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APRIL 15, 2012 SECOND QUARTER COMMENTS

THANK YOU FOR SENDING ME AN ANGEL

Two weeks after the most prosperous anarchists in world history invaded and occupied Wall Street, domestic stocks hit their bottom for 2011. As the semi -literate sloganizing was forcing capitalism to its knees, the evil corporations fought back and from the October 4 lows through the first quarter, the Dow gained 28%, the S & P 500 was up 31% and the NASDAQ increased in value by 35%.

The second year of any decade is usually good for stocks, and the second term presidential election year has the best record of the four year presidential cycle. Since 1971, April has been the best month for the Dow gaining 2.3% on average, and Spring has been the second best season for stock market rallies over the past 45 years, posting an average gain of 11.6%.

Despite the strong market, net holdings in stock mutual funds have fallen and bond holdings have risen. Institutions hold $13 trillion in cash, earning an average money fund yield of two basis points. As the market looks forward, if the future includes clearer tax policies, reduced regulation and entitlement spending control, we all win. If not, we will suffer the fate of all fiscally irresponsible nations which is less economic growth, a lower standard of living, and shorter life expectancies, same as it ever was.

THE GOOD THING

Our virtual economic recovery starts its fourth year in July. Consumer spending is up but that is mostly for gasoline. The unemployment rate is falling but that’s because there are fewer jobs and people being counted. Since the recession ended, 7 million jobs have disappeared and despite $5 Trillion in fiscal and monetary stimulus, there are 2.3 million fewer jobs today than when the stimulus began.

Over $7 trillion in home owner’s equity has been lost since 2007. Median home values fell 4.7% last year and prices have hit 2002 levels, 34% off their peak. Another 400,000 homes slid underwater at the end of 2011, bringing the national total to 23%, and if you include homes with less than 5% equity its 28%. There are currently 150,000 new homes listed for sale, which is the lowest amount since 1963.

Food prices have risen each month since June 2010. Cotton is up 210% since 2009. Gas prices are up 20% year to date, over 15% of Americans use food stamps and 21% of children live in families with incomes below the federal poverty level. Historically, two years coming out of a recession, real average quarterly GDP has grown 6.2%. Our lowest rate was 4.7%. Since this recession ended, quarterly GDP has averaged 2.4% growth. By comparison in 1983, after a double dip recession, GDP grew 8.9% for the entire year.

“Reflexivity is a two way feedback loop between the participant’s views and the actual state of affairs….. People base their decisions not on the actual situation that confronts them but on their perception or interpretation of that situation……A politician’s primary purpose is to get elected and stay in power.….Reflexivity asserts there is such a thing as the manipulative function and political discourse can be successfully used to manipulate reality.”

- George Soros

WARNING SIGNS

Government dependency is defined as receiving significant aid with two of the following expense items: Housing, shelter, food, income, security, or higher education. Nearly half of all American families have at least 1 member receiving a federal benefit.

From 1965 to 2008, federal spending for national defense grew 42%. Spending for the federal courts, prisons, prosecutors, air traffic control, Amtrak, NASA, FBI, IRS EPA, national parks, embassies, consulates, and veterans grew 78%.

Spending on social programs over this time frame for Social Security, Medicare, Medicaid, disability insurance, unemployment compensation, Children’s Health Insurance, job training, education grew 583%. Last year, these social programs consumed 70% of the budget and we spent $100 billion more on them than we collected in ALL personal income AND payroll taxes.

Social security had 16.5 workers supporting 1 beneficiary in 1950. By 2030, the ratio will be 2.1 to 1. We currently have 50 million beneficiaries of Social Security and Medicare. The Congressional Budget Office (CBO) says the Social Security trust fund will peak in 2020, decline to $2.7 trillion by 2022, and reach zero in 2036, when the 65-plus population will be 93% larger than it was in 2010.

FOUND A JOB

54% of 18-24 year olds have jobs; their unemployment rate is 16.3%. For the rest of the working age population it is 8.8%. The unemployment rate among active duty veterans who served in the armed forces after September 11, 2001 is 12.3%. Over the last 6 years, the number of homeless female veterans has doubled and there are 2 million fewer self- employed people.

The private sector has lost 4.71 million jobs since 2009, while the federal government has gained 81,000 jobs which pay an average annual salary of $67,691 with $40,785 in benefits. The same jobs in the private sector pay $60,046 in salary and come with $9,882 in benefits.

Long term unemployment (being out of work for over 6 months) topped 40% in December 2009 for the first time since 1948 and has remained there. We currently have 4.7 million people who stopped looking for work, 12.7 million who are under employed; and 10.5 million unable to find full time work, which makes a real jobless rate of 28 million people or 17%.

ARTIST ONLY

To meet the goal of 1 million advanced technology cars on the road by 2015, GM planned to sell 60,000 Chevy Volt’s this year and sold 3,915 in the first quarter. Each vehicle comes with nearly $250,000 in government incentives behind them, and the $7,500 federal rebate is about to increase to $10,000.

The average income for the Volt buyer is $170,000; for the Mercedes buyer $174,000. Gas would have to reach $12.50 a gallon for Volt buyers to recoup the cost of the car in fuel savings over its lifetime.
Fisker Automotive received $529 million in federal government guaranteed loans to build an electric sports car in Finland, called the Karma that costs $107,500, ignites after 180 miles, and breaks down going 65 mph.

Phillips Electronics won a $10 million federal government “affordability prize” by creating an alternative to the 60 watt incandescent light bulb, which costs $50. Sapphire Energy won a $100 million federal grant and can now turn algae into gasoline at $26 a gallon. Solazyme is selling the US Navy 450,000 gallons of biofuel at $16 a gallon to replace JP-5 fuel which costs $4 per gallon.

Once upon a time, Ethanol was the answer to energy independence and saving the planet. Last year it, received 45% of $15 billion of tax payer funds for renewable energy. Wind power got 34%, solar 8% and biomass 7%. Combined, these sources produce 11% of our energy needs. After 30 years and $20 billion, spent, ethanol has produced higher gas prices, environmental damage and less corn to eat as we remain the only country in the world that keeps 90% of its energy resources off limits despite having enough oil within our borders to supply our fuel needs for 250 years.

STAY HUNGRY

In the late 1960’s, 12% of Americans paid no income tax-today it is half. We currently owe $16 trillion. The Senate Budget committee says an American born today owes $1.53 million of the federal debt. High school students owe $870,000, college students owe $681,000, and baby boomers owe $157,000.

TAKE ME TO THE RIVER

Obamacare will cost twice what was projected, add to the deficit and not bend any health care curve downward. It will ration care, not allow us to keep our doctors or health plans, and is responsible for premiums going up. According to the CBO, Obamacare will spend $800 Billion over the next ten years to subsidize premiums to government run exchanges and 27 million people or 10% of the population will still be uninsured.

Written in secret and passed without being read by 1 party, where most of the supporters were thrown out of office at first chance. The only ones allowed to break the law are the White House, Congressional leaders, their staffs, and 1,700 special interests. Most Americans have a problem being forced to do anything the government dictates that they do. It is in our blood and besides, how is giving government the power to make life and death decisions over an individual life a good idea?

The EPA is forcing power plants to retrofit their cooling systems with equipment that does not yet exist but costs $1.5 billion a year. Coal, which supplies 45% of our electricity needs, has been reclassified as a hazardous waste and must comply with two new greenhouse gas rules which will cost companies $80 billion. As a result, power plants will close, and 1.4 million jobs will be lost. There will be less electricity being produced, the cost will be higher, and the financial stress on Americans will continue to grow.

THE BIG COUNTRY

Paychecks from private businesses are at their smallest share of personal income in U.S. history. As the Bush tax rates expire and the 20 separate Obamacare taxes go into effect, next year a $3-4 Trillion tax increase will be levied on the economy. The March job statistics reported that hourly earnings increased 2.1%, but inflation grew by 2.9%, meaning workers got poorer. The drop in average weekly hours worked of one tenth of an hour to 34.5 hours, has the same impact as losing 385,000 jobs.

Freedom in economic affairs is a basic component of freedom. Without it there can be no political freedom. The financial insolvency of blue states and countries in southern Europe show that massive state deficit spending did not bring a promised utopia but fostered chaos amongst some in the Western under-class with no respect for private property or the rule of law. Free market capitalism is the solution, and the reason why, according to the World Bank, global poverty has been cut in half over the last 30 years.

Entitlement programs that ignore economic realities will always fail. When debt exceeds the demand from global capital markets, interest rates and taxes will skyrocket. In 8 years, federal government spending will grow to 25% of the economy and if state and local obligations are included, by 2020, the government will control 35% of our economy. It is time to worry about the government.