Future Social Security, Medicare and Medicaid Entitlements

By 2050, Social Security, Medicare and Medicaid will take up nearly the entire federal budget, if it remains on its present course. By 2080, Medicare alone will comprise the entire federal budget.

This projection is unsustainable. There will have to be some changes done by politicians in office as problems ensue.

But the impending debacle does point up the stupidity of those in office today, who have set forth a path to disaster, for us, our children and grandchildren.

Congress and the Obama administration are creating a bankrupt system for us and our descendants. Solutions will only involve far less services and benefits, with rationing and much higher taxes, as well as huge inflation.

We have never encountered such financial problems before.

The Obama Administration’s Stimulus Bait and Switch

The Obama “stimulus,” evolved in its usage. The old meaning had been perfectly useful in Keynesian economic parlance. But it has now became a cover for politicians who conveniently use the term to hide other motives they may have.

What the bulk of the population in the U. S.thinks of when Washington attempts to stimulate the economy is that spending will get business moving, employers hiring and consumers buying as quickly as possible. Now, and not years in the future.

Poor psychology is what makes deep economic recessions linger on. A true stimulus must promptly change that poor psychology.

But when only a small amount of stimulus money is actually designed to be spent quickly, another motive is apparent. When the vast bulk of stimulus money is designed to be a slush fund to expand federal and state government jobs, the goal is primarily different.

Media Portfolios: Doubtful Suggestions

Financial portfolios you get in the media are amusing in a sense, but, I maintain, they are not a laughing matter. Because you can get burned if you follow such advice.

The media suggestions come with some advisor mentioned; the one making the recommendations. That advisor has been singled out from among tens of thousands in the business.

Advisers are always seeking publicity; they strive to have pet portfolio ideas published in public view. So why this mention in the media? Is it a friend or relative of the columnist or reporter or interviewer?

Furthermore, the portfolios are usually an attempt to time the market. Also, they never identify objectives by investor age or risk capacity or psychological sensitivity. It makes the reportage useless. And dangerous. ( See the Earl J Weinreb NewsHole® comments.)

Annuity Termination Penalties

Annuity sales pitches often overlook start-up costs of annuity contracts that can be in effect for up to seven years.

Salesmen commissions and administrative expenses must be met. Early termination requires faster amortization. These are in addition to management fees that are imposed each year on annuities that involve variable investment.

Furthermore, the annuity may have life insurance provisions that you may not need. You will pay for that feature.

So annuities involve costs you are not aware of, And you simply cannot drop contracts willy-nilly. There will be penalties for making corrections or changing your mind. ( See the Earl J Weinreb NewsHole® for further comments.)

Financial Education Via Headlines

Investors get most of their financial and business education from the media, especially brief bytes and headlines.

Schools don’t provide an adequate underpinning of information for students to be able to comprehend economics and finance in the real world. As a result, the public cannot evaluate the bombardment of ads, nor headlines that apply to finance and business topics, or meaningful explanations from inept media sources.

They therefore get biased, one-sided opinions without any contrasting arguments or alternatives from headlines or inadequate financial and business articles.

Brokers and advisers cited in the media frequently promote a particular point of view. The media often poorly screens content.

Remember also, the importance of investor age, family status, personal psychology, finances and risk status, have lots to do with investment choice, Media slants often neglect them.

So stay alert to basics and avoid tips from questionable sources. ( See the Earl J Weinreb NewsHole® comments.)

Using Ads and Salesmen For Investment Advice

Ads give only the advantages and not the downsides of investments being suggested. Why take the advice? Yet, so many investors learn about what they buy solely from ads and salesmen.

I have now researched over 1,600 investment strategies that are occasionally or frequently used. I have also looked into the pros and cons of each. And I have not found one that has an exclusive advantage, without at least one disadvantage.

An example: Sellers of gold investments may be selling one type without discussing various other forms, or whether everyone ought to be buying gold at all, despite looming inflation. The public never gets full information.

Furthermore, investor age, family status, personal psychology, finances and risk status, have lots to do with investment choice. ( See the Earl J. Weinreb NewsHole® comments.)

Why Government Deficits Spell Future Danger

You can be certain that government deficits will spell disaster. Especially for taxpayers and even for those who don’t pay taxes. In fact, for anyone who worries about the cost of living.

Government spending debts can easily be borrowed away. That debt of today, however, is being financed at very low interest cost. Those costs will easily double and triple. Long term rates can conceivably reach 18% or so from under 4% right now,

So we are looking at astronomical debt, with poor prospects of an economy expanding where it can accommodate that debt.

The public will eventually see that today’s spending is only a down payment on future costs, to be paid by heavy taxes and a more worthless dollar. Yes, if taxes don’t foot the bill, a worthless, inflated dollar will.

Big Institutional Investors Cannot Cut Adviser Fees

Huge institutional investors should be able to get better terms as investors than do smaller investors. Mutual funds do reduce expenses to clients who keep larger fund balances. This is perfectly logical and it’s legal.

But the U.S. has not been happy about fee discounts if done in unison by organized major investors. They include; endowments, foundations and pension funds, as part of groups, and Institutional Limited Partners Association (ILPA), who use buyout or private equity funds for special deals. The group’s 215 members have more than one trillion dollars at work.

They would all like to negotiate lower terms than they have been getting. But it would be against the "anti-trust" law.

Dollar Gold-Backing

The Treasury Department has reported it has 261,5 million ounces of gold. There’s been lots of talk about how it can be used, or whether it ought to be kept as is.

At its present price, the gold’s value totals over $390 billion. One suggestion has been to use it to reduce U.S. debt. I would rather not sell gold for this purpose, I feel it will not reduce or affect government spending habits,

I believe the gold holding ought to instead be used to back the U.S. dollar. The stability would be an economic boon that could accompany what we do when reducing government spending and reducing debt.

Overactive Financial Advisers

As you probably know from my reports, I find professional advisers too expensive for most ordinary investors. They take as much as 20% and more of earnings when their cut is 1½% or more of assets managed. Only investors who require estate and tax advice need additional consultation.

To make themselves appear necessary, advisers will make up portfolios with as much as ten and more individual funds when just a few, low cost funds will do. But the odd assortment appears to be the result of more selective investment thought. The end result is meaningless, apart from marketing the adviser’s service.

I have written volumes about the subject, but to sum up, let me repeat a simple lesson: Once you learn investment basics, you can manage with low-cost index mutual funds, ( See the Earl J Weinreb NewsHole® comments.)

Government Debt and Ultimate Inflation

Most Americans are now concerned about heavy government financing by enormous borrowing, the equivalent of printing money, and enormous outstanding debt that has to be constantly financed.

An economics basic: Funds for financing business and government are in a Zero Sum game. Funds needed by government to finance huge debt have to displace funds needed by industry. Economists of every stripe concede that. This problem will get worse when government has to raise its cost of borrowing from currently very low to more realistic, higher levels.

Governments can only overcome the accommodation for extraordinary spending, and the potential problems they will entail, by expanding the economy.

But if the government is heavily taxing while borrowing and literally printing money, it will be curtailing that necessary economic expansion.

You cannot borrow forever without hurting expansion because you crowd out funds required for private business to operate normally. There will be business stagnation and inflation. Proof has been shown over and over for centuries. ( See the Earl J. Weinreb NewsHole® comments.)

‘Inside Investors’ and Inside Information

No matter what investors see as government attempts to even the playing field by convicting those who attempt to use inside securities information, many investors are still missing the point.

What is illegal is the sale or divulging of information you are contractually not permitted to divulge, as part of your employment.

What you can divulge about your special securities knowledge is vague. Many individuals are convicted of merely lying, as in the Martha Stewart case.

Yes, there is an advantage of being an ‘inside player” in the securities field, and has to do with the job or work yo have in the securities industry. But this is not illegal. It does cause a disadvantage to investors who choose to engage such inside players when it’s often unnecessary.

I always suggest investors avoid dealing with inside players. ( See the Earl J. Weinreb NewsHole® comments.)

Income Taxes Could Attack Compound Interest Benefits

Leftist politicians love to tax “the rich” but they’re really taxing savers who believe in the compound interest table and know how it works over a number of years.

Save $1,000 of earnings each year for only 25 years at 6% and you have amassed $58,100. Put away $10,000 annually and you have over $581,000, in just 25 years, If you stopped adding to the money, at that rate over the next 20 years, you would have more than triple your capital.

It’s simply the power of compound interest.

You would probably still consider yourself middle class; your net earnings have been modest. But you’re labeled “rich” by liberal politicians who want to tax you all along, to support their “poor” voting bloc.

Ironically, most of the finger-pointing politicians have far more wealth than you, whether actually earned or inherited.

Liberal Interpretation Of Government Default

The liberals in Washington have a totally different interpretation of government default than what it is in the real international financial field.

To the liberals, true danger is any event that doesn’t help get them elected or keep them in office. And nothing more.

So why not make the debt ceiling higher? It allows them to spend more despite high budget outflows.

In the real world, bondholders would prefer to have their interest and principal payments held up temporarily, for assurances, the U.S. were trimming its budget to make all its payments in the future.

Not the other way around, with liberal government kicking the proverbial problem down the road every few months until the U.S. becomes another bankrupt Greece or Portugal.

CDS or Credit Default Swaps

Credit Default Swaps (CDS) are back from the perdition of 2009 and that’s not bad. Except when left-leaning politicians in Washington are looking for scapegoats again.

They’re an insurance policy in the event an issuer of a bond or note defaults. They come in handy in volatile markets. Credit Default Swaps make it easier to sell bonds and notes because traders are then willing to deal and trade in them to facilitate the bond/note market.

Default Swaps were the type of obligations that became well-known in the past financial meltdown. So they became the targets of official abuse. Underlying causes of the meltdown could be attributed to government policies directly, as I have noted before, in my comments.

CDS’ reputation got scapegoated. But they are a valid and useful investment vehicle when traded in open markets.

TIPS Make No Sense

Inflation has been growing. Rampant inflation is inevitable with our U.S. budgetary crisis. And too many investors are being lured to the use of TIPS or Treasury Inflation-Protected Securities.

They fail to offer suffiienct return on your investment. Judicious use of bonds, using duration principles will give you far better returns. ( See the Earl J. Weinreb NewsHole® comments.)

Furthermore, TIPS owned outside a tax deferred retirement account, such as an IRA or 401 (k), require tax payments for inflation benefits you get, and in the year in which they occur. This applies as well in a mutual fund, whether your investment is in or out of a tax-deferred account. You have to closely check the fund treatments of TIPS..

Money Manager Real Costs

Avoid money managers if you can. You pay them a fee of 1% to 2% of your assets which amounts to about 20% or more of your earnings a year. If you invest with them in a hedge fund, you pay 20% or more of earnings off the top, plus that percentage management fee.

Only a tiny number of money managers prove to be frauds, but you will sleep better by staying away from them all because of their annual cost that adds up to a large chunk of what you’re left with.

Hire an accountant, or a CPA, and if you have considerable funds, a tax attorney. But avoid expensive money managers by sticking to plain, low-management-cost funds. ( See my Earl J Weinreb NewsHole® comments.)

Not All ETFs Are Acceptable

Look closely at the exchange traded funds (ETFs) you buy because they are not all alike. Some may be managed when the original idea for their growth has been for them to follow indexes, unmanaged.

ETF funds that trade infrequently will have big differences between bid and asked prices. And also their net asset values. You want to avoid those losses and discrepancies.

ETF charge fees will vary and may be way too high in many instances.

Then there are ETFs that don’t follow their chosen index too well. Focus may be poor, just to suit a current market. That will defeat the original purpose you may have had for investing in them.

Ponzi Frauds

Sometimes it’s not easy to protect against Ponzi frauds. Despite what the media tells you, after they are revealed. The SEC often fails to discover them in time.

But there are basics you can follow to reduce odds of falling into traps that entice scams.

A basic way to avoid investment frauds: Stick to plain vanilla investing vehicles from low-cost, investment funds. They are the ones with the lowest-cost management fees, who have been in business for years.

Avoid those who appear to pay off far better than the plain vanilla, low-cost investment funds. The hotshots who get publicity from ignorant or complicit “friends” or from media public relations.

Collecting Silkscreen Prints

Sometimes referred to as screen printed or silkscreen prints, these works of art have commanded lots of attention since their use by the late Andy Warhol.

I have been a serious collector of prints. As such I have paid attention to the question of originality as this is a factor in determining value. After all, when collecting, you must ask yourself what is true art?

Originality, one of the several cogent factors, has to do with the way prints are created by the artist. Each copy of a print made in multi-copies can be original if done according to established standards.

I have always felt, along with experts on the subject, that the silk screen process did not produce a genuine original because the artist had no complete control over the finished work, as is the case with other print processes.

Your Personal Investment Goals

Consider your personal investment goals when investing, not media suggestions.

General media advice can be totally misleading because they invariably disregard individual circumstances. Namely. the investor’s age and ability to take risks.

You can afford to take losses in your youth when you have time to recoup any errors that you cannot afford, when you are older or retired.

Investors must also consider risk by taking into account their knowledge of the securities markets; and other distinctive personal situations in addition to age; such as number of dependents, financial status and investing-comfort.

Therefore, much media advice and commentary is universally misused by ambitious gurus we encounter. ( See the Earl J Weinreb NewsHole® comments.)

Ponzi and Social Security Machinations

Everyone by now is familiar with Ponzi schemes. The loose definition describes a scam whereby someone takes funds from an investor and skips town. But there are variations and degrees of scam sophistication.

Generally, a so-called money manager takes funds from investors and after a while decides to use at least some of the funds for himself. He pays off original investors with funds received from new investors.When everyone wants their money back at once, and there isn’t any to give them, the frauds are uncovered.

But there are many schemes which, unfortunately, escape notoriety. They are Ponzi schemes, but are never labeled as such. Take Social Security as the perfect example.

It started off as a so-called insurance program, but never was comparable to what you get from a private company. There are no locked-up reserves. Active workers were taxed so that they could get future retirement benefits from taxes placed on other, active. workers.

The SEC Helps Waste Your Investment Money

The SEC is ostensibly around to help you avoid securities fraud. And it does, but only to an extent. Much of what it does is pure theater.

That’s why the SEC has had a poor record in discovering massive frauds and Ponzi schemes, uncovering them usually by chance, and only after they have already been committed and exposed.

But in their mad dash in reacting to fraud, instead of preventing the bulk of transgressions, the SEC does lots of monetary damage. They tend to pick the average, uninformed investor’s pocketbook by causing unnecessary expense of legal fine-tooth-combing, printing and mailing.

And requires such action constantly, perhaps to a far greater extent than is necessary to alert an ordinarily informed investor.

Just one example: I refer to the expense of having banks, mutual funds and corporations send out useless, expensive, legalese financial literature, that the recipients do not read because they cannot understand the terms the SEC has the senders use.

The only ones who can profit are the lawyers. If a dot or letter t isn’t properly crossed or is missing, the lawyers will sue the senders of that hard-to- read and comprehend mail. Again, at the expense of the poor mail recipients who never benefit from the impractical information anyway.

Asset Allocation Adjustments

What do you do when attempting to maintain stock/bond asset allocation relationships in erratic markets?

The early 2009 bear-market in stocks had also been accompanied by a massive sell-off in bonds. The domestic market’s experience had been paralleled overseas as well. That was unusual and not supposed to happen. When stocks in the past were weak, bond prices had generally shown strength.

Therefore asset allocation did not help in that bear market. Using different asset classes to get a high return at a lower risk was unattainable.

Alternatives to conventional stock/bond formulas to balance market fluctuations are not sure-fire answers. But advisers love to recommend a variety with the aid of 20/20 hindsight.

Collectibles are not the answer either, in protecting against market downturns. because of a lack of ready marketability and poor resale margins.

Investors have been using combinations of gold, silver and other precious metal holdings. Still others, questionable short-term commodity trading antics. We see how erratic they are.

Over the long run, diversification among different asset classes has produced much higher returns, along with lower risk. ( See the Earl J Weinreb NewsHole® comments.)

Trying to Time the Stock Market

The financial media has a habit of commenting on timing the securities markets. It cannot stop for a good reason. Securities-timing articles fill space. In blogs, books and publications, over the air, and the internet.

Yet, independent research constantly shows that market timing never works consistently. Mutual fund management companies know that in-and-out investors never do as well as their buy-and-hold, long-term statistics show.

Reading a financial article telling how a rally trend in one security class may be finished, and it may be time to get into another type, should be a danger signal, not a buy opportunity. (Also see past Earl J Weinreb NewsHole® comments.)

Preventing Bubbles and Recessions and Dodd-Frank

The purpose of the Obama administration’s attempt to regulate the economy amounts to a foolhardy attempt to smooth out the effects of booms and severe financial jolts and recessions.

The U. S. has repeatedly been through recurring economic cycles over many years. Other economies around the world have experienced the same.

The bottom line is this: Over-regulation or overly-strict regulation never works. The effort always has a short term goal, but, nevertheless, is used because it’s always a political measure to temper public unrest.

Dodd-Frank is excessive regulation that will not help. There is the usual political factor that overrides all supervision that the regulation affords. Easy money and the subprime crisis were what Congress and the Obama administration created, not the lack of supervision.

I have commentated on this repeatedly, mentioning how simple bank guarantees and not having “mark-to market” accounting for banks in an emergency, would have been the alternative solution. (Also see past Earl J Weinreb NewsHole® comments.)

The Magic “Financial Adviser”

The financial media covets financial advisers with its imprimatur, as a veritable storehouse of all valuable knowledge. The media invariably deems to put forth commentaries on advisor suggestions as the best advice available.

Somehow, the media manage to find these pundits from over 100,000 who ply the trade in the U.S. alone.(I don’t want to get into the subject of how these advisers manage to get selected for quotes in the media.)

But there isn’t advice from these sources that cannot be often questioned, especially when it comes to bonds, The quoted financial expert invariably never fully discusses the principles of duration when it comes to these investments. ( See the Earl J. Weinreb NewsHole® comments.)

Why Bother to Buy TIPS?

Lots of recent publicity are in the financial media about how TIPS funds can legitimately inflate their yields, in accordance with Securities and Exchange Commission rules. It’s easy to be hoodwinked into believing you are getting more than you are, while enjoying benefits of inflation protection.

However, I have never been a fan of TIPS. I have always explained its shortcomings on the return you get and tax subtractions. And how you can avoid inflation’s effect on fixed income investments with proper use of duration principles.

The problem is, most investors and those in the financial media are in the dark about the use of duration principles. ( See the Earl J. Weinreb NewsHole® comments.)

Market Direction Signals

I have found many market indicators in my investigation of strategies. However, many described in the media from time to time are not as sensitive as others.

The short sort treasury bill rate has always been an important one, until the federal Reserve decided, in recent years, to keep money at basically zero cost. When they do decide to raise the rate, there will be an indication of actionable policy change.

There is always that question of sensitivity. For instance, look at the Misery Index, That is the addition of inflation and unemployment rates. Great for psychology but not overly sensitive for quick market action decisions.

I have seen the “Crack Spread” or refinery profitability range index. But that's seasonal and hard to gauge for investment strategy. An even less sensitive investment strategy indicator is the Baltic Dry Index or BDI. This calculates the cost of moving bulk raw materials across oceans and involves mainly those companies involved and ship rentals. ( See the Earl J. Weinreb NewsHole® comments.)

Hedge Fund Regulations

More hedge funds are now subject to SEC regulations. However, regulate them too severely, and they will no longer be considered hedge funds in the true sense. Not by the definition of what an investment hedge fund does for an investor.

Hedge fund managers need secrecy in order to trade. If they divulge their intentions in advance, as stricter regulations promote, their efforts and objectives will be neutralized. Other investors will be able to counter strategy, to make any proposed hedging worthless or even dangerous.

Moreover, hedge fund activity had little to do with the financial downturn of 2008.

Over-regulation is another instance of the Obama administration’s jousting at windmills for no real purpose, other than catering to its anti-business, anti-finance industry constituency.

Derivatives Misunderstood

Politicians love to point fingers at derivatives as bad, and a major cause of our past financial distress.

But derivatives perform an important function as a financial instrument.

Timothy Geithner, the Secretary of the Treasury, overlooked meetings, monitoring trading of derivatives, when he headed the New York Federal Reserve. So, the mysterious workings of derivatives should not have been so foreboding, dangerous, and deadly, causing the 2008 financial meltdown. And they didn’t warrant the notoriety they received.

Derivatives trading now have tougher regulations. I can see having more transparency, but derivatives make financing cheaper in the long run.