Gutless Nation

Fortunately I don’t subscribe to useless banter.  In this case, that useless banter is the Harvard Business Review.  Since I don’t subscribe, I’m only able to read the abstract of the articles.  Even from the abstract I can show what a useless piece of junk this article is.  This was originally posted on April 27th, and discusses how retiring is now getting easier to do.  Here are some key points:

1) 85% of men between the ages of 75 and 79 were retired in 2000, up from 22% in 1850.

2) Over the past century, real wages have increased 1.5% annually.

3) The price of leisure goods has fallen 1% annually during the same time frame.

There are so many problems with these 3 points it’s hard to know where to start.  Let’s start with the time frame.  150 years?  Really?  Why don’t we go back to the cavemen while we’re at it.  Or at least the Roman Empire.  We could see what their retirement plans looked like.  Be that as it may, in 1850 the life expectancy was about 40 years old per research done at Colgate University.  And men typically have a lower life expectancy than women.  So how did 22% of men retire if most of them didn’t even live past the age of 40?  If death and retirement are considered equal, then maybe this is a valid argument.

As for real wages increasing 1.5%, this is yet another significant joke.  I’m hard-pressed to agree that nominal wages have increased that much, inflation aside. According to the Bureau of Labor Statistics, in the year 2000 the CPI stood at 172.2.  This is cumulative from a base rate of inflation in 1982-1984 where the index = 100.  In 1913 (the earliest data I could find), the index was at 9.9.  Using standard division to find the multiplier, it becomes evident that a standard “basket of goods” was 17.4 times more expensive in 2000 than in 1913.  This amounts to a 20% annual raise in order to keep pace with inflation.  So real wages grew 1.5% on top of this?  I don’t know anyone, ever, in the history of this Country (other than maybe Congress) who has received a 20% annual raise.  This also does not factor in those annoying things like oil and food, since our Government doesn’t like to include those items in its calculations.  But we’ll get to that later.

On to the leisure goods argument.  While it’s certainly possible that these prices have fallen slightly (due to technological advances, lower labor costs via outsourcing, improved materials and supply chain logistics, etc.), it’s irrelevant.  Examples of leisure goods in the article are “sports equipment” and “entertainment tickets”.  There are only so many treadmills, ellipticals, and tennis rackets a person can buy.  And they typically last a very long time.  I have a tennis racket that’s over 10 years old, and I think I used it once.  It’s in perfect condition.  Once these are purchased, future purchases are so infrequent that there’s not even enough to find data points with which to measure.  As far as entertainment tickets, the prices may also be declining overall, but they’re also irrelevant.  First of all, there is a huge difference geographically.  I happen to live near a city with an excellent professional baseball team.  You can’t even GET tickets, and if you can, they’ll be from a scalper with a minimum markup of 150%.  And most people who retire don’t necessarily want to go down to the local theater.  They want to go to Europe, Australia, and take cruises around the Cape of Good Hope.  The cost of transportation and food has been bordering on hyper inflation.  I don’t know of any cruise ships or planes that don’t use petroleum-based fuel, and I don’t know too many people who partake in entertainment that don’t eat.  It’s also quite possible the people that are going to said entertainment events will be either driving a car, or taking a bus or a train.  If they live in a major city and can walk, great, but then we have to factor in the increased taxes for living in said city.  But that’s a whole other discussion.

The data  also only goes up to 2000.  If we factored in the recent 4-year great recession, even these optimistic figures would begin to get muddled.  In conclusion, unless people are happy trading in their 5-week Australian excursion for a tennis racket, this assumption and argument that people are able to retire more easily is pretty irrelevant.

If you have not yet heard the great news, the list of problem banks has decreased for the first time in five years.  Here is a graph posted on CNN Money from earlier today:

See that little smudge in the top right corner where it is now on a decline?  Certainly a reason to celebrate, is it not?  Well, just to double check (since I’ve been called a skeptic in past years), I went to the FDIC list of failed banks.  Much to my surprise, here is what I found:

2010: 141

2011: 257

It probably also helps to point out that we still have four months to go in 2011.  At this pace, we’re on track for about 380 bank failures by the end of the year.  Even if the vultures only circle a few more, we’re still at double the pace from 2010.  And 2010 wasn’t exactly a stellar year, nor were the preceding three.  Once a bank fails, they’re no longer a “problem” because they don’t exist as an entity.  In reality, they are failing at an increasing rate from the already dubious position they were in at the beginning of the year.  It’s not all bad news, though, because I am a fan of Darwinism and if some of the losers fail, then it’s because they made bad decisions.  If only every bank was “too small to bail out”, then we wouldn’t have taken a beating on AIG and Bank of America (twice).  The strongest would survive, and we’d hopefully have a few competent bankers putting the capital where it can actually grow and generate wealth.  This may take some time to flesh out, but in the end we’re realize we didn’t really need a bazillion banks in the first place.

But having this many banks failing isn’t exactly a reason to celebrate.  Unless of course you make a living off of reporting lies.

The IRS will gladly accept a billion dollars

I have seen quite a few Facebook postings relating to the Reuters article about Warren Buffett.  He came out and said that billionaires are over-coddled, and that congress should start taxing the crap out of them.  I have a little problem with this, and with all of my arguments, I’m going to use pesky facts and hard statistics to validate my point.  Here are a few to start:

1) I question Buffett’s math.  He noted that his tax bill was $6,938,744, and that this is based on an effective tax rate of 17.4%.  This means he made a shade under $40M last year.  Now this isn’t bad, but one of the richest guys in the world only made that much?  I personally know people who made more than that.  At that rate, to achieve a net worth of around $50 billion would take about 1,250 years.  So I’m hoping this was just an off year for him.

2) Number of billionaires in this country: approximately 412 (according to Forbes).  This is about 8 per state, or 0.0001% of the population.

3) Number of households with a Net Annual Income greater than $250k:  2.25M (per the U.S. Census).  This is about 45,000 households per state, or 0.75% of the population.  If you think this qualifies you as rich, you are delusional.

4) Number of households with a Net Worth greater than $20M: 77,000 (per the U.S. Census).  This is about 1,540 per state, or 0.03% of the population.

Now that we have those statistics out of the way, does anyone out there still feel that taxing these people exorbitantly is going to help our fiscal debt situation?   Even if we assume all billionaires made as much as Mr. Buffett, and we taxed them 100% of their income, it would only cover $2.8 billion of the deficit.  The Federal Government spends about $10 billion a day.  So this would cover up until about the point our congressmen wake up in the morning on January 1st.

How about we take those people with a net worth of $20M and seize all of their assets!  Besides the fact that they’re going to be mostly illiquid, and the true value of them will only be determined upon sale (which we’ll ignore for the time being), this would free up $1.54 trillion.  Now we’re getting somewhere.  That will cover almost one year of deficits at the current rate, bringing us almost to a balanced budget.  And now that all of the wealthy people in this country have been eliminated, we’ll just figure out how to pay the bills for the next hundred years without them.  It’s also worthy to note that many of these individuals are small and medium-sized business owners who create thousands of jobs, keep small towns sustainable, and promote economic growth.  But these are nuances that we should probably ignore.

I used to have great respect for Mr. Buffett until recently.  On August 6th he mentioned that the U.S. should have a “quadruple A rating”.  Why is this?  Because Berkshire was also downgraded recently, and has a lot of International and insurance exposure.  He’s looking out for his own interests, and was trying to reduce the damage caused by lower credit ratings.

Clearly Mr. Buffett is a great investor, but must have skipped some of his basic math classes.  Either that, or he has something else up his sleeve.  I’m guessing the latter.  After all, no one is stopping him from writing a billion dollar check to the IRS.  Perhaps Mr. Gates and the Walton family would also like to write 10-figure checks to the IRS to help out this great nation. I’m even happy to look up the address for them.

As for fixing the debt problem, I propose we start looking somewhere that can actually make a difference:

Just a thought.

The July report for retail sales issued by the DOC came out, indicating a 0.5% increase.  The primary reasons for the increase were noted as automobile purchases and parts, gasoline station sales, and electronics.  This is an outright lie, and the markets bought into the farce, yet again.

This report is using “adjusted figures”, which, per the official report, means this:

“Estimates are concurrently adjusted for seasonal variation and for holiday and trading day differences, but not for price changes.  Concurrent seasonal adjustment uses all available unadjusted estimates as input to the X-12 ARIMA program.  The factors derived from the program are used in calculating all seasonally adjusted estimates shown in this table.”

Also note the following from the report:

“Advance estimates are based on early reports obtained from a small sample of firms selected from the larger Monthly Retail Trade Survey (MRTS) sample.  All other estimates are from the MRTS sample.”

So after translating the above, it means “We made changes as we deemed necessary to an already small sample size with poor estimates at best.”.  If there were true seasonal adjustments, the gasoline receipts would have been modified due to the impending end of the summer, and people trying to squeeze in those last few trips to the shore.  Kids only go back to school once a year.  That sure seems like a seasonal factor to me, and is likely the single largest cause of the increase in electronics sales.  Oops.  I guess they missed these brutally obvious factors.

If we take away the drivel, and use “non-adjusted” numbers, they look like this:

Retail sales, total (in millions):  June: $354,895.  July: $349,343.  This is a DECLINE of 1.56%.  Also note this is not based on unit sales, but dollar sales.  So high inflation helps this report show an increase.  If you ignore Government reports about low inflation and actually look at the prices of things you purchase, you will realize “stuff’s getting expensive”.  If i still need to buy a loaf of bread each week, and the price goes from $1 to $4, it essentially appears as though I am now overdosing on bread and quadrupling my intake.  Having high inflation AND declining retail sales is not exactly a recipe for robust growth.  You can look at the numbers, or believe the talking “bobble” heads on the news.  Ignorance is bliss.

With the recent collapse of the stock market, it has brought back memories of when the DJIA first eclipsed the 10,000 mark. The Dow is not the end all be all of market indicators, but it does encompass 30 of the largest U.S. companies by market cap and works as a pretty good proxy for the rest of the market.

That being said, the Dow first hit 10,000 on March 29th, 1999, my Junior year of college. This occurred more than twelve years ago, and looks to be re-approaching that mark from the opposite direction. As of close of business today it sat at a mere 10,811. This is a total return of 8.11% in 12+ years. Assuming a daily rate (since that is the alternative in a savings vehicle), the DJIA, in all of its infinite glory, has returned an annual rate of 0.66% since that time. My savings account is currently paying 1.0%. So with no risk, no heartburn, and no fees paid to “expert” investment analysts and portfolio managers (albeit lower fees for index funds), my savings account has outperformed the blue chip companies of this great nation. Okay, a savings account isn’t as fun and exciting as the stock market is portrayed to be by the MSM, but at the end of the day I’ll take ROI over fun. I’m still keeping my fingers crossed that my investments in the U.S. stock market will recover in time for my retirement in 30 years or so. In the mean time, I’m still looking for a worthy place to put my good ole’ U.S. fiat dollars before they are better served as kindling for my fireplace.