Getting and keeping wealth in America 2016

The talking heads talk and the doom and gloomsters make yet another appearance. Both will be back in their caves soon having made little profits and learned nothing despite what they might say. We are revisiting the 1936 economy and the only way to create wealth now is like some of our fathers did then. 

We had what in our opinion will be called at some point down the road a stock market temper tantrum this week. Do not be surprised if the adolescents more commonly know as stock traders have more tantrums down the road.  Traders who only think in short term decided it was time to abandon the market since the Chinese economy appeared to be sinking and sold with out thought and created some serious long term buys in stocks such as Apple, Citigroup and JP Morgan all of which we who are the adults in the room and have a long term investing approach scooped up at the near fire sale prices. For about a 48 trading hour period fear overcame greed in the stock and bond markets. Our opinion long term the economy and stock market have changed little and when wiser heads assess the roller coaster of the past week they will come to that conclusion as well.  Let's note one factoid that Warren Buffet uses for stock value. The 10 year US Treasury is yielding 2.1% and the S&P 500 forward earnings is about 6.2%, so owning stocks gives you about 4% more than holding bonds,  a fair value for the small extra risk involved.  

China finally came clean just a bit and noted that to all except those who did their homework earlier their economy is not growing at 7% plus annually and is more likely not growing at 5% reported either.   China used several tools in their socialist tool box last week to try and stabilize the stock market to almost no effect. Note we said they tried to stabilize the STOCK MARKET and not stablize the Chinese economy. The reason is simple almost all large companies in China and shares of stock are majority owned by the Communist Chinese government.  The only control they do not have is the part of the stock market where they have allowed Chinese citizens and some outsiders the chance to own shares.  So when the Chinese were found to be over speculating in Chinese stocks the government stepped in to try and keep the panic down, it had little or no effect because when one tries to merge capitalism with socialism, in an effort to bail out socialism's huge faults it does not work, never has and never will. Socialism fails every time it has been tried throughout history and leaders in China and now many in the US have never learned the time honored lesson.  For the record we own one Chinese stock, unlike others we know who own many, and that stock is China Mobile since we are of the belief mobile phone service is a no brainer in China as much as it is in the US. 

We in the US have one own brand of command and control economy going right now. We have defined this ad nauseam in our postings as the political economy and financial engineering.  Like it or not until someone or some Congress comes along and changes the path of Obama's huge federal spending we will continue to have out of control federal spending and lots of largess filling the mega corporations money pots.  Like it or not until the Federal Government changes fiscal course the Federal Reserve is being forced to keep rates near zero since that is the only thing propping up the slower the slow growth US economy.  We continue to say no rate increases until late 2106 if then and if they do move forward expect a 25 basis point move and back to a sleep that would make Rip Van Winkle jealous. 

So how does one play this new US command and control economy?  Once again we have changed little in our advice.  Despite the roller coaster movements in the stock market this week we are basically back to where we began and that after finding out the almost all large companies in the US are affected little and have low exposure to the Chinese economy.  Imagine that China is not the big bad bully we have been lead to believe.  In fact the Chinese economy, like Brazil, like Russia, like Europe, like just about every other economy in the world is dependent on guess who, the United States capitalist economic machine to survive.  The problem is the US economy is subject to too many regulations, too high taxes, and too much federal spending largess, that only helps the biggest and baddest corporations.  We have as in the 1930's over reached in our attempt to make sure everyone is safe from the fact that indeed free markets have recessions.  Recessions that in the end make for better allocation of resources and more high paying jobs. Maybe one day the ingenuity, the American dream, and the sheer powerhouse that the American economy can be will be unleashed once more to produce jobs and wealth for the average American citizen.  Until then, until we change policy in Washington DC, as we have opined seemingly now forever keeping your investments with the mega corporations benefiting from all this crony capitalism is the way to go. 

As Warren Buffet has opined about where to put his wife's money after he passes you too should do the same.  Try the Vanguard 500 Index fund or ETF.  Invest and forget about it, well at least until the American voters change politicians and policies in Washington DC.  This is not what we prefer, but as we told someone else this week "it is what it is" and smart people play the game until the game changes.  If you have assets to invest consider yourself blessed to have the option to ride along with the mega corporations benefiting from the spending of the federal government and the low Federal Reserve rates that allow your mega corporation to sell cheap tax advantaged bonds and buy back more stock pushing up that share price even more.  In a slow growth economy why reinvest in your business that is not adding customers or customers buying more of your products when your profits can be plowed into stock buybacks making your shareholders and managers wealthier and wealthier. If you have assets enjoy the ride.  If you do not and need a job or maybe some real hope and change, change your vote. 

What a Ride...Is it Over?

We got on this trading ride just over 3 years ago and it has been one great ride. As we have opined in the past we were foolish enough to allow our dislike of Obama and his policies to cloud our mind to the objective of making some profits.  So for 2 plus years we fought the battle thinking sooner or later people would wake up to the situation unfolding.  Then in early 2012 we saw the light.  The crony capitalism of Obama and the political economy of out of control federal government spending was upon us in full force.  Add in the financial engineering of lower that low rates of the Federal Reserve and you go yourself a gravy train.  A profit gravy train for investors and most importantly traders.  We are both.  So we will acknowledge we were late getting on this train as like it or not we are still not the absolute sharpest knife in the drawer and those in more exclusive financial circles got on the profit train some two years before us.  

So for three years and about two months we have traded and invested WITH Obama and Democrats crony capitalism.  That is stay with the 100 or so big corporations feeding at Obama's federal spending and using those profits to buy back stock with cheap rate bonds offered up by the Federal Reserve.  Add in some nice and growing dividends and you got yourself on that gravy train.  We have profited handsomely in the seven figure category and smiled all the way to the bank caring less what these policies were doing to the jobless and poor just like the controlling political class. The question now has this free for all investing and trading ended? 

During those three plus years we have not had one single trading loss and our S&P 500 investments have gone up and up.  Then in late July of this year things changed.  The market stalled and we are currently sitting on some three trading losses.  Yes we will admit two of them are our personal mistakes and they are currently paper losses, but each day they stare us in the face when we open our trading platform saying you lost your hedge.  Now in the overall scheme of things these three paper losses are not significant, but traders really do not like to lose.  We take losses seriously above a certain size of a few thousand dollars that we consider the cost of doing business.  It is personal competing in this big boys game of hedging.  Here on our trading side we have decided to sit on these losses and see what happens as we believe most of the damage in our holdings has been done and besides there are those nice juicy dividends rolling in from these positions.  Remember that financial engineering again.  At some point the market will stabilize and realize what we have already stated there will be no rate increases until late 2016.  The economy can not stand it and the democratic party will not tolerate it.  Love investing with the rich democrats. 

So what to do about those investments, that are not trading positions.  Simply put, like Warren Buffet, we believe America will right itself at some point here since even young coffee drinking metrosexual parent's basement dwellers eventually decide to grow up and need a job.  When young folks wake up to the need for economic freedom instead of social foolishness like all generations the need for the vibrancy of free markets will become clear and we will have a economic boom. All the things are in place except the end to the political economy being run by Obama.  Keeping healthy numbers of assets in stocks and the S&P 500 makes sense going forward if you got a couple decade time horizon. Buying more here and if the market goes lower are good choices for buying low and selling high. Betting against American capitalism has been a sucker's bet for some over 200 years and we like the odds here  If not we always have the possibility of Hillary Clinton winning in 2016 and the political economy of crony capitalism gravy train starting up again.  If this next train gets started we will not be foolish enough to miss the longer ride. 

Eastern North Carolina Electricity Customers are Getting Hosed.

As we opined in our last posting on Eastern North Carolina Public Power we simply do not trust the town councils in communities who use Public Power to treat customers right and lower the rate in complete junction with the just lowered wholesale price. So as the rates are being "adjusted" customers in those towns are getting hosed.  Allowing for some give in the fact most town councils in Eastern North Carolina who are in Public Power towns are nothing more than politicians even we have been blown away by the decisions almost across the board to refuse to pass on the full electricity rate breaks to customers in Public Power towns. 

Seriously here are the facts.  The reduction in rates after the Duke Energy buyout of Public Power/Eastern Municipal Power Agency is 18%, take out the 1.5% for the Electricities management of bonds and contracts and every single town should be reducing their electric rates 16.5% minimum. Only two towns as we can see have come close to that to date, New Bern and Wilson.  The rest who have acted so far are reducing rates in the low single digit percentages.  No other way to say this, but as we opined in our earlier posting, whatever revenue left over is to use for whatever the politicians decide.  In the past that money has been for political favors, wasted on favorite projects, or hire more government employees.  Yes many of these towns councils are giving some lip service to using the money for "needs" in the power depts. Strange that these "needs" just suddenly popped up.   These so called needs where already being met by the capital spending included in the already high rates. Many towns, like Smithfield were using the extra money piling up in electric revenues to keep property tax rates lower.  So yes town council members there is plenty of cash here to lower the power rates. 

So where do we go from here?  Maybe a better question do enough citizens and town council voters care enough to stand up for their what is owed them for long years of higher electricity rates?  We expect many town councils have already decided that by NOT lowering their rates to the correct level.  We also think many ratepayers have and are answering with their feet and moving out and not moving into of these high power rate towns.  Looking at the list of participants I see just a handfull of these towns that are growing, Greenville, Clayton, Apex, Wake Forest, and Louisburg.  So with over three dozens towns in the system the number who can withstand some less than full cut in power rates is minimal.  Let's also add in that when industry and business consider moves they consider high power rates as an impediment to where to set up shop.  But when you are managing your own public fiefdom who cares would be the answer of most town council members in this area.  Many on councils prefer towns not grow so as to protect their business turf from competition, so keeping rates higher helps in that regard. Add in the huge added pressure form town managers and government professionals who want to keep this revenue flowing for governmental reasons.  So be damned with the citizens and rate payers. 

We will keep an eye out here since we live in one of these communities so we have a dog in this fight.   So if you care, REALLY care about these rates and they being lowered to correct levels what do you do?  You attend town council meetings in numbers and tell your council members it is time to lower the rates and you do not buy their hyperbole about other spending "needs."  If they do not do so, vote them out with those who will lower the rates.  Add in that some of your electricity bill is still going to pay down that $500 million left over from the Duke Energy buyout.  Last round they failed to pay off the bonds in time and used the money for other purposes and just extended the bonds lifetime another 20 years or so.  Keep them honest on the bond payoffs getting done on time.  The point  is that all those "needs" and assumed and all those assumed rate increases they are talking about down the road will be to some or all extent not needed since in 10 years ALL the bonds will be paid off.  Meaning rates should come down again due to the decrease in borrowing costs. 

One final thought.  If you really want to end this game there is another better way.  Push your town councils to get out of the power business completely.  Tell them to call Duke Energy and ask them to make a deal to take over the town's power system, poles, lines, and employees all.  End the local crony capitalism, end the games being played with rates, end the uncertainties in costs going forward, and frankly lower the rates even further right now if done right.  Put what should have been business in charge of a business and not governments in charge.  Knowing Duke I can assure you they would love to do so since there will be little capital to spend and large numbers of closely grouped ratepayers to bring aboard their system.  Of course one will have to deal with those bloodsuckers at Electricities who do not want to give up their cushy bureau jobs and being the middleman.  We deserve better.