The Federal Reserve balance sheet is not a commonly discussed topic at your local dinner party but in the world of economics it’s definitely a subject that gets a lot of attention.

When one hears the word balance sheet, it tends to conjure up a vision of long rows of numbers on a paper that, when added up, leans the mind’s eye to picture mountains of green cash sitting in a vault somewhere, or something like that.

Although it’s likely most if not all of us would probably prefer to imagine a hefty balance sheet to reflect our own financial condition, in the case of the Federal Reserve’s balance sheet, the opposite tends to be true.

Although many would think a balance sheet details how much money one has, the legal term is it’s actually as a statement of the assets, liabilities, and capital of a business or other organization at a particular point in time. In simplistic terms, it’s what you own, owe and it correlates the two.

In the case of the Federal Reserve, a hefty balance sheet might sound like a good thing, but some might argue it is anything but. The Feds balance sheet is actually a list of what it owns and it’s not just piles of green cash. Again some might argue it’s another type of pile the Feds balance sheet reflects. One might get a better picture of whether that statement is true or not by knowing the pile was commonly about a trillion dollars prior to 2008 and now it sits at over four trillion. There is a reason for the massive increase.

Four trillion sounds like a pile of cash but actually there is little cash there. What is there is about one trillion in what it had historically held prior to 08, which is mostly U.S. government debt and now there is about three trillion of what it bought to pull us out of the global monetary implosion that was the crisis.

So what did the Feds buy and from whom did they buy it?

The balance sheet contains what is called U.S. debt (treasuries which our IOU’s from the Uncle Sam), agency debt (U.S. debt that might be from other government institutions or offshoots) and mortgage backed securities (MBS) to name a few.

It buys the U.S. debt instruments from the government (no the Federal Reserve is technically not a government entity) and buys the MBS from, among other places, the banking system.

These purchases are known as “asset purchases’ and are a part of their “open market operations (OMO).

OMO can be thought of as a gas pedal to throttle the economy. The Feds can buy stuff from the banks, which puts more money into the system, pushing down on the economic pedal to stimulate, or sells back this stuff to the banks, easing up on the pedal to cool an economy off. These buys and sells either put money into the economic system (when it buys) or takes money out of the system (when it sells).

During 2008/9 the banks were saturated in mortgages that were going bad. The Federal Reserve, whose balance sheet up until that time held mostly U.S. debt to the tune of one trillion, printed up another 3.5 trillion and bought mortgages and “other assets” from the banking system as well as from other public and private enterprises.

This mechanism is thought to have stabilized the banking system which was under severe strain at the time due to trillions in mortgages that were defaulting due to the housing blow up. There are opponents of this mechanism and its use but that’s a story for another day.

The Feds, having increased their balance sheet (holdings) from one trillion to 4.5 trillion during crisis, is now attempting to decrease (sell off) some of its holdings.

You won’t hear much about this on the evening news as it’s not something they want to advertise. The reason being anytime large amounts of money are withdrawn from an economy, the economy tends to want to stall out or slow.

As the Fed attempts to unwind (reduce by selling assets it previously bought) money is taken out of the system as the buyers (banking system among others) give their money back to the Fed for these assets.

If you recall, when the Feds sell, like they are doing now, the “pedal’ is lifted and the economy slows. Since the crisis, the Feds have tried to unwind before, only to back off when economic conditions slowed.

Only time will tell if they will be more successful this time around.

This article expresses the opinions of Marc Cuniberti and are opinions only and should not be construed or acted upon as individual investment advice. Mr. Cuniberti is an Investment Advisor Representative through Cambridge Investment Research Advisors, Inc., a Registered Investment Advisor. Marc can be contacted at SMC Wealth Management, 164 Maple St #1, Auburn, CA 95603 (530) 559-1214. SMC and Cambridge are not affiliated. His website is www.moneymanagementradio.com. California Insurance License # OL34249

 

Dividends are payments by companies to stock holders and many companies pay them and many do not. For those companies not paying them, the general thinking by the company may be that any extra money will instead be used to grow the company through acquisition, research and development, and any other means the company may deem successful.

Companies paying dividends however may see their growth possibilities more limited perhaps due to the maturity of the company or market they are in, or just want to encourage new shareholders and reward existing ones. Keep in mind since any shareholder receives any and all dividend payments, board members who hold shares also receive them, making the decision to keep paying them a bit easier by this same board.

No matter what the reason, quarterly, semi-annually or annual payments showing up in your mailbox or brokerage account can make holding a particular stock that much more palatable in up and down markets alike.

Some companies have paid dividends for years, others for decades and some have steadily increased them. Depending on the screening method, an investor can even find companies that have paid and increased their dividend consistently, never missing a payment or increase for literally many decades. Talk about having a great history!

Dividend paying stocks used to be more popular years back, but a new mindset preferring  explosive company growth over steady payments may have been adopted by at least some investors in recent times. It is thought dividend payers don’t have the growth possibilities of other types of stocks and the word “boring” has been used more than a few times whenever dividend stocks are mentioned.

Dividends are listed in dollar amounts rather than percentages making their yields easier for companies to track and pay them.

For example, suppose company XYZ decides to pay a ten dollar annual dividend and its stock sells for $100 a share. Since most dividends are paid quarterly, the company says it will pay $2.50 every quarter for each share an investor might hold. If the investor holds 1 share, the investor will get $10 a year ($2.50 every three months). Since he paid $100 for the share, his yield will be 10%.

Now suppose the market crashes and the stock drops to $50 bucks a share. If the company continues to pay the dividend in the stated amount, the new buyer who bought the stock at the reduced post-crash price of $50 will get the $10 annual dividend. The yield of a $10 dividend on a share costing $50 is 20%.  Presto-chango. The new investor is making 20%.

Keeping this in mind, crashing markets may not always mean bad news. For fans of dividend paying stocks, market routs can mean higher payout percentages.

Although dividends are paid in the form of a cash equivalent to the investor, dividend re-investment programs (DRIPS) when offered, will use that cash to buy more shares of the company paying the dividend. Over time this will “dollar cost averaging” may lower the overall cost of the total shares purchased which may help minimize the risk from market fluctuations.

One interesting and possibly confusing fact that many investors may not know is that when a company pays the dividend, the stock price of the company drops by the amount of the dividend (whaaaaa?).

Suppose our company above pays its $2.50 quarterly dividend on May 1. On that day if the stock was $50 the day before, when it opens up on dividend day, all things remaining (and this is not absolute) the stock price will be $47.50.

So the question would be: how does one benefit from a dividend if the stock drops by the same amount?

The answer is many fold. Dividend paying stocks can be favored by investors and therefore stay in demand in hopes of more dividends in the future. Buyers may also drive up the stock price prior to the dividend in order to receive it. Another often seldom realized but offsetting consideration of the drop in stock price is the basic economic premise that the lower the price is of an item, the more people will enter the market and buy it.

Got dividends?

This article expresses the opinions of Marc Cuniberti and are opinions only and should not be construed or acted upon as individual investment advice. Mr. Cuniberti is an Investment Advisor Representative through Cambridge Investment Research Advisors, Inc., a Registered Investment Advisor. Dividends are not guaranteed and can be decreased, increased or eliminated at any time. Dividends do not guarantee against losses. Dividends may be taxable in certain types of accounts and stocks which pay dividends does not mean losses, either partial or total are avoidable. Marc can be contacted at SMC Wealth Management, 164 Maple St #1, Auburn, CA 95603 (530) 559-1214. SMC and Cambridge are not affiliated. His website is www.moneymanagementradio.com. California Insurance License # OL34249

 

 “A democracy is always temporary in nature; it simply cannot exist as a permanent form of government. A democracy will continue to exist up until the time that voters discover that they can vote themselves generous gifts from the public treasury. From that moment on, the majority always votes for the candidates who promise the most benefits from the public treasury, with the result that every democracy will finally collapse due to loose fiscal policy, which is always followed by a dictatorship”

Alexander Fraser Tytler:

Tytler is stating here that eventually a democratic system will fail, because the populace will always vote in the majorities best interests, “best interests” being the key word here.

The reason the failure of democracy is predetermined is because of monetary inflation or money printing. By inflating the money supply (printing money) the prices of most if not all things will rise in price of whatever the currency is being printed. Think U.S. dollars here in the United States or Mexican Peso in Mexico.

Monetary inflation is always caused by the authority of the currency, basically the government of whatever country is in question. Inflation is not necessarily a bad thing except for one economic truth:

Wages always lag price increases. This means the more inflation you have, and the longer you have it, what I call the “Affordability Gap” will relentlessly widen. As prices rises, wages fall further and further behind. As the wage gap (affordability gap) continues to widen, more people “fall under the bus’, meaning they have a harder and harder time making ends meet. The result is the wealth concentrates to fewer and fewer people over time.

If that wasn’t bad enough, as more people find it harder to pay their bills, the calls for government assistance get louder and louder. This results in the candidates promising the most benefits getting elected while those vying for a return to a sound economic model (the cessation of printing money) get voted out.

This results in more and more elected officials towing the party line of ever increasing government assistant, which in turn results in more money printing, which results in more inflation which causes even more people to need help.

Because the cause and effect of monetary inflation is not widely understood, the very policies the masses cry for (more and more public assistance) make the situation worse.

It’s a vicious cycle as well as a deceptive one. The concentration of wealth is also predicted and a natural byproduct of this process. Because wealth is in essence never destroyed, the decrease in wealth in the masses also means that wealth moves up the food chain. The more people who go broke, the more money moves up. The result is the wealth continues to concentrate in the hands of fewer and fewer people.

This happens because inflation hurts the lower incomes but actually enriches the higher incomes. Imagine a family making 30,000 with no assets seeing a 5% annual inflation rate. They see their expense rise by 5% (losing $1,800 in buying power due to the inflation) and have no way of making it up.

Now imagine an individual who has 30 million in assets (regardless of what he makes). His assets also see a 5% inflation rate. His net worth will increase six million (5% of 30 million). Whereas the family making 30K only finds it harder to pay their bills, the rich person has actually gotten a heck of lot richer.

Also remember his six million came from somewhere, and using the $1,800 in loss wages figure from above, the 6 million increase in wealth means 3,333 families went under (6 million divided by $1,800) to make this one guy richer. Now that’s a fast path to the concentration of wealth!

Monetary inflation, by demanding more and more free “stuff’, will eventually devastate those in the lower income brackets, the very ones calling for it. And because that bracket will get larger and larger over time, they will eventually vote themselves the “generous gifts” referred to in Tytler’s quote and the cycle will progress.

Put in another way, the rich LOVE inflation, and they LOVE when there are calls for more help, because it makes them that much richer.

What those voting for more government assistant don’t realize is the very thing they think will help will just do more damage.

But like a drug, monetary inflation is also addictive, for to stop using it and go back to a healthy economic model means the withdrawal will be massively painful. And it will be so for the very same people that the first go around devastated. And like a drug, we continually need more and more of it. Think minimum wage increases and how many times it’s been raised. And here we go again, round and round.

As for the rich, they probably hope the masses keep calling for more assistance through more government freebies, because they love it. But don’t expect the masses to understand it.

From Upton Sinclair:

“It is difficult to get a man to understand something, when his salary depends on his not understanding it.”

This article expresses the opinions of Marc Cuniberti and are opinions only and should not be construed or acted upon as individual investment advice. Mr. Cuniberti is an Investment Advisor Representative through Cambridge Investment Research Advisors, Inc., a Registered Investment Advisor. Marc can be contacted at SMC Wealth Management, 164 Maple St #1, Auburn, CA 95603 (530) 559-1214. SMC and Cambridge are not affiliated. His website is www.moneymanagementradio.com. California Insurance License # OL34249

 

 

One the most difficult concepts for investors to understand is the relationship between bonds and interest rates. Know first that bonds are just IOU’s, and although many investors can’t describe exactly what a bond is, it as easy as rereading the last sentence over again.

A bond is an IOU and being such means when you buy a bond, you are loaning money to someone. For the loan, you’ll hopefully get your money back (in lieu of a default where you lose some or all of your money) and get paid a “gratuity” of sorts for loaning out your cash. That gratuity is really just the annual interest rate you’ll be paid, either periodically (installment payments paid usually quarterly, semi- annually or annually) or at the end of the loan, where you’ll get your money back and your interest for the entire loan.

When interest rates move in the general economy, it can affect the price of certain bonds more than others because of a mechanism called “opportunity cost”.

 To illustrate, assume an investor agrees to lend out his money for a day and buys an IOU called a “day bond”.  The issuer of the bond (the borrower, also known as the issuer of the bond) agrees to pay back the bond tomorrow. In exchange for this one day bond, the borrower agrees to pay 5% interest on top of the money he borrowed. Assuming he borrowed $100, he will pay back $105.00, the extra five dollars being the interest.

Now assume interest rates are increased for whatever reason (of which there are many) and causes interest rates to rise everywhere (usually the case). One day bonds now pay 6%.

The effect on the buyer who bought yesterday’s one day bond at 5 %?

Probably nothing as the loan is only for a day and tomorrow the buyer can buy a new bond at the new rate of 6%. No harm-no foul.

Assume now the buyer decides the next day to buy an IOU with a ten year payback. The “term” of the bond (maturity date) is now not one day but TEN YEARS. Assuming the interest rate is 10% because the lender (bond buyer) has to go without his money for ten long years instead of a day (hence the higher interest rate).

Once again let’s assume for whatever reason the interest rises in the general economy (causing once again rates to rise on everything), and now ten year bonds, whose interest rates rose as rates rose around them, now pay 15%.

Here is where the pain part in bond investing comes in. Since new ten year bonds now pay 15%, and the original buyer is only getting 10%, this buyer is now locked in for ten years at an interest rate that is lower then everything offered now that rates have risen.

In essence the income of the bond to the buyer is 10%, but had he not bought the bond, he could now get 15%. His “opportunity cost” is therefore 15% while he is only getting 10%.

He is now losing 5% every year.  If he needed to get his money out for some unforeseen reason, and had to sell his bond, no one would buy it as it only pays ten percent while current IOUs (bonds) pay 15%.

The fact is he could sell his ten year bond, but since it pays less than current bonds, he has to sell his bond at a discount to entice a buyer.

Since the new buyer will lose 5% in “opportunity cost” because he is buying a bond paying ten percent when he could buy a bond paying 15%, he demands the bond be sold under its face value. If it was a 10,000.00 bond, he might only pay $5,000.00 for it.

He will get paid the full value of the bond of $10,000.00 which sounds great (paying $5,000.00 and getting paid back $10,000.00) but in reality, over the ten years he lost that much in opportunity cost. In other words, got five percent less interest than he could have by buying a current bond paying 15%.

In a nutshell, because new bonds are issued all the time, anytime that an interest rate moves in the general economy, the price of bonds can rise or fall. The longer the maturity (time to payback) the more the move in the bond when interest rates move (remember our “one day” bond example).

Although the math to calculate how much of a loss or gain will be if interest rates move is complicated, the understanding how and which way a bond moves is easily condensed.

The longer the bond (longer time to payback also known as the term or maturity), the more the price of the bond will move in response to interest rates. If rates rise, longer term bonds will fall more than short term bonds, and if rates fall, the opposite will occur.

This article expresses the opinions of Marc Cuniberti and are opinions only and should not be construed or acted upon as individual investment advice. Mr. Cuniberti is an Investment Advisor Representative through Cambridge Investment Research Advisors, Inc., a Registered Investment Advisor. Marc can be contacted at SMC Wealth Management, 164 Maple St #1, Auburn, CA 95603 (530) 559-1214. SMC and Cambridge are not affiliated. His website is www.moneymanagementradio.com. California Insurance License # OL34249. Bonds have risks. You can lose money. Both partial and total loss is possible.

 

Apr152019

 

A Look at Socialism

I have written about the socialistic movement in many recent columns, reacting to the increased interest in this flawed but seductive economic model so many people seem to be biting on.

Just recently I was contacted by a movie producer who gleaned one of many ideas put forth in my articles that intrigued him to the point where he wants to make a documentary on the subject with yours truly at the forefront. I’m flattered of course. It won’t be the first documentary on me and hopefully won’t be the last.

The thing that caught his attention in my articles was one particular psychological allure of socialism I theorized and to date I honestly have not seen any other columnist take this tact.

The basic premise of the socialist economic model is well known and well publicized in the propaganda supporting it and it goes like this:

The capitalistic system is flawed, the worker is taken advantage of, and a central government needs to take control of things to level the playing field. Offshoots of the capitalistic criticism encompasses the belief that the rich are greedy and uncompassionate, that they put profits before people, and over time the wealth concentrates in the hands of a very few, while more and more average Joe’s are economically ground up under the wheels of capitalistic greed.

The conclusion drawn is a socialistic based economy would benefit the worker and even out the playing field.

Humm, where have we heard that before?

I don’t think there’s much argument from socialism’s supporter on these statements. Note I didn’t say realities. The statements are the familiar catcalls of socialists now and in the past and if they were true, perhaps the socialists would have valid point or two. The drawbacks and realities of how socialism really works is for another day however.

What caught the ear of the movie producer was my claim that the sharpest hook of socialistic propaganda is more of a psychological one then economic.

And here is what I said:

“Socialism reaches out to the very core of ones beliefs and taps into deep rooted self-blame and self-esteem issues that might haunt one’s mind. The opinion of oneself is often based on being able to support oneself and earn a decent living.

Socialism replaces that doubt with a new and more palatable concept. One’s economic plight is not the result of bad choices, bad luck or lack of work ethic. Instead it’s the systems fault.

Keep in mind it is a difficult reality one faces when they can’t earn a decent living. It touches the core of ones self-esteem, their view of themselves and their self-worth image.

Regardless of how one arrived at where they’re at, not being able to afford their preferred lifestyle is a gut wrenching reality and can be a demeaning one. The appeal of socialism lifts the self-criticism inherent is being not making enough money and  introduces the concept “it’s not my fault where I’m at but the fault of greedy corporations, a profit based, inherently uncompassionate system and all the things that go along with so-called capitalistic greed.

The seduction of socialism gives validation to one’s plight, shifts the blame to others and away from one’s self. It restores self-esteem and redirects it into anger. Anger toward the system, the people that have more, and of course the “evil corporations”.

In one quick and easy swallow, the socialistic pill cures all self-doubt, eliminates the concept of responsibility and unites you with others who fall under the belief:

It’s not me, it’s the system.

In plain English, it’s the system that made me poor, I knew all along it wasn’t me, and I’m no longer responsible for where I am at. Someone else is. It restores ones view of themselves, buffers it with anger, and gives them a target to aim at. And all with a happy ending where everyone has a home, a new car, can sit at the river all day and write poetry and sing songs in a big circle after a dinner of grey gruel and dry biscuits.

(Just kidding about the last part, although the last part is the only truism in the whole paragraph)

Socialism indeed has its enticements. They run deep into one’s psyche. Its attracts people to bite on the lie. And bite they are. By shifting the responsibility of one’s life choices onto somebody else, then promising the best of all things paid for by someone else, the words “someone else” are the key components.  Socialism looks outwardly for one’s satisfaction in life and also its blame. Personal responsibility is set aside and replaced by the incrimination of anyone but self.

Sadly, its promised solutions will never be, and have never been. Either the people go broke under the weight of the expense, or the government does.

Marc Cuniberti hosts “Money Matters” on KVMR FM aired on 65 radio stations nationwide. He is a financial columnist for a variety of publications. Marc holds a BA in Economics from SDU with honors 1979. His website is moneymanagementradio.com and he can be reached at (530) 559-1214. Visit him on Facebook (FB) under Marc Cuniberti and also on the "Money Matters” and “Money Matters Investing in Community" FB pages. The views expressed are opinions only.

My son and I visited a large banking and brokerage firm last week and I posted on social media what great institutions these money conglomerates are and how unthinkable it would be to have these taken over by the central government. Needless to say social media lit up with comments about how allegedly criminal the banks were during the housing crisis implosion.

I must say I have a real problem placing the all the subsequent foreclosures at the feet of these institutions.

Know what you’re signing is something we’ve undoubtedly all been told. Caveat emptor in Latin. Buyer beware in plain English.

Apparently those words and the lesson they illustrate was ignored by thousands of home buyers. Yet keep in mind thousands more didn’t take the bait but had to pay for those that did.

Calling a spade by its rightful moniker, if you signed something based on what somebody told you in lieu of reading and understanding what you signed, I and likely many others have a bridge we can sell you.

The blame lies not on the lender in my opinion but on the name which appears on the signature line. If you didn’t understand what you were signing, that what lawyers are for. And if you’re signing your good name to a loan worth hundreds of thousands, all the more reason to call one.

Not pulling any punches here, but where was your friendly and self-professed real estate expert, your realtor? Urging you to buy the house no doubt, which never falls in value (LOL). And did your realtor ask if you understand the mortgage terms?

How about your friendly loan agent who may have been a friend of the realtor? Did he or she flat out lie to you about the terms? If so perhaps another lawyer might have been in order.

Basically if anyone thrust a packet of complicated papers in front of you, was there no voice inside your head telling you there might be some stuff in there you might not completely understand?

There’s that gnawing feeling again that perhaps you should spend a few hundred on a lawyer. After all you’re agreeing to pay back thousands over decades, so a few hundred bucks to save your butt might have been prudent.

There were many who learned what it means to sign your name and subsequently didn’t. So who’s at fault again?

Oh wait a minute. The banks of course.

Hold on a minute.  Had the banks had to shoulder the risk perhaps they would have been more prudent.

But the Feds, wanting to make sure everyone realized the “American Dream” of home ownership, stepped up to guarantee the loans, and in many cases took the loans off the banks hands shortly after the ink dried.

So what risk did the banks really have (none) and who removed that risk?

Your good old Uncle Sam.

However I didn’t see any picket signs with his name on it.

We have a regulatory body overseeing the banks called the Federal Reserve. Guess they were asleep while all this malfeasance was taking place. After all, with a nation full of people willing to sign on the bottom line not understanding what was on the many lines above t it, what the heck.

The Fed knows what they’re doing right?

And if any illegalities were taking place, they surely would have put a stop to it.

Guess they took too much NyQuil.

So lots of egg ended up on lots of buyers faces when the loans readjusted, like the contract said they would. But since I heard somewhere it’s not my fault because the banks took advantage of me and forced me at gunpoint to sign my name, I feel really angry at them because they had no risk (thanks to the Feds), no oversight (thanks to the Feds), and I had no warnings (thanks to the realtor and their friend the loan agent). Besides everyone was doing it and I heard you could make a fortune. And had I made a fortune I would kept all of it and would have thought the banks were great but since I lost money now I hate them.

So now I think these institutions should all be broken up and run by the same people that buy hammers for the military at $1,500.00 a pop. Just think how much homes will cost if hammers cost $1,500.00? That will be so much better.

Because heaven forbid if it was my fault.

By the way, I’m interested in a bridge. Know any for sale?

I hear you can make a fortune on them.

Marc Cuniberti hosts “Money Matters” on KVMR FM aired on 65 radio stations nationwide. He is a financial columnist for a variety of publications. Marc holds a BA in Economics from SDU with honors 1979. His website is moneymanagementradio.com and he can be reached at (530) 559-1214. Visit him on Facebook (FB) under Marc Cuniberti and also on the "Money Matters” and “Money Matters Investing in Community" FB pages. The views expressed are opinions only.

Although new investing fads might sound tempting to many investors, there are pitfalls one has to watch out for.

New investing fads come and go with new products and services that come to market. Some may feature some sort of innovation or technology and some may just be a totally new product that has the wow factor.

Some examples through the years might be the smart phone, crypto- currency, marijuana and solar to name a few. Past newbies have included Emu oil, land in various places such as Texas during the oil boom or the Asian interest in Hawaii decades past. Think centuries ago and railroads, the south sea explorations of the new worlds and even tulip bulbs have all been fads that came and went.

Investors over the years have seen it all and in the modern day world of the stock market, new fads and areas of explosive growth can bring landmines a plenty.

It is said where vast sums of money go, so follows the scam. Although the stock market is highly regulated and scrutinized, we’ve all seen handcuffed executives hauled off to the hoosegow with cameras rolling.

Yes, some crooks are caught but only after money may have disappeared down the crooks bank account and been gobbled up by a lavish lifestyle, new Maserati’s and million dollar parties, all consumed by the perpetrator before the authorities caught on.

The lesson here IS CAVEAT EMPTOR meaning “buyer beware”. Although public securities are heavily monitored, bad things can still happen as is evident by the fact people still get arrested from time to time for securities fraud, the fraudulent part usually involving an investor’s money.

Although a rare occurrence, with explosive growth can come an increase in corporate malfeasance as well. As fast money pours in, the temptation to bend the rules due to the greed DNA seems to foster more trouble then what might be considered normal. Accounting methods may be skewed or not in compliance, numbers can be fudged and complex financials can fool even the most astute regulators, at least for a while. Although accounting malfeasance can happen in any company, I seem to see more of it in areas where eye-popping gains are made quickly in a new area of interest.

Even if the books aren’t cooked, new areas of interest can lead to manias. A mania is where investors, witnessing incredible gains in short periods of time, eagerly jump onboard to catch the quick riches train, and a boom-bust cycle may be triggered. Media coverage of the impressive gains by some only fuels the madness. Think dot-com stocks in the late 90’s, real estate in the mid 2000’ and more recently, crypto- currency.

Even if you avoid the pitfalls mentioned, you can still get snagged in totally legal maneuvers in a fast moving and new area of interest. Small startups pop up like weeds in fast moving markets and you only need to look at the amount of IPO’s (initial public offerings) of the new companies hoping to catch some of the fast flying money.

Some have great business models and some have terrible ones. Think Pets.com among the many now defunct companies that came to market with little more than a name or catch phrase. The lesson here being not all companies in the new investment arena will survive. A carte blanch shopping list can be a dangerous practice. In other words, don’t just buy a name or company because they’re in the current spotlighted area.

Finally with all the money being thrown at the new companies, previously struggling owners see their bank accounts quadrupling in stunningly short amounts of times. Seeing a rising stock price, and often an incredibly fast moving one, the company can look to cash in by offering more shares of stock. They might open their “stock safe” where unissued shares reside and sell millions more on the public market.

Although this move will likely bring even more copious amounts of money into company coffers, the price of the existing stock may plummet as the new shares dilute existing shareholder value. Couple this with the fact that usually employees may have received shares long ago when the company first went public, those shares are usually restricted, meaning eventually the employees will be allowed to sell those shares on the public markets, further diluting your shares. In both cases more shares for sale means each existing share already in the market will be worth less due to the sheer number of shares being offered.

Although new ideas and technologies can be alluring to investors, the pitfalls are real and can be numerous. It might be prudent to wait until the smoke clears and a more rational market begins to materialize.

This article expresses the opinions of Marc Cuniberti and are opinions only and should not be construed or acted upon as individual investment advice. Mr. Cuniberti is an Investment Advisor Representative through Cambridge Investment Research Advisors, Inc., a Registered Investment Advisor. Marc can be contacted at SMC Wealth Management, 164 Maple St #1, Auburn, CA 95603 (530) 559-1214. SMC and Cambridge are not affiliated. His website is www.moneymanagementradio.com. California Insurance License # OL34249

Interest rates are the cost of borrowing money and for centuries the free market determined rates as individual lenders decided what interest rate they required depending who they were lending money to.

The higher the borrowers risk, the higher the interest rate the lender would demand.

Enter the central banking system which in the US is the Federal Reserve and globally, the other central banks of the world

Central banks now set interest rates based on their prognostication of the economies they see around them. The possible trap with  entity set interest rates (versus free market rates) is that if they are set too low, it encourages businesses and consumers to borrow more then they normally would at higher rates.

The low rates can foster what in economics is called “mal-investment” which can ultimately lead to resource waste and the booms and busts we see from time to time in various economies.

Take autos for example. In any given time period there is a certain number of people that will buy a car. Let’s assume in two years, 1000 people will buy a new car. That means approximately 41 people will buy a new car per month. (1000 people divided by 24 months).

Along comes the central bank who then drops rates to 1%.

With these “artificially low” interest rates, the 1000 people that would have bought a car in the next 2 years now all come forward to buy a car in the first few months as money is now cheaper then before and they fear rates will rise. The low rates also bring forth buyers that may not have planned to buy a car but now will buy due to the lower rates.

Assuming an arbitrary number for this example, car sales rise to 100 a month and in a little over 12 months, our 1000 car buyers have all bought their cars.

The auto dealers see this initial rush of buyers as new demand when their sales skyrocket and dealers celebrate the “new economy”. The auto dealers, not versed in the “mal-investment” mechanics of economies, think the increase in demand is real and this new increase is now the norm. They rush to expand their stores, adding new salespeople and building larger lots.

Like drinking all your water on a desert trip in the first few miles, the 1000 people that would have stretched out their buying in a 24 month period now have all bought new cars in the first 12 months. Future buyers were brought forward into the present, essentially cannibalizing future sales, slamming them all forward.

After the initial rush of buyers purchase their cars, the subsequent months yield fewer buyers and auto sales at the dealership now plummet.

Stuck with bigger building payments, more employee salaries and more overhead, the dealership can’t meet their expenses. Since all the auto buyers now have already bought, sales not only don’t reach the level it was when the dealership expanded, they actually fall below what they normally would have been had interest rates been at 5%.

The dealership is now facing LOWER SALES with even HIGHER EXPENSES. Unable to pay their costs, the dealership has to either scale back down or goes broke entirely.

In essence, they fell victim to “mal-investment”.

In reality, very little new business was actually realized. The low interest rates only brought forward future buyers into the present months, leaving the future months devoid of any buyers at all.

This mal-investment phenomenon was seen throughout the nation in the form of closed furniture stores, carpet stores, auto dealers, real estate offices, vacant houses and hundreds of other examples during the 2008/09 crisis aftermath.

The “resource waste” part of the equation is all those brand new buildings and houses sat vacant or were plowed under, businesses went broke and literally billions were wasted in fuel, resources and labor to feed the boom.

There is a lesson to learn here. Business owners would be wise to not only watch what’s happening in their local endeavors, but also strive to keep an eye on what is taking place in the overall global economy as well.

One could be a very savvy business owner/operator but still fall victim to the macro economic issues happening around the globe, especially when it comes to interest rates and the cost of money.

This article expresses the opinions of Marc Cuniberti and are opinions only and should not be construed or acted upon as individual investment advice. Mr. Cuniberti is an Investment Advisor Representative through Cambridge Investment Research Advisors, Inc., a Registered Investment Advisor. Marc can be contacted at SMC Wealth Management, 164 Maple St #1, Auburn, CA 95603 (530) 559-1214. SMC and Cambridge are not affiliated. His website is www.moneymanagementradio.com. California Insurance License # OL34249

You have to admit. The socialistic movement is growing. After the Bernie Sanders run, we are now greeted with 29 year old Congresswoman Alexandria Ocasio- Cortez (D- NY) whose moniker is commonly shortened to AOC.

With the charisma likened to Obama, her call from everything to clean energy to workers’ rights has resonated with the left side of the aisle and as usual, there are many unanswered questions as to how we might pay for all of these “not so new” ideas. I say not new because the socialistic agenda has its methods and that method is to offer up lots of grand ideas with little substance and an even littler idea about how to pay for it all.

Socialism is, or so they think, the magic blue pill to many. Appealing to an ever growing constituency of the low income earners, the deep but seldom talked about psychological allure of such an agenda centers around one easily digestible idea:  one’s plight is not the fault of him or herself but the systems. 

Ah, we knew that all along now didn’t we?

The central theme of the socialistic free dinner bell is that the flawed system we have called Capitalism is a horrible system and the greedy, uncompassionate rich take advantage of everyone who’s not part of it.

Those are the reasons I’m broke, unhappy and can’t seem to get ahead and it has nothing to do with the fact I don’t like to get up early, decided to be a tennis pro instead of a banker, screwed around in high school and didn’t get good enough grades to get into college or just didn’t want to.

You have to appreciate a good con.

Not that everything one does leads to riches, fame or the food bank. Luck has something to do with it of course, and I’m not putting down tennis pros or sleeping in. It’s just that you have the right to do what you want, and if what you decide to do doesn’t make you happy or rich enough, don’t come asking me to cover your shortsightedness in career choice or degree of luck you might of had. It's called life, deal with it.

I’ve always believed good luck is when preparation meets opportunity. So good luck is not a given but you want to give it every chance that when you do see some, you are prepared to take advantage of it.

However with AOC and Sanders, Warren and a host of other dreamers of a utopia conclusion, comes what some might say is the evitable slow grinding progression of the wheel of socialism, or at least some hybrid of it.

From the New Green Deal, which in actuality is not new, to an ultra-rich tax , to single payer health care, the allure of such things to some is too great to resist and too good a dream to want to wake up from.

So awake, yet in a perpetual dream state, the proponents of such ideas march on, swaying their protests signs to and fro, always gathering more followers, like the proverbial rolling snowball getting increasingly bigger with each rotation.

Don’t get me wrong, there is not a sane person on the planet that wouldn’t want everyone to be comfortable in a warm bed till noon, with a fridge full of food, a brand new car in the driveway and house of their own they can call home, although some of us would still get up early.

The difference is what is obtainable and what is not. Call us realists but there just isn’t enough stuff in the world for everyone to sit on a pile of plenty. In economics is called the assumption of scarcity, and Quora defines it as:

Scarcity refers to the condition of insufficiency where the human beings are incapable to fulfill their wants in sufficient manner. In other words, it is a situation of fewer resources in comparison to unlimited human wants.

In plain English, is means there simply isn’t enough stuff for everyone. It may be unfair, and some may call it unjust, but realities don’t bend to opinion. They are simply realities. Trying to attach blame to a reality is ignorant, trying to alter it is foolhardy.

For instance, single payer healthcare is estimated to require a 36% increase in taxes for every American (Weiss and Associates).

Meanwhile the Mercatus Center at George Mason University published a rigorous analysis that pegged the price tag of single payer at $32.6 trillion over ten years. Considering the U.S. government spent 4 trillion total in 2017, its simply too expensive. Like WAY too expensive.

But realities like this don’t stop the sleepwalkers. It makes sense, because in dream state there are no reality, only fantasies.

In conclusion, all of us can dream and indeed want a world where there unlimited possibilities and everyone is one big fat and happy family, holding hands and singing Kumbaya.

But that kind of world is promised only in the afterlife, not in the here and now.

That won’t stop the dreamers from trying however, and should they attempt to make their dream a reality, instead of some sort of heaven they strive for, it will be more like the other place.

This article expresses the opinions of Marc Cuniberti and are opinions only and should not be construed or acted upon as individual investment advice. Mr. Cuniberti is an Investment Advisor Representative through Cambridge Investment Research Advisors, Inc., a Registered Investment Advisor. Marc can be contacted at SMC Wealth Management, 164 Maple St #1, Auburn, CA 95603 (530) 559-1214. SMC and Cambridge are not affiliated. His website is www.moneymanagementradio.com. California Insurance License # OL34249

The economies of time is an essential one and spending our time wisely can pay off huge dividends both in productivity, relationships and monetarily.

I have contact with many people in my profession and the people I encounter run the gamut between left and right, poor and rich, and all points in between.

Honestly, I can’t say there aren’t tendencies and patterns that tie directly into what I deem as successful people and those not so successful. The same goes for those leaning politically left and those leaning right.

As for time management, most of the successful people I know get up at “zerodarkthirty” (that’s early in laymen terms) or close to it.

I know most of the contractors, business owners and entrepreneurs (at least the successful ones) not only wake early but work long hours. Most of these people also frown upon any new taxes so what political aisle they lean in to might be an easy guess for most readers.

Getting up early is not only a God send in my opinion but a necessity for those wishing to excel in their craft and/ or business as there is always too much work and not enough time.

Getting up early is not easy, as getting out of a warm bed is not the most desirable thing to do but I find once I am up I am glad I did it.  But try telling that to my brain when I first wake up. It’s a battle of wills for sure, left brain against right.

If I manage to get up at 4:00 or 5:00 am I find the extra two or three hours allows me to get most of my work done without rushing or worrying excessively, something I tend to do if I sleep in.  I can get out of the house earlier, be more stressfree and the days seems like it has so much more time in it.

I heard an insightful comment about getting up early on one of the many inspirational audios I listen to everyday (something I highly recommend by the way).

It said:

What do you gain by getting up early?  Everything. What are you missing by sleeping in? Everything.  What do you gain by sleeping in? Nothing”

Try telling that to yourself a few times and getting up earlier gets a bit easier.

On the flip side (and the unfortunate one) I find some of those complaining about their plight a lot tend to sleep in more. Ditto those spending a lot of time on social media. Those wanting higher taxes and spouting the typical “get those guys, corporations aren’t people and pay your fair share” seem to be lacking in not only money (hence wanting someone else’s) but also lack the fortitude and will power to rise with the roosters and try and make a go of it instead of blaming others for their lack of whatever.

Yes, I know this sounds judgmental and categorizing a bit, but I do meet a lot of people and truly folks, it’s what I see. I always ask certain questions of certain types of people as a sort of poll I take to find out how people think and why. Often I ask those who I might hire to do some carpentry or fix a leak who they support politically, whether they think taxes are too high, what time they get up and if they are on social media a lot.

Not exclusive to their answers mind you, the majority of their responses I fathom you dear readers can guess.

As to when these people get up?

Well they all know what ‘zerodarkthirty” means. 

Marc Cuniberti hosts “Money Matters” on KVMR FM aired on 65 radio stations nationwide. He is a financial columnist for a variety of publications. Marc holds a BA in Economics from SDU with honors 1979. His website is moneymanagementradio.com and he can be reached at (530) 559-1214. Visit him on Facebook (FB) under Marc Cuniberti and also on the "Money Matters” and “Money Matters Investing in Community" FB pages. The views expressed are opinions only.

As the call for Universal Health Care gets louder, what’s not to like about a free pass for everyone at every health center in America. Maybe not so easy to understand however  so let’s just say its a single payer plan and it means exactly that, one single entity pays all the bills. That entity being the U.S. government of course and nobody else could possibly afford it.  

Everyone will be on it (except those occupying the Ivory halls of Washington and the military and maybe a few fortunate others )and people will probably be enrolled at birth.

But like all things business, of which the government is, where they get their funds would be a thought we all might stop and ponder for a minute.

The easy answer of course is taxes, but in actuality, the Fed can also borrow money as well as print it so there is actually three sources of funding. Of course, borrowing it means it has to be eventually paid back using one or both of the other two sources.

Printing the money to pay the cost of a government paid health care system probably sounds good, and indeed when I don’t have my economics hat, I’m all for it. But then I see that damn hat and it hits me (not the hat but the reality brought upon me by my education) and I start doing the math.

Printing it IS borrowing it so that leaves only one source left, taxing it. Taking the math a little farther leads us to the unsavory realization that all taxes are buckets with holes in them. In other words, for every buck in tax taken from an economy, only a portion of it comes back to that economy. How MUCH comes back is highly debated of course so let’s just say not ALL of it comes back. Some of it is eaten by the bureaucracy. Not much argument there if we use the word “some”.

No matter how we slice it, or should I say pay for it, the cost of it will probably be highly then anyone imagines. Remember, where oodles of money goes, so follows higher prices.

One thing that probable most would agree on is that the right will think it cost a fortune and the left will think the fortune it will cost will be worth it.

So how much WILL it cost?

Tony Sagami, a brilliant analyst and scholar fires up his gas powered calculator and gives us his opinion in his February article entitled: “Medicare for all? At what cost?”

In his article Sagami says everyone agrees it will be “very expensive” and subsequently pegs the number at 3.5 trillion annually. Given that the entire U.S. government 2019 budget is 4.4 trillion, we can safely say “very expensive’ might be an understatement.

From a more objective and qualified source, the Congressional Budget Office (CBO), tax rates would have to rise by 36% on every American in the U.S. to pay for Universal Health Care.

Did they say 36% more in taxes for every American?

I think I’m gonna be sick.

This article expresses the opinions of Marc Cuniberti and are opinions only and should not be construed as the opinions of any media outlet that may publish his articles or newscasts. Mr. Cuniberti hosts Money Matters Radio carried on over 65 stations nationwide and is a columnist for a variety of publications. His website is moneymanagementradio.com and he can be reached at (530) 559-1214.

Although reining in the national deficit is all but vanished from Government speak nowadays, the problem is still a problem. With the first trillion in U.S. debt taking somewhere about 220 years to amass, beginning notation upon our founding in 1776, now we run up that amount or more each and every year. Talk about an overspending family member. From the lips of Dick Cheney in 2003 came the infamous quote and now apparently common belief in Washington: “Reagan proved that deficits don’t matter”.

Humm….. Well they do in my house and I bet ya a dime to a trillion dollars they will matter at some point. In other words, all is well until it isn’t.

The debate is not even heard now on most major news outlets and what once was a GOP political “go to” hot button has been banished to the point of political incorrectness, or so it seems.

Whether they do or they don’t is rarely debated anymore but the debate is certainly still valid, at least in the mind of this analyst.

It’s always a prudent decision to at least listen to an argument that might have dire consequences for the country. Historically deficits have been the death knell of many a civilization through history. 507 year old Rome eventually fell for a few reasons, one of them being a degradation of its currency, having debased its legal tender coins so many times their money resembled ours today, meaning it had little precious metal contained in it toward the end.

So is the U.S. immune to such catastrophic endings as it brought about by a severely abused currency or is it really “different this time”?

Sadly, we are not immune and no, it’s not different this time.

Few are more qualified to weigh in on the debate then former U.S Comptroller General David Walker. If you don’t know what a Comptroller General does, from Wikipedia:

The Comptroller General of the United States is the director of the Government Accountability Office (GAO, formerly known as the General Accounting Office), a legislative branch agency established by Congress in 1921 to ensure the fiscal and managerial accountability of the federal government.

Sounds like Mr. Walker would know. He held the office from 1998 to 2008 and I had the pleasure of interviewing him shortly after he left office.

In a Washington Times column, “Putting America’s finances in order,” he states “it is abundantly clear that neither of the two major U.S. parties is fiscally responsible. Republicans focus primarily on tax cuts, while Democrats focus on spending — and neither party focuses on the bottom line or long term”.

So let’s get this straight: the two main political parties that run our country are not fiscally responsible.

Given the U.S. is the largest economy on the planet, it being run by fiscally “irresponsible” people doesn’t sound like such a good plan, neither for the U.S. nor the globe for that matter.

The Congressional Budget Office (CBO) projects the federal government will eventually reach the “cut up the credit card” moment in about a decade, spending more on interest payments than national defense. Putting it in real figures, the U.S. will have to shell out $1 trillion in interest within 10 years.

A mild “ouch” may be in order here.

For those not willing to do the advanced math, let’s put it plain English. A big chunk of your income will go to nothing productive. Basically you might as well pile up the cash and burn it, as interest payments are basically money poured down the proverbial rat hole.

Many of you will think the government has never had a problem before. True. But things are fine until they aren’t.

Others will say the government will just print the money. True again, as borrowing just creates more interest payments.

So printing will save us?

Doubtful. In fact, lets retract that.

No, printing money solves nothing.

Why?

It’s just colored paper with pictures of dead presidents on it. Really durable colored paper, but paper is the key word here.

Not many will be able to comprehend why printing money doesn’t solve anything. Indeed the U.S. government thinks it solves problems. If they didn’t, they wouldn’t do it. But they do a lot of it, so they must think lots of paper solves something.

So let’s just break it down for you simple like: If printing money solves economic problems, why does the U.S. and nations too numerous to count still have economic problems?

Like I said, you don’t need advanced math skills to see that one.

Marc Cuniberti hosts “Money Matters” on KVMR FM aired on 65 radio stations nationwide. He is a financial columnist for a variety of publications. Marc holds a BA in Economics from SDU with honors 1979. His website is moneymanagementradio.com and he can be reached at (530) 559-1214. Visit him on Facebook (FB) under Marc Cuniberti and also on the "Money Matters” and “Money Matters Investing in Community" FB pages. The views expressed are opinions only.

 

The economic benefits of all types of employment can usually be measured in just that way: economically. In other words, how does society benefit from an employment, what does the product or service cost and who is willing to pay for it?

A plumber fixes leaks, a taxi driver gives you a ride and someone who farms provides food to eat. There are other not so quantifiable jobs such as relationship or life coaches, or mentors, but if someone is willing to pay for it, then it has value, and conversely, if someone isn’t willing to pay for it, it’s not really a vocation.

There are certain things in life that make me scratch my head and certain jobs, if you could call them that, do make me either smirk in laughter or frown in disgust.

On occasion and usually not on an employment site but instead on social media, I see the employment section filled in with the word “activist”.

Now seriously folks, because I understand English I do know what the word means, but listing it as job?

When I see that moniker as someone’s job, I can hear my poor dead uncle screaming “troublemaker”.

Not to say that’s what activists are or aren’t, but for some reason my uncles face with that word coming out of his mouth always hits the visual cortex area of my brain.

The term activist actually means “a person who campaigns to bring about political or social change”.

Ok, sounds like something real I suppose, but really, what does an activist really do all day? I try to imagine what a work day looks like for an activist, but no matter how hard I try, my brain just keeps seeing my uncle and then a few seconds later another word shoots out of his mouth and that word is “freeloader”.

I suppose we need people to bring about political change but isn’t that why we elect politicians? And from the looks of things, we have plenty of those and an equal number of their opinions to go along with it. I actually can’t think of an issue an “activist” could petition for that isn’t pushed for in a professional and “real’ political arena by some elected official so why would we need someone with less influence pushing for the same thing an elected official would already be covering. My brain wanders and wonders.

What I do think about is what an activist actually does in real life. Sorry but another few words pop out and they are: “not much of anything”.

Yes, they speak at rallies and write stuff on social media and if they’re any good, maybe get published somewhere, but do they earn a paycheck or just run around shooting their mouths off about things paid politicians espouse anyway?

I can’t seem to think they issue an invoice to anyone nor does anyone ever really “hire” them, although I’m sure and have read somewhere that some activists are paid to appear on occasion and give a speech or two, or maybe cause trouble, but outside of that, I wonder how these professional “activists” earn their keep.

Its doubtful those attending any rallies are paying an admission fee and I rarely see any hats being passed around to pay for a speaker, although I can’t say for sure this doesn’t happen.

But truthfully folks, when I see that job title listed under the “profession” tab, what does come to mind, besides my raving uncle that is, are visions of someone who occasionally or consistently dips into the myriad of public “assistance” programs, gets free healthcare, cashes checks from the federal or state government (or both) and then puts on their activist hat and complains about how unfair the system is.

I’m not saying all activists are cut from this same stone mind you, I’m only stating what comes to mind.

As an economic analyst and student of most things money however, after the left side of my brain is admonished by the right side, beaten into submission under thoughts of compassion, I still try to figure out who might actually pay these “activists to “activate’, if you follow what I’m saying here.

I’m sure there are some people out there that love their activists, and I’m sure the activists themselves think their worth their salt. I just wonder, when equated to actual dollars, who if anyone, is actually paying these people. And if they’re not being paid, you really couldn’t call it a profession now could you?

They say somethings are worth what you pay for it.

In conclusion, need I say more?

Or did my Uncle sum it just right?

Marc Cuniberti hosts “Money Matters” on KVMR FM aired on 65 radio stations nationwide. He is a financial columnist for a variety of publications. Marc holds a BA in Economics from SDU with honors 1979. His website is moneymanagementradio.com and he can be reached at (530) 559-1214. Visit him on Facebook (FB) under Marc Cuniberti and also on the "Money Matters” and “Money Matters Investing in Community" FB pages. The views expressed are opinions only.

Jan212019

Bonds are I. O. U's

Before the November elections I received the absentee ballot package along with the explanations and descriptions of the items we were to consider and then pull the handles for.

As an economic conservative and one who has quite a lot of experience in studying how all things money work, I can’t help but wince every time this mailer arrives.

As always and painfully so, at least for me, a whole lot of bonds were on the ballot.

Such is the case every voting November. I knew some of them would pass, making economic life even harder for many Americans. But I try not to blame the ones voting yes for all these bonds.

Most people don’t know what a bond is. I know this as I give seminars on investments and I start the seminar with a bond talk and ask how many people in the audience know what a bond is. Usually less than five percent of those in attendance raise their hand and it goes without exception at every seminar.

Bonds are simply IOU’s. The borrower, usually the county or state but they can also be private companies, floats a bond and investors buy them. In the case of many government bonds the borrower pays interest and also pays back the bond with tax dollars.

In the “general obligation” bonds tax dollars are used. This means me and many others like me are the ones paying the bill, not the state or county, which is what most people might think. There are revenue bonds that pay from an income source such as a stadium or toll road but that’s a story for another day. The point here being when many people vote on a bond, they don’t understand that tax dollars will be used. Instead they think the funds will come from some magical government fund that just materializes money. Fewer people really understand or really comprehend they will paying the bill through higher taxes somewhere down the road.

Not everyone will pay those taxes of course. Those paying no income tax will not pay and those paying little income tax will pay “little” as so goes the graduated tax rates. I have a bit of a logical issue allowing people to vote on a tax they themselves will not pay but that’s a rant for another day.

So millions in bonds were up for voting and since most people don’t know what a bond is and that its not free money from fields of jellybeans or out of the pockets of big corporations or free money from the “government”, they vote yes. Clean air or water, or money for our schools or emergency services are bonds that are usually easy to pass, as “who would vote against those” is the common argument.

To further convince voters to pass the various bond issues they are shown threats of falling bridges and failing roads, houses burning with no firemen in attendance or other scare tactics. Either that or the “oh so fuzzy warm’ photos of smiling children all fat and happy now that another 100 million of whatever is thrown at “our schools”.

The people that create these flyers knows what works and, like the many other infamous propaganda minsters throughout history, know that a simple mantra (or photo) repeated over and over is the best way to brainwash your targets.

Going one familiar step farther, I also received a flyer from candidates for both parties congressional seats. One of the bullet points on the flyer from one candidate was promising $15.00/ hour minimum wage while another bulleted “fix our schools”.

Gosh, it so painful for me to read this stuff.

The ignorance of both these statements makes me shake my head and order another martini.

Minimum wage laws don’t work. Without getting into the nitty gritty of it, let’s just look at the definition of insanity. Doing something over and over again yet expecting a different result. So how many times through history has the same catcall been heard by a plethora of politicians all drinking the same misguided economic Kool-aid called “minimum wages fixes things”?

We increased minimum wages 28 times under both Democratic and Republican administrations.

So tell me, why are we trying it again?

Not to pick on this particular candidate mind you. The “fix our schools” catcall is heard from the other side. So what happened to the lottery money? Some of you are old enough to remember such promises.

That goes down with the other great propaganda lies like “social security numbers will never be used for identification.

Yea right, and I have a bridge I can sell you, along with a jelly bean field that produces clean electricity.

You have to appreciate a good con.

This article expresses the opinions of Marc Cuniberti and are opinions only and should not be construed or acted upon as individual investment advice. Mr. Cuniberti is an Investment Advisor Representative through Cambridge Investment Research Advisors, Inc., a Registered Investment Advisor. Marc can be contacted at SMC Wealth Management, 164 Maple St #1, Auburn, CA 95603 (530) 559-1214. SMC and Cambridge are not affiliated. His website is www.moneymanagementradio.com. California Insurance License # OL34249

I saw a Frontline television program about Russian and other foreign governments setting up fake social media accounts on Facebook and other such sites. Not that I had not heard this before but the program specifically highlighted in detail the subversive reasoning behind such actions.

The goal being to turn groups against each other, weakening from within the social fabric of the targeted country. Frontline had many examples both abroad and domestic of how groups of foreign government sponsored hackers and the like set up fake profiles and fake groups and then use specific strategies to flood the sites with propaganda. The goal is to stir up hate between people and groups and whip it into a frenzy, perhaps to the point of violence, such as so often occurs at political protests events and other public gatherings.

Frontline detailed many fairly well known events where a specific “national day of something” such as the pussy hats rallies or the 1%ers gatherings may have been hatched in the hack rooms of Russia or Korea.

Political unrest and infighting is the goal. The enemy from within the targeted objective. After all, if a nation’s people is fighting amongst themselves, they are weaker as a group.

Apparently social media sites are set up to entice people to join various group pages. The hackers set up opposing sites, targeting both sides of a debate. The goal is to gain as many members as possible which yields an ever increasing pulpit to start the social fires needed to cause more unrest. The hackers, or whatever we call them, then use the most hotly debated and politicized topics and subsequently amplify the outrage. Using cartoons, fake news stories, exaggerated claims and downright falsehoods, their aim is to engage and enrage the masses. The hackers are political experts and utilize the most sensitive of issues, the most emotional hot buttons and the highest level of sophistication to cause the most damage, or should we say fan the flames of hate.

The hottest issues are easy to find. Immigration, the border wall, the 99%ers, the living wage/minimum wage debate, presidential tax returns, liberal bias, racism, sexual slavery, black lives matters, pussy hats, forced child labor and too many other hot topics to name.

All reach to very basic of beliefs and morals of many people and violating those spaces cause many to reach a fever pitch level of response.

Whatever it is, it’s working. The level of hate, fear and outrage has reached incredible heights in America and indeed, other nations as well.

Longtime friends and family members are disowned by one another because of opposing political views. I can comfortably say and in my opinion the left side of the political aisle is more guilty of this act, having had family members in my own family cast out because of something they said or some garment or sign they may have displayed at one time or another.

One example might be that the hate for Trump and his supporters is off the charts and grossly putrid.

A sad observation of the times I’m sorry to say. The right side of aisle have been driven into the closet. Case in point, so many of right were afraid to speak their presidential preference leading up to the election, the triumph of Trump was a complete surprise to many.

Concluding, I now hold little opinion of the current political environment. I know better.

It is so ridiculous I choose to hit the “off” button and opt out until the nation gets a grip on itself.

But the left seems to be the more sensitive of the two sides, enraged to a point of boiling if any one of a variety of topics is brought up.

I’ve seen it up close and personal. A mention of support for Trump, his wall, immigration, his taxes or a number of other issues brings at a minimum a look of disgust and it only escalates from there. I have seen people disown friends, yell in the gym at someone, move tables away in restaurants, come to fist-a cuffs with family members and more. I don’t see a lot of right to left reaction, at least publically or on social media, but try voicing any Trump support or wearing a Trump article clothing and at least where I live, you better get your crash helmet on.

That our Russian friends have found some Americans so malleable and pliable as to allow themselves to so aptly manipulated and subsequently enraged at another fellow American is deplorable, and those that practice such hate responses should be ashamed of themselves.

This article expresses the opinions of Marc Cuniberti and are opinions only and should not be construed or acted upon as individual investment advice. Mr. Cuniberti is an Investment Advisor Representative through Cambridge Investment Research Advisors, Inc., a Registered Investment Advisor. Marc can be contacted at SMC Wealth Management, 164 Maple St #1, Auburn, CA 95603 (530) 559-1214. SMC and Cambridge are not affiliated. His website is www.moneymanagementradio.com. California Insurance License # OL34249

Stock Market Silver Lining

Those of us looking at the markets for a living have seen happier holidays. That being said there is some good news in all of this. With declining stock prices comes opportunity. Although portfolio balances have likely decreased with even profits minimized or negative, we have a chance when the market bottoms to lock in some great yields on solid companies. Companies that are the bedrock of the American economy. Names that have been around for decades, some over a century and I am excited about what this means for investors.

Many of these great companies pay dividends which are scheduled payments to stock holders every so often, usually every quarter. Since dividends are listed as a dollar amount, when the price of a stock drops its yield on your investment goes up. Many of them have increased dividends for decades and paid them for as long.

For instance, if stock "ABC” Company (fictional) says it will pay one dollar a share annually and the price last month was $10, your annual yield would be 10%. Now along comes our nasty correction over the last few months and stock of ABC drops to $8 which is a 20% drop in price and many stocks in this recent setback have seen this percentage drop.

If the company pays the dividend as scheduled, you spend $8 a share buying it and then get the buck in dividends. That payout equals 12.5%.

Bingo- the stock got hammered but buyers at the new level of 8 bucks get a much higher return than buyers before the crash.

With the markets suffering the worst December since 1929 (CNBC) and from the article below note the quote: “About 38% of companies on NYSE, Nasdaq trade at 52-week lows. Only eight days since 1984 saw more stocks hitting new bottoms. The worse December since 1929”.

We now have a unique opportunity unfolding. Remember when bad things happen, opportunities can arise and right now I see a tremendous potential opportunity being given to us with this market rout.

Yes your balances may have been hit, and yes it may look somewhat bleak right now, but when I get the chance to pick up great companies at bargain prices paying nice dividends which were higher before this seasons market set back, I take a hard look at altering strategies to take advantage of this opportunity.

The S&P 500 sat at 2929.00 on 9/17/2018 and closed at 2351.00 12/24/2018 which is 19.8% decrease. That said, the window is opening wider every down day and I cannot ignore it. That means if we pick up some of these great US stalwart companies that make up some of the best regarded companies in the country at beat up levels, we can possibly lock in great dividends and also have the possibility of a recovery lifting the prices of these stocks as well.

Historically when the markets fall hard and fast, the pendulum effect sometimes comes into play in a big way. In 2009 the Dow sat at 6,626 and in about 8 years skyrocketed to 26,828. That is a 404% increase.

Add dividends to that and you imagine the results for those grabbing stocks at the bleakest of times that pay dividends.

What is the opportunity now?

While most investors and advisors might be seeing darkness and lots of red, I see opportunity. I was always a fan of dividend paying stocks of great companies, and now I am super concentrated on this strategy again. Great opportunities in life don't happen every day, but when they do, you have to sit up and take notice, have vision, and while the blood runs in the streets, look toward the sky and find the hidden opportunities. This is my thinking today.

Who wouldn’t want to own a basket of solid companies with the possibilities of some great dividends, with higher yields because of beat up prices?

And even if the market goes lower, our possible yields will only go up from there. In a weird way, we can hope the market goes even lower! Strange how things can be perceived.

Dividends are not guaranteed and can be decreased, increased or eliminated at any time. Dividends do not guarantee against losses. Dividends may be taxable in certain types of accounts and stocks which pay dividends does not mean losses, either partial or total are not possible. Please review the prospectus of any company you are considering and consult with your investment professional before making any investment decisions. Investing involves risk. You can lose money.

This is not a solicitation to buy or sell any securities. This article expresses the opinions of Marc Cuniberti and are opinions only and should not be construed or acted upon as individual investment advice. Mr. Cuniberti is an Investment Advisor Representative through Cambridge Investment Research Advisors, Inc., a Registered Investment Advisor. Marc can be contacted at SMC Wealth Management, 164 Maple St #1, Auburn, CA 95603 (530) 559-1214. SMC and Cambridge are not affiliated. His website is www.moneymanagementradio.com. California Insurance License # OL34249

 

In Money and Markets December 7, 2018 article entitled “Appalling: GM CEO collects 22 million while cutting 15,000 jobs”, the issue of a company’s right to pay whatever salary they wish to whoever they wish regardless of performance is brought into question.

The premise of the article is a simple one: should General Motors CEO Mary Barra be allowed a 22 million dollar salary while she authorizes firing 15,000 of her employees?

The 22 million paycheck is 295 times higher than GM’s average employee wage. The perceived offense is amplified by the fact that the U.S. government bailed out GM with billions in taxpayer funds during the 2008 crisis and basically rescued it from an almost certain bankruptcy filing.

The outcry is both aisles wide with Democrats and Republicans alike calling “foul”.

The issue here is multi-faceted. To start with, this analyst was and still is against bailouts of any kind to for-profit enterprises.

It’s not what taxpayer funds are for. Additionally the “creative destruction” from businesses failing to survive whatever happens to them that causes them to assume the four feet up position of a bankruptcy is a natural progression of capitalism.

Basically, if a company succumbs to a chapter 7 or 11 filing, it SHOULD go away. It just wasn’t good enough to survive and that means it should be allowed to fail and make way for a better company to takes its place.

It’s the brutal but necessary world of competition and it makes for a better world in the process. Many won’t agree of course but an in-depth understanding of economics yield little argument in my opinion.

Another obvious sore spot in this whole thing is the enormous difference in what CEO Barra makes and what the average worker makes. A 295 multiple sounds egregious and maybe it is. Or maybe it isn’t.

Running a company like GM is a job suited for few people.

Like very few.

GM built plants in Mexico and China to turn more of a profit. In this analyst’s opinion, some of the blame falls on the unions and other vocal groups vying for more comps, more vacation and more freebies.

Also a fault are the “living wage’ proponents that advocate some sort of standard ought to be set for everyone as to the size of their paycheck. Nobody can seem to agree as to exactly how much that should be mind you, but the general belief is higher than many companies currently pay.

The prognostication of what happens when perks and wages are forced upon a company is easily detailed way in advance of what has now come to pass. Basically that these policies cause people to lose their jobs.

That it HAS come to pass is now the companies fault?

The phrase “we told you so” comes to mind.

Force higher costs on a for-profit company and it will flee to friendlier (and cheaper) shores. And so it has.

American activists and unions have pushed for higher wages and more perks and detractors warned it would cost American jobs. And now it has.

China and Mexico are trying to survive, grow and employ its populace and have little in the way of wage mandates, and therefore can build GM cars cheaper.

Since the monetary goal of private business is to enhance shareholder profit, one can hardly blame GM for wanting to build its cars wherever it can for the lowest cost. Keep in mind GM is not a charity but a business. Those calling for allowances to enhance the benefit of non-owners (employees) should reread the last sentence. Call me uncompassionate but stating fact doesn’t necessarily mean I support that fact and want people fired and no, I don’t agree with the move GM made.

But GM is a business, a shareholder business, and that makes its owners first and foremost on the ladder of preferred monetary enhancement. Sounds harsh but in the true sense of the word business, it is goal is that simple: make money for the owners.

Small or large business, the mission is the same.

Throw out that premise and you throw out the entire capitalistic system, and with it free will and choice, and although many might advocate such a thing, there is not a replacement system that maintains free will and individual liberty as succinctly.

Few understand that capitalism at its root is nothing more than two people agreeing to make a transaction freely and without outside interference. The rest of the capitalistic system and its machinations are just offshoots of this basic transaction.

That a shareholder owned, for-profit business elects to pay CEO Mary Barra a 22 million paycheck while laying off thousands may seem immoral, it’s the right of the company to do so.

Barra has one mission: make profits for shareholders. And in performing this mission, she has decided it is in the best interest of the shareholder to lay off workers.

So be it.

Complain and protest all you want, but you’ll be doing it from the unemployment line. Labor activists wanted higher wages and now you have no wages at all. Just like it was predicted.

Perhaps instead of scratching our head wondering how such a thing could come to pass, in reality, making what must have been a very difficult decision and knowing how much flak she would probably take for doing it, may be the reason she’s worth the paycheck.

Just saying........

This is not a solicitation to buy or sell any securities. This article expresses the opinions of Marc Cuniberti and are opinions only and should not be construed or acted upon as individual investment advice. Mr. Cuniberti is an Investment Advisor Representative through Cambridge Investment Research Advisors, Inc., a Registered Investment Advisor. Marc can be contacted at SMC Wealth Management, 164 Maple St #1, Auburn, CA 95603 (530) 559-1214. SMC and Cambridge are not affiliated. His website is www.moneymanagementradio.com. California Insurance License # OL34249

Much blame of society’s economic ills however are laid at the feet of capitalism. In this analysts opinion in actuality most of those ills are because capitalism has been hijacked, distorted or otherwise thwarted by meddling governments and regulators.

Capitalism is nothing more than one person buying what he wants from another at a price agreed by both and without outside interference or mandate.

In all systems there is good and bad, and capitalism is no exception. But the perceived bad in capitalism actually works for the good of system. It is just not always obvious at the onset.

Much like cauterizing a wound to prevent infection, the capitalistic process might have its painful and ugly moments, but the reasons are beneficial in the end. The basic result if you let it work its magic is the basic transaction between parties and their free will is preserved and isn’t that the main theme of America, freedom and liberty?

True be told, there is little resemblance of the system we have today and true capitalism. Hence the bad name capitalism has been given. Subsidies, unions, regulation, the lobby system, protectionism, tariffs, minimum wage and a host of other interferences and hindrances by governments have broken many of the cogs of the self-repairing system of capitalism. It’s why we see the problems we do today.

And although many blame capitalism for their problems, the arms of capitalism, if allowed to work, would fix most economic ills. But those arms, or at least many of them, have been handcuffed or outright cut off.

Capitalism is basically freedom. The freedom to make a buck, retain it, and do with it what you like. Pretty basic stuff. From that premise comes the beauty of a free market which, to the chagrin of some, come laissez faire and trickledown economics, which actually work if unmolested and unregulated. But then again we haven’t seen that for literally decades.

Capitalism addresses excessive profits with competition. Regulators thwart this check and balance with excessive regulatory costs which erect excessive barriers to entry (cost too much to start or maintain a business).

Proper wages are addressed by a sound dollar policy which maintain stable and long lasting purchasing power of the paycheck. Since wages lag inflation, when the government maintains an inflationary policy to fund itself and its programs, it erodes the buying power of the paycheck. This means workers fall further and further behind. The more inflation and the longer it continues, the farther behind workers find themselves. Wage increases always lag general inflation. Conversely, if a deflationary environment was maintained, workers would benefit more and more over time. The governments of the world however elect for follow an inflationary model. Capitalism would not cause living wage deficits if there were strong dollar policies in effect.

Capitalism does have its drawbacks and when those occur and only when those occurs should a regulatory body intervene. Monopolistic situations must be mediated by a central government as well as environmental concerns. A few other instances of a capitalistic system also may require central intervention, but for the most part, the capitalistic system is the original way the caveman survived. He basically fought and won his daily bounty, and those that did survived and prospered. From there evolved man’s concept of free will and the right to possession. Basically what yours is yours and what theirs is theirs. There is no more basic concept or right. Unfettered with constraints this system is the oldest and the best. In this analyst’s opinion, no other system will work, nor ever has for long. That some people think there is a better way only points to man’s hubris and ignorance.

2 Thessalonians 3:1: For even when we were with you, we gave you this rule: "If a man will not work, he shall not eat”

Seems logical to me, and fair, with the exception of compassion on those that truly cannot work. Then another verse comes to mind:

Proverbs 22:9: The generous will themselves be blessed, for they share their food with the poor.

I know there will be some reading this who will scoff or even despise the biblical reference used her, but few would argue these are wise words, all of them.

This article expresses the opinions of Marc Cuniberti and are opinions only and should not be construed or acted upon as individual investment advice. Mr. Cuniberti hosts the radio show “Money Matters” and is a featured columnist on a variety of media outlets. Mr. Cuniberti is an Investment Advisor Representative through Cambridge Investment Research Advisors, Inc., a Registered Investment Advisor. Marc can be contacted at SMC Wealth Management, 164 Maple St #1, Auburn, CA 95603 (530) 559-1214. SMC and Cambridge are not affiliated. His website is www.moneymanagementradio.com. California Insurance License # OL34249

So, What are the Odds?

The pot at the end of the rainbow known as the Lottery is everybody’s ship they hope will come in to their port. Built on previous lottery models, current game versions just keep getting bigger and bigger with more ways to play and in more places to play it.

Playing a two dollar lottery once a week sets you back $104 bucks with somewhere in a 1 in 37 chance of at least winning something. Unfortunately, those least able to afford to play are the majority of its players.

The most notable and recent news making item in the world of the lottery was the mega-billion dollar jackpot in the Mega- Millions lottery of 1.6 billion.

Seems like a lot of money and indeed it is. With a 1 in 300 million change of winning, playing it seems idiotic but the hook is the payoff is so grand, who wouldn’t shell out a few bucks to be the richest guy in the room.

Lottery winners can take a onetime lump sum payout which is a much smaller lump after the state and Feds take their cuts in taxes. The other option is an annuity which pays out over many years. Probably a smarter way to go given the history of more than a few past lottery winners. And by “past” I mean literally.

We know of at least 11 lottery winners that are no longer celebrating their good fortune. In fact they’re no longer celebrating anything. They’re dead.

One guy was shot in a robbery. He was a good guy apparently, donating a ton of money to charity. His killers weren’t so nice. They shot him reportedly in front of his kids while looking for their undeserved part of the money one day.

Cyanide took another shortly after his initial good luck struck him. Bad luck obviously was waiting in the wings. Either that or some nasty relatives. Likely not a suicide so say the police. His estate got the money in short order. Hummmm.....

A concrete slab was found over the body of another. Another not so probable “suicide”.

After continuing to take welfare checks after winning a cool million, another “lucky” winner overdosed on cocaine. Party on Garth.

Two more were stabbed death, one was shot by somebody, two did the ultimate deed themselves and more than a few ended up broke and penniless.

Not to say there aren’t winners living happily ever after mind you. I’m sure there are.

But the responsibility of untold thousands, millions or even billions magically and suddenly appearing one day in your bank account without so much more as lifting a finger to fork over a buck to the buy the ticket can have the possibility of being hazardous to one’s health, if not life itself.

It’s probably better to make your money the old fashion way: earn it, and leave the luck of the draw to others.

In reality and statistically, you’ll probably not win anyway. But one can hope!

Then again, maybe not.

This article expresses the opinions of Marc Cuniberti and are opinions only and should not be construed or acted upon as individual investment advice. Mr. Cuniberti is an Investment Advisor Representative through Cambridge Investment Research Advisors, Inc., a Registered Investment Advisor. Marc can be contacted at SMC Wealth Management, 164 Maple St #1, Auburn, CA 95603 (530) 559-1214. SMC and Cambridge are not affiliated. His website is www.moneymanagementradio.com. California Insurance License # OL34249

Among economic models, socialism could be said to be a fad model, falling in and then out of favor as economic models go through a somewhat predictable cycle.

I am of the opinion very little can bring about a civilizations downfall. Not a pandemic, or war, or even an atomic blast or two. Just look at Japan and their stunning recovery from being a burnt out and defeated nation at the conclusion of WW2 and then became one of most powerful economies in the world in a little more than 3 decades.

Economic collapse however has over time, buried more civilizations than any other single event.

From Alexander Fraser Tytler:

“A democracy is always temporary in nature; it simply cannot exist as a permanent form of government. A democracy will continue to exist up until the time that voters discover that they can vote themselves generous gifts from the public treasury. From that moment on, the majority always votes for the candidates who promise the most benefits from the public treasury, with the result that every democracy will finally collapse due to loose fiscal policy, which is always followed by a dictatorship.
The average age of the world's greatest civilizations from the beginning of history has been about 200 years. During those 200 years, these nations always progressed through the following sequence:

Breaking that down, it means eventually a democratic system, because of the majority vote stipulation of democracy, means the populace will always vote in the majorities best interests, “best interests” being the key word here.

The reason for the ultimate collapse is monetary inflation. By inflating the money supply (printing money) the prices of most if not all things will rise in price of whatever the currency is being printed. Think U.S. dollars here in the United States or Mexican Peso in Mexico.

Monetary inflation is always caused by the authority of the currency, basically the government of whatever country is in question. Inflation is not necessarily a bad thing except for one economic truth:

Wages always lag price increases.

This means the more inflation you have, and the longer you have it, the “Affordability Gap” will relentlessly widen. As prices rises, wages fall further and further behind. As the wage gap (affordability gap) continues to widen, more people “fall under the bus”, meaning they have a harder and harder time making ends meet. The result is the wealth concentrates into the hands of fewer and fewer people. Sound familiar?

If that wasn’t bad enough, as more people find it harder to pay their bills, the calls for government assistance get louder and louder. This results in the candidates promising the most benefits getting elected while those vying for a return to a sound economic model (the cessation of printing money) get voted out.

This results in more and more elected officials towing the party line of ever increasing government assistant, which in turn results in more money printing, which results in more inflation which causes even more people to need help.

Because the cause and effect of monetary inflation is not widely understood, the very policies the masses cry for (more and more public assistance) make the situation worse and never better.

It’s a vicious cycle as well as a deceptive one. The concentration of wealth is also predicted and a natural byproduct of this process. Because wealth is in essence never destroyed, the decrease in wealth in the masses also means that wealth moves up the food chain. The more people who go broke, the more money moves up. The result is the wealth continues to concentrate in the hands of fewer and fewer people.

This happens because inflation hurts the lower incomes but actually enriches the higher incomes. Imagine a family making 30,000 with no assets seeing a 5% annual inflation rate. They see their expense rise by 5% (losing $1,800 in buying power due to the inflation) and have no way of making it up.

Now imagine an individual who has 30 million in assets (regardless of what he makes). His assets also see a 5% inflation rate. His net worth will increase six million (5% of 30 million). Whereas the family making 30K only finds it harder to pay their bills, the rich person has actually gotten a heck of lot richer.

Also remember his six million came from somewhere, and using the $1,800 in loss wages figure from above, the 6 million increase in wealth means 3,333 families went under (6 million divided by $1,800) to make this one guy richer. Now that’s a fast path to the concentration of wealth!

The ugly truth is the Cycle of Failure is caused by monetary inflation. The monetary inflation is caused by governments. The monetary inflation is demanded by the very people it will devastate, mainly those in the lower income brackets. And because that bracket will get larger and larger over time, they will eventually vote themselves the “generous gifts” referred to in Tytler,s quote and the cycle will progress.

Put in another way, the rich LOVE inflation, and they LOVE when there are calls for more help, because it makes them that much richer.

Most people don’t realize voting for more government assistant will just do more damage.

But like a drug, monetary inflation is also addictive. To stop using it and go back to a healthy economic model means the withdrawal will be massively painful. And it will be so for the very same people that call for it. And like a drug, we continually need more and more of it. Think minimum wage increases and how many times it’s been raised.

As for the rich, they probably hope the masses keep calling for more assistance through more government freebies because it enriches them. But don’t expect the masses to understand this phenomenon. From Upton Sinclair: “It is difficult to get a man to understand something, when his salary depends on his not understanding it.”

This article expresses the opinions of Marc Cuniberti and are opinions only and should not be construed or acted upon as individual investment advice. Mr. Cuniberti is an Investment Advisor Representative through Cambridge Investment Research Advisors, Inc., a Registered Investment Advisor. Marc can be contacted at SMC Wealth Management, 164 Maple St #1, Auburn, CA 95603 (530) 559-1214. SMC and Cambridge are not affiliated. His website is www.moneymanagementradio.com. California Insurance License # OL34249