(Part 2 of the series, please read By George I Think He Got It Right, the previous post, before reading this one)
What to do with the George Fund? My first inclination is to make no changes, to treat it as a treasured heirloom. It was my grandfather’s, and then my mother’s and now mine. What right do I have to change it? Then the light went on, actually the whole room lit up. Last time I wrote that I never could figure out why my mother never sold the stocks in 30 years of ownership, now I know why. If I was having these feelings now because this was my grandfather’s, her feelings were even more intense. I think she viewed the portfolio as sacred. This reverence was no doubt expressed to me by voice tone and facial expression when she talked about the stocks. (I’m amazed by how you suddenly understand your parents’ difficult decisions when you unexpectedly have to make those same decisions in your life. Also, we communicate values to our children not by what we say, but what we do, including “how” we say it).
The decision about what to do still remained tough. It was almost if the stocks were “alive”. They grew some days, shrank some others and sent gifts (dividend checks) almost every month. Was I going to just sell assets, or was I going to perform surgery?
I needed guidance. Who to go to? I decided to ask the person who knew the fund better than anyone. I decided to ask George. The moment I asked two questions: “What would George think?” And “What would George do now?” I started to make progress. Yes, I tied to “channel” George. This is ironic because I am an investor because of George. As I wrote about a year ago, I have owned stocks literally my entire life because George gave me three stocks when I was born. Also, I had a great uncle who was a day-trader in the 1920’s. How did you day trade then? You caught the trolley every day to the brokerage house downtown. You negotiated a bulk trading rate (wonder how close it was in real terms to $7 trades today) and you watched the “stock ticker” and traded away. He made a good living doing this until the 1929 stock market crash.
What Would George Think?
George would be proud that the fund has done so well over the past 40 years. But I think George would then say, ”Yes, this is good, but somebody needs to do something about these “dog” stocks. Why are they still here? Boy, you’ve got some work to do!”
What would George Do Now?
To answer this one, I had to study the George Fund in careful detail. It is similar to an archeologist studying a find that had been well preserved for a long time period.
You always hear that you should invest what you know. What George knew was food products and retailing. The portfolio does not include any company in these sectors. I think George had seen many companies in these sectors come and go and thought they were not solid investments.
The companies in the George Fund are all (except one) industrial manufactures. There are several “heavy” manufacturing firms. It is also diversified among industrial sectors. There are oil companies, pharmaceutical companies and chemical companies as well. I determined that all of the companies paid dividends when George originally bought the stocks. The only service firm was a railroad company (you have to transport all that heavy stuff).
The Goal
Before making any changes it is important to establish the purpose for me of this investment. The George Fund will be for me the classic “basket of dividend stocks” that you often read about. The dividends will help pay living expenses in retirement (along with my IRA and 401-K) and the stock portfolio value can then be passed on to my decedents.
What Gets Dumped?
The first part of this is easy. Any company that no longer pays dividends will no longer be in the fund. Of course if the company had to eliminate its dividend, it has had some financial problems and is a weak performer anyway.
The second part of the divesture strategy is brutally tough. Because the top stocks have performed so well, the fund is out of balance. The top stock (a pharmaceutical firm), now makes up over 25% of the portfolio. To maintain diversification and balance, holdings in the top performers must be reduced. This is very difficult to actually do. In addition, some holdings in stocks where the dividends were low will be reduced also.
What to Add?
Obviously no consumer goods or retail stocks will be added. I will add at least one utility and maybe two (Exelon and First Energy look good). Utilities weren’t publically traded when George was buying stock, so that’s why there are none currently in the fund. Utilities make stuff (energy) and pay nice dividends. I probably need a high-tech company to bring the portfolio into the 21st century. It’s difficult to find dividend stocks in this sector. I’m thinking maybe Intel. I also need some healthcare product companies to modernize the group. I’m looking at Baxter and Johnson and Johnson. I may even add a service provider. Both AT&T and Verizon are possibilities. They pay good dividends and should be around for a long time. The other candidates are a natural gas company and a mineral mining (stuff to make stuff with) firm.
The New George Fund
The New George Fund should have around 20 stocks (like the original) that pay decent dividends. I will have changed about 25% of the fund, which means the “base” 75% remains solid. The portfolio will be more diversified, balanced and stronger with less risk than when I began the process. I think George would approve of the changes and that’s far good enough for me. Now it’s time to get some lemonade and enjoy the summer!
Sunday, June 26, 2011
Tuesday, June 14, 2011
By George, I Think He Got It Right
The subject of today’s post is the By George Mutual Fund (BGMF). You have never heard of it because it is one of the most exclusive funds in the world, yet it is a part of my portfolio. How was I able to get into this elite investment? Well it just turns out that I am the only investor and thus own all the money remaining in the fund.
The BGMF was created by my grandfather George around 40 years ago. It consists of shares in 20 common stocks. When he died 30 years ago, the fund was inherited by his children. While I assume that the other shares of the fund have long been sold off, the portion inherited by my mother remains largely intact. My mother owned the BGMF for 30 years, the only decisions she made was to redeem shares for cash when offered due to buybacks or transfers. Other than that, the BGMF was not “managed” or intentionally varied in 40 some years. I always wondered why my mother didn’t sell it all due to the work involved handing dividend checks and all the paperwork and tax issues that come with direct stock ownership.
The Man Behind the BGMF
George the Businessman
George obtained his wealth through hard work. He started off as a teacher (I teach part-time and several cousins are teacher/educators, funny how that works), but soon found his passion and opened a small grocery store. George was an excellent store owner. His outstanding people skills combined with natural business acumen resulted in continuous success.
His store grew in size throughout the years and George had some money in the bank. At this point most people would have opened more grocery stores in order to gain more wealth, but not George. I think that George loved what he was doing, which was personally connecting with his customers, personally connecting with his employees and cutting meat. More stores would mean that he would be managing store, and not doing what he truly loved. This brings us to:
Life Lesson #1: Find out what you love doing and then do it well as you possibly can.
George the Person
I have to say something about George the person. George was very generous. My mother told me stories about how he let his customers run up credit during The Great Depression when they didn’t have jobs and he had no assurance he would ever be paid. He also would give away soup bones to others who were hungry.
Life Lesson #2: Having the money isn’t as important as helping others with your money. (If you don’t agree with this one, I suggest you give a try and see what happens)
George’s people skills were extraordinary. I watched him interact with customers in the store, but was too young at the time to realize just what was really happening. But I now see the impact based on what people said about my mother’s people skills and my interactions with my uncles (one still living). The most important person in the world to my uncle(s) is the person he is talking to at the time. You just feel after having a conversation (about anything) with these guys. That’s a special gift and they got it from George.
Life Lesson #3: Treat everyone (no matter income, race, religion, appearance, etc.) with the utmost respect. Everyone you interact with should be important to you.
George the Investor
So instead of investing in more stores, George invested in the stock market. That way George got to continue doing what he loved and to increase his wealth by doing what he liked (investing in the stock market). And he was good at it.
The incredible thing about the BGMF is how solid it is after 40 years. This is the mother of all “buy and hold” strategies. As far as I can tell, the portfolio when George stopped managing it had stock in 20 companies. It has 20 companies today. Only one company went out of business and one company spun off a new company, so there are still stocks of 20 companies in the fund today.
Many of the companies in the fund are strong blue-chip stocks. There are a few “weak sisters”, but that is to be expected. George believed in diversification. Of course if he had bought only the five best stocks, the fund would be worth much more today. But if he had bought the five worst, it would not be worth very much at all. George knew he would make mistakes so he spread the risk.
Life Lesson #4: You are not going to be right all the time, so make sure you prepare for those times when you will be wrong. In investing, that means diversify, diversify, and diversify some more.
The bottom line is that George was one great stock picker. To put together a portfolio that has withstood the changes and crises over the past 40 years and is so solid today is remarkable. When I told my broker (who now services the account) the history of the BGMF, he was speechless. I have even more respect for George because in doing the research for this post I discovered that the worst performing stock in the fund is not a stock that he bought, but the spinoff mentioned earlier.
What Now?
So upon the death of my mother a year ago, I became sole owner and now manager of the BGMF. What to do, what to do? Me. The person who bought into Braniff Airlines (bankrupt), Storage Technologies (bankrupt), Home Centers (bankrupt) and Gliatech (bankrupt). It would seem that the BGMF could be in grave danger.
To Be Continued ………..
The BGMF was created by my grandfather George around 40 years ago. It consists of shares in 20 common stocks. When he died 30 years ago, the fund was inherited by his children. While I assume that the other shares of the fund have long been sold off, the portion inherited by my mother remains largely intact. My mother owned the BGMF for 30 years, the only decisions she made was to redeem shares for cash when offered due to buybacks or transfers. Other than that, the BGMF was not “managed” or intentionally varied in 40 some years. I always wondered why my mother didn’t sell it all due to the work involved handing dividend checks and all the paperwork and tax issues that come with direct stock ownership.
The Man Behind the BGMF
George the Businessman
George obtained his wealth through hard work. He started off as a teacher (I teach part-time and several cousins are teacher/educators, funny how that works), but soon found his passion and opened a small grocery store. George was an excellent store owner. His outstanding people skills combined with natural business acumen resulted in continuous success.
His store grew in size throughout the years and George had some money in the bank. At this point most people would have opened more grocery stores in order to gain more wealth, but not George. I think that George loved what he was doing, which was personally connecting with his customers, personally connecting with his employees and cutting meat. More stores would mean that he would be managing store, and not doing what he truly loved. This brings us to:
Life Lesson #1: Find out what you love doing and then do it well as you possibly can.
George the Person
I have to say something about George the person. George was very generous. My mother told me stories about how he let his customers run up credit during The Great Depression when they didn’t have jobs and he had no assurance he would ever be paid. He also would give away soup bones to others who were hungry.
Life Lesson #2: Having the money isn’t as important as helping others with your money. (If you don’t agree with this one, I suggest you give a try and see what happens)
George’s people skills were extraordinary. I watched him interact with customers in the store, but was too young at the time to realize just what was really happening. But I now see the impact based on what people said about my mother’s people skills and my interactions with my uncles (one still living). The most important person in the world to my uncle(s) is the person he is talking to at the time. You just feel after having a conversation (about anything) with these guys. That’s a special gift and they got it from George.
Life Lesson #3: Treat everyone (no matter income, race, religion, appearance, etc.) with the utmost respect. Everyone you interact with should be important to you.
George the Investor
So instead of investing in more stores, George invested in the stock market. That way George got to continue doing what he loved and to increase his wealth by doing what he liked (investing in the stock market). And he was good at it.
The incredible thing about the BGMF is how solid it is after 40 years. This is the mother of all “buy and hold” strategies. As far as I can tell, the portfolio when George stopped managing it had stock in 20 companies. It has 20 companies today. Only one company went out of business and one company spun off a new company, so there are still stocks of 20 companies in the fund today.
Many of the companies in the fund are strong blue-chip stocks. There are a few “weak sisters”, but that is to be expected. George believed in diversification. Of course if he had bought only the five best stocks, the fund would be worth much more today. But if he had bought the five worst, it would not be worth very much at all. George knew he would make mistakes so he spread the risk.
Life Lesson #4: You are not going to be right all the time, so make sure you prepare for those times when you will be wrong. In investing, that means diversify, diversify, and diversify some more.
The bottom line is that George was one great stock picker. To put together a portfolio that has withstood the changes and crises over the past 40 years and is so solid today is remarkable. When I told my broker (who now services the account) the history of the BGMF, he was speechless. I have even more respect for George because in doing the research for this post I discovered that the worst performing stock in the fund is not a stock that he bought, but the spinoff mentioned earlier.
What Now?
So upon the death of my mother a year ago, I became sole owner and now manager of the BGMF. What to do, what to do? Me. The person who bought into Braniff Airlines (bankrupt), Storage Technologies (bankrupt), Home Centers (bankrupt) and Gliatech (bankrupt). It would seem that the BGMF could be in grave danger.
To Be Continued ………..
Monday, May 30, 2011
She’s Nobody’s Fool
Almost every important economic indicator was either negative or less positive in April. In addition, Q1 GDP came in at a disappointing 1.8%. This resulted in numerous articles declaring the recovery over with disastrous consequences ahead. So what is going on? How much trouble are we in?
Due to the damaged financial system, the housing market collapse, the restructuring of the employment markets and all the problems created during the Great Recession, this recovery is expected to be slower, weaker, and uneven. When the economy stabilized, it started going through “normal” cycles, but at a lower growth rate. The economy now is still cycling, but is moving upward at a slow pace. A strong recovery is able to cast off obstacles the same way Arnold Schwarzenegger is able to cast off women …, sorry I mean cast off attackers in the movies. A weak economy gets diverted by any bumps in the road.
And 2011 has been full of obstacles. The first was (and still is) unusually bad weather. There was very cold weather in the South, ice storms and flooding in the Midwest and huge snowstorms in the East. This weather caused major business disruptions in a wide swath of the nation. This nasty weather has continued into the spring. Tornados and rainstorms are battering the country and hurricane season is just starting. A robust economy absorbs this hit. A strong recovery puts on a jacket and barrels through. But a weak recovery catches a cold.
The next obstacle is the unrest in the Middle East. One of the consequences of our mass mediated news coverage is that we tend to forget the recent past very quickly. Beginning in February, everyone was very worried as protests and revolts started in several nations. We were already fighting two wars, briefly involved in a third and hoping World War Three wasn’t beginning. (On a side note, it is interesting that the “fake” end of the world received extensive media coverage while a potential “real” end of the world, the initial uprising in Saudi Arabia, received relatively minor coverage). Once again, a strong recovery gets past this, but a weak economy gets the shakes.
Of course the Middle East situation caused crude oil prices to spike. Most of this was speculation. You know this because most crude production was briefly affected in Libya (the rebels plan to restart production in their fields soon). Once Moammar and the rebels figured out how to milk the cow and keep fighting each other at the same time, things stabilized. The speculators are keeping the price high because there is still considerable unrest in the region. You can’t really blame them for trying. If the Saudis get overthrown, crude would shoot to over $200/barrel and retail prices would go to $10 a gallon, or the end of the world as we know it.
Higher gas prices are a tough obstacle for any economy and a big problem for this one. High gas prices act just like a tax on disposable income and really hurt lower-income people.
So what is this economy like? It’s sensitive, it’s cautious, it’s mysterious. It can be strong, it can be weak, and without warning it can be anything in between. That’s correct, this economy is a woman! This observation should be viewed as purely descriptive and is not derogatory or sexist in any way.
(Cue Billy Joel)
She can kill with a smile
She can wound with her eyes
She can ruin your faith with her casual lies
And she only reveals what she wants you to see
She hides like a child,
But she's always a woman to me
She can lead you to love
She can take you or leave you
She can ask for the truth
But she'll never believe you
And she'll take what you give her, as long as it's free
Yeah, she steals like a thief
But she's always a woman to me
You see this economy has been hurt very deeply by all the turmoil of the last few years. She has been lied to. She has been deceived. Her trust has been broken. She has been betrayed. She feels like we have been insensitive to her needs, she feels violated.
She is not really moved by some short-term, artificial, stimulus. She wants a real, long-term commitment. This relationship can be restored, but it will take time. She wants to take it slow and cautiously. She wants it to be deep, meaningful and long-lasting.
And she'll promise you more
Than the Garden of Eden
Then she'll carelessly cut you
And laugh while you're bleedin'
But she'll bring out the best
And the worst you can be
Blame it all on yourself
Cause she's always a woman to me
She is frequently kind
And she's suddenly cruel
She can do as she pleases
She's nobody's fool
And she can't be convicted
She's earned her degree
And the most she will do
Is throw shadows at you
But she's always a woman to me
We want to tell her that we really didn’t mean anything by it. That we wish that it never happened. That we need to get beyond this and just get back to the way things were before. And we promise that it will never, ever, happen again. We’re sorry baby, we are so very, very, sorry.
So what do we need to get this recovery (or to heal this relationship) to get going again? First, we need for the Middle East to stabilize. We are leaning on Khadafy like Chicago thugs (wonder where that idea came from?) and I actually think that it’s going to work. Second, we need the weather to get back to normal. Third, as the Middle East calms down, so will the speculators demand for crude oil futures. And finally, some Barry White music couldn’t hurt.
She's Always A Woman - Billy Joel
Please check out my new humor blog Next post: June 2
Due to the damaged financial system, the housing market collapse, the restructuring of the employment markets and all the problems created during the Great Recession, this recovery is expected to be slower, weaker, and uneven. When the economy stabilized, it started going through “normal” cycles, but at a lower growth rate. The economy now is still cycling, but is moving upward at a slow pace. A strong recovery is able to cast off obstacles the same way Arnold Schwarzenegger is able to cast off women …, sorry I mean cast off attackers in the movies. A weak economy gets diverted by any bumps in the road.
And 2011 has been full of obstacles. The first was (and still is) unusually bad weather. There was very cold weather in the South, ice storms and flooding in the Midwest and huge snowstorms in the East. This weather caused major business disruptions in a wide swath of the nation. This nasty weather has continued into the spring. Tornados and rainstorms are battering the country and hurricane season is just starting. A robust economy absorbs this hit. A strong recovery puts on a jacket and barrels through. But a weak recovery catches a cold.
The next obstacle is the unrest in the Middle East. One of the consequences of our mass mediated news coverage is that we tend to forget the recent past very quickly. Beginning in February, everyone was very worried as protests and revolts started in several nations. We were already fighting two wars, briefly involved in a third and hoping World War Three wasn’t beginning. (On a side note, it is interesting that the “fake” end of the world received extensive media coverage while a potential “real” end of the world, the initial uprising in Saudi Arabia, received relatively minor coverage). Once again, a strong recovery gets past this, but a weak economy gets the shakes.
Of course the Middle East situation caused crude oil prices to spike. Most of this was speculation. You know this because most crude production was briefly affected in Libya (the rebels plan to restart production in their fields soon). Once Moammar and the rebels figured out how to milk the cow and keep fighting each other at the same time, things stabilized. The speculators are keeping the price high because there is still considerable unrest in the region. You can’t really blame them for trying. If the Saudis get overthrown, crude would shoot to over $200/barrel and retail prices would go to $10 a gallon, or the end of the world as we know it.
Higher gas prices are a tough obstacle for any economy and a big problem for this one. High gas prices act just like a tax on disposable income and really hurt lower-income people.
So what is this economy like? It’s sensitive, it’s cautious, it’s mysterious. It can be strong, it can be weak, and without warning it can be anything in between. That’s correct, this economy is a woman! This observation should be viewed as purely descriptive and is not derogatory or sexist in any way.
(Cue Billy Joel)
She can kill with a smile
She can wound with her eyes
She can ruin your faith with her casual lies
And she only reveals what she wants you to see
She hides like a child,
But she's always a woman to me
She can lead you to love
She can take you or leave you
She can ask for the truth
But she'll never believe you
And she'll take what you give her, as long as it's free
Yeah, she steals like a thief
But she's always a woman to me
You see this economy has been hurt very deeply by all the turmoil of the last few years. She has been lied to. She has been deceived. Her trust has been broken. She has been betrayed. She feels like we have been insensitive to her needs, she feels violated.
She is not really moved by some short-term, artificial, stimulus. She wants a real, long-term commitment. This relationship can be restored, but it will take time. She wants to take it slow and cautiously. She wants it to be deep, meaningful and long-lasting.
And she'll promise you more
Than the Garden of Eden
Then she'll carelessly cut you
And laugh while you're bleedin'
But she'll bring out the best
And the worst you can be
Blame it all on yourself
Cause she's always a woman to me
She is frequently kind
And she's suddenly cruel
She can do as she pleases
She's nobody's fool
And she can't be convicted
She's earned her degree
And the most she will do
Is throw shadows at you
But she's always a woman to me
We want to tell her that we really didn’t mean anything by it. That we wish that it never happened. That we need to get beyond this and just get back to the way things were before. And we promise that it will never, ever, happen again. We’re sorry baby, we are so very, very, sorry.
So what do we need to get this recovery (or to heal this relationship) to get going again? First, we need for the Middle East to stabilize. We are leaning on Khadafy like Chicago thugs (wonder where that idea came from?) and I actually think that it’s going to work. Second, we need the weather to get back to normal. Third, as the Middle East calms down, so will the speculators demand for crude oil futures. And finally, some Barry White music couldn’t hurt.
She's Always A Woman - Billy Joel
Please check out my new humor blog Next post: June 2
Tuesday, May 17, 2011
Fantasy Island Meets Reality
Back in the mid-1980’s my wife and I worked for different manufacturing companies and were covered by two full medical and dental plans. Why would we pay for two plans? That’s the point; we didn’t pay anything for either one. The costs were fully paid by the companies, our only contribution was a modest deductable.
Today, my wife and I work for two different companies and we are covered by two full medical plans and we pay a contribution for both. Why would we pay for two plans? Because Obamacare forced me off my wife’s plan when I started working again. (“First of all, if you’ve got health insurance, you like your doctors, you like your plan, you can keep your doctor, you can keep your plan. Nobody is talking about taking that away from you.” -- Barak Obama)
Yes, things have changed considerably since the 80’s. Medical costs started to rise rapidly and companies started requiring employees to contribute to the costs. Every year now your employer tells you how much medical insurance costs have increased and you find out how much more you will have to pay.
Similarly, many companies used to provide substantial pension benefits to employees. That benefit also peaked in the 80’s. Most companies started to reduce or eliminate pensions and 401-K accounts with a company contribution became the norm.
And all this is obvious to most working people, but it is a mystery to those living on Fantasy Island where medical and pension benefits remain as they were in 1980’s. While a global economy and global competition were bringing huge changes to the mainland, those on Fantasy Island remained totally separated from the outside world. It’s like every year a plane arrives on the Island with a huge shipment of medical and pension benefits for the people to enjoy. (“Look boss, da plane, da plane!)
It has now become a big issue because the benefits delivered to Fantasy Island are paid for by the people on the mainland. As previously mentioned, the people on the mainland have seen their benefits significantly reduced over the past 30 years. In addition the last three years have been financially very tough on them. Now the people on the mainland have plans to reduce the plane’s cargo.
To this the residents of Fantasy Island scream “Da Plan” Boss. Da Plan. The *$!*?#! Plan! “This reaction is very rational and is to be expected. If you lived on the island, you would respond in the same way. Things have really changed. The way the islanders see it, not only did someone move their cheese, but they are trying to shove it up their cheesehole. They argue that they deserve better benefits because living on Fantasy Island makes them special. They feel attacked, blamed, and victimized. In a way that is true. A great many people have been “attacked” and victimized by The Great Recession. Some are still hurting very much.
The people on the Island shout that it is not fair to cut their benefits. But the people paying for those benefits say it is unfair that benefits continue to grow for one class of people when many people on the mainland are dealing with reduced benefits or no benefit at all.
The people on Fantasy Island were able to obtain great benefits due to the “bosses”. These bosses don’t wear white suits like Mr. Roarke (but they do like fine, Corinthian, leather) but they are very important to the islanders. In the past, the bosses were very important to people on the mainland also. The bosses started out only on the mainland but since many people on the mainland were working for bosses, it made sense that people on Fantasy Island worked for them also. But the value and thus the importance of the bosses started to decline significantly in the 90’s. Global competition and improved work laws have now almost made the bosses obsolete on the mainland.
However the bosses on Fantasy Island were insulated from global competition and not only survived, but kept gaining power. They did this by trading political support for increased benefits for their people. They also extracted money back from the people to entrench their positions. These deals worked because they went on behind a cloak of secrecy and details were rarely communicated to the people on the mainland. But now at this critical juncture, many people are questioning the level of benefits and the details are being brought to public scrutiny. (See links below)
Now the people on Fantasy Island are being forced to literally deal with reality. It is not 1980 anymore. They want to continue living in the past. It is ironic that to protest the attempt to rein in benefits, that some islanders resorted to a “sit-in” a common tactic in the 1960’s. Sit-ins may have been effective then, but have been largely abandoned due to the new technology of the TASER gun. The TASER was not used in this instance due to the expected public outcry if police would have tasered dozens of protesters. However police would have only had to taser one person to disperse the crowd provided that person screamed really loud. Selecting the person in our politically-correct culture would have been tricky, so look out skinny white guy they’re coming after you. (Take that nasty TASER white boy, take that nasty TASER right).
Therefore the main opponent of the Fantasy Islanders is not any politician, nor any political party or organization. Their opponent is Reality. And Reality is tough fighter. If you are not ready, it will slap you silly. It will blindside you and drive you face first into the ground. You can’t fight Reality head on, you can only try to respond and adapt to it.
You never got to see what happened on the television show Fantasy Island the next week after the people returned to reality. That’s because it probably wasn’t very pretty. This won’t be either.
Reality Article #1 Reality Article #2
Play That Funky Music!
Today, my wife and I work for two different companies and we are covered by two full medical plans and we pay a contribution for both. Why would we pay for two plans? Because Obamacare forced me off my wife’s plan when I started working again. (“First of all, if you’ve got health insurance, you like your doctors, you like your plan, you can keep your doctor, you can keep your plan. Nobody is talking about taking that away from you.” -- Barak Obama)
Yes, things have changed considerably since the 80’s. Medical costs started to rise rapidly and companies started requiring employees to contribute to the costs. Every year now your employer tells you how much medical insurance costs have increased and you find out how much more you will have to pay.
Similarly, many companies used to provide substantial pension benefits to employees. That benefit also peaked in the 80’s. Most companies started to reduce or eliminate pensions and 401-K accounts with a company contribution became the norm.
And all this is obvious to most working people, but it is a mystery to those living on Fantasy Island where medical and pension benefits remain as they were in 1980’s. While a global economy and global competition were bringing huge changes to the mainland, those on Fantasy Island remained totally separated from the outside world. It’s like every year a plane arrives on the Island with a huge shipment of medical and pension benefits for the people to enjoy. (“Look boss, da plane, da plane!)
It has now become a big issue because the benefits delivered to Fantasy Island are paid for by the people on the mainland. As previously mentioned, the people on the mainland have seen their benefits significantly reduced over the past 30 years. In addition the last three years have been financially very tough on them. Now the people on the mainland have plans to reduce the plane’s cargo.
To this the residents of Fantasy Island scream “Da Plan” Boss. Da Plan. The *$!*?#! Plan! “This reaction is very rational and is to be expected. If you lived on the island, you would respond in the same way. Things have really changed. The way the islanders see it, not only did someone move their cheese, but they are trying to shove it up their cheesehole. They argue that they deserve better benefits because living on Fantasy Island makes them special. They feel attacked, blamed, and victimized. In a way that is true. A great many people have been “attacked” and victimized by The Great Recession. Some are still hurting very much.
The people on the Island shout that it is not fair to cut their benefits. But the people paying for those benefits say it is unfair that benefits continue to grow for one class of people when many people on the mainland are dealing with reduced benefits or no benefit at all.
The people on Fantasy Island were able to obtain great benefits due to the “bosses”. These bosses don’t wear white suits like Mr. Roarke (but they do like fine, Corinthian, leather) but they are very important to the islanders. In the past, the bosses were very important to people on the mainland also. The bosses started out only on the mainland but since many people on the mainland were working for bosses, it made sense that people on Fantasy Island worked for them also. But the value and thus the importance of the bosses started to decline significantly in the 90’s. Global competition and improved work laws have now almost made the bosses obsolete on the mainland.
However the bosses on Fantasy Island were insulated from global competition and not only survived, but kept gaining power. They did this by trading political support for increased benefits for their people. They also extracted money back from the people to entrench their positions. These deals worked because they went on behind a cloak of secrecy and details were rarely communicated to the people on the mainland. But now at this critical juncture, many people are questioning the level of benefits and the details are being brought to public scrutiny. (See links below)
Now the people on Fantasy Island are being forced to literally deal with reality. It is not 1980 anymore. They want to continue living in the past. It is ironic that to protest the attempt to rein in benefits, that some islanders resorted to a “sit-in” a common tactic in the 1960’s. Sit-ins may have been effective then, but have been largely abandoned due to the new technology of the TASER gun. The TASER was not used in this instance due to the expected public outcry if police would have tasered dozens of protesters. However police would have only had to taser one person to disperse the crowd provided that person screamed really loud. Selecting the person in our politically-correct culture would have been tricky, so look out skinny white guy they’re coming after you. (Take that nasty TASER white boy, take that nasty TASER right).
Therefore the main opponent of the Fantasy Islanders is not any politician, nor any political party or organization. Their opponent is Reality. And Reality is tough fighter. If you are not ready, it will slap you silly. It will blindside you and drive you face first into the ground. You can’t fight Reality head on, you can only try to respond and adapt to it.
You never got to see what happened on the television show Fantasy Island the next week after the people returned to reality. That’s because it probably wasn’t very pretty. This won’t be either.
Reality Article #1 Reality Article #2
Play That Funky Music!
Wednesday, May 4, 2011
Downsized Dan’s Amazing Adventure
One man’s journey into and out of The Great Recession
Dan arrived at work on a beautiful, sunny, Friday in June 2009. He had flown back home on Thursday from a wonderful Florida vacation. He had decided to return to work on Friday so that he could copy several files that he would need to do some work at home the following week. The offices would be closed the next week due to the July 4 holiday and slow sales. Dan wondered how many employees would have cut their vacation short to do this and how many of the other employees would be doing any work the following week.
Dan had been at work about an hour when he was told by a human resources manager to report to the conference room for a meeting. He knew what was going to happen. The company had been hit very hard by the recession. Sales had been cut in half and there had already been four layoffs, the most recent occurring that Monday when he had been in Florida. Dan had been with the company for 16 years, but that was no defense against this recession. This was not about experience, or even past value, this was about cold, hard, cash.
The two HR managers explained in frigid, sterile, terms what was happening and why. Dan pretended to listen, but he really didn’t hear very much. He was afraid to hear those final words. “We must now remove your 'bolers'.” “Oh please don’t take my bolers”, Dan pleaded. “I have worked for 16 years to grow and develop my bolers. Look how large and shiny they are.” But the HR Reps were unmoved. They then proceeded to cut Dan’s bolers off. “By the way Dan, we are sending your bolers to headquarters in Chicago. I think they are going to be mounted on the executive conference room wall!” Dan was presented with a bag of severance and directed to the exit.
Do you ever feel like a plastic bag
drifting through the wind
wanting to start again?
Do you ever feel, feel so paper thin
like a house of cards,
one blow from caving in?
So our hero Dan was thrown out of the land of Employment and into the land of Unemployment. This was a very disheartening thing. The official recession was ending, but millions of people had been cast out of Employment and more were arriving in Unemployment every day. And once you were cast out of Employment it was virtually impossible to get back in quickly. The walls of the city were made of granite and very high. You could see people running full speed into the granite wall trying to get back in. Others just pounded their fist or their head against the wall hoping it would help.
The only way to get back into Employment was to attract the attention of a “hiring nymph”. You then had to convince her that you were would a “good fit” worthy of receiving new bolers. If you were successful, you would get to mate with her and she would escort you back into the land of Employment. But there were very few hiring nymphs to be found. Many had gone to sleep due to the recession. There was great competition to attract the attention of the few nymphs looking for mates. There were almost seven residents of Unemployment for every hiring nymph. The nymphs could be very selective in choosing mates and some nymphs would not even look at you if you had no bolers.
But Dan could not even try get back into the land of Employment for a while. He was suffering intense physical and emotional pain due to the loss of his bolers. He spent some days just staring at where his bolers had been and wishing they were still there. He often thought back to when he had his bolers and how painful it was to have them chopped off.
Dan felt incomplete without his bolers. He just didn’t feel right, he didn’t look right and he didn’t walk right. He initially avoided going out into public because he thought people were staring at his lack of bolers. He lost his self-confidence and sometimes doubted his ability to ever obtain new bolers again. The strange thing was that in reality Dan was the very same person with the same skills and abilities, but he didn’t have his bolers and that left a huge void in his life.
Do you ever feel already buried deep?
6 feet under screams but no one seems to hear a thing
Do you know that there's still a chance for you
'Cause there's a spark in you
After a while Dan healed enough to go to the wall and begin trying to attract the attention of the hiring nymphs. He would yell out, “Do you have any bolers for me today?” But the effect of the recession raged on. There were no nymphs. No matter how loud or how creative you pleaded, there were no nymphs. Day after day Dan and the other people in the land of Unemployment would cry out, but there would be nothing but silence. Dan became very despondent, but he could not quit. He did not want to become like the head bangers. So he pressed on despite the utter futility of the mission.
This went on for months. Dan’s bag of severance was gone. He was tired, he was fearful; he wondered when he would ever have bolers again.
Maybe your reason why all the doors are closed
So you could open one that leads you to the perfect road
Like a lightning bolt, your heart will blow
And when it's time, you'll know
Then one day he attracted the attention of a hiring nymph. She liked what she saw and didn’t seem to care that Dan had been walking around without bolers for almost nine months. They talked, they winked, and they flirted.
Finally she said, “I want to mate with you.”
“What bolers do I get?” Dan asked.
The nymph then showed him his potential new bolers.
“They are not very big”, said Dan wearingly. “Can’t I have some larger ones please?”
“I’m afraid not, said the nymph. I know that residents of Unemployment are desperate to obtain any bolers at all, so this is all you get. Are you ready to mate?”
Dan reluctantly accepted the offer. As he approached the nymph to begin mating, she said “Great, now turn around and bend over.”
Somehow this was not the way Dan had imagined it would be. It was a classic “low-boler” offer. It is only very enjoyable for the nymph. So Dan complied and received their package and thus was granted access back into the land of Employment.
Dan did feel good to have new bolers. They obviously didn’t fit as well as his previous bolers, but they were bolers. Dan reasoned that if he worked really, really, hard, he might be able to grow these bolers to the size of his old ones, but it would take many years. So he swallowed his pride and went on with his life.
Dan had been re-bolerized for only eight months when suddenly another hiring nymph appeared. “I have been looking for someone special to mate with”, she cooed. “You have everything I am looking for and I wish to mate with you so badly.”
Dan was caught completely by surprise. He had vigorously pursued hiring nymphs while in the land of Unemployment for a long time without success. Now a nymph was pursuing him. She was very hot for him and she liked the fact that he already had bolers and really liked their shape.
But Dan was conflicted. His current nymph had mated with him when no other nymph would. She had given him his bolers back. She had made him feel somewhat whole again. How could he even think about mating with another nymph so soon?
He expressed his concerns to the new nymph.
“That’s nice”, she said. “But I really do want to mate with you. I think you can satisfy all my needs. Oh and by the way, here are your new bolers if you agree to mate with me.”
Dan’s mouth dropped open. The bolers were quite impressive. They were large and shiny. Upon closer inspection the bolers turned out to be even larger than the bolers he had originally lost. Dan had a big decision to make.
“Mate with me now!” The nymph pleaded.
“Wait, just a moment”, said Dan.
Dan had an ethical dilemma. Dan knew what he had to do. He had to consult the Book of Business Rules. Dan had lived his entire career by the book. He had consulted the book frequently and over his tenure had made some difficult decisions based on its direction. He was sure it would give him guidance now.
He hunted feverishly until he found the book. In the table of contents he found a chapter on Business Loyalty that he was sure would have the answer to his dilemma. His hands were shaking when he found the chapter and started thumbing through the pages. But to Dan’s dismay, he found that all the pages in that particular chapter had been erased. He could see where the print used to be, but in effect the pages were now blank. He knew that edits were made to the book from time to time, but he had never seen anything like this. He frantically went through the entire chapter page by page, searching for anything that might help him. But there was nothing left. He was angry at whoever had erased the pages, and then he noticed a hand written notation at the bottom of the last page. It said: “Final edit, December 2007”.
Dan recognized the date as the month the Great Recession began. He thought back to a conference room in June 2009. He remembered a cold, sterile, conversation and then he remembered having his bolers cut off after 16 years of loyal service. He concluded that it’s all about bolers man. He now knew what he had to do.
He ran to the new hiring nymph, ripped off her bodice and vigorously mated with her. After two days of continuous mating, Dan and the nymph achieved mutual orgasmic satisfaction. Now this is how Dan dreamt it would always be.
When Dan informed the other nymph what had happened, her father became furious that Dan had mated with another nymph so soon after mating with his daughter. Dan told him, that it wasn’t personal, but it was all about the bolers man. This explanation did not satisfy the dad. He came after Dan with a large pair of shears and threatened to cut off his new bolers.
Dan ran. He ran faster than he had ever run in his life. He ran so fast that suddenly his feet were not touching the ground. In fact he was no longer running but shooting up towards the sky. He then noticed that sparks were flying off his body.
“Holy Shadrach”, said Dan. “I’m on fiyar, but I’m not being burned.” Then he looked down and saw a pretty, young, woman wearing a bright, short, dress and he heard her singing:
'Cause baby you're a firework
Come on, show 'em what you're worth
Make 'em go "Ah, ah, ah"
As you shoot across the sky-y-y
Baby, you're a firework
Come on, let your colors burst
Make 'em go "Ah, ah, ah"
You're gonna leave 'em all in awe, awe, awe
Boom, boom, boom
Even brighter than the moon, moon, moon
Boom, boom, boom
Even brighter than the moon, moon, moon
Dan arrived at work on a beautiful, sunny, Friday in June 2009. He had flown back home on Thursday from a wonderful Florida vacation. He had decided to return to work on Friday so that he could copy several files that he would need to do some work at home the following week. The offices would be closed the next week due to the July 4 holiday and slow sales. Dan wondered how many employees would have cut their vacation short to do this and how many of the other employees would be doing any work the following week.
Dan had been at work about an hour when he was told by a human resources manager to report to the conference room for a meeting. He knew what was going to happen. The company had been hit very hard by the recession. Sales had been cut in half and there had already been four layoffs, the most recent occurring that Monday when he had been in Florida. Dan had been with the company for 16 years, but that was no defense against this recession. This was not about experience, or even past value, this was about cold, hard, cash.
The two HR managers explained in frigid, sterile, terms what was happening and why. Dan pretended to listen, but he really didn’t hear very much. He was afraid to hear those final words. “We must now remove your 'bolers'.” “Oh please don’t take my bolers”, Dan pleaded. “I have worked for 16 years to grow and develop my bolers. Look how large and shiny they are.” But the HR Reps were unmoved. They then proceeded to cut Dan’s bolers off. “By the way Dan, we are sending your bolers to headquarters in Chicago. I think they are going to be mounted on the executive conference room wall!” Dan was presented with a bag of severance and directed to the exit.
Do you ever feel like a plastic bag
drifting through the wind
wanting to start again?
Do you ever feel, feel so paper thin
like a house of cards,
one blow from caving in?
So our hero Dan was thrown out of the land of Employment and into the land of Unemployment. This was a very disheartening thing. The official recession was ending, but millions of people had been cast out of Employment and more were arriving in Unemployment every day. And once you were cast out of Employment it was virtually impossible to get back in quickly. The walls of the city were made of granite and very high. You could see people running full speed into the granite wall trying to get back in. Others just pounded their fist or their head against the wall hoping it would help.
The only way to get back into Employment was to attract the attention of a “hiring nymph”. You then had to convince her that you were would a “good fit” worthy of receiving new bolers. If you were successful, you would get to mate with her and she would escort you back into the land of Employment. But there were very few hiring nymphs to be found. Many had gone to sleep due to the recession. There was great competition to attract the attention of the few nymphs looking for mates. There were almost seven residents of Unemployment for every hiring nymph. The nymphs could be very selective in choosing mates and some nymphs would not even look at you if you had no bolers.
But Dan could not even try get back into the land of Employment for a while. He was suffering intense physical and emotional pain due to the loss of his bolers. He spent some days just staring at where his bolers had been and wishing they were still there. He often thought back to when he had his bolers and how painful it was to have them chopped off.
Dan felt incomplete without his bolers. He just didn’t feel right, he didn’t look right and he didn’t walk right. He initially avoided going out into public because he thought people were staring at his lack of bolers. He lost his self-confidence and sometimes doubted his ability to ever obtain new bolers again. The strange thing was that in reality Dan was the very same person with the same skills and abilities, but he didn’t have his bolers and that left a huge void in his life.
Do you ever feel already buried deep?
6 feet under screams but no one seems to hear a thing
Do you know that there's still a chance for you
'Cause there's a spark in you
After a while Dan healed enough to go to the wall and begin trying to attract the attention of the hiring nymphs. He would yell out, “Do you have any bolers for me today?” But the effect of the recession raged on. There were no nymphs. No matter how loud or how creative you pleaded, there were no nymphs. Day after day Dan and the other people in the land of Unemployment would cry out, but there would be nothing but silence. Dan became very despondent, but he could not quit. He did not want to become like the head bangers. So he pressed on despite the utter futility of the mission.
This went on for months. Dan’s bag of severance was gone. He was tired, he was fearful; he wondered when he would ever have bolers again.
Maybe your reason why all the doors are closed
So you could open one that leads you to the perfect road
Like a lightning bolt, your heart will blow
And when it's time, you'll know
Then one day he attracted the attention of a hiring nymph. She liked what she saw and didn’t seem to care that Dan had been walking around without bolers for almost nine months. They talked, they winked, and they flirted.
Finally she said, “I want to mate with you.”
“What bolers do I get?” Dan asked.
The nymph then showed him his potential new bolers.
“They are not very big”, said Dan wearingly. “Can’t I have some larger ones please?”
“I’m afraid not, said the nymph. I know that residents of Unemployment are desperate to obtain any bolers at all, so this is all you get. Are you ready to mate?”
Dan reluctantly accepted the offer. As he approached the nymph to begin mating, she said “Great, now turn around and bend over.”
Somehow this was not the way Dan had imagined it would be. It was a classic “low-boler” offer. It is only very enjoyable for the nymph. So Dan complied and received their package and thus was granted access back into the land of Employment.
Dan did feel good to have new bolers. They obviously didn’t fit as well as his previous bolers, but they were bolers. Dan reasoned that if he worked really, really, hard, he might be able to grow these bolers to the size of his old ones, but it would take many years. So he swallowed his pride and went on with his life.
Dan had been re-bolerized for only eight months when suddenly another hiring nymph appeared. “I have been looking for someone special to mate with”, she cooed. “You have everything I am looking for and I wish to mate with you so badly.”
Dan was caught completely by surprise. He had vigorously pursued hiring nymphs while in the land of Unemployment for a long time without success. Now a nymph was pursuing him. She was very hot for him and she liked the fact that he already had bolers and really liked their shape.
But Dan was conflicted. His current nymph had mated with him when no other nymph would. She had given him his bolers back. She had made him feel somewhat whole again. How could he even think about mating with another nymph so soon?
He expressed his concerns to the new nymph.
“That’s nice”, she said. “But I really do want to mate with you. I think you can satisfy all my needs. Oh and by the way, here are your new bolers if you agree to mate with me.”
Dan’s mouth dropped open. The bolers were quite impressive. They were large and shiny. Upon closer inspection the bolers turned out to be even larger than the bolers he had originally lost. Dan had a big decision to make.
“Mate with me now!” The nymph pleaded.
“Wait, just a moment”, said Dan.
Dan had an ethical dilemma. Dan knew what he had to do. He had to consult the Book of Business Rules. Dan had lived his entire career by the book. He had consulted the book frequently and over his tenure had made some difficult decisions based on its direction. He was sure it would give him guidance now.
He hunted feverishly until he found the book. In the table of contents he found a chapter on Business Loyalty that he was sure would have the answer to his dilemma. His hands were shaking when he found the chapter and started thumbing through the pages. But to Dan’s dismay, he found that all the pages in that particular chapter had been erased. He could see where the print used to be, but in effect the pages were now blank. He knew that edits were made to the book from time to time, but he had never seen anything like this. He frantically went through the entire chapter page by page, searching for anything that might help him. But there was nothing left. He was angry at whoever had erased the pages, and then he noticed a hand written notation at the bottom of the last page. It said: “Final edit, December 2007”.
Dan recognized the date as the month the Great Recession began. He thought back to a conference room in June 2009. He remembered a cold, sterile, conversation and then he remembered having his bolers cut off after 16 years of loyal service. He concluded that it’s all about bolers man. He now knew what he had to do.
He ran to the new hiring nymph, ripped off her bodice and vigorously mated with her. After two days of continuous mating, Dan and the nymph achieved mutual orgasmic satisfaction. Now this is how Dan dreamt it would always be.
When Dan informed the other nymph what had happened, her father became furious that Dan had mated with another nymph so soon after mating with his daughter. Dan told him, that it wasn’t personal, but it was all about the bolers man. This explanation did not satisfy the dad. He came after Dan with a large pair of shears and threatened to cut off his new bolers.
Dan ran. He ran faster than he had ever run in his life. He ran so fast that suddenly his feet were not touching the ground. In fact he was no longer running but shooting up towards the sky. He then noticed that sparks were flying off his body.
“Holy Shadrach”, said Dan. “I’m on fiyar, but I’m not being burned.” Then he looked down and saw a pretty, young, woman wearing a bright, short, dress and he heard her singing:
'Cause baby you're a firework
Come on, show 'em what you're worth
Make 'em go "Ah, ah, ah"
As you shoot across the sky-y-y
Baby, you're a firework
Come on, let your colors burst
Make 'em go "Ah, ah, ah"
You're gonna leave 'em all in awe, awe, awe
Boom, boom, boom
Even brighter than the moon, moon, moon
Boom, boom, boom
Even brighter than the moon, moon, moon
Monday, April 25, 2011
Smart Model, Stupid Operator
I began developing the Model T in 2006 as an attempt to predict cyclical highs and lows in the stock market. The model is built on factors and indexes connected to the commercial transportation industry.
I started sharing the results of the model in early 2007 with financial experts who specialize in the transportation industry. These people are “heavyweights” who invest millions of dollars of other people’s money. At that time, they thought I was very amusing. After all I was just a marketing person working at a component supplier. To establish “street cred”, that would be Wall Street cred, I not only had to tell them the market was going down, but how far. To be a playa, you gotta talk like a playa, you gotta dress like a playa. (Okay so I draw the line at the wardrobe. To be a financial guy you have to wear “tie shoes”. You can tell the difference between a marketing guy and a financial guy, because the financial guy will be the one with the shoelaces.) So at that point, the Model T predictions became more about numbers than trends.
In 2009 I was downsized. In September 2009, I started this blog. The main purpose of the blog was to help me find a new job. It would give me a forum to display my analysis and writing abilities and keep my name active in the marketplace.
There was some risk however. The Model T was unproven and it was going to be tested publically, not privately. If it turned out to be worthless, then I would look like a fool. (“Charts on the ground, charts on the ground, lookin’ like a fool, with your charts on the ground”).
However, I believed in the Model T. My fantasy was that the Model T would correctly predict the bottom of the stock market and that I would instantly become an overnight celebrity. I would be interviewed on CNBC by a hot econo-babe. You know the type, short skirt, plunging neckline, high ratings. When the cameras stopped rolling, she would invite me to continue the conversation over dinner. Job offers would then come rolling in from all over the world. “I’m sorry, $1.4 million is a nice offer, but the stock options in the package are a little weak”.
Yes, unemployment does cause you to think irrationally. On a more practical level, I did include a local newspaper columnist on my mailing list just in case the model was spot on. Interestingly enough, the blog did not help me in landing my job. I did however turn down the opportunity (generated on a recommendation from one of my “tie-shoe” connections) to interview with a Wall Street investment firm. (Because New York’s Not My Home)
I have written before that the Model T was predicting an S & P bottom of 580 and the market bottomed at 666 (you could call it a demon drop). Yes close, but if you waited for the 580 and didn’t get back into the market until later, you gave up some money.
But studying the latest update to the model reminded of something I had long forgotten. It’s not about the numbers, it’s about the trends, and the Model T is effective at predicting the trends. In short: The model works, and problems were due to operator error. Stupid, stupid, idiot operator!
Responding to model trends results in not selling at the highest point and not buying at the lowest point, but there is the potential to achieve some significant gains. If the model works, you should be able to get out of the market before a significant drop and get back in before a big upswing. Let’s see what investing according to the Model T would have produced over the last two major cycles.
Test #1 (One Cycle)
Say you invested $10,000 in a fund perfectly indexed to the S&P 500 at the beginning of 2006. The Model T would have said to sell in October 2007. Your money would have been worth around $11,970. Using the trend analysis, the Model T would have indicated to get back into the market in April 2010 (it actually says March, but you wouldn’t have the data until April). Your investment today would be worth $13,500. This is a 35% return on your investment. Not great under normal conditions, but not many 401-K accounts are up 35% since 2006. If you found a safe investment to park your money in 2009 and 2010, your return would be over 40% for the time period.
Test #2 (Two Cycles)
Let’s run this through two cycles. Say you invested $10,000 in January 1998. The model says to sell in October 2000. Your money is worth around $14,370. The model tells you to invest back in September 2002. You then cash out $27,000 in October 2007. You buy back in April 2010 and have around $30,400 today. Again, you get even more if you invest in a money market fund during the trough.
What the Model T Says Today
The Model T continues to indicate steady stock growth in 2011, leading to a bodacious 2012. Please remember however that the Model T is only useful for long-term cycles. It does not predict mid-term corrections. We will be fortunate if there is not some type of drawback this year. If there is a correction, the Model T would suggest getting some more money in the market before the 2012 upswing.
Underwear Check
A recent article reported that men’s underwear sales are having a strong year. It said that an improving economy and pent up demand were the reasons. It also stated that men were being more modest in their purchases, buying more basic brands instead of the higher priced products. This was correctly predicted in my March 18, 2010 post: “The Economics of Underwear”.
I started sharing the results of the model in early 2007 with financial experts who specialize in the transportation industry. These people are “heavyweights” who invest millions of dollars of other people’s money. At that time, they thought I was very amusing. After all I was just a marketing person working at a component supplier. To establish “street cred”, that would be Wall Street cred, I not only had to tell them the market was going down, but how far. To be a playa, you gotta talk like a playa, you gotta dress like a playa. (Okay so I draw the line at the wardrobe. To be a financial guy you have to wear “tie shoes”. You can tell the difference between a marketing guy and a financial guy, because the financial guy will be the one with the shoelaces.) So at that point, the Model T predictions became more about numbers than trends.
In 2009 I was downsized. In September 2009, I started this blog. The main purpose of the blog was to help me find a new job. It would give me a forum to display my analysis and writing abilities and keep my name active in the marketplace.
There was some risk however. The Model T was unproven and it was going to be tested publically, not privately. If it turned out to be worthless, then I would look like a fool. (“Charts on the ground, charts on the ground, lookin’ like a fool, with your charts on the ground”).
However, I believed in the Model T. My fantasy was that the Model T would correctly predict the bottom of the stock market and that I would instantly become an overnight celebrity. I would be interviewed on CNBC by a hot econo-babe. You know the type, short skirt, plunging neckline, high ratings. When the cameras stopped rolling, she would invite me to continue the conversation over dinner. Job offers would then come rolling in from all over the world. “I’m sorry, $1.4 million is a nice offer, but the stock options in the package are a little weak”.
Yes, unemployment does cause you to think irrationally. On a more practical level, I did include a local newspaper columnist on my mailing list just in case the model was spot on. Interestingly enough, the blog did not help me in landing my job. I did however turn down the opportunity (generated on a recommendation from one of my “tie-shoe” connections) to interview with a Wall Street investment firm. (Because New York’s Not My Home)
I have written before that the Model T was predicting an S & P bottom of 580 and the market bottomed at 666 (you could call it a demon drop). Yes close, but if you waited for the 580 and didn’t get back into the market until later, you gave up some money.
But studying the latest update to the model reminded of something I had long forgotten. It’s not about the numbers, it’s about the trends, and the Model T is effective at predicting the trends. In short: The model works, and problems were due to operator error. Stupid, stupid, idiot operator!
Responding to model trends results in not selling at the highest point and not buying at the lowest point, but there is the potential to achieve some significant gains. If the model works, you should be able to get out of the market before a significant drop and get back in before a big upswing. Let’s see what investing according to the Model T would have produced over the last two major cycles.
Test #1 (One Cycle)
Say you invested $10,000 in a fund perfectly indexed to the S&P 500 at the beginning of 2006. The Model T would have said to sell in October 2007. Your money would have been worth around $11,970. Using the trend analysis, the Model T would have indicated to get back into the market in April 2010 (it actually says March, but you wouldn’t have the data until April). Your investment today would be worth $13,500. This is a 35% return on your investment. Not great under normal conditions, but not many 401-K accounts are up 35% since 2006. If you found a safe investment to park your money in 2009 and 2010, your return would be over 40% for the time period.
Test #2 (Two Cycles)
Let’s run this through two cycles. Say you invested $10,000 in January 1998. The model says to sell in October 2000. Your money is worth around $14,370. The model tells you to invest back in September 2002. You then cash out $27,000 in October 2007. You buy back in April 2010 and have around $30,400 today. Again, you get even more if you invest in a money market fund during the trough.
What the Model T Says Today
The Model T continues to indicate steady stock growth in 2011, leading to a bodacious 2012. Please remember however that the Model T is only useful for long-term cycles. It does not predict mid-term corrections. We will be fortunate if there is not some type of drawback this year. If there is a correction, the Model T would suggest getting some more money in the market before the 2012 upswing.
Underwear Check
A recent article reported that men’s underwear sales are having a strong year. It said that an improving economy and pent up demand were the reasons. It also stated that men were being more modest in their purchases, buying more basic brands instead of the higher priced products. This was correctly predicted in my March 18, 2010 post: “The Economics of Underwear”.
Monday, April 11, 2011
Don’t Touch Me There!
The mayor of Omaha, Nebraska recently proposed a 10-cent federal tax per roll of toilet paper to pay for expensive city sewer projects. It may seem like an insignificant amount, but when you do the math it is not a small tax. At 10-cents a roll, the tax rate would be 10-40% depending on the brand. I really, really, wish I was making this up, but I’m not.
I wrote about the economics of toilet paper last June (Potty Economics) and thought this would be my last pass on the subject, but I was wrong. What I will assure you is that I will not reuse any of the 26 tasteless puns that appeared in that post. Because some things, like today’s subject, should never be reused.
There is some logic to this idea. It would be a type of “usage tax”. People using toilet paper use the sewer system. People who use more toilet paper theoretically stress the system more. Therefore the more paper you use, the more tax you pay. There are still fairness issues here. Body sizes, hygiene practices and frequency issues vary greatly from person to person. In addition a federal tax would result in customers in small cities and rural areas help pay for big city sewer projects, which appears to be the real motivation for the proposal. Why should someone on a Wyoming ranch be taxed on their toilet paper to pay for Chicago’s sewer repair? (Maybe a cowboy poet could write a prose about it!)
But way beyond that, there is just something very uncomfortable and disgusting about the government touching a most sensitive area. It’s bad enough when the government’s hand is in your pocket, but you really don’t want it sticking it up there. And you know that once the government turns on a revenue stream, it finds it almost impossible to turn it off. Once they find that a toilet paper tax is “found money”, they would enthusiastically go in there with both hands up to the wrist. Talk about your government intrusion!
Because Americans hate taxes (this is one of the things that make us Americans) some people would try to avoid paying the toilet paper tax. I previously wrote that toilet paper is a product with few substitutes. However once you introduce a financial incentive (the tax avoidance) and a non-financial incentive (screw the government), then the development of substitute products becomes more viable.
These products would undoubtedly be advertised on late-night television programs:
“Take a nasty poo? Take care of it with the Personal Sham-Wow. Just Sham-Wow it and forgetaboutit!”
Or --- “Try the new Super Spritzer from Ronco. Just attach it to your sink and let the Super Spritzer give you that spring-fresh feeling.”
A toilet paper tax would also create a black-market for the product – or more appropriately a “brown-market”. Some guy named Cheech would be selling tax-free toilet paper smuggled in from Mexico out of the back of his ’92 van.
“Hey dude, I got some really good two-ply, man. Really soft, good for your buns, man. No sh** man and no sh** leftover either. Got a shipment of quilted coming in on Tuesday if you can wait, man.”
Another reaction to the toilet paper tax is that people might choose to use less. For credibility the mayor pointed out that the toilet paper tax was first proposed (and failed) in Oregon in 2009. I’m guessing that the purpose of that tax was to reduce usage since that was the year of the Greenpeace campaign that claimed the use of plush toilet paper was destroying the environment. If you truly believe the most pressing world problem is toilet paper overuse, then there is no hope for you. You may as well go live on a hippie commune and smoke dope until your brain fizzles out, which shouldn’t take very long.
All I know is that if I reduce my toilet paper usage, it is going to be very damaging to the environment between my cheeks. It is not going to be good for the environment of people sitting by me in long business meetings either.
The toilet paper tax is one of the worst ideas in a long time. It is indicative of a government with an unquenchable thirst for tax money. So thirsty that it ignores basic American history. Because you see, in a meeting 244 years ago somebody said, “I have a most advantageous idea, let us tax their tea.”
It seemed like such a good idea at the time.
(original article on toliet paper tax)
I wrote about the economics of toilet paper last June (Potty Economics) and thought this would be my last pass on the subject, but I was wrong. What I will assure you is that I will not reuse any of the 26 tasteless puns that appeared in that post. Because some things, like today’s subject, should never be reused.
There is some logic to this idea. It would be a type of “usage tax”. People using toilet paper use the sewer system. People who use more toilet paper theoretically stress the system more. Therefore the more paper you use, the more tax you pay. There are still fairness issues here. Body sizes, hygiene practices and frequency issues vary greatly from person to person. In addition a federal tax would result in customers in small cities and rural areas help pay for big city sewer projects, which appears to be the real motivation for the proposal. Why should someone on a Wyoming ranch be taxed on their toilet paper to pay for Chicago’s sewer repair? (Maybe a cowboy poet could write a prose about it!)
But way beyond that, there is just something very uncomfortable and disgusting about the government touching a most sensitive area. It’s bad enough when the government’s hand is in your pocket, but you really don’t want it sticking it up there. And you know that once the government turns on a revenue stream, it finds it almost impossible to turn it off. Once they find that a toilet paper tax is “found money”, they would enthusiastically go in there with both hands up to the wrist. Talk about your government intrusion!
Because Americans hate taxes (this is one of the things that make us Americans) some people would try to avoid paying the toilet paper tax. I previously wrote that toilet paper is a product with few substitutes. However once you introduce a financial incentive (the tax avoidance) and a non-financial incentive (screw the government), then the development of substitute products becomes more viable.
These products would undoubtedly be advertised on late-night television programs:
“Take a nasty poo? Take care of it with the Personal Sham-Wow. Just Sham-Wow it and forgetaboutit!”
Or --- “Try the new Super Spritzer from Ronco. Just attach it to your sink and let the Super Spritzer give you that spring-fresh feeling.”
A toilet paper tax would also create a black-market for the product – or more appropriately a “brown-market”. Some guy named Cheech would be selling tax-free toilet paper smuggled in from Mexico out of the back of his ’92 van.
“Hey dude, I got some really good two-ply, man. Really soft, good for your buns, man. No sh** man and no sh** leftover either. Got a shipment of quilted coming in on Tuesday if you can wait, man.”
Another reaction to the toilet paper tax is that people might choose to use less. For credibility the mayor pointed out that the toilet paper tax was first proposed (and failed) in Oregon in 2009. I’m guessing that the purpose of that tax was to reduce usage since that was the year of the Greenpeace campaign that claimed the use of plush toilet paper was destroying the environment. If you truly believe the most pressing world problem is toilet paper overuse, then there is no hope for you. You may as well go live on a hippie commune and smoke dope until your brain fizzles out, which shouldn’t take very long.
All I know is that if I reduce my toilet paper usage, it is going to be very damaging to the environment between my cheeks. It is not going to be good for the environment of people sitting by me in long business meetings either.
The toilet paper tax is one of the worst ideas in a long time. It is indicative of a government with an unquenchable thirst for tax money. So thirsty that it ignores basic American history. Because you see, in a meeting 244 years ago somebody said, “I have a most advantageous idea, let us tax their tea.”
It seemed like such a good idea at the time.
(original article on toliet paper tax)
Subscribe to:
Posts (Atom)
