Peter Yastrow's Blog

April 2013

It has been a while since I wrote anything in this space.  I chose to be absent rather than redundant. The facts are not changing very quickly, and therefore my assessment is not changing either. We remain in a situation of complete and utter ignorance with respect to the majority of educated Americans. Americans are absurdly confused about several major points, and continue to behave in a manner that should be deemed ” reckless” and “obscene” with a little emphasis on “short-sighted”. They have substituted brains and logic for dogma. They have traded in common sense for a diploma from a degree factory.

Let’s look at some of the dogma with a degree of skepticism.

Many Americans have an IRA and a mortgage.  They have debts, and assets. This is absurd. They assume that they can borrow money from a bank for a mortgage, and simultaneously lend money in the form of investing, to a variety of companies in a variety of ways; debt by buying bonds, equity, by buying the stocks, or a combination of the two. These Americans, because of a conceptual understanding of interest rates, and tax rates, have become mini investment banks. Each one is a small entity that simultaneously leverages up on real estate to “play” the stock market.

They look at the last 100 years of investment returns, and assume that what took place in the past will continue into the future. They assume the market will yield a positive return over time, that will allow them to earn more on their savings than they will ” lose” on the house,  but if returns happen to go sideways for a while- like the last 10 years, then you just borrowed from a bank at some rate, to give it to people to use for free !

Then they look at their homes, and say ” that is an investment too ” and I start to really get sick to my stomach. In addition to the costs of buying and selling a home; often 5%, you have annual upkeep of 1.5-2% and real estate taxes. If i told you I have an awesome stock that you should buy, but it has a 5% transaction cost, and a negative dividend, you would not be inclined to purchase it. A home is not an investment. A home is a goal to be strived for, not a necessity that people should enslave themselves in debt to live in.

The least painful way out of this mess is innovation. If someone could only build another internet, then Obama could have oral sex in the oval office too.

peter

Feb 2013

We sit here just about 14,000 at all time highs. This is not an indication of economic health. The stock market is not mis-priced either. The stocks are priced right, at all time highs.

The point is that stock prices are based on 3 factors. Earnings, prevailing interest rates, and growth. Presently we are in a situation where earnings are solid. Companies are not growing, and they re burdened with new costs, but earnings have remained very solid. The growth rates are almost zero, because the future is a bit cloudy, and there is a lot of headwinds, so growth is a non-factor now. Interest rates are at almost all time lows. They got bid up a little as people got excited in the first month of the year, but they re at all time lows, and not going higher from here, not any time soon.

Here is the math;  Price=Earnings * growth rate/ interest rates.

If we push interest rates lower, the price will go higher. Bernanke has pushed rates as low as he can, and in response, the stock market has rallied to all time highs- it is exactly correct.

If you re a bear and you keep trying to short the market, you re selling shares to investors. These investors will be holding their shares for years. Never sell short to long term investors. You ‘ ll get squeezed every time.

Good luck out there.

Making money is harder than ever for traders. They have no information advantage, or inside info. They can not react more quickly to information, like they could in the past. Traders who are all trading on the same information, released at the same time to everyone, can not make consistent returns. Traders who have information before everyone else, are engaging in trade violations……so either the trader is a sheep, or he is engaging in illegal activity- it all adds up to moving money into equity funds. Let it sit there. Proctor and Gamble still is selling detergent all over the world- feasting on the low interest rates. All the large companies use lots and lots of money, and with rates this low, it is like getting your key ingredient  more cheaply.

The economy is weak. very weak. I am sure that we will slip back into recession, as soon as the government stops spending more than they take in. The interest rates will stay low for a long long time. The earnings will hold up for now. So buy stocks.

Just to stick it to Joe Kernan- Hey JOE I told you stocks were going to go up, and the economy was going back into recession-

peter

APPLE – Case Study

Apple makes great products. First they gave us the computer. Their computers were easier and more user friendly. Then they gave us our sounds; music first, and later telephony. Eventually they gave us sight, sound, and thinking all on one tablet. Pick your size, hand held, or medium, or large- or is it venti. Along the way, they had a few flops.  Nobody really cared when they changed the colors of the computers. But clearly, Apple is the leading consumer tech company. Apple has the ability to give us a hand held device that allows us global communication, navigation, and access to all information known by man in a blink of an eye…..for almost the price of dinner for 4.

The issue for Apple now is ” what is next ? ” We all expect a big move into the television world. Combining television with our computer, with our phone sounds really cool. But it is a gimmick. It is a stunt. Apple has no real problems left to solve for us. We have everything we need on our phones. Most of us are now left scratching our heads and wondering what else we possibly could need or want. We are left in a predicament that brings to mind the dog chasing the car, and finally succeeding. What else do we need in order to be more productive ?  The technology now is beyond adequate, to the point of extreme saturation.

Maybe they ll improve the photography, and make Siri more slutty. Perhaps they can allow me to turn on my TV while making a phone call, and playing words with friends. The point is that all of the ideas, and improvements and advancements are very small marginal benefits. They barely justify the price of  upgrading. I am at a loss as to what else we need, and that is why we can all conclude:

Necessity is the Mother of Invention, and we no longer have any technological needs !

In the consumer space of technology, we have saturated the market.

Apple should focus on our  nation’s education system next. That market is ripe.

Peter

Growth

cost /benefit

I listen to people speak about the economy about 14 hours a day. The news shows, clients, customers, my friends, the cleaning lady all talk about the economy. They all have their own opinion of why it is weak, and what the people in charge need to do, in order to make the economy stronger. Most of them, with the exception of the cleaning lady, don’t really have a clue about economics. Their “insights” are really more accurately described as “biases” and lead them to conclusions that are so myopic and short-sighted that it is laughable.

The major reason I began writing this blog, was to help provide people with the “proper” tools for evaluating economic decisions, and situations. Economics has more than it’s share of “snake oil” salesman, who will try to convince people to buy things and sell things in order to improve their financial health. Politicians use economics like a preacher uses the devil, in order to scare us into acting as they wish. Hopefully, by looking at all of the rhetoric and speeches, marketing and pitches with the appropriate scrutinization, healthier and happier decisions will be made.

At this point the biggest problem facing the country today is the “3rd party payer”. This is when a service is provided, but someone else pays for that service.

The first example that we all are familiar with is health insurance. We pay monthly to a 3rd party- the insurance company. When we go to the doctor, the insurance company pays the bills.  The problem is that we want as much treatment and services as we can get, and all of the cost is bourn by the insurance company. The doctor benefits because he charges for more services, and demonstrates being thorough and preventative, by ordering as many tests and screenings as possible. The patient benefits because he receives much more care. The bills go to some big insurance company that has tons of money and pays for advertisements during golf- so there is no problem. RIGHT ? ?WRONG !

There is no cost benefit analysis being done. The doctor’s incentives are totally skewed toward benefits. The patient’s concern is only about benefits. When is the last time a patient was told to get  a series of X-rays before setting their broken arm, and the patient said, ” gee doc, do you need all of those, I hate to make the insurance company pay too much.”  The doctor is going to be safe. For his career, and the patient’s safety the doctor will do more, and therefore charge more, than if the patient was paying himself. At the end of life, doctors could spend a couple of dollars, to euthanize patients who are suffering. Instead the typical practice is to spend upwards of $50,000 per patient on their last month of life. Our humanity compels us to do all that we can. Our logic is no longer required, because someone else is paying.

The country is in the midst of a housing crisis. This problem has the same root evil as the healthcare problem. Someone else is going to pay. People who were writing mortgages did not care about the risk of the loan, they just wanted their commission. People who were borrowing were assuming they could sell later, or walk away, and the costs would be the bank’s problem.

It may not be obvious to people how corrosive and eventually destructive 3 rd party payer systems become. In the onset, they always seems like a humane and efficient way to conduct affairs. As time passes, people do what is in their own best interests.  The mortgage broker who is rounding up all of the numbers to “help’ his client have enough income and assets to purchase his dream home is also helping himself to a bigger commission check. Little by little, the borrowers get a bit more purchasing power/debt because the brokers are leaning the same way. This leads to more aggressive bidding for houses. Which drives up the costs of the purchases, and the values of those already purchased. Now people perceive greater wealth, their home is worth more, the one down the block just sold. The housing bubble and subsequent burst was only possible because the costs of writing a bad loan, were not going to be bourn by the people writing the loan, or by getting the loan. They were going to be the problem of some big company owned by a bunch of rich guys.

Now in the aftermath, as people struggle to understand why a home that was worth $500k in 1996 and was worth $800k in 2002 and was worth $1m in 2006, is now worth $550k, I have little joy in saying I told you so. I saw it coming. It was easy. Home prices are going up faster than incomes. Either houses are becoming more productive, or you got a bubble.

Healthcare costs are going up higher and higher, faster than incomes now. This is because the demand for healthcare is exploding, and the insurance companies are on the hook for the costs. Every American is going to do what is in their own best interest, and take all they can. The system is flawed. The costs must be bourn by the patient. The doctor must help the patient make sound economic decisions, and then we may reign in the costs and save our healthcare system. The failure to aline the benefits with the costs, is the achilles heel of our country. No system that lacks balance lasts for long.

As our country has gotten larger and larger, and we have become more urbanized, we have also begun to become less concerned about our countrymen. It is ridiculous to think that we could all think about the country, and do what is best for the other 330 million people, especially when it is your loved one who is in desperate need of care. We must be wise when we legislate. We should account for our own human frailty. If a system can be taken advantage of, it will be taken advantage of.

joy to the world

peter

The Caustic Environment of Good Ideas

If we try to dig a hole, we also make a hill.

In all cultures and philosophies the concept is present.

In business we perform “cost/benefit’ analyses. This is to look at the “good’ and “bad” of a business decision.

In medicine, doctors will discuss the side effects of treatment, and weigh the positives and the negatives to determine the proper course of action.

Even kids know that going out for a date has two sides. Yes you get a fun couple of hours, but you could be committing social suicide- so don’t do it.

The biggest problem with our president is that he either doesn’t understand or he doesn’t care about the “costs” of his decisions, he only seems to be focusing on the “benefits”. His rhetoric continually is inflammatory, and condescending, as if the other side is just “evil meanies” and he is the only “white knight” to fight for the little guy. When he bailed out the auto companies, he saved jobs and saved the car companies, but the costs were devastating. Nobody talks about the bad side of his solution, just the good side. The fact is that Obama violated bankruptcy laws that date back to the 18th century in order to deny  some of the bond holders and investors their legal rights to their money, in order to give the union workers, and ONLY the union workers their pensions.

The President changed the rules. He fought for the little guy, and won. The bondholders and investors who were supposed to be paid first, but then were subordinated, learned a very costly lesson. Mr. Obama fights hard and dirty for his people. You cannot assume that the laws in place to protect the investors will stand, you cannot assume your lawyers are correct, you cannot assume your monies are safe.

The banks won’t lend, the investors are sitting on their hands, the growth rate of the country is at stall speed. This dreadful business climate was not any other person’s fault but Barack Obama. He fought too hard for the unions, he fought too hard for health care, he fought too hard in the election. He may represent the majority of the country, but he has a responsibility to respect the minority as well. He looks at decisions as battles and victories, the little guy versus the big guy, with only Barack to help him. So President Obama destroys the opponent, and claims victory for his people.

Unfortunately, he is not that bright. He lacks the wisdom of great people. People who understood that every action has a reaction. All acts have consequences, good and bad.

The next 4 years will be quite dreadful. Look for spending to go unabated, as our deficit goes over 20 trillion. Our bond rating will be cut again. The stock market will struggle and I look for the DOW to PIVOT back to 11,500 as earnings disappear.  Investors should continue to look for multinationals that pay dividends.

Let’s not waste 4 years blaming Congress for doing their job. Obama is going to try to spend, spend, spend on all his causes, and demonize and vilify anyone who disagrees. But Obama’s  ideas are usually lacking in fairness. His solutions are always one-sided. He is all YIN with no Yang, which is kind of ironic considering he is bi…. racial.

Let’s hope Obama can see the whole picture in his next 4 years.  And remember he is supposed to be everyone’s president.

joy to the world

peter

Kirk Out

Our civilian labor force is 155 million give or take. Job growth last month was 171k. This number stinks.

If we were adding just 2% a year to our civilian labor force, which is very slow growth, then we would be adding 258 k jobs per month.  Our job creation last month was very weak at only 171k.

There are a lot of big reasons why are economy is slowing down. There are a lot of ways to fix it.

But the first step in solving any problem, is recognizing that a problem does indeed exist.

How can any economist, sociologist, anthropologist, biologist,or gist about anybody else possibly look at the growth rate of a population, and look at the growth rate of opportunities to make a living and see a disparity and not be concerned, alarmed, worried, scared, or terrified. It is simple mathematics. The fed is doing all they can, and Obama is doing all he can ( but the meanies in congress won’t play obamaball ) and still we have the growth of jobs slower than the growth of the population.

This is a really serious problem.

“Fiscal and monetary stimulus are at full power captain.”

“We need more speed Mr. Scott or we will not be able to break away from the gravity of our debt bubble….

Most people in this country have taken on debt, and have equities in their retirement account. These two practices, of borrowing to buy a home, and saving in the stock market, both require growth to work out. If you borrow money to buy a home, and your income never goes up, and the house value never goes up, then you paid a lot of money in interest and taxes to live in a place that required maintenance and upkeep, and insurance and cleaning. If the economy doesn’t grow, then stock prices won’t go higher. If stocks don’t go higher than  our retirement accounts will be woefully under our targets. It all is predicated on growth, the whole house of cards.

The employment picture is bleak, and the economy remains sluggish. It is terrifying to think that rather than speak directly about how the economy still remains very weak,  our elected officials, and their pathetic economists would rather try to confuse the issue, muddy the waters, and claim victory on the economic issues that threaten our lives. Our quest to live long and prosper has gotten much harder. I want to understand why, and see if we can fix it. How dare them give us water, and tell us it is Romulan Ale.

We need to confront our problems. We must identify them, and then solve them. We do not have the luxury of waiting. We have too much debt as individuals and as a society to continue bumping along at this low growth rate. Time is working against us, and we just wasted 4 years.

Live Long and Prosper

joy to the world

peter

Why You Should Read This Blog

Over the past 4 years I have been sharing with everyone my predictions, and slants on the world at large.

I predicted a slowing U.S. economy based on a poorly conceived stimulus.

I said on CNBC  that “driverless car” would be the next thing, and am watching all of the “thinkers” jump on board.

I Predicted stocks would stay close to 13,000 in spite of  a slowing economy- and warned Bears to be careful shorting stocks when rates are heading to 0.

I warned that the changing business climate would destroy big box retailers.

I warned that Research and Development would be in jeopardy, and that we needed to reassert copyright protection.

And most importantly I have laid out a very clear and comprehensive explanation that the economy of the country, and the world at large, needs new innovation, and productivity enhancing tools in order to just maintain the present standards of living.

Whether you re a saver or a spender, an earner or a burner- the information should help protect the reader from the economic perils that confront us everyday.

J.O.Y.

peter

Afghan and The United States

The Vice President made an amazing point in the Vice presidential Debate. He clearly, and rather aggressively said, twice; the Afghans will not take responsibility for themselves. The fact that afghans are crocheted blankets, and the Afghanis live n Afghanistan- and that Biden doesn’t know the difference- aside, let’s listen to the Vice President. He is saying that this group of people will not take responsibility. That they won’t take over their own security force, and thus allow us to pull out. Biden hammered home on the point. The Afghans ( he meant Afghanis ) will not take responsibility, as long as our government would take the responsibility for them.

Hey Joe, you made the Republican argument more eloquently, with more passion than anyone since Henry Reardon. No, you were not talking about economics. You were clearly speaking about the human condition. You clearly expressed an understanding that people, Afghanis in this case, will usurp their responsibilities, and lessen their responsibilities whenever they get the chance. That Afghanis would not step up and take over for something so vital and rudimentary as common defense, if they had the free option of allowing the United State led coalition continue to do this most basic function for them.

Is it any different in the United States. Are our citizens so different from Afghanis ? Of course not. We are even less motivated here in this country. It would be logical to assume that U.S. citizens would be willing to let our government continue to provide services for us. I mean we might be slow to get off of our government’s dime. Biden said you have to put in deadlines to motivate the Afghans, he knows how it works with Afghanis. People are people. If you agree with Joe that the Afghani people will not take responsibility, then either you re a Republican, or a racist.

It is not just Afghanis who will not take responsibility for defense. It is Americans who won’t take responsibility for their loans. It is Americans who won’t take responsibility of their health, their weight, their diet. Why go on a diet when you can get the government to pay for all of your future health costs. The entire fabric of society is rewoven when you let big governments help, or assist, or take care of anything. Clearly as they teach in every decent economics school in the world, the effect is always deleterious. Joe knows. He said the Afghanis will behave differently.

The problem is that government is a double edged sword. Anyone who wields the power must know it cuts both ways.

JOY TO THE WORLD

peter

Tags: AFGHANI, BIDEN

More on Driverless Cars

Our society will benefit enormously  from the driverless car. Simple minded people seem to think, ”   We will sit in our cars and read the newspaper, and surf the internet.”.  Clearly they are correct.  Commuting to and from work will no longer consume hours out of our day, but will actually create blocks of time for us to be productive. I know that most people would be thrilled to be relieved of the stress and burden of driving in traffic everyday.  But this is only the tip of the ice berg. The driverless car is going to profoundly shape our society in several very exciting and fantastic ways.

In addition to turning millions of people’s commute into a productive part of their day, driverless cars will allow people who could not drive , to now use cars. The old people who no longer drive, could once again have their independence. Getting our elderly to and from appointments becomes a simple task, rather than a family chore.  No one would be too old to be driven.

Our society is also facing an education crisis that will be dramatically helped by the driverless car. Children will have access to any school that they can be driven to, NOT BUSSED. No longer will our children be limited to their own immediate neighborhoods. There has been hour after hour of discussion in our government about ways to make the education system less unfair, and skewed. Any voucher system or payment system that is conceived to make education move towards “fair’ will be infinitely better when our students actually have the physical means of getting to a better school. Think that underprivillidged kids won’t have access to driverless cars-  think how easy it is for us to be charitable, and send our cars to take a kid to school. It would be pretty simple to tell your car to ” go to John ‘s house” and then John sends the car home when he arrives at school- whether it’s after school sports, music lessons, or a ride to a friend’s house, the driverless car suddenly empowers our parents and their kids and gives them the means to get to a better place.

The possibilities are endless. We can change the way we deliver goods and services. Our cars could do our shopping and pick up our cleaning. They could travel to factories and pick up our purchases directly. My small car going to and from a delivery center 20 miles away will cost about 10 dollars- as compared to a delivery truck that would have to make hundreds of small deliveries through the day. Huge trucks making small deliveries is the least efficient way of moving goods- but it is the most cost effective. This is because of the cost of drivers. Not only do they get high wages, the also are paid large pensions and require large amounts of insurance.  The driverless car would also include the driverless truck, and the driverless delivery van, and we would see the cost of moving goods drop.

The other huge factor that we really can not quantify is safety. Last month a young girl was killed in my home town because another young girl lost control of her car. There were extenuating circumstances, but who cares ? Over 90% of traffic injuries and fatalities are caused by human error. The recent numbers seem to indicate that with the added distraction of texting, driving has gotten much more hazardous. One moment of distraction can destroy the lives of so many-

This is the next big thing. We need to make sure we all understand and appreciate that this technology needs to be embraced, and implemented to its fullest capability. The resulting changes to our society will be incredible.

J.O.Y.  TO THE WORLD

peter