Category

Commentary

Apr 05
0

Journalists Don’t Know Nuthin…??

By | Commentary
Over the years, I’ve noticed something about most financial journalists….they generally don’t know what the hell they are talking about. Case in point, today I read “The geeky debt fix that might work” by Jeanne Sahadi at CNN Money. The article is about using “Chained CPI” instead of CPI when computing the monthly increases to Social Security, government Pensions ect… Bottom line, Chained CPI typically runs a fraction of a percent under CPI. According to the article:

Social Security payments would continue to grow every year, but by 2030, the median payment would be 3% less than it would be if today’s inflation measure were used.

Got that? I thought it was a joke at first. In 17 years…2030, this switch would result in Social Security being 3% less than the current trajectory. So I went to my CBO vs CBO file, and took a look at 9/2030. Using some pretty conservative estimates (6% annual growth through 2023, then 3%), I get annual spending growing to $1.654T. The TTM right now is $689B. So if we adopt this now, we get $50B of annual savings in 2030…$4B per month. News flash…we spent about $ $25B just yesterday on Social Security, with another $35B to go this month. I’d be surprised if this train makes it to 2020, much less 2030, and yet Jeanne says:

It’s dull. It’s controversial. And it might work.

I don’t really mean to pick on Ms. Sahadi, but here is my hypothesis about 95% or so of all journalists…print/TV/radio…whatever. It all starts in college. I didn’t find a bio on Jeanne, but let me take a guess. She’s probably an English major, or a lit major, or a history, or maybe, just maybe, a real journalism major….which is probably worse by the way. Now, I’m a little prejudiced…I do not consider any of these to be real college degrees. These are the degrees you get after you flunk out of a real degree your freshman year. Just sayin… From there, if you know somebody, or have a pretty face, maybe you get on with a small media outlet and work your way up, eventually working your way up through the ranks, ultimately appearing on CNN as an “expert” Notice anything missing? Like…a real job maybe?
I can only speak specifically to accounting/finance, but the only way to really learn about business is jump in and do it….for like a decade. I learned more about accounting in my first 3 months on the job than I learned in 4 years of college.  It is quite clear that Jeanne doesn’t have a clue what she is talking about…she just skimmed through a couple government reports, pulled out some talking points, and submitted her piece to a probably even more clueless editor. If she had even the slightest comprehension of what she was talking about….none of this would have made it out of her pretty little head. But it did…and there lies the problem. Think back to 2007…of all the experts crowing about the new market high’s, and of course Bernanke starting off his 0/100 batting streak…how many people said…better watch out because the S&P 500 is going to lose half it’s value and bottom out at 666? I’m sure there were a couple, but they were few and far between. Now we have Jeanne, supposedly a financial journalist who specializes in this topic, buying (and propagating) hook line and sinker the myth that all we have to do is skim a fraction of a percent off CPI calcs and we can fix the deficit. Somebody needs to pull Jeanne out of wardrobe a few minutes early and introduce her to a spreadsheet (and maybe even a calculator)…that’s all I’m saying….can this lady even count??
So I guess my point is, you really shouldn’t trust any of the yokels in the financial media because all they are, for the most part are just entertainers who can read a teleprompter and occasionally pronounce a big word. Can you say “superlative CPI”?? Jeanne can.
Apr 04
0

Hungry Kid = Irresponsible Parents

By | Commentary
I wrote this yesterday, but toned it down a bit because this subject really pisses me off…. enjoy!!
 Hardly a week goes by without a new story about “hunger in America”, hungry kids, free school lunch ect… This report which made Drudge today yesterday, based on a census report claims that 29% of households with kids are “food insecure”.  I happen to have a household with 3 kids, and I happen to know how to use a spreadsheet, so here is what I came up with.
First, I just wanted to step back from the seriousness of the issue, gather some facts, and create a baseline….how much does it cost for 2500 calories per day from different sources? My guess was that white rice would be the cheapest, but how cheap? Turns out I was wrong…not only is it more delicious, but vegetable oil is also a marginally cheaper source of calories than long grain white rice. If you found yourself just really hard up for calories, vegetable oil is your best bet at $0.42 per day. Yummy!! Rice was a close second at $0.54 per day. Pinto beans were more expensive than I thought they would be, at $1.26 per day. A whole uncooked chicken would be $2.53 per person per day. Now, I am definitely not suggesting you try to live for an entire year (or day) eating only vegetable oil. $155 for an entire year of calories may seem like a yummy bargain, but it’s really not… but rice…., a good chunk of the global population uses rice as a primary staple…that’s not so crazy.
On the other end of the spectrum, you may be interested in knowing that you could eat only steak (at $5/lb) for $15.63 per day or Whataburger #1 meal for $11.16 (sorry, no refills on that coke, and only 2500 calories per day). Now, the point of all this is that somewhere between a vegetable oil diet at  $0.42 per day, and a T-bone steak diet at $15.63 has to be a reasonable estimate of how much it costs to feed a child. Note that I used 2500 calories per day…which is way more than most kids need, but at least it gives us a conservative baseline. Below is a snapshot of my spreadsheet:
2013-04-04 Calorie Worksheet
Now, I don’t know what “food insecure” means exactly, but we aren’t really talking about kids actually starving….as in zero calories per day. What we are talking about is a kid who gets home, and there is no food in the house for dinner…which obviously sucks for the kid…that’s just terrible, but I just have to ask the parent… Really?? You don’t have a friggin quarter to make your kids a big ass bowl of beans and rice to tide them over? $0.50 for a box of mac and cheese?? How the hell does that even happen? If you don’t have a quarter, you don’t have a family member, or a friend/neighbor….with a quarter?
This is all just unbelievable to me. The homeless guy I pass by on my way home every evening has a quarter. Hell, he has a pack of cigarettes and a beer gut, so I’m pretty sure he could afford to cook a bowl of beans and rice on his camp stove. No, the truth is, we don’t have a problem with hungry kids, we have a problem with dumba*% selfish parents who spend their last quarter on countless crap they don’t need….then who boohoo to the media about not having enough money to feed their kids. Find me a hungry kid whose parents canceled their $100/month cell phone plan so they could feed their kids? Or who hasn’t eaten fast food in the last month, or who’s parents haven’t  spent money on a drop of alcohol or who don’t drive a shiny new car… You will find some no doubt, but not many… surely not 29%…probably way less than 1%.
I did some searching, and it turns out that the Food Stamp Program will provide up to $668 per month, for a family of four…though if there are other income sources, it could be less. But the math is clear…we don’t have a hunger problem in this country….if people/kids are hungry, it is almost certainly because they, or their caretakers have decided to spend what little money it would take to keep their bellies full on things that aren’t food. We may have a moral problem, or a financial literacy problem, or even a child abuse problem, but we do not have a hunger problem per se.. Anyone with an income can at a minimum feed themselves and their kids using some basic staples and a cooking pot. Anyone without an income could do so using the overly generous food stamp program. So if you find hungry children…odds are…you will find an irresponsible parent. That, incidentally, is a number I can believe in…29% of all parents are irresponsible?? Sounds kinda low, but it’s definitely in the ballpark.
Apr 03
0

Insurance Stupidity 4/3/2013

By | Commentary
I just read this over at Money.com discussing the fact that over half of current individual plans do not meet the new minimum coverage provisions set forth in ObamaCare…so of course, cost will be going up. The problem is, if you don’t need all that stuff, you are now going to be forced to buy it anyway. Imagine you are in the market for a car…all you need is basic transportation, which you can probably get for about $20k (new). But when you get to the dealer…it turns out there is a new ObamaCar mandate…sorry, no more cheap cars….the base model is now a Cadillac Escalade…all options….$80k starting price. There is no doubt that the Escalade is probably a better vehicle than the Focus you wanted…but it’s not what you need, and now you can’t even afford a car period. How awesome is that?
The truth about Obamacare, and the entire medical insurance industry in general, it that it is just one more way for the old and wealthy to screw over the young, poor, and healthy. The game is to pull in as many young and healthy people into the pool who pay way more in premiums than they use. For example, from the time I officially entered the workforce at 21, until my early 30’s, I had exactly one medical expense…stitches in my chin…all under my deductible, I think it ended up costing about $1000 (most expensive 3 minute jet ski ride ever). Over that time, my employer paid $10k per year, and I put in a few thousand more, so lets just say over 10 years, I contributed $120k, and had exactly zero insurable events. This is exactly what they want…and this is the entire purpose of Obamacare….to pull in the young, healthy, and “underinsured” population into the pool and overcharge the crap out of them to keep costs low for the old, fat, and sick.
The solution to all of this isn’t to band together providing a gigantic insurance pool from which we can all demand an infinite amount of medical service. The solution is to return to personal responsibility, and return to the basics, making health insurance more like car insurance. That is…you pay for routine maintenance, fuel, ect….the insurance company pays if your vehicle is stolen, totaled by an uninsured motorist ect… Under this model, you would pay for your Dr. visits, your medicine, and the arm you broke skateboarding (or jetskiing). Insurance would kick in if you were diagnosed with cancer, were seriously injured in a car accident ect… Furthermore…we have to become responsible for the choices we make that affect our health. For example, if you decide to smoke…fine….but in addition to the $5/pack…you  also better start saving some money for the $1 million cancer treatment/lung transplant you are going to need in 15 years because that’s on you…insurance isn’t going to cover it, and neither is society. We must be prepared to accept the consequences of our own decisions. The other biggie is food. If you want to eat yourself to death….that’s your personal choice…and I get it…because I love food too. But if you are 35, and weigh 400 lbs, can’t work, need a heart transplant and a ton of medicine just to stay alive because you eat  6000 calories of McDonalds a day….I hope you saved up for it because society simply can not, and should not pony up the million bucks for your treatment. Personal responsibility folks… just own it. That’s what made this country great…and the lack of it is what is actively tearing it down.
Apr 02
0

March 2013 Debt Update

By | Commentary
Over the course of March 2013, total debt outstanding increased $84B up from $16.687T to $16.771T. External debt…the only category that really matters was up $94B, but offset by a $10B decrease in the intragovernmental debt category….basically money we are pretending we loaned to ourselves, rather than admitting we already blew it.

2013-04-02 Monthly Debt Change

Moving on, the TTM (Trailing Twelve Month) change in debt:

2013-04-02 TTM Debt Change

This looks at the TTM change in external debt only for March of 2009-2013. For example, the 2013 amount of $1.070T is the difference between 3/31/2013 and 3/31/2012. …how much debt have we added over the last 12 months. I like TTM when looking at the debt and deficit because there is so much seasonal variation that looking at any one month doesn’t really tell you anything…like this month, April, will likely post a monthly surplus….but that doesn’t really tell you anything about the $1T or so annual deficit.
Looking at the chart (made in Excel 2013…not crazy about the grayish black fade), we can see a $125B improvement…the right direction no doubt, but at a tepid and declining pace…for now. At this pace…we would get to zero in 8.5 years…assuming the pace continued…it will not. What we will likely see is an acceleration through the remainder of the year thanks to the recent tax increases and relatively flat spending. Then, after a year or two of stabilization, it is going to turn the other way as the growth in outlays surpasses any revenue growth, driven primarily by the large welfare programs…Social Security, Medicare, and Medicaid.
Yes…I said it….these are all straight up welfare programs where one large voting block has forced a “generational contract” where the old and wealthy steal from the young and poor. This is justified by..” well, we were screwed too, so now we are gonna get ours.” Maybe so…but it’s not gonna work for much longer. This entire system needs to be abandoned and go back to the old way. Either you save enough on your own in your 40+ year career to sustain the retirement you want…or, your kids/extended family supports you…if they like you.. The end. The average person making $50k puts about $7,500 each year into the social security/medicare pot each year…. What could you do with $7500 per year? Probably pay off your house in 10 or 15 years and start amassing a lifetime supply of benefiber…. Ain’t retirement grand?
Apr 02
0

3/29/2013 Daily US Cash Deficit

By | Commentary, Daily Deficit
Here we go…the last DTS of the month, complete with a $10B surprise….an additional $10B of revenue from our good buddies at “GSE Dividends”. This is likely some of that missing revenue from earlier in the month…I guess they finally got around to cashing the check.  The 3/29/2013 Daily Surplus came in at $12.5B, and the month ended up at $94B, a full $45B improvement over last year’s $ $139B deficit.

2013-03-29 USDD

At first glance, revenues look flat, but the truth is, Corporate tax deposits were up 15% YOY and individual TD were up 12% for a combined increase of about $30B. This is offset by a decrease in TARP($15B), an increase in tax refunds ($10B) and about $5B decrease in other misc. revenues. This is good news….I have been using about 11% in my forecasts, so at least for the month, we are over performing. I won’t get excited yet…I really want to get beyond tax season and see how May-July looks…if we are still seeing 10%+ out there, it’s going to be hard to deny that we have some bona fide YOY revenue growth. Duplicating that in 2014 is an entirely different story, we’ll find out in time though.
Cost really jumps out at you with a $47B improvement, but about $30B of that appears to be just timing….costs that hit in late March in 2012 won’t hit until early April in 2013. Of course, that should give April 2013 a $30B headwind if it is going to improve upon last year’s $58B surplus, but with tax deposits  showing strong growth, a strong showing on tax day (4/15) could make it close.  That leaves a bona fide decrease in outlays of about $17B, which is quite impressive, maybe too impressive. Payments to defense vendors was down $6.3B from $33.8B to $27.5B. That doesn’t really jive with the sequester numbers I’ve been seeing, which was’t supposed to really hit until April or so…maybe they are just “slow paying” who knows…we’ll keep an eye on it. “Other also makes up a big chunk, and among the remaining categories, there is quite a bit of downward movement. It is worth noting that Social Security payments are up 9% YOY, posting a $5B increase from $55B to $60B in 3/2013. That $5B annualized means that just to stay even…we need $60B of revenue increases or spending cuts…every single year just to cover increases in Social Security.
So for a first glance, this is a better report than I expected, but it doesn’t warrant celebrations or a “Mission Accomplished” banner by any stretch. Tax deposits are definitely trending up, and outlays are more or less flat, maybe even down a smidge. If we keep this up, we may come in under the $1T deficit mark this year…maybe.