RetirementWhys

European Union Economy Hard Numbers

noreply@blogger.com (Dana Barfield) — Tue, 31 Jan 2012 19:23:00 +0000

Eurozone unemployment hits record. The biting austerity and debt crisis across the Euro-zone continued to hit hard in December, with unemployment coming in at a euro-era high of 10.4%, which was unchanged from revised November figures. At 22.9%, Spain clocked in with the greatest unemployment, followed by Greece and Lithuania. At the other end of the scale, Austria had a 4.1% rate, while Germany's jobless figures fell more than expected; the rate was 6.7%.

Eurozone banks to tap ECB for even more money. In further evidence of the liquidity squeeze among eurozone banks, several of the largest may double or even triple their request for funds at the ECB’s three-year money auction on Feb. 29, The Financial Times reports. Banks borrowed €489B in the emergency funding scheme's debut auction last month.

EU finalizes permanent bailout fund. Twenty-five of 27 EU member states will sign off on the €500B permanent European Stability Mechanism rescue fund. The U.K. and the Czech Republic are not supporting the vehicle, which will replace the temporary European Financial Stability Fund. The ESM is unlikely to be big enough, though, as this infographic shows.

€500 Billion seems like a lot of money. But as the graphic provided by the link in the previous paragraph indicates, the size of the debt is €2.91 Trillion, or just short of six times the amount of the bailout fund. This means the fund needs to be six times larger than what was just agreed upon. And this is only for the PIIGS nations (Portugal, Italy, Ireland, Greece and Spain). There are 22 other nations in some significant degree of current or future trouble as indicated by the unemployment numbers mentioned above.

As an aside you might notice from the infographic that BBVA (formerly Compass Bank) is the second largest lender to PIIGS nations. Let the buyer (or in this case bank customer) beware.

Obama Economic Record

noreply@blogger.com (Dana Barfield) — Wed, 25 Jan 2012 14:28:00 +0000

There was the speech and then there are the numbers...

Investing In Hedge Funds

noreply@blogger.com (Dana Barfield) — Mon, 23 Jan 2012 17:52:00 +0000

“Hedge funds have made massive mistakes. We are less and less willing to invest with these people because at the point when you need them the most, they’re worth the least.”

-George Feiger, chief executive officer of Contango Capital Advisors, wealth management arm of Zions Bancorporation. Feiger manages $3.3 billion at Contango and Western National Trust Co.

In 2008, the hedge-fund industry had ~$2 trillion under management. But as Economist’s Buttonwood points out, that year was an annus horribilis for the hedge-funds. “The average performance was a loss of 23%. In cash terms the loss for that single year was more than double the industry’s total assets under management in 2000.”

This is detailed in a new book by Simon Lack titled The Hedge Fund Mirage: The Illusion of Big Money and Why It’s Too Good to Be True. Mr Lack reckons that hedge funds have lost enough money in 2008 to cancel out the entirety of profits made in the prior ten years.

Mutual funds have not fared any better in 2011. Data from Morningstar shows that among 4,100 funds that invest in large-cap stocks, only 17% beat the SPX. That is the smallest percentage since 1997 beating their benchmark — the S&P500 — since 1997, when 12% beat the SPX. If we look at the percentage of funds under-performing by 250 basis, its the worst since 1998.

If you are looking for something to blame, consider the unholy trinity of capital outflows, a flat 2011 market and high volatility. That was a challenging environment for hedge funds and mutual funds alike.

I suspect people are disappointed when a mutual fund under-performs with fees of 0.75 to 1.75%. But the fee structure of Hedge fund managers — 2% + 20% of the profits — is why some of them face real trouble. Its bad enough to under perform, but institutions hate paying up for the privilege.

Perhaps 2012 is the year fund managers mean revert and redeem themselves. If they don’t they should not be surprised at massive redemptions each time their window opens.

From Barry Ritholtz

U.S. Tax System: Exploiting the Poor?

noreply@blogger.com (Dana Barfield) — Thu, 12 Jan 2012 20:11:00 +0000

An economics professor's take on our current tax system...

Suppose that every day, ten men go out for beer and the bill for all ten comes to $100. If they paid their bill the way we pay our taxes, it would go something like this…

The first four men (the poorest) would pay nothing.
The fifth would pay $1.
The sixth would pay $3.
The seventh would pay $7.
The eighth would pay $12.
The ninth would pay $18.
The tenth man (the richest) would pay $59.

So, that’s what they decided to do. The ten men drank in the bar every day and seemed quite happy with the arrangement, until one day, the owner threw them a curve ball. “Since you are all such good customers,” he said, “I’m going to reduce the cost of your daily beer by $20″. Drinks for the ten men would now cost just $80.

The group still wanted to pay their bill the way we pay our taxes. So the first four men were unaffected. They would still drink for free. But, what about the other six men? How could they divide the $20 windfall so that everyone would get his fair share?

They realized that $20 divided by six is $3.33. But if they subtracted that from everybody’s share, then the fifth man and the sixth man would each end up being paid to drink his beer.
So, the bar owner suggested that it would be fair to reduce each man’s bill by a higher percentage the poorer he was, to follow the principle of the tax system they had been using, and he proceeded to work out the amounts he suggested that each should now pay.

And so the fifth man, like the first four, now paid nothing (100% saving).
The sixth now paid $2 instead of $3 (33% saving).
The seventh now paid $5 instead of $7 (28% saving).
The eighth now paid $9 instead of $12 (25% saving).
The ninth now paid $14 instead of $18 (22% saving).
The tenth now paid $49 instead of $59 (16% saving).

Each of the six was better off than before. And the first four continued to drink for free. But, once outside the bar, the men began to compare their savings.

“I only got a dollar out of the $20 savings,” declared the sixth man. He pointed to the tenth man, ”but he got $10!”

“Yeah, that’s right,” exclaimed the fifth man. “I only saved a dollar too. It’s unfair that he got ten times more benefit than me!”

“That’s true!” shouted the seventh man. “Why should he get $10 back, when I got only $2? The wealthy get all the breaks!”

“Wait a minute,” yelled the first four men in unison, “we didn’t get anything at all. This new tax system exploits the poor!”

The nine men surrounded the tenth and beat him up.

The next night the tenth man didn’t show up for drinks so the nine sat down and had their beers without him. But when it came time to pay the bill, they discovered something important. They didn’t have enough money between all of them for even half of the bill!

And that, boys and girls, journalists, and government ministers, is how our tax system works. The people who already pay the highest taxes will naturally get the most benefit from a tax reduction. Tax them too much, attack them for being wealthy, and they just may not show up anymore. In fact, they might start drinking overseas, where the atmosphere is somewhat friendlier.

By: David R. Kamerschen, Ph.D. – Professor of Economics.

Market Ups and Downs

noreply@blogger.com (Dana Barfield) — Thu, 08 Dec 2011 22:13:00 +0000

It’s going up. No, I’m sorry, it’s going down more. Oops – now up a little. No! Down more. (You get the idea).

1. Steep drop into early August, then hit a low where market rallied up 10% in six days.
2. We then dropped about 7% in 3 days.
3. We then rallied up about 9% in 7 days.
4. And then in 2 days we dropped about 8%.
5. In 2 days we rallied up 5.5%.
6. And then next 2 days we dropped 6%.
7. And the next 5 days we rallied up 7%.
8. And the next 3 days we dropped about 9%.
9. Next, we rallied up about 7%.
10. The next 4 days we dropped about 10%. Culminating with the wash out on Oct 4.
11. And then in 5 days we rallied up 11%.
12. A little rally up.
13. Another big day down.
14. Within a day, a gap up. Then another big drop.
15. Went down about 9% in seven days.
16. And this week on two days that gapped up, a total of about 640 points.
17. We finished with a rally this week of 8%
18. Today down again.

Is it any wonder progress seems so slow in coming? The truth is this has been going on for only a few months. It’s coming to a head, slowly but surely. We’ll get to put capital to work productively when that happens. For now, I’m just glad to have so much money off of this roller coaster ride.

Shared Sacrifice (Socialism) and How it “Works”

noreply@blogger.com (Dana Barfield) — Tue, 06 Dec 2011 14:03:00 +0000

Here's how your fairness and shared sacrifice is going to "work"...at least under the current definitions...

When the reward is great, the effort to succeed is great, but when government takes all the reward away, no one will try or want to succeed. Is this man truly a genius? Checked out and this is true...it DID happen!

An economics professor at a local college made a statement that he had never failed a single student before, but had recently failed an entire class. That class had insisted that Obama's socialism worked and that no one would be poor and no one would be rich, a great equalizer.

The professor then said, "OK, we will have an experiment in this class on Obama's plan". All grades will be averaged and everyone will receive the same grade so no one will fail and no one will receive an A...(substituting grades for dollars - something closer to home and more readily understood by all).

After the first test, the grades were averaged and everyone got a B. The students who studied hard were upset and the students who studied little were happy. As the second test rolled around, the students who studied little had studied even less and the ones who studied hard decided they wanted a free ride too so they studied little.

The second test average was a D! No one was happy.

When the 3rd test rolled around, the average was an F.

As the tests proceeded, the scores never increased as bickering, blame and name-calling all resulted in hard feelings and no one would study for the benefit of anyone else.

To their great surprise, ALL FAILED and the professor told them that socialism would also ultimately fail because when the reward is great, the effort to succeed is great, but when government takes all the reward away, no one will try or want to succeed. It could not be any simpler than that.

Regulation Run Amok; Choking on ObamaCare

noreply@blogger.com (Dana Barfield) — Mon, 05 Dec 2011 22:45:00 +0000

By George F. Will
In 1941, Carl Karcher was a 24-year-old truck driver for a bakery. Impressed by the large numbers of buns he was delivering, he scrounged up $326 to buy a hot dog cart across from a Goodyear plant. And the war came.

So did millions of defense industry workers and their cars. And, soon, Southern California’s contribution to American cuisine — fast food. Including, eventually, hundreds of Carl’s Jr. restaurants. Karcher died in 2008, but his legacy, CKE Restaurants, survives. It would thrive, says CEO Andy Puzder, but for government’s comprehensive campaign against job creation.

CKE, with more than 3,200 restaurants (Carl’s Jr. and Hardee’s), has created 70,000 jobs, 21,000 directly and 49,000 with franchisees. The growth of those numbers will be inhibited by — among many government measures — ObamaCare.

When CKE’s health-care advisers, citing Obamacare’s complexities, opacities and uncertainties, said that it would add between $7.3 million and $35.1 million to the company’s $12 million health-care costs in 2010, Puzder said: I need a number I can plan with. They guessed $18 million — twice what CKE spent last year building new restaurants. Obamacare must mean fewer restaurants.

And therefore fewer jobs. Each restaurant creates, on average, 25 jobs — and as much as 3.5 times that number of jobs in the community. (CKE spends about $1 billion a year on food and paper products, $175 million on advertising, $33 million on maintenance, etc.)

Puzder laughs about the liberal theory that businesses are not investing because they want to “punish Obama.” Rising health-care costs are, he says, just one uncertainty inhibiting expansion. Others are government policies raising fuel costs, which infect everything from air conditioning to the cost (including deliveries) of supplies, and the threat that the National Labor Relations Board will use regulations to impose something like “card check” in place of secret-ballot unionization elections.

CKE has about 720 California restaurants, in which 84 percent of the managers are minorities and 67 percent are women. CKE has, however, all but stopped building restaurants in this state because approvals and permits for establishing them can take up to two years, compared to as little as six weeks in Texas, and the cost to build one is $100,000 more than in Texas, where CKE is planning to open 300 new restaurants this decade.

CKE restaurants have 95 percent employee turnover in a year — not bad in this industry — and the health-care benefits under CKE’s current “mini-med” plans are capped in a way that makes them illegal under Obamacare. So CKE will have to convert many full-time employees to part-timers to limit the growth of its burdens under Obamacare.

In an economic climate of increasing uncertainties, Puzder says, one certainty is that many businesses now marginally profitable will disappear when Obamacare causes that margin to disappear. A second certainty is that “employers everywhere will be looking to reduce labor content in their business models as Obamacare makes employees unambiguously more expensive.”

According to the U.S. Small Business Administration, by 2008 the cost of federal regulations had reached $1.75 trillion. That was 14 percent of national income unavailable for job-creating investments. And that was more than 11,000 regulations ago.

Seventy years ago, the local health department complained that Karcher’s hot dog cart had no restroom facilities. He got help from a nearby gas station. A state agency made him pay $15 for workers’ compensation insurance. Another agency said that he owed more than the $326 cost of the cart in back sales taxes. For $100, a lawyer successfully argued that Karcher did not because his customers ate their hot dogs off the premises.

Time was, American businesses could surmount such regulatory officiousness. But government’s metabolic urge to boss people around has grown exponentially and today CKE’s California restaurants are governed by 57 categories of regulations. One compels employees and even managers to take breaks during the busiest hours, lest one of California’s 200,000 lawyers comes trolling for business at the expense of business.

Barack Obama has written that during his very brief sojourn in the private sector he felt like “a spy behind enemy lines.” Puzder knows what it feels like when gargantuan government is composed of multitudes of regulators who regard business as the enemy. And 22.9 million Americans who are unemployed, underemployed or too discouraged to look for employment know what it feels like to be collateral damage in the regulatory state’s war on business.

Unemployment Fell?

noreply@blogger.com (Dana Barfield) — Sun, 04 Dec 2011 19:25:00 +0000

The reason the U.S. unemployment rate fell last month is because 315,000 people stopped looking for work – not a good thing at all AND it more than offsets the “good” employment news. If one is not looking for work, one is not considered “unemployed”. The graphic below shows the number of people “not in the labor force” has grown markedly over the last four years to almost 87,000,000 people.

I learned first hand a long time ago that stay-at-home-moms work harder than those of us “in the labor force” and the “not-in-the-labor force” number includes these people. But it is interesting to me that ½ of the nation pays no income taxes and now almost 1/3 doesn’t work.

If your work situation is prompting you to plan for retirement, we can help. Email me: dana@thebarfieldgroup.com

Economic Lessons from Pilgrims

noreply@blogger.com (Dana Barfield) — Sun, 27 Nov 2011 21:55:00 +0000

The following piece appeared in the Holland (Michigan) Sentinel opinion section. It is written by David Kaiser – someone who obviously gets it. Perhaps Mr. Kaiser should run for president, as his insight would certainly create more jobs than have been created in the last 3 years.

In 1620, the Pilgrims’ economy was like a communal system. All worked in common fields and all shared in the produce. They had a strong work ethic, a generous heart, and a pioneering spirit, yet they barely had enough.

In 1623, they switched to private property and the profit-loss principles of capitalism: Each family worked its own fields and kept what it harvested. The immediate result was an abundance of food. More people worked harder and smarter. They had the drive to innovate and they had extra to share and save for lean years. Happy Thanksgiving!

Some principles that come to mind are:

• The more social justice for the whole, the less equal justice for the individual.

• The more a person is controlled, the less the person is responsible.

• The more that wealth is taken to spread around, the less wealth will be produced.

• The more forced sacrifice, the more selfishness and the less available to share.

Selfishness, greed and corruption are not inherent in capitalism. They are found in people, as are generosity and integrity. In truth, much
more greed and corruption are found in governments, especially bigger governments, which wield the power of the laws and regulations.

Of course, greed and corruption are also found in businesses, but look closely: The companies and organizations that have sweet government ties and deals are much, much worse; they operate above the law. Companies that are in bed with a government or a corrupt official have significant advantages over the honest companies with which they compete. Fannie Mae and Freddie Mac are two of many clear examples.

What we see failing in America today is not capitalism, it is big government out of control. The answer is not more laws and regulations but less, not more offices with bureaucrats but less, not more tax penalties and credits but less. Capitalism is not free. If it were, then all companies would be required to make a profit or fail. Big, inefficient and wasteful corporations would be allowed to fail. The tax code would not prop up some companies over others.

It is too bad that the government cannot fail. Whether in life and work, the possibility of failure, even failure itself, provides a strong incentive for operating with honesty and efficiency in both business and individual ventures. When we fail, we pick ourselves up, correct problems, and do better the next time.

D O Kaiser
Holland Township

The original article appears here.

European Debt and Impact on U.S.

noreply@blogger.com (Dana Barfield) — Sun, 20 Nov 2011 22:50:00 +0000

Here is how the European debt is owed:

U.S Debt Growth

noreply@blogger.com (Dana Barfield) — Sun, 20 Nov 2011 22:48:00 +0000

Just in the last year, U.S. debt has increased $1.5 TRILLION.

Occupy Wall Street and the Participants

noreply@blogger.com (Dana Barfield) — Sun, 20 Nov 2011 16:43:00 +0000

I have wondered about this occupy wall street since it first became the darling of the media. Here is a terrific explanation of the situation and what should be done about it. Make no mistake about it - we do our children and granchildren absolutely no favors when we protect them from opposition and consequences. I make no apologies for the content here as it is spot on...I do however apologize in advance for the commercial which we were not able to remove/work around.

Occupy Wall Street and Obama

noreply@blogger.com (Dana Barfield) — Fri, 18 Nov 2011 01:17:00 +0000

By Thomas Sowell

The current Occupy Wall Street movement is the best illustration to date of what President Barack Obama's America looks like. It is an America where the lawless, unaccomplished, ignorant and incompetent rule. It is an America where those who have sacrificed nothing pillage and destroy the lives of those who have sacrificed greatly.

It is an America where history is rewritten to honor dictators, murderers and thieves. It is an America where violence, racism, hatred, class warfare and murder are all promoted as acceptable means of overturning the American civil society.

It is an America where humans have been degraded to the level of animals: defecating in public, having sex in public, devoid of basic hygiene. It is an America where the basic tenets of a civil society, including faith, family, a free press and individual rights, have been rejected. It is an America where our founding documents have been shredded and, with them, every person's guaranteed liberties.

It is an America where, ultimately, great suffering will come to the American people, but the rulers like Obama, Michelle Obama, Harry Reid, Nancy Pelosi, Barney Frank, Chris Dodd, Joe Biden, Jesse Jackson, Louis Farrakhan, liberal college professors, union bosses and other loyal liberal/Communist Party members will live in opulent splendor.

It is the America that Obama and the Democratic Party have created with the willing assistance of the American media, Hollywood , unions, universities, the Communist Party of America, the Black Panthers and numerous anti-American foreign entities.

Barack Obama has brought more destruction upon this country in four years than any other event in the history of our nation, but it is just the beginning of what he and his comrades are capable of.

The Occupy Wall Street movement is just another step in their plan for the annihilation of America. "Socialism, in general, has a record of failure so blatant that only an intellectual could ignore or evade it."

Thomas Sowell (born June 30, 1930) is an American economist, social theorist, political philosopher, and author. A National Humanities Medal winner, he advocates laissez-faire economics and writes from a libertarian perspective. He is currently a Rose and Milton Friedman Senior Fellow on Public Policy at the Hoover Institution at Stanford University.

Sowell was born in North Carolina, but grew up in Harlem, New York. He dropped out of high school, and served in the United States Marine Corps during the Korean War. He had received a bachelor's degree from Harvard University in 1958 and a master's degree from Columbia University in 1959. In 1968, he earned his doctorate degree in economics from the University of Chicago. Dr. Sowell has served on the faculties of several universities, including Cornell and University of California, Los Angeles, and worked for "think tanks" such as the Urban Institute. Since 1980 he has worked at the Hoover Institution. He is the author of more than 30 books.

Social Security and Who Deserves It

noreply@blogger.com (Dana Barfield) — Mon, 14 Nov 2011 02:39:00 +0000

There has been quite a lot of talk recently about who should and who should not be receiving social security.

Kan Langone founder of Home Depot, in an interview with Neil Cavuto last week, suggested he should not be receiving these monthly benefits.

Rick Perry also commented on the subject. “I think if you test for the income levels and, you know, obviously if you’re Warren Buffett, I’m not sure you really need to be accessing Social Security,” Perry said during a taped interview organized by AARP.

At some level perhaps this makes sense, but I’m not so sure.

First of all, Buffett and Langone, paid into the system all of their working lives and have probably paid in at the highest possible rate for many, if not all, of those years.

Secondly, these men, and others like them, are responsible for creating and maintaining hundreds of thousands of jobs, each of which also paid into the system.

Finally, who can be trusted to put the money received to work best? Langone indicated he and his wife give the social security they receive to charity. Considering how Congress has spent all the money in the social security trust fund, rendering it impotent or perhaps even insolvent, I trust wealthy people to put social security benefits back into the economy productively far more than I trust Congress or anyone else for that matter.

Who is the Villain?

noreply@blogger.com (Dana Barfield) — Tue, 08 Nov 2011 16:26:00 +0000

Crony Capitalism

noreply@blogger.com (Dana Barfield) — Mon, 31 Oct 2011 15:35:00 +0000

On Sunday October 30, I postulated the following:

Do you get the feeling the Occupy Wall Street movement is only against the greed of others, but if they are able to "cash in" on the deal themselves...well that's perfectly fine? Accepting contributions, forgiven loans, free tuition et al...sorry, but wanting something for nothing is still greed.

Now this on Wednesday Oct 26 from Walter Williams:

"Free market capitalism is unforgiving. Producers please customers, in a cost-minimizing fashion, and make a profit, or they face losses or go bankrupt. It's this market discipline that some businesses seek to avoid. That's why they descend upon Washington calling for crony capitalism -- government bailouts, subsidies and special privileges. They wish to reduce the power of consumers and stockholders, who hold little sympathy for blunders and will give them the ax on a moment's notice. Having Congress on their side means business can be less attentive to the will of consumers. Congress can keep them afloat with bailouts, as it did in the cases of General Motors and Chrysler, with the justification that such companies are 'too big to fail.' Nonsense! If General Motors and Chrysler had been allowed to go bankrupt, it wouldn't have meant that their productive assets, such as assembly lines and tools, would have gone poof and disappeared into thin air. Bankruptcy would have led to a change in ownership of those assets by someone who might have managed them better. The bailout enabled them to avoid the full consequences of their blunders. ... The Occupy Wall Street protesters are following the path predicted by the great philosopher-economist Frederic Bastiat, who said in 'The Law' that 'instead of rooting out the injustices found in society, they make these injustices general.' In other words, the protesters don't want to end crony capitalism, with its handouts and government favoritism; they want to participate in it." --economist Walter E. Williams

Will Dropouts Save America?

noreply@blogger.com (Dana Barfield) — Sun, 30 Oct 2011 23:01:00 +0000

The following article articulates a significant portion of a conversation taking place in the Barfield home over the last several years. "What are we getting for our money?", I ask, as our daughter contemplates college, and the future of employment, college debt and income production.

By MICHAEL ELLSBERG

Michael Ellsberg is the author of “The Education of Millionaires: It’s Not What You Think and It’s Not Too Late.” http://www.ellsberg.com/ The following article appeared in various publications over the last week.

I typed these words on a computer designed by Apple, co-founded by the college dropout Steve Jobs. The program I used to write it was created by Microsoft, started by the college dropouts Bill Gates and Paul Allen.

And as soon as it is published, I will share it with my friends via Twitter, co-founded by the college dropouts Jack Dorsey and Evan Williams and Biz Stone, and Facebook — invented, among others, by the college dropouts Mark Zuckerberg and Dustin Moskovitz, and nurtured by the degreeless Sean Parker.

American academia is good at producing writers, literary critics and historians. It is also good at producing professionals with degrees. But we don’t have a shortage of lawyers and professors. America has a shortage of job creators. And the people who create jobs aren’t traditional professionals, but start-up entrepreneurs.

In a recent speech promoting a jobs bill, President Obama told Congress, “Everyone here knows that small businesses are where most new jobs begin.”

Close, but not quite. In a detailed analysis, the National Bureau of Economic Research found that nearly all net job creation in America comes from start-up businesses, not small businesses per se. (Since most start-ups start small, we tend to conflate two variables — the size of a business and its age — and incorrectly assume the former was the relevant one, when in fact the latter is.)

If start-up activity is the true engine of job creation in America, one thing is clear: our current educational system is acting as the brakes. Simply put, from kindergarten through undergraduate and grad school, you learn very few skills or attitudes that would ever help you start a business. Skills like sales, networking, creativity and comfort with failure.

No business in America — and therefore no job creation — happens without someone buying something. But most students learn nothing about sales in college; they are more likely to take a course on why sales (and capitalism) are evil.

Moreover, very few start-ups get off the ground without a wide, vibrant network of advisers and mentors, potential customers and clients, quality vendors and valuable talent to employ. You don’t learn how to network crouched over a desk studying for multiple-choice exams. You learn it outside the classroom, talking to fellow human beings face-to-face.

Start-ups are a creative endeavor by definition. Yet our current classrooms, geared toward tests on narrowly defined academic subjects, stifle creativity. If a young person happens to retain enough creative spirit to start a business upon graduation, she does so in spite of her schooling, not because of it.

Finally, entrepreneurs must embrace failure. I spent the last two years interviewing college dropouts who went on to become millionaires and billionaires. All spoke passionately about the importance of their business failures in leading them to success. Our education system encourages students to play it safe and retreat at the first sign of failure (assuming that any failure will look bad on their college applications and résumés).

Certainly, if you want to become a doctor, lawyer or engineer, then you must go to college. But, beyond regulated fields like these, the focus on higher education as the only path to stable employment is profoundly misguided, exacerbated by parents who see the classic professions as the best route to job security.

That may have been true 50 years ago, but not now. In our chaotic, unpredictable economy, even young people who have no interest in starting a business, and who want to become professionals, still need to learn the entrepreneurial skills that will allow them to get ahead.

True, people with college degrees tend to earn more. But that could be because most ambitious people tend to go to college; there is little evidence to suggest that the same ambitious people would earn less without college degrees (particularly if they mastered true business and networking grit).

And while most people who end up starting businesses likely have college degrees, those degree-bearers should be well aware (as they learned in their freshman statistics classes) that correlation does not equal causation. Assuming that college was responsible for their success gives higher education more credit than it deserves.

AFTER all, there is not one job market in America, but two. The formal market we always hear about — jobs that get filled through cold résumé submissions in reply to posted ads — accounts for only about 20 percent of jobs.

The other 80 percent get filled in the informal job market. Any employer knows how the informal job market works: you need a position filled, so you ask your friends, colleagues and current employees if they know anyone who would do a good job.

In this informal job market, the academic requirements listed in job ads tend to be highly negotiable, and far less important than real-world results and the enthusiasm of the personal referral.

Classroom skills may put you at an advantage in the formal market, but in the informal market, street-smart skills and real-world networking are infinitely more important.

Yet our children grow up amid an echo chamber of voices telling them to get good grades, do well on their SATs, and spend an average of $45,000 on tuition — after accounting for scholarships — while taking on $23,000 in debt to get a private four-year college education.

It’s time that we as a nation accepted a basic — and seldom-mentioned — fact. You don’t need a degree (and certainly not an M.B.A.) to start a business and create jobs, nor is it even that helpful, compared with cheaper, faster alternatives.

Parents could turn the system on its head if they weren’t so caught up in outmoded mentalities about education forged in the stable economy of the 1950s (but profoundly misguided in today’s chaotic, entrepreneurial economy).

Employers could alter this landscape if they explicitly offered routes to employment for those who didn’t get a degree because they were out building businesses.

And the government could divert some of the money it now spends encouraging college for all, and instead promote the idea that creating a start-up is a worthy, respectable alternative to academics. This would go a long way to helping our unemployment problem.

If I were betting on the engines of future job creation, I wouldn’t put my money on college students cramming for tests and writing papers with properly formatted M.L.A.-style citations in order to bolster their résumés for careers in traditional professions and middle-management jobs in large corporate and government bureaucracies.

I’d put my money on the kids who are dropping out of college to start new businesses. If we want to get out of the jobs mess we’re in, we should hope that more will follow in their footsteps.

Eliminate the Deficit

noreply@blogger.com (Dana Barfield) — Fri, 28 Oct 2011 18:13:00 +0000

Warren Buffett told CNBC, "I could end the deficit in 5 minutes," "You just pass a law saying anytime there is a deficit of more than 3% of GDP, all sitting members of Congress are ineligible for re-election. The 26th amendment (granting the right to vote for 18 year-olds) took only 3 months & 8 days to be ratified! Why? Simple! The people demanded it.

That was in 1971...before computers, e-mail, cell phones, etc. Of the 27 amendments to the Constitution, seven (7) took 1 year or less to become the law of the land...all because of public pressure.

Warren Buffet is asking each addressee to forward this email to a minimum of twenty people on their address list; in turn ask each of those to do likewise. In three days, most people in The United States of America will have the message. This is one idea that really should be passed around.

*Congressional Reform Act of 2011*

1. No Tenure / No Pension. A Congressman collects a salary while in office and receives no pay when they are out of office.

2. Congress (past, present & future) participates in Social Security. All funds in the Congressional retirement fund move to the Social Security system immediately. All future funds flow into the Social Security system, and Congress participates with the American people. It may not be used for any other purpose.

3. Congress can purchase their own retirement plan, just as all Americans do.

4. Congress will no longer vote themselves a pay raise. Congressional pay will rise by the lower of CPI or 3%.

5. Congress loses their current health care system and participates in the same health care system as the American people.

6. Congress must equally abide by all laws they impose on the American people.

7. All contracts with past and present Congressmen are void effective 1/1/12. The American people did not make this contract with Congressmen. Congressmen made all these contracts for themselves. Serving in Congress is an honor, not a career. The Founding Fathers envisioned citizen legislators, so ours should serve their term's), then go home and back to work.

If each person contacts a minimum of twenty people then it will only take three days for most people (in the U.S.) to receive the message. Now is the time.

Fading Middle Class

noreply@blogger.com (Dana Barfield) — Wed, 26 Oct 2011 18:02:00 +0000

Yesterday’s piece focused on the national debt. It’s quite difficult for most people to get their arms around numbers in the billions, much more so when those (debt) numbers are in the trillions. The news wires today are replete with much more comprehensible examples.

USA Today laments the “fading middle class”. Yahoo says, “Income for top one percent skyrocketed over the last 30 years.” The Washington Post reports “Tuition and fees at U.S. public universities soared 8.3 percent this year, twice the rate of inflation.” These stories all have the same thing in common and the commonality is relative to the middle class only in the surface. The real thing common to all these and other similar headlines is the usage of debt and the concept of marketability.

Let me explain. The USA Today story focuses on a use car salesman, who in 2005, was making close to $100,000 per year. He had a townhouse, a sports car, and his child “wanted for nothing”. The story makes no mention of his use of debt personally, but one can speculate, since he has sold all of his furniture, computer, personal items and is now living in a trailer with a relative.

It is clear he was able to make a very nice living though, because of the debt others took on. His customers borrowed money to purchase cars. When ever it is possible to borrow for a purchase, more people buy because the amount of money required is smaller (monthly payments), even though the item is more expensive (inflation and interest charges) as a result of the debt. Our car salesman made his nice living because other people borrowed to purchase what he sold. When those other folks couldn’t or wouldn’t borrow any more – his income dropped, then went away.

Incomes for the top one percent have risen because people are willing to pay them for whatever services they offer. When someone is willing to pay for services, whether you are an individual employee, small business owner, or large corporation, it’s because what you offer is in demand – it’s marketable. The gentleman in USA Today’s story has a second problem - his skills as a used car salesman are in much less demand today than they were six years ago. But, engineers are in demand world wide, even in severely depressed states like Michigan. (Gentex, a very highly regarded Michigan manufacturer can’t locate enough qualified engineers to meet their needs).

Tuition at public educational institutions is rising for several reasons. 1. Most students pay for their education with some amount of debt. 2. State colleges and universities are increasing tuition because states are reducing their funding due to debt and budget problems. 3. People see college as a way to increase their marketability.

Writing stories about the shrinking middle class isn’t going to solve the problem. Pitting those who are marketable against those who have fallen behind is non-sense, which only makes the problem worse for people who already are trailing. Government solutions? - Sure, our government has debt greater than the entire GDP of all its citizens – let’s trust them to correct this.

What someone makes or does not make is about personal responsibility. The responsibility to be marketable, to offer services others will buy, to keep head down, mouth shut and work hard. And just as important as working hard, is working smart. Getting ahead is about our responsibility to adapt our career to changing dynamics before we’re left living in a family member’s mobile home. While many are staging protests and waiting for the community to organize, top income earners have been doing the things which increase income, and in the U.S. that’s available to everyone.

U.S. National Debt Balance

noreply@blogger.com (Dana Barfield) — Tue, 25 Oct 2011 18:09:00 +0000

Much has been written and discussed on both sides of the U.S. national debt issue. How, from one side, “the world as we know it is about to end”, and “this is no big deal” from the other side.

On the surface this is a standard, somewhat innocuous, graph. But dig a little and what the picture communicates is the share of debt for every person in the U.S. exceeds the share of productivity for every person in the U.S. Extend the thought a little further…in order for us to pay off our national debt, there must be some productivity margin over, and above, the debt amount or there is nothing with which to repay.

What this further says, while debt has skyrocketed since 2009 (the period end line for 2005-2009 is difficult to see), the economy has actually declined while all this borrowed money has been “invested”.

There is an ancient proverb: “The borrower will be the lender’s slave”. No picture I’ve seen more clearly communicates this approaching fact than this graph. Call or write your congressman – or send them this picture. There is an opportunity to fix this and it is before the Congressional Tax Committee right now.

Should I Buy Gold (2)?

noreply@blogger.com (Dana Barfield) — Mon, 19 Sep 2011 20:31:00 +0000

We continue to mull over this question. It seems everywhere I turn some one is recommending the purchase of gold. You can even include gold in your plan for retirement, by purchasing it in your IRA. Why is that?

So I began to dig a little deeper…

As best as I can, I have attempted to determine the interests of those folks who insist gold is what every investor must have in their portfolio. What I have discovered is everyone I have reviewed either owns gold for sale (gold dealers), benefits from gold advertising (various TV personalities and networks) or has an investment position in gold (and wants to see it rise).

Remarkably, there is little discussion of deflation, no recommendations for investment purchases which benefit from deflation, and no one posturing on deflation. I find this tremendously interesting. Given the current economic environment and the current financial practices of individual Americans and companies, deflation is upon us, while inflation is present only around the margins, and then only as it relates to oil prices (which have fallen dramatically, with gasoline soon to follow).

As an example of deflation, what has happened to the value of your home? Even the local tax districts agree its value has fallen, and this after homes in the region where I live did not rise in value anywhere near the national average between 2000 and 2008. This is why there is very little construction of residential or commercial buildings. These values fall over the construction period, eating away any potential profit, and there is no current evidence this is changing yet.

Further, Americans are not returning to their borrowing ways – they are paying down debt. On top of that, Bloomberg reported in early September, more than a million small businesses have gone out of business over the last four years. All of this is much more likely to cause deflation instead of inflation and this is precisely what is taking place.

Guess what investment benefits most from deflation? OK guess again. That’s right – it’s cash. No one makes any money recommending cash, yet most everyone is in cash to some degree, and griping about being there…because cash is paying no interest right now. As I have indicated before this, we are close to 70% in cash across the portfolio we manage. Interestingly enough, the market has fallen almost 20% over the period of time we have been parked here.

As for gold, I see no gold endorsers disclosing their conflicts of interest. I do see paid, popular- celebrity, endorsers touting the “benefits” of gold, with no expertise in the field of finance or economics. These admonishments are everywhere, but lack standard practices about the marketing of investments such as conflict disclosure…hmmm…

I hear people absolutely squawking over the Federal Reserve approach to our economic problems, ready to lynch Bernanke for working to combat…guess what…deflation…which is just what took place after the great depression. It’s also what took place in Japan after their debt collapse in the 1980’s and it’s what is taking place here in the States now. From what I can tell, the people doing the squawking have a vested interest in gold. Interesting...

As further evidence of deflation, investors have with far less fanfare been in droves purchasing 10 year treasuries of the U.S. Government. As a result, 10 year U.S. government bond prices have risen and yields have fallen to the range of 2%. If there was legitimate concern about inflation…exactly the opposite would be happening.

So for now, and things can always change, but for now, there are no gold purchases in our immediate future.

"New" Jobs Bill

noreply@blogger.com (Dana Barfield) — Tue, 13 Sep 2011 16:21:00 +0000

Last week President Obama called on Congress to pass a package of proposal he referred to as the "American Jobs Act." The text of the bill has been made available (PDF version) and a summary has also been provided (PDF here).

Tax components include:

• Section 101: Extends the existing payroll tax cut for another year and reduces it further. In 2010, employees and employers each paid 7.65 percent of an employee's payroll. This year, employers pay 7.65 percent and employees pay 5.65 percent. The proposal would, for 2012 only, reduce the rates further to 4.55 percent both for employers and employees.

• Section 102: Provides a tax credit for employer payroll taxes owed for new hires or increased wages for 2012, up to a $50 million cap per employer.

• Section 111: Extends bonus depreciation for certain property through the end of 2012.

• Section 201: Tax credits for hiring veterans: Doubles the tax credit for hiring unemployed disabled veterans, from $4,800 to $9,600. Additional tax credits are created ($2,400 for hiring a veteran unemployed for at least 4 weeks; $5,600 for hiring a veteran unemployed for at least 6 months).

• Section 351: Tax credit for long-term unemployed: $4,000 tax credit to employers who hire someone who has been unemployed for at least 6 months.

• Section 401: Limits the ability of high-income taxpayers to take deductions, by reducing their value to a maximum 28 percent. (If a high-income taxpayer is in the 35 percent bracket, they can currently deduct charitable contributions, for example, at the 35 percent rate. This would reduce that deduction to 28 percent.)

• Section 411-412: Taxes certain partnership income as ordinary income instead of as a capital gain.

• Section 421: Repeals the bonus depreciation deduction to those purchasing corporate jets, a provision enacted as part of the 2009 stimulus law.

• Section 431-442: Disallowal of a number of deductions for the oil and gas industry.

• Section 451: Increases the deficit target of the "super committee" to $1.95 trillion (up from $1.5 trillion).

The Hill reports that the tax increases in the bill total over $400 billion.

Additionally, the bill provides $88 billion in state and local aid, $2 billion for Amtrak, $5 billion for subsidized jobs for the low-income unemployed and youth, and sets up an "Infrastructure Bank" with $10 billion in initial funding.

Unemployment benefits would be extended another year under the bill, to early 2013. The bill also prohibits employers from discriminating against individuals for being unemployed, authorizing the Equal Employment Opportunity Commission (EEOC) to hear such discrimination complaints.

Data and Analysis provided by: The Tax Foundation, a nonpartisan, nonprofit organization that has monitored fiscal policy at the federal, state and local levels since 1937.

Destroying Capitalism

noreply@blogger.com (Dana Barfield) — Mon, 12 Sep 2011 13:35:00 +0000

A friend recently alerted me to this article, published in February of 2009, written by Star Parker entitled: Back on Uncle Sam's Plantation. It wisely sums up the current state of our society and government.

Six years ago I wrote a book called "Uncle Sam's Plantation." I wrote the book to tell my own story of what I saw living inside the welfare state and my own transformation out of it.

I said in that book that indeed there are two Americas: A poor America on socialism and a wealthy America on capitalism.

I talked about government programs like Temporary Assistance for Needy Families (TANF), Job Opportunities and Basic Skills Training (JOBS), Emergency Assistance to Needy Families with Children (EANF), Section 8 Housing, and Food Stamps.

A vast sea of perhaps well intentioned government programs, all initially set into motion in the 1960's, that were going to lift the nation's poor out of poverty.

A benevolent Uncle Sam welcomed mostly poor black Americans onto the government plantation. Those who accepted the invitation switched mindsets from "How do I take care of myself?" to "What do I have to do to stay on the plantation?"

Instead of solving economic problems, government welfare socialism created monstrous moral and spiritual problems. The kind of problems that are inevitable when individuals turn responsibility for their lives over to others.

The legacy of American socialism is our blighted inner cities, dysfunctional inner city schools, and broken black families.

Through God's grace, I found my way out. It was then that I understood what freedom meant and how great this country is.

I had the privilege of working on welfare reform in 1996, passed by a Republican congress and signed into law by a Democrat president. A few years after enactment, welfare roles were down fifty percent.

I thought we were on the road to moving socialism out of our poor black communities and replacing it with wealth producing American capitalism.

But, incredibly, we are going in the opposite direction.

Instead of poor America on socialism becoming more like rich American on capitalism, rich America on capitalism is becoming like poor America on socialism.

Uncle Sam has welcomed our banks onto the plantation and they have said, "Thank you, Suh."

Now, instead of thinking about what creative things need to be done to serve customers, they are thinking about what they have to tell Massah in order to get their cash.

There is some kind of irony that this is all happening under our first black president on the 200th anniversary of the birthday of Abraham Lincoln.

Worse, socialism seems to be the element of our new young president. And maybe even more troubling, our corporate executives seem happy to move onto the plantation.

In an op-ed on the opinion page of the Washington Post, Mr. Obama is clear that the goal of his trillion dollar spending plan is much more than short term economic stimulus.

"This plan is more than a prescription for short-term spending-it's a strategy for America's long-term growth and opportunity in areas such as renewable energy, health care, and education."

Perhaps more incredibly, Obama seems to think that government taking over an economy is a new idea. Or that massive growth in government can take place "with unprecedented transparency and accountability."

Yes, sir, we heard it from Jimmy Carter when he created the Department of Energy, the Synfuels Corporation, and the Department of Education.

Or how about the Economic Opportunity Act of 1964 -- The War on Poverty -- which President Johnson said "...does not merely expand old programs or improve what is already being done. It charts a new course. It strikes at the causes, not just the consequences of poverty."

Trillions of dollars later, black poverty is the same. But black families are not, with triple the incidence of single parent homes and out of wedlock births.

It's not complicated. Americans can accept Barack Obama's invitation to move onto the plantation. Or they can choose personal responsibility and freedom.

Does anyone really need to think about what the choice should be?

American Jobs Act

noreply@blogger.com (Dana Barfield) — Fri, 09 Sep 2011 16:00:00 +0000

Republicans have been polite in their appraisal of Obama’s most recent stimulus plan, insisting it has aspects to it “we can agree on”. Politeness at this point is nice, but effective is preferable. This plan will fail miserably, it will harm your plan for retirement and here is why:

1. The plan’s stimulus is focused on putting money into worker’s pockets. This sounds fine as there are many people not working. But much of the money is directed at people who are already working - in the form of an employment tax cut. This does nothing to help those out of work.

2. Putting more money in worker’s pockets won’t improve the economy. Americans, for the first time in their history, are reducing their debt instead of spending more. A reduction in the payroll tax accelerates this debt reduction for individuals, while causing a corresponding increase in the national indebtedness. Social security is already insolvent; reducing the amount of inflows into Social security only creates larger future problems.

3. Money is directed almost exclusively to government workers, work on government projects, and/or to unions. None of these folks create a single job, not one. …Again more taxes and/or debt for not one additional job. The market place has spoken clearly – unions are unnecessary (union membership has declined precipitously even though so many benefits have been directed to them in the last 30 months), yet this president continues to direct limited resources to obsolete beneficiaries.

4. Extending unemployment benefits doesn’t help the economy. There are certainly some people who are legitimately helped by unemployment benefits, but it still doesn’t grow the economy. What unemployment does accomplish is increasing the amount of time people remain unemployed.

5. Obama also proposes a job hiring credit. This is preposterous. On one hand Obama kills the economy with ObamaCare and its tax increases, while on the other hand he offers tax credits for hiring to offset the tax increases. Talk about complicated! Why not just eliminate the offense which is the largest contributor to the entire problem?

6. Money to pay for these initiatives comes from tax increases on the very people who can and will create more jobs. Have we learned nothing from the high corporate tax? Many large companies have moved capital and jobs offshore because of high tax rates. Why should we believe high tax rates on another class of Americans would have any different result?

7. The reason this effort and all of his other efforts has failed is because this administration wants to control who wins and who looses. Obama gets to pick the beneficiaries of his programs if he assembles them they way he has. This is why he continues to cling to these failed notions. Clinton got reelected by following Robert Rubin’s advice for stoking the entire economy instead of bowing to left wing political interests. Obama continues to seek control of the economy instead of expansion of the economy. If this is the smartest guy in the room…we are, and will continue to be, in real trouble.

Effect of High Taxes (2)

noreply@blogger.com (Dana Barfield) — Fri, 02 Sep 2011 14:44:00 +0000

Last week I wrote how states with high taxes also have significant population losses. We suggested then that population losses would/did lead to movement of capital out of those same states. In the graphic below, you can see evidence this capital loss is clearly taking place.

There is a greater impact here than simply the current tax costs. These conditions are also going to impact your plan for retirement, and do so negatively.

States that already have high taxes, caused population and capital losses are going to face even greater exodus of these same resources. While service requirements will drop some amount from reduction in population, state revenues will drop faster and harder. This requires either cuts to state and local government budgets or increased fees and taxes. What these states have shown is a propensity to tax increases over meaningful budget cuts.

Current economic conditions, past decision making, and resource exodus all point to fiscal problems at the state level (in high tax states). This meaningfully impacts your investment services and your retirement plans.