22 My Coconut Theory
Coconut Theory
In a tropical island, every one sleeps under a coconut tree
assigned to him. He wakes up only when a coconut falls on his head once in a
while; he does not have to think when he just wakes up and eats. He eats the
coconut and goes back to sleep. He is lazy due to the nice weather (no need to
find shelter) and the nice resource (the coconut tree). He is happy and rich by
his own standard. However, he is lazy, fat, and stupid due to the lack of any
need to work, exercise, and think out of his ‘perfect’ environment.
The worst that happens to the
natives is borrowing coconuts from other natives with the coconut tree as
collateral or cut down the coconut true to make a canoe without plans on how to
replenish coconuts in the future.
This is a simple theory. It can be used to explain how and why
many countries are rich, poor, and continue to be so. Let’s check how this
theory stacks up with countries.
U.S.A.
The U.S. is the richest country due to its developed and highly educated citizens, hard-working immigrants and the huge natural resources per capita (i.e. having a lot of coconuts in my theory). The U.S. is declining as we spend more time enjoying our wealth (borrowing coconuts so he can eat more; on credit – living beyond our means!) rather than creating more wealth (i.e. eating up most of the coconuts and not planting new coconut trees in my theory).
The wealth is
equivalent to the bountiful of coconut trees that were available originally and
the many that were planted by our ancestors. There were fewer natives to
consume the total number of coconuts, so there was a surplus of coconuts grown,
eventually to be given away (as welfare and entitlements).
Because of
WW2, most coconut trees in the world were destroyed while ours were fine. We
were rich to ship our better coconuts to the rest of the world.
God gave us plenty
of natural resources, good soil and climatic wealth (coconuts hidden under the
land) and hopefully we continue to be wealthy. Unfortunately, we’re now
consumers (of coconuts) instead of producers (planting new coconut trees).
Norway
Norway is the
richest to its population group (3 millions) while Brunei is richest in its own
category. Norway has more money than God because of its long coastal line and its
intelligently governed oil wealth, so everything works better there. I hate to
compare any country to Norway as most likely we are comparing Apples to Melons.
From its long
coast line Norway has rich off-shore oil fields and abundant fish exports which
is second in the world-- only 6% of its export, after China but far, far #1 per
capita wise. Because of the world's oil addition and food dependence secures
its income flow.
Peru has a long coast line, but it is not wealthy. My theory does not apply fully here, as there are always exceptions. It could be Norway’s educated citizens, close location to its trade partners and buying assets around the world (planting more coconut trees). The dividend payments allow Norway to prosper for decades. They have about 600 billion sovereign fund to be shared by 3 million citizens. Simple math!
Iceland
Some smart guys suggested cutting down all the coconut trees to make canoes so they can earn a rich life by fishing. The world loans them with coconuts. When the fishing fails, their land is lost with no coconuts and no coconut trees left. Do not bet all the coconuts in one venture.
Singapore and SE Asia
Singapore is rich due to its important location for the sea route for trade and commerce, as well as being the cultural intersection between the east and the west and its industrious citizens (most are Chinese). When the hard-working folks land on a land of coconuts (i.e. resources), they naturally become rich.
Mekong River
is a good resource providing fishing, irrigation, transportation, and fertile
land in the delta for SE Asia. Hence, SE Asia should be rich, and at the same
time attracts hard-working immigrants from India and China to enhance their
wealth.
Japan
Japan has few
natural resources. Its only resource is the educated and hard-working citizens.
With a decreasing population and the policy not welcoming immigrants, Japan
will face problems.
Haiti
Haiti used to
have enough coconuts for its small population. French imported African slaves
to the sugar cane plantation and changed the allocation of natural resources
per capita. Coupled with frequent natural disasters and bad governance, Haiti
becomes the poorest country in the world. Corruption in poor countries is
natural.
UAE
When the west
helped UAE to explore its oil resources (the hidden coconuts under the sand)
about 50 years ago, UAE becomes the richest country on earth. She expands in
different areas and it could be over-expanded. When the oil dries up in 100 or
so years and/or the shale energy competes better, they could be in big trouble.
Russia
Russia is a
country full of resources (coconuts). Its citizens become lazy having a good
time under the ‘coconut’ tree. Chinese are just the opposite. That’s why the
Russians hire the hard-working Chinese to tender farm in the border while they
enjoy life with plenty of Vodka J.
The primary
reason why USSR fell was the temporary low prices of their resources oil and
timber (coconuts). Trying to be #1 was another reason.
China
China has
roughly 20% of the world population, but it has far less than 20% of the world
resources (coconuts). For example, it has only 6% of the world land area. The
situation was worsened in the last 250 years during the Opium Wars, and then
semi colonization by the eight countries (helping the opium pushers). It
bankrupted China by their colonial masters. It caused massive migration to
escape from the land without coconuts. It was followed by WW2, war lord era and
then the bad governance. Their bitter lessons ensure this generation and the
next generation to work hard and be smart. When they do not have ‘coconut trees’
(the colonial masters cut most of them down), you have to work hard or die.
China ranks
#2 in the economy. It is only important to its trading partners. Its own
citizens care about their living standard which is about the middle in the rank
of all countries.
Ancient
civilizations too
Greece, Iran,
India, China and Italy are among the oldest civilizations. Most do not do well
in today’s economy and many of their citizens have immigrated to other
countries. My theory suggests that they have exhausted their coconuts (farm
land and metals) throughout the long history. Hence, they have to migrate to
lands with more coconuts.
To
illustrate, there is a huge discrepancy in natural resources (oil, metal and
farm land) between China and the U.S., which has a relatively short history.
Corporations too
Microsoft was
a tougher company with more innovations fifteen years ago than today. However,
they are enjoying easy profitability of upgrades of Windows and Office
(coconuts planted by their ancestors). For a long time, she only has one
successful new product, the Xbox. Her managers are counting their bonuses
instead of taking risk. The Coconut Theory works again.
Rich families too
It is very
rare to have rich families that last over three generations. The first
generation grows the wealth (planting coconuts), the second generation enjoys
the wealth, and the third or fourth generation usually becomes poor due to the
easy life.
Conclusion
So far, no
one tells me that this theory has been ‘discovered’ by others. Shamelessly I
claim it is mine. To me, it is just common sense.
Afterthoughts
·
I did not have a
coconut tree (i.e. financial aid or money from my dad), and that is why I
worked two jobs in my first summer while attending college here. The first one
was a bus boy job from 5 pm to 10 pm. The other one was cleaning slot machines
from 4 am to noon for 5 and most likely 7 days a week. Lack of coconut makes
you desire to work hard or you die. With an average IQ, I can make it by
working hard in a land of coconuts.
My children have too many coconuts
and they live in a more lavish life style than the old man. They ask me why I
work that hard during my retirement or why I still go to Burger King with a
coupon even they do not treat me like a king.
·
Using Norman’s opinion, the
problem with a small place filled with coconuts is someone would likely to
colonize you and steal your coconuts as happened to Norway during WWII. Similar
to China about 250 years ago. Once a while, need to cut down one among many coconut
trees to make spears to protect the rest of the coconuts.
23 When will DOW double?
Dow will double (to 25,000) before the end of this decade
(2020) if most of the following materialize.
·
The two wars are finally ended and the U.S. will
not start another one. We cannot afford to be the world’s policeman fighting
for our idealism. Let others fight for their own freedom, their own humanity
and their own ideology. Being a big brother means nothing when we have 15%
unemployment / under employment.
·
Again avoid any physical war at all cost.
Japan and several Asian countries are dragging us to a
war with China on the disputes of oil resources in some islets in China Sea.
Throughout history, Japan has been a fierce aggressor to its neighbors and its
navy is growing fast. Why should we protect Japan militarily with our money
while Japan passes us in living standard? When Japan and S. Korea fight, which
should we side?
·
Be friendly with China.
Avoid any trade war which has the risk of them pulling
out their debts of over a trillion dollar.
·
Buy more printers to print money.
It would lead to super high inflation (so $20,000 today could only buy
$10,000 goods in 2020). In this case, Dow doubles but not in real purchasing
power. It will harm the economy long term. Currently the banks hold the printed
money as reserves and earn interest on it. They should be used as seed money to
start new businesses instead.
·
Cut down entitlements.
In addition, force those able, long-term welfare
recipients to work on jobs taken by illegal aliens now. Clinton’s work bill
does not work in many states with too many misinterpretations.
·
No more bailout.
No one including the state government is too big to fail. Cut the government size to half. It will not be any reduction in service as most government workers have tiny workloads. I hope we’ll not bail out Detroit. If we do, we will have to bail out other cities such as Chicago and many cities in California. It is easy to ask for money than to work for money. Laziness is a human nature.
No one including the state government is too big to fail. Cut the government size to half. It will not be any reduction in service as most government workers have tiny workloads. I hope we’ll not bail out Detroit. If we do, we will have to bail out other cities such as Chicago and many cities in California. It is easy to ask for money than to work for money. Laziness is a human nature.
·
Help small businesses.
Give incentives to businesses to invest here such as
low tax rates, no ObamaCare (good but we’re not ready in this recession), no
complicated regulations / laws, low legal claims, etc. We cannot compete if our
wage, taxes and regulations to do business here are too high and too
restrictive. We need to bring our living standard to how much we earn, and not
to how much we can borrow.
·
Incentives to big corporations.
No more corporate welfare. At least tax the profit
made in the U.S. Give them incentives to hire here.
·
Reward folks taking risk by lowering taxes on
investment income. Taxing the richest excessively will drive them to leave the
U.S. We seldom have high taxes and business growth at the same time.
·
With the shale oil and gas, the U.S. could be
energy independent if there is minimal damage to our environment.
·
Reform our election system (Chapter 42). The
primary objective of a president should not be reelection but serving us.
·
Emphasize on the economy.
Is being #1
more than employment? Is consumption (via borrowing) more important than
production?
We need law to balance the budget to be implemented after
this recession. Most of the above will
not materialize as the politicians cannot buy votes with many measures and no
voter wants to bite the bullet. It seems we’re heading to more government spending
and loans. Dow will double only due to higher inflation.
24 The evils of printing money
I just explained to my grandchild that money does not fall
from the sky or grow on trees.
Every time we print money, it does the following:
1. An invisible tax is added to the rich as their purchasing power will be decreased.
2. Your children and grandchildren will pay for it.
3. Selling a piece of our asset to foreigners.
Every time we print money, it does the following:
1. An invisible tax is added to the rich as their purchasing power will be decreased.
2. Your children and grandchildren will pay for it.
3. Selling a piece of our asset to foreigners.
4. Our products are less globally competitive as
we have to add more taxes to pay for the loans. It is more competitive
initially as our currency has been depreciated, but this will not last long.
5. Give more reasons for the rich to give up
citizenship and move to another country. Most become rich for being smart.
6. The
end of the USD being a reserve currency is closer.
The only winners are the lobbyists and politicians, who bought
votes with the money from your pocket.
It will help the stock market in
the short-term, but it is very damaging for the long-term economy. That's also
the primary reason why the recovery of our economy is taking forever. Printing
money to the maximum is not a solution but a problem.
Afterthoughts
·
We have inflation (such as most products in the
super market) and deflation (such as housing expenses) since 2008. Click here
for detail.
·
As of 6/2012, we have 16 trillions of debt and
it is substantially less depending on whether you include the entitlements.
Besides the poor environment, unpromising economy, our children and
grandchildren inherit our huge debts. It is about 54,000 debt for each baby
born today. However, many foreigners want their babies born here!
·
The U.S. is heading
to the same path as Japan by jacking up the money printing press. The
similarities are:
1. Both try to flood the market with free cash. It gives the market a false boost (in nominal term and in after inflation term).
2. The next generation(s) will have to pay for their citizens' debts.
3. Both governments are running out of tools to stimulate the market. I guess you cannot have interest rate negative (that means I pay you interest to lend you my money).
1. Both try to flood the market with free cash. It gives the market a false boost (in nominal term and in after inflation term).
2. The next generation(s) will have to pay for their citizens' debts.
3. Both governments are running out of tools to stimulate the market. I guess you cannot have interest rate negative (that means I pay you interest to lend you my money).
The differences are:
1. The US has a lot of resources (ores, oil, gas, timber, land, farm land...) per capita and the shale energy could save us for the next 50 years.
2. The U.S. welcomes immigrants (we need to do it selectively) to reduce some of the demographics problems such as social security, welfare, work force...
3. Japan will continue another decade of the last two lost decades.
1. The US has a lot of resources (ores, oil, gas, timber, land, farm land...) per capita and the shale energy could save us for the next 50 years.
2. The U.S. welcomes immigrants (we need to do it selectively) to reduce some of the demographics problems such as social security, welfare, work force...
3. Japan will continue another decade of the last two lost decades.
Relatively speaking (as Einstein said), the US is in far better shape than Japan. Investors should stay away from Japan except the delicious sushi. EU and China and the commodity-rich countries (Russia, Brazil, Australia...) will be in between.
We are not economically better than our parents. Our children will be even worse with loans to pay from our governments.
25 Low interest rate
As of 2013, we have the lowest
interest rates for a long while, which is normal in a recession. It is a great
time to buy a house (especially with the depressed house prices) and / or
borrow money.
Low interest rates have many impacts on our investment:
·
Usually they're better for the stock market as
corporations can borrow at cheaper rates and hence improve the bottom line. In
theory but not today, it should be great for the housing market and retailers.
·
Corporations can borrow money at favorable rates
to buy back their own stocks or acquire other companies to boost their own
stock prices.
However,
prolonged period of low interest rate will damage the economy. Japan is one
example.
·
Dividend stocks will prosper from investment on bonds
moving to stocks until interest rate starts moving up.
·
Folks including retirees, who depend on fix
incomes, will suffer.
·
Eventually long-term bonds will suffer big time
when interest rate moves up.
The government has to lower the rate to stimulate business, but at the same time it cannot prolong the low rate too long.
Afterthoughts
·
As of 8/2012, the yield of 10-year Treasury Bill
is about 1.75%, the lowest in my recent memory.
It is better to keep cash now than CDs, so we do not miss any
opportunity to move back to equity.
·
Today, we’ve the lowest interest rate in memory
but we’re still in a recession; the Fed is running out of tools to improve the
economy.
26 Inflation and deflation
The historical annual average is
about 3% inflation. CPI
is not a good gauge any more after energy and food are not included.
Inflation is:
·
An invisible tax to the rich.
·
A strategy to lessen the loan burden. To
illustrate, your loan of $1 can buy a loaf of bread now, and you will pay back
the $1 plus negligible interest that can buy only half a loaf of bread due to
inflation. China is the loser and the USA is the winner in this deal.
·
An invisible salary cut.
·
An invisible cut to your entitlements/welfare.
Social security is supposed to be adjusted to CPI, which
can be manipulated by the government by not using food and energy to reduce
social security payment increases.
·
An invisible cut to your investment incomes
(dividends and appreciation).
Deflation is no angel:
However, deflation is far worse than inflation to the economy. When the company produces a product and finds out they have to sell it for less due to deflation, then their profit would be cut and they might need to lay off employees.
However, deflation is far worse than inflation to the economy. When the company produces a product and finds out they have to sell it for less due to deflation, then their profit would be cut and they might need to lay off employees.
To illustrate, a manufacturer of making
phones calculates the component costs and the expected sell price. If the cost
is too high or the profit too low, he would skip the project.
Inflation and deflation at the same time
As
of 6/2013, we have both inflation and deflation at the same time for several
years now.
We have inflation in most of our basic necessities: food, gasoline
and heat (especially important for the NE) with the exception of rent due to
the depressed house prices. Electronic stuffs and PCs are deflated considering
how much we can buy today vs. last year. Cars have been slightly deflated when
figuring in the extra features.
Outlook
The government should ensure inflation and deflation within
an acceptable range (3% to me). It has printed a lot of money and lower
interest rate to stimulate the economy and at the same time it could have
accelerated inflation. When the economy does not improve, it has run out of
tools to improve our depressed economy.
However,
the shale energy and time would cure all problems. When the economy is
improved, it will accelerate inflation and will also increase the interest rate.
Afterthoughts
·
The dollar has lost more than 90% since the FED
was created due to inflation. However, it only affects you if you save your
cash under the pillow. Our capitalism system punishes those who do not invest
and take risk. If you invest in long-term CDs, you’re doing barely OK. If you
buy any stock such as Edison’s new venture or a piece of real estate in your
town in I913, most likely it beats inflation by a good margin and Uncle Sam
would glad to share your fortune.
·
From my personal experiences.
The Big Mac
Value Meal cost about $1 in 1970 and now it costs $6 – 6 times in 40 years.
An average
house in my hometown in 1980 cost $45,000, and now it costs $450,000 - 10 times
in about 30 years.
Houses in most
cases are better deals. Besides paying the tax-deductible property tax and
interest, we can live in them.
The $10,000
under my pillow in 1980 has no gain today, but it gives me a headache every
time I sleep on it. J
·
A bag of 10.5 ounce
Lays potato ships is $4.29, and the next day it was downsized it to 9.5 ounces.
All items in the grocery store are just like that. The millionaires have no complaint
as their stocks (as of 6/2013) have been up and up.
·
For those who have jobs, you have a deflation
when your same income can buy you more of your basic supplies / services than
last year with the exception of food and gasoline.
Investors'
investments are beating the inflation from last year. The wealth gap is widened
between the middle class and the rich. Five
years ago, the gas price is less than $2 and now it is over $3. We still have
high unemployment and high under-employment. Most recent college graduates cannot
find jobs or jobs in their choice. It happens all over the world.
·
Inflation is controlled by the government via the
rate of money being printed and / or easing credit. When we have more money
chasing the same quantity of products / services, we have to pay more for them
or we call it inflation. In shorter term, it may be distorted by other events
such as the deteriorating housing prices.
With excessive printing, I see hyperinflation in the coming years.
·
Inflation is rising.
Labor
We have to divide it into two
categories: labor that can't be outsourced and labor that can be.
Labor outsourced to China (your iPhone for example) and India is
still relatively cheap.
Labor in the US like flipping burgers, fixing your
plumbing problems, or your telephone services will be increased in cost. If
they are not, they will be manipulated by the government via welfare (we pay
for them eventually via taxes) or the unions. A worker at Burger King cannot
survive without government subsidy or family largesse.
Commodities
Commodities
All commodities including farm
land will increase in value due to:
1. Supply and demand - the net
growth of population is rising.
2. Excessive printing of money.
You will be able to buy half a loaf of bread with the dollar that used to buy
you the full loaf.
·
My official definition of Fed in my joke book.
Fed is an agency to the government, or more like a (selected)
mistress to the president. The two are not officially related. But, they're on
the same bed most of the day. That’s why the president always looks so tired.
I worked there. Unfortunately I did not climb the corporate ladder all the way otherwise we do not have this economic mess. Same reason the Celtics lose as they did not recruit me.
I worked there. Unfortunately I did not climb the corporate ladder all the way otherwise we do not have this economic mess. Same reason the Celtics lose as they did not recruit me.
27 Education by example
A good economy has to be
supported by an educated workforce. We still have the best higher education
system in both quantity and quality. Our pre-college education is failing with
a high percent of dropouts.
When you find out your store under
charged you by $1, do you go back to pay them back?
I do not go back all the way to give it back for two reasons:
I do not go back all the way to give it back for two reasons:
1.
The store has cheated
me before intentionally or unintentionally, so it breaks even.
2.
We also need to teach our children to conserve energy. J
Despite the above reasons, I’ll go back to set up an example for my children. The primary problem with our education system is education should start at home. No matter how much money you throw into the system, it will not work if the students do not want to learn. With so many single-parent and teenage-mother families, I do not see a bright future.
It happens all the time that you have a convict and a doctor in the same class as indicated by this video. It proves my point again that education should start at home.
Some of our discrimination and biases are passed to our children unknowingly. That will hurt them eventually. Be careful what we talk / act in front of children.
Education by example is the most powerful and most effective, but unfortunately it is the most neglected. It is about time for the politicians resolve our root problems NOT by throwing our money (not their money) recklessly at the problem. Everyone with a first grade education can write a check.
We need to limit the generous welfare
for teenage mothers and preach family value to stop the vicious cycle.
Afterthoughts
This short article attracted a
lot of feedbacks including myself.
·
My elementary class in Hong Kong of 45 students
produced one world-known chef, one movie director, one MIT Ph.D., one
pharmacist, one doctor… I am the under achiever. Our teachers were not from
Hong Kong University (the best there). The incentive to learn is simple: If you
do not study hard, you will be a nobody. No one will bail you out. Our average
class size is 45, so do not use class size as another excuse.
·
We need to select college trainings in the
fields that the society or the corporations need. It is a luxury to take a
major you’re interested in but is not demanded by the society. I did not have
that luxury. However, even though I could not speak English well, I managed to
start a professional job as a programmer while some college graduates with
perfect English Xeroxed manuals for me.
·
The problem of many high school students is the loss
of respect for their teachers. You cannot learn from someone you do not
respect. I feel bad for the teachers in many urban cities as your lives could
be at risk every day and many lose their initial enthusiasm to teach after they
face their cruel reality.
Norman added:
My wife taught reform school in Richmond and was
threatened several times. Once the girls
in her food service class grabbed her and held a pair of scissors to her throat.
·
The U.S. college
education is a big export. It does not seem to be counted in our GDP and it
should be. In addition to the highly–qualified professors, we have the best
research (both on equipment, procedures and systems).
The landscape has been changed.
Though most professors are still born here for more than one generation, a lot
of students are foreigners and the children of the first generation of
immigrants. Our high school systems are not graduating qualified students in
the same scale as the last generation and foreign countries especially Asians
are catching up and some are even passing us.
·
Some Chinese students here
are tutored by their parents on science and mathematics every night and a lot
of students in China go to tutor schools after regular school. If you do not
have the dedication of the parents (vs. single parents in many families in the
U.S.), you cannot catch up with them. We cannot let your children play video
games or watch TV all day long.
·
'Leave no one
behind', 'Race to the top', 'No homework '... are just ideals and bear no
fruits in the real world except for the big-mouth politicians.
After our best effort to educate the problem kids,
should we still leave them to disturb the rest of the class?
·
There is no
controversy that Chinese and Indian students are passing the U.S. counterpart
in education.
The controversy is: China’s
one-child policy gives rise to better education of the next generation. The
child is raised by two parents and four grandparents. It is all good as long
the child is not spoiled. In addition, the female has a better chance to find a
richer, better educated husband due to the gender imbalance. The richer family
enables the child to receive better education from the mother and the better
school. My theory.
·
One guy who was among
the top in the unified examination for high schools in Hong Kong drove a bus to
make a statement. We need these geniuses to create more jobs such as
discovering a new drug to save many lives, not driving a bus.
·
Why Mass. is rich? It
is due to the large number of high tech companies including those involved in
bio tech formed by former researchers of higher-learning institutions such as
MIT and Harvard. It proves the point that we need about .5% of geniuses to
provide jobs for the mass.
·
Robots will be
harmful to the employment of the unskilled workers. In next five years, we can
see the more replacement by the robots.
Five years ago, robots could not
do much. Now, they can do something useful from vacuum cleaners to bionic
limbs. In ten years, they can do almost everything like a human being except
one task (i.e. reproduce but they can assemble robots).
Robots are still expensive for many
jobs today. To illustrate, Apple can assemble thousands of workers to assemble
a new product in China. They cannot have that large number of robots and
program them in a short time.
·
Non-correlation of
education and the economy.
Brazil’s booming economy (due to high natural resources including
oil) can benefit more with better education and harder working citizens. The
education is lacking in Brazil. It gives rise to corruption and widens the
wealth gap.
Brazil is one of the major countries participating in today’s
globalization. When China slows down, Brazil will feel the pain too.
Philippines has the opposite problem. It has a lot of college
graduates working at factories. The economy does not support enough
professionals. The poor economy is due to lack of natural resources (or
resources to be extracted), long-term corruption, poor governance, etc.
Hong Kongers hire nurses and teachers from Philippines to be
their household servants. It appears to be inequality, but actually it reduces
inequality.
My Coconut Theory (Chapter 22) explains partly why it happens.
Links
·
Stuffs
that college do not teach.
·
Click here
for more Afterthoughts.
28 The job plan that does not plan for jobs
As of 2013, the
government’s job plan has the basic problem: spend, spend and spend without worrying
about where the money comes from. It does create some jobs but at a huge
expense. The problems are:
·
Pass our loan burden to our children and
grandchildren.
·
Will have high inflation (not now due to the
deflated prices of houses). However, judging from the price of gold and most
items in the super market, we already have inflation. Inflation is an invisible
tax to the rich.
·
Will raise our debt ceiling and hence it will
harm the economy in the long run.
·
Do not spend wisely.
To illustrate, education starts at home, not at school. With high drop out of poor students (unfortunately more from minorities today) who will be the majority, we do not have a future. Instead, we should limit the number of single parent families. This is one example among many.
To illustrate, education starts at home, not at school. With high drop out of poor students (unfortunately more from minorities today) who will be the majority, we do not have a future. Instead, we should limit the number of single parent families. This is one example among many.
·
Creating more government jobs is not a good way
to boost employment. We should calculate the actual cost of each job created.
We can learn from Greece before it is too late. Now they have to cut half of
the government employees and half of their salaries when the country is heading
to bankruptcy.
·
The most you can save is ending the current two
wars.
Check how
many billions of dollars we can save a month without the two wars. We really
need to fix our economy and unemployment first. We cannot afford the two wars
and any future war. Even with the mightiest army on earth, we're really a paper
tiger if we cannot fix our internal problems such as employment. It is similar
when Mao told his starving citizens that they're #1 on earth; they could cover
the eyes and minds with dumb nationalism but not the stomach.
We have given too
much to foreign countries. Helping the desperate poor is fine, but not buying
influence in foreign lands to corrupt officials.
·
All of us ought to bite the bullet by increasing
taxes across the board and decreasing welfare / entitlements. Not popular to
voters, but it will be a simple and effective solution to a complicated
problem. We need to do so gradually so it will not prolong the recession.
Obama
is a good communicator but he should have acted far earlier to solve our
economy problem that was created by the previous president. It is obvious that
Obama is buying votes for the 2012 election to satisfy everyone. It would be
the same for any president. They all play with the rules of the game. We need
to change the rules and make their objectives longer term (Chapter 42).
We elect our leaders, so we have to blame ourselves too. The major flaw in our political system is the election every four years. Our leaders plan for four years and not for the longer term. We've more poor citizens than the rich citizens, but each has one vote. After they've been elected, they have to pay back to the special interest groups who have funded their campaigns. That's why our democratic system could lead to corruption, American style.
Politicians have to watch out for the benefits / welfare of the poor in order to buy votes. The rich will migrate to other countries with fewer taxes. They will be rewarded for their investment and taking risks in other countries. So are the corporations moving jobs, investments and the headquarters to foreign countries where business environments are more favorable.
We elect our leaders, so we have to blame ourselves too. The major flaw in our political system is the election every four years. Our leaders plan for four years and not for the longer term. We've more poor citizens than the rich citizens, but each has one vote. After they've been elected, they have to pay back to the special interest groups who have funded their campaigns. That's why our democratic system could lead to corruption, American style.
Politicians have to watch out for the benefits / welfare of the poor in order to buy votes. The rich will migrate to other countries with fewer taxes. They will be rewarded for their investment and taking risks in other countries. So are the corporations moving jobs, investments and the headquarters to foreign countries where business environments are more favorable.
Afterthoughts
·
When you have been laid off for over 5 years,
you may lose your work skills. iPads and iPhone5 were not available five years
ago and it is part of the progress in technologies. Luckily there are not many
changes in Microsoft’s Office.
·
Unemployment should be a temporary safety net.
When the unemployment benefits are extended, the incentive to look for jobs is
also decreased. Many have given up
looking for jobs after trying their best.
·
Why should you work if it means you would lose
all the generous benefits such as the free health care, food stamps, housing
subsidies…?
·
We really have more than the official 8%
unemployment if we count how many of our own friends/relatives are still
employed or under employed. 5% is the employment rate for the U.S. for ‘full
employment’ and 3% for Hong Kong. The discrepancy could be due to the more
generous welfare system in the U.S and the different cultures. Some poor countries do not even have
unemployment benefit: If they do not work, they starve.
·
Many are under-employed and they’re not counted
as unemployed. To illustrate, an ex-manager flips hamburgers at McDonald’s
making a fraction of his previous salary.
·
As of 5/2013, ObamaCare will decrease jobs in
small businesses. The owners do not want to hire full-time employees as they do
not know how ObamaCare will impact their businesses. Most likely it will
require them to conform to the new laws that require businesses that hire over
a specified number (say 50) of employees
to pay a good portion of the health insurance premium for full-time employees
(could be defined as working more than 30 hours per week). The solution is not to punish the employer
and reduce the cost of health care delivery (Chapter 32).
·
IPOs usually mean jobs. When we see a lot of
IPOs in the U.S., we can predict the employment is recovering.
·
Globalization changes
all the traditional, conventional wisdom.
Most larger companies are global companies. Corporations find the best workers anywhere in the world at the least cost.
In addition, China provides abundant rare elements, infrastructure (electricity, transport...), low taxes and a huge local market. China competes better than India whose wages are even lower and Mexico that has no tariff and is just next door to us.
Typically the US, EU and Japan design the high-valued products and their products are assembled in foreign lands where they can find cheaper, better and more flexible labor.
Most larger companies are global companies. Corporations find the best workers anywhere in the world at the least cost.
In addition, China provides abundant rare elements, infrastructure (electricity, transport...), low taxes and a huge local market. China competes better than India whose wages are even lower and Mexico that has no tariff and is just next door to us.
Typically the US, EU and Japan design the high-valued products and their products are assembled in foreign lands where they can find cheaper, better and more flexible labor.
·
The world is smaller right before our eyes. This
year the Miss America is of Indian decent and the winner of America Got Talent
is from Japan. Like it or not, it is the by-product of globalization.
29 Aging global population
With respect, my view on
the global demographics is quite different from most. Judge it for yourself. I
wrote this article after reading a professor’s article suggesting that India
will take over China due to a younger and larger population. I do not agree
with the professor.
The aging of the global population is due to the proliferation of
baby boomers after WW2.
·
India will suffer
from the population explosion despite the abundance of younger citizens.
They will eat up all the limited food and consume most of its
limited natural resources. They will run out of water in 100 years which is
also controlled by China as more water will be directed to the north of Tibet. There are too many
problems that cannot be resolved easily. There is no bright future for India. I
wish I were wrong as a poor India would affect the rest of the world.
They classify themselves literate if they can write their name in
any language compared to 1,500 Chinese characters for China. Chinese have nine
years of compulsory education. These statistics are just being manipulated.
The brain drain is alarming as the most privileged / educated do not want to wait for India’s infrastructure, its economy and its governance to be fixed.
I hope rich countries like the U.S. will not take too many doctors / nurses from poor countries such as India as we’re doing now. This is the worst disservice to a poor country. We deprive thousands from medical care for each doctor we import. Why do we send our doctors to help the poor while we take their doctors? It just does not make sense. There should be more foreign aid allocated to medical training to poor countries.
Just compare the sub way system and the number of high-rises in India to any Tier 3 city in China. The top Indian city just built its sub way recently in 2011 while Hong Kong has developed into a modern metropolitan with a modern and extensive sub way system many years ago. As of 2012, more than half of India’s population live in less than $2.50 a day (the UN definition of poverty is $2.50 / day).
India has to
understand its problems first before they can fix them. It has to fight
inefficiency, corruption (partly due to inefficiency) and protectionism (to
improve quality and encourage foreign investment). Copying China’s model is a
good idea. China’s model is to create specific economic zones close to a port
with the essential infrastructure for that area. You need to build
infrastructure like highway, electricity… for that area first. It should target
its products first to the foreign market and then include the home market.
The 2011 Indian Kolkata airport has limited road access while the 1980 Hong Kong airport is supported by extensive suspension bridges. Without the road access support, any airport would not be world-class as demonstrated by all major airports in the world. Documentaries on both projects are available from Netflix.
Some told me it could be old, wealthy families controls India's economy and they do not want changes. I argue the opposite is true. Expensive projects usually allow the corrupt rich and the local governments to steal money from public projects.
The 2011 Indian Kolkata airport has limited road access while the 1980 Hong Kong airport is supported by extensive suspension bridges. Without the road access support, any airport would not be world-class as demonstrated by all major airports in the world. Documentaries on both projects are available from Netflix.
Some told me it could be old, wealthy families controls India's economy and they do not want changes. I argue the opposite is true. Expensive projects usually allow the corrupt rich and the local governments to steal money from public projects.
·
China still has
plenty of cheap labor.
Cheap labor
will be minor but education will be important as they need to move up to the
next level of industrialization with higher-value products. China is already there in many areas.
China has its own problems, and plenty of them, but demographics is not the major one. Gender imbalance, pollution and corruption are many among others.
Click this link http://bit.ly/ybAnoW to compare India and China.
China has its own problems, and plenty of them, but demographics is not the major one. Gender imbalance, pollution and corruption are many among others.
Click this link http://bit.ly/ybAnoW to compare India and China.
·
Russia and Brazil
still thrive on commodities and oil as long as global economy grows.
Russians fit
my Coconut Theory. They become lazier (and more intoxicated with Vodka J) as the economy
continually grows from its wealth of natural resources including oil. As long
as the global economy is humming, there are demands for these resources, and
vice versa.
·
Africa and some S.
American countries.
The explosive population will bring miseries to their worlds. There
will be more wars for food and life expectancies are already lowered. The
citizens will migrate legally and illegally to richer countries like the U.S.
for a better living. If the farming technology to produce more food with less
farm land did not improve drastically over the last 50 years, the world's
supply of food now would not meet the demand. As 2012 closes, there are higher
food prices due to the floods and droughts all over the world. It will
continually be rougher for the poor countries that cannot afford to pay for it
especially when China and India have more cash from their exports.
·
The U.S.
In 2023, the U.S. may look like Japan is today as most developed
countries whose populations shrunk to below zero growth. However, the U.S.'s
black and Hispanics have a higher fertility rate and the U.S. has more immigrants
than all other countries combined. The U.S. will have its different problems /
advantages as below.
The U.S. welcomes immigrants (as opposed to Japan). Most
qualified Indians are welcome and so are Chinese (who come for economic
reasons, to escape from pollution, or because of corruption prosecutions).
In the U.S.,
today's minorities will become the majority. If you look at their high school
dropout rate, social welfare recipient percent, prisoner percent, etc., we do
not have a bright future. There will be more political leaders from these
groups as we usually vote for politicians that belong to the same race as ours.
These are facts and it might be offensive to you if you're a minority.
When we do not have jobs for everyone, a large population is a
big burden. We have recent college graduates begging for any job for years,
lines for unemployment and welfare offices are getting busier. Why we encourage
illegal aliens to come here for jobs and welfare is beyond my comprehension.
The brightest future for us is agriculture and its demand from
many countries grows by leaps and bounds. The other is American culture, like
movies and music since English is, and will be, the most popular language. The
recent discoveries in shale gas and oil are very promising. It could lead us to
be a major energy exporter in the next 50 years. Military weapons are a big
seller that I do not think it is good for the rest of the world.
Starting in 2012, the baby boomers are retiring (those who were
born after the WW2). Hence, we will have about 20 years of increased
entitlements such as Social Security considering the average life expectancy of
about 82 years. Now we should have a
boom in health care delivery.
·
Japan.
Japan does not have a lot of natural resources, and the educated
citizen is their most important resource. Japan will suffer the most due to
aging population. However, most of us will still drive a car from a Japanese
company, play video game on Wii or PlayStation… Its competitors (now Korea and
later China) will share their market. Japan will continue its lost decades to
another decade. Japan seems turning around in 2013 but it could be just “the
dead cat bounces”. Only time can tell. Depreciating its currency further
stimulates its export at least in the short term.
Conclusion
Investors should look at
the sectors that will be benefitted from the aging population for the next 20
years. They are health care delivery, medical equipment, drugs, elderly housing
and all sectors that cater to this growing age group.
Afterthoughts
Links
Water re-directed.
Ted Talk.
30 Too delicious to fall
Unions
protect the working class from being exploited. Today unions reduce our
competitive edge by setting up higher compensation. Globalization weakens the
power of the union by moving some of our jobs to other countries such as China
and Mexico.
We have to define
two classes of jobs: jobs that can be outsourced and jobs that cannot be. Some
unions are more effective in the latter category such as climbing up telephone
poles. Few mayors in big cities are elected without the approval of the local
police union, and hence some are politically powerful.
Hostess's fall is a bad day for
capitalism, at least our style of capitalism. There is too much blame to go
around:
·
First, the management (and
the hedge fund managers) did not update their products to meet the trend of the
market.
·
Unions are out-of-touch. If
your patient is dying, you do not want to shake him hard. You need to have plan
B when you're bluffing. All in with bad cards is just dumb. It is just common
sense.
They're the parasites and they will die too when their host (hostess in our case) is dead. The dream of owning the company will remain to be a dream that they never want to wake up from.
They're the parasites and they will die too when their host (hostess in our case) is dead. The dream of owning the company will remain to be a dream that they never want to wake up from.
·
The workers are really dumb
to let their master manipulate them until they lose out big time. Do you think
you can protest and win in this kind of economy and the shaky state of the
company? Another common sense.
·
The politicians will not
bail them out especially it is long past the election. This time they cannot
buy votes by blaming China, as these jobs can't be outsourced (unless you want
to buy your Wonder bread shipped from China). Hence, even if it were before the
election, the government will not bail you out on the ground of ‘too delicious
to fall’.
It is a
lose-lose-lose (management-unions-workers) situation and only stupid folks will
get into this situation.
Afterthoughts
·
As of 11/2012, I
expect that a buyer(s) will buy the company (at least the well-known brands)
and will save about 25% of the jobs and most likely with a clause to get rid of
the unions (unless the new buyer does not learn from history). The new factory
workers will be making 20K working for 30-hours week, so they will not be
eligible for any medical insurance and other full-time benefits. Hence,
unemployment benefits and welfare are not a bad tradeoff.
It is a tough world out there. Be realistic and check who's hiring for similar jobs that pay $50K with benefits. Do not waste your time and energy to ask for the same compensation for your next jobs.
It is a tough world out there. Be realistic and check who's hiring for similar jobs that pay $50K with benefits. Do not waste your time and energy to ask for the same compensation for your next jobs.
Will the
following be considered as insider's trading?
Say, I have prior knowledge that it is going to bankrupt. I buy the entire stocks of the goodies that can last longer, and sell them on eBay for $10,000 each. The fortune is small, but it is better than protesting in the cold for nothing to gain.
Say, I have prior knowledge that it is going to bankrupt. I buy the entire stocks of the goodies that can last longer, and sell them on eBay for $10,000 each. The fortune is small, but it is better than protesting in the cold for nothing to gain.
31 Generous welfare
A Saturday television commenter recently
suggested legalizing illegal aliens and moving them to Detroit as that has
worked well before in several other American cities.
I totally
disagree with that notion. Instead we should ask the able poor to work and take
less welfare benefits to encourage businesses to move in and provide jobs.
In addition,
the city has to concentrate on education to provide an educated work force and
good citizens. It does not take a genius on how to lure back businesses. If I
open a business at the constant threat of being burned down or being robbed, I
do not open a business there.
We also have
to train the unemployed for jobs that are needed
by the society. Investing in education is productive, while giving out welfare
is mostly not. It is a balancing act by the city administrators.
Unions and
generous welfare will work in the short-term for a specific group of the
society. In the long run, they will have opposite effects as demonstrated in
Detroit and many EU countries.
One cannot
survive by making the minimum wage in the USA. They will be subsidized with
welfare and you know we all have to pay for these benefits eventually. We need
to encourage folks to work by reducing the generous social welfare that should go
to the real needy and serve as a temporary safety net.
In Mass., the
system takes away free health care above a certain income level. It does not
encourage the poor to work.
There are too
many frauds in our welfare system. We should take care of our citizens first
before we take in more immigrants who compete for the limited jobs available.
In addition,
when they are legalized, do you think they are stupid enough to work when welfare
is a better deal? The newly legalized will help their immediate families to
immigrate and further burden our welfare system. At one time folks came in to
work and sought a better life in the USA, a land of opportunities.
Today, some new immigrants ask for the closest welfare office on
the first day they arrive, or where is the closest hospital to give birth to a
USA citizen baby free of charge. Taiwan has a book (a best seller to me) titled
“How to Retire Rich in the USA with No Money and No Effort”. The objective is seeking
an easy life without work in the land of generous welfare; the rest of the world
calls us suckers!
The
commentator went further to address corporate welfare – that is a tired and
worn argument. If corporate welfare is better administered with the objective
to benefit the entire society, it will help everyone by providing jobs. Why we
bail out banks while their CEOs enjoy generous bonuses? Bailing out everyone is
not beneficial to the society.
The able poor
have to work and be productive. Even many 65-year old women in China still take
care of the children to contribute their services to the society. Watching TV
all day and tuning up motor bikes will not.
Has the welfare
gap increased recently? Yes at least from 2008; it is due to the recovery of
the stock market. The living standard gap may not have increased a lot if you
count all the generous welfare benefits.
Afterthoughts
·
The welfare
department and the immigration department do not sleep on the same bed.
The rich are giving up citizenship
fast.
·
A 25 year old with 9 children received more than
100,000 per year without working. It is the best get-rich
scheme and a best-kept secret. Social security contributes about $8,850 per
month.
Take out your
political eye glasses and decide whether it is true or not. I did not write
this article. It was distributed to me. I hope it is an exception.
·
I debated whether
this article should be included in a book on investing. Generous welfare
benefits dampen our capitalist economy which eventually weighs down the stock
market.
·
Another subject of
debate is whether education improves employment as many college graduates have
been unemployed or under-employed for years. A city with well-educated citizens
usually has lower crime rates, which is a prime selling point for businesses.
Judging from bailing out big
businesses that are too big to fall, the government seems to be pro-business.
To me, it is used to cut down the number of the unemployed (potential voters).
It is good for political campaigns, but not good for the economy in the long
run.
The government is not pro-business
with high taxes (coming soon) and regulations (such as ObamaCare that is good
but not timely in a recession). Globalization changes our employment picture
and that’s another topic.
·
I do not believe the
government should bail out Detroit (CA taxpayers voted to salvage its economy).
Otherwise there will be many other cities asking for bailouts and we would go
back to a recession (assuming we got out already). It is easier to ask for
money than cut back and budget!
·
Single parent
families receive more welfare benefits than families with both parents. It
encourages raising children with single parents. That’s why we have multi generations
of single parent families and they never break the viscous cycle.
Statistically, children from single parent families commit more crimes than the
average and less of them go to college.
The authors found that in 11 states,
“welfare pays more than the average pretax first-year wage for a teacher [in
those states]. In 39 states, it pays more than the starting wage for a
secretary. And, in the three most generous states a person on welfare can take
home more money than an entry-level computer programmer.”
32 Effective health care delivery
ObamaCare will have an impact on
businesses. Large businesses will gain an edge over small businesses unless
there will be subsidy and that will add to our deficit. Small businesses will
suffer with several side effects:
·
They will work around from the requirements of
forced health care insurance by limiting the number of hours of an employee and
the number of employees.
·
Most of the new ventures are seeded from money
from their home equity loans. With falling home prices, they will have less new
businesses. The banks already have more restrictions in loaning money since
2007.
Most proposals on health care
delivery do not care about how to cut down costs, and how to make it fair and
practical. We need to know how to pay for it first, how much, and the
consequences to businesses and employment. My proposal and comments:
1. Basic
treatments for all.
Better coverage is paid by an individual. We should
encourage folks to work hard and there is no more free lunch. It is abnormal
for the poor to have free health care while the middle class do not enjoy the
same. The poor in Mass. receive free health care. I hesitate to go as I have to
pay after the insurance.
2. Fair
regulation for nursing home.
Those with low incomes and/or those without a house
most likely can receive free nursing home care, free drugs and free doctor
visits in most states such as Mass. Those in borderline qualify for the free
nursing home care by giving their houses to their children, hiding their
incomes and/or just quit working. They are lazy and not stupid.
The government should spend an agreed percentage of the GDP on public
health care. We can use the average percent from developed countries or let the
voters to decide. We cannot ignore other spending such as education or let the
budget unbalanced irresponsibly.
When we over spend on any entitlement, there needs to be a corresponding hike in taxes. Though with high taxes, it reduces the United States’ global competitiveness and leads to further unemployment.
When we over spend on any entitlement, there needs to be a corresponding hike in taxes. Though with high taxes, it reduces the United States’ global competitiveness and leads to further unemployment.
3. Prevention:
Voluntary and non-voluntary (via taxes) on smoking, fast food, soda, etc.
It is fair for the citizens to take care of their own health. You can
select to live recklessly in unhealthy life style, but the rest of us should
not be burdened with your bad habit.
When we ban smoking totally, many hospitals ought to free up many resources. In addition, the second-hand smoke kills too. Why should we die for your bad behavior? The children of parents with drug problems have more chance of birth defeat and problems than the average.
When we ban smoking totally, many hospitals ought to free up many resources. In addition, the second-hand smoke kills too. Why should we die for your bad behavior? The children of parents with drug problems have more chance of birth defeat and problems than the average.
4. Limit
lawsuit award on malpractice.
Our health care cost is being jacked up partly due to the legal expenses.
Most do not realize these lawsuit awards will pass back to us. It is also the reason why the doctor would hesitate to care for us when we fall and lie on the street or why our clinical charges are so high?
Most do not realize these lawsuit awards will pass back to us. It is also the reason why the doctor would hesitate to care for us when we fall and lie on the street or why our clinical charges are so high?
5. State-of-the-art
treatments are less effective than prevention such as a low-dosage aspirin for
all over 50 years of age and the routine shots for babies / children.
6. Outsourcing
the expensive treatments to foreign countries and drug development / clinical
tests.
Our
costs are outrageously high. Try some Caribbean countries, Thailand and
Shanghai. The money we save pays for a free vacation, not mentioning the free
massage every day for the entire trip. Many Caribbean countries offer same
dentistry services at half the cost here.
This is a temporary solution until we solve our cost problem at home.
This is a temporary solution until we solve our cost problem at home.
7. Cut
down the expensive drug marketing (such as giving money / goodies to doctors).
Personally I know doctors receiving free golf trips to the most expensive golf courses for the entire family. They also got unlimited lobsters in medical conventions in Boston. Should doctors receive the 'lecture fees' giving phony lectures or sales pitches in return of recommending the drugs or prescribing to their patients?
Guess who ends up paying for all these goodies eventually?
Personally I know doctors receiving free golf trips to the most expensive golf courses for the entire family. They also got unlimited lobsters in medical conventions in Boston. Should doctors receive the 'lecture fees' giving phony lectures or sales pitches in return of recommending the drugs or prescribing to their patients?
Guess who ends up paying for all these goodies eventually?
8. Stop
the illegal aliens and foreigners from using our medical systems free.
Their employers or the patients should pay for their expenses. It is nice
to help the rest of the world, but we do not have money to do so now.
Emergency room is the most expensive delivery method and its usage has been abused.
Emergency room is the most expensive delivery method and its usage has been abused.
9. Before
we send soldiers abroad or explore space (both have some merits but the average
citizen does not benefit from these ventures), should we solve our home
problems such as health care first? Get our priority straight.
10. The
average last two years of one's life would be the most expensive health care
cost. Many do not want to live through pains and sufferings. Should we let them
pass away in peace if they want to?
11. Stem
cell research has proven to be promising.
We should not let our politicians dictate the policy
for religious reasons. The desperate will go to foreign countries to receive
the riskiest treatments anyway. Why let them know their risk and do the
treatments here in a better environment?
12. Stop
all the insurance and Medicare frauds. If you spend $10,000 on inspectors and
get back $1 million, it is a great investment. Whistle blowing is the most
efficient way to prosecute violators. Each successful prosecution warns
millions of potential violators.
13. Importing
foreign doctors and nurses is the worst we can do to a poor country even it
cuts cost for us.
These
foreigners are seeking a better economic life for themselves, but forget their
original purpose of seeking these noble professions. Why we send aids to these
poor countries and steal their medical resources?
Afterthoughts
http://ebmyth.blogspot.com/2013/11/more-on-health-care-delivery.html
33 The fair price of oil
Oil will not run out at least in our generation. However, peak oil has come and passed.
The easy oil (closer to the surface and lighter) is getting scarcer. The heavy
oil, the oil from the ocean and the shale oil are more expensive to extract.
As of 6/2012, the fair price of oil is $95 ($90 production cost and $5 for profit) to me and it is currently over-priced at about $100 per barrel. [As of 9/2013, it is about 108 due to Syria]. The long-term trend is higher due to the more expensive extraction cost and the supply/demand. The higher demand is due to the higher living standard in China and India, and the larger global population. It is also higher due to the depreciation of USD and inflation. Hence, we need to adjust its fair price every six months or so.
As of 6/2012, the fair price of oil is $95 ($90 production cost and $5 for profit) to me and it is currently over-priced at about $100 per barrel. [As of 9/2013, it is about 108 due to Syria]. The long-term trend is higher due to the more expensive extraction cost and the supply/demand. The higher demand is due to the higher living standard in China and India, and the larger global population. It is also higher due to the depreciation of USD and inflation. Hence, we need to adjust its fair price every six months or so.
OPEC would like to maintain the oil price at about $100 at today's USD for longer-term profit. Every country within OPEC has its own agenda, political issues and economic issues and they most likely would not consistently agree on a specific price.
However, when oil is higher than $125 for a long time in today’s dollar, the alternative energies will be more feasible economically and conservation becomes more important. If oil price is a run-away to $150, we'll have another recession and that would bring the price back to the normal range. Economy adjusts the oil price to some extent and sometimes works better than OPEC.
Oil price has been fluctuating a lot in the last four years. It is purely due to speculation. The ease of money should cause inflation and inflates the oil price in particular. QE2 played a role, and so would be QEn if it will be materialized. The current restrictions in speculating commodities reduce the speculating on oil and could be the reason why oil price drops even with better economic outlook.
I do not trade oil unless it is
priced to either extreme. When it was $35 per barrel, it was time to buy. When
it was $140, it was time to sell. Adjust the numbers to today’s dollar. It is
an example of “Buy Low and Sell High”. As of 1/2013, for the past 10 years, oil
has an annualized return of 2.6% while inflation is 2.4%. The average return is negative after taxes
and inflation. Unless you’ve a keen eye on oil, do not speculate on it. If you
do, try the ETF Oil.
The biggest threat on oil and its producing countries is
shale energy. As of 2/2013, oil price will rise until the shale energy has
solved its extraction and transportation problems. At that time, oil prices
will be under $100 in today’s dollar for years to come.
Retail investors should stick on
fundamentals: Buy low and sell high.
Afterthoughts
·
I recommended buying oil (OIL as an ETF) in
Fool's Mountain blog when oil was $35 per barrel. It was common sense and I do
not expect that low price again.
·
The real competitor to oil is shale gas and the
shale oil. The U.S. has found enough to supply the country for the next 50
years. We have to see how the events such as pipeline construction and
environment damages are being developed.
·
Some believe all the US interventions in the
Middle East, including the recent turmoil in N. Africa and the counter attacks,
are due to oil and its transportation to the U.S. At one time we only enforced
no-fly zone on countries that have oil. If so, shame on us. If it is the modern
Crusade, shame on us in misinterpreting religions’ preaching and the Congress
which is controlled by Israel.
If we have enough shale oil and shale gas, we do not
need to protect the oil route and we should have a peaceful world.
·
Oil prices are moved short term by traders, mid
term by expectation and longer term by supply and demand.
·
GLD is an ETF similar to OIL with a different
commodity. I wonder where they store the physical gold for GLD. Most likely
they use derivatives. If so, it reminds of the derivatives created by Lehman
Brothers.
·
The price of every commodity is defined by
supply and demand. When the global economy improves, prices of most industrial
commodities will increase.
·
The impact of China due to the improvement of
their economy cannot be ignored. It will drive up the demand of most
commodities – India to a smaller extent. Per capita wise, they still use far
less commodities than the U.S. citizens after deducting the resources to build
trinkets for export. However, their population is about 4 times larger than the
U.S.
·
To summarize as of 6/2013, commodities prices are affected by 2 major factors:
1. The USD. If we use a basket of commodities to measure the value of USD. A decrease in value of the USD will increase the commodities prices. The USD has been in a temporary peak.
1. The USD. If we use a basket of commodities to measure the value of USD. A decrease in value of the USD will increase the commodities prices. The USD has been in a temporary peak.
2. Supply and demand. With poor global economies and the slowing down of China's internal growth (infrastructure and building...), the demand of industrial and construction commodities are decreasing and so are the prices. However, the US housing market is starting to boom (it could be a mirage and/or due to the shrinking inventory).
There are many other minor factors such as speculation...
Oil is a fair price range and is affected by the above 2 factors.
·
Unimaginable not too long ago, the U.S. will be
the largest energy producer by 2017, according to IEA, but a net exporter by
2030 and energy independent by 2035.
Links
Click here
for a similar article.
34 Commodities: bottom or mirage?
Most authors reveal a statement
first and then illustrate with examples to substantiate that statement. Hence,
such writers are always right. I am doing something just the opposite in this
article. In analyzing what coal stocks to buy (the example) and you help me to
verify the bottom for coal stocks (the statement).
This process has its risks, as I
try to emphasize that investing is a prediction, which will not be 100%
certainty. However, the better educated
the guesses are, the better chances the predictions will be materialized. Even
if that prediction is wrong, there is nothing wrong with the logic here.
Actually the recommended stocks
should be bought in the future as it may not be the bottom today (7/4/13).
Confusing? Read on.
Several articles convince me that
commodity especially coal should be close to the bottom. Here are the links to
these articles. That’s the reason why you want to read economic news to take
advantage of any new opportunity.
1. The
coming rebound
of coal and coal stocks.
2. A
credit analysis
of coal mining companies.
Is the bottom near for commodities?
For the last three years, the bottoms
of coals stocks have been predicted several times. Nevertheless the coal stocks
went up temporarily and then continued its bearish trend. Many coal companies
could go bankrupt. I bet most of them will not and offer one of the best
appreciation potential, but I do not go that far to proclaim it is one of the
best deals in our generation.
Many experts believe natural gas
would replace coal to generate electricity. The impact of natural gas will be
even clearer by 2016. That may be true in the USA, but not in China
and many countries. Even with all the nuclear generators on-line in ten years
(2023), China will still depend on coal to generate more than 60% of its
electricity.
The following tables may not look good on small screens. You
can enter the link below to display it on a larger screen of your PC.
The stocks
I include 15 stocks and one ETF
for analysis. After the initial analysis, I classify them into the following
groups.
Coal
|
Gold miner ETF
|
General Mining
|
Steel
|
Petroleum
w Nat Gas
|
|
No.
|
11
|
1
|
1
|
1
|
2
|
Stock
|
ACI,ANR,ARLP,
BTU,CLD,CNX,
JRCC,NRP,
WLB,WLT, YZC
|
GDX
|
RIO
|
SID
|
CHK,DVN
|
Value
These stocks have very high
potential for appreciation. However, they are risky. Nothing risked, nothing
gained. Most have high debts (the average debt/equity is 133% in this group)
and their survival depends on many factors such as the prices of the
commodities. The following table concentrates on their values.
Stock
|
Price (7/4/13)
|
Forward
Yield
|
Cash
Flow
|
P/B
|
Debt/
Equity
|
P-
Score
|
ACI
|
3.69
|
-35%
|
Worst
|
.3
|
184%
|
-4
|
ANR
|
5.33
|
-75%
|
Worst
|
.2
|
70%
|
-6
|
ARLP
|
71.06
|
10%
|
Average
|
3.6
|
109%
|
8
|
BTU
|
14.86
|
3%
|
Worst
|
.8
|
126%
|
-2
|
CHK
|
20.92
|
5%
|
Worst
|
1.1
|
106%
|
1
|
CLD
|
16.19
|
5%
|
Worst
|
1.0
|
83%
|
-2
|
CNX
|
27.12
|
10%
|
Worst
|
1.6
|
81%
|
-1
|
DVN
|
53.05
|
5%
|
Worst
|
1.1
|
82%
|
-2
|
JRCC
|
1.82
|
-80%
|
Worst
|
.3
|
255%
|
-5
|
NRP
|
20.48
|
10%
|
Average
|
3.4
|
172%
|
3
|
RIO
|
40.69
|
10%
|
Average
|
1.6
|
57%
|
0
|
SID
|
2.61
|
15%
|
Worst
|
5.6
|
329%
|
2
|
WLB
|
11.4
|
5%
|
Best
|
-1
|
||
WLT
|
10.79
|
-35%
|
Worst
|
.5
|
276%
|
-2
|
YZC
|
7.03
|
15%
|
Best
|
.5
|
90%
|
4
|
BTU has coal mines in Australia,
which is closer to its primary customer, China. RIO has mines of different ores
all over the world. ARLP and NRP are partnerships.
If you do not want to deal with
extra effort in filing the tax returns, buy partnerships in a non-taxable
account. I have not checked out the requirements for filing tax returns for
ARLP and NRP.
GDX, an ETF for gold miners, is
not included in the above table. It has a huge non-correlation between GLD, the
ETF for gold, so I believe there is good value in gold miners. GDXJ (not
included in this article) is a similar one for junior miners, which is too
risky for me.
Most data are obtained from
finviz.com. Forward yield is my estimate and it is defined as forward E/P. Cash
Flow is based on the free site Blue
Chip Growth. Cash Flow and Debt / Equity measure whether the company will
survive. The table does not include all the metrics. P-Score is based on my
book Scoring
Stocks and 3 is the passing grade.
I have two scoring systems. One
is described in my book Scoring Stocks and the other one uses information from
several subscription services. In general, the two systems are quite
compatible. When the commodities are in the market bottom, the scores for these
stocks would not be good. Actually most of them do not pass (the passing grade
is 3).
YZC scores the highest and it has
the high dividend yield.
ACI and ANR though risky have the
most upside potential and both prices are less than 30% of their book values.
Risk levels
The following table summarizes
how safe are the stocks.
Safer
|
Middle
|
Risky
|
|
No.
|
3
|
6
|
7
|
Stocks
|
ARLP,NRP, YZC
|
CHK, BTU, GDX, RIO, SID, WLB
|
ACI, ANR, CLD, CNX, DVN, JRCC, WLT
|
My contradiction
I contradict myself in the
following statements.
1. I
do not trust the financial sheet of emerging countries including China. However,
when many miners are foreign companies, I do not have a good option.
2. Mining
is a sector I try to avoid.
It is extremely difficult to estimate how much ores
(sometimes a miner owns several different ores of different grades in same or
different mines) the company has; complicated by the complexities to extract
and transport them. When those costs are greater its production price, the
company will not be profitable. Understanding the market for ore futures is
another discipline.
One potential problem of mining companies from many
emerging countries is nationalization.
Timing
Besides ARLP, NRP and YZC as of
7/4/2013, I would select the following to purchase after another analysis in
Nov. 1, 2013: CHK, BTU, GDX, RIO, SID and WLB. I would skip the worst scored
stocks, which are too risky for me but they may have the highest appreciation.
ACI and ANR are very tempting though.
Why November? Most of these
stocks have been down for the year and there is more pressure to sell them for
window dressing for fund managers in Nov. (even earlier) and for tax write-offs
for retail investors in Dec.
Technical analysis will not detect
the bottom, but the trend. When the trend is up, the risk is less but the
opportunity to buy at the bottom is gone. Today, the trends of most of these
stocks are down. I will explore whether there is a correlation of the bottom
with the percentage from the last peak.
Timing is a suggestion and you buy the stocks at your own
risk and risk tolerance.
My plunge into
commodities
I could not resist and bought two stocks from the above
list. As of 8/9/13, the performances are quite good.
Stocks
|
Buy Date
|
Return
|
Annualized return
|
BTU
|
06/24/13
|
18%
|
140%
|
GDX
|
07/15/13
|
14%
|
150%
|
FCX
|
07/31/13
|
21%
|
850%
|
DBC
|
08/08/13
|
2%
|
Too early
|
NGD
|
09/12/13
|
14%
|
Too early
|
FCX is too good a price to pass
and the insiders bought many shares. Annualized returns usually have no meaning
when the holding period is less than 30 days. The annualized return is
calculated by the formula: Return * 365 / (days between the buy date and today’s
date). For example, the annualized
return for FCX = 21% * 365 (8-9-13 minus 7-31-13). The 850% return is not
sustainable.
The return of DBC, an ETF for
commodities, is tracked today 8/12/13.
The above are actual and verifiable trades from my largest account. NGD,
a gold miner, is added most recently and the return is calculated on 9/18/2013.
[Update: as of 9/6/13, the returns
are: 20% for BTU, 21% for GDX, 8% for
FCX and 5% for DBC.]
Conclusion
The coal stocks have the highest
potential for appreciation, but they are also the riskiest. By spreading out
the risk with having more than one coal stock and stay with the first group or
by purchasing an ETF on coal stocks such as KOL. The ETF included here is for
gold miners.
Catching the bottom of a sector
is risky but could be very profitable. I believe it will take at least two
years for the market to recognize the potential upside values of coal stocks.
Several of these stocks may not survive. That also depends on the impact from
the shale energy and the recovery of the economy.
Repeatedly, we the retail investors never
learn the following lessons:
1.
Buy in fears and sell
in greed instead of the other way round.
2.
All inflated sector
(and deflated sector in this case) will return to the average value with only
one or two exceptions. Gold in 2011 is not really an exception but the USD had
been depreciated.
These two lessons are the cornerstones on how bubbles are formed
/ burst and how we can profit from the bottoms of these sectors.
Afterthoughts
·
Mike said:
Thermal coal is dead for countries
like the U.S. If you want thermal coal, buy foreign, like Yanzhou Coal Mining (YZC). China is not going to give up coal anytime soon. Plus, graph
says the stock is at support http://yhoo.it/168vHaa;c= . And 7%
dividend looks attractive. Metallurgical coal, which is used in steel making,
will be what keeps coal alive in the U.S. (ANR) is a metallurgical coal miner.
·
Bill said:
1. I like KOL as a diversified play. Having said that, I don't think
it will perform as strongly as some of the undervalued U.S. mining companies
like ANR, ACI, WLT, BTU, and CNX.
2. Coal stocks rallied
strongly from their 2009 lows to their 2011 highs while Obama was in office.
This is easy to forget. Ultimately, the political dialogue certainly has an
impact, but I think the underlying economic fundamentals are by far the most
important factor affecting the stock prices.
Domestically, I think the historically warm 2011/2012 winter in
the U.S., which was a short-term event, dramatically impacted the perception
surrounding both coal and natural gas. It "amplified" fears and
hopes. As inventories for both natural gas and coal normalize, which they have
largely done, I think we will get a better view of both industries.
·
I wrote an article
on Rare Earth that was quite ahead of its time then. Most information is still
valid.
This article
was published in Seeking Alpha.
Links
Finviz:
Scoring stocks:
Blue Chip Growth:
China and coal:
From Wikipedia.
No peak for China.
Clean coal technology.
Carbon capture and higher efficient turbine.
Coal and the US policy.
Updated information on specific companies:
To illustrate, bring up SeekingAlpha.com and enter BTU.
There should be several recent articles on BTU.
Here is one of the many articles on BTU.
35 Housing recovery?
There are two
sectors (housing and finance) that caused the financial crisis in 2007 (or
2008 for some). We should reenter the housing market via technical analysis
(TA) and via fundamental analysis.
Technical Analysis
There are two
ways to find the reenter points after 2007.
1. Use the same chart in described in TA chapter as follows. Bring
up Yahoo! And then Finance from the browser. Enter XLB, an ETF for housing
construction. Select Chart, then SMA (single moving average), and enter 350
days for reenter points (different from our usual 30, 60, 90 or 120 days).
There are 2 or 3 exit points and followed by brief reenter
points. They are noises and it does not change the final performance. The chart
is displayed on Using TA for Sectors in Chapter 116.
2. From the Market Timing chapter, reenter the market 2 years after
the initial plunge for offending sectors (they are Finance and Construction for
2007). Assuming 10/12/07 the market starting plunging, the reenter date is
10/12/09.
The following
table summarizes the returns based on reenter points to 01/13/2014.
Reenter
Date
|
Return
|
Annualized
Return
|
Beat SPY
|
|
Chart
|
08/10/2009
|
95%
|
21%
|
15%
|
2 Year
|
10/12/2009
|
89%
|
21%
|
30%
|
The Chart method
makes more money but the annualized return is the same. However, the ‘2-Year’
strategy beats SPY 100% better than the Chart strategy.
Fundamental analysis
Here are my
personal thoughts as of 2009. I prefer to stick with the technical analysis and
fundamental analysis is used to further analyze the housing market such as the
cities that may have better recoveries. By the time you read this article, the
information may be obsolete. Use it as a reference for future guidance.
·
Location.
NYC does not lose a lot in housing
values. Las Vegas, many cities in Florida and sunny area does. Cities that are
going to bankrupt such as Detroit and a few cities in California are great
bargain but too risky.
A
well-maintained house in a good neighborhood at 2002 price is a good bargain
when you compare to build the same house with both increased material cost and
eventually labor cost. You may get a newer and modern house, but the location
is usually better and is less pricy.
·
Inventory still high.
We do not have a lot of building
since 2008. The inventory is very low now but some banks are still holding a
lot of foreclosed properties and properties that should be foreclosed. Some
properties are in very bad shape and they should be demolished.
·
Who drives the
housing market.
If we have a W-shaped recession and/or a lost decade
similar to Japan's, the housing recovery will take longer than two years. The
builders will be profitable if they can manage their resources and projects on
smaller houses for today’s smaller and / or less affluent families and more
elderly housing for the aging population.
One of the major forces that trigger the housing boom is the college graduates. When they have children, it is time to buy a house. It does not look good today as most are under-employed or unemployed with large college loans. The U.S. economy may recover without job recovering. Many jobs have been outsourced and most lost jobs will not return. The rosiest sector is energy. We may have 2.5 million new jobs in this sector in 3 years. The house prices in these selected cities skyrocket.
One of the major forces that trigger the housing boom is the college graduates. When they have children, it is time to buy a house. It does not look good today as most are under-employed or unemployed with large college loans. The U.S. economy may recover without job recovering. Many jobs have been outsourced and most lost jobs will not return. The rosiest sector is energy. We may have 2.5 million new jobs in this sector in 3 years. The house prices in these selected cities skyrocket.
Are today’s houses affordable? You
can afford a house costing 2 ½ of your yearly income. I would use 3 times today
especially with the low interest rates and today’s rent alternative. As of
5/2013, the basic housing is on the cheap side for potential buyers especially
for those who are still employed and it will remain so as long as the interest
rate remains low.
Interest
rate.
The housing
market depends on interest rate more than most other industries. Low interest
rates would make housing more affordable. That’s what happened in June, 2013
when the interest rate moved up from the bottom and the housing recovery came
to a halt.
I bet the
interest rate would be less a factor when the economy is fully recovered.
·
Foreigner purchase is
the key.
On the bright side, there are
foreigners (a lot from China and some with money from questionable sources)
want to buy them in cash. Finally we encourage rich immigrants who invest in
the US. It also helps a lot of corrupt officials to escape prosecution by
buying residency in the US. Some initial purchases have lost more than 25% of
their investment, but some later ones have experienced more than 100% return. Timing is everything!
Compared to Hong Kong and most big
cities in China, the US houses are bargains. Many cost about half a million to
buy a 500 square feet apartment in a desirable area compared to some
3000-square feet mansions (relative to 500 square feet) in Southern states.
The quality in life is far better
here in terms of air quality, water quality, food quality, education (ease to
go to colleges) and opportunities.
Most Chinese and many Asians do
not buy a house with street number 4 (pronounced ‘dead’ in Chinese) and bad Feng Shui
that many sellers in Vancouver and Toronto have found out. Cities with better
culture and well-known colleges such as Boston attract rich foreigners sending
their children there. When I was in NYC, I (and 1.3 billion Chinese) would tell
you Pam Am Building had bad Feng Shui as the road was running through the
building. There are some locations where businesses fell one after. I can
explain most are due to very bad Feng Shui. I am not superstitious, but good
Feng Shui provides a relaxing living place.
Afterthoughts
·
Is the recent
(1/2013) rise in housing stocks justified? There are two camps of opposing
arguments. Only time can tell which one is right.
For the low housing inventory and the slowly
improving economy, it could be time to buy on construction stocks and REITs
(especially the hospital REITs but not the REITs on mortgages). The recent
recovery could be temporary due to lower inventory and the interest rate is
climbing.
·
If you believe the
housing will be recovered soon and you do not want to buy specific construction
stocks, try the ETF XHB.
·
The housing market is
irrational. ‘Buy Low and Sell High’ applies here. From an economist as of
5/2013: Comparing to rents and incomes, the overall housing market is still
under-valued by about 7% from the bottom of 15%. It was over-valued by about
40% in 2006.
·
Before the takeover
of Hong Kong by China, Vancouver properties doubled in values very fast. It is
happening in some cities in the US by Chinese buyers this time. However, we do
not see this effect here as Vancouver is small compared to the entire USA. It
is a double-edged sword. The sellers are happy and the potential local buyers
are not as they have to compete with foreigners who pay more and in cash.
·
The average house has
been increased excessively since 2000. As many times in this book, excessive
valuation will bring down to the average value. Compare to Hong Kong and most
big cities in China, our houses are still underpriced.
Depending on which yardstick you're using, you get different conclusions. The better one should be: The average house price should not be more than three times the average annual income.
Depending on which yardstick you're using, you get different conclusions. The better one should be: The average house price should not be more than three times the average annual income.
·
I remember Uncle Ben
told us not to worry and four months later the housing market crashed. Cheat me
twice, shame on me.
·
When the economy
returns, there will be more jobs and more folks buying homes. It is good for
the housing sector. It even beats out the disadvantage of the higher interest
rate, which is no longer needed to be lowered to stimulate the economy.
36 Free trade with China
Free trade
has its benefits (especially for consumers) and some minor disadvantages (fewer
jobs to our workers for example). You do not want to grow sugar cane in Alaska.
Chicken feet are delicacy in China, but they are not fit here to eat even
for our cattle.
With free
trade, we trade our excess products and products we have knowledge to produce
(such as our high tech products and movies) for products we do not or cannot
produce here economically. The companies benefit more when the production
margin is high after the development such as movies and music recordings.
When one
country produces the best product at the least price, she is a winner and so
are the consumers of all the countries who import this product.
Apple’s
supply and manufacturing chain are good examples of the free trade in taking
advantage of the best contributions from many countries. Apple’s products are
global products: U.S.A. designs and markets, China assembles them and provides
rare earth elements, Taiwan invests and manages manufacturing, and many
countries provide specialized components. The results are excellent products
that consumers all over the world enjoy at reasonable prices.
However, we have to ensure all partners play fairly. If China dumps products to force our shops to close and then raise prices later, then we have to step in. However, so far it does not happen often. They do dump some products to secure jobs. It has been a trade practice that Microsoft had done before with its Office software when it came late to the market. Do you remember that Microsoft gave out free software at one time by securing market share and bankrupted their competitors?
Dumping rare
earth elements actually benefits the rest of the world. It does not benefit
China as the environmental damages are far worse than the benefits. All
developed countries ask China to continue dumping their rare earth elements,
which actually are available in many parts of the world. Why some products
dumped by China are OK and most are not? Trade policy has to be set clearly.
As the USA
subsidizes our industries with free research grants and farm loans, it is quite
hard to accuse China for doing the same. All countries subsidize industries in
one way or another. What excuses are we looking for when we cannot compete with
China?
When China or any country offers the cheapest and the best product to us, our consumers win. In addition, when China makes money on the low-end products, they will have money to buy our more expensive high-tech products, jets, movies and farm products.
China loans
us money to buy its products and hence keep its workers working. The debt
obligation is less when we devalue our own currency; we pay back our loan with
depreciated dollars. By doing this the USA is actually the currency manipulator!
Will China continue to loan us money at this rate? I do not think so at least
not to be paid back with depreciating USD.
We need to limit our spending - wars by our government and big houses by our consumers. We cannot borrow forever. China and the oil-rich countries loan us money with their hidden agenda. The logic is so simple that even I, who has never taken any economic class, can understand.
This is more from
the Chinese perspective.
More on China.
http://ebmyth.blogspot.com/2013/11/more-on-trade-with-china.html
37 How to solve trade imbalance
As
I stated many times, the U.S.'s wage of $20 per hour cannot compete with the $2
per hour (no matter it is from China, India or Vietnam).
You
cannot live with the $2 per hour wage in the U.S. It is easier and better to
live on welfare with food stamp, housing subsidies, free health care (in some
states) and other freebies, when your income is low or $0. Our generous welfare
encourages our citizens to be lazy and some cheat on the declaration of their
incomes. The disability claims excluding veterans from the wars increase
substantially in the last decade even our work environment is far safer. It also encourages our citizens not to save.
The solutions are (some are satires with a J):
The solutions are (some are satires with a J):
·
Abandon industries that use low-wage labor and /
or outsource manufacturing jobs like what Apple is doing.
There is no quality problem with Apple’s products that
are outsourced to China, so it really depends on the company who outsources and
how the product quality checks are conducted. Apple is making good money,
paying taxes, hiring top earners and at the same time providing great and
affordable products to the world. As of 2012, Apple is the most valuable
company in the U.S at least for a brief period.
·
Take out the embargo of military products to
China at least on the products that China can obtain from other sources such as
Russia and some European countries. Currently, it does not serve the purpose of
preventing China from becoming a military power and we’re losing the sales.
Why should we be afraid of China when our military
might is far, far away from any country on earth? We can sell Chins missiles
with no fear. Just program the missiles to return to the sender when the GPS
detects it is heading to our direction. My genius idea just saves us billions
of dollars J.
·
Beg China and other countries to loan us more
money with states as collateral (by now no one is stupid enough to use the USD
and loan us without collaterals) starting with all non-Democratic states first
(according to Obama) and Washington, D.C. will be the last to sell. Just a joke
J.
As in a capitalist system, if you cannot service you loans, you have to give up
your collaterals.
·
Selling Alaska back to Russia (with Sarah J)
for oil is a no brainer. It is just like killing two birds with one stone.
Selling Hawaii is just genius like selling something we do not own. Most properties in Hawaii are owned by Japanese and Chinese already.
Selling Hawaii is just genius like selling something we do not own. Most properties in Hawaii are owned by Japanese and Chinese already.
If we sold NYC to China, we would make a huge, huge
capital gain. It is even more sweet if you recall we bought (cheated is a
better word) a good piece of NYC from some native Indians for trinkets. The
Indians / Eskimos were Chinese crossing the frozen strait due to losing their
direction after too many drinks. I have my genes to prove my theory. So, it is
same as selling to the original owner for a huge gain without paying any taxes.
In reality, we just sell Manhattan to a casino
operator. Wall Street is the biggest casino. The only difference is all the
hotels are outside the casino. Sell Silicon Valley to China and the rest of
California to Mexico (similar to selling Florida to Cuba).
The only place you cannot get rid of is Washington
D.C. No buyer can live with the lazy government servants and politicians
fighting each other every day to see who is on top.
It is the similar to the bankers foreclosing your
house when you cannot service your mortgage. I hope it will remain as a joke
forever.
·
Close all trades with all foreign countries but
we have to enjoy the $50 toaster that is produced by the U.S. workers! The U.S.
is one of the few nations that can close out all foreign trades and survive.
However, the movie and music industries will suffer and decline and Boeing will
have to park their shiny planes in the desert to collect sand. We will have so
much grain in storage that eventually we will have more rats than people.
·
Without the rare earths from China, our Apple
products will cost double and our missiles will cost us far more. However, it
would be good for the world as folks will use their Apple products longer and
fewer missiles will be produced.
The
chicken feet would be better thrown into ocean instead of shipping them to
China for cash.
38 Defending China
The politicians cannot fix our problems and use China as a convenient scapegoat.
Many newspapers / magazines and TV stations (excluding Wall Street Journal, New
York Times, Washington Post and 60 Minutes) want to sell their stuffs by giving
what you want to hear / see by twisting the facts frequently.
As a Chinese American, I am naturally biased (so are most of you for your country of origin) but I'll not let my dumb nationalism cover my eyes or yours. There are Chinese bashers and U.S. bashers who do not convince us as they're not using facts. They promote distrust and confrontation that I try to avoid.
As a Chinese American, I am naturally biased (so are most of you for your country of origin) but I'll not let my dumb nationalism cover my eyes or yours. There are Chinese bashers and U.S. bashers who do not convince us as they're not using facts. They promote distrust and confrontation that I try to avoid.
There are always two sides of any
story.
Actually Chinese have not been an
aggressor during the entire, long history unless you include Mongolia as part
of China. The kingdom has been rich until the last 250 or so years and that is
why they set up the Great Wall to keep the aggressors away from stealing their
wealth.
About 250 years ago, Brits pushed
opium to China due to nothing better to trade and enforced the opium trade via
its advanced weapons. How dare a nation pushing opium to another nation? China
was semi colonized and bankrupted. Then the Japanese war criminals brutally
invaded China. After that, China had the revolution and the civil war. Mao was a
great revolutionist but not a good governor. The bitter lessons encourage this
generation of Chinese to work hard and be successful.
The recent wars with Vietnam and
India were not that recent and were quite brief comparatively. China has lost
many territories to Russia, India (on the boundary line drawn by
Britain who governed India then) and other countries. Tibet is controversial
with its long historical relationship with China. Mongolians once ruled China
in the Yuan Dynasty and
Russia wanted part of it to be independent to set up a buffer zone.
The following are my random comments to many wrong opinions
on China and its political system.
·
In general I do not trust financial data from
developing countries including China. Usually they want to paint a rosy picture
to attract investment and / or to make their citizens feel better to avoid
social unrest. However, the export data can be trusted.
·
China is not a communist country, except in a
letter in CCP. It is more capitalist than us. If you can’t pay, you die in the
lobby of a hospital. In the US, they treat a billionaire or an illegal the same
in the emergency room in any hospital.
No one in China even the government wants to go back to
communism after its citizens have a taste of capitalism and democracy (even
very limited).
·
It is quite over-blown in the Chinese ghost
cities and similar news. China is so big and on its rush to modernization,
there is always news and problems like that. If you go to India, you can dig up
far more news like that. If the media cannot exaggerate any news, they cannot
survive economically. A sad reality.
The ghost cities are financed by investors themselves
and shadow banking system (by-passing the regular banking regulations). You do not see too many defaults so far as
expected. The investors do not want to rent them out as this would lower the
values of the new apartments – hard to be comprehended by Westerners.
There is another loaning practice (I call it family
banking) that is quite popular in the Far East and China. Basically it is a
monthly accumulation of money from a group of friends. Everyone in the group
who needs money can bid the loan from this money every month.
·
China is very developed in some cities and some
areas, but as a country it is still under-developed comparing from many metrics
such as GDP per capita or the average urban income (about $5,500 per year).
Many do not report all of their incomes. To illustrate, you cannot live in any
Tier I city in China for $5,500 a year; check out the average rent.
However, the super-rich class is developing fast. While the
percentage is small, the total number is huge. That’s why most luxury brands
all over the world have increasing percentage of their total sales from China
or Chinese travelling abroad.
·
Many have been using the wrong yardstick to
judge China. China could laugh at us for our generous welfare system, lack of
gun control, etc. We should use our yardstick to judge our country 10 (20 or
even 30) years ago, and so is for China.
·
China paid a bitter price for ignoring the
Industrial Revolution, advanced weapons, iron ships, etc. about 300 years ago.
China was bankrupted after the Opium Wars and the semi-colonization by foreign
nations. It is a lesson not to be forgotten for them and it sets up the
objective and the spirit of a nation.
·
Judging from what Chinese had accomplished from
the first century to 300 years ago and the last 30 years, China will have
immense impact to the world and hopefully all will be positive.
Afterthoughts
It is the
major global financial event besides the appointing the Fed Chairwoman.
China should concentrate on corruption (started), pollutions (water and air), production safety and quality (esp. food), regulations (all kinds including organization similar to our SEC)...
They should learn from the West and avoid the mistakes of the West (such as overspending to buy votes). Learn to settle territorial disputes without using force. Be a good global citizen. Gain respect from the rest of the world not by showing how wealthy you’re, but by how you behave to other countries.
They've fixed the basic human rights (food and shelter). Now they should improve the other human rights such as freedom. It is far better than 15 years ago but is still not up to par with us. To move to the next stage of a developed country, they should protect intelligence properties at least starting in Tier I cities.
There are many important items not included in the reform. Taking out the restriction of selling farm land is a surprise to me. Relaxing One-Child policy is controversial. China’s population is still high.
They have good track records on their previous reforms starting from Deng and most items in their five-year plans. Even with many problems, the centralized government is quite effective. It is easy to have large scale project such as high speed train. The problem when the decisions are passed to the local governments, they usually are changed or not followed 100% according to the benefits of the local governments.
China should concentrate on corruption (started), pollutions (water and air), production safety and quality (esp. food), regulations (all kinds including organization similar to our SEC)...
They should learn from the West and avoid the mistakes of the West (such as overspending to buy votes). Learn to settle territorial disputes without using force. Be a good global citizen. Gain respect from the rest of the world not by showing how wealthy you’re, but by how you behave to other countries.
They've fixed the basic human rights (food and shelter). Now they should improve the other human rights such as freedom. It is far better than 15 years ago but is still not up to par with us. To move to the next stage of a developed country, they should protect intelligence properties at least starting in Tier I cities.
There are many important items not included in the reform. Taking out the restriction of selling farm land is a surprise to me. Relaxing One-Child policy is controversial. China’s population is still high.
They have good track records on their previous reforms starting from Deng and most items in their five-year plans. Even with many problems, the centralized government is quite effective. It is easy to have large scale project such as high speed train. The problem when the decisions are passed to the local governments, they usually are changed or not followed 100% according to the benefits of the local governments.
No one will give you a medal for improving or maintaining roads and
dams, but building more roads and dams. They need to calculate the returns of
major projects besides providing jobs to relieve social unrest.
As Chinese President Xi Jinping puts it
well:
"There are some bored foreigners, with full stomachs, who have nothing better to do than point fingers at us … First, China doesn't export Revolution; second, China doesn't export hunger and poverty; third, China doesn't come and cause you headaches, what more is there to be said?"
"There are some bored foreigners, with full stomachs, who have nothing better to do than point fingers at us … First, China doesn't export Revolution; second, China doesn't export hunger and poverty; third, China doesn't come and cause you headaches, what more is there to be said?"
More on China.
39 The China Sea is gathering storm
If there were a war between China and Japan
(the #2 and #3 economy), the US (#1 economy) will most likely support Japan and
all the forecasts in this book as of 9/2013 will be off and we will return to a
global recession.
There have been disputes on the
ownership of some islets between China, Taiwan, Japan, Korea, Philippine and
Vietnam for the presumed oil or gas in the near-by ocean. The disputes have
been mild for over 40 years (I remember the protest when I was a college
student) and no side wants to do anything until recently. All these countries
would not want to agitate China and China would not want to harm the trading
relationship. Now, the U.S. wants to side with countries against China. With
the backing of the U.S.'s Seventh Fleet and the U.S.'s promises, all these
countries suddenly cry out loudly for the last few years.
If China starts the dispute initially, China grossly miscalculates and grossly underestimates the military might of the U.S. navy. If Japan resumes the dispute, they are risking losing trade (#1 export to China) and the tourists from China.
It is the U.S.'s intention to
remain as #1 and the big brother in this part of the globe. It is not a wise
decision unless we still live in the past glory when you're either my puppet or
my enemy. Most likely, it is decided by the politicians who want to divert our
attentions as they cannot resolve our problems such as employment. The
government still wants to be the global leader (to another recession?) by
giving and spending billions here and there.
If the U.S. wants to promote
selling weapons to Asian countries (the U.S. is #1 in exporting weapons), we
are playing a risky game and the potential profit most likely will not justify
the consequences.
China might withdraw the loans and we would be back to the
worst depression in our history. It is quite dumb for China to loan us money to
build the Asian missile wall against N. Korea and most probably against China.
When Japan and Korea fight against each other over the disputed islet, which
position would we want to side with? If your answer is both, should we send
missiles from one of our battleships to another one of our own?
We cannot afford another war. We've spent $1.365 trillion in
the two current wars so far. We cannot visualize how much is one billion, not
to mention one trillion. The current tallest building in the world (in Dubai)
costs about $1.5 billion. We can build about nine hundred (900, not a typo)
tallest buildings in the world and not even fathom of how many jobs would be
created.
Wars cause human suffering. China is not a tiger, but it is far from a paper tiger. Japan's navy is stronger than most folks in the U.S. can ever imagine. Japan has been the aggressor to China for centuries and has been war criminals against Korea, China and most other Asian countries in WW2. They have not compensated all the damages to Asian countries that they destroyed during WW2. Their leaders still pay respect to the war criminals in their ‘shrines’ and rewrite history books not admitting Nanjing Massacre had happened.
As usual, we always pick up the brick, aim and hit our own big toe. It was Vietnam, then the two wars in Middle East and now potential wars in China Sea. We have not yet learned lessons from the French, the Brits and the Russians who had been to Vietnam, Afghan and they all lost big.
No politicians would tell us that all our troubles are due to the high expense of the wars we participated in. We have had about 20 years of secular bear market due to the Vietnam War, followed by about 20 years of secular bull market due to the lack of war, and now 12 years of secular bear market (as of 2012) due to the Middle East wars. At the mean time, many of us do not have jobs or are under employed. Though our market is up (due to excessive printing money), but economically we are in very bad shape.
Wars cause human suffering. China is not a tiger, but it is far from a paper tiger. Japan's navy is stronger than most folks in the U.S. can ever imagine. Japan has been the aggressor to China for centuries and has been war criminals against Korea, China and most other Asian countries in WW2. They have not compensated all the damages to Asian countries that they destroyed during WW2. Their leaders still pay respect to the war criminals in their ‘shrines’ and rewrite history books not admitting Nanjing Massacre had happened.
As usual, we always pick up the brick, aim and hit our own big toe. It was Vietnam, then the two wars in Middle East and now potential wars in China Sea. We have not yet learned lessons from the French, the Brits and the Russians who had been to Vietnam, Afghan and they all lost big.
No politicians would tell us that all our troubles are due to the high expense of the wars we participated in. We have had about 20 years of secular bear market due to the Vietnam War, followed by about 20 years of secular bull market due to the lack of war, and now 12 years of secular bear market (as of 2012) due to the Middle East wars. At the mean time, many of us do not have jobs or are under employed. Though our market is up (due to excessive printing money), but economically we are in very bad shape.
The
disputes will not be good for all countries involved. The U.S. does not have
sufficient resources to start another war. Hope it will not happen. Let the
sleeping dogs lie and silence is golden. The one who started to surface the dispute
has grossly miscalculated.
Japan 2014
Japan is not the Japan 25 years
ago. As of 2014, I do not want to invest in Japan.
The policy has failed and the new
policy is basically the same as the old one. Their problems are:
1. Agitate
their major partner China on the disputed islets, which should belong to Taiwan
by proximity and it should be returned after WW2. They're losing trade from
China while China can buy the equipment and technology from many other sources.
2. The
virtually zero interest rate does not work before and it will not work in the
future.
3. The
higher tax and higher inflation in Japan will lower the living standard in
Japan.
4. The
recent surge in export is just a mirage and cannot be sustained in the long
run.
5. The
recent Tsunami will hurt Japan for another decade. I do not want to visit the
affected area or eat any food products produced from this area.
6. The
impact of Japan's aging population is the worst among nations and is worsened
by not welcoming immigrants. The smart and hard-working citizens are their
major resource.
7. The
baggage from the war crimes in WW2 to its Asian neighbors is still a burden.
Japanese never compensate the comfort women who are disappearing fast due to
aging. Japanese leaders pay respect to the war criminals in the ‘shrines’ every
year, similar to paying homage to Hitler.
Afterthoughts
·
The point of this blog is not on the dispute
itself but on: Why does the dispute re-surfaces after 50 or so years? I suspect
it is the U.S.'s hidden agenda. My guesses are: Helped Obama reelected, the
U.S. returning to S.E. Asia, selling weapons in the region (the U.S. is already
#1 in weapon export), containing China...
·
If you look at the map, I can tell one disputed
islet is closer to Vietnam / Philippines and another one is closer to Taiwan.
·
I wish all the countries involved share the
natural resources and the world will be a better place.
·
In Asia, Japan, India and China are all building
carriers. It is not a good hint for peace.
·
My Sentimental Journey: Nanjing Massacre.
·
Does war benefit the economy? Yes, to some
extent. No, for the long term to me.
Norman:
War got us out of the Great Depression in 1941. The inflation is a future problem, ducking
the missiles is the current concern. War
is a powerful business model and the countries over produce.
·
40 EU’s mess
We follow the similar procedure in finding the reentry points and
use VGK, an ETF for European countries.
There are two sectors that bring down the US’s financial crisis
in 2007 (or 2008 for some). We should reenter the European market via technical
analysis (TA) and via fundamental analysis.
Technical Analysis
There are two ways to find the reenter points after 2007.
1.
Use the same chart in
described in TA chapter as follows. Bring up Yahoo! And then Finance from the
browser. Enter VGK, a ETF for Europe. Select Chart, then SMA (single moving
average), and enter 350 days for reenter points (different from our usual 30,
60, 90 or 120 days).
Loosely we have two
major reenter/exit sets: 08/31/09 to 08/01/11 and 08/20/2012 to 01/13/14.
Without considering compounding, we calculate the averages of these two sets of
data.
2.
From the Market
Timing chapter, reenter the market 2 years after the initial plunge for
offending sectors. They are not the offending sector but the sovereign debt is
partly the culprit. Hence we use 18 months instead of 1 year for the general
market or 2 years for the offending sector.
Assuming 01/14/2008 the market starting plunging, the reenter
date is 07/14/2009.
The 350-day Single Moving Average could be a
good guide to trade VGK, an ETF for European countries. Buy when it is above
the moving average line and sell when it is below.
The following table summarizes the returns based on reenter
points to 01/13/2014.
|
|
Reenter
Date
|
Return
|
Annualized
Return
|
Beat SPY
|
Chart
|
08/10/09
|
-9%
|
-5%
|
-185%
|
|
|
08/20/12
|
29%
|
21%
|
0%
|
|
|
|
|
|
|
Average
|
|
10%
|
8%
|
-93%
|
|
|
|
|
|
|
18 months
|
07/14/09
|
59%
|
13%
|
-42%
|
If you have a time machine, you may not want to invest in VGK at
all as SPY beats both strategies by a wide margin. However, the annualized
return is 8% and 13%, not too far away from XHB’s 21% and 21% respectively. It
seems Europe had more ups and downs during the recovery and the recovery is
slower than the US market.
Fundamental analysis
Here are my personal thoughts as of 2009. I prefer to stick with
the technical analysis and fundamental analysis is used to further analyze the
housing market such as the cities that may have better recoveries. By the time
you read this article, the information may be obsolete. Use it as a reference
for future guidance.
As
of 1/1/2012, my predication about EU’s mess that we talked about more than two
years ago (my blog mentioned it long before most media). Even today (9/2013),
there are not a lot of changes and EU is still on its early stage to recovery.
Here are my random remarks.
·
EU will be dissolved or will at least kick out
the cheaters, free loaders and parasites such as Greece. In any case, Euro will
depreciate a lot compared to gold [Update as of 2013: It has]. Germany wants to
keep Greece in the union despite of all the problems and little to gain. Germany
have to compromise to the opposition from her own citizens in not giving up
their own money.
·
After that, a default is not a bad option.
·
There will be conflicts in the citizens in
Greece between those who have (still a lot collecting over $40,000 USD pension)
and those (especially the young generation) who have to suffer due to passing
the debts / miseries to them.
·
Greece will recover faster if it has its own
currency and it can default its debts. At that time, it would be profitable to
invest in Greece.
Their
government will be halved and the salaries / pension obligations will also be
halved. To conclude, it will run the country about ¼ of the original cost. Tax
revenues will come back with tourists looking for bargains. When the other
industries such as shipping (when global trade improves) and processing olive
return, the investment will have a good chance to gain 100% in a year. Timing
is everything.
·
The days living off from the treasures /
commodities they stole from their colonies have been long, long gone. Most
European countries need to live within their means.
·
The lesson of having a good life without working
hard (short work week and long vacation) is learned again and again. First it
is Ireland, Iceland, then Greece, then Spain/Italy and now the USA.
·
When they learn so many bitter lessons, they
will not repeat them for a long while. The USA should learn the same lessons as
we seem to be heading to the same direction unless the shale energy rescues us.
·
EU will be a problem for years to come. When the
country has that high debt with regard to GDP, they will not be competitive
especially the drain of their best citizens to other countries.
·
Decoupling is the solution. The U.S. and China
will not be stupid or big enough to rescue a sinking ship.
Afterthoughts
·
Update on Greece as of 1/2013.
Greece should be bottom
out in a year. Investing in Greek stocks at that time would double your
investment for the following reasons.
1. Greece is small, so it may not be a big deal to recover as
Iceland did. It is better than Iceland with its nice climate and many
attractions for tourists.
2. Besides attractions for tourists, Greece has beautiful beaches.
They need to cut down protests before the tourists would return.
3. The government could be mean and small with about 1/4 of the
previous expenses to run it.
4.
The olive industry
and the shipping industry will return big time after the global recession.
However, there are no cures for laziness and stupidity; another
living proof on my Coconut Theory. The major hurdle is that there is a brain
drain of able citizens and the retirees suck up the resources of the country.
·
Roots of the problem.
1.
Euro is initially a good idea especially for
tourists. However, it forces the rich countries to pay for the free loaders.
2.
Laziness is a human nature. When you work 30
hours (even less if you consider the long vacation) a week, you cannot compete
with folks who work 50 hours a week.
3.
The loots from the days being colonial masters
were long gone except the displays in museums.
Socialism
encourages folks to be parasites until the host dies.
41 Politics and the stock market
Republicans are
usually pro-business, but the democratic presidency has better track record for
the market.
The Dow index was up 56% (from 7,949 to 12,418) in the less than 3 years since the day when Obama took office. As of 8/2012, it is 13,100. Hence the market has been fully recovered from 2007-2008, but not the economy. If you still collect unemployment or your house has been foreclosed, you're still in deep trouble.
The S&P500 performance under Republicans vs. Democrats since 1926:
The Dow index was up 56% (from 7,949 to 12,418) in the less than 3 years since the day when Obama took office. As of 8/2012, it is 13,100. Hence the market has been fully recovered from 2007-2008, but not the economy. If you still collect unemployment or your house has been foreclosed, you're still in deep trouble.
The S&P500 performance under Republicans vs. Democrats since 1926:
Annualized return under Democratic presidencies: 13.74%
Annualized return under Republican presidencies: 6.25%
The President's appointees for the economy are the ones to watch as they set up the policies. As of 2012, the interest rate is not a factor as it cannot go much lower. The cut in military expenses and the ending of the two wars will be good for the economy.
The problem of the two major political parties is that they do not agree with each other, so they have to make too many compromises and waste a lot of time and effort.
Afterthoughts
·
Since we have more people depend on the welfare
/ entitlements and government jobs, they will vote accordingly and that will
not cut down deficits in the foreseeable future especially the baby boomers are
starting to collect the entitlements.
·
Do not blame the news
media. They broadcast what you want to hear.
Do not blame the politicians. They do what you want them to do.
Do not blame the politicians. They do what you want them to do.
Do not blame me. I deliver what you want to get.
So blame ourselves.
·
However, 40% (45%
soon in our deteriorating economy) do not pay Federal income tax and they
benefit more from the welfare and entitlements.
The rich (1%) can blame the poor (40%), and the poor can blame the rich. They are both right and both wrong.
If we divide the society into 3 groups: the rich, the middle class and the poor, the middle class (I and most of you belong to this 59%) is really squeezed by both sides
The rich (1%) can blame the poor (40%), and the poor can blame the rich. They are both right and both wrong.
If we divide the society into 3 groups: the rich, the middle class and the poor, the middle class (I and most of you belong to this 59%) is really squeezed by both sides
The middle class do not
vote actively compared to the poor who depend solely on the policy to allocate
welfare / entitlements.
·
Capitalism encourages
folks to work hard, communism encourages folks to be lazy, and socialism
encourages folks to steal.
·
It is obvious that the
2012 was partly won by the Hispanic votes with the promise of legalizing the
illegal aliens. We’re the only country on earth that welcomes illegals. Have
the politicians calculated the costs for welfare benefits and the impact on
jobs? Hopefully they will contribute more
than burden our weak economy.
·
A good president does not have to be expert in
every field except being a good communicator. Good acting helps and hence we
should have the major Presidency via Acting and Communication in our community
college. The late Reagan could be our first dean. J
He should delegate his power and know whom
he hires for a specific job. Unfortunately his personal objective is to get
re-elected during his first term and then build his legacy to sell his
books/speeches and to reserve a space in history in his next term. Actually he
has about 18 months to do so.
From my definition, Obama is not a great
president. Reagan had good acting skills. Bush was not. Carter was too
gentlemanly and not firm. Nixon was tougher but his hand was caught in the
cookie jar. Clinton invented or gave new meanings to some terms in our
dictionary (such as interns, inhale, sex…) and got away.
Basically I cannot find too many great
presidents in recent history. We may have to blame our election system. If I
want to be one of them, I would choose Clinton for all the funs he is having. J
·
Whenever I make any political remark or any
remark against the government, I have a chance of offending half of the
population if we are evenly distributed into the two political parties. A good
discussion even against anyone is better than no discussion at all. We are not
a member in Bush’s cabinet who has to agree everything with the chief in order
to survive.
42 Modify our election system
Our voting system works but it has problems that need to be addressed
as follows:
1. Reduce campaign money.
When politicians spend a substantial amount of time in fundraising,
they have not concentrated their efforts on the important issues such as the
economy. Gun control was not even mentioned in the last election despite we
have constant shootouts. We need to set a limit in the amount of the campaign
money they can raise and they can spend. Hence, the presidency is not won by
how rich you are and / or your party is, but how you can resolve our problems.
2. Over-promising for votes.
The last election was so close and the outcome could have been
altered by the inclusion of Hispanic votes. The changing of the legal residency
status could create many legal welfare recipients to further burden our
bankrupting country. If the welfare is so generous, why should they work when
they are legalized?
3. Special interest groups.
The politicians optimize their policy to favor the special
interest groups who finance the campaigns. Those groups are the entitlement
recipients (I'm on social security too). They ought to be paid according to how
much they have contributed. The social security system was designed for life
expectancy less than 70.
I would include the big businesses in the special interest
groups. Via their connections, they had been bailed out.
4. We need to set up a ballot to indicate what percentage of our tax
money will go to a specific budget, such as offense, education, etc. If they do
not select, their choices will be default to last year’s budgets. Spending too
much on one budget would hurt other budgets. I would like to spend less than 2%
on offense. Why we need a carrier driven by dual nuclear reactors and still ask
for more defense expenditures?
5. Representation without taxation is worse than taxation without
representation.
The votes of those who do not pay any Federal taxes, the mentally
challenged or those with low IQs, the uneducated, and the criminals should be
counted as at most half votes. When we are a good citizen (paying Federal tax,
sane, educated and not a criminal), our votes should be better for the country.
The votes of all veterans should be counted at least one and a half. A kind of controversial at first glance!
We have about 50% illiterates in
Detroit. The politicians have to satisfy these voters in order to get their
votes. It is not hard to predict the collapse of the city. Taxing the rich and
giving more to the poor seems to be good deeds similar to Robin Hood. However,
businesses cannot function over there and they have options to move to other
cities. It is another example that uncontrolled socialism could lead to
self-destruction described in my other book A Nation of No Losers.
6. I suggest the second term of the presidency should be 6 years
instead of 4. This is the term that the presidents usually do well for the
country to build his or her legacy without caring about votes for him or her.
Today, most second-term presidents have only 1 ½ years to do so.
The following are related to governance but should be discussed
during the election.
7. Need to balance the budget - we should make it a constitutional
law. We cannot pass our debts to the next generation forever. Most states
require balancing their budget, why not the Federal government?
8. Need a long debate in the Congress before we can start another
war. Most major wars from Vietnam War to the current two Middle East wars cause
most of our financial problems. We are not wealthy enough to be the world’s
policeman, and fighting for ideology and freedom for other countries. Being #1
or a big brother is not important when our economy is bankrupting and most our
graduates cannot find jobs.
9.
Need to encourage the
able poor to work and be educated to break the cycle of poverty. There are too
many holes and state misinterpretations in Clinton’s law to force welfare
recipients to work.
10. Need to
control government expenses by a smaller and more efficient government and cut
frauds such as Medicaid and disability entitlements SSDL. Increasing government
employees and assigning them small workloads is reckless consumption and not
improving productivity. To illustrate, building a road to improve
transportation is productive, but defending other countries is consumption
(unless the benefits justify). China has been doing the
opposite of what we're doing. It is similar to enjoy life now or enjoy life in
the future. Sometimes I feel China is over-spending on infrastructure without
calculating the benefits in order to lessen the choice of social unrest.
Afterthoughts
·
Shutting down the government due to the debt
ceiling.
Run the
government like what businesses do. Calculate the rate of return in the
following two options.
1. Benefit in shutting down the government.
1. Benefit in shutting down the government.
or
2. Benefit in not shutting down the government.
Select the option that gives us better benefit.
The majority of government employees have tiny workloads (most got their jobs in DC due to what party they belong to). Furlough (layoff could be better just like most businesses do) half of them and it would maintain the same service if they work in the private sector. A win-win decision.
Closing all the free museums (say in DC) will cost a lot of pains to tourists and future tourism. Actually it costs more than 10 times of the saved wages in shutting down. Only the stupidest managers make this kind of easy decision.
2. Benefit in not shutting down the government.
Select the option that gives us better benefit.
The majority of government employees have tiny workloads (most got their jobs in DC due to what party they belong to). Furlough (layoff could be better just like most businesses do) half of them and it would maintain the same service if they work in the private sector. A win-win decision.
Closing all the free museums (say in DC) will cost a lot of pains to tourists and future tourism. Actually it costs more than 10 times of the saved wages in shutting down. Only the stupidest managers make this kind of easy decision.
However, our government makes decisions based on politics: Want to show who is the boss and put the blame on the other party. They are all wasting our time, money and energy. We need to have smaller and better government.
When the problem is resolved (by approving funding or moving the debt ceiling even higher), both sides will declare victory shamelessly on how smart they ‘fixed’ the problem to insult your intelligence.
·
Usually we vote for the candidates we associate
with without considering the ideas and qualifications of the candidates. That
is evidenced from the reactions of the O.J. Simpson’s verdict from the students
of a black college and the students of a white college. This is bad for the
country.
·
Our politicians waste our time by arguing
endlessly with childish partisans to see who is on top. Concentrate and fix our
problems please!
43 The Republican Convention – a satire or reality?
Why do we need to know Mitt (or
any candidate from any political party) is officially nominated or he will
accept the nomination? Who has turned it
down in our history? If this is the main purpose of the convention, it is a
total waste of money and time that can be used to deal with our real problems
such as how to cut down spending. Isn’t it ironic or demonstrating how the big
government wastes our money or how big business buys influence?
If you really do not know whom
will be nominated (I'm shamelessly insulting your intelligence and assuming you
have been living in a cave for the last year), we can use YouTube to broadcast
it instantly (if you cannot wait for the TV news) and save millions.
The convention must be sponsored by airlines, hotels, restaurants and Florida or big businesses / special groups wanting influences. The hidden sponsors are the prostitutes, Viagra and condones. They are the winners of this convention, not the handsome Mitt and his lovely wife. All the conventioneers using other folks’ money to wine and dine are the free loaders and parasites. Sorry to offend all the politicians and their running dogs.
I like to attend any convention if someone is stupid or rich enough to pay for this unearned but lavish vacation – I’ll vote whatever you want me to. Sign me up for any convention, Republican or Democratic, now or future. I hope it will be in Hawaii or somewhere without any hurricane and with great and expensive food. You will pay for it eventually one way or another.
I must have some mental problems
if I talk to an empty chair with a ghost rocking on it. When you guys laugh at
the chair, you might have a more serious mental problem than I. Even with no
one sitting on it, the chair still rocks. It symbolizes the do-nothing
government could be the best government as it rocks! My point is we need a
small, frugal and effective government. The best government is invisible but it
provides all the basic services at the least cost!
Afterthoughts:
More
44 How to solve our economic problems
The United States is still rich
and powerful, so the economy should be easier to fix. However, we all have to
bite the bullet. Bailing out everyone only buys votes for the politicians and
will not help the economy in the longer term. The economy affects everyone and
it should not be a political game. Here are some of my thoughts.
·
When GE does not pay any tax to the U.S. but to
some foreign countries, we've a problem. So are many U.S. companies which
should be headquartered in the U.S. instead of in some foreign countries. We've
not done enough to lure them back and give them incentive to stay. At least we
need to force them to pay taxes on the profits they made in the U.S.
It is similar to the cruise ship companies. They pay minimal taxes even
most are headquartered in the USA and most of their customers are USA citizens.
·
The rich should pay their fair share of taxes.
If we force them to pay more than their share, they will move elsewhere. This
is the straw that breaks the camel's back or killing the goose that lays the
golden eggs. The top 10% rich folks paid 70% of all Federal tax collected in
2010, up from 55% in 1986.
More than 40% of the total population did not pay any Federal taxes and
they received most welfare benefits and entitlements. Our socialist system
would bankrupt when it does not have any to give.
·
Relax the environmental enforcement on drilling
and start the construction of the pipe lines such as the one from Canada. We may
have more than enough trapped natural gas for the next 50 years. God bless
America!
·
The complicated regulations and the high legal
expenses force some drug companies to move the research elsewhere.
If nothing is being done, I predict China and India will be the countries
to produce new drugs in the next decades and we will lose the competitive edge.
·
We need to limit the unemployment obligations,
the burden of ObamaCare, etc. to small businesses, etc. There is no incentive
for them to hire in this uncertain time.
·
We have to give companies and the rich
incentives to take risk to start business and new projects here, or they will invest
elsewhere. Investment creates jobs.
·
There are many ways to balance the budget:
We need to cut the entitlements. We have to bite the bullet. I receive Social Security and Medicare, but I am willing to bite the bullet.
We need to encourage the able poor to work, instead of receiving welfare. Why should they work if work means cutting the housing subsidies, food stamp and free health care (in many states including Mass.)? We do have many jobs that are now taken by the illegals as they’re too ‘tough’ for the able welfare recipients to work.
We need to cut the entitlements. We have to bite the bullet. I receive Social Security and Medicare, but I am willing to bite the bullet.
We need to encourage the able poor to work, instead of receiving welfare. Why should they work if work means cutting the housing subsidies, food stamp and free health care (in many states including Mass.)? We do have many jobs that are now taken by the illegals as they’re too ‘tough’ for the able welfare recipients to work.
We cannot tax the rich to the max. I belong to the middle class and I
cannot give up my citizenship, my social security and Medicare that I
contributed during my work life. However, the rich can and come back to live here
as a foreign citizen. It happens to many high-tax countries and we never learn.
There are many U.S. jobs that are being done by illegal aliens. Check out
who pick your lettuce, or empties your waste basket in your office. The poor
should take up these jobs, instead of fixing their motor bikes, or watching TV
all day long. When we legalize the illegals, will these new residents collect
welfare instead of working?
Hiring more employees for government jobs is the most inefficient way to
boost employment, as our government is too big already. We can cut down half of
them without degrading the services as most are working half of the time
already.
We
cannot afford the two wars; one war costs us $2 billion a week. Many well-known
projects overseas cost about $2 billion each. Why we need a carrier powered by
two nuclear generators is beyond my comprehension when we have more weapons to
destroy the entire world by pressing a button.
All the measures should be
executed gradually to avoid the so-called fiscal cliff and related problems in
different terms. I'm in IT and now in investing. I do not know much about
social science and economy, but they're just common sense.
Afterthoughts
http://ebmyth.blogspot.com/2013/11/more-on-how-to-solve-our-econonmic.html
45 Implementation
This recession is the longest in
my memory. Usually we have recessions that last for two to four years and then
we recover. Some recent college graduates have been out-of-work for over four
years and many work on jobs that they do not have to go to college for.
It could be due to the failed
stimulations, printing too much money, and the bailouts that did not fix the
root problem. If we did not do the above, there is a better chance for a faster
recovery than a deeper recession. As of 1/2013, hopefully this year will be the
year we finally recover, but only time can tell.
We need to let big businesses fall. No one is too big to
fall. Let nature take care of itself. If you cheat and / or do not perform, you
need to be out of business. It is Business 101 and the fundamental of our
capitalist system. Why it is so hard to understand? Why do we need to bail out
companies that should fail? Why the greedy CEOs do not go to jail? Why they were
rewarded with bonuses from our bailout money to bring down the companies?
Our problems are easier to fix than they appear to be. I can think of many easy solutions, so the politicians who are hundreds of times smarter than I (or at least make hundreds of times my salary) must have many solutions already.
Our problems are easier to fix than they appear to be. I can think of many easy solutions, so the politicians who are hundreds of times smarter than I (or at least make hundreds of times my salary) must have many solutions already.
Identifying problems and finding solutions are the easy part. However, the implementation is hard, as the agenda of all politicians is simple: Get reelected. They have to satisfy the special interest groups who finance their campaigns and the voters who do not want to bite the bullet. When we have more voters benefitting from welfare and entitlements than the tax payers, we’re going to be a welfare state for a while. In addition, big businesses control our government via special interest groups (I call it corruption, American style).
46 The states of the United States
Contrary to
popular belief, we DO make and build something especially per capita wise.
We're still the largest economy on earth and are number one in most disciplines
in science and technology. We have a stable government with an enviable
constitution, workable regulations, highly-educated citizens and the strongest
defense (or offense to me).
Our
government and the private citizens (Gates and Buffett for example) donate
funds and assistance to poor countries more than the other five richest countries
combined. We provide food to the world. We export our culture via movies and
music. We accept foreign students to enrich our culture, fund our colleges, and
provide us with skilled workers when they graduate.
We have a lot
of innovations such as Facebook. Most of our products have high profit margins
such as airplanes, heavy equipment, high tech products including Apple's
consumer products and medical equipment. Nobody can deny that.
Our success leads to higher
living standard. Naturally the higher labor cost and more regulations to
protect us and our environment follow. Too many regulations would restrict
businesses in taking risks (such as developing new drugs and nuclear reactor
technologies) and add costs to product developments.
We have to leave the low-end products to low-wage countries such as China. It is called free trade and globalization, which would benefit all participants if they play the game fairly. China's 1.35 billion citizens would not be able to buy our expensive products if they do not have the cash from selling their products to the world.
We have to protect those products that we have an edge. It is not an easy job just by comparing the quality of our high school education to the rest of the world. Japan and S. Korea have passed us in auto and consumer electronic industries. China is at the gate with bigger impact in the future. China is catching up with us. In addition, it has a large internal market, plenty of qualified engineers / scientists, low-wage workers and incentives / guidance from the government. The most important is their desire and spirit to succeed after three centuries of humiliation.
God still blesses us with the new discoveries of shale energy that could extend our prosperity to another 50 years. It gives us more time to fix our problems, but time is running out. The benefits of the shale energy will be clearer by 2015. It could turn out to be a pure fantasy or even a sham. We are still a net natural gas importer (most from Canada) and our gas industry is currently sitting on heavy losses.
Compared to China, we have far, far more
farm land and natural resources especially per capita wise.
Our welfare
system (also see Chapter 31) is too generous due to our previous economic
booms. If the able welfare recipients lose the free medical care for taking a
job, do they work? They're lazy but not stupid. With the long dependence on
this welfare system, they cannot break the viscous cycle of poverty. Multi
generation of teenage mothers is one among many examples.
The new immigration bill could be a disaster. If it is passed, how many new legal residents will collect welfare (they can't today as they're illegal) and how many illegals are encouraged to cross the defenseless border. I hope the new immigrants will contribute more than burden our society. Only time can tell. However, protecting the border is easy by severely punishing the employers. When there are no jobs, they will not come. The USA is still the best country for immigrates.
There are
many frauds and fats that the government can trim. The government employees are
assigned to tiny work load and they are overly compensated. Should we assign
them to chase after the frauds in Medicare, food stamp and cheatings in
disability entitlements that are so common?
The two wars
are bankrupting this country and we need to prevent starting future wars and
end the current wars. As of 2013, our military
budget is larger than the total of the next top five
countries combined.
From this article, you know the government can fix a lot of our problems. Printing money is not the solution, but the problem by itself.
From this article, you know the government can fix a lot of our problems. Printing money is not the solution, but the problem by itself.
We need to
encourage productivity and discourage consumption. Buying a car is consumption
and building a bridge is improving productivity. Welfare to the able poor is
consumption and teaching work skills to the poor is improving productivity that
leads to production increase.
What worries
me most is: We’re declining while many developing countries (China in
particular) is surging up.
The future
will be decided by our high school system which is falling apart. Our society
is too permissive from gun controls to legalizing drugs, which may bring infant
defects. Our lawyers sue every one for profit no matter how ridiculous the
cases are.
Afterthoughts
·
Immigration reform will likely depress the
average wage over the next 10 years, according to the Congressional Budget
Office and also will likely increase our burden in our welfare and entitlement
systems.
·
Paul said:
This WAS a country where government did not buy votes. When my grandparents
came to the U.S., there were no Federal social programs, no Social Security, no
Medicare, no welfare and no income taxes. Millions poured into this country
looking for opportunity -- not a safety net…
The only recovery you'll see this summer is after a night of
heavy drinking...
Nothing has changed
since 2008, nobody was arrested, no laws put in place, nobody held accountable.
We all know that companies like JP Morgan and Goldman Sachs bundled toxic sub-prime
mortgages into securities and paid off the ratings agencies to rate them AAA
then bet against them using CDS with companies like AIG. So what does the
government do? Reward their criminal and fraudulent behavior by completely
bailing them out and then giving them oodles of cheap credit.
Have to hand it to
them...credit.....credit does not exist. There is only debt, masquerading as
credit, which we have been taught because it sounds better. It is a debt crisis
and the other side of debt is not credit, but a counter-party/underlying asset.
The whole world awash in debt with no solutions offered, most money is created
through debt but what they don't tell you is that the interest is never
created.
·
The USA citizens can
be divided into 3 groups according to taxes they’re paying:
1. About 40% not paying
Federal tax. When this group grows, we will bankrupt. Representation without
taxation is worse than taxation without representation.
2. Middle class. We're being squeezed by the other two groups.
3. The rich 5%. They pay most of the taxes. However, in the last two years, they're fleeing to other places that have low tax treatments. The geese that lay the golden eggs are flying away. Without them, we're squeezed even harder until we’re forced to move to the first group and bankrupt the country.
------------------------------------------------------------------------------------
The government needs to encourage folks and/or train them to work. Raising minimum wage is making the problem worse. The government should encourage businesses to stay in the USA and not to tax the very rich excessively.
2. Middle class. We're being squeezed by the other two groups.
3. The rich 5%. They pay most of the taxes. However, in the last two years, they're fleeing to other places that have low tax treatments. The geese that lay the golden eggs are flying away. Without them, we're squeezed even harder until we’re forced to move to the first group and bankrupt the country.
------------------------------------------------------------------------------------
The government needs to encourage folks and/or train them to work. Raising minimum wage is making the problem worse. The government should encourage businesses to stay in the USA and not to tax the very rich excessively.
Links:
Military budgets:
http://247wallst.com/2013/06/27/countries-spending-the-most-on-the-military/?link=mktw
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