Nation - Unclassified

"A Nation of No Losers" is my first book. The unclassified section will be deleted and retired here.

Section VI    Unclassified

There are some blogs that do not belong to the above categories and new articles.

Apple affects our life today and I have the first two articles on Apple.

The next articles are on the economy and investment. Although I have not made my first billion yetJ, investing is my hobby and passion.

I have three articles on religion. I know nothing against religion, but I have a lot of questions to ask. Please enlighten me by shedding some light via the website http://ebnation.blogspot.com. I hope the Christians and Muslims would respect / understand each other and live happily ever after.

After we have the basics in life, health is the most important. You cannot imagine that a blog can improve our health that much. The chapter on selection of music adds another dimension to this book.

63       iGeneration

I've a good laugh while reading an old joke  (http://www.tonyp4joke.blogspot.com/2009/03/living-in-2009.html) on life in 2009.

We have big changes in the last three years. This is the iGeneration with every one carrying an iPhone or an iPad (folks in the lower society class carry imitators and/or those 'outdated' iPhones and iPads that are several months old).

My grandchild of just over one year old has a good time in playing with the iPad and it would keep her busy for hours. Before she could say Mommy, she said I for iPad.

When my cousins gather for social/family events, they communicate with each other via their smart phones even if they sit next to each other. When they do not text messages, they play games with their smart phones.

Even with one pair of eyes and one pair of ears, they can play iPad, listen to iPod, text using iPhone and watch iTV at the same time.  Incredible and that's why China and India are leaving us further and further behind. Thanks Apple for demonstrating what multi-tasking is. I prefer to do one task correctly than five tasks incorrectly.

Kids will develop big fingers particularly the second one, fast eyes with thick glasses, and bent backs. They will be fatter, smarter as a child, and lack social skills. It is a double-edged sword.

We have to see whether it is a blessing or another addictive habit in disguise. We may have developed the modern-day Trojan Horse – give them to Iran and N. Korea free.

Can't wait for the next three years!

P.S. Some parents of our generation have a hard time to explain to their children that their existence was due to the blackout of the iPad and iPhone caused by the recent hurricanes.  On the bright side, it is Apple’s way to control global population.

Afterthoughts

From Dag:

Well said Tony.

"We have to see whether it is a blessing or another addictive drug in disguise."
In my humble opinion, we already see. The issues you touched on are the real reason we have an >8% unemployment rate ... because, while our kids spend all of their non-school time playing video games, the kids in Asia and India are studying science and engineering.

"that's why the poor countries are leaving us further behind"

Unfortunately, that is exactly right. We (in the American culture) are the victims of our own "success".

64   Is Apple a slave master?

If this is the best job you can get, you should thank your  'slave master'. With the recent raises and regulations, Apple is forcing Foxconn to be 'nice'. However, the chance of moving factories to lower-wage countries like Vietnam has been increased. There are more desperate workers (or ‘slaves’) in other countries. The typical compensation of a factory worker includes housing (eight in a dorm room), some simple entertainment and very basic health care. It is not good compensation compared to the U.S., but it is ‘good enough’ for Chinese workers. Judging from the long lines of applicants every morning in Shenzhen, it is a good job to most workers in Foxconn.

The suicide rate is about the same as the general population in that age group in China. It is a boring and repetitive job. Forced OT and long shift are tough for the workers. It is the same reason why these jobs will never return to the USA.

The late Steve Jobs was pushy and sometimes very unprofessional to his engineers / programmers in California. He was tough and sometimes unreasonable but he always had dreams. If they did not like it, they could quit. A slave master will not let his slaves quit.

Idealism in a perfect world and realism of what life offers do not agree with each other. I would like to dream and live in an ideal world that everyone has a well-paid and easy job, but we have to wake up to face the cruel reality.

65   Chinese bashing by presidential candidates

Both presidential candidates blame China in the debates, since both do not have real solutions to our problems. It is politically correct but it emanates from the USA victimization culture. This practice insults our intelligence (or at least those who can analyze).

* Will not gain jobs back from China.

To illustrate this, Apple will not gained a lot of jobs returned to the U.S. for too many reasons:

1.       There is a huge difference in wages. We cannot live with a $2 per hour wage in the U.S.

2.       Our unions will never allow those excessive overtime practices (1.5 x 41-60 hours, 2x over 60 hours), monotonous jobs and crowded dormitory conditions.

3.       Apple's products depend on rare earth elements that are only available in that scale and prices in and from China.

4.       Our taxes are getting higher due to the generous entitlements and welfare, expenditures on the two Middle East, and eventually the high cost to service our public debts that are getting higher and higher. When corporate taxes are high, the corporation’s profit will be squeezes. It is similar to personal taxes.

Compared to some other developed countries, the U.S. taxes are not high. The CEOs have a choice to choose their locations of headquarters and/or factories. They will select the most favorable ones and the U.S. is becoming less for their choice.

5.       There are about 40,000 technicians and engineers to support these manufacturing jobs at peanut wages. Where can we find so many qualified folks in the U.S.? For example, we have 120,000 computer-related jobs this year and we only have 40,000 graduates with computer degrees in all colleges in the U.S.

6.       China's internal market for Apple's products will be potentially larger than the U.S. Chinese do not mind to pay for double the U.S.'s prices to boost their social status.

* If we continue to bash China, we will suffer from the consequences which are very negative for the U.S.A.!

1.       They will withdraw the public debts, which would cause us a deeper and longer recession. Would you do the same?

2.       We'll lose a good trade partner, since our major products do not compete with each other at least for now.

3.       When you treat them as enemies, they will become one.

4.       When we stop to let their products in, these products will be replaced by other low-wage countries at usually higher prices at inferior quality. The recent tariff in tire does not gain us any jobs but cost our consumers dearly, while the politicians declare 'victory'.

65  Invest responsibly

We work hard, save money and invest. Our investing in stocks serves two primary purposes:

1.       Good return on our money (as in any investment), and

2.       Provide jobs and taxes for the government. However, in reality, the stock market is being changed to a big casino. 

Companies need our investing money to develop new products and hire employees. When the company makes money, it supposedly pays taxes and in theory hires more employees. We would not have Apple paying taxes and hiring thousands of employees if we did not finance it initially via IPO. However, global companies can hire anyone in any country at the least costs (labor cost, regulation cost…).

This is the ideal purpose for investing. Investors choose the companies that produce the proper products and / or services mix that would be profitable and at the same time are good for society and the world.

We ought to pick companies that promulgate the society. Here are some evil industries:

·         Tobacco companies.

Do you invest in products that kill? Even if you do not smoke, the second-hand smoke (and even the third-hand smoke for unborn babies) still kills. We discourage smoking in U.S.A., while our tobacco companies are making great profits in Russia and China.  The recent legalizing of an illegal drug will bring more deformed babies.

·         Defense (offense is more appropriate) companies.

Why do we need a carrier generated by two nuclear generators? We already have weapons to destroy the entire world by pressing a button. Boeing is partially OK with a small division in offense.

After shooting in Newtown, most stocks in gun manufacturing companies went down in prices (profits went up initially due to fear of the ban). Their P/Es based on past earnings will be exceedingly low. This is another example that P/E does not tell the outlook of the industry.

Unfortunately they are legal products. Special interest groups control our politicians like puppets.  However, the children in Newtown will not die for nothing and even politicians cannot cover their eyes and conscience any more.

[Norman, my good friend, has a counter opinion:

Disagree with your premise on military companies.  The United States has made a lot of money by upholding capitalism around the world.  If we had no military, we could not protect our property rights here and abroad.  Chamberlin proved that a weak country has no rights when the fascists come knocking.]

·         Casinos, wine, fast food, soda...
These are border line cases. They provide good services and products, if you do not take it to the extreme. They only hurt you but not others except from drunk drivers.

Money is not everything in life once we have the basics. We should invest wisely and responsibly in products that will not harm us. 

What's good if you made millions in a tobacco company that kills you via the second-hand smoke? How about the young kids killed every day by guns?

Stop counting money with hands dripping in blood.

Afterthoughts

I had a tough time in arguing with a doctor. He cared about the dividends from his tobacco stock more than your health. I wonder whether money was his original motive to choose this noble profession. CVS has done a good deed by not selling tobacco products.

Again, the legalized drug kills!

66  Hedge fund 101

LTCM, with two Nobel-prize winners, excellent supporting team and best technologies then, ran their hedge funds into the ground. Many hedge funds are closed due to frauds and/or poor performance.

The primary purpose is supposed to ‘hedge’ your investments from market plunges / dips. Since 2008, the government prints so much money, the market recovers and makes the hedges (shorts, derivatives, etc.) unnecessary. In reality, most hedge funds do not hedge.

Hedge funds get tons of press coverage as the Holy Grail of investing. The media need the advertising from this $2.5 trillion industry. It is similar to mutual funds but take more risk for better returns. Most require higher minimum investments and more restrictions such as requiring longer periods before withdrawal.

It could be the worst deal to most of their customers: 2% average up front and 20% average on your profit. It is more acceptable to me if the 20% is on profit over the S&P 500 or any relevant yardstick to the specific hedge fund. Why should I pay you 20% of my 10% profit when the market rises by 15%?

Well, if they consistently make a lot of money for you, it is not too much to object. However, most risk your money by betting big recklessly. When they win, they get 20% of your profit and they use you for advertising to lure other suckers. When they lose your money, they do not lose a penny. It encourages them to take big risks. I do not know any hedge fund (HF) manager who pays you back your losses.

An average mutual fund charges about 1.5% management fees. An average hedge fund charges 2% that would cover the expenses to run an office, market the products and research expenses. The real compensation of an average hedge fund depends on the average 20% of the profit.

You have better return by investing in a no-load index fund or a diversified ETF than an average hedge fund. To calculate the average hedge fund performance, you need to include the many hedge funds that are out of business.

After a hedge fund has failed, most fund managers just open another hedge fund (if they do not go to jail due to frauds) and give you all the excuse for losing your hard-earned money. Some lose their reputation but you need to check them out.

In 2011, the hedge fund industry did not beat the S&P 500 index fund after fees. I bet the hedge fund industry did not beat the market after 2011.

Some hedge fund managers learn modern portfolio theories from Ivy League universities and apply them in the hedge funds. Often their theories are wrong due to wrong testing procedures or they cannot be sustained in real life.

Many invest in new companies and small companies where they would have big profits swing. They need to learn the business of the company they plan to buy the stocks, interview the owners, read between the lines, and double check whether the owners are telling the truth by talking to their competitors, vendors and customers. It explains the high cost of their research. We just look at the transaction of the insiders and/or use a low-cost subscription to have similar research. There is no need to travel to visit the company unless you want to. 

Some use their specialty in certain sectors and that's fine. If they use derivatives, be careful and that's what resulted in our 2007 financial crisis. Derivatives could reduce the risk of the portfolio if they are properly used. If you still want to invest in them, ask for their methods and their historical performance. Very few hedge funds are good. When you find a good hedge fund, most likely it has been closed to new investors or its fees are outrageous.

The owner of a famous baseball franchise lost big money from a hedge fund that concentrated in the oil sector.  Almost every ETF in this sector made good money that year. He still stayed with the hedge fund and had similar miserable return the following year. I did not blame his first mistake, but on his sticking with the same hedge fund after a losing year. It could be the hedge fund gave him a hard time to take his money out.

One hedge fund has a performance of 25% every year for a long period. The SEC, take notes and investigate whether they were using insiders' information. There are very few hedge funds with consistent performance beating the market after their hefty fees. If you find some, stay with them forever. One hedge fund was rated as the top fund and the next year it was out of business due to poor performance.

In 1980, this industry started with really capable fund managers and made good money for their clients. After that, every analyst wanted to open a hedge fund and most did not even beat the market after their fees. Alternatively, just buy the ETF SPY and relax, instead of waiting for the hedge fund to wipe out your savings.  This industry is not properly regulated.

Do not believe in any articles / ads praising how great the hedge funds are without knowing their credibility and their hidden agenda. The hedge fund indexes usually ignore the survivor bias of the bankrupted hedge funds and the early exits of many hedge funds.

Since the hedge funds very seldom keep the stocks more than a year, their capital gains would be short-term and hence would be taxed at higher rates than the long-term capital gains. In addition, most funds have 1-3 year lock-up periods and only allow withdrawals on the first day of each fiscal quarter.

Update as of 1/2016

Hedge funds have not been doing fine since 2009 as there is nothing to hedge in a rising market. Only a very few are doing great. Learn what and why they are doing great. The reasons are obvious by now. The successful ones unloaded energy stocks and Chinese stocks after the crisis but before the big losses. Some correctly shorted these problem sectors afterwards.

However, I still advise not to buy hedge funds for the average investor:

·         The better ones are not open to new investors or ask for a king's ransom.

·         On the average (including the closed hedge funds), they're not doing well after the high fees.

·         Even the good one last year could be a bust this year as they're betting high. Examples abound.

To make money, you need to depend on yourself. To start, play simple market timing. Buy value stocks when the market is not risky. Be patient. Evaluate your owned stocks every six months (prefer 3 months if time allows) and act accordingly.

Following these simple 'techniques' (or common sense), you should at least beat the market (or SPY) in the long run. It has been proven and being practiced by many successful retail investors among us.

Afterthoughts

·         From WSJ, from 1999-2008, the hedge fund industry beats the S&P 500 by 13% a year. From WSJ, from 2009 thru July 2012, it lagged the market by almost 8%.

·         Now hedge funds can advertise.

A pig wearing lipstick is still a pig. If you run 5 hedge funds, you will advertise your best fund. Advertising industry will benefit and eventually their investors in hedge funds will pay for this expense.

http://finance.fortune.cnn.com/2013/07/10/sec-votes-to-let-hedge-funds-advertise/?iid=HP_River

·         A hedge fund article from SA.

http://seekingalpha.com/article/584861-hedge-funds-are-they-just-smooth-operators?source=kizur

·         In 50 years, the $10,000 investment will grow to $1,170,000 assuming a 10% return a year. However, about $700,000 will be the cost of the typical mutual fund. It will be better to buy an ETF (far lower fee) and avoid market plunges described in my book.  

Links

LTCM:https://en.wikipedia.org/wiki/LongTerm_Capital_Management

Hedge Fund: http://en.wikipedia.org/wiki/Hedge_fund

 

67   Problems of dividend stocks

When a strategy is over-used, it may create a bubble. There is no exception except one or two with unusual circumstances (like the current gold rush due to printing too much money). When the shoe shine boy told an investor he was buying stocks, a famous Wall Street investor unloaded everything.  He knew the boy did not do any research and it was the herd mentality.

When Sarah Cohen (could be another skater) told the TV reporter she was into dividend stocks, she seems to be the shoe shine boy except she is prettier and she has a lot of skills except in investing.

When all the money flows from other funds to funds and ETFs specialized in dividend stocks, it is a mild bubble. History tells us the average retail investor always selects the wrong side of the market. Fidelity's money fund flow has been a good contrary indicator for the market.

Past performance does not guarantee future performance unless market conditions are the same that seldom happens. Examples abound from 2000's internet boom to bust. Investing in dividend stocks is still a mild bubble and it will get a boost from the bond holders when interest rate starts to climb. Dividend stocks perform better than the market but not by a large amount. When we exclude the financial companies like Lehman Brothers, AIG, Bear Stern, etc., dividend stocks do not perform that well.

There were several articles (at least two from WSJ) on how dividend stocks are over-valued. The premium on dividend stocks has been the highest in last 30 years compared to stocks without dividend on same fundamentals in theory.

Consider Total Return.

Total Return =  Appreciation + Dividend + Covered call  - Taxes – Inflation

You can argue that all your dividends are in tax-free retirement accounts and/or my tax rate is not that high. However, most likely you and I do not belong to this group who drives the market but the rich are. They will consider their total return. Appreciation is usually favor dividend tax wise for the rich. You do not have to realize the gains on capital gain. When you die, the cost basis will be stepped up. In a word, you have more control with capital gains but not with dividends. The capital gain will be proposed to be 20% (vs. about 42% max. for dividends). Check the current low-tax laws  (http://en.wikipedia.org/wiki/Dividend_tax#United_States).

68  Retirees, take notice

When we retire or are being laid off, we have plenty of time. It is bad not to do anything financially and mentally. However, the worst could happen to us: We invest in some venture without due diligence and lose our entire savings. There are so many real-life examples.

Everyone enjoys eating out. Some believe they can make money in opening a new restaurant. Wrong. It is the human nature to be overly optimistic even on the toughest business. Their friends and family members do not want to dampen that enthusiasm. Most new ventures fail miserably.

 
Investing in stocks is another popular one. Many take a course in day trading. If their system works that well, why do they want to show it to you? When you want to invest in stocks, you should have many years of investing experience and do not gamble with the money you cannot afford to lose. In either case, start with paper trading before committing real money.

One retiree lost all his money in the stock market which has too much volatility, and died because of worries. After several years, the market revived but he did not.

One retired headmaster worked as a partner in a small brokerage firm. Despite having fame and fortune initially, never-the-less he eventually lost all his money. He executed an order without checking his client’s maximum bet allowed. The bet was a total loss and this verbal order based on trust could not be legally bound.

The retired and famous baseball player from Boston lost all his money by owning a company that made video games. Even though he was an excellent baseball player, he was not a business man and his failure was almost a sure thing. For every successful story, there must be more failures that are not publicized. In most cases, no ambition is the best ambition during our retirement years. Investing in something we do not understand will likely cost us money, effort, frustration, and even our health.

69  Advice for a 70-year old

Why do you being a 70-year old want to be richer? By statistics, which never lie, you have about ten years (actually more by contingent statistics) to live plus or minus five daysJ. Investing is very emotional and it can damage your health. Inheritance is good for the next generation, but it should not be your primary reason to make more money. In addition, it would take out their objective in life and fun in creating wealth. They should inherit enough to start something and nothing more.

I agree that we ought to constantly keep our minds active. However, you're competing with veteran professionals in the stock market. Do not turn your life savings into a very expensive hobby. One way to beat them is to invest when everyone is selling and vice versa. It is easier said than done as most of us let emotions make our investing decisions.

If you could live to your eighth decade, you've beaten the odds and the social security system which was designed that a population will not live that long. Just have a big smile and a fulfilling day. Do not let the market control your mood. Like my late mother said:  Every day you wake up alive and feel no pain, you've earned another day that is more important than all the gold in the world.

Afterthoughts

·         Bala said:

Great words from your late mom. Even at 70, learning never stops and I learned something today. Thanks.

·         Norman:

Many of us in the 70 year old category are forced to support our children and their children during this depression. My reason for making money is to keep them eating and allow the children to go to school and college.

[Tony: I have been living in my own cave for too long.]

Advice to a friend in starting a new business: Advantage, niche and hard work.

70   Inflation and deflation

Inflation is:

·         An invisible tax to the rich.

·         A strategy to lessen the loan burden. To illustrate this, your loan of $1 can buy a loaf of bread, and you 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 the CPI, which can be manipulated by the government by using different weights on 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 hire less employees.

To illustrate this, 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.

Considering on inflation/deflation only, deflation costs you to sell the phone at a lower price. It could make you lose money and lay off employees.

Inflation and deflation at the same time

As of 2/2013, 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 (for 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. It has printed a lot of money and lower interest rate to stimulate the economy and at the same time has 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.  

Filler:

# Driver-less cars

How to fix the problem of consistently changing roads, signs (like one-way sign), blind spots, temporary detours, strategies in finding parking space, getting GPS signals, extra insurance cost, software /hardware problems... Some tunnels may have 5 minutes long without GPS signal.

Well, at least we do not have drunk (or stoned) drivers that cause most of the traffic accidents. When they're in court, most are let go easy. Why? Most likely many in jury are drunk or smoke weeds at one time. We're in a permissive culture due to the success of our ancestors. Another example of my Coconut Theory!

The car manufacturers will give you free life insurance (no kidding) and all the greedy lawyers are smiling.

71   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 today, it should be great for the housing market and retailers with the usual exception of the first year after the market bottom.

·         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.

·         Bonds will suffer big time. Interest rate has no way to go but up. When the interest rate heads up, bond prices will go down especially the long-term bonds.

·         Dividend stocks will prosper from bonds moving to stocks until interest rate starts moving up.

·         Folks including retirees, who depend on fix incomes, will suffer.

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 to equity.

72   Defining freedom

Freedom is a funny term. It can be defined whatever you want. A citizen from a developed country will have a very different definition from one from a developing country. Ask any Iraqi today. You may get an honest answer that seems our effort of fighting and all the fallen heroes in the wars for their freedom are totally unjustified for us.

When my classmate was a child in Hong Kong, he wondered why the West would fight to take away his job due to his age while it meant it was his only meal for the day. It was better for him to work in any job conditions than to starve. You do not want to free him from ‘exploitation’.

In many cases, people prefer to live under dictatorship and/or being exploited (though most likely it is not the most desirable choice). Your yardstick is good for your society but not necessarily mine.

73  Religious views from a non-religious person

To me there is no right or wrong in religion. It all depends on what you believe. My knowledge in religion is quite limited. I do have questions:

·         Pretty much I believe there is Jesus as the recordings are quite credible and there are many real confirmations from history and geography references in the Bible. I do not know there is not much on Jesus from Roman history and not much on Moses from Egyptian history.

·         If there were Eve and Adam, who recorded it, how and in what language? If Eve and Adam were Chinese, they should have eaten the damned snake or dog and we should still be in heaven. J

Some old scripts in India did not survive from the hot climate. The translated script to Chinese helped the Indians to locate an old city at that time. My question is how can the script describing Eve and Adam survive after that long and how the incident was recorded (before paper and language were invented)?

·         Did the expedition from Hong Kong find Noel's Ark? Most likely it is a shed that has been there for thousands of years or a hoax by the local government to attract tourists. There have been too many similar incidents in the past and all have been proven false. If this one is the real discovery (I doubt it), then there will be a lot of credit to the Old Testament.

·         We do not have miracles since the bread and fish had been multiplied or the Red Sea had been parted. We have prayers on world peace and so far it has not been materialized. It could be that God wants us to solve our problems by ourselves.

·         No matter what the conclusion is, there is no denial that religious institutions have helped a lot of poor, orphans, the hopeless and the needy. It also teaches us to be a better person. It gives us some survival provisions when we’re desperate.

·         Chinese see after life very differently from the west. No Chinese saw the light from the end of the tunnel in a near death situation. There are no angels for Chinese but jumping corpses sticking their tongues out.

If there is an afterlife, they ought to look the same to a Westerner and a Chinese.

·         Buddhism believes in rebirth and Christians believe in eternal life. If one is right, the other must be wrong, or both are wrong.

When one is dead and goes to heaven, then the heaven is full eventually. If one is dead and then reborn, then it does not explain the exponential population growth on earth (it is not 1 to 1, but 1 to n).

·         Some Chinese worship the Monkey King who is a character in a novel, as this is pure superstition. Same as worshipping an ancient general in China.

If I offend anyone due to my ignorance in religion, accept my apology for being curious and naive.