate the economy is to remove all MPG targets for the automotive industry.  I have shown in earlier blogs that, although oil coming from fracking will contribute, the major factor for energy independence in the US is improved gas mileage for vehicles.  I am not saying that a Republican president would necessarily remove the MPG requirements, but it certainly would be a risk given the Republicans’ historical stance that the government has no business being involved in such detail – it should be market demand that determines vehicle design and the resultant MPG.

I have covered in earlier blogs that an on-going problem in the US is the continuing increased flow of money to the very wealthy.  This flow is enabled by current tax laws in the US and the continuing low wage growth by the average working person, including minimum wage.  This trend will likely only be reversed if both houses of Congress and the President are Democrats.  Unionism is starting to raise its head in the US, especially related to fast food workers.  But how much support this movement gets from the courts and Congress will greatly influence its growth.

The US is heading for isolationism, and I think that this trend will continue with either party in control.  Even the McCain-types are seeing the difficulty of finding any groups worth backing militarily in the multiple Middle East upheavals.  Even with Israel, US backing in any action they may take against Iran is likely to be muted compared to our commitment to Israel in prior years.  The US is tired of costly wars that never seem to resolve anything. 

How likely is it that the Democrats will win the 2016 presidential election?  Recent polls show that Hillary Clinton could beat all comers.  Chris Christie is the only Republican who even comes close, but he is looked on by many Republicans as being a RINO (Republican In Name Only). 

A May, 2013 Fairleigh Dickenson University poll shows unhappiness among Republicans for ALL mainstream presidential candidates, including Christie.  2016 is a while away, and things can change.  But if one were a betting man right now, Hillary easily wins by a couple body lengths.

Reading the above may give someone the impression that I am just a typical Democrat blindly promoting my causes.  Not true.  I believe that when Democrats are in charge too long they cause the economy problems by enacting too many giveaway programs with little thought of payment.  But right now, the biggest risk to our government, in my opinion, is the continual flow of funds to the ultra-wealthy.  Eventually that could lead to mass riots and a total breakdown of our government.  Even the most conservative Republican should be able to see that; but none of their programs seem to be geared to trim the ever-increasing flow of money upwards.  Even in the Middle East, much of the efforts to overthrow governments have been triggered by the have-nots demanding their share, rather than religious issues.  We are not immune to that sort of action by our populace.

WE DON’T HAVE TO RUN FASTER THAN THE BEAR

Economically the most important thing is to stay ahead of the competition, which includes Europe, Japan, China, and India.  Europe has an on-going problem that some member countries are heading to economic disaster, and economically sound countries like Germany are getting tired of supporting them.  This issue will continue to bog Europe down economically for the foreseeable future.

Japan has an on-going huge debt problem, and its energy policy is in tatters given the on-going issues with the Fukushima Dai-ichi nuclear power plant. 

China has been investing in factories, cities, and infrastructure faster than their economy can absorb, and this will eventually have to stop.  Then its political system may be challenged.  China may pursue a similar MPG goal on its vehicles as in the US; but China’s exponential growth in vehicle ownership will easily overwhelm any improvement in reduced oil usage through improved MPG.

India has potential, but has yet to figure out how to build on that potential.  Poverty and poor infrastructure are among many issues burdening India.

So, the US becomes the winner, as does the dollar.  This is important, because the strong dollar makes it likely that we can continue to borrow at a low interest rate until we start reducing our real debt in a substantial way.  Also, the strong dollar will enable the Fed to keep inflation under control.  The Fed wants some inflation, perhaps 4%, but not runaway inflation.  We are likely to have several years of slow or no growth, but that will actually look good compared to most countries.  Then after 2015 or so, when a lot of the energy independence gains start to be felt, the US economy may really take off.

BUDGET PROBLEMS

As noted in an earlier blog, 2014 is likely to see a sustainable budget deficit, which means that the growth in GDP is likely to exceed the growth of the deficit.  That budget includes some sizable reductions in money for the military, as determined by the sequester cuts.  But even with these huge cuts, Defense Secretary Chuck  Hagel said at a Pentagon news conference,  “This strategic choice would result in a force that would be technologically dominant but would be much smaller and able to go fewer places and do fewer things, especially if crises occurred at the same time in different regions of the world”.   That doesn’t sound like a risk to me.  We have no business trying to be the policeman for the world.

As I have stated before, some on-going problems like Medicare spending have obvious solutions.  We only have to look to countries that spend less on healthcare than we do but get similar or better outcomes.  We will eventually follow their paths, but not before we repeatedly get slapped in the head with our wasted medical procedure costs.

Social Security retirement needs relatively minor fixes, probably through some combination of delayed retirement, increased taxes, and/or changing the formula on how inflation is calculated for retirement benefit adjustments.

 MONITORING MY THREE STOCK PICKS

I assume that someone bought an equal dollar amount of stock of each of these companies at their closing prices on June 14, 2013.  I compare their average performance to the S&P 500 (SPY).  The three companies and SPY closing share prices are as follows:

CLR    6/14/2013  $86.31      8/10/2013  $95.77      

OAS    6/14/2013  $41.37       8/10/2013  $40.90

WLL     6/14/2013  $48.07       8/10/2013  $51.01

Average Gain = 6.07%

SPY     6/14/2013   $162.32    8/10/2013  $169.31     Gain = 4.30%

So, someone would have gained 41% more with my stock picks over the S&P 500.

Note for transparency: I own a small amount of all three stocks.  As always, people should use their own judgment/data to affect their own investment strategies; and they should not blindly use the above information.  Intelligent people can, and do, disagree.