Taxation–how much is enough?  No one should have to pay to government more than 20% of their income in total taxes.  Total taxes in the U.S. would be those taxes paid to the local, state, and Federal governments.  Unfortunately, even those in the middle income brackets pay well in excess of 20% of their income in total taxation and this will be going higher.  Why?  Because the U.S. government in its relentless search for revenues will be going after where the real money is. The real money is in the middle with the American middle class.  There are not that many really rich Americans to get substantial monies from.

Congress will try to impose a value added tax (somewhat like a sales tax) to suck money out of the private economy to feed government expenditures.   Adding additional taxes on an already anemic economic recovery will only drive consumption and investment downward.  It will not raise the revenues they expect and will have a negative impact on GDP growth and employment.

May 9, 2012:  Why We do What We DO? 

Our reality is based on what we perceive. The filter of our perception is the many myths or misconceptions that we have assumed to be true or false over the course of our lives. These “myths” have a strong influence on how we orient our behavior and actions both personally and professionally.  Unfortunately, many individuals have been lulled into inside-the-BOX thinking and accepting these myths as true when in fact they may be false or partially true.

I wrote the book,The Thirteen Great Economic/Business Myths That Dominate Our Lives, to give individuals a different and unique insight into some of the great myths that have a profound impact on our lives. The most important chapter is #12 on How to Prosper in the Coming Age of Poverty and Privilege. This should be read first. The next most important chapter is #10 on Positive Mental Attitude Myth. Read this next.

The book is available on amazon.com in Kindle edition for $3.99. I strongly encourage you to purchase this book. We are in a different economic environment than what existed before 2007 and the same-old, same-old will Not work.

To order, please go directly to http://www.amazon.com/Thirteen-Great-Economic-Business-Dominate/dp/0595439837/ref=sr_1_3?ie=UTF8&s=books&qid=1266390735&sr=8-3 .

If you want to prosper, then you have to escape the gravitational pull of inside-the-box line of thinking.  This book will help.  Please order and read it. 

May 3, 2012:  The Cardinal Principle of  Total Quality

The following quote by Stephen Covey states the subject succinctly.

May 1, 2012:  Conflict–Maybe Peace, Maybe NOT–All depends…..

What follows below is part of an article I cut out of the Wall Street Journal many moons ago.  I don’t know who the author was,  but the relevancy of the article is particularly true today in light of the proposed massive cutbacks to the U.S. military budget.  The power struggle between nations has not changed—only the actors.  I would encourage you to pass this post on to others via Twitter, Facebook, Linkedin and other social media sites.

We live in a world ordered by military force and by the willingness to use that force when circumstances require.  Whoever does not have such force, or is overly reluctant to use it, ends up living in a world that has been ordered by someone else.  The advent of nuclear armaments has not really changed the nature of this world.  Those armaments have the purpose of deterring one’s enemies from using such weapons in the first place.  This deterrence having been achieved, we are back to conventional power politics with conventional arms and willing to use them if necessary.

April 26, 2012:  Stock Market Update-The BULL Continues (No Bull)

In my April 18th stock market update, I was starting to get a little cautious on the possibility of a short-term weakness developing in the stock market.  I based this observation on what the very short-term signals were telling me.  These short-term signals have now reversed.  With the S&P 500 index closing at 1400 today, the stock market is now above its 20 day, 50 day and 200 day moving averages.

The trend is your friend and the trend in stock prices is UP both on a short and intermediate time duration.  Let’s see if the market can break through its previous 52 week high of 1419 on the S&P 500 index with strong volume .  If it does, this would be a highly bullish signal.  Anyways, for now play the upside.  If you are like me and sell call options against your portfolio, sell out-of-the-money calls and let the stock come to you.

April 24, 2012:  The Wealth of Society & Conceit

The Wealth of Society can not be transferred if the transfer also destroys the incentive to produce wealth.  The consequence of this action will be to make everyone poorer.

In America we believe that we are an exceptional nation—and we are.  The problem, though, is that this exceptional belief leads us to the conclusion that we are impervious to the forces that made other nations fall.  We are NOT!  Sooner or later, this conceit or arrogance brings every great nation to its knees.  You can not escape reality.

April 23, 2012:  Why the U.S. economy will grow Slowly

The following comes from the work of economic scholars Magnus Henrekson and Andrew Bergh.

In analyzing more than 20 counties over a quarter century, for every 10 percentage points that a country’s government expands into its economy, the country loses up to a percentage point per year in economic growth.  In the U.S. economy the current administration has expanded its reach about 7 percentage points into the economy from its traditional 18% share of the economy.  When you suck resources out of the private economy to finance a growing public sector, economic growth takes a big hit.  That is the problem we face both in the United States and in the western countries.

April 20, 2012:  Change, Progress & Perfection–A short Post

Failure is not fatal.  But failure to change might be.  Failure to change is often stubbornness that comes from unwillingness to learn and the inability to realize that you are not Perfect.  Even though not all change is progress, there can be no progress without change.

April 18, 2012:  Stock Market Update–no Bear Yet!

The trend is your friend in the stock market and the trend is still UP.  The S&P 500 index is still above its 200 day moving average and and just about 10 points above its 50 moving average.  The market is still signaling that both the short-term and intermediate-term directions of the market are up.  The only cautionary signal is that the S&P 500 index is right at its 20 day moving average.  If it falls below it, this could indicate some very short-term weakness in the market, but nothing to get that excited about.  Even in a strong bull market, it can show some short-term weakness before resuming its climb upward.

Speaking of climbing upward,  it will be interesting to see if the S&P 500 average can mount a successful attack  on its previous 52 week high of 1419.  If it can’t break through this level, then one can expect a short-term correction in the market.

April 16, 2012  When the CRAP Hits the Fan

Let’s talk briefly about the financial history of the  United States.  For the entire history of the U.S., through the year 2000, the U.S. accumulated a gross debt of $5.6 trillion.  In a little over 12 years since year 2000, the debt of the U.S. has increased by almost twice that amount.  It is estimated that the total debt of the U.S. federal government will end this fiscal year (September 30, 2012) at about $15.0 trillion.

There is no way this rabid increase in debt is sustainable.  The financial markets can only concentrate on one problem at a time.  They are now focusing their attention on Europe and its financial problems.  If we do not make any serious efforts to reduce our debt burden, the financial market will imposed discipline on us just like they did with Greece, Italy,Spain and others.  Our interest rates on all debt will shoot up and the interest burden alone will drive the U.S. into another recession that could be deep.

We have two to three years at most to make a serious effort on this problem or else the crap will hit the fan. 

April 11, 2012:  Taxation:  The Rich vs the Middle class–Who Pays?

The accepted judgement is that the really rich do not pay as high of a percentage of their income in taxes as do those in the middle.  Forget what you hear from the political establishment–namely the left–the facts paint a completely different picture.

IRS data shows that middle class workers pay on average just under 15% of their income in federal taxes.  The richest 0.1% pay on average 26% of their income in federal taxes.  Meanwhile 48% of working Americans pay very little or no federal income taxes.  I hope this clears up who pays what in taxes.

April 10, 2012:  Stock Market Update=Is the BULL Alive?

With the almost 24 point drop in the S&P 500 stock index today, is the bull market still alive.   The answer is the longer-term uptrend is still in place.  The S&P 500 index is still above its 200 day moving average and barely above its 50 day moving average.  It will be important to see if it can remain above its 50 day moving average.  It is only above it by 7 or 8 points.  If it should fall significantly below the 50 day moving average but still stay above the 200 day moving average (at approximately 1265), then for the short-term the market will be going through an intermediate correction.  Longer-term this would be healthy for the stock market.  An intermediate correction would flush out the weaker players and bring in the stronger ones.

April 5, 2012:  The New Feudal Society–Who are the New Business Lords?

The New Business Lords will be those individuals who can quickly discern, adapt to, and exploit the unpredictable movements in the turbulent flow of life.  These individuals will have as their target the goal of growing the free cash flow of their business.  This cash flow represents the means— the wherewithal— for those shrewd business people to take advantage of opportunities and events that present themselves.  By so growing the free cash flow of a business not only do you increase its value, but also you provide it with the means to maintain its market share and possibly increase it.  On the other hand, the new serfs are those businesses that are mired in debt and illiquidity.  If they stay this way, they will travel down the road to extinction.

The future does not favor the Big or the Small—but the Swift.

April 3, 2012:  The interest Burden Bomb

The Obama budget predicts net interest expense on the U.S.  Federal debt tripling to over half trillion dollars ($500 billion or more) by fiscal 2015 from the 2010 level.  The chances are good that this $500 billion figure is too low.  The administration could have lowballed inflation and interest rate assumptions.

A $500 billion interest rate burden by fiscal 2015 would represent at least 10% of the budget by that year.  If the interest burden is closer to $600,  it would grab almost 15% of the budget.  The 15% figure is very important.  At this point the financial markets would panic because our financial discipline is running amuck.   We will become another Greece and Spain and interest rates will climb dramatically on all U.S. debt.  Fiscal 2015 begins October 1, 2014.   Financial markets look out 6 to 9 months in the future.  So by early 2014 if we do not make much progress in getting our financial house in order, expect some serious consequences for the United States.

The financial markets will impose discipline on us that the politicians did not.

April 2, 2012:  Latest Stock Market Update-Is the Bull Still Running?

I use the S&P 500 index as the gauge for the broad stock market.  To answer the question is the bull still running—the answer is a definite Yes.  The S&P 500 index is still well above its 200 day moving average.  In addition, the 50 day moving average is increasing its distance above the 200 day moving average.  This is a short to medium term indication that the trend is still up.  Additionally, the 20 day moving average is staying above the 50 day moving average of the S&P 500 index.  Don’t fight the trend.   All indicators are pointing to further advances in the stock market.

There is one index you should start to pay attention to.  It is the Dow Jones Transportation index.  If the stock market continues to make new highs and the DJ Transportation Index can’t confirm this, there may be internal weakness developing in the market.  Today the market made another 52 week high.  The transportation index was up but did not make a 52 week high.  This bears watching.

March 29, 2012:  An amusing story illustrating the Future of Medical Care in the U.S.

Nurse, showing new patient to his room: “Now we want you to be happy and enjoy yourself while you are here, so if there is anything you want that we haven’t got,  let me know and I’ll show you how to get along without it.”

March 28, 2012:   Is your Dollar Worthless–OR–What is a Fiat Currency?

Why is your dollar worthless?  The answer is because it has no tangible backing.  For over 4000 years of human history the most common backing of currencies was either gold or silver.  The reason why nations for over 40 centuries backed their currencies with gold or silver was that it tied or anchored their currency to the earth.  They could only expand their monetary unit in tandem with the production of gold or silver.  It took monetary control away from the political class to manipulate the supply of money and its eventual debasement.

Today, the U.S. dollar is a true fiat currency (meaning it has been decreed a currency the central government).  It has no backing other than the full faith and credit of U.S. politicians.  Scary!  President Nixon ended the last gold backing of the dollar on August 15, l971.

Now, politicians can expand the total debt of the U.S. to pay for any program or programs they wish without having to worry about draining the gold supply from Fort Knox.  If worse comes to worse (it will), they can always print the dollars to pay for their programs.

How long can this game continue.  Simple—it can continue until confidence in the government’s ability to manage its financial affairs is lost.  Then, the game is over.

I can’t predict when, but eventually the U.S. will have to return to some type of commodity backing of its currency.  The result of this will be deflationary

Be Solvent & Prosperous,

Sanford Kahn, Business Author/Speaker

March 26, 2012:  The Non-Experts on Wall Street

This is a continuation of a post I wrote several weeks ago about the so-called experts on Wall Street.  Many of these individuals charge hefty fees for managing equity mutual funds but their returns have been lousy.  During 2011, over 80% of actively managed equity funds were outperformed by the broadbased S&P  1500 stock index.  In other words with all their training and knowledge of markets, they could not beat the average rise in the market.

What this proves is you are better off buying a broadbase index of the market and holding it.   As an example, consider buying the exchange traded fund (ETF) SPDR S&P 500 (SPY).  This ETF is basically the S&P 500 index divided by ten.  There is a very small 0.09% management fee.  This is exceptionally less than what many mutual funds charge.  The beauty of this ETF is that you can sell covered call options against it.   As an example, the SPY closed today at $141.61 per share.  You can buy 100 shares of the SPY and sell someone the right to buy your 100 shares from you between now and the third Friday in September for $145.00 per share.  For this right (call option) they will pay you about $425.00 based on today’s prices.  This $425.00 is yours to keep.  If the stock closes above $145.00 per share on the third Friday in September, it will be called away.  You made your profit.  Take the money and play another game.

This is a simple example but it gives you an idea of what can be done in the market.

March 21, 2012:  The Simple & Basic Law of Human Behavior

Humans are complex creatures.  Of this, there is very little argument about.  Unfortunately, complexity in all its different shades is difficult to dissect and understand.  This same holds true in understanding basic human behavior.

Therefore, to understand what motivates human behavior you must reduce this behavior to a simple and understandable basic rule.  The simple law that explains human behavior is—people act and do what they perceive to be in their own best interests.  The key word is “perception”. 

All movement in the course of life is turbulent and, therefore, unpredictable.  The same holds true to one’s perception.  How you perceive events and life at age 25 is probably much different than how you will perceive it at age 50.  In that 25 year interval, the rigors of life have changed your attitudes and hence your perception (whether positive or negative).

As your perception changes, so does your attitude and your actions.

March 19, 2012:  Wherein lies Household Net Worth?

Where does the preponderance of household net worth lie?  Most people would think that it lies in home equity values.  The reality is a different story.   Federal Reserve flow-of-funds data show that home equity represents just 11% of household net worth versus 46% squirreled away in stocks, mutual funds and pension funds.  If the capital gains tax is raised at the end of this year, due to the expiration of the Bush tax cuts, equity values will take a big hit and so will household net worth.  As peoples’ net worth falls, so does their consumption.  Personal consumption makes up 70% of GDP. Think another recession.

Trying to raise taxes in one sector of the economy leads to reduced economic activity in another sector of our economy.

March 15, 2012:  The Biggest Threat Facing the American Way of Life

One of the purposes of this blog is to make life, especially business life,  simple and understandable.

I my opinion the biggest threat to our way of life is the Federal debt bomb that will eventually explode.  It will explode when international investors start to lose confidence in our political leadership and resolve.    How will it explode?  It will explode by investors in U.S. Government debt jacking-up the interest rates that Uncle Sam must pay.  At that point the law of compound interest will kick in.  The interest burden on this debt will rapidly exceed 10% of the U.S. budget.  When this happens the credit rating of the U.S. government will be lowered again.  When the interest burden hits 15% of the budget, the red lights will be flashing and the social welfare game is over.  The Federal government will then have to slash expenditures and general confidence will be lost.  Another serious recession will follow.  At most we are about three years away from this if nothing is done to correct the problem now.

March 13, 2012:  So goes California–so goes the U.S.

Politicians are like electrons in a circuit.  They like to take the path of least resistance.  And so it goes when they are facing revenue shortfalls–they will increase taxes.  California offers a textbook case of what happens when taxes (and regulation) are raised beyond reasonable or competitive limits.

California is a highly taxed and regulated state compared with its surround states.   The high earners in California have been voting with their feet and leaving.  Between 2007 and 2009, those individuals who have incomes  of $500,000 and above has shrunk by almost one-third according to the Sacramento Bee.  These top earners pay 90% or more of the personal income taxes collected by the state.  The state is losing its tax base.  What does Governor Jerry Brown what to do to cover the $5 billion plus short-fall in the state budget?  He wants to further increase income taxes on the so-called wealthy.  More wealthy (businesspeople) individuals will leave and the state will be worse off.

What applies to California applies to the United States.  Money (capital) goes to where it is treated well.  If you raise the taxes on high earners,  their capital will go to where it will be treated well—namely outside of the country.  There will be no winners inside the U.S.   The long-running game of increasing taxation and spending is over!

March 9, 2012:  Wherein Lies the Light–OR–Achieving institutional escape velocity!

There are two broad categories of thinking.  To keep these two understandable, I will label them #1: the inside-the-box thinker and #2: the outside-the-box thinker.  I realize that these two phrases have been used extensively, but I want to keep this essay short and simple to read and understand.  The inside-the-box thinker is very much an institutional type of thinker, i.e., don’t expect too much creativity from his or her mind.  The second type of thinker has definitely achieved institutional escape velocity and has the creativity and guts to forge ahead.

In the economic environment that we will be in for at least the next decade, it will be the second type of thinker that will set the agenda.  We are not going back to the same-old, same-old economy that we had pre 2007.  It is a brand new economic environment!

Lastly, to answer the question of wherein lies the light, just imagine yourself inside a box.  There is very little to no light inside the box.  The real light of opportunity and freedom is outside the box. I encourage you to try to break away from the conventional and institutional line of thinking.  This is where the solutions to our most pressing societal issues lay.

March 8, 2012:  What is the true and correct definition of Socialism?

Notice I said the “true and correct” definition of socialism, not the feel good definition.  The true and correct definition of socialism is that it is a form of government that either in total or in large measure controls the three factors of production: Land, Labor and Capital. If the government controls the three factors of production either in total or in large measure, are you not at best a serf and at worst a slave?  This is why Friedrich Hayek called socialism slavery.  He was right!

February 29, 2012:  The 7 Deadly Business Sins

For an entertaining and amusing power point presentation of The Seven Deadly Business Sins, please go to: http://www.slideshare.net/abhishekshah/the-seven-deadly-business-sins .

I think you will enjoy this slideshow.  Please share it with others.

February 28, 2012:  Where goes the Stock Market?

What is the direction of the stock market?  Or, as I like to put it—the trend is your friend.  The stock market as measured by the S&P 500 index is still very much in an UP trend both on a short-term and intermediate-term time spans.   Why?  The 50 day moving average of the S&P 500 index is above its 200 day moving average.  In addition, the 20 day moving average is well above the 50 day moving average.  This confirms that both the short and intermediate trend directions are up.

In my own trading account I have started to take some chips off the table.  The market is getting too complacent and certain.   This is not a good sign.

February 27, 2012:  Gasoline–Is it Brutally High?

Nationally in the U. S., gasoline is averaging about $3.70 per gallon.  In California, though, it is $4.20 per gallon if not higher in some places.  So, compared to a year ago you can easily say that the price of fuel is definitely higher and eating more into your disposable income.

But, let’s look at the real price of gasoline in current dollars on a longer term basis.  In the past 100 years the real price of gasoline has spent almost all of its time vacillating between $2 to $4 per gallon.  So, the price today is not out-of-line with history.  It is towards its upper historical range.   A few years ago the United States was consuming almost 21 million barrels of fuel a day.  The United States has gotten a lot more energy efficient.  According to the latest figures released by the Energy Information Administration, the U.S. is now consuming 17.7 million barrels per day.   The higher price of fuel will cause this latest consumption figure to drop even more.

If the current fears in the oil markets should abate about Iran blocking the Strait of Hormuz, I suspect the price will plummet to back to the $90 to $95 per barrel if not lower.  These higher prices are going to release extra marginal supplies into a market where demand is not growing that much if at all.  When this happens, supply will cross demand at a much lower price.

February 24, 2012:  Why Plans FAIL–The Law of Planning Failure:

The law of planning failure says that the probability of any plan or strategy will fail is directly proportional to the square of its complexity.  The old saying of  “keeping it simple” has merit especially now in the internet age.

For your information, the fundamental Law business economics is—-that there is no such thing as a free lunch.  Someone or something has to pay the price.   The paying of the “price” can be delayed but then the price will much greater.  The United States is going to learn this lesson with its skyrocketing and growing public debt.   Standard of livings will go Down (not might).   It is happening now!

February 22, 2012:  What is the Conservation of Personal Power??

In physics there exists a law titled the “conservation of matter”. It basically states that matter can not be easily created or destroyed. However, the states of matter can be changed. For example, by applying enough heat to a solid you can transform it into a liquid, as with ice. A liquid heated to the boiling point can be changed into a gas. In all cases they are still the original matter, but in a different state.

In a similar vein, using the law of the conservation of matter, there exists in all societies a conservation of personal power. It states that Personal Power can neither be created nor destroyed, but it can be transferred.

Societies have two and only two broad options:

Through their respective governments, they can institute policies that will empower the individual or policies that will empower government. If you wish to empower the government for greater economic stability, then you must transfer some of your personal power to it.

There are consequences to both broad options.   One set of policies will lead to a growing set of opportunities for advancement while the other will lead to dependence and stagnation.

February 21, 2012:  Are there ANY Investment Experts on Wall Street?

Are there any investment experts on Wall Street?  They answer is a resounding NO.   There are just some individuals who are more lucky in their investment choices than others.  A recent good example is John Corzine the former CEO of Goldman Sachs and until recently of MF Global.  Just look how his investors got screwed by his gross miscalculation of the direction in prices of foreign government bonds.  Many of his investors will never get their full money back.  The collective losses to investors is at least $1.20 billion.

How can any mortal be a so-called expert in market directions and investments when all market movements are govern by chaos and turbulence.  You may have a right call today but tomorrow you can be a disaster.   It is best you do your own investment research and make your own investment decisions.  You may wish to consider a simple stock call option writing strategy to both hedge your stock positions and generate extra income.   This video will give you a real example.   See @:  http://www.youtube.com/watch?v=y782mc5uqxc

February 17, 2012: Is the Purpose of ANY Investment to Make MONEY>>NO!

In some of my business presentations I explore a few of the great business myths that dominate our thinking.  One of the more interesting “myths” deals with the widely accepted belief that the purpose of any investment is to make money.  NOT TRUE!  The purpose of any investment is to increase your NET WORTH.  There is a big difference between thinking in terms of making money and increasing your net worth.  Thinking in terms of net worth forces you to think more rationally and gives you a long-term time horizon.  The term “any investment” can include your business, your family, and even your community.  By increasing the value of your investment, you increase its net worth.

February 16, 2012:  The Rich & Taxes–Who pays what?

Before I get into how much taxes the so-called rich pay, a simple thought.  Follow this equation: MONEY=OPPORTUNITY.   Now, if you tax away money (opportunity) from those who have made it within the rule of law, do you not also tax away opportunity from those who wish to make it.   You can’t hurt one without hurting the other.   Increasing the taxes on the “rich” erects a roadblock on others achieving their “American dream”.

Those individuals who make $200,000 per year and up and families with income of  $250,000 or greater represent the top 3% of taxpayers.  The Obama administration says they do not pay their fair share.   Not true!  The facts are that these top 3% of taxpayers pay more in income taxes than the rest of the other 97%.    Our income tax code is so progressive that it is very dependent on the top 3% to 5% of taxpayers.   When their income suffers, as they do during economic downturns, the revenue to government slides off a cliff.   We need to move to a flatter income tax code.

February 13, 2012:  The Stock Market Angel Is BACK!

Yes, the stock market angel has returned to the stock market.   What am I talking about?  The 50 day moving average of the S&P 500 index has finally crossed above its 200 day moving average.  This is what is meant by an angel cross.   It implies that both the short-term and intermediate-term directions are both UP.   Historically speaking when there has been an angel cross, the stock market has gone up over 90% of the times in the next 12 months.  On average it has risen about 13% over the next twelve months.

The trend is your friend and the trend is up—even though I personally think the market is getting a little too frothy.

February 10, 2012:  Is the Real Estate Decline OVER?

Friends, is the real estate decline in the U.S. over??  Answer—NO!

Why?  Markets, no matter what they are, obey a simple rule. They go to extremes on the upside and when the bubble bursts they fall to extremes on the downside. In their decline they do not stop when they reach fair or median prices–they continue downward to their bedrock prices. This is a long and painful process.

In the U.S., real estate prices have not reached their negative extremes yet. Median real estate prices will continue falling and bottom out to where they were before the great real estate bubble began–about 1998-99 levels.   The last persons you should be talking to about the direction of real estate prices are real estate agents and brokers.  They will always sound positive even when the ship is sinking.

These predictions may sound extreme right now—but human behavior has not changed. This time it IS NOT different. As we use to say in the Boy Scouts–Be Prepared.

February 9, 2012:  The First Marker of a possible upcoming Recession

There is no such thing as a perfect economic indicator that will foresee the direction of the business economy.  Having said this, there is one that can give an early warning of a possible upcoming recessing.  This indicator is the operating margins of the companies in the S&P 500 index.    Seven of the S&P 500′s ten sectors are on track for margin contraction this quarter.  In the past this has been an inauspicious sign.   Why?  Because margins usually peak two to three quarters before a recession hits.

What could possibly cause a recession.  For one the economy being hit with a massive tax increase from the expiring Bush tax cuts on December 31, 2012.   This $2 trillion tax increase will hit the economy like a tsunami.  It will drain investment capital from the private sector.  Since the economy is barely growing at a 2% GDP rate,  this massive tax increase can easily stall growth where is goes negative.

February 6, 2012:  What is the Eternal Truth of the Universe

What a question and I am no religious figure by any means.  I will try to answer this question from an economic perspective, but this can be transferred into other human endeavors.

The eternal truth of the universe is—that all actions provoke reactions. In human terms these reactions or consequences may be positive or negative. Someone or something has to pay a price or cost. There are no free lunches.

For example, in interpersonal relationships, honest communication is both important and essential. You can control the “what and when” of your communication, but you can not control the resulting impact (positive or negative) it has on the other person. This, honest or otherwise, is the cost or price of your communication.

Another example—in economics you can not simultaneously control the cost and quantity of any product or service. If you try to control the cost (price controls), the quantity (and quality) decreases. This is the result of trying to control the price of any product or service.

There are always consequences or costs to any action taken by an individual and their consequences have to be weighed against the cost of the proposed action.

February 2, 2012:  How to KILL an Economy

It is wishful thinking to think you can institute bad economic policy and the result will be a growing and vibrant economy. Bad economic policy=bad economy period. The one thing you Never do when you are crawling out of a severe recession is to raise taxes. Yet, this is exactly what the U.S. Congress will do if the Bush tax cuts are not extended and made permanent for all income groups. The expiration of these tax cuts on 12/31/2012 will hit the U.S. economy with a $2 trillion plus tax hike. This will suck liquidity and the creative spirits out of the economy. It will hit small business the hardest.   Since the mid 1980′s, small businesses have been responsible for almost 100% of the net new job growth. If these cuts are not extended, expect unemployment to start rising again.

To put it more bluntly>>>If these cuts are allowed to expire and are not renewed, expect the economic train to come off the tracks in 2013.

January 30, 2012:  Stock Market Update

The stock market closed today at 1,313 on the S&P 500 stock index.  This is well above its 200 day moving average of  1,260.  It also closed above its 50 and 20 day moving averages.  This means both the short-term and intermediate-term directions of the stock market is UP.

The market advance, at least in the short-term, maybe getting tired.  The ProShares UltraShort 5&P 500 exchange traded fund (symbol SDS) is now at its lowest levels since mid 2006.  You could expect a short-term correct to seep into market caldron in the next few weeks.  Any correction for now would be shallow at best.  When it happens, the numbers will give you a clue if it will be less than or greater than 5%.   For now play the short-term direction of the market.

January 27, 2012:  The Foundations of Tyranny

The basis of tyranny is best stated by the late Nobel Prize winner in economics, Dr. Milton Friedman.

He stated that when the combination of economic and political power is concentrated in the same hands, this is a sure recipe for tyranny.  The locus of political and economic power is now concentrated in Washington, D.C.

Government is not your friend.  It is your competitor for personal power.  Be careful of the yoke of bondage.

January 25, 2012:  The Information Paradox

A funny thing about our information economy and culture—we are swamped with an abundance of information from the internet, TV, radio, etc. Instead of giving us a clearer insight into the future, it leads us astray and confused. Confusion leads to a lack of decision making and bewilderment.

Keep it simple! The predominate economic trend for the next 10 years will be a deleveraging environment by individuals. We are still in the early stages of this long-term process. The net result of this will be a slow growth business environment with stubbornly high unemployment. It doesn’t have to be this way. Good economic policies will turn the economy around within two years at most. Bad economic policies (high taxes and inordinate regulation) will prolong the pain and misery. The choice is ours.

January 24, 2012:  Stock Market Update

The stock market, as measured by the S&P 500 stock index, is definitely in a short-term upswing.  It is comfortably above its 200 day moving average.   In addition it is also above its 50 and 20 day moving averages.   Therefore, the only conclusion is that the upswing that began in the second half of December is still intact.

The only dark cloud I see weighing on the market is that it is getting too complacent.  The ProShares UltraShort 5&P 500 exchange traded fund (symbol SDS) is now at its lowest level in the past five years.   The market could be positioning itself for a correction upon any bad news especially out of Europe.   For now, though, play the short-term  up direction.

January 19, 2012:  The LAW of the Conservation of Personal Power

In physics there exists a law titled the “conservation of matter”. It basically states that matter can not be easily created or destroyed.  However, the states of matter can be changed. For example, by applying enough heat to a solid you can transform it into a liquid, as with ice. A liquid heated to the boiling point can be changed into a gas. In all cases they are still the original matter, but in a different state.

In a similar vein, using the law of the conservation of matter, there exists in all societies a conservation of personal power. It states that Personal Power can neither be created nor destroyed, but it can be transferred.

Societies have two and only two broad options:

Through their respective governments, they can institute policies that will empower the individual or policies that will empower government. If you wish to empower the government for greater economic stability, then you must transfer some of your personal power and resources to it.

There are consequences to both broad options.  One set of policies will lead to a growing set of opportunities for advancement while the other will lead to dependence and stagnation and the road to bondage .

January 18, 2012:  Why are we Sinking??

The United States like Europe has turned into one vast entitlement state resulting in a rapid expansion of government.  More than any other factor this rapid expansion of government is responsible for the slumping performance of the U.S. economy.   This rapid expansion of welfare governments has sucked resources out of the private sector into the less efficient public sector.

The result is…entitlement states that slow-growth economies can’t afford.  Will raising taxes work?  No!  Raising taxes will only serve as a disincentive for further investment and will act as a brake on economic growth.   To encourage the entrepreneurial spirits of individuals, governments must institute policies that will reward Work, Saving & Investment.  We live and work in a different time and stage, but the rules governing economic growth haven’t changed.

January 17, 2012:  Investors: Latest Stock Market Update

The S&P 500 stock index closed today at 1,294.  At this level it is above its 200 day moving average.  Also, the 20 moving average of the S&P 500 index is still above and increasing its distance from the 50 day moving average.  This implies that the short-term direction of the stock market is UP.   For now the longer-term direction is neutral to DOWN.  Having said this, forget about the longer-term direction and play the shorter term trend.   The key number for the S&P 500 index is 1,200.  If it can stay above this level (and especially break through the 1,300 level), then there is a strong upward bias in the market.

Short-term warning! I follow the ProShares UltraShort S&P 500 index (symbol SDS).   It closed today at 18.19.  This is a five year low in the SDS index.  This low reading is broadcasting that the stock market is getting complacent and over bought.  We could be seeing a short-term correction soon developing in the stock market.  People are getting too optimistic.

January 13, 2012:  A simple Call Option writing Strategy for the Novice Investor

A single equity call option gives a right to the buyer to purchase a certain stock at a fixed price (strike price) within a given time period.  Each single call option represents 100 shares.  For that right he will pay the seller of the call option a premium (dollars).  The seller of the call option keeps the premium income no matter if the call is exercised or not.

Now, let’s go through an example using United Technologies Corp. stock (symbol UTX).  First, full disclosure is due.  I own UTX stock and am using this strategy in my trading account.

As of today’s prices, you buy 100 shares of UTX for $7,600.  You sell someone the right to buy your 100 shares of UTX between now and the third Friday in May for $80.00 per share or $8,000 for your 100 shares.  As of current prices, you will receive $230.00 into your account to keep.  Assuming prices remain constant (they will not), what is your total annualized return?  The $230.00 you received is for four months or $690.00 annualized.  This divided by your buying price of $7,600 is an annual return of 9.0%.   In addition UTX pays an annual dividend of $192.00 per 100 shares or 2.5% at the buying price of $7,600.00.   Therefore, your total annual return is addition of 9.0% and 2.5% or 11.5%.

Please note that prices do not remain constant.  If the stock goes down in price your actual return can easily go negative.   Also, you have limited your upside appreciation to $80.00 per share.  If the stock goes to $80 and above, it will be called away.   Please remember in investing—there are no free lunches.   I have  also left out commission costs which will reduce your rate-of-return.

This is an example only and it is your responsibility to make yourself aware of the risks in call option writing investing.

January 12, 2012:  The Certainty of Uncertainty=Reality

I believe it was Ben Franklin who stated that there are only two things in life that are certain.   These two things are Death & Taxes.

Even in science there is no certainty.  This was best expressed by the late American physicist Dr. Richard Feynman who said, “If you think that science is certain–well that’s just an error on your part.”  What is true with science is also true with political & economic systems.  There is no certainty.  All movement in the business of life is turbulent and, therefore, unpredictable.  There is no Grand Plan.  The price we pay for economic turbulence is insecurity, self-doubt and vacillation.  But, we also gain something very important from the turbulent flow in life.   We gain opportunities for progress and advancement.  If everything was ordered (a master plan), there would be very little to no opportunities for growth and advancement.   Old capital would not be replaced by the new capital of entrepreneurs.

Welcome turbulence and take advantage of it.  It is a mechanism to be used for your and societies betterment.  

January 11, 2012:  The Stock Market: The Power of Compounding

The following comes from the Jan. 11, 2012 Wall Street Journal on page c1.

“Investors should keep the power of compounding in mind: $10,000 invested in nondividend paying stocks in 1979 would be worth about $250,000 as of 2010.  The same amount put into dividend paying stocks—and continually reinvested—would have returned $413,600, notes S&P’s Howard Silverblatt.”

In investing in the stock market seek good dividend paying stocks that have been increasing their dividends on a regular basis.  You may wish to augment your returns by selling out-of-the-money call options against your position.

January 10, 2012:  Stock Market Update

The stock market, as defined by the S&P 500 stock index, closed today at 1,292.  This is above its 200 day moving average of about 1,260.  Also, the 20 day moving average is above the 50 day moving average.  All this implies that the short-term direction of the market is UP.   A more bullish sign is if the S&P can closed and stay above the 1,300 level.  If the fourth quarter 2011 earning reports come in better than expected, this can happen this week or within the next few weeks.  I wouldn’t be surprised to see some profit taking come into play in the next week or so.   After that, the climb can resume assuming the earning reports are not negatively biased.

How to play the market?  Play the short-term direction which is up.  Right now the longer-term direction is undecided and is also not that important.  As the S&P index approaches 1,300, you may wish to sell some call options against some of your positions to hedge your account.  I am doing this and will give you an example on Friday’s post.

January 5, 2012:  What is the #1 Investment Rule

What is the #1 investment rule or principle?  The answer is dirt simple, but one that most people don’t adhere to.

The # one rule is to never play another man’s game.  Find your own game and learn how to play that game well.  When you start to play another man’s investment game, you are most likely getting in at the tail-end of that investment ride.  You could be left holding the bag as the insiders jump ship.  Think of real estate in the early 2000′s.

January 2, 2012:  Stock market update

New Year greetings and best wishes in your stock trades for the New Year.  The short-term direction of the stock market is UP.   The 20 day moving average of the S&P 500 index has moved above (not by much though) the 50 day moving average.  This implies a short-term upward bias in the market.

The longer-term direction is governed by two conditions.  First is whether or not the market can stay above its 200 day moving average.  It closed Friday, December 30th right on the 200 day moving average of the S&P 500 index.  Second and more important is if the S&P 500 index can stay above the significant 1,200 level.  It closed Friday at 1,258.   If these two conditions are met, the longer-term direction of the market will then be up.  The traders return tomorrow.

December 23, 2011:  I will be taking the rest of the year off for some fun and relaxation.

Concerning the stock market,  the important number to observe is the 1,200 level on the S&P 500 index.  If the market can stay above this level, then the short-term direction of the market is UP.  The S&P 500 index closed at 1,265 today.  Watch next week.

See you on January 2, 2012.  Have a Merry Christmas and a prosperous New Year.  Drop me a line at sanford16@yahoo.com.  Would enjoy hearing from you.

December 22, 2011:  What is the true cause of inflation?

Inflation is caused by government printing too much money to finance its extravagant expenditures.  Sluggish growth  and high unemployment are caused by burdensome taxation and regulation.  Stop spending so much money, lighten the burden of taxation and regulation, and your economic condition will smartly improve.

But, who in Washington pays any attention to such old-fashioned, homely wisdom?  With the next 2 to 3 years the financial markets will force Washington to mend its ways or pay a stiff price for borrowing funds.

December 21, 2011:  What is the first prerequisite of a Public Leader?

I think we can all say we want better leadership from public figures (namely politicians).  This is justified and healthy.

I doubt that many voters want leadership just for the fun of it.  What they want is to feel that we have some control over our destiny.  Toward that end, the first prerequisite of a leader is not the ability to swashbuckle, but the ability to recognize programs that make sense.  In other words will this solution or program work in the real world not in some theoretical cosmos.

December 20, 2011:  Stock market update

I use the S&P 500 index when I refer to the stock market.  The short term direction of the stock market is UP.  The 20 day moving average has crossed over the 50 day moving average.  This implies an up direction.  Longer-term the direction is neutral to down.  Why?  The 50 day moving average is still below the 200 day moving average by about 35 points.  Another powerful rally like today’s will reverse this longer-term trend.

As stated previously, the level to watch on the S&P 500 stock index is the 1,200 level.  As long as the market can hold above this level, play the short-term direction of the market.  If the rally carries the S&P 500 index to the 1,350 level, take some chips off the table.  In other words take some profits.  You won’t go broke making a profit.

December 19, 2011:  Don’t trust Wall Street

Usually on Monday I write my stock market update for the previous week.  Considering what has recently happen on Wall Street with the disappearance of $1.2 billion from John Corzine investment firm MF Capital, I though I would make an exception.

Simply put—an investment professional that tries to sell you an investment where he or she gets a commission off the sale is by definition a conflict of interest.  In other words don’t trust Wall Street!  They are not on your side—they are on their side.  You are the sucker that provides them with their income stream.   Do your own research and make your own investment decisions.  The golden rule of investing—the higher the rate-of-return the higher the RISK.

One last thought and don’t forget this.  How you should view financial salespeople—as used car salesmen in fancy suits.

December 12, 2011:   Note:  I am out-of-town on business this week and will resume the Daily Post next Monday.  In the meantime watch the 1200 level on the S&P 500 index.  If the market can not hold above that level, we are in for some rough times.

December 9, 2011:  The Rich & their Taxes–The Unvarnished Truth

First, let’s define the rich.  For this definition I am using the top 1% of income earners.  Now to the facts.  The top 1% of income earners in the U.S. pay 37% (from the IRS) of all Federal income taxes.   This percentage is almost double from where it was in the 1970s.   Raising the taxes on these individuals will only cut the deficit by at most 6%.  Of course this assumes that raising the taxes on the rich will have no negative consequences.

Speaking of negative consequences of raising the income taxes of the well-off, the top fifth of income earners (upper middle class) account for 40% of consumer expenditures.  Raising their taxes will only reduce consumption expenditures that will ripple throughout the economy with negative consequences.  In the end, the government will not receive the tax income they expect.  What will increase though is unemployment because the economy will slow.

Raising taxes is a brake on economic growth!

December 8, 2011:  The Foundations of Tyranny

The basis of tyranny is best stated by the late Nobel Prize winner in economics, Dr. Milton Friedman.

He stated that when the combination of economic and political power is concentrated in the same hands, this is a sure recipe for tyranny.  The locus of political and economic power is now concentrated in Washington, D.C.

Government is not your friend.  It is your competitor for personal power.  Be careful of the yoke of bondage.

December 7, 2011:  What is the Most Essential Element of a Financial Bubble

I am writing this short post in regards to the U.S. housing bubble that burst in 2006-2007 time period.  This essential element applies to ALL financial bubbles–housing and otherwise.

There many factors that caused the U.S. housing bubble, but without this one important element there would never have been the parabolic increase in housing prices that we witnessed.   This one paramount element was an abundance of cheap credit to fuel the bubble.  This bounty of cheap credit was supplied by the U.S. Federal Reserve Bank.  It was the low interest rate policies of both Alan Greenspan and Ben Bernanke and the administration political policies that aimed money at the real estate market.   The political policies mentioned were the ones that drove non-qualified buyers into the real estate market financed with sub-prime mortgages.

No bubble lasts forever and this one eventually burst.  We will be paying the price for years to come.  You can blame the bankers and Wall Street (they are no angels), but the real blame lies in Washington, D.C.   

December 6, 2011:  The Fine Art of  Solving Problems from Dr. Einstein

I can not in all honesty tell you how to solve each and every problem you have.  But, I can tell you this that NO problem can be solved from the same level of consciousness that created it.  I wish I can take credit for this observation, but the credit is due to Albert Einstein.  In other words, what he is saying is that no problem (personal or professional) can be solved within the paradigm or model it was created inside of.  You will have to reach outside of the proverbial box to come up with a solution to solve or, at least, manage the problem.

The last sentence is especially important.  People are under the misguided understanding that all problems or emergencies have to be “solved”.  This is not correct.  There are some problems that just can’t be solved for one reason or another, but they can be managed effectively.  The Art is knowing what problems are solvable and which ones are better off just being managed.

December 5, 2011:  Stock market update

Usually I confine my stock market updates mostly based on the interactions of the 20, 50 and 200 day moving averages of the S&P 500 stock index.  In the last few days the market has had a significant rally that has propelled the S&P 500 above the 1,200 level.  It closed today at 1,257.  The 1,200 level is strategically important.  If it can hold above this level, then the short-term direction of the market UP.   The 20 day moving average is still above the 50 day moving average.  This confirms that the short-term direction is up as stated above.

The 50 day moving average is still below the 200 day moving average of the S&P 500 stock index.  This means that the longer-term direction of the market has a bias to the downside.  Right now, this is not important.  Play the short-term direction of the market and focus on the S&P 1,200 level.  Let this be your guide.  The stock market will let you know its direction.

December 2, 2011:  Science, Reality, Turbulence & Certainty

I believe it was Ben Franklin who stated that there are only two things in life that are certain.   These two things are Death & Taxes.

Even in science there is no certainty.  This was best expressed by the late American physicist Dr. Richard Feynman who said, “If you think that science is certain–well that’s just an error on your part.”  What is true with science is also true with political & economic systems.  There is no certainty.  All movement in the business of life is turbulent and, therefore, unpredictable.  There is no Grand Plan.  The price we pay for economic turbulence is insecurity, self-doubt and vacillation.  But, we also gain something very important from the turbulent flow in life.   We gain opportunities for progress and advancement.  If everything was ordered (a master plan), there would be very little to no opportunities for growth and advancement.   Old capital would not be replaced by the new capital of entrepreneurs.

Welcome turbulence and take advantage of it.  It is a mechanism to be used for your and societies betterment.  

Note:  Given the current economic/political environment, I consider this posting of extreme relevance that I plan to post it at regular intervals. 

December 1, 2011:  Understanding the Economy with Two Dirt Simple Equations

Having trouble understanding our economy and what will energize it and what will chain it?  Keeping it simple, the two basic formulas below will give you a good understanding of what will propel an economy (job opportunities) and what will shackle it (rising unemployment).  The two formulas are:

1. Taxes UP=Economic Activity DOWN

2. Taxes DOWN= Economic Activity UP.

Raising taxes is an economic depressant>>>not a stimulant.  Increasing taxes will decrease economic and business activity, as well as, employment opportunities.  There are no free lunches!

November 30, 2011:  Who Pays what in Income Taxes in the U.S.

There are a lot of myths and misconceptions on who pays what in Federal income taxes.  Do the rich really pay very little in income taxes?  The following information comes directly from the IRS for 2009.

IRS statistics show those individuals earning more than $1 million paid 28.9% of the total in federal income taxes.  Those individuals earning from $200,000 to $500,000 paid 24.6% of the federal income taxes.  And, those individuals who are in the American middle class earning $50,000 to $75,000 paid just 11.6% of the total federal income taxes.

The rich really do pay their fair share of the total income taxes collect by the Federal government.

November 29, 2011:  Stock Market update

A lot has happened since my last update over a week ago.  There has been a lot of stock market churning, but nothing much has changed. Since the 50 day moving average of the S&P 500 stock index is significantly below its 200 day moving average, the longer-term direction of the stock market is DOWN.   The 20 day moving average is above the 50 day moving average on the S&P 500 index.  This implies a short-term UP direction.  But, this is meaningless.  As stated before, the 1200 level on the S&P500 index is the number to watch.  The rally Monday and the small one today failed to breach it on the upside.   The S&P closed at 1195.  It spent part of the day above the 1200 level but could not hold it.

If the rally can not strongly break through the 1200 level, then both the short and long-term directions of the stock market are DOWN.   If this should happen, expect a new recession next year.

November 23, 2011:  What is the difference between a Recession, Depression & a Panic

A recession is a period in which you tighten your belt.  A depression is a time in which you have no belt to tighten.   And, when you have no trousers to hold up, that is a panic.

Note:  The Daily Post will resume Tuesday, November 29th with the stock market update (not looking too good).

November 22, 2011:  Taxation—How Much is Enough??   

Taxation–how much?  No one should have to pay to government more than 20% of their income in total taxes.  Total taxes in the U.S. would be those taxes paid to the local, state, and Federal governments.  Unfortunately, even those in the middle income brackets pay well in excess of 20% of their income in total taxation.

When you get above the 20% mark, you are becoming a Serf and the government is becoming your Master.

Be Free & Prosperous,

Sanford Kahn, Business Author/Speaker

November 21, 2011:  Stock market update for week ending Nov. 18th

Since the 50 day moving average of the S&P 500 stock index is having a difficult time trying to cross above its 200 day moving average, the intermediate and longer-term directions of the market are still Down.

Considering what has happened today, the above may not be that important.  The S&P 500 index finished below the important 1200 level by seven points.  This is not much but if it can’t rally above and stay above the 1200 level, then the market could be in for a nasty downside movement.   If this should occur, the stock market might be forecasting a recession beginning in 2012.   If one should come, the Federal government is about out of ammo to try to prevent it.   They used up their ammo fighting the last recession three years ago.    If we should enter another recession, the official unemployment could easily go to 12% while the under employment rate could hit 20% nationally.  A recession of this magnitude would border on a Depression.    The stock market will give you advanced warning.

November 18, 2011:  The simple & profound formula for Economic Growth

First, let us go to what is given.  This is that… a secure future lies in economic growth.  There should be no arguing about this statement.  Without economic growth there will be no added resources to make life more secure and pleasant.  If you feel the above statement is incorrect, stop now and read no further.

The simple & profound formula for economic growth is: 

Economic Growth>>New Investment>>Entrepreneurs>>Tax Laws that reward Work, Saving & Investment.

Keep life simple and uncomplicated!  This is the formula—now, please pass it on to others.

Prosper,

Sanford Kahn

November 17, 2011:  How to kill an economy.

It is wishful thinking to think you can institute bad economic policy and the result will be a growing and vibrant economy. Bad economic policy=bad economy period. The one thing you Never do when you are crawling out of a severe recession is to raise taxes. Yet, this is exactly what the current administration will do if the Bush tax cuts are not made permanent.  The expiration of these tax cuts on 12/31/2012 will hit the U.S. economy with a $2 trillion plus tax hike. This will suck liquidity and the creative spirits out of the economy. It will hit small business the hardest. Since the mid 1980′s, small businesses have been responsible for almost 100% of the net new job growth. If these cuts are not made permanent, expect unemployment to start rising again.

November 16, 2011:  A simple formula to predict stock market trends

I would like to thank Mr. Ken Fisher writing in the November 21, 2011 issue of Forbes magazine for the following formula.

When the ten-year U.S. Treasury yield minus the S&P 500′s dividend yield is less than 2%,  it is unlikely for a recession to start.  According to Mr. Fisher, in modern history no recession has started when the difference has been below 2%.

Where are we now?  As of Monday, Nov. 15, 2011, the 10 year Treasury yielded 2.06 % while the S&P 500 stock index had a yield of 2.10%.  The difference is a negative 0.04%.  According to the formula, a major recession is not in the cards.

But!  Since World War II, we have not faced a major financial debt crisis like the current one infesting the major western economies.  Many of the major banks in the Eurozone and the U.S. have not written down their bond holdings of loans they made to the sick economies of Europe.   Their capital structures will be taking further hits and their ability to make loans will diminish greatly.   Without changes in their tax structures, this implies a slow to no growth economic outlook.

November 15, 2011:  The Economic GOAL of political policy is…

Individuals without a goal are like a piece of wood floating in the sea being moved aimlessly by the currents. They have no direction. Similarly, a political and economic system without a goal is also adrift and can move in ways that maybe harmful long term to the society. The economic GOAL of political policy— is to give individuals the incentives and opportunities to grow and prosper within the Rule of Law and the Bounds of Morality. Anything other than this will slowly eat away at the fabric of freedom and opportunity in American society.

November 14, 2011:  Stock market update for week ending Nov. 11th

The short-term UP trend in the market is still in place.  This is because the 20 moving average of the S&P 500 index is still significantly above the its 200 day moving average.   The longer-term direction still has a downside bias.   This is based on the fact that the 50 day moving average is still below the 200 moving average by about 70 points on the S&P 500 index.

Having stated the above, do not focus on the longer-term trend.  Play the short-term trend to your advantage.   The focus of your attention should be on the 1200 level of the S&P 500 index.  As long as the market can stay above this level, then the short-term direction is up.

November 11, 2011:  What is the American population concerned with?

It is true that our government is concerned about the problems with a growing population.  But it is also true that our population is concerned about the growing government explosion.  The main trouble with our American government is that it seems to think the individual owes it a living.

November 10, 2011:   U.S.=Philippines & Mexico

Welcome to the Gini index!  This index is a widely accepted measure of income inequality that ranges from zero, when everyone earns the same amount, to one, when when all income goes to only one person.  It is a measure of income distribution–not in income amounts.

In 2009, the most recent calculation available, the Gini index coefficient equaled 0.468 in the United States.  This was a 20% rise in income disparity over the past 40 years.  This is according to the U.S. Census Bureau.

The United States now has a Gini index similar to the Philippines and Mexico.  Things have only gotten worse since 2009 and I expect that income distribution in the U.S. has deteriorated further.

What does this mean?  The middle class in the United States is shrinking!

November 9, 2011:  Really-How many Rich People are there in the U.S.?

From the IRS reports in 2007 there were 391,000 taxpayers with income exceeding $1 million.  The recession has taken a toll on these very much upper income people.  Today, there are approximately 250,000 people with incomes exceeding one million dollars.  Even the super rich get hit in bad times.

More important, about 75% of these upper income individuals met the U.S. Treasury’s definition of business owners.  Many of these individuals are small to medium-size business owners>>which means less than 500 employees.    These are the real job creators in our economy.

Now I have a question for you!  How can raising income taxes on these individuals and taking extra money out of  their pockets and businesses give them the incentive to hire more people.  It can’t.  If anything, increasing their income taxes will have the opposite effect of increasing unemployment.  The power to tax is the power to destroy.  What is destroyed is the opportunities for economic growth and advancement.

November 8, 2011:  Tax rates & Revenue to Government

In the United States we have the Obama administration campaigning to raise taxes on the “rich” (individuals making over $200,000 per year) to raise revenue.  Yet, just the opposite is true.  For example, after the 1986 tax reform of President Reagan that reduced income tax rates to a top rate of 28% from 50%, tax revenues rose by 36% from 1986 to 1990.

Increasing taxes act like a brake to the economy and slows economic growth.  The result will be a reduction in economic growth and hence less (not more) revenues to government.  If you wish to increase revenues to government, spur economic growth by lowering tax rates. 

November 7, 2011:  Stock market update week ending November 4th

Using the S&P 500 stock index as my reference, the short-term direction of the market is UP.   Why?  The 20 day moving average has strongly broken through the 50 day moving average to the upside.  Meanwhile, the 50 day moving average is about 80 points below the 200 day moving average.  This still implies a downward bias for the longer term.   As stated in my other updates, this may not be too important.  As long as the S&P 500 index can stay above the 1200 level, play the short-term direction of the market.  If it falls below the 1200 level, take some chips off the table and sell call options on your stocks to generate extra income.   

How to sell call options>>>See short video with real example @: http://www.youtube.com/watch?v=y782mc5uqxc

November 4, 2011:  In a Nutshell>>The Underlining Dilemma of Western Governments 

The underlining dilemma of western governments (and this includes the U.S.) is that governments have promised their citizens inordinate social programs that can not be financed with the tax revenues raised from the private sector.  High and rising taxes will strangle economic growth needed to pay for these promises.  The result is that economic growth will get driven into the underground economy where it escapes taxation and the problem worsens.

The conclusion is this–the three quarter of a century march of liberal social democracies is over!  Why?  Because we can no longer afford them.

November 3, 2011:  Default, Inflation and the Middle Class

Europe isn’t the only place that is suffering from massive debt problems.  The total debt of the U.S. Federal Government will soon pass 100% of GDP.  This will happen by the first quarter of 2012.

At this point the level of debt starts to become really serious.  As stated in a previous post, the blowout increase in Federal spending in the fiscal year that ended September 30th was interest on the public debt.  This one item increased at a 16.7% rate.  Without serious fiscal reform, this interest expense will increase further and the U.S. debt will become a real burden.

Throughout history governments can deal with massive debt burdens in only two ways.  First, they can do an outright default.  Second, the can and will inflate it away.   BEWARE:  Our political leaders will impose both fiscal austerity and inflation on us when it becomes positively unavoidable.  Inflation is the great destroyer of the middle class.  Without a strong middle class chaos will rule.

November 2, 2011:  The 5 Big Blunders that can SINK a Business

1. Worshipping High Profit Margins—When you try to maximize your profit margins you will also maximize your competition. Instead of focusing on profit margins, focus instead of increasing your Free Cash Flow (FCC). This is defined as income from operations minus capital expenditures. Use FCC to obtain market share.
2. Financially Starving the Opportunities & Feeding the Problems—we are all victims of inertia. Old problems keep you stagnant whereas new opportunities are potentials for growth and can bring in much needed revenue and new customers.
3. Neglecting the Top Line (Sales)–Unless your sales and revenue are growing, your bottom line will eventually shrink. Think of the top line as the potential energy of the firm. The greater the potential energy of the firm the more leverage and opportunities you have to expand your market share.
4. Straying From Your Core Business–Don’t go into a business that you know nothing about. It’s foolish to branch out if your second business doesn’t increase your sales significantly and adds to your Free Cash Flow. There is a wise investment saying that says Never Play Another’s Man Game. Stick with your game.
5. Planning Your Business in an Economic Vacuum –You do not live and work in an economic vacuum. You can develop the best business strategy that time and money can buy, BUT if it is not in harmony with macro economic trends, you can stumble badly.

November 1, 2011:  The heavy weight of Debt in the U.S. economy

It is a commonly understood fact that 70% of U.S. GDP is composed of consumer expenditures.  The consumer can only spend if they have the wherewithal or liquidity to finance these expenditures.  In other words they are not burdened by a heavy debt load.  Unfortunately, this is the case now in the U.S. economy and probably in most European countries also.

From 1997 to 2007, household debt swelled from 66% of economic output to 98% according to Federal Reserve data.  As of June, 2011, the percentage had since been whittled down to 89%.  Debt reduction by American households still has a long way to go.  Not matter what policies Washington, D.C. put in place, it will be extremely difficult to have vibrant economic growth until the consumer slashes their debt loads.    This assumes that country still wants to generate 70% of GDP by consumer expenditures.  There is another way.  Have capital investment start to make-up an increasing share of Gross Domestic Product.  How>>>through tax policy.   

October 31, 2011:  Stock Market Update for week ending Oct. 28th.

Happy Halloween!  The stock market give us a Halloween surprise by being down almost 32 points on the S&P 500 index.

On a short-term basis the stock market is on an uptrend from the early October lows.  Last week the 20 day moving average on the S&P 500 index crossed over, on the upside, the 50 day moving average.  Short-term this implies an upswing.  Now, the big BUT is coming.  Longer-term, the 50 day moving average is still significantly below the 200 day moving average.   This infers that the longer term trend is still down.

Moving on—what you should watch for is to see if the S&P 500 index can stay above the 1,200 level.  It closed today at 1,253.  If it breaks through this 1,200, level both the short term and longer term directions of the stock market will be DOWN.

October 24, 2011:  I am away this week for a relaxing vacation in the Monterey, CA area.  The Daily Post will resume next Monday with the usual stock market update.  Reminder>>>as long as the S&P 500 index can stay above the 1200 level all is well and good.

October 21, 2011:  How Markets Work

In market driven economies, all markets (especially true for the financial markets & lately real estate) are in constant movement between being extremely overvalued and grossly undervalued.  They pass through the area of normal rational valuation on their pendulum swing to the extremes.  Timing and liquidity are the two most important ingredients in determining business success.  Another way of stating it is that—liquidity is King, not Elvis!

The future is unknowable.  Have the resources available to take advantage of opportunities as they present themselves.

October 20, 2011:   Who is the ultimate Master in any economy?

I will first tell you who it isn’t.  Without insulting you, the answer is it isn’t you.  You are the master of your own domain but as an individual you have very little to no influence on economic trends.

The ultimate master in ANY business economy are the markets namely the financial markets.  When they decide that a trend has come to its end–it changes—slowly at first but change never the less.  Through the political process you can fight the change, but it will only delay the inevitable.  So, therefore, what is the great economic/social trend change that will occur over the next several decades?

The answer>>>the great social experiment in expanding social liberal democracies (that started in the 1930′s) is over. Why?  The financial markets will no longer finance liberal governments to expand their social experiments (entitlement programs) a low interest rates.  Once the financial markets lose confidence in governments ability to manage their financial affairs, they will jack-up interest rates.  The cost then is prohibited and the game is OVER.  This is slowly happening in the United States and other social liberal democracies.

A new trend is developing.  It will be changes in the income tax code that will start to reflect this changing trend.  You will see these tax changes in the U.S. come into play starting in 2013.

October 19, 2011:  The surest thing about a sure thing

The surest thing about a sure thing is that there is no such thing as a sure thing.  When the sure thing turns doubtful, the damage done by a trend reversal is extensive.  Just think about the U.S. housing market.  People always thought that housing prices have only one direction and that was up.  Surprise!

There can be no such thing as a sure thing because all movement in life is turbulent.  Turbulent flow has no predictability.  All you can know about the future is that it will get here when it gets here.  You can not see its shape, but at least you can prepare yourself to react to its opportunities and hazards.  There is no sense in just standing there and letting it roll over you.

The Future belongs to those individuals who can quickly discern, adapt to, and exploit the unpredictable movements in the turbulent flow of life.  The new Business Lords will be those individuals that have as their target the goal of growing the free cash flow of their business.  This cash flow represents the means— the wherewithal— for those shrewd business people to take advantage of opportunities and events that present themselves.

October 18, 2011:  The Danger Expense for the U.S. Government

The final numbers are in for the U.S. Government’s 2011 fiscal year that ended September 30, 2011.  What is surprising about the numbers is what item in the budget is growing the fastest.  According to the Congressional Budget Office— defense spending increased a small 1.2% , Medicaid increased only 0.9%, and Medicare spending increased 3.9%.  The real blowout increase in spending was interest on the massive Federal debt.  Interest payments on the U.S. Federal debt increased by 16.7%.

Interest payments as a percent of the U.S. Federal budget are about 7% and increasing rapidly.  The important number to watch for is the 10% threshold.   When the interest payments on the colossal Federal debt reach 10% of the budget, the yellow warning lights will be flashing.   The financial markets will consider this a danger signal with the consequence of another lowering of the credit rating of the United States.  Interest will then start a spiral upwards and the U.S. is on the path of becoming another Greece.  Standard of livings will plunge.

When can this happen?  We can hit this danger zone by the end of 2012 or early 2013.  The clock is ticking.

October 17, 2011:  Weekly stock market update

The stock market, as represented by the S&P 500 index, is still in a longer-term Down trend.  The 50 day moving average is still significantly below its 200 day moving average.  For the shorter term, the 20 day moving average of the S&P 500 index is a hair below the 50 day moving average.  If the 20 day moving average can not cross above the 50 day moving average, the rally we had in the past few weeks has been futile and the short-term trend would then be Down .

As I mentioned in the October 11th posting, if the S&P 500 index can not stay above the 1,200 level, then the latest rally is a weak one in a longer-term down trend.  The S&P 500 index closed today at 1,201.  It will be interesting to see if the market can stay above the 1,200 level this week.

October 14, 2011:  Econ 101:  The 4 Simplified Laws of Economics

I am a strong believer in brevity.  The four simplified laws of economics are:

1. There is no such thing as a free lunch.  There is always a “price” which has to be paid by someone.  This law is of paramount importance.

2. The markets are the masters.  Price controls do not work.  You can not simultaneously control both the price and quanity of anything.  If you control the price of any good or service, the supply of that good or service will dimish.

3. Economic events do not exist in isolation.  We do not live and work in an economic vacuum.

4. Economic and politics are inseparable.  Your two generic choices are:

a. Policies that lead to real income growth

b. Policies that lead to redistribution of income.

Note:   There is a price to be paid for both a & b above.

October 13, 2011:  Class Warfare & Cheap Politicians

In our complex and swirling market economy this simple equation is of paramount importance. It is: MONEY=OPPORTUNITY. Now, if you tax opportunity away from those who have made it within the rule-of-law, do you not also tax it away from those who wish to make it? You can’t hurt the one (the so-called rich) without hurting the other.
The thrust of what I am saying is this>>>>Class Warfare is the last refuge of cheap politicians and policy.

October 12, 2011:  What is the Economic GOAL of Political Systems

Individuals without a goal are like a piece of wood floating in the sea being moved aimlessly by the currents.  They have no direction.  Similarly, a political and economic system without a goal is also adrift and can move in ways that maybe harmful long term to the society.

This then begs the question of what should be the North Star of economic policy?  The economic GOAL of political policy is to give individuals the incentives and opportunities to grow and prosper within the Rule of Law and the Bounds of Morality.  Anything other than this will slowly eat away at the fabric of freedom and opportunity in American society.

October 11, 2011:  Weekly Stock Market Update

Usually I write this update on Mondays but I’m glad I postponed it till today.  One of the reasons is that I wanted to see if Monday’s strong stock rally would continue.

Since the 50 day moving average of the S&P 500 index is still significantly below its 200 day moving average, the longer-term direction of the stock market is still DOWN.  The 20 day moving average has turned upward and may soon cross over the 50 day moving average.  This would tell me that the short-term direction of the market is turning positive.  But, it all depends on whether or not the S&P 500 index can get and stay above the 1,200 level (it closed today at 1,196).   If the current rally can’t get above the 1,200 level and stay above it, then the current rally is a short-term one in a down market.

Markets tend to focus on one major problem at a time.  Currently, the market is focusing on the problems in the European banking system.  The real problem slowly unfolding may be a potential hard landing for China with major repercussions for the Western world.

October 7, 2011:  Fact & Fantasy Regarding Carbon Emissions

I would like to thank Mr. Robert Bryce for the information contained in this posting.  May I suggest you read his excellent article on climate change in the October 6th edition of the Wall Street Journal on page A19.

We are led to believe the policy of reducing carbon emissions is the sole responsibility of the United States.  This is no longer true!  Over the past decade carbon dioxide emissions from the United States have fallen 1.7%.  Meanwhile, over the past decade, China’s emissions of carbon dioxide has leaped by 123%.   Their emissions of carbon now exceed that of the United States.  Asia’s emissions have increased 44% and the Middle East’s emissions have grown by 57% all over the past decade.  Even Africa’s emissions have leaped by 30%.

What does all this mean?  Even over the past decade if the United States where to lower its emissions to ZERO,  global emissions would have still increased.  Standards-of-livings are increasing throughout the world and following this increased carbon emissions.  People want to live better and longer.  They need energy to do this.

October 6, 2011:   The 4,000 Year Old Econ Lesson

What is the 4,000 year old economic lesson? It is very simple. Going back to the Babylonian Empire and continuing forward the simple lesson is this—price controls don’t work. You can not simultaneously control the price and quantity of anything. If you try to control the price of an item or service, the result will be reduced quantity and quality. In other words waiting lines will form.

Let’s look at price controls in another way. You know what an equal sign (=) looks like. Now imagine that on one side is price controls. The question is what is on the other side? The other side of the equal sign is income controls. When governments introduce price controls they are really introducing, through the back door, income controls. When you control a person’s income, you in essence control them.

The above is important because the recently passed Obama Care national health plan will inevitably lead to price controls on health care and income controls on providers. The results are predictable—less choices and reduced quality of health care.

You can not fight history.

October 5, 2011:  What comes first>>>Jobs or Investment?

To put it very simply, there are no jobs without companies coming first.   Without new investment coming first (risk taking) there will no net new business formation.   According to the U.S. Census Bureau, since the mid 1980′s almost 100% of the net new job growth in the U.S. came from new companies that have been in operation five years or less.

In order for companies to commit growth capital, a prime requirement is a strong and stable currency.  Over the last ten years, the U.S. dollar has been anything but stable.   You will not have significant new investment in the U.S. until investors have faith that you will preserve the value of the dollar.   Money (capital) goes to places where it is treated well.

October 4, 2011:  What was the principle cause of the Great Depression?

What was the principle cause of the Great Depression of the 1930′s?  The principle cause of the Great Depression in the 1930′s was the worse piece of economic legislation passed in the 20th century.  I am referring to the Smoot-Hawley Trade Act of 1930.  This miserable piece of legislation imposed tariffs on over 10,000 items imported into the United States.  It touched off massive trade retaliation by other countries imposing their own tariffs.  This led to a downward death spiral in the world’s economy.  There were no winners.  The world went into a prolonged depression with unemployment in the United States reaching 25% at best it could be calculated.

I give this information because there is a push in the U.S. Senate to impose increased duties on imported items from China because we think their currency is  undervalued.  Unfortunately, this bill has strong bi-partisan support.  If it should pass, other countries will follow suit with their own protectionist legislation and the world again devolves into a blithering trade war with deadly consequences.   There will be no winners! 

October 3, 2011:   Weekly stock market update ending Sept. 30th

Needless to say both the short-term and intermediate term directions of the market are DOWN.   The stock market is still very much in a death cross (the 50 day moving average of the S&P 500 index is substantially below the 200 day moving average.  The 20 day moving average of the S&P 500 index remains below the 50 day moving average.  This means that the short-term rally we had in the market was for naught.

Key Point:  With the 32 point decline in the S&P 500 index today, the market had broken through the lows established in early August.  This is not a good sign.  There is now a good probability we will enter a Bear Market.

September 30, 2011:  All you need to know about economics in TWO simple equations.

Having trouble understanding our economy and what will energize it and what will chain it?  Keeping it simple, the two basic formulas below will give you a good understanding of what will propel an economy (job opportunities) and what will shackle it (rising unemployment).  The two formulas are:

1. Taxes UP=Economic Activity DOWN

2. Taxes DOWN= Economic Activity UP.

Raising taxes is an economic depressant>>>not a stimulant.  Increasing taxes will decrease economic and business activity, as well as, employment opportunities.  There are no free lunches!

September 29, 2011:  What do Politicians & diapers have in common?

Like it or not, politicians determine our economic direction through political policy.   Depending on what policy is in place the country can either grow abundantly or wither (like now).   Therefore, I would like to thank the individual who posted this cogent saying on Facebook.

What do politicians and diapers have in common—they should be changed often.  This implies term limits for politicians.  If the President of the United States is limited to two terms, then members of Congress (House & Senate) should also be term limited.   The Founding Fathers of this country wanted citizen politicians  not professional career politicians.  

I am planning to run for the U.S. Congress in the 2012 election cycle.  Term limits for members of Congress is one of my platform planks.

September 28, 2011:  The Importance of Investment Suitability

Whether on a personal or business level, what is the most important criterion in making an investment decision?   Is it rate-of-return?

The paramount investment criterion whether you are purchasing a stock, bond, business, etc. is the Suitability of that particular investment in relation to your financial psychology or business makeup.   No matter how good an investment may seem, if it doesn’t agree with your basic comfort level (your gut feeling), it isn’t suitable for you.  I think recent financial history has show this to be correct.

In other words—Never play another man’s game!  Find your own game and play it well.

Much Success,
Sanford Kahn,  Author of the book, “The Thirteen Great Economic/Business Myths That Dominate Our Lives”
available on amazon.com

September 27, 2011:  Do the Rich in the U.S. pay their “fair share” in Taxes?

This seems to be the popular mantra of the day coming out of the Washington, D.C. establishment.  Warren Buffett may feel like the rich don’t pay their “fair share” in taxes, but data from the IRS paint a different picture.

According to the IRS, in 2008 those earning more than $1 million a year paid an average tax rate of 23%.  Those individuals earning between $30, 000 and $50, 000 per year paid an average tax rate of about 7%.  Those earning $50,000 to $100,000 the average tax rate was about 9%.

The reason Mr. Buffett’s tax rate is so low is that he gets the great majority of his income from capital gains which is taxed at a maximum of 15%.  This low rate is available to everyone who owns stocks, real estate, etc.  that is treated as capital.  If you want Mr. Buffett to pay more in taxes, then you have to raise the tax on capital which will have the unintended consequence of destroying the value of capital.   In other words the price of stocks and real estate will take a big hit.  This would not be the best thing for a struggling economy.

September 26, 2011:  Are we still in a Down Stock Market?

Despite today’s 26.52 rally in the S&P 500 index, the direction of the stock market is still DOWN.   This was an impressive rally in the market, but the down trend has not been reversed.   The 50 day moving average of the S&P 500 index is still significantly below its 200 day moving average.  This is called a Death Cross.   Also, the 20 day moving average is still below the 50 day moving average.  This implies that both the short-term and intermediate-term directions of the market are negative.

If today’s rally continues, this outlook may change.  But, for now, the trend is your friend.

September 23, 2011:  A New Look at Paternalism, Maternalism, Socialism, etc.

If you want your father to take care of you, that is PATERNALISM.

If you want your mother to take care of you, this is MATERNALISM.

If you want Uncle Sam to take care of you, that is  SOCIALISM.

If you want your comrades to take care of you, that is COMMUNISM.

But — if you want to take care of yourself, that is AMERICANISM.

September 22, 2011:  Where to invest in the Stock Market??

I really doubt that the stock market is going to do much over the next 5 to 10 years. If so, then it is important to own stocks that pay a reasonably good dividend (about 3% or more). Why? From 1972 to 2006, stocks in the S&P 500 that paid a dividend year over year had an average return of 10% per year. Those that didn’t pay a dividend had an annual return of 4%. Be careful though. If the dividend yield seems out-of-line with reality, then something could be amiss. Also, if the dividend per share is more than 50% of its earnings per share, this could be a warning that it may not be sustained. Lastly, many of the companies in the S&P 500 index that pay a dividend have call options available. Selling a covered call is a conservative way of boosting your yield and cash flow.

September 21, 2011:  How did the U.S. get into this MESS

The Germans are know for their frankness and so it is with their Finance Minister Wolfgang Schauble.

According to Mr. Schauble our problems spring from the fact that as a nation, the USA lived off of cheap credit for too long, inflated its financial sector massively and neglected its industrial base.

I agree with him.  His opinion only adds to what I have been saying in these posts for some time that the True Wealth of a nation comes from its ability to Produce not Consume.  The tax policies of the U.S. have to be changed to encourage work, saving and investment.

September 20, 2011:  From Lenin>>How to CRUSH the Middle Class

How to crush the middle class?  One of the important founders of the Soviet state in Russia, Vladimir Lenin, knew exactly on how to accomplish this.  His famous quote is—“The way to crush the bourgeoisie (middle class) is to grind them between the millstones of taxation and inflation.”   

What does Washington want to do to solve its fiscal problems.  First, as announced by the Obama administration, is to increase taxes.  Secondly, the U.S. Federal Reserve is depreciating the dollar by keeping interest rates near zero.  When the dollar losses value, the nation imports inflation.  The year-over-year change in the U.S. consumer price index is 3.8%.  Wages and salaries are going up at less than half that rate if at all.

The U.S. middle class is slowly being wiped out! 

September 19, 2011:  Stock market update for the week ending Sept. 16th

In spite of the strong stock market rally last week, we are still in a Down market.   The stock market, as defined by the S&P 500 index, is still in a Death Cross.  The Death Cross occurs when the 50 day moving average crosses the 200 day moving average on the downside.   It is a very negative signal.  In addition the 20 day moving average is still below the 50 day moving average.  This implies that even the short term direction of the market is Down.

Don’t try to guess the direction of the stock market.  Let the market signals tell you the direction.

September 9, 2011:  The Infinite Imagination

The creative imagination of individuals is infinite.  Unleashing this imagination will transform the business landscape and lead to a growing, vibrant and innovative economy and society.

How to unleash it?  Tear down the barriers of excessive regulation and taxation.  The creative minds in society will then rapidly achieve escape velocity.  The nation will thrive as never before.

Note: Next week I will be away on both business and pleasure.  The Daily Post will resume on September 19th.  If you found today’s Daily Post of value, please share this blog site with others.

September 8, 2011:  The Great Government Grab

As government takes a bigger and bigger bite out of the economy, more and more of a nation’s income is allocated toward consumption and less and less is allocated toward investment.  When less income is invested, capital accumulation slows down.  When capital accumulation slows down, the growth in production and incomes slows also.  We are now witnessing this today in the U.S. economy.

Lastly, the true Wealth of a nation comes from its ability to produce—not consume.  In order to encourage a growing foundation of new investment, you must first have a sound and strong currency.  A currency should not be manipulated for political ends.  If no one can trust the value of the currency,  what incentive do they have to invest?

September 7, 2011:  Is Rate-of-Return the Most Important Investment Criterion?  NO!

We all make investment whether as individuals or businesspersons.  Therefore, with the maze of investment choices available what yardstick would be the most appropriate for both individuals and businesspeople to gauge each one?  Some people make their investment decisions based primarily on rate-of-return, while others deem safety of paramount importance.  Some others focus on the tax aspects of an investment.

While all of these concerns are important, they should not be deciding factor in basing your investment decisions.  The most important investment criterion is the suitability of an investment in relation to your financial psychology.  For the businessperson it simply means don’t invest in a business you know nothing about.  It is foolish to make a capital expenditure that does not have the potential to significantly increase your sales and add to your bottom line.

Financial Axiom #1:  Never, Never play another man’s game.  Find your own game and play it well.

September 6, 2011:  Stock Market update for week ending September 2nd

The correction in the stock market is not over!  The 50 day moving average on the S&P 500 stock index is still below the 200 day moving average.  Also, the 20 day moving average is significantly below the 50 day moving average.  This means both the short-term and intermediate term directions of the stock market are Down.

The point to watch is the recent August low in the S&P 500 index of about 1125.  If the market should close below this point, it is possible that we could be entering a new Bear Market.   The S&P index would then have the real potential to cross below the 1000 level–a real psychological blow.  The last time this happened was in 2008.   The market then bottomed out at the S&P 700 level.

I will keep you posted.

September 2, 2011:  Taxation–How Much is Enoug

Taxation–how much is enough? No individual should have to pay to government more than 20% of their income in total taxes. Total taxes in the U.S. would be those taxes paid to the local, state, and Federal governments. Unfortunately, even those in the middle income brackets pay well in excess of 20% of their income in total taxation. Why 20%?  Over 4,000 years ago Pharaoh agonized over what tax rate he should levy on his wage slaves to maximize income to the state while not destroying incentives for his wage slaves to produce.  He eventually settled on a 20% flat tax.  It worked! The state got revenue and his wage slaves kept 80% of their earnings.

When you get above the 20% mark, you are becoming a Serf and the government is becoming your Master.

Be Free & Prosperous.

September 1, 2011:  What does $1,800 GOLD Imply?

What does $1,800 per ounce GOLD imply—it implies and shows the complete incompetence of the U.S. Federal Reserve.  Manipulating the value of your currency to meet political ends will inevitably result in lower standard of livings.  Gold at this price means that people would rather spend their capital on gold than to hire workers or open a new business.  They simply do not trust the central bank to preserve the value of their currency.   Investors or speculators that heap trillions of dollars into foreign countries, gold and other commodities drain capital away from growth and productive investment.

You can not have growing vibrant economy without first have a sound and stable currency.  The dollar should be durable store of value.

August 31, 2011:  Can you Spend your way to Prosperity?

You can not spend your way to prosperity. Any stimulus program the Federal Government enacts will FAIL. Why? Because, they assume that the multiplier effect is greater than 1.0. In the last 50 years this has never been the case. The largest multiplier effect that I have seen in the research is 0.8. Anything less than 1.0 is contractory. This is why Obama’s $780 billion stimulus plan has failed.  Real and sustainable economic growth comes from unleashing the creative spirits of entrepreneurs. This is accomplished by giving individuals the incentives to work, save and invest in their futures. You do this by not burdening entrepreneurs by high taxation and regulation. Unfortunately, in the U.S. we are moving in the opposite direction and will pay the price.

August 30, 2011:  Optimism vs. Confidence–Not the Same

Optimism means you are always expecting the best in any situation even if it looks bad.  This type of behavior is devoid of reality and can lead to financial doom if allowed to get out of control.  Almost always, the safest course is to assume that if a situation looks bad it probably is and plan accordingly.  This now leads into the state of confidence.

When a person is confident they have done their “homework” and feel that the odds of succeeding in their venture are in their favor.  They realize that things, beyond their control, can go wrong and have a backup plan to handle the worst.

Never make a move if you are merely optimistic.  All ventures have unforeseeable outcomes—and the savvy individuals will have an exit strategy in case things go bad.

August 29, 2011:  The Death Cross is Still Alive-Stock Market Update for week ending August 26th

In spite of the impressive rally in the stock market the Death Cross is still in force.  The 50 day moving average of the S&P 500 index is still below the 200 day moving average.  This implies that the intermediate direction of the stock market is Down.  I am following the direction of the 20 day moving average.  If the rally continues, this average should quickly turn up and cross over the 50 day moving average.  Right now it is significantly below the 50 day moving average.   When this happens, it will give a confirmation that the short-term correction in the market has run its course.

But, as of August 26th, in spite of this strong rally, I can not say that the correction (downside) is over.

August 26, 2011:   Does Raising Taxes=Increased Revenues?

Raising taxes will lead to increased revenues to government if you believe in static analysis like the U.S. Congressional Budget Office does.  We live and work in a dynamic and turbulent economy where raising taxes, especially on the so-called “rich”,  will have incentives on behavior.  If the high earners are smart enough to make their lofty incomes, they are also smart enough to legally evade a good part of any tax increase.

Higher taxes will act as a “brake” on an already sluggish U.S. economic growth rate.  The result will be to further damage the fragile economy and throw more Americans out of work.  Besides, history has shown that higher taxes will not be used to balance the budget but to finance more government expenditures.  Lastly, higher taxes will take the pressure off Congress to make the deep spending cuts that are so crucial.

August 25, 2011:    Why U.S. living standards must decline. 

The paramount principle of economics is that there is no such thing as a free lunch.  In order to have increasing standards of living a nation needs increasing levels of investment.  But, American capital is being driven overseas by a weakening dollar.  Why should any individual or business want to invest in a country whose currency is being debased–falling in value.  This will negatively impact the investment’s rate-of-return.   Capital (money) goes to where it is being treated good.  Unfortunately, this is not happening in the United States.

How much have U.S. living standards been impacted over the last few years?  Since the end of 2008, the average hourly wage is up only 4.5% while the consumer price index is up 6.1%.   This trend is continuing today.  Consumer expenditures constitute 70% of U.S. GDP.  With American households experiencing negative real growth in incomes, don’t expect a  vibrant U.S. economy.  You are hoping for something that has never been and never will be.  The best you can expect is a sluggish and limping along economy.  Companies will have to go overseas to increase their sales and revenues.

Summary:  A strong currency will attract new investment and, hence, job opportunities and growth.

August 24, 2011  The Simple Law of Complexity

This law states that the complication factor of a strategy or course-of-action is directly proportional to the square of the plan’s complexity. This Law almost guarantees that any plan or strategy (business or personal) that involves numerous players will go wrong. Complications will arise. A good example of this are large government contracts. The cost overruns are usually a multiple of the original cost. If you are implementing a plan or strategy that has many players and is elaborate, have a back-up position or blueprint.

In the end–Keep it Simple!

August 23, 2011:  Wherein Lies Net Worth?

I always thought that for middle class households that have a net worth of a few hundred thousand dollars or more that the majority of their net worth was composed of equity in real estate.   I was mistaken.  In 2006 (right before the Great Recession began) households had $25 trillion in real estate assets.  In 2006 financial assets of households were $48 trillion–almost double that of real estate assets.  We all know what has happened to the value of real estate assets since 2006.

People spend based on their income and perception of their net worth.  After inflation, the growth in wages and salaries in the last 12 months has been negative.  If the stock market should keep tumbling downward, the second pillar of household’s net worth will be under attack.  The result will be a constriction in the ability and willingness of households to increase or even maintain their current spending.  The economy could then slide into another recession.  Remember—70% of GDP is based on consumer expenditures.  

August 22, 2011:  The Death Cross Lives–Stock Market update for week ending August 19th

The stock market is now in a true Death Cross.  This occurs when the 50 day moving average of the S&P 500 stock index crosses over to the downside of the 200 day moving average.  This confirms that both the short-term and intermediate term direction of the market is DOWN.  Any hint of reversal will come when the 20 day moving average crosses back above the 50 day moving average.  That is not in the cards yet.

Maybe you should consider selling call options against your stock positions to generate extra income.  For an example see the short video @ http://www.youtube.com/watch?v=y782mc5uqxc

August 19, 2011:  Axiom #1–The Eternal Truth of the Universe

The eternal truth of the universe is that all actions provoke reactions. In human terms these reactions or consequences may be positive or negative. Someone or something has to pay a price or cost.  There are no free lunches.

For example, in interpersonal relationships, honest communication is both important and essential. You can control the “what and when” of your communication, but you can not control the resulting impact (positive or negative) it has on the other person. This, honest or otherwise, is the cost or price of your communication.  In other words your honest communication can backfire.

Another example—in economics you can not simultaneously control the cost and quantity of any product or service. If you try to control the cost (price controls), the quantity (and quality) decreases. This is the result of trying to control the price of any product or service.

There are always consequences or costs to any action taken by an individual and their consequences have to be weighed against the cost of the proposed action.

August 16, 2011:  Short Stock Market Update

I need to leave town for a few days.  But, the stock market has entered a Death Cross.  The 50 day moving average of the S&P 500 index has crossed over the 200 day moving average.  This is not a positive sign for the markets.  If the Death Cross doesn’t reverse within a week, expect significant downside action.

The Daily Post will resume Friday, August 19th.

August 15, 2011:  August 15, 1971=A day that will live in Economic Infamy

Today is the 40th year anniversary President Nixon cut the last linkage of the dollar to gold.  Before that famous date, foreigners could take their accumulated dollars to the U.S. Treasury’s Gold Window and exchange them for gold at the price of $35.00 ounce.  This arrangement was set-up at the Bretton Woods conference in July, 1944.

After August 15, 1971, the dollar was a free floating currency—it was a true fiat currency.  The only backing it had was the full faith and credit of the U.S. Government.  In essence it had the full faith and backing of U.S. politicians.  They can and did issue as many dollars as they wished to finance an expanding social welfare agenda.  Gold anchored the dollar to the earth.  It imposed discipline on the fickle whims of politicians to spend money for whatever reason.

What was the result?  A dollar that was worth 100 cents to the dollar in purchasing power in 1971 is worth only 18 cents in purchasing power today.  If this continues, standards of living (especially for the middle class) will continue to decline.  No nation in history can remain a great economic and military powerhouse with a currency that is unstable and declining in value.  Eventually, we will have to return to some type of commodity backing to the dollar.  When we do the result will be deflationary.

August 12, 2011:  Nikita Khrushchev and his prediction of decline for the U.S.

For some of you it might be a stretch to remember who Nikita Khrushchev was.  He was the dictator of the old Soviet Union from 1953 to 1964.  I use the word “dictator” because in reality that is what he actually was.  His correct title was First Secretary of the Communist Party of the Soviet Union.

Anyways, this is just background information.  In the late 1950′s he gave a speech before the United Nations.  In it he made the accurate prediction about the decline of the U.S.  His statement was—“We don’t have to worry about the United States because they will spend themselves out of existence.”   He knew what very liberal social democracies were like.   We have gone down the road he predicted.

If the United States does not get a “handle” on its spending addiction–mainly from entitlement programs–we will implode from the magic of trying to inflate our way out of our debt mess.  The middle class will be wiped out.  It doesn’t have to happen.

August 11, 2011:  How to Prosper in the coming Age of Poverty & Privilege

I like to keep my writings simple and understandable.  Going forward you will have two basic choices on how you manage your life—both personal and professional.  These two choices are do you wish to follow the path of being a business lord or serf?

The business new lords will be those business people who can quickly discern, adapt to, and exploit the unpredictable movements in the turbulent flow of life.  The new lords will be those business people that have as their target the goal of growing the free cash flow of their business.  This cash flow represents the means— the wherewithal— for those shrewd business people to take advantage of opportunities and events that present themselves.  By so growing the free cash flow of a business not only do you increase its value, but also you provide it with the means to maintain its market share and possibly increase it.  On the other hand, the new serfs are those businesses that are mired in debt and illiquidity.  If they stay this way, they will travel down the road to extinction.

The choice is yours>>do you wish to be a business lord vs. serf?  Please be aware that if you wish to be a business lord you must expose yourself to RISK.

August 10, 2011:  In the News: We Must Grow!

No matter what policies Washington or any other country put in place to solve their massive deficits and debt problems, without strong and vibrant economic growth any improvements in the country’s fiscal health will be for naught.

We must grow!  The key is to give individuals (entrepreneurs) the incentives to work, save and invest for their futures.  This is accomplished through wise fiscal policy, namely, taxation policy.  Taxation policy should be oriented to unleash the human potential and turn personal aspirations and ambitions into positive achievements (new businesses).  We must turn our attention to the “road not taken”>>>the road of growth economics.

The current policy of  “shared sacrifice”  is a defeatist policy.  This policy doesn’t offer a clear vision and hope for the future.  At its core is a negative rot.  The policies of growth economics does offer a clear vision of the future.

Lastly>>>no country of this planet has been able to spend its way to prosperity.

August 9, 2011:  Dr. Einstein and the Fine Art of Problem Solving

I can not in all honesty tell you how to solve each and every problem you have.  But, I can tell you this that NO problem can be solved from the same level of consciousness that created it.  I wish I can take credit for this observation, but the credit is due to Albert Einstein.  In other words, what he is saying is that no problem (personal or professional) can be solved within the paradigm or model it was created inside of.  You will have to reach outside of the proverbial box to come up with a solution to solve or, at least, manage the problem.

The last sentence is especially important.  People are under the misguided understanding that all problems or emergencies have to be “solved”.  This is not correct.  There are some problems that just can’t be solved for one reason or another, but they can be managed effectively.  The Art is knowing what problems are solvable and which ones are better off just being managed.

August 8, 2011:   Stock market update for week ending August 5th

What a week!  Obviously, the short-term direction of the market is DOWN! The 20 day moving average of the S&P 500 stock index has busted-through its 50 day moving average.  The longer-term direction is a weakly UP.  If the 50 day moving average goes through its 200 day moving average, then the longer-term direction will be down.  It is now very close to doing this.  If the 50 day moving average does cross the 200 day moving average, you will have a Death Cross situation. This would be a very negative outlook for the market.  We are close to it.

How far can the market fall? Yale University economist, Robert Shiller, uses a “cyclically adjusted” P/E ratio (price to earnings) to smooth out the market peaks and valleys by averaging the last ten years of earnings and adjusting for inflation.   His adjusted P/E ratio closed this Friday, August 5th at 20.2.  The average over the last half century is 19.5.  At the market bottom in March, 2009 it was 13.3.  It bottomed at 6.6 in August, 1982, 8.3 in December, 1974 and 5.6 in June, 1932.

How far can the stock market potentially fall?  It has the potential to fall another 50%.  Any fall of this magnitude would adversely impact the continuing down-trend in real estate prices.  Our banks would have continuing problems.

August 5, 2011:  Do you want a growing economy spinning-off Job Opportunities>>How?

Do you want a vibrant growing economy that is spinning-off new job opportunities?  Answer—of course you do!  Only an idiot would answer in the negative.  Then, what is the prerequisite for achieving this lofty goal?

The prerequisite to a growing economy and expanding job opportunities is a strong and stable currency.  Why should any investor make a productive investment in a country whose currency value is gyrating day-to-day?  You can not get a “handle” on your costs and potential rate-of-return.   Going back centuries, history has shown irrefutably that investment floods to countries that have a strong and stable currency.  With new investment comes an abundance of new jobs and economic growth.

August 4, 2011:  The Great MONEY Equation

A very important equation in the business of life is: MONEY= OPPORTUNITY.   It does not guarantee success, but it certainly can grease the wheels of opportunity and increase your potential for success and advancement. 

Now, if you tax away opportunity from those who have made it within the Rule-of-Law, do you not also tax it away from those who wish to make it? You can’t hurt one without hurting the other. The parts of our economic system are all connected. The politics of class warfare do not work. Economic policies (higher taxes) that try to punish “the rich” will ricochet and hurt all members of society.  Everyone loses!

August 3, 2011:   Why Keynesian Economics must FAIL!

It has always been assumed by Keynesian economists that government spending (stimulus packages) have a big impact on economic growth.  By this it is meant that the multiplier on economic growth is greater than 1.0.  In all the research I have seen the multiplier has never been greater than 0.80.  This means that a Keynesian stimulus package will take-away (be negative) from economic growth.

Now, for the sake of argument let us assume the multiplier is greater than 1.0.  Keynesian economics will still have a negative impact on growth in the economy.  Why?  When the stimulus is instituted, there will be a positive short-term impact on economic growth and output equal to the multiplier.  Conversely, when the stimulus is removed there will be an equal and opposite reduction in economic output.  There are no free lunches in economics.  The stimulus package has to eventually be paid for.  The price will be higher taxes or more borrowing or, most likely, both .  The net impact will be a further reduction in economic output (GDP).

The True Wealth and well-being of a country is based on its ability to produce not consume.  This is accomplished through the tax code by giving individuals the incentives to Work, Save and Invest in their futures.

August 2, 2011:  The American Middle Class and the Poverty Cliff

In America the gulf between being middle class or upper middle class and the poverty cliff is not as wide as you might think.  Recent research by Robert Hall, a Stanford University professor, found that three-quarters (75%)  of households don’t even have two months worth of income stashed away as cash or other liquid assets.

If the economy should enter another recession or even have a prolonged period of sub-par growth (most likely), corporations will go through another round of layoffs.  Who will they lay-off?  They will go where the money is—middle to upper management individuals.  These people are a significant part of  the middle to upper middle class in America.  Due to excessive borrowing and spending during the real estate boom, a good part of the American middle and upper income households are just a cliffhanger away from insolvency.  Could this be one reason the stock market is getting nervous?  Who is going to do the spending if middle income Americans are near insolvency?  The Federal government can’t.  Due to recent legislation, they will be cutting-back on their spending.

The lesson to be learned is this>>>individuals and businesses should have at least one-year of liquid assets to tie them over in case the economic/business cycle goes against you.   It is not a question of if something will go wrong—but when.

August 1, 2011:  Stock market update for week ending July 29th

In spite of the debt problems in Washington, the short & intermediate direction of the market is still UP.   The 20 day moving average of the S&P 500 index is still above its 50 day moving average though not by much.  The 50 day moving average is about 30 points above the S&P 200 day moving average.  If the 50 day moving average should cross over the 200 day moving average,  the market will have entered a Death Cross.  This would be a very negative signal.  I will explain this latter if it should happen.

The S&P 500 index closed today just a few points above its 200 day moving average.  If it should go below the 200 day moving average, this is something to be concerned about.  This week will tell.

July 29, 2011:  It all Boils down to these TWO choices

Don’t make life complicated—keep it simple.  When you observe the economic/political problems occurring both in the U.S. and other parts of the world (European Union for example),  the choices the public has to make through their representatives All boil down to only Two choices.   These two choices are: 1. either you will put in place economic/political policy that will empower the individual—OR—-2. policies that will empower the government.   You can not have it both ways.

If you want to empower the government over the individual, then fine but remember government is not your friend>>it is your competitor for personal power.  It is the road to Serfdom.

July 28, 2011:  Why will there always be economic unease & conflict?

Why there will always be eternal economic unease and conflict?  First,  you must understand that economics is not a science.  Using the classical definition of economics–it is the study of human behavior in its historical setting.  In other words–economics is the study of psychology. Once you understand this, the answer to the lead question is simple.  Human wants and desires are unlimited, but the economic means and resources to satisfy these desires are limited at any particular point in time.  This result leads to a state of human agitation and conflict.  The conflict can be expressed on both the personal and societal levels.   You can not eliminate this conflict, but you can reduce it by understanding its nature and human limitations.  After all, mortals are not perfect.

July 27, 2011:  The Great Myth of having Balance in your Life

One of the popular themes in western culture is to have “balance” in your life. This sounds pleasing to one’s senses, but in reality it is a bunch of nonsense. All movement in the course of life is turbulent and, therefore, unpredictable. When you are in balance, all the forces are equal and you are stationary. To be balanced is to be stagnant; growth comes out of turbulence. Think about all the great inventions and discoveries that have made life more enjoyable. These were accomplished by individuals who had a driving ambition or goal to be successful. They were not in balance. Out of turbulence can come both opportunity and success.

July 26, 2011:  The 900 pound plus gorilla is awaiting

What is this 900 pounds plus gorilla that is lurking in our future?  It is the underestimated costs associated with ObamaCare that is going to hit like a Mack truck starting in 2014.   The Congressional Budget Office completely underestimated the true costs of this program by several orders of magnitude. 

For example, in a recent study almost 60% of companies with 50 or fewer employees that provide medical coverage for their workers said they may stop offering coverage when ObamaCare takes effect.  Companies with 50 or fewer employees do not have to offer medical coverage and face no penalties under ObamaCare.  They have no incentive to offer medical insurance and every incentive to drop it.  Once dropped, the employees will be shifted onto the government plan further inflating its costs.

The point I am trying to make in this short posting is that the budget cutting talk currently taking place in Washington is just the initial beginning of a long series of cuts to come.  The full force of it will begin after the November, 2012 election.  The middle class will be under further assault with a reduction in entitlement programs and tax deductions (mortgage interest & state and local taxes) .

July 25, 2011:  Stock market update for the week ending July 22nd.

It is surprising on how much things change since I have been gone for a week.  In spite of the debt confrontation in Washington, the short-term direction of the S&P 500 index has changed.   The 20 day moving average of the S&P 500 index has crossed above its 50 day moving average.  This gives a short-term direction of UP.   Also, the 50 day moving average still is comfortably above its 200 day moving average.  This means that the longer term direction of the market still is UP.

I admit that this seems hard to believe with all the debt problems in both Washington and Europe.  The stock market has factored these problems in and seems to believe they are no big deal right now.  If the United States should lose its coveted AAA bond rating, things may change quickly.

July 22, 2011:  Quick Stock Market update

I was out-of-town for the last several days and thought I would give you a quick stock market update.  The rest will continue on Monday.  Due to the recent rally in the S&P 500 index, the short-term direction of the market is now UP.   I will get more into this on Monday.

July 18, 2011:  Please note that this week I will be away on business.  I will resume posting on July 25th with the latest stock market update.  In the meantime remember>>>“Liquidity is King–Not Elvis!”

July 15, 2011:  Politics & Corruption in a small Community-Amusing

One of two candidates for sheriff in a small community was notorious for his dishonesty.  When his next door neighbor was asked why she was going to vote for him– since his opponent was a man of unquestioned integrity– she replied:  “I look at it this way.  If a man isn’t ruined when he goes into office,  he’s ruined when he comes out.  And there isn’t any use in ruining a good man.”

July 14, 2011:  Taxation–How Much is Enough?

Taxation–how much?  No one should have to pay to government more than 20% of their income in total taxes.  Total taxes in the U.S. would be those taxes paid to the local, state, and Federal governments.  Unfortunately, even those in the middle income brackets pay well in excess of 20% of their income in total taxation and this will be increasing.

When you get above the 20% mark, you are becoming a Serf and the government is becoming your Master.

Be Free & Prosperous,

Sanford Kahn, Business Author/Speaker

July 13, 2011:  Taxing the Rich–Will it Pay?

There has been much talk lately of taxing the rich more to help close the United State’s massive Federal budget deficit of $1.4 trillion for this year.  Of course, it is not a question of whether or not the rich pay their  fair share of taxes.  The top 1% of income earners in the U.S. pay about 37% of the Federal individual income taxes.  But, let us continue on.

In 2008 about 320,000 Americans had an income (not net worth) of more than $1 million.  This is about 0.3% of all income tax returns.  They paid about $250 billion in taxes that year.  Let’s say Congress tries to get an additional 20% more in tax revenue from them.  That is an extra $50 billion towards a $1.4 trillion deficit.  This assumes that these individuals will not take some offsetting action.  If these individuals are smart enough to make a million dollars or more per year in income, they are smart enough to counteract any increase in their taxes.  The point of this is that heaping more taxes on the rich will not result in the expected revenues.  Government will get much less.

In addition, many of these individuals are business owners.  Any increase in their taxes will only hurt the monies they have to invest in their businesses.  One guess what this will do to employment opportunities.  All this illustrates one important point—the policies and politics of class warfare is the last refuge of bankrupt politicians.

July 12, 2011:   What is a better investment:  Real Estate or the Stock  Market?

First, I would like to thank Mr. Robert Bridges for supplying the information for this posting in his July 11, 2011 Wall Street Journal article (page A15).

Between 1980 and 2010, the median price price of a single family house in California rose by 3.6% per year.  If the house was sold at the housing peak in 2007, the annual price appreciation was 6.61%.

A dollar invested in  median-price, single family home in California in 1980 would have increased to $5.63 in 2007 and to $2.98 in 2010.  Now to the stock market.  This same dollar invested in the Dow Jones Industrial Average in 1980 would have appreciated to $14.41 in 2007 and $11.49 in 2010.  As an investment, the stock market beats real estate hands-down!

Why should this be a surprise?  The stock market represents ownership in businesses.  They can and do adjust to the turbulent economic conditions.   On the other hand real estate is a consumption item and can’t adjust to the changing economic environment.  I admit that real estate is an expensive consumption item–but still a consumption item.  The investment is not the ownership of the property, but the family that goes into it.

July 11, 2011:  Stock market update for the week ending July 8th

Same-old, same-old!  The short-term direction of the market is still Down because the 20 day moving average on the S&P 500 index is still below its 50 day moving average.  Since the 50 day moving average on the S&P 500 index is still above its 200 day moving average, the longer-term uptrend is still intact.

There was an almost 25 point drop in the S&P 500 index today.  If this is an isolated event, then it is no big deal.  The S&P average is still about 55 points above its 200 day moving average.  If we have several more days of significant declines, the S&P index can easily break through its 200 day moving average.  This would be a bearish sign.  Stay tuned!

July 8, 2011:  The positive power of negative thinking

The positive power of negative thinking is an unusual way to start off a post for today. But, let’s delve outside-of-the-box for a minute. It is commonly accepted in western thought that a positive mental attitude is necessary and vital to achieve success and advancement. Not true! What is important is to take positive action. Attitudes are like the weather–they are always changing between being very positive and being very negative. Most of the time you are in the twilight zone of not knowing what your real attitude is. Now let’s apply the first paragraph to you in the context of the larger economy. You should be asking the question of what steps do I need to take to survive if the economic train comes off the tracks due to misguided economic/political policies (negative thinking but realistic). The positive action you should take is to focus your sights on increasing your free cash flow in your business or your cash flow on a personal level. Free cash flow is the wherewithal–the tool–you can use to take advantage of opportunities when things go bad. On a business level it will allow you to buy market share by buying your competitors when they stumble.

Negative thinking is transformed into something positive.

July 7, 2011  The Ultimate objective of All political & economic systems

In democratic societies all economic policies and priorities are realized through the political process.  This then begs the question of what should be the North Star of economic policy?  The ultimate economic objective of political policy is to give individuals the incentives and opportunities to grow and prosper within the Rule of Law and the bounds of morality. Anything other than this will slowly eat away at the fabric of freedom and opportunity in any society.

This objective is reach by giving individuals the incentives to work, save and invest in their futures.

July 6, 2011:  Ayn Rand and the Law of Consequences

The Law of Consequences come directly from a quote by Ayn Rand.  It is—“You can avoid reality, but you can not avoid the consequences of avoiding reality.” This is especially true with regard to the U.S. Federal debt and the escalating interest costs.  Any cuts that the Republicans and the White House agree to in their negotiations will  only be the starting point in a continuing series of budget cuts as the years pass.

I strongly encourage you to go back and read the short June 21st posting.  It is very pertinent.

July 5, 2011:  Stock market update for the week ending July 1st.

Welcome to the second half of the year.  Under the moving average guidelines that I use, the short-term direction of the S&P 500 index is still down.  This is because the 20 day moving average is still below its 50 day moving average but has started to trend back upwards due to the rally last week.  The rally must continue in order for the 20 day moving average to cross back over the 50 day moving average.  The long-term direct is still UP because the 50 moving average is still significantly above its 200 day average.

As stated above, the recent strong rally must continue in order for the short-term direct to reverse itself.

July 1, 2011:  An amusing story on the creeping invidiousness of Inflation

The guy who framed the first dollar he made 30 years age in a 10 cent frame, finds today the frame is worth a dollar and his first dollar is worth 10 cents.

May I strongly suggest you go back and read the June 21 st Daily Post regarding the most powerful force in the universe according to Einstein. It is very relevant in today’s economic/political environment.

Have a happy and safe July 4th holiday.  The Daily Post will resume Tuesday, July 6th.

June 30, 2011:  The Light of Darkness–Inside-the-BOX Thinking

The problem with inside-the-box thinking is that you live and operate in total darkness or at best in imperfect light.  The real light of understanding and comprehension is outside-of-the-box.  I admit that being inside-the-box feels safe and secure, but you wallow in shadows of reality not adjusting to the changing environment.

We are in a different economic/business environment that what existed pre 2007.  The same-old, same-old will not work like it did before.  The U.S. economy is going through a massive deleveraging process that will take at least the next 5 to 10 years to complete.

How do you orient your thinking in this new environment?  Follow this basic rule--Liquidity is King: Not Elvis! The future does not belong to the Big or to the Small, but to the Swift.

June 29, 2011:  Green jobs cost jobs

The creation of so-called green jobs is now the rage in the developed economies.  But, does the creation of green jobs really lead to net gains in employment?

There are unintended consequences to green economics.  Spain is a country that has been more aggressive than the U.S. in creating green type jobs.  A study by Rey Juan Carlos University in Madrid showed that for every green job created in Spain, 2.2 jobs net were lost.   A similar Italian study showed an even worst result.  The bottom line is that since green jobs depend on government subsidies and regulations, they are often overall economic losers.

All this proves the point I have made before—there are no free lunches!

June 28, 2011:  The Federal budget, the deficit and entitlement programs=Your Future

The total current U.S. Federal debt is $14.3 billion and growing.  The average cost of Treasury borrowing is currently at 2.5%.  Historically, this is very low.  The average cost of Treasury borrowing over the last two decades was 5.7%.  Should lenders lose confidence in our ability to manage our financial affairs and interest rates on Federal debt bounce-up to the 5.5% area, the annual interest expense would additionally increase by $420 billion in 2014.  It would then increase an additional $700 billion in 2020.   The 10 year added increase in interest expense would be $4.9 trillion higher than compared to the lower rates we pay now.

Congress is locking horns trying to come up with $2 trillion in estimated savings.  The point is that this is just the beginning of Congress looking for savings.  This will evolved into a serial soap opera of Congress looking for trillions of dollars in additional savings.  Where will they look? They will look where the money is—the entitlement programs,i.e.,  medicare, social security and medicaid.  As the years pass in this decade, these programs will fall under the ax.  If you are 10 or more years from retirement, do not count on social security and medicare paying anywhere near what was promised.   The enormity of the numbers is working against the American middle class. Save and invest for your own future!

June 27, 2011:  Stock Market Update for the week ending June 24th.

Another week-another dollar either adds to wealth or subtracts from it.  In spite of today’s rally in the market, the short-term direction is still down.  This is because of the fact that the 20 day moving average of the S&P 500 stock index is still below its 50 day moving average.  The longer-term direction is still UP.   So far we are having a normal correction in longer-term up upswing.

The fact that the S&P 500 index was able to bounce-off its 200 day moving average today and finish up strongly is  a positive sign for the market.  Let’s see if this trend continues.

June 24, 2011:  Ethics in Business–Something to laugh about

“Ethics are vital to the successful businessman,” said the man to his friend.  “For example:  an old customer paid his account today with a hundred dollar bill.  As he was leaving,  I discovered that he had mistakenly given me two hundreds, stuck together.  Immediately a question of ethics arouse—Should I tell my partner?”

June 23, 2011:  The BIG Screw Job–Social Security

You are getting screwed royally. What? What am I getting screwed on?  You are getting screwed on your investment in social security. For many young workers of today the annual return on social security is 1.5% or less. This does not take into account the fact that Congress will probably raise social security taxes and cut benefits to close an unfunded gap. In this case your return can easily be NEGATIVE.

Now, let’s say you invested your and your employer’s contribution in a personal account. Forget about investing in the stock market. It maybe too volatile for many of you. Let’s say you invested both your and your employer’s contribution in highly rated (AA and/or AAA) safe corporate bonds. These bonds currently pay between 4.5 to 5% annually (conservative estimate). Now compound this return over 40 to 45 working years and compare it to the miserly return from social security. With a personal private social security account you can live your retirement years in luxury compared with just getting by on social security. The government is screwing you! But, then again, what do you expect from Big Government.

Grow & Prosper,

Sanford Kahn, Business Author/Speaker

June 22, 2011:  The Three Major Elements of Obamanomics Are??

The following are the three major tenets of Obamanomics.  They are;

1. More government=more central planning

2. More unions

3. Higher taxes.

Will it work in that it will produce vibrant economic growth?  Hell No! The true wealth of a society is based on its ability to produce not consume.  The tax system has to encourage individuals to work, save and invest in their futures.  It has to encourage entrepreneurship.  These three tenets of Obamanomics will do just the opposite.  Economic growth will be lackluster and unemployment will stay relatively high.

June 21, 2011:  What is the most powerful force in the Universe??

The questions seems like a rather difficult one to answer and it is.  Therefore, I will leave the answer up to an intelligence far greater than mine.  After all, I do have my limitations.  The answer will surprise you.

What did the great Albert Einstein have to say about this?  Dr. Einstein stated that the most powerful force in the universe is compound interest. For us mortals compound interest can be a blessing or a curse depending what side of the equation you are on.  If you are a disciplined saver and take advantage of  compound interest on your investments, you can retire a millionaire.  On the other hand, if you are heavily in debt and the interest expense is growing faster than your income to repay it, compound interest will impoverish you.

What holds true for individuals also holds true for nations.  For example, the U.S. Congressional Budget Office estimated that for this year the interest on our national debt will equal approximately 30% of our defense budget.  This is affordable.  But, if things continue at their present rate, by the year 2020 (9 short years from now), the interest on our national debt will be 8% greater than our defense budget.  This amount of interest will almost impoverish the United States.  This trend can not continue without a dramatically lowering of standards of living in the U.S.

The Law of Compound Interest is a silent killer for those who are unaware.

June 20, 2011:  Stock market update for week ending June 17th

Since the 20 day moving average of the S&P 500 index is still below the 50 day moving average, the short-term direction of the stock market is Down.  The 50 day moving average is still significantly above the 200 day moving  average of the S&P 500 index and, therefore, the longer-term direction is still intact and is Up.

What is starting to concern me the most is the daily close of the S&P 500 index in relation to its 200 day moving average.  The S&P 500 index is only about 13 points above its 200 day moving average.  If it should dive below its 200 day moving average, this would be a negative intermediate signal on the direction of the market.  The significance of the 200 day moving average is that it is a widely used indicator by professionals of the direction of the markets.   If you are in the market, keep close tabs on this widely used indicator.

June 17, 2011:  The one honest way to make MONEY

A successful businessman was talking to his competitor. “I said it before and I’ll say it again,” he declaimed, “There may be many ways of making money, but there is only one honest one.”

“What’s that,” the competitor asked.

“Just as I suspected,” crowed the businessman.  You don’t know know!”

An amusing story for a Friday.  This coming Monday–weekly stock market update.  Watch the 200 day moving average on the S&P 500 index.

June 16, 2011:  Does company loyalty exist?

Is there such a thing as company loyalty? Absolutely, categorically the answer is NO.  Working for any employer and drawing a wage or salary is an employment arrangement.  That is all it is.  The employment arrangement can be contractual or implied.  The employer has the right to terminate the contract at any time and so do you.  It is a balanced arrangement.  It doesn’t matter if you worked for the employer one week or 30 years, either party can terminate the contract with proper notice.

It is not the employer’s responsibility to provide for your well-being.  It is your responsibility! You should be living below your means and saving sufficient funds to bridge the gaps when the employment cycle goes against you.  In addition, have a side-line business or investments that throw-off sufficient funds that can grow over time.  Don’t be dependent on any employer for your only source of income.  As I have stated before, all movement in life is turbulent and, therefore, unpredictable. It is not a question of if the crap will hit the fan, but when. It is your responsibility to be prepared.

June 15, 2011:   The simple Law of Complexity

This law states that the complication factor of a strategy or course-of-action is directly proportional to the square of the plan’s complexity. This Law almost guarantees that any plan or strategy (business or personal) that involves numerous players will go wrong. Complications will arise. A good example of this are large government contracts. The cost overruns are usually a multiple of the original cost. If you are implementing a plan or strategy that has many players and is elaborate, have a back-up position or blueprint.  It is not a question of IF something will go wrong—but When.   We are now witnessing this Law in the U.S. economy.

In the end–Keep it Simple!

June 14, 2011:  Romance, Reality and Economics

First, why would someone who writes and speaks predominately on business and economic trends write on this particular subject?  Isn’t this somewhat out-of-character with the theme and purpose of this blog?  If you use the modern definition of economics, i.e., “the science that deals with the production, distribution, and consumption of commodities”, then you would have a valid point.  But, the definition of economics that I use is the classical definition of economics —- “the study of human behavior in its historical setting.”  In other words economics is psychology and nothing but psychology.  Therefore, the title of today’s posting fits in well with the classical definition of economics.

In relationships between men and women the individuals involved have the propensity to separate romance and reality as two distinct things.  This is a pure recipe for failure. Romance and reality are a part and set of the larger arena of live.  The term they used back in the 1970′s–-reality bites—is so true.  Reality, like a slithering snake, will always creep into any romantic relationship and upset it and destroy the charm of it.

Then, the logical question is how can romance survive reality?  Read this carefully!  When romance is the icing on the  cake of reality, it can not only survive but flourish and bloom. Romance, then, is not separated from the “cake of reality” but it is part of it.  How sweet it is!

June 13, 2011:  Stock market update for week ending June 10th.

It is nice to be back.  A lot has happened in the stock market since my last post on June 3rd.

The 20 day moving average on the S&P 500 index has decisively moved below the 50 day moving average.  This now confirms that the short term direction in the market is Down.  The 50 day moving average is still well above the 200 day moving average on the S&P 500 index.  This, so far, tells me that the longer term trend is still UP.  To put it in another way, we are in the midst of a short-term correction in a longer term uptrend.

The first warning sign that the longer term trend could be in jeopardy is if the S&P 500 index plunges below it 200 day moving average.  The 200 day moving average of the S&P 500 index is currently at 1250.  At the close of trading today, we are about 22 points away from breaking through the 200 day moving average.  This will be an important week for the market.  Stay tuned!

June 3, 2011:  Why Isn’t Oil Plummeting in Price??

You would think with the economy being weak and probably getting weaker that oil prices would be plummeting by now.  May’s dismal employment report came out today.  Only 54,000 jobs were created in May.  That is the fewest number of jobs created in eight months.  The unemployment rate also inched-up to 9.1%.  So you would think that oil would be sinking by now.  Instead, it has been hovering around $100.00 per barrel.  Why??

Part of the answer is in the above paragraph.  The chairman of the U.S. Fed, Ben Bernanke, is a political animal.  With the economic growth abruptly slowing there will be immense pressure on Bernanke to engage in Quantitative Easing III.  In other words, engage in more printing of dollars which will lower its value.  Oil is priced in dollars.   Market always look forward.  Just the thought of this happening is putting a floor on oil prices.

A depreciating dollar will only drive commodity prices and inflation higher.  The middle class will get squeezed again.

NOTE:  I will be away all of next week.  The Daily Post will resume on June 13th with the latest stock market update.  I would appreciated sharing the Daily Post URL with your friends and associates.  Thanks–Sanford.

June 2, 2011:  What is the Main Purpose of a House?

In the past decade individuals thought that a house served as a bank that you can tap for extra income.  In other words they thought of a home or house as an appreciating asset that you can borrow against without the fear of it going down in value.  Their home became a commodity bought on borrowed money and like any other commodity it has its own boom and bust cycle.  We are now in the bust cycle and will be there until the inventory hangover is eliminated.

The main purpose of a home is shelter—the family living in it is the investment.  Any economy that is dependent on a boom in housing for growth is an economy standing on false legs.  A healthy and vibrant economy is one that is built on capital investment and giving individuals the incentives to work, save and invest in their futures.   This is accomplished through the tax code—not by monetary policy.

June 1, 2011:  The 5 Ways Real Economic Wealth is Created

How is wealth created in any society? You talk to a thousand economists and you will get a thousand different answers. The question I ask is all-encompassing in that it pertains to all societies in any time frame–whether 2,000 years ago, today, or 2,000 years in the future.

There are only FIVE generators of wealth in any society. These five are:

1. Fishing

2. Mining

3 Agriculture

4. Manufacturing

5. Construction.

That is the list. Have you noticed what is missing? What is missing is the service industry. The service industry in and of itself is not a wealth producer. It is to be of service to one or more of the five wealth producers. As societies advanced and become more economically productive, the majority of workers are employed in the service industries. If you think about it, this makes sense, but without the five wealth produces the service industry would wither.

The above five are the “what” of the wealth producers. Now–who are they? They are those men and women who put their capital on the line to start a legitimate business. They are called entrepreneurs.

Society should encourage this type of behavior with low taxation with sensible rules and regulations. Unfortunately, in the United States we are going in the opposite direction, and society will pay the price with reduced economic growth and employment opportunities. There are no free economic lunches.

May 31, 2011:  Weekly Stock Market update

Even though the customary saying in the stock market is in May go away, the upward trend in the market is still intact.  The 20 day moving average of the S&P 500 stock index is still above its 50 day moving average though not by much.  The 50 day moving average is well above the 200 day moving average of the S&P 500 stock index.

In spite of all the problems in the world and including a possible economic slowdown in the U.S., the market has discounted all the short-term negative news and doesn’t think it is a big deal at the moment.  A sudden unanticipated economic surprise could change all that.  But, the whole idea of using moving averages is that the market tells us what its direction is.  Right now the direction is still UP.

May 27, 2011:  Christopher Columbus & the thinking of modern Government

Christopher Columbus was responsible for the thinking of modern government.  He didn’t know where he was going when he started; he didn’t know where he was when he got there; and he did it all on a Government grant.

Have a good Memorial Day weekend.  The Daily Post will resume on Tuesday, May 31st with the stock market update.

May 26, 2011:  The Power Of  MONEY!

There is that old saying that money can not buy happiness.  BUT, on the other hand–happiness can’t buy money either.  Therefore what is the real power or purpose of money?  This question probably has as many answers as there are people.

In the business of life the real power of money is that it greases the wheels of opportunity.  It is the wherewithal, the means, that allows one to take advantage of opportunities.  Not matter how smart or clever you are without money or capital it is difficult (not impossible) to take advantage of opportunities that present themselves.  Money can not of itself guarantee success, but it can certainly open doors to it.  If you can remember the following equation below, you will have no problem in remembering what money is and can do.  The equation is:

MONEY=OPPORTUNITY.

May 25, 2011:  The 90% Rule–OR–Why the Economy is Slowing

The gross debt of the U.S. Federal government is now at approximately 95%.  The 90% rule is derived from examining the debt ratios data of the major leading economies going back several centuries.  What is says is that when the ratio of the gross debt of a major nation exceeds 90% of its GDP, economic growth slows down by 1% compounded per year.  This one-percent doesn’t sound like much, but it is significant.  For example, instead of an economy growing at 3% per year,  it now grows at 2% per year.  An economy growing at 2% annually does nothing to reduce a stubbornly high unemployment rate—nor does it lead to much of a sales growth for companies.  Individuals and businesses will be fighting over the pieces of an economic pie that is very slowly expanding.

Now the $64,000 question of how to reduce the size of the government.  From past experience with other governments in a similar situation as ours, at least 85% of the cuts has to come from spending side to be successful.  The spending cuts have to concentrated in two areas to be successful.  These are significant cuts to entitlement programs and cuts in government salaries and benefits.    I admit that this will be difficult to implement, but not impossible.  Just look what the governor of New Jersey is doing.  This will have to be replicated on the national level.

May 24, 2011:  Paragons of Personal Failure

I usually do not write about the personal tragedies of well-known individuals.  But the personal calamities of both former California governor Arnold Schwarzenegger and now ex-IMF chief Strauss-Kahn (no relation to me) illustrates an important point I have made in my recent postings.

Their dramatic personal failures is the true illustration of an old Greek saying that states>> for whom the Gods will destroy they first make overconfident. These two individuals got way too overconfident.  When individuals are overconfident they charge ahead oblivious to the dangers and crosscurrents that await.  It is not a question of IF something will go wrong, but  WHEN.   Time and events caught up to them.  The Gods made sure they got their just punishment.

What holds true for them; holds true for both you and I and businesses in general.

May 23, 2011:  Stock market update for week ending May 20th.

In spite of the down week in the S&P 500 stock index the basic trend is still UP.  Why?  The 20 day moving average is still above the 50 day moving average on the S&P 500 stock index.  Along as this trend holds true, the short and intermediate direction of the stock market is up.  If there is a significant down week this week, I suspect this will negatively impact the short-term direction of the market.  The S&P 500 index was down almost 16 points today, but did manage to finish off its low for the day.  If it continues down 15+ points on average during this week, the short-term trend in the market can change.

I realize that looking at moving averages seems like a simple way to analyze the market.  But, the beauty behind this analysis is that the market tells you in very simple terms its direction.  It takes the guess work out of market predictions.

May 20, 2011:  What is the Purpose of ANY investment??

The Purpose of ANY investment is to increase your Net Worth–not to Make Money.

When you think in terms of “making money” your thinking tends to be short-sided with the good possibility of making long-term bad decisions.   In other words you are thinking mostly of the here and now.  Thinking in terms of “Net Worth” forces you to take the long view. What actions can I take today that will increase my Net Worth or value 5 to 10 years down the road.  This applies not only to business decisions, but also to personal ones as well.  For example, individuals invest in educational opportunities of various natures to increase their value or net worth in the marketplace.  This is long term thinking.

Most important--thinking in terms of increasing your net worth enhances your potential to increase your income.  Income follows net worth!

May 19, 2011:  What are the TWO most important words in business?

Famous Amos, the chocolate chip cookie king, had two words to express his business philosophy.  These two words are “Do It”.  By “doing it” means taking the necessary actions to build the value or net worth of your business.

Building the value of your business can be achieved by focusing on increasing the free cash flow of your enterprise.  Free cash flow is the real money after all expenses that can be returned to the owners of the business.  The value of a business is a direct function of its free cash flow.  By building the cash flow of the business, you now have the resources – the stuff– to take advantage of opportunities that will present themselves.

Good fortune favors the bold.  Attitude follows action.

May 18, 2011:  Beware of The Dangers of Overconfidence

There is an old Greek saying that explains why the path of perfection for mortals leads to disaster. It is:  for whom the Gods will destroy they first make overconfident. When individuals are overconfident they charge ahead oblivious to the dangers and crosscurrents that await.  As stated previously, it is not a question of IF something will go wrong, but WHEN.  Things do go wrong and the overconfident will not be prepared for contingencies.  They will stumble.  A good example is the real estate market.  The last time we had a major national decline in real estate prices was in the 1930′s.  A great majority of real estate investors thought this would not happen again.  It did–and they were not prepared.  You are aware of the consequences that brought.

In your planning, plan in broad strokes but allow for the good possibility that events may conspire against you.  Be prepared!

May 17, 2011:  In the turbulent flow of life>>who owns the future??

All movement in the flow of life is turbulent and, therefore, unpredictable. In other words, life isn’t linear (a straight line). As a result of the turbulent flow of life, the future is unknowable. Predicting the future is an exercise in probability analysis. For example, if I take these actions now, there is a 70% probability that in two years I shall arrive at this outcome.

Turbulence almost guarantees that it is not a question of if something will go wrong with your life plans, but what and when? Therefore, in designing your life strategies plan in broad strokes and have a fallback position.

Given the turbulent nature of life and its unpredictability, the question for you should be: “how do I capitalize on its opportunities”? The future belongs to those individuals who can quickly discern, adapt to, and exploit the unpredictable movements in the turbulent flow of life. Stagnation produces nothing over time but decline.

May 16, 2011:  Stock market update for week ending May 13th.

In spite of last weeks roller coaster movement in the S&P 500 stock index, the short-term and intermediate-term trend in the stock market is still UP.  The 20 day moving average is still above the 50 day moving average of the S&P 500 index.  This indicates that the short-term movement is up in spite of the decline on Friday.  If the popular averages decline sharply this week, the short term trend may go negative.  The old saying of “go away in May” may come true. On the other hand too many people are aware of this saying so it might not come true.

The trend is your friend.

May 13, 2011:  The #1  Rule of Debt Financing

The #1 rule of debt financing is–asset prices can shrink, but liabilities never shrink.  What this short sentence is saying is that assets (stocks,bonds,real estate, commodities,etc.) bought on debt (leverage) can and do have wide swings in prices.  The leverage or debt used to finance these assets is constant and has to be repaid.

The dilemma arises when the cost of leverage used to finance these asset purchases becomes unsustainable.  Then, a period of asset liquidation takes place and asset prices tumble.   This is what we are witnessing in real estate prices and eventually in the commodity prices.

Leverage is a two edged sword! It will chop you to pieces when it moves against you.  It is not a question of IF something will go wrong but when.

May 12, 2011:  The LAW of the Conservation of Personal Power

In physics there exists a law titled the “conservation of matter”. It basically states that matter can not be easily created or destroyed. However, the states of matter can be changed. For example, by applying enough heat to a solid you can transform it into a liquid, as with ice. A liquid heated to the boiling point can be changed into a gas. In all cases they are still the original matter, but in a different state.

In a similar vein, using the law of the conservation of matter, there exists in all societies a conservation of personal power. It states that Personal Power can neither be created nor destroyed, but it can be transferred.

Societies have two and only two broad options:

Through their respective governments, they can institute policies that will empower the individual or policies that will empower government. If you wish to empower the government for greater economic stability, then you must transfer some of your personal power to it.

There are consequences to both broad options.  One set of policies will lead to a growing set of opportunities for advancement while the other will lead to dependence and stagnation and the road to bondage .

May 11, 2011:  The 4 Faces of Keynesian Econ

The great experiment is under way.  What experiment?  The experiment to see if Keynesian economics will produce sustained and vibrant economic growth and job opportunities.

What are the current four faces of Keynesian econ? They are:

1. Whatever remains of the 2009 stimulus

2. The one-year 2% reduction in the social security payroll tax

3. Faster business capital expensing provision for two years

4. And lastly, quantitative easing (QE) II maybe followed by  QE III.

Will all this work?  Hell NO! Vibrant economic growth comes from giving individuals the incentives to work, save and invest for their futures.  This is done through tax policy.  The current tax policy of the United States is poles apart from promoting this policy.

May 10, 2011:  Stock market update for week ending May 6th.

The trend is your friend and both the short-term and intermediate-term trends in the  S&P 500 stock index are UP. The 20 day moving average is still above the 50 day moving average on the S&P 500 stock index.  The 50 day moving average is significantly above the 200 day moving average.  So far, there is no early warning as to a significant correction in the stock market.

If you are getting a little nervous at these levels, you can sell some covered calls to protect your positions and generate some extra cash flow.   I will be releasing a video on YouTube.com shortly that explains this strategy.  I have been using it for years with good success.

May 9, 2011:  I will be away from my office today and the weekly stock market update will be posted on Tuesday, May 10th.

In its absence remember the Cardinal Rule of Economics >>>there is no such thing as a free lunch.  The American middle class will be finding this out in the next few years.  More latter!

May 6, 2011:  A little unknown secret regarding business relationships is….

A little unknown secret regarding business relationships is…. In business it is better to be liked than to be loved. When you try to be loved, people will take advantage of you and your credibility flies out the window.  Or, as the late comedian, Rodney Dangerfield, use to say, “I don’t get any respect”.  Besides this, trying to be loved takes way too much work and energy.

When you are liked, you earn respect and people will want to do business with you. Keep it simple!

May 5, 2011:  Life’s many paths>>which one is the Best?

In life’s turbulent journey there are many paths one can take in both the secular and spiritual planes. Especially in the spiritual sphere, numerous groups believe that if you don’t travel down their narrowly focused path you are either going to a place that is very hot or cold. (I haven’t figured out which one Hell is. It could be both–an upper Hell and a lower Hell.)

In life’s journey all paths (spiritual or secular) are EQUAL as long as they meet these TWO conditions: 1. They are within the Rule of Law 2. They are within the Bounds of Morality. It is that simple.  Don’t let anyone enslave you with guilt and fear because you are not traveling down their path.  Their path is no better than yours as long as the two above conditions are met.  Lastly–but important–please recognize that the path or paths you are taking today may not be the ones you will be following in the future.  All movement in life is turbulent and, therefore, unpredictable.

PS You may wish to follow on Facebook @: http://www.facebook.com/sanfordkahn

May 4, 2011:  The Dollar Flood and the Grim Aftermath

The world is losing faith in the U.S. dollar!  Worldwide investors are putting their money into gold, silver, U.S. farmland, and emerging market stocks to hedge themselves against a decline in the value of dollar assets or a simple bet on commodity prices.  The dollar flood, engineered the U.S. Federal Reserve Bank, is resulting in mini bubbles on a worldwide basis.

This dollar tsunami will not last forever.  The U.S. Fed will eventually have to tighten-up on the money spigot to fight a surging inflation.  When the dollar flood stops, the reckoning for many will be brutal.  Commodity prices that race upwards can and do tumble downwards.

May 3, 2011:  Where goes the price of oil?

To get a handle on where the price of oil can go, you must look at both supply and demand.  This will be a simple analysis because anything more complicated will probably be incorrect.  Let’s start with demand first.

The middle class in China, India and the continent of Africa are growing rapidly.  When a person or family becomes middle class what is the one thing they wish to have before anything else?  Answer–owning a car! What do cars run on?  Answer–gasoline derived from oil.  We now have demand for oil increasing a rapid rate from three parts of the globe that have a billion plus people.

Now–let’s look at the supply of oil.  The Arab countries in OPEC recently announced that they will need to keep the price of oil no lower that $95.00 per barrel to meet their growing social budgets.  These social budgets are growing to pacify the angry throngs protesting in the streets.  They will do everything in their power to keep the oil price at a floor of $95.00.

Unless we have a very serious recession (doubtful at the moment), with demand increasing and OPEC keeping supply (and prices) under  control, expect the price of oil to keeping climbing.

Now my next prediction! If gasoline prices in the U.S. should climb to average $5.00 per gallon for regular grade gas—we will go into another recession.   The consumer will be busted!

May 2, 2011:  Stock market update for the week ending April 29th

The trend is your friend and right now the 20, 50 and 200 day moving averages on the S&P 500 stock index are pointing to an UP direction in the market.   The only caution I have is that the S&P 500 index is now 11.5% above its 200 day moving average.  When it gets 10% or more above its 200 day moving average,  it is getting into overbought territory and subject to a short-term correction.  It couldn’t hurt to take some chips off the table where you have some decent gains.  You will not go broke by cashing in on some of your profits.

April 29, 2011:  Financial salespeople & their ilk>>A different perspective

We all have our biases including me.  One of my strong and long-held view is that one should be aware of financial salespeople selling you product or service that is based on commission or fee for product or service sold.

Please remember this–they work for the firm not for you.  Their goal is to sell you products that will generate fee or commission income for both them and the firm.  Whether these products are suitable for you is of secondary or tertiary importance to them.  Recent history has shown that this is more often the case.  To say that Wall Street has cleaned itself up is laughable.  Please think of financial salespeople as  as used car salesmen in fancy suits. If you could remember this, it will at least put you on guard.

April 28, 2011:  The Ticking Debt BOMB

In economics as in life there is no such thing as a free lunch.  When you are in debt, you are enslaved.  The greater the debt is—the greater the enslavement.  What holds true for individuals is also true for countries.  The United States is no exception.

As the total debt of the U.S. government reaches 90% of economic output (GDP). There will be a dramatic slowing of economic growth by at least one percentage point per year compounded.   The total U.S. government to debt-to-GDP ratio is currently at 93% and galloping forward. The Net Result of all this will be higher taxes to pay the interest on our national debt and the loss of our AAA credit rating.  The loss of our AAA credit rating will result in much higher interest rates throughout the economy. Standards of living will continue to fall.

April 27, 2011:  How to generate an economic miracle?

Do you wish for an economic miracle?  They can happen—but only if you have the right mixture of political policies.  You do not have to be a Dr. Einstein to figure out what these policies are that will induce an economic miracle.  In a nutshell these policies are:

1. Having a sound monetary unit.  Unfortunately, we do not have that today.

2. Lightening the tax burden on entrepreneurs and business formation.  It would also help to reduce our corporate income tax to where it is competitive on the world economic stage to about 20% from the current 35%.

3.  Removing government impediments to doing and conducting business.  This would include removing and streamlining the numerous rules and regulations governing business practices.

These three policy changes would make a world of difference in our economic world.  The U.S. economy would begin a sustained period of vibrant economic growth.

April 26, 2011:  What is the difference between a recession, depression and a panic?

A recession is a period in which you tighten your belt.  A depression is a time in which you have no belt to tighten.  And, when you have no trousers to hold up>>>that is a panic.

April 25, 2011:  Stock market update for week ending April 22, 2011

The basic trend in the S&P 500 stock index is still UP.  The 20 moving average has stayed above the 50 day moving average on the S&P 500 index.  This tells me that even the short-term trend is still upwards.

The only warning I can give right now is that the S&P closing on Friday, April 22nd is 10% above its 200 day moving average.  When the market gets in the range of 10% above its 200 day moving average, it is getting into a precarious position.  In other words, the upside potential is getting rather limited.  You may wish to consider selling covered out-of-the-money call options on some of your positions to hedge your bets and generate some extra cash flow.   The three stocks to consider selling covered out-of-the-money calls on are IBM, United Technologies (UTX), and 3M Company (MMM).   As a point of information, I am now doing this strategy with my IBM stock.

April 23, 2011:  Overheard at the Loan Office??

Overheard at the Loan Office:  “I’d like to combine all my little financial obligations into one backbreaking load.”

April 22, 2011:  Good Easter Friday>>The story of the Eskimo & the Priest

I would like to thank Ms. Annie Dillard for this light and entertaining Good Friday story.

Eskimo:  “If I did not know about God and sin, would I go to hell?”  Priest: “No, not if you did not know.”   Eskimo: “Then why did you tell me?”

April 21, 2011:  The curse of being too smart.

First, I would like to state that the above is not relevant to me.  I’m smart, but not excessively brilliant.

When smart people get to thinking that they are overly intelligent compared to the masses of humanity, they start to become overconfident.  When one is overconfident, he or she feels that their plans or strategies will succeed no matter what happens.   In other words, there is no chance of failure.  Failure is out of the question. As a result, there is no downside exit strategy in case success eludes you. This is a pure prescription for collapse.  Why?  It is not a question of if something will go wrong with your plans~~~but when. When this happens–disaster will follow.

In politics this can be especially dangerous. When a political leader or leaders think they are brilliant and know what is best for society, the result will be they will travel down the wrong road faster.

April 20, 2011:  The Foundations of Tyranny

The basis of tyranny is best stated by the late Nobel Prize winner in economics, Dr. Milton Friedman.

He stated that when the combination of economic and political power is concentrated in the same hands, this is a sure recipe for tyranny.  The locus of political and economic power is now concentrated in Washington, D.C.

Government is not your friend.  It is your competitor for personal power. Be careful of the yoke of bondage.

April 19, 2011:   When are You Seriously Rich?

I would like to thank Dr. Paul Johnson, eminent British historian and author, for the following.

My idea of being rich–or at least of feeling rich–is to have no debts, mortgage or overdraft and to be able to pay all my bills by return post.  This may seem a fairly modest ambition, but if everyone in the West were in this position our societies would indeed merit the term “affluent”, and the world would be a much happier place.

What Dr. Johnson is saying is to beware and cautious of leverage>>>debt.

Grow & Prosper,

Sanford Kahn, Business Author/Speaker

April 18, 2011:  Stock market update for the week ending April 15,2011.

The basic trend in the market is still UP.  The 20 day moving average in the S&P 500 stock index crossed back above its 50 day moving average.  In the last few weeks it has been just below the 50 day moving average.  This indicates that even the short term direction in the market is up.  In spite of today’s 14.54 point drop in the S&P 500 stock index, I can not argue with the trend.   The only caution I have at the moment is that the S&P 500 index is trading at about 10% higher than its 200 day moving average.  When it trades at or near this juncture, a short term to intermediate term correction occurs.  We will see if today’s drop in the market begins an intermediate term correction.  Stay tuned!

“‘About the time we can make the ends meet, somebody moves the ends.” ‘    Herbert Hoover

April 16, 2011:

“You can’t have unlimited opportunity and unlimited government”–Phil Gramm.   No free lunches!

April 15, 2011:  What stocks to own for the next 5 to 10 years?

I really doubt that the stock market is going to do much over the next 5 to 10 years. If so, then it is important to own stocks that pay a reasonably good dividend (about 3% or more). Why? From 1972 to 2006, stocks in the S&P 500 that paid a dividend year over year had an average return of 10% per year. Those that didn’t pay a dividend had an annual return of 4%.

Be careful though. If the dividend yield seems out-of-line with reality, then something could be amiss. Also, if the dividend per share is more than 50% of its earnings per share, this could be a warning that it may not be sustained. Lastly, many of the companies in the S&P 500 index that pay a dividend have call options available. Selling a covered call is a conservative way of boosting your yield and cash flow.

April 14, 2011:  The Great Myth—The Rich and their Taxes

First, I would like to thank Mr. Alan Reynolds for collecting the actual IRS data on the super rich and the amount of taxes they pay.  For this discussion, the super rich will be the top 400 individual taxpayers.

This is a given that the super rich derive much more of their total income from capital gains than the rest of us.   The argument is true that the average tax rate the top 400 taxpayers pay has declined declined substantially. Their average tax rate fell to 22% in 2000 when the capital gains tax rate was 20%.  In 1995 their average tax rate was 30% when the capital gains tax rate was 28%.  BUT, the IRS data shows that the tax revenue they paid more than doubled when the capital gains tax rate fell–increasing to $12 billion in 2000 from $5 in 1995 measured in constant dollars.

Again, this same increase in tax revenues happened after 2003 when the top capital gains rate was lowered to 15% from 20%.  Their average tax rate fell to 17% in 2007 from 23 % in 2002.  BUT, the real revenues to government doubled again>>>from $7.0 billion in 2002 to $14.5 billion in 2007.

The moral of the IRS figures is–-that if you wish to soak the rich and get more tax revenues from them, then lower tax rates don’t increase them.

April 13, 2011:  The Two Simple & Precise Economic Equations that RULE

I have a question–why must life be complicated?   When you make life complicated or complex it is difficult to get a grasp or understanding of its nature.  Complexity leads to confusion. And, so it is with economic life also.   If you understand the two easy equations below, then you will have a mastery of basic economics and our budget debates in Washington, D.C.

The two equations are:

1. Taxes UP=Economic Activity DOWN

2. Taxes DOWN=Economic Activity UP.

Raising taxes is a depressant on economic activity–not a stimulant.  Depress economic activity by raising taxes and the revenue to government will never be what is projected by government big kahunas.  It will be much less.

In the end– a secure future lies in economic growth!

April 12, 2011:   Innovation and America’s Future

I was planning to write about something else today until I read Mr. Vinton Cerf’s article in today’s Wall Street Journal on American Innovation.  Without new innovation both prosperity and standards of living in the U.S. will both decline.   Below, I would like to quote the passage that is most important.

“America simply is not producing enough of our own innovators, and the cause is twofold—a deteriorating K-12 education system and a national culture that does not emphasize the importance of education and the value of engineering and science.  The American public focuses more on sports and entertainment figures and less on the science and engineers whose innovations make our lives easier, safer,healthier, and more productive.”

April 11, 2011:  Stock market update for week ending April 8th.

The basic trend in the market is still UP—but it is a weak up at that.   The 50 day moving average of the S&P 500 stock index is still significantly above its 200 day moving average.  This is good.  The problem is that the 20 day moving average is still a pinch below the 50 day moving average.  This is indicating that near term weakness is developing.  The old adage of  “in May go away” could hold true.

A more worrying sign is the rampant number of bulls on Wall Street.   Bullish investors are now 57% of the total investors according to the latest survey.   At the market top in October, 2007, the number of bullish investors was 62%.  When markets reach such an extreme, history has shown that returns either slow dramatically or turn negative.  We are getting very close to that point.   Stay tuned!

April 8, 2011:  A post for those who doubt inflation will be a problem.

Inflation is and will always be a monetary phenomenon.  When a country (like the U.S.)  has a huge budget deficit and a rapidly growing money supply along with a depreciating currency, inflation will always follow.  For you to think that it will not happen given the above circumstances is to ask that 1 + 1 to equal 3.   The challenge that will follow is when the U.S. Federal Reserve waits too long to tackle the inflationary problem and then has to dramatically raise interest rates to combat swiftly rising prices.  If this should happen, the real estate decline is far from over.

April 7, 2011:  The Basic LAW Governing Human Behavior

I would like to ask you a simple question.  Why must understanding peoples’ behavior be complicated?  As one of my more outstanding engineering professors always emphasized, we should try to keep things simple.  This gives you a better feel and understanding of the problem or situation.

Therefore, what is the basic law that drives human behavior? It is– people act and do what they perceive to be in their best interests. The key word is perception.  All movement in the course of life is turbulent and therefore unpredictable.  Peoples’ perceptions are also in movement and change over time (especially as you age).  As a result, their behavior changes as their perceptions change.

Keep it simple my friends!

Be Solvent & Prosper,
Sanford Kahn, Business Speaker/Author

April 6, 2011:   Has the Inflation Genie left the bottle?

Elvis has left the building and so has the Inflation Genie.  Actually, she made her exit several months ago.

Inflation is entirely a monetary phenomenon.  As the late Nobel prize winner in economics, Dr. Milton Friedman, pointed out, inflation is due when you have too much money or credit chasing too few goods.  The Bank of Japan has dramatically increased liquidity to bring their economy back after their devastating earthquake.    Also, the U.S. Federal Reserve Bank along with the European Central Bank have both generously increased the supply of money to get their respective economies running again.  To some degree they have been successful.

This large increases in credit creation has mostly found its way into the financial and commodity markets.  The large increases in commodity prices (food grains, metals, oil, etc.) is now filtering its way into the general consumer price index.  As stated in the April 5th posting, in the three months ending in February, 2011 the annualized consumer inflation rate was 5.6%.   The Real Danger facing the U.S. economy is that Federal Reserve Bank will be slow to face the reality of galloping price increases.  When the reality bites, they will be forced to dramatically raise interest rates to recapture the Inflation Genie.

I leave it to you to figure out what this will do to the stock market and the economy.

April 5, 2011:  Where goes the economy?

Where goes the economy is a good question and the way to analyze it is to keep the analysis as simple as possible.  Approximately 70% of the U.S. economic output (Gross Domestic Product) is based on personal consumption expenditures.   In order for the economy to produce sustainable levels of economic growth above 3% , real income growth must be positive. What is the current situation?

In the three months ending in February, 2011 the annualized consumer inflation rate was 5.6%.   That is not a typo.  With the general price increases ripping through our economy since February, it is doubtful the inflation rate will be receding.  In the past 12 months wages and salaries have increased between 1.7% to 2.0%.   We now have a situation where real incomes are declining. There is no way that I know of where you can sustain vibrant economic growth when real personal incomes are declining.  This does not mean we will be going into another recession.  What it does mean is that the U.S. economy will be experiencing  sluggish economic growth more towards the 2% to 2.5% range.  This will not be sufficient to bring down significantly our high unemployment level.

Lastly, it will also adversely impact the rate of growth of corporate profits.  I expect this to be reflected in stock prices as we get well into the second half of the year.

“A secure future lies in economic growth.”

April 4, 2011:  Stock market update for week ending April 1st.

Right now the basic trend in the S&P 500 stock index is still UP.   But, the 20 day moving  average has crossed a little below the 50 day moving average of the S&P 500 index.  This is starting to indicate near term weakness.  The 50 day moving average is still significantly above the 200 day moving average indicating that the basic trend is intact.

Longer term the stock market has been propelled upward due to an abundance of cheap credit supplied by the U.S.  Federal reserve.  This is coming to an end.  Inflation in the U.S. was running at an annualized rate of 5.6% for the three months ending in February, 2011.  By late this year or early 2012, the FED will have to change course and tighten credit conditions.  The stock market will discount this 6 to 9 months prior to the event.  Once this new reality sets in, the stock market has the potential of tumbling.  This process can start by late summer.

What is that old saying about the stock market?  It is—in May go away! May maybe a little too early, but think seriously about taking some money off the table by late summer if not before.   If I am wrong, you can always come back to the table and throw the dice.

April 1, 2011:  The Basic Law governing Human Behavior

First, I would like to wish you a happy and enjoyable April’s Fools Day.  Hopefully, my Daily Post postings have lessen the probability of you being a fool.  Now on the the subject.

I would like to ask you a simple question.  Why must understanding peoples’ behavior be complicated?  As one of my more outstanding engineering professors always emphasized, we should try to keep things simple.  This gives you a better feel and understanding of the problem or situation.

Therefore, what is the basic law that drives human behavior? It is– people act and do what they perceive to be in their best interests. The key word is perception.  All movement in the course of life is turbulent and therefore unpredictable.  Peoples’ perceptions are also in movement and change over time (especially as you age).  As a result, their behavior changes as their perceptions change.

Keep it simple my friends!

Be Solvent & Prosper,
Sanford Kahn, Business Speaker/Author

March 31, 2011:  The frontal attack on the American Middle Class.

The American middle class is going to be invaded or assaulted on three fronts that will trash their standard of living. The first is rapidly rising oil and fuel prices. If the U.S. government wants to debase their dollar to be trade competitive, then the bill we pay is for oil (which is priced in $) to rise in price. The second assault also follows from above. Many farm commodity prices are now rising faster than oil in value. This is especially true for corn future prices. Corn is especially important because it is a feedstock for many of the popular meats we eat. The last assault on the middle class will come in the form of rising electric prices. The EPA is engineering strict emission rules regarding CO2 that will result in the closing of many of our current coal generating electric power plants. This may not sound important but almost half the electricity generated in the U.S. is from coal. These coal plants will have to be replaced by more expensive gas generating plants. Guess who will pay the price for this? YOU!

There are no free lunches in economics. You will be paying the bill for these attacks by diminishing standards of living and employment opportunities. HOPE– policies can be reversed depending who is elected to govern.

March 30, 2011:  What is the true and correct definition of socialism?

Notice above I said the “true and correct” definition of socialism—not the feel good definition.   The true definition is–-socialism is a form of government where the government controls either entirely or in large measure the three factors of production–LAND, LABOR & CAPITAL.

If government controls these three factors of production either in large measure or entirely, at best you are a serf and at worst you are a slave.  If you wish to be free and pursue your best interests within the Rule of Law and the Bounds or Morality, traveling down the socialist path will eventually result in wearing the yoke of bondage.

Socialism is Slavery!

March 29, 2011:  Predicting economic and financial trends.

All trends come to an end.  As opposed to financial events, financial trends have a life of their own and go to an extreme and then reverse.  We are witnessing this now not only in the United States but also in the major western economies.

The dominate theme in both economic and financial fields is reversion to the mean. This is what is now taking place in the U.S.  The U.S. economy is now going through a long and painful process of deleveraging.  Total borrowing peaked-out in the first quarter of 2008 at 136% of personal after tax income. It has now declined to 117% of income.  The pre-bubble norm was 70% of personal after tax income.  To return to near this level, total debt will have to be reduced by another $6 trillion hit to the economy.  This will be a long and painful process.  The Federal government can put in place policies that will slow it down but it will not reverse it.  The consequence of these policies will only be to draw out the pain.

What is happening to total personal debt is now beginning to happen to corporate profit margins.  With the cost of commodities and energy increasing for businesses, their profit margins will be reverting back towards the norm.  Profit margin growth is a big driver of the level of stock prices.  When profit margin growth starts to shrink, stock prices encounter strong upward headwinds.

March 28, 2011:  Stock Market update for the week ending March25th.

The stock market can be labeled the great confuser.  The basic trend in the S&P 500 index is still UP, but with some early warnings.  First, I stated that the basic trend is still up because the 50 day moving average is still significantly above the 200 day moving average of the S&P 500 index.

Now for some early warnings.  The 20 day moving average closed Friday a speck below the 50 day moving average.  This is starting to indicate that the short term direction may be in the process of changing.  This week will tell.  Also,  the S&P 500 index closed Friday at 10% above its 200 day moving average.  At this point the market starts to run into some strong headwinds.

Just maybe you should think about selling call options on some of your portfolio to increase your cash flow while you have the opportunity.  If you would like reference on how to do this, send an email message directly to me @ sanford16@yahoo.com.  Please put “call options” in the subject line.

March 25, 2011:  Do we really live in an economic environment that is changing very quickly?  Think again!

One of the popular and often repeated business themes is that we live and work in an economy that is changing quickly.  But, what is changing rapidly—is it trends or events?

As Aesop illustrated in one of his old and respected fables, The Shepard and The Sea, the sea has many moods.  What you see on television, hear on the radio, and read in the papers are events.  These events change quickly and abruptly.  Economic trends on the other hand are smoother.  They change very slowly but take on a life of their own and then go to an extreme and reverse.

It will be your ability to adapt to the changing trends that will insure your success both personally and professionally.  Why?  Because if you do not base your planning on long-term economic trends, then it will be difficult to adopt a framework in which to base your financial decisions.  You will be rushing about putting out current fires instead of devoting your energies to long-term planning. Then, what is the pivotal long-term economic/business trend that will significantly impact your business planning?

Going forward the new long-term economic trend is a massive deleveraging taking place in the U.S. economy.  This will have profound implications on how both individuals and businesses plan for their growth and betterment.

March 24, 2011:  What is the New American Dream?

First, what is the old American Dream?  The old American Dream was to own your own home.  Many of the people who participated in this dream in the last 5 to 10 years found out the hard way that so-called American Dream turned into the American nightmare.   All dreams come to an end.

The New American Dream is—to be out of (or near out of) debt. When you have excessive debt you are not free.  You are burdened with this debt bag.   As I tell my audiences when I speak, that the future does not belong to the Big or the Small~~~but to the SWIFT.  The swift are those individuals who are not choked by excessive debt (or no debt at all) and are in a position to pounce on opportunities.   You don’t have to be that smart to get ahead–just be in a position to take advantage of opportunities.

March 23, 2011:  MYTH–Is Information is Power?

Is information power?  This popular business myth is an outgrowth of the information society.  If this is true, then the more information you acquire the more powerful you will be. While it maybe popular to subscribe to this myth, the fact is the myth is not true. Information, especially as you acquire more is not power but can easily lead to confusion. The power comes from knowledge and understanding how the acquired information can benefit you both on a personal and professional level. Knowledge and understanding can be obtained from seminars, reading, etc.  I would venture to guess, though, that seventy-five percent of your practical business knowledge comes from personal experience—the old fashioned trial-and-error method. Knowledge is the filter that sifts the information into its useful parts.

March 22, 2011:  How to price your product or service?

COST-DRIVEN VS. PRICE-DRIVEN PRICING—–Cost driven pricing is taking in all your costs and adding a profit margin on what you sell. Price driven pricing is coming up with a price that will cause your product or service to move. It’s usually a lower price, but with that comes less competition. If you get a handle on costs, become price driven and get market share—you will beat out the competition. In the economy we are in for the next decade at least, the model to follow will be price driven pricing. The GOAL is to get market share.

March 21, 2011:  Stock Market update for the week ending March 18, 2011.

In spite of last week’s decline, the 20, 50 and 200 day moving averages on the S&P 500 stock index are still indicating an UP trend in the market.  There are some signs that are of immediate concern to me.  The 20 day moving average is almost ready to break through the 50 day moving average on the S&P 500 stock index.  If it should, this would indicate that the near term trend of the market is down.  I suspect that with today’s strong rally, this will not happen this week, but it bears watching.

With today’s rally the S&P 500 index is  very close to the 1300 level.  Meanwhile , its 200 day moving average is at about 1180.  If you do the math, the S&P 500 index is 10% above its 200 day moving average.  Markets do not usually go much above 10% of their 200 day moving average before they run into a correction. The market can rally some more this coming week, but it is getting close to a more serious correction.  We will see.

In the meantime consider selling covered call options against part of your stock portfolio to generate some extra cash flow from your stocks.  I am now doing this in my portfolio.  Nothing like a little extra $$ in my pocket.

March 14, 2011:  Stock Market update for the week ending March 11, 2011.

All three moving averages (the 20, 50 and 200 day) on the S&P 500 stock index are still indicating an UP market.  There is a BUT forming.  The 20 moving average has turned decidedly down.  It is still above the 50 moving average but if we have another week or two of downward movement it will cross the 50 moving average.  Right now, though, the 20 day moving average is still above the 50 day moving average indicating that the trend is still up.

There is something else you should be aware of. Historically, whenever the S&P 500 index gets 10% or more above its 200 day moving average the market has a sharp correction.  The S&P 500 index closed Friday at 1304 and its 200 day moving average closed at about 1175.  We might be in the early stages of a sharp correction in the popular averages.  It bears watching.

PS For the rest of the week I will be away on business.  The Daily Post will continue next Monday, March21st.  I would like to personally thank all of you who have referred this blog site to other people.  Thank You.

March 11, 2011:  What is the MOST IMPORTANT investment criterion?

The most important investment criterion, whether you are purchasing a stock, bond, or another business, is the suitability of that particular investment in relation to your financial psychology or business makeup (your core business).  No matter how good an investment may seem, if it doesn’t agree with your basic comfort level, it isn’t suitable for you.   Now this is the most important part.  Do not let a financial planner or adviser talk you into an investment when you feel in your gut that this is not a suitable investment for you.   Only you can make this decision.   You must protect your best interests.

March 10, 2011:   The fine art of Body Surfing and Life’s Opportunities

I am an avid body surfer in southern California and I noticed a connection between getting a good long ride from a wave and partaking in life’s opportunities.  You can go much further in life by riding a small wave that is building momentum than riding the crest of a larger wave. What this means to you is to beware of the trends that are popular and the masses are jumping into.   For example, I remember the many real estate seminars that were being held for public (the masses) in 2005 & 2006 including ones by the great Donald Trump.   That was a good time either not to buy real estate or sell it if you bought it previously.  Nation-wide real estate prices topped out in the summer of 2006.

The real gems lie either undiscovered or the masses pass them over.  Going with the crowd seems safe, but it will lead you off a cliff.  Play your own game and play it well. More tomorrow–I am  off to Corona del Mar State Beach for some bodysurfing.  Of course, I will be wearing my wet suit.  This water is cold.

March 9, 2011:  Who Owns the Future?  Not who you think!

We have had the mistaken belief in this country that the business future belongs to the big and the mighty.  This is nonsense.  The future belongs to the swift.  The swift are those men and women whose businesses have liquidity  (low debt levels) and are generating sufficient levels of free cash flow to take advantage of opportunities that will be presenting themselves.  Free cash flow is the wherewithal, the stuff, that successful business people can use to innovate new products and services, which along with effective marketing and customer relations can be used to grab market share from your competitors.

March 8, 2011:  The Feds are out of AMMO.

I don’t know if rising oil prices will induce another recession (a double dip).   I strongly feel, though, that if oil prices should get and stay above $135 per barrel and consumer confidence crashes, the U.S. will probably enter another recession.  That, my friends, would be the real problem.

The problem is the Feds are out of ammo.  They used-up all of their powder fighting and getting us out of the last serious recession in 2008.  The U.S. administration is already running-up a fiscal deficit of $1.6 trillion.  Another recession would balloon this deficit to well above $2.5 trillion.  No lender will loan the U.S. money at dirt cheap interest rates with a massive deficit this large.  What this means is that the government will not be in any position for a large stimulus program like we had before.   The U.S. Federal Reserve Bank has already gone through a whopping program of printing money to promote employment growth.  If they do this again to fight another recession, it will only flood the world’s economy with unnecessary dollars and put strong upward pressure on commodity prices (oil, etc.).  The result— inflation in the U.S. would be galloping forward with even more upward thrust on interest rates.  The result would not be pretty.

Conclusion: If the U.S. economy should go into another recession, it has the potential of being much more serious that the one we had in 2007-2008.  The government will simply not have the tools to successfully fight it and the full force of de-leveraging will come into play.  If this should happen, how do you prepare for it? Remember this saying~~~“Liquidity is King–Not Elvis!”

March 7,2011:  Stock market update for week ending March 4th.

In spite of last weeks sawtooth pattern, the trend in the S&P 500 Stock Index is still UP.   The 20 day moving average is still above the the 50 day moving average of the S&P 500 index, and the 50 day moving average is well above the S&P 500 index’s 200 day moving average.  I can’t argue with the trend.

A very early warning>>>occurred last week.  The 10 day moving average of the S&P 500 index crossed on the downside its 20 day moving average.  So far this may not mean much, but it bears watching.  When this occurred in August, 2010, there was a sell-off in the market.  Keep watching the price of oil.  If it goes above the $125-$130 per barrel range, economic growth (hence corporate earnings) will take a hit.   

March 4, 2011:   Taxation>>How Much is Enough?

Like most things in life there are limits to what people will endure.  The same applies to the level of taxation.  There are certain limits no government should go beyond.

No one should have to pay to government more than 20% of their income in total taxes.  Total taxes in the U.S. would be those taxes paid to the local, state, and Federal governments.  Unfortunately, even those in the middle income brackets pay well in excess of 20% of their income in total taxation.

When you get above the 20% mark, you are becoming a Serf and the government is becoming your Master.

Be Free & Prosperous,  Sanford Kahn

March 3, 2011:  What do you want>>which path to take?

Which path to take as a nation.  Either we will take the path of having a smaller government with enumerated powers–OR–a large expansive government that will try to control everything within its grasp and be good at nothing.

In the end, though, we will have no choice.   Why?  The credit markets will, within two years at most, no longer lend us an abundant amount of cheap credit to finance our reckless spending.   If we continue down the current path, the U.S. will (not might) lose its coveted AAA credit rating with very real negative consequences.

March 2, 2011:  A simple rule-of-thumb on when oil prices will napalm the economy.

There is a simple rule-of-thumb that can give you advanced warning when rising oil prices will torpedo the economy.  If you can add 1 + 1 and get 2, you can easily use this simple formula.  In addition you will sound like a flaming genius to your associates and will go to the head of the class.

Enough BS>>what is the formula?  When you add the price of a gallon of gas to the interest rate on a fixed 30 year mortgage and the total is 10 or more, the economy will be facing some strong headwinds.  It will definitely slow down and might re-enter another recession.  As of today, the total is fast approaching nine.   If gas goes to $4.50 per gallon and 30 year mortgage rates go to 5.5%, we will be at 10.  This could happen by mid summer.   Stay tuned!

March 1, 2011:  Is the U.S. Dollar Worthless?

The answer is because it has no tangible backing.  For over 4000 years of human history the most common backing of currencies was either gold or silver.  The reason why nations for over 40 centuries backed their currencies with gold or silver was that it tied or anchored their currency to the earth.  They could only expand their monetary unit in tandem with the production of gold or silver.  It took monetary control away from the political class to manipulate the supply of money and its eventual debasement.

Today, the U.S. dollar is a true fiat currency (meaning it has been decreed a currency the central government).  It has no backing other than the full faith and credit of U.S. politicians.  Scary!  President Nixon ended the last gold backing of the dollar on August 15, 1971.

Now, politicians can expand the total debt of the U.S. to pay for any program or programs they wish without having to worry about draining the gold supply from Fort Knox.  If worse comes to worse (it will), they can always print the dollars to pay for their programs.

How long can this game continue.  Simple—it can continue until confidence in the government’s ability to manage its financial affairs is lost.  Then, the game is over.

I can’t predict when, but eventually the U.S. will have to return to some type of commodity backing of its currency.  The result of this will be deflationary.

Be Solvent & Prosperous—Sanford Kahn

February 28, 2011:  The Weekly Stock Market Update for week ending Feb. 25th.

In spite of last week’s decline in the popular averages, the basic trend in the S&P 500 index is still UP.  The 20 day moving average is still above the S&P 500 index’s 50 day moving average, and the 50 day moving average is well above the 200 day moving average.  I can’t argue with the trends.

Sentiment indicators, though, measuring investor bullishness have reach extremes. They have exceeded the levels in 2008 right before the stock market crashed.  They can still go to further highs, but then the downside will only get worse.  What could cause the market to pivot downward?  Try an oil supply crunch and the U.S. economy growing much slower than expected.  For your info, 4th quarter, 2010 GDP was revised downward from 3.2% to 2.8%.  An oil supply shock can decimate economic growth to 1% to 2% range at best.  This will be a big hit to earnings.

“A secure future lies in economic growth.” Sanford Kahn

February 25, 2011:  What is the ONE eternal truth of the Universe.

This one eternal truth applies not only to planet Earth, but to all civilizations no matter what planet they are on.  Therefore, I encourage all you space aliens to read below.

The eternal truth of the universe is that all actions provoke reactions.  In human terms these reactions or consequences may be positive or negative. Someone or something has to pay a price or cost. There are no free lunches.

For example, in interpersonal relationships, honest communication is both important and essential. You can control the “what and when” of your communication, but you can not control the resulting impact (positive or negative) it has on the other person. This, honest or otherwise, is the cost or price of your communication.

Another example—in economics you can not simultaneously control the cost and quantity of any product or service. If you try to control the cost (price controls), the quantity (and quality) decreases. This is the result of trying to control the price of any product or service.

There are always consequences or costs to any action taken by an individual and their consequences have to be weighed against the cost of the proposed action.  This applies to everything!

February 24, 2011:  Was Ebenezer Scrooge a really bad person–a different viewpoint?

You don’t have to email  and inform me that the Christmas season is over.  I know that.  I would like to look at the personality of Mr. Scrooge on two levels.  First, on a personal level and then on a societal level.  On a personal level, Mr. Scrooge was a cold hearted, tight fisted, and greedy man who had no friends—and nobody wanted to be his friend.

On a societal level, though, Mr. Scrooge was indispensable for the improvement of society and providing the capital for the advancement of the Industrial Revolution.  It was the Industrial Revolution that started the long process of moving the masses of humanity out of poverty and lengthening their lifespans.  The average lifespan in 16th century London was no longer than it was in ancient Rome.  The Industrial Revolution changed all of that.

In order for the entrepreneurs of his day to launch new businesses someone had to provide the capital (money). Scrooge and his brethren fulfilled this indispensable task. The poor and downtrodden, as unfortunate as they are, do not provide the savings and capital for the advancement of society.  They consume–not produce.   The true wealth of a society comes from its ability of produce —not consume!

On a societal level we should celebrate Mr. Scrooge.  He and ilk did more to advance society than all the charitable giving combined.  Maybe we can set aside one day of the year as All Scrooge Day.  May I suggest July 1st as All Scrooge Day.

February 23, 2011:  Who are the New Business Lords?

The New Business Lords will be those individuals who can quickly discern, adapt to, and exploit the unpredictable movements in the turbulent flow of life.  The new lords will be those business people that have as their target the goal of growing the free cash flow of their business.  This cash flow represents the means— the wherewithal— for those shrewd business people to take advantage of opportunities and events that present themselves.  By so growing the free cash flow of a business not only do you increase its value, but also you provide it with the means to maintain its market share and possibly increase it.  On the other hand, the new serfs are those businesses that are mired in debt and illiquidity.  If they stay this way, they will travel down the road to extinction.

February 22, 2011:  All you need to know about the economy in two simple equations.

Having trouble understanding our economy and what will energize it and what will chain it?  Keeping it simple, the two basic formulas below will give you a good understanding of what will propel an economy (job opportunities) and what will shackle it (rising unemployment).  The two formulas are:

1. Taxes UP=Economic Activity DOWN

2. Taxes DOWN= Economic Activity UP.

Raising taxes is an economic depressant>>>not a stimulant.  Increasing taxes will decrease economic and business activity, as well as, employment opportunities.  There are no free lunches!

February 21, 2011:  Stock Market Update for week ending February 18, 2011.

The trend is your friend and the trend in the S&P 500 stock index is still UP.  The 20 day moving average is still above the 50 moving average of the S&P 500 index.  Matter of fact is almost running parallel with it.  Continuing, the 50 day moving average is well above the 200 day moving average.  These numbers are saying that, in spite of disturbing international news, the stock market is climbing a wall of worry.

The only caution right now is that the “fear index” of the S&P 500 average,the VIX, is at or near all time lows.  This registers a lack of fear or downright complacency in the market.  Market don’t like complacency or being taken for granted.  This bears watching.

February 18, 2011:  The Impoverishment of America–The New Poverty Cycle

Part of today’s post will be a spillover from yesterday’s post.  I mentioned a news item in The Wall Street Journal yesterday stating that the  “median income for men was actually higher, in real terms,  in 1973 than in 2009.” This is true.  Continuing, household income has scantily eclipsed inflation since 1975.  The gains in household income from the mid 1970′s was primarily due to large numbers of women entering the work force.  This trend is now over.

The average gain in salary and wages this year will fall between 2.5% and 2.75%.  Don’t expect much more with 9% plus unemployment.  In the last six months the consumer price index (CPI) increased at an annual rate of 3.2%, and in the past quarter it increased at an annual rate of 3.9%. With energy and commodity prices galloping higher,  I suspect that the CPI with be increasing further.

The Conclusion: Real income growth this year will be negative and the American middle class will take a hit to their standard of living. But, what do you expect when you have a fiat currency.   This Monday will be my weekly stock market update.

February 17, 2011:  How to Destroy the Middle Class.

The rule is the same no matter whether it is the middle class in the U.S. or any advanced country or emerging economy.  How to do it—easy, just debauch (corrupt) the currency which will lead to a rising inflation.   Thanks to the U.S. Federal Reserve this process is now in full measure in regards to the dollar.  The U.S. dollar is being debased to make our exports cheaper in the international market place.  This will work for a time, but the price will be a rising  inflation due to increases in import prices.  We are now observing this in the wholesale market.  It will soon spread to the retail market–meaning the things you and I buy.  By the end of 2011,  consumer inflation could be running at a 3.5% to 4%  rate.  This will be larger that the average increases in wages and salaries.  This means that real wages and salaries will be negative after inflation—a declining standard of living for the middle class.

NOTE: This process has been going on for some time.  As reported in the Wall Street Journal today, “median income for men was actually higher, in real terms,  in 1973 than in 2009.” The attack continues!

February 16, 2011:  What the Hell what is another 4 to 5 percentage points?

What are these 4 to 5 percentage points that I am talking about?  They are the increase in U.S. Federal government spending as a percentage of GDP that has occurred over the past two years.  A few years ago, U.S. Federal spending averaged about 18% to 19% of GDP.  In the past few years it has increased to about 23% to 24% of GDP.  This may not sound like a lot, but in a $15 trillion economy we are talking about major big Bucks.

A question for you—where do you think the revenue for this extra spending comes from?  Answer–it is sucked out of the private sector.  How can you have a sustained and growing economy when the Federal government is depleting the resources (the wherewithal) of the private sector?  You can’t! Who spends money more efficiently—government or the private sector (you & I)?  To the contrary of what many believe (especially in Washington), you must shrink the size of government and return resources to the private sector to enable long-term economic growth (jobs) to resume.  This is a first step requirement.

Friends, it is your future and business opportunities at stake.  There are no free lunches!

February 15, 2011:  Einstein & the Fixing of American Education

The late physicist Dr. Albert Einstein had a brilliant saying on how to solve problems that seem intractable. In essence what he said is that no problem can be solved within the paradigm it was created inside of. This is especially true with the poor quality of American education.

You will not solve the problems of K through 12th grade American education by throwing more money at it. We have been doing this for the last 3 decades and it doesn’t work. Education doesn’t need more $$; it needs more competition. The educational $$ should flow directly to the childrens’ parents or guardians. They should be able to chose where to send their kids—either to private or public schools. In other words–give the parents or guardians educational vouchers and let them send their kids to the best schools that meet their needs.

Educational competition will produce miraculous changes at lower cost per pupil.  Competition works; the bureaucracy will never reform themselves.

The same-old, same-old doesn’t work anymore.

February 14, 2011:  Stock market update for week ending February 11, 2011.

The trend is the S&P 500 index is still UP.  The 20 day moving average is still above the 50 day moving average which is significantly above its 200 day moving average.  As long as this holds, the trend will stay up for now.

Early WARNING:  The volatility index for the S&P 500 index (symbol VIX), also know as the “fear factor” is getting near record low readings.  This is indicating complacency and a lack of fear in the market.  The last time the reading got this low was towards the end of April, 2010.  We then had a sharp downward leg that lasted till early September.  Markets do not like complacency and a lack of fear.  They are the great humbler–they demand respect.   The VIX reading can stay low for some time yet, but the market is being set-up for a nice correction.  I suspect this will happen sometime in the second quarter of 2011.  Time will tell—but be warned.

February 7, 2011:  Stock market update for week ending February 4, 2011.

The stock market as measured by the S&P 500 index remains in a strong upward bias.  The 20 day moving average remains above the 50 day moving average.   The S&P 50 day moving average is also above its 200 day moving average.  The market is tell us it still wants to go UP.   As long as the FED supplies the easy and abundant money and credit, the market will continue upwards.   Inflation pressures are slowly building.  Please see the February 3rd posting.

NOTE: For the rest of this week I will be away on business and unable to post.  The Daily Post will resume on Monday, February 14th.  Please give the Daily Post’s URL to  your friends and associates.  Thank you, Sanford

February 4, 2011:  Money=Opportunity:  Class Warfare Stupidity

In our complex and swirling market economy this simple equation is of paramount importance.  It is:  MONEY=OPPORTUNITY.  Now, if you tax opportunity away from those who have made it within the rule-of-law, do you not also tax it away from those who wish to make it?  You can’t hurt the one (the so-called rich) without hurting the other.  Economic opportunities should be open to everyone.

The simple point is: the policies of class warfare don’t work.  Everyone becomes poorer!

February 3, 2011:  Can U.S. economic growth be sustained?

In the 12 months ending December, 2010 wages and salaries were up 1.7%.  In the same period of time the consumer price index was up 1.5%.  The net result was a meager .2% real increase in wages and salaries.  This is nothing to write home about.  Now, let us go forward.

As reported in today’s Wall Street Journal, steel prices have increase six times since November, 2010 for a total increase of 20% to 30%.  Flat-rolled steel is used in everything from cars to toasters as the Journal reported.  This is in addition to double-digit price increases in many of the basic commodities (oil, wheat, sugar,corn,coal,coffee, etc.)   an advanced economy uses.   These price increases will be reflected in the consumer prices index with a lag of approximately two quarters.  It is very possible that by the end of the second half of 2011, the consumer price index will be galloping forward by 4% to 5% annual rate.  With a 9% plus unemployment rate, it is very doubtful that wages and salaries will be increasing more than 2% annually.  By the end of 2011 the real growth in incomes most likely will be negative.

You can not have a vibrant growing economy when the growth in real wages and salaries is negative. You are asking for the impossible.  Consumer expenditures make-up 70% of GDP.  The growth in exports and business investment can not make-up for the deficiency in real growth in wages and salaries.

Please Note:  If this scenario holds true the stock market will start to anticipate it by mid year.

February 2, 2011:  How to get the giant U.S. economy galloping. Yes how–please read below.

First, you must define who are the real “movers and shakers” of economic growth?  The genesis of economic growth are those individuals who put their money (capital) at risk to start legitimate business enterprises and hire people.

Therefore, to get our business economy moving in the direction of sustained growth, implement these three simple tax policies:

1. Effective January 1, 2011 the Capital Gains tax rate is ZERO.
2. Effective January 1, 2011 the corporate income tax rate is ZERO.  Corporations don’t pay taxes, people do (corp. pass on all taxes in higher prices for goods and services and reduced employment).
3. Effective January 1, 2011 the top marginal personal income tax rate is 25%.  Eliminate all tax phase-ins, phase-outs, and the alternate minimum tax.

This is the first but very important step.  The next step involves the other important economic ingredient–the Federal Govt. spending habit.  If the Federal government doesn’t get a rope around its out-of-control spending habit, it will suck vital resources out of the private sector lessening the positive impact of the three tax policies above. Federal spending should not increase any faster than the rate of increase in population and consumer prices.  This would currently be about 3% per year.  This number includes all Federal spending along with entitlement programs.

If these three actions are implemented, our economy will begin a prolong period of sustained economic growth.  The stock market will boom and New Wealth will be created. It will take guts and determination for a national leader to fight for this.

February 1, 2011:  What Wall Street and the capital markets are really after.

The answer to the above question is probably a little rough and crude but after thinking about it, it has a large element of truth in it.  Wall Street and the capital markets are set up to take dollars from stupid people and give it to smart people. Don’t get me wrong–you are not stupid but Wall Street thinks you are.

There are a few conclusions flowing from the above.  First, Wall Street is not on your side.  They have absolutely no concern about your best interests.  I think recent events have shown this to be true.  Second, do your own research.  Wall Street’s research is designed to sell investment products for their large clients and palm them off on you.  Third, (and probably not the last one) is that you should be highly suspicious of any so-called investment professional trying to sell you a product in which they get a commission.  This is a direct conflict of interest. Are they selling you an investment product that will generate the largest commission to them or is it in your best interest?  Given the nature of human beings, the answer is most likely the first suspicion.

Let the buyer beware!

January 31, 2011:  Stock market update>>week ending January 28th.

Friday’s selloff in the S&P 500 stock index did not change the up trend in the market.  The S&P 500 stock index’s 20 day moving average is above its 50 day moving average.  The 50 day moving average is well above its 200 day moving average.  The 20 moving average is almost running parallel with the 50 moving average.  This means, so far, that the stock market is not giving any indication that it is changing direction.  The trend is your friend and the direction is still UP.

The one thing that could adversely impact the stock market is that the price of Brent crude rose today $1.59 to settle at $101.01 a barrel.  Brent crude is used to price oil in Asia and Europe.  If it stays above $100.00 per barrel for some time, it could adversely impact economic growth in Europe and the fast growing economies in Asia.  Markets do not exist in a vacuum and this will eventually have negative consequences for the U.S. economy and stock markets.   Keep your eyes side open.

January 28, 2011:  Where do the future jobs and opportunities lie?

The U.S. Census Bureau reported about a year ago that since the mid 1980′s almost 100% of the net new jobs were created by small business that were in operation five years or less.  Do you realize what this is saying?  Not only were the vast majority of new jobs created by small businesses, but by new small businesses.  The large employers (1,000 employees and up) have been reducing net employment due to competitive pressures.

If you wish to reduce the high unemployment in the U.S., then you have to give those resourceful men and women (entrepreneurs) the environment to create new enterprises.  Do we do this in the U.S.?  Hell no! We burden businesses (especially small businesses) with excessive rules, taxes and don’t forget pointless lawsuits.  If you wish to have a thriving economy and increasing employment then you must have a political environment that encourages work, saving, investment and a sound currency.

Lastly—the true wealth of a nation comes from its ability to produce; not its ability to consume.

January 27, 2011:  We are standing at the Precipice–PART II.

It is nice to get into economic/political debates as to what spending programs our political leaders  can and should take.   This assumes that the country has the financial wherewithal to engage in this political discussion.  There comes a time though where you run out of political and economic rope.  The United States is now at that juncture.

This fact is a given>>>about 50% of U.S. debt is held by overseas investors. Moody’s Investors Services, the bond rating firm, has been warning the United States for the last two years that they must get there fiscal house in order or else the United States will lose its coveted AAA bond rating.  Last week they gave the U.S. two years to make a serious cut in its fiscal deficit or else the U.S. will lose its AAA bond rating.  If overseas investors even sense that Moody’s will be cutting our AAA rating, they will dump U.S. Treasury securities.  This along with a lower bond rating from Moody’s will dramatically push up interest rates and borrowing costs for everyone.

The impact on the real estate market will be particularly devastating.   Real estate prices will not just fall; they will plummet.  The net result will be the United States  will enter a second and much more serious recession.  Friends, the game is over–we can not continue down the same path. In other words>>>all games come to an end including this one.

January 26, 2011:  We are standing at a precipice–part I.

The President’s State of the Union last night was the same-old, same-old feel good nonsense.  In it he proposed new spending of billions of dollars on high speed rail, education, and clean energy.  These are not investments; these are subsidies mostly to his high paid union backers.  In one proposal he stated that in 25 years he wants 80% of Americans to have access to high speed rail services.  We already have that and it is call jet aircraft.  Government spending and “investments” are determined by political purposes and not where it makes economic sense.

I strongly feel that he does not realize the precarious position that the United States is in.  Approximately 50% of U.S. government debt is held by overseas investors. If  I was a foreign investor, after listening to the President last night, I would have serious doubts if he and his administration are serious about getting their fiscal house in order.   They most likely will reach the conclusion that in the margin it would be best to reduce their buying of U.S. debt. The U.S. government wants to promote economic growth by debasing its currency.  This is a sure formula for higher inflation and interest rates. The impact on the economy will be strongly negative.

Stay tuned>>tomorrow part II and the final act.

January 25, 2011:  Weekly Stock Market Update for week ending January 21st.

For review, may I suggest that you re-read the January 18th posting.  This will be an introduction to the moving averages and how they will be an indicator of the stock market direction.

For the week ending January 21st the 50 day moving average was well above the 200 day moving average almost by extremes.  This indicates that the primary trend is still up.  Looking closer, the 20 day moving average was above the 50 day moving average by a healthy margin.  This indicates that both the short-term and intermediate term trends are still up until the indicators pronounce  something different.

Are there any worrying signs?  Yes!  The VIX or the volatility index of the S&P 500 index is getting into its historic low range.  This means the stock market is getting rather complacent.  Markets do not like complacency and being taken for granted.  Any important negative news can upset the market and produce a sharp movement downward.  But, for now the trend is up and don’t argue with it.

Longer term, though,  I am starting to be cautious as to whether or not the market is forming a major double top. The first top occurred in 2007 when the S&P 500 index hit a record of a little over 1500.   A major double top would be a highly negative signal.  What could cause this?  Please read tomorrow’s posting.

January 22, 2011: I will be away on business on Monday, January 24th and there will be no Daily Post that day.  The Daily Post will resume on Tuesday, January 25th with the Weekly Stock Market Update.  I plan to make this a regular feature on the first posting of the new week.

Until then—“Bad economic policy–even for the best of reasons–is still bad policy.”

January 21, 2011:  Who are the New Business Lords? We are all in business because we all participate in the business of life.  Therefore, do you wish to be a business lord or a business serf?

The new business lords will be those business people who can quickly discern, adapt to, and exploit the unpredictable movements in the turbulent flow of life.  The new lords will be those business people that have as their target the goal of growing the free cash flow of their business.  This cash flow represents the means— the wherewithal— for those shrewd business people to take advantage of opportunities and events that present themselves.  By so growing the free cash flow of a business not only do you increase its value, but also you provide it with the means to maintain its market share and possibly increase it.  On the other hand, the new serfs are those businesses that are mired in debt and illiquidity.  If they stay this way, they will travel down the road to extinction.

January 20, 2011:  A call option writing example using Chevron stock.  First, I would like to thank Mr. Ken Pittman of radio station WBSM in Providence, RI for allowing me to be interviewed on his station.  As promised the listeners, I have prepared a covered call option writing strategy using Chevron stock.   Before reading this strategy, may I suggest reviewing the January 19th posting.  You should only contemplate using this strategy if it meets your suitability requirements. The example below neglects commission costs

Chevron closed today at $92.71 per share.  Let’s say you buy 100 shares of Chevron for $9,271.  Each call option represents 100 shares.  You feel that in the next 6 months Chevron will have a difficult time getting above $95 per share.  If you feel this way, why not sell someone the right to buy your 100 shares of Chevron for $95 per share between now and the third Friday in June.  For this right (call option) and based on today’s closing prices, someone will pay you $305.00.  This is your money to keep no matter what happens.  If Chevron stock goes above $95 per share, it can and most likely will be called away.  If it stays below $95 per share, the the call option will expire worthless and you can then sell another one out in time.   The price of the option will be determined by the markets.  It varies from day to day.

This is a simple strategy on how to enhance your rate of return.  It does not guarantee a positive return.  If Chevron stock should fall in price, your total return can easily go negative.  Please be aware of this.  There are no sure-things in investing.

FULL DISCLOSURE: I currently own 300 shares of Chevron stock and employ this strategy in my self-directed IRA account.

Much Success, Sanford Kahn, Business Author/Speaker

January 19, 2011:  Is GOLD a great inflation hedge?

With many investors or should I say speculators piling into gold because of a rising inflation threat due to a depreciating dollar, the above question is very relevant.  The answer is that historically gold has not been a good hedge against rising inflation.  Since 1980, consumer prices have increased approximately190%.  In the same period gold future prices have increased about 185%.  In most of that time period gold prices were flat to downward.  It is only been in the past two years that there was an parabolic movement up in price.  The above does not include the holding or storage costs associated with buying gold.

Is there a better way to protect yourself against inflation?  Why not buy stocks in high quality large integrated oil companies that pay a dividend of 3% or greater (for example Exxon Mobile, Chevron, Conoco Phillips).  If commodity costs (especially oil) continue to rise, so will their stock price.  The beauty, especially with these three stocks, is that you can sell out-of-the-money call options on them to enhance your rate of return and cash flow.  I am currently doing this with Chevron and it has been rewarding.

Let the masses (the herd) pile into gold.  There are other alternatives for the quick and nimble.

January 18, 2011:  The Weekly Stock Market Update–Is the Trend UP or DOWN!

Instead of guessing what the direction of the stock market is why not let the market tell you.  The market in this case will be measured by using the S&P 500 index.  I consider this index much more accurate of the market direction than the Dow Jones 30 Industrial Average.

What I look at are the 20, 50 & 200 day moving averages on the S&P 500 index.  When the 50 day moving average is above the 200 day moving average, the direction of the stock market has a bias to the upside.  What confirms this is when the 20 day moving average is above the 50 day moving average.  This is currently the case and, therefore, the direction of the stock market is UP.

How will you know when problems are brewing?  When the 20 day moving average crosses the 50 day moving average to the downside, this can be an early warning sign that trouble is brewing.  Now, when the 50 day moving average crosses the 200 day moving average (this is called a Death Cross) to the downside, watch out.  There could easily be a substantial correction coming to the stock market.   At this point you might think of taking some of your chips off the table or at least selling covered call options to give you some downside protection.  This is what I do.

As of right now, though, the direction of the S&P 500 index is up.  All movement in life is turbulent and things and perceptions change.  I hope to make this analysis a weekly posting on Mondays except if it is a holiday or I am away from my office.

Please keep following these Posts and inform others. Thanks, Sanford

January 17, 2011:  It is a holiday today and I will be going to the beach for some body surfing and thinking great thoughts.  The Post will resume tomorrow with the “Stock Market Update”.

In the interim please remember the cardinal rule of investing>>>never play another man’s game.  Play your own and play it well.

January 14, 2011:  Beware of good tiny beautiful fairies granting wishes. I think you will enjoy this short and amusing story.

A married couple in their early 60s was celebrating their 40th wedding anniversary in a quiet, romantic little restaurant. Suddenly, a tiny yet beautiful fairy appeared on their table. She said, ‘For being such an exemplary married couple and for being loving to each other for all this time, I will grant you each a wish.’
The wife answered, ‘Oh, I want to travel around the world with my darling husband The fairy waved her magic wand and – poof! – two tickets for the Queen Mary II appeared in her hands. The husband thought for a moment:   ”Well, this is all very romantic, but an opportunity like this will never come again. I’m sorry my love, but my wish is to have a wife 30 years younger than me. The wife, and the fairy, were deeply disappointed, but a wish is a wish. So the fairy waved her magic wand and poof!…the husband became 92 years old. The moral of this story: Men who are ungrateful bastards should remember fairies are female.

Another moral of the story is that all actions have consequences>>>including wishes you would like to have granted from fairies.

January 12, 2011:  What is the outlook for income growth? Good question!  This is important because 70% of GDP growth is the result of consumer expenditures.  If consumer income doesn’t grow, then this will impact economic growth and,  hence, employment.

In the 12 months ending Sept., 2010, wages and salaries in the U.S. grew 1.5%.  Over this same time period consumer prices were up 1.1%.  In real terms wages and salaries in the U.S. are hardly growing.  With 9% plus unemployment I expect that this trend will continue.  Inflation on the consumer level will probably start to accelerate due to rising fuel and food prices.  There is a good possibility that latter this year the real growth in wages and salaries can actually turn negative.  If this should happen, real GDP growth in the U.S. can stumble by the 4th quarter, 2011.  One early indicator of this would be the stock market. It would start to turn down by summer if this was a possibility.  On the S&P 500 index look at the 50 day and 200 day moving averages.  If the 50 day moving average crosses the 200 day moving average on the downside, this would be a clear warning of pending problems.  So far, all is well.

January 11, 2011:  Wherein Lies the Light–OR–Achieving institutional escape velocity!

There are two broad categories of thinking.  To keep these two understandable, I will label them #1: the inside-the-box thinker and #2: the outside-the-box thinker.  I realize that these two phrases have been used extensively, but I want to keep this essay short and simple to read and understand.  The inside-the-box thinker is very much an institutional type of thinker, i.e., don’t expect too much creativity from his or her mind.  The second type of thinker has definitely achieved institutional escape velocity and has the creativity and guts to forge ahead.

In the economic environment that we will be in for at least the next decade, it will be the second type of thinker that will set the agenda.  We are not going back to the same-old, same-old economy that we had pre 2007.  It is a brand new economic environment!

Lastly, to answer the question of wherein lies the light, just imagine yourself inside a box.  There is very little to no light inside the box.  The real light of opportunity and freedom is outside the box. I encourage you to try to break away from the conventional and institutional line of thinking.  This is where the solutions to our most pressing societal issues lay.

I would appreciate it if you could share this blog URL with others.

Many thanks,

Sanford Kahn, Business Author/Speaker

January 10, 2011:  The Conservation of Personal Power—

In physics there exists a law titled the “conservation of matter”.  It basically states that matter can not be easily created or destroyed.  However, the states of matter can be changed. For example, by applying enough heat to a solid you can transform it into a liquid, as with ice. A liquid heated to the boiling point can be changed into a gas. In all cases they are still the original matter, but in a different state.

In a similar vein, using the law of the conservation of matter, there exists in all societies a conservation of personal power. It states that Personal Power can neither be created nor destroyed, but it can be transferred.

Societies have two and only two broad options:

Through their respective governments, they can institute policies that will empower the individual or policies that will empower government. If you wish to empower the government for greater economic stability, then you must transfer some of your personal power to it.

There are consequences to both broad options.  One set of policies will lead to a growing set of opportunities for advancement while the other will lead to dependence and stagnation.  It’s you choice.

Sanford Kahn, Business Author/Speaker

January 7, 2011:  Who is the ultimate Master in any economy? I will first tell you who it isn’t.  Without insulting you, the answer is it isn’t you.  You are the master of your own domain but as an individual you have very little to no influence on economic trends.

The ultimate master in ANY business economy are the markets namely the financial markets.  When they decide that a trend has come to its end–it changes—slowly at first but change never the less.  Through the political process you can fight the change, but it will only delay the inevitable.  So, therefore, what is the great economic/social trend change that will occur over the next several decades?

The answer>>>the great social experiment in expanding social liberal democracies (that started in the 1930′s) is over. Why?  The financial markets will no longer finance liberal governments to expand their social experiments (entitlement programs) a low interest rates.  Once the financial markets lose confidence in governments ability to manage their financial affairs, they will jack-up interest rates.  The cost then is prohibited and the game is OVER.  This is slowly happening in the United States and other social liberal democracies.

A new trend is developing.  It will be changes in the income tax code that will start to reflect this changing trend.  Please be aware of this.

January 6, 2011:   The true wealth of a nation comes from its ability to produce; not its ability to consume.  There are only 5 (I repeat–only five) wealth producers in any society at any time period in history.  These five are: FISHING, MINING, AGRICULTURE, MANUFACTURING & CONSTRUCTION.   What is the common thread that binds these five wealth producers together?  They are all production activities.

Do you notice what is missing?  The service sector is not one of the wealth producers.   The service sector is to be of service to one or more of the five wealth producers.  Societies that do not give incentives (through tax policies) for production will eventually see both their production and consumption decline.

PS: Your homework assignment is to remember these 5 Wealth Producers.   Now, go and produce!

January 5, 2011:  Why is the Stock Market going UP? This is a good question–so I will propose a simple analogy to help you better understand why the stock market is going up.  Think of the stock market as a bunch of young beer drinking horny college frat guys.  What is the one thing they crave the most?  Why, it would be a flock of young horny college sorority gals.  This would make them happy at least for the time being (until their next craving for beer).

This analogy applies equally as well to the equity markets.  What is the one thing that the equity markets crave the most?  It is plenty of loose money.  Guess who is supplying the loose money in spades.  You guessed it–the U.S. Federal Reserve Bank.  As long as the FED keeps supplying it, the trend in the market is up.  Watch out when it takes the money punch bowl away!

January 4, 2011:  The Foundations of Tyranny

The basis of tyranny is best stated by the late Nobel Prize winner in economics, Dr. Milton Friedman.

He stated that when the combination of economic and political power is concentrated in the same hands, this is a sure recipe for tyranny.  The locus of political and economic power is now concentrated in Washington, D.C.

Government is not your friend.  It is your competitor for personal power.  Be careful how much power you allot to the political class.

Grow & Prosper,

Sanford Kahn, Business Author & Speaker

January 3, 2011:  The economic objective of political policy is…..

to give individuals the incentives and opportunities to grow and prosper within the Rule of Law and the bounds of morality. Anything other than this will slowly eat away at the fabric of freedom and opportunity in all societies.

With the highly charged political environment in the U.S.,  I decided that the first post of the New Year should get to the basics of what political systems are all about.   Economics is the study of human behavior in its historical setting.  It is psychology not science .

December 31, 2010:  Another year another dollar—how has your year been?   Do you know what 2011 holds for us?  This I do know that all movement in the course of economic life is turbulent and therefore hard to predict.   The major trend operating in the U.S. and western economies is still in play.  This trend is a deleveraging economy and will continue for another 5 to 10 years.   The result of this will be slower economic growth than normal.

How to survive and prosper in this environment?  Remember these words>>>>LIQUIDITY IS KING: NOT ELVIS!

Have a prosperous New Year.

PS There is a favor you can do for me.  Can you refer this site to your friends, associates or followers.  I believe it serves a useful social function.   Sanford Kahn

December 30, 2010:  The paramount rule of personal investing is….. NEVER play another man’s game even if it is a reasonable game with good returns.  You have to concentrate and focus on what game you are good at playing and then become a master of that investment game.  Many individuals ran into the real estate game in the early part of the last decade without any knowledge of real estate evaluations and markets.   Guess what—many lost big time. Learn your markets and play your game.  The above is written for personal investing rules, but it also applies to the business realm.

December 29, 2010:  The 90% Rule:  Before proceeding, it would be best to re-read the December 28th posting.

The gross debt of the U.S. Federal government is now at approximately 95%.  The 90% rule is derived from examining the debt ratios data of the major leading economies going back several centuries.  What is says is that when the ratio of the gross debt of a major nation exceeds 90% of its GDP, economic growth slows down by 1% compounded per year.  This one-percent doesn’t sound like much, but it is significant.  For example, instead of an economy growing at 3% per year,  it now grows at 2% per year.  An economy growing at 2% annually does nothing to reduce a stubbornly high unemployment rate—nor does it lead to much of a sales growth for companies.  Individuals and businesses will be fighting over the pieces of an economic pie that is very slowly expanding.

Now the $64,000 question of how to reduce the size of the government.  From past experience with other governments in a similar situation as ours, at least 85% of the cuts has to come from spending side to be successful.  The spending cuts have to concentrated in two areas to be successful.  These are significant cuts to entitlement programs and cuts in government salaries and benefits.    I admit that this will be difficult to implement, but not impossible.  Just look what the governor of New Jersey is doing.  This will have to be replicated on the national level.

December 28, 2010:  REALITY= PERCEPTION.  We interpret what is transpiring about us through the filters of our perceptions and myths.  Our reality is what we perceive and this perception varies from individual to individual.   Perception is also important when it comes to the larger picture, i.e., the state and precariousness of our economy.

The financial markets currently have the perception that the United States government will get its financial house in order. This is why the U.S. can borrow tens of billions of dollars at very low interest rates.  If this perception by the financial community changes,  then the cost of borrowing money by the U.S. government will increase dramatically due to the increase in risk.   We are not that far away from a change of perception by the international financial community.  Let’s do a little math.  The current GDP of the U.S. is about $14.6 trillion.  The gross debt of the U.S. government is just shy of $14 trillion.  This leaves a debt to GDP ratio of about 95%.  We are not that far away from 100% and beyond.  To put it in another way, if nothing is done to reverse this trend we can easily become Greece in another two years maximum. A question!  What then will happen to our economy and business and employment opportunities?   More on this debt to GDP ration tomorrow.

December 27, 2010:  The 3 Frontal Attack on the American Middle Class. The American middle class is going to be invaded or assaulted on three fronts that will trash their standard of living.  The first is rapidly rising oil and fuel  prices.  If the U.S. government wants to debase their dollar to be trade competitive, then the bill we pay is for oil (which is priced in $) to rise in price.   The second assault also follows from above.  Many farm commodity prices are now rising faster than oil in value.  This is especially true for corn future prices.  Corn is especially important because it is a feedstock for many of the popular meats we eat.   The last assault on the middle class will come in the form of rising electric prices.  The EPA is engineering strict emission rules that will result in the closing of many of our current coal generating electric power plants.  This may not sound important but almost half the electricity generated in the U.S. is from coal.  These coal plants will have to be replaced by more expensive gas generating plants.  Guess who will pay the price for this?  YOU!

There are no free lunches in economics. You will be paying the bill for these attacks by diminishing standards of living and employment opportunities.   HOPE– policies can be reversed depending who is elected to govern.

December 24, 2010:

From Joe E. Lewis–“There’s only one thing money won’t buy, and that is poverty.”

Have a merry and hearty Christmas holiday and a prosperous New Year.  I will be back on Monday, Dec. 27th.

Be Well,

Sanford

December 23, 2010:   Is your DOLLAR Worthless?

Why is your dollar worthless?  The answer is because it has no tangible backing.  For over 4000 years of human history the most common backing of currencies was either gold or silver.  The reason why nations for over 40 centuries backed their currencies with gold or silver was that it tied or anchored their currency to the earth.  They could only expand their monetary unit in tandem with the production of gold or silver.  It took monetary control away from the political class to manipulate the supply of money and its eventual debasement.

Today, the U.S. dollar is a true fiat currency (meaning it has been decreed a currency the central government).  It has no backing other than the full faith and credit of U.S. politicians.  Scary!  President Nixon ended the last gold backing of the dollar on August 15, l971.

Now, politicians can expand the total debt of the U.S. to pay for any program or programs they wish without having to worry about draining the gold supply from Fort Knox.  If worse comes to worse (it will), they can always print the dollars to pay for their programs.

How long can this game continue.  Simple—it can continue until confidence in the government’s ability to manage its financial affairs is lost.  Then, the game is over.

I can’t predict when, but eventually the U.S. will have to return to some type of commodity backing of its currency.  The result of this will be deflationary

Be Solvent & Prosperous,

Sanford Kahn, Business Author/Speaker

December 22, 2010:  What is the missing link between business risk and maximizing your rate-of-return?

The nexus between business risk and maximizing your rate-of-return is suitability.  Suitability is the most important investment criterion whether on a personal or business level. Not only does it concern the investment that is made, but also how it is financed. Is it financed by taking on a substantial amount of debt or by equity capital (common stock or internally generated funds for example)?

Which one is for you? Debt is more risky, but allows for faster growth. Equity financing is not as risky and hence allows for more stable growth. Without asking yourself the question as to whether this particular investment is suitable to my operation, you may make reckless business decisions that do not mesh with sound financial management and your basic business philosophy.

December 21, 2010:  How Markets Work— In market driven economies, all markets (especially true for the financial markets) are in constant movement between being extremely overvalued and grossly undervalued.  They pass through the area of normal rational valuation on their pendulum swing to the extremes.  Timing and liquidity are the two most important ingredients in determining business success.  Another way of stating it is that—liquidity is King, not Elvis!

December 20, 2010:  A rule of thumb on interest rates and home prices—states that a one percentage increase in mortgage rates effectively raises home prices for buyers by about 10%.  Therefore, if mortgage rates go up one percentage point, then to keep payments the same home prices would have to decline by roughly 10%.   The interest rate on the 30 year fixed mortgage is based on the interest rate on the 10 year Treasury bond.  The rate on the 10 year Treasury bond is currently at 3.35%.   It has gone up by almost one percentage point from October, 2010.   It wasn’t too long ago that the 10 year Treasury bond had a interest rate of 5.5%.  If the 10 year Treasury should go up to a 5% yield, then the 30 fixed mortgage would be approximately 6.5 to 7.0%.  This would further devastate  the real estate market.  Let the buyer beware.

December 17, 2010:  What is the objective of political and economic systems?

In democratic societies all economic policies and priorities are realized through the political process.  This then begs the question of what should be the North Star of economic policy?  The economic objective of political policy is to give individuals the incentives and opportunities to grow and prosper within the Rule of Law and the bounds of morality.  Anything other than this will slowly eat away at the fabric of freedom and opportunity in all societies.

December 16, 2010:  What is the Basic Law governing human behavior?

I would like to ask you a simple question.  Why must understanding peoples’ behavior be complicated?  As one of my more outstanding engineering professors always emphasized, we should try to keep things simple.  This gives you a better feel and grasp of the problem or situation.

Therefore, what is the basic law that drives human behavior? It is– people act and do what they perceive to be in their best interests. The key word is perception. All movement in the course of life is turbulent and therefore unpredictable.  Peoples’ perceptions are also in constant movement and change over time (especially as you age).  As a result, their behavior changes as their perceptions change.

Life should not be complicated>>>keep it simple my friends!

Be Solvent & Prosper,
Sanford Kahn, Business Speaker/Author

December 15, 2010:  Where stands residential real estate in the U.S.? At the end of the third quarter, 2010, approximately 22.5% of U.S. homeowners with a mortgage were underwater–meaning they owed more on their mortgages that their homes were worth.   If home prices fall another 5% this would leave another 2.4 million homeowners underwater.  Gary Shilling writing in the Dec. 20, 2010 issue of Forbes magazine predicts “housing prices to decline another 20%.”  Even if he is mistaken and housing prices decline only by half of his prediction (that is 10%), this will further increase the number of underwater mortgages by over 3 million.  Banks will take hits to their capital because their securities backed by mortgages will decline in value.

What does all this mean? The economy will have no significant sustained upturn until housing finds a bottom.  The bottom is not in sight yet.

December 14, 2010:  How to prosper in the coming age of Poverty & Privilege—OR– do you wish to be a business Lord or Serf??

The new lords will be those business people who can quickly discern, adapt to, and exploit the unpredictable movements in the turbulent flow of life.  The new lords will be those business people that have as their target the goal of growing the free cash flow of their business.  This cash flow represents the means— the wherewithal— for those shrewd business people to take advantage of opportunities and events that present themselves.  By so growing the free cash flow of a business not only do you increase its value, but also you provide it with the means to maintain its market share and possibly increase it.  On the other hand, the new serfs are those businesses that are mired in debt and illiquidity.  If they stay this way, they will travel down the road to extinction.

December 13, 2010:  Opportunity lost and Opportunity regained.  At the conclusion on the December 10th posting,  I stated the opportunity equation of:  Money=Opportunity.  In other words, money is wherewithal that  enhances your opportunities in life.   Now, let us carry this a little bit further to society in general.

What I am specifically talking about are the cheap policies of class warfare.  These policies are mostly implemented through tax legislation.  Now, if you tax opportunity (money) away from those who have made it within the rule-of-law, do you not also tax it away from those who wish make it?   You can’t hurt the one (the so-called rich) without hurting the other.    The simple point is:  the policies of class warfare don’t work! Society in general becomes poorer because new investment is discouraged.

December 10, 2010:  What is the real purpose of MONEY? What a question!  It probably has as many answers as there are people.  But, in the business of life–money greases the wheels of opportunity.  It can not of itself guarantee success, but it can certainly open doors to it.  If you can remember the following equation below, you will have no problem in remembering what money is and can do.  The equation is:

MONEY=OPPORTUNITY.

More on this in Monday’s post.  Have a good weekend.

December 6, 2010:  A short little homework assignment for you to pass your time away. In the next few days I will be away on business.  In the meantime I want you to memorize the 5 societal wealth builders in ANY society at ANY time period.   These five are: Fishing, Agriculture, Mining, Manufacturing and Construction. If we should meet, I want you to rattle-off these five societal wealth builders.  If you correctly do, you go to the head of the class.   Much Success,  Sanford

December 3, 2010:  Who owns the future–the Big or the Small or Nobody?

We have had the mistaken belief in this country that the business future belongs to the big and the mighty.  This is nonsense.  The future belongs to the swift.  The swift are those men and women whose businesses have liquidity  (low debt levels) and are generating sufficient levels of free cash flow to take advantage of opportunities that will be presenting themselves.  Free cash flow is the wherewithal, the stuff, that successful business people can use to innovate new products and services, which along with effective marketing and customer relations can be used to grab market share from your competitors.

December 2, 2010: The 5 BLUNDERS that can sink a business.

It is important to keep life simple. Below are the Five Blunders that can sink your business.

1. Worshiping High Profit Margins—When you try to maximize your profit margins you will also maximize your competition. Instead of focusing on profit margins, focus instead of increasing your Free Cash Flow (FCC). This is defined as income from operations minus capital expenditures. Use FCC to obtain market share.
2. Financially Starving the Opportunities & Feeding the Problems—we are all victims of inertia. Old problems keep you stagnant whereas new opportunities are potentials for growth and can bring in much needed revenue and new customers.
3. Neglecting the Top Line (Sales)–Unless your sales and revenue are growing, your bottom line will eventually shrink. Think of the top line as the potential energy of the firm. The greater the potential energy of the firm the more leverage and opportunities you have to expand your market share.
4. Straying From Your Core Business–Don’t go into a business that you know nothing about. It’s foolish to branch out if your second business doesn’t increase your sales significantly and adds to your Free Cash Flow. There is a wise investment saying that says Never Play Another’s Man Game. Stick with your game.
5. Planning Your Business in an Economic Vacuum –You do not live and work in an economic vacuum. You can develop the best business strategy that time and money can buy, BUT if it is not in harmony with macro economic trends, you can stumble badly.

Grow & Prosper,

Sanford Kahn, Business Author/Speaker

December 1, 2010:  There is no such thing as a free lunch. If you can take all the wisdom in the world and condense it down to one sentence, it would be the sentence above.  A good example to this is the deficit spending of the U.S. government.  It has been estimated that for every dollar of deficit financed spending the cost to the economy is $3.40 in present value.  One guess who will pay for this extra $3.40 cost to the economy?  You will. You will pay for it through higher taxes and a lower standard of living.  There are no free lunches period.

November 30, 2010:  Why there will always be eternal economic unease and conflict? First, economics is not a science.  It is the study of human behavior in its historical setting.  In other words–economics is the study of psychology. Once you understand this, the answer to the lead question is simple.  Human wants and desires are unlimited, but the economic means and resources to satisfy these desires are limited.  This leads to a state of human agitation and conflict.  The conflict can be expressed on both the personal and societal levels.   You can not eliminate this conflict, but you can reduce it by understanding its nature and human limitations.

November 29, 2010:  It’s over—it really is! What is over?  The long  70 year plus march of the liberal welfare state is over.  The financial problems roiling the liberal welfare states in Europe are just a prelude to an end of a trend.  Those same problems will soon manifest themselves in the U.S.  No matter how liberal a government a country may have, when you can no longer afford a welfare state the trend comes to an end.   The “enforcers” are and will be the bond market investors.  They will no longer lend governments the money at low interest rates to continue their unproductive spending.  Without the borrowed money, governments can not continue to spend on an expanding social welfare state.  We are now seeing the beginnings of this in Europe.  Government workers are being laid-off in mass, government pensions are being cut along with salaries.   With the massive $3 trillion unfunded state pension liabilities of the 50 U.S. states, the same will happen here.  It will start slowly, but then will accelerate.  The same will happen to city and municipal governments in the U.S.

REMEMBER: The markets are the masters, especially the financial markets.  They will trump politicians every time.

November 26, 2010:  Beware of annuity salesmen and their sales pitch.  I have been hearing some stories recently of annuity salesmen offering potential buyers returns in the double digit range.  If you run across this pitch, it is not only deceptive but also fraudulent.  Companies that sell annuities invest their monies in mostly high quality corporate and agency debt.  This debt is currently yielding mostly in the 4 to 5% range.  Now, subtract commission cost for the salesman and overhead costs, and you will have a return on your annuity of less than 4%.  Treat all financial salespeople as used car salesmen in fancy suits.

November 25, 2010: Happy Thanksgiving to all.  “A secure future lies in economic growth.”

November 24, 2010:  What is the true and correct definition of socialism? Notice I said the “true and correct” definition of socialism, not the feel good definition.  The true and correct definition of socialism is that it is a form of government that either in total or in large measure controls the three factors of production: Land, Labor and Capital. If the government controls the three factors of production either in total or in large measure, are you not at best a serf and at worst a slave?  This is why Friedrich Hayek called socialism slavery.  He was right!

November 23, 2010:  The ultimate goal of economic/political policy is…. to increase the set of personal freedoms and economic opportunities for all.  A secure future lies in economic growth.

PS There was no Daily Post yesterday, November 22nd due to my server being down.  Some things are beyond my control.

November 19, 2010: A Primer on Economic Gamesmanship—

All movement in economic life is turbulent and unpredictable.  Nothing stays the same.  Economic trends change and with a lag individual’s perspectives change.  The new winners  in the economic game will be those individuals who can quickly discern, adapt to, and exploit the unpredictable movements in the turbulent flow of life.

November 18, 2010:  The four simple laws of economics– I have listed below, what I call the four simple laws of economics.  If you can understand these, it will eliminate much of the confusion that emanates from the popular press.

These four laws are:

1.        There is no such thing as a free lunch.  There is always a “price” which has to be paid by someone.  This rule is of paramount importance.

2.        The markets are the masters — price controls do not work.  You can not simultaneously control both the price and quantity of anything.  If you control the price of anything, the supply of that good or service will go down.

3.        Economic events do not exist in isolation.  We do not live and work in an economic vacuum.

4.        Economics and politics are inseparable.  Two choices:

a.        Policies that lead to real income growth

b.       Policies that lead to redistribution of income.

c.        NOTE:  There is a price to be paid for both a & b above.

November 17, 2010:  The 5 Wealth Producers in any Society at any time are: FISHING, MINING, AGRICULTURE, MANUFACTURING & CONSTRUCTION.  There are no other wealth producers in any society at any other time period whether 2000 years ago or 2000 years into the future.  Notice what is missing?  The service sector is missing.  The service section adds to economic activity (GDP), but in and of itself does not produce societal wealth.  Its function is to be of service to one or more of the five wealth producers.

Look again at the five wealth producers.  What do they have in common?  Nothing at first glance–right?  Wrong!  The five wealth producers are all production activities.  True societal wealth comes from production not consumption.  Just as you can not spend your way to prosperity, you also can not consume your way to prosperity. If societies want to have increasing levels of prosperity, then they must encourage production activities.  You do this by giving entrepreneurs the incentives to work, save and invest for their futures.

November 16, 2010:  Roubini: Inflation Not a Problem>>Kahn: Yes it Is!

In an article today about the economy, economist Nouriel Roubini states that inflation should not be a problem going forward.  He looks at the past a projects forward.   Commodity prices are increasing, due to the debasement of the $,  which will eventually be translated into the consumer price index.   More importantly he states that bank lending isn’t increasing.  This is true, but will not stay this way.  Their profit margins are being squeezed due to low interest rates on their investments.  They will soon start lending again to individuals and businesses to fatten-up their profit margins.  Slow at first, but increasing as time goes on.  Next, he states that the velocity on money (the number of times a $ changes hands) is falling.  True again, but velocity is at the bottom.  As peoples’ (consumers) perception of future inflation change, they will increase their spending in order to avoid future price increases.  All reality is based on perception. As this spending increases so does the velocity of money increase.  Vendors of goods and services will then be able to pass along their wholesale price increases to the consumer.  Hence, the consumer price index (CPI) will start to trot forward to the 4 to 5% annual level.   Nothing stays the same in life including the rate of price inflation.

November 15, 2010:  Overconfidence!

There is an old Greek saying that explains why the path of perfection for mortals leads to disaster. It is:  for whom the Gods will destroy they first make overconfident. When individuals are overconfident they charge ahead oblivious to the dangers and crosscurrents that await.  In other words, they are oblivious to the consequences (risks) of their actions.

While mortals can not be perfect they can be better. As Ben Franklin noted centuries ago—best is the enemy of better.

November 12, 2010:  Law #2-The Law of Planning Failure:

The law of planning failure says that the probability of any plan or strategy will fail is directly proportional to the square of its complexity.  The old saying of  “keeping it simple” has merit especially now in the internet age.

For your information, Law #1 is that there is no such thing as a free lunch.  Someone or something has to pay the price.

November 11, 2010:  The Foundations of Tyranny:

The basis of tyranny is best stated by the late Nobel Prize winner in economics, Dr. Milton Friedman.

He stated that when the combination of economic and political power is concentrated in the same hands, this is a sure recipe for tyranny.  The locus of political and economic power is now concentrated in Washington, D.C.

Government is not your friend.  It is your competitor for personal power.  Be careful!

November 10, 2010:  The BIG tax transformation is coming. Contrary to the popular media Republicans and Democrats are not that divided on tax policy.  They are now in the process of moving in the same direction.  That direction will have major consequences moving forward.

Both parties will enact some type of legislation to extend Bush’s tax cuts for all individuals for a few more years.   They will also move in the direction of overhauling the complicated U.S. tax code.  Republicans will shoot for a growth agenda while Democrats will aim for a revenue agenda.  Creepingly,  the tax code will slowly transform itself to one that favors production over consumption.  This will start out slowly at first but will gather momentum in another two to three years.

One result of this tax transformation will be to reduce the income tax deductions for mortgage interest and state and local taxes (property taxes for example).  This will definitely impact individuals in the top two income tax brackets.  The BIG loser in this transformation will be—Real Estate.   The winner will be equity (stock) investments—this, though, will be several years away.

November 9, 2010:  Taxation–How Much is Enough?? There has to be a limit and there is.

No one should have to pay to government more than 20% of their income in total taxes.  Total taxes in the U.S. would be those taxes paid to the local, state, and Federal governments.  Unfortunately, even those in the middle income brackets pay well in excess of 20% of their income in total taxation.

When you get above the 20% mark, you are becoming a Serf and the government is becoming your Master.

Be Free & Prosperous,

Sanford Kahn, Business Author/Speaker

November 8, 2010:  So you think U.S. Government bonds are safe.  Think again!! U.S. government bonds are safe (as of right now) from the risk of default.  But, there is another potent risk for investors in government bonds.  That risk is the substantial price decline in U.S. govt. bonds should interest rates start to increase.  With the Federal Reserve papering the world in dollars, it is a matter of time before inflation and hence interest rates start to increase.  We are seeing the lows in interest rates now.

So, what is the impact on government bonds should interest rates start to increase?  A one-percentage increase in yield on a 10 U.S. Treasury bond would result in a 9% loss to investors. A similar one-percentage rise in yield on a 30 year bond will result in a loss of about 18% to investors. Please note—that when inflation (not if) takes hold, yields on government bonds in the U.S. can easily climb 2 to 4 percentage points.  It wasn’t that long ago that the 10 year bond was yielding 6%.  It is currently yielding about 2.6%.  Let the buyer beware—what seems safe is not.

November 5, 2010:  What should be your #1 business target? Your #1 business target should be increasing the free cash flow of your business.  First, what is free cash flow (FCC)?  Free cash flow is defined as income from operations minus capital expenditures.  Why is this important?

This cash flow represents the means— the wherewithal— for those shrewd business people to take advantage of opportunities and events that present themselves.  By so growing the free cash flow of a business not only do you increase its value, but also you provide it with the means to maintain its market share and possibly increase it.

November 4, 2010:  You don’t produce prosperity by cheapening your currency.  What you do produce is inflation and a lower standard of living.  Prosperity comes from giving individuals the incentives to work, save and invest for their futures.  In other words, prosperity comes from production not spending or consumption.

November 3, 2010:  California has a unique distinction now. It has devolved into the worst state in the union for business climate. With the defeat of state measure #23 yesterday (see Nov. 2nd posting) and the passage of state measure #25, expect taxes and fees on businesses to  increased substantially.  With the defeat of #23 the state will now start to implement the global warming initiative.  The result will be higher taxes on all forms of carbon energy.  This cost will be passed on to consumers.  With the passage of #25 the legislature can and will pass tax increases with a simple majority vote.  Coming up will be a split tax role for property taxes.  The property taxes for commercial businesses will be raised  appreciably.

To put it in a nutshell–California has committed economic suicide. Whatever competitive edge businesses had here will now disappear.  If you can move your operations, may I suggest four states to go to.  These are Nevada, Colorado, Arizona and Texas.  The golden halo on California has vanished.

November 2, 2010:  California-is on the brink of suicide. It is a toss-up between California and New York as to which state has the worst business environment.  But, if two of the state measures being voted upon today go negative in their respective outcomes, California will have the dubious achievement of having the worst business environment of any of the 50 states by far.

First, there is state measure # 23 which would suspend the global warming initiative until unemployment falls to 5.5%. If this measure fails, it will heavily tax all carbon emissions in the state of California to meet some fictitious carbon greenhouse goal.  It will fall especially hard on the consumer because gasoline prices will easily go above $4 per gallon.  Needless to say all food prices will go up by double digits.  The next beauty is state measure # 25.  This measure will repeal the two-thirds vote necessary in the legislature to pass tax increases.   The ultimate goal of this measure is to do an end-run around prop #13 limiting property tax increases.  The legislature will now find it much easier to pass a split tax role and substantially increase the property tax on non-residential (commercial) properties.  As of right now, commercial properties enjoy the same property tax rights as residential.  If this passes, the property tax bill on many businesses in California will go through the roof.

If #23 should fail and #25 should pass, California Will Have the worst business environment in the nation.  More businesses will flee the state.  They will have to in order to stay in business.  The under employment rate in California is currently 21.9%.  It will go much higher if these two measures negatively impact the business environment in this state.  California will then be in a Depression.

November 1, 2010:  What is the purpose of ANY investment?

The purpose of ANY investment is to increase one’s net worth. The term “net worth” applies to more than stocks, bonds, or real estate. You, your family, and your community can also be viewed as an investment.

Thinking in terms of increasing one’s net worth forces individuals to expand their time horizons. What actions can I take today that will increase my net worth or value over the next 5 to 10 years?  For example, why do individuals invest their time and money in going to college or trade school?  Obviously, they are not making significant monies while attending school.   But, they are learning a particular profession or trade (skills) that will increase their Net Worth or value in the marketplace.  By so doing, they will have the potential of increasing their incomes.

October 29, 2010:  How to easily protect yourself from rising fuel costs.

When countries run persistently large budget deficits, politicians will tend take the path of least resistance and inflate away the amassed debt by depreciating their currency. Our politicians in the U.S. are no different than the ones in other semi-developed countries. Oil and other basic commodities are priced in $$. As the dollar depreciates, the $ price of these commodities will rise. You are now seeing this in the price of oil and gasoline and other commodities. Therefore, what is a simple strategy to protect yourself against rising fuel costs?

Why not buy shares in a very large integrated oil company that pays a good dividend and sell a call option against these shares to generate extra income. A call option gives someone the right (not the obligation) to buy your shares from you at a certain price within a certain time limit.

For example, let’s say you buy 100 shares of Exxon Mobile Corp. (symbol XOM) at today’s price  for $6,644.00. You then sell a call option for someone to buy your 100 shares (one call option =100 shares) from you between now and the third Friday in April, 2011 for $6,750.00.   For this you will receive $255.00 (today’s closing price). This $255.00 is yours to keep no matter what.

Assuming prices remain constant (which they will not), what is your annual rate-of-return? You earned $255.00 in six months or $510.00 on an annual basis. Divide $510.00 by the cost of your 100 shares of XOM ($6,644) and you get an annual return of 7.70%. In addition, you earn a 2.70% annual dividend return on your 100 XOM shares. This gives you a total annual return of 10.4%. Not bad, but there are risks.

RISKS: There is no such thing as a riskless investment. If your 100 shares stays at or north of $6,644, you will make your 10.4% return. Of course, if it should shoot up to $90/share, you could have made more by just owning the shares and not selling a call option. But, this is a hedging investment strategy.

The real risk: Oil is a commodity and it can and most often is very volatile in price swings. If the price of oil should plummet, so will the price of XOM stock. You will then incur a real loss. The premium you collected, $255.00, will give you some downside protection but not enough in a highly volatile market.

FINAL NOTE:

You should only employ this investment strategy if you feel it is suitable for your investment objectives.

In the calculations above, I omitted commission costs. If you wish to employ this strategy, do not use a full-service brokerage house. Their commissions will decimate your rate-of-return. You should use a discount broker and do it online.

October 28, 2010:  The Death Cross is dead–at least for now.  First, what is the death cross?  The Death Cross occurs when the 50 day moving average of the S&P 500 stock index pushes below its 200 day moving average. It is a  bearish signal for stock market.  This occurred in early July and the stock market briefly rallied but then drifted downward.  About a week ago, the death cross crossed back above the 200 day moving average of the S&P 500 index.   This indicates that in the short term the stock market is in a rally phase.   The 20 day moving average of the S&P 500 index confirms that the move was valid.  I suspect the market will continue ralling in the short term.  And, why shouldn’t it.   The stock market craves loose money just like horny college frat boys crave loose women.  The FED will supply the market with plenty of loose money.  The frat boys are on their own.

How long will the rally last?  My guess is that it will last until the market (meaning investors) realize that the loose money policy of the FED will not generate any economic growth, but will generate inflation.  In other words, the policy of trying to generate economic growth by flooding the market with loose money will fail.  Then, the game is up.

October 27, 2010: You are getting screwed royally. What? What am I getting screwed on?  You are getting screwed on your investment in social security. For many young workers of today the annual return on social security is 1.5% or less. This does not take into account the fact that Congress will probably raise social security taxes and cut benefits to close an unfunded gap. In this case your return can easily be NEGATIVE.

Now, let’s say you invested your and your employer’s contribution in a personal account. Forget about investing in the stock market. It maybe too votatile for many of you. Let’s say you invested both your and your employer’s contribution in highly rated (AA and/or AAA) safe corporated bonds. These bonds currently pay between 4.5 to 5% annually (conservative estimate). Now compound this return over 40 to 45 working years and compare it to the miserly return from social security. With a personal private social security account you can live your retirement years in luxury compared with just getting by on social security. The government is screwing you! But, then again, what do you expect from Big Government.

Grow & Prosper, Sanford Kahn

October 26, 2010: Who are the new Business Lords?

The new business lords will be those business people who can quickly discern, adapt to, and exploit the unpredictable movements in the turbulent flow of life. The new lords will be those business people that have as their target the goal of growing the free cash flow of their business. This cash flow represents the means— the wherewithal— for those shrewd business people to take advantage of opportunities and events that present themselves. By so growing the free cash flow of a business not only do you increase its value, but also you provide it with the means to maintain its market share and possibly increase it. On the other hand, the new serfs are those businesses that are mired in debt and illiquidity. If they stay this way, they will travel down the road to extinction.

October 25, 2010: How to kill an economy. It is wishful thinking to think you can institute bad economic policy and the result will be a growing and vibrant economy. Bad economic policy=bad economy period. The one thing you Never do when you are crawling out of a severe recession is to raise taxes. Yet, this is exactly what the U.S. Congress will do if the Bush tax cuts are not extended for all income groups. The expiration of these tax cuts on 12/31/2010 will hit the U.S. economy with a $2 trillion plus tax hike. This will suck liquidity and the creative spirits out of the economy. It will hit small business the hardest. Since the mid 1980′s, small businesses have been responsible for almost 100% of the net new job growth. If these cuts are not extended, expect unemployment to start rising again.

To put it more bluntly>>>If these cuts are allowed to expire and are not renewed, expect the economic train to come off the tracks in 2011.

October 22, 2010: It will fail! What am I talking about? I am talking about the Federal Reserve’s upcoming attempt to revive the U.S. economy by a massive effort of basically printing money (called quantative easing). It will fail because they are focusing their effort on the wrong front. They are trying in induce economic growth by falsely focusing on reviving consumption. Real economic growth comes from incentives to increase production. This is accomplished by keeping the taxes on work, saving, and investment low and reducing the burden of regulation. We are moving in the opposite direction in this country. Expect anemic growth going forward.

October 15, 2010: The Law of Complexity- This law states that the complication factor of a strategy or course-of-action is directly proportional to the square of the plan’s complexity. This Law almost guarantees that any plan or strategy (business or personal) that involves numerous players will go wrong. Complications will arise. A good example of this are large government contracts. The cost overruns are usually a multiple of the original cost. If you are implementing a plan or strategy that has many players and is elaborate, have a back-up position or blueprint.

In the end–Keep it Simple!

(Note: I will be on business most of next week and will resume postings on Friday, October 22nd. Be well & solvent.)

October 14, 2010: A little unkown secret regarding business relationships is: In business it is better to be liked than to be loved. When you try to be loved, people will take advantage of you. When you are liked, you earn respect and people will want to do business with you. Keep it simple!

October 12, 2010: It will fail! The U.S. Federal Reserve is seriously thinking about reigniting economic growth by providing more (much more) monetary stimulus. While the Fed can provide more monetary stimulus, it can not direct where it will go. Some of it will go overseas and the rest into commodity speculation. Already commodity prices (gold,oil, food, etc.) have increased substantially. Let’s look what will happen to the consumer (70% of GDP) if commodity prices continue their upward path. A 15% rise in gasoline prices above their August levels will result in an extra cost per household of $430.00. A 5% (probably more) in food prices will mean an extra cost of $360.00 per household. This does not take into account tax increases coming especially on the state and local levels. The consumer who is already pinched will be more so.

What do you think this will do to consumption expenditures? Instead of being a stimulus to economic growth, excessive monetary expansion will be a deterrent to prosperity. Just like you can not spend your way to prosperity; you can not depreciate your currency to prosperity either.

October 11, 2010: Life’s Turbulence & a Fallback Plan: All movement in the flow of life is turbulent and, therefore, unpredictable. In other words, life isn’t linear (a straight line). As a result of the turbulent flow of life, the future is unknowable. Predicting the future is an exercise in probability analysis. For example, if I take these actions now, there is a 70% probability that in two years I shall arrive at this outcome.

Turbulence almost guarantees that it is not a question of if something will go wrong with your life plans, but what and when? Therefore, in designing your life strategies plan in broad strokes and have a fallback position.

Given the turbulent nature of life and its unpredictability, the question for you should be: “how do I capitalize on its opportunities”? The future belongs to those individuals who can quickly discern, adapt to, and exploit the unpredictable movements in the turbulent flow of life. Stagnation produces nothing over time but decline.

October 8, 2010: The Chinese, the dollar and toilet paper–With a currency war seeming to break-out between the advanced countries and especially between the U.S. and the Chinese, it is important to explore the consequences of currency manipulation. China is the the U.S.’s biggest creditor nation. If they feel that the United States is going to flood its economy with greenbacks to get its economy moving and weaken the value of its currency, they will begin (if not already) to feel that the dollar is useless paper (toilet paper). The result will be a dramatic rise in interest rates in the U.S. Interest rates would have to rise to attract investors to U.S. government debt. The current environment of very low interest rates on U.S. government debt will not continue forever. The only reason we currently have low interest rates is that investors (governments and individuals) have confidence that we will get our fiscal house in order. Once that confidence is lost—we become another Greece.

October 7, 2010: Taxation–how much is enough? No individual should have to pay to government more than 20% of their income in total taxes. Total taxes in the U.S. would be those taxes paid to the local, state, and Federal governments. Unfortunately, even those in the middle income brackets pay well in excess of 20% of their income in total taxation. Why 20%? Over 4,000 years ago Pharaoh agonized over what tax rate he should levy on his wage slaves to maximize income to the state while not destroying incentives for his wage slaves to produce. He eventually settled on a 20% flat tax. It worked! The state got revenue and his wage slaves kept 80% of their earnings.

When you get above the 20% mark, you are becoming a Serf and the government is becoming your Master. Be Free & Prosperous.

October 6, 2010: Friends, we are in for a long hard slog. It ain’t over till the cows start singing Dixie–and they are not singing it. The overriding trend in the the U.S. economy is DELEVERAGING. Since the consumer makes-up the predominate part of GDP (70%), it is important to look at their debt levels. Total household debt as a percent of disposable income peaked in 2007 at 132%. It has since fallen to about 119% of disposable income. Households will not be able to sustain this level of debt until it falls to where it was in year 2000 at 90% of disposable income. Consumers will be cutting back on spending to pay down debt. The more you save the less you have to spend. This does not take into account the increases in taxes that are coming on the Federal, state, and local levels. This will impact how much money consumers have to spend.

Just released from the U. S. Labor Department–average annual expenditures for all income groups declined 2.8% from 2008 to 2009. This was the first spending decline on record. It will not be the last.

October 5, 2010: Talk of a second dip recession has receded recently. So far the odds do not favor a second dip recession, but don’t bet your poker hand on it. The problem that can cause a second dipper is the expiration of the Bush tax cuts. This would be significant increase on income taxes for all tax paying Americans. All else being equeal, the Tax Policy Center has estimated that if the Bush tax cuts are not extended beyond 12/31/2010, that will result in a 2.3% hit to 2011 GDP. Since GDP is estimated to barely grow at a 2% rate in 2011, an increase in Federal income taxes will spiral the economy into a negative growth scenario–recession again. Taxes do matter!

October 4, 2010: The 5 Blunders that can SINK a Business:

1. Worshipping High Profit Margins—When you try to maximize your profit margins you will also maximize your competition. Instead of focusing on profit margins, focus instead of increasing your Free Cash Flow (FCC). This is defined as income from operations minus capital expenditures. Use FCC to obtain market share.
2. Financially Starving the Opportunities & Feeding the Problems—we are all victims of inertia. Old problems keep you stagnant whereas new opportunities are potentials for growth and can bring in much needed revenue and new customers.
3. Neglecting the Top Line (Sales)–Unless your sales and revenue are growing, your bottom line will eventually shrink. Think of the top line as the potential energy of the firm. The greater the potential energy of the firm the more leverage and opportunities you have to expand your market share.
4. Straying From Your Core Business–Don’t go into a business that you know nothing about. It’s foolish to branch out if your second business doesn’t increase your sales significantly and adds to your Free Cash Flow. There is a wise investment saying that says Never Play Another’s Man Game. Stick with your game.
5. Planning Your Business in an Economic Vacuum –You do not live and work in an economic vacuum. You can develop the best business strategy that time and money can buy, BUT if it is not in harmony with macro economic trends, you can stumble badly. Grow & Prosper

October 1,2010: Clash of the Currencies>>sounds like a science fiction movie, but this has real consequences. I would like to quote economic historian Charles Kindleberger from his classic book, The World in Depression. His ominous warning: “When every country turned to protect its national private interest, the world public interest went down the drain, and with it the private interests of all.” We are now engaged again in a clash of currencies with the U.S. and other developed countries trying to devalue their respective currencies to gain an edge in world trade markets. It will not work! It will only cause uncertainty in investment and a lack of real economic growth and employment. Just like you can’t spend your way to prosperity, you also can’t devalue your way to prosperity.

Sept. 30, 2010: What is the one thing that bothers me the most about all financial sales people? First, let me say something positive about financial sales people (some people think that I am too negative). I truely believe they know their products and services very well. They are trained extensively to know the products that their firms have to offer. Now ladies and gentlemen the negative! The great majority of them do not have a twit knowledge of history especially economic history. This lack of knowledge of economic history makes them dangerous –very dangerous. We do not live and work in an economic vacuum. History does repeat itself–but in different shape and form. At one part of the econ/bus cycle, a particular financial product may make a good investment, but at another juncture of the cycle the product could be a fiasco. As George Bernard Shaw wisely noted that the one thing we learn from history is that we don’t learn from history.

September 29, 2010: I would like to continue down the path of economic psychology. How should you view financial sales people? Before answering this question, think of the recent financial meltdown. Financial sales people, especially those whose income is commission based, should be viewed as used car salesmen in fancy suits. They have a tremendous incentive to sell you financial products and services that will generate the largest commission to them while the product may be of secondary or tertiay benefit to you. Only you can decide if this product or service is of real benefit to you. Don’t be pushed into buying. There is a new oxymoron (a contradiction in terms) and it is Wall Street Financial Professional. Please keep this in mind when dealing with Wall Street types. They maybe honest and ethical but be alert. Afterall Bernie Madoff came off as the epitome of financial ethics. Tomorrow, the one thing that bothers me the most about all financial people. Stay tuned!

September 27, 2010: Since I wrote this past week about hedging your stock portfolio with selling equity call options, I thought it would be appropriate to define what this is. When you sell an equity call option (each option=100 shares) against a stock position, this gives the buyer the right (but not the obligation) to buy these shares from you at a certain price (strike price) and within a certain time limit. For this right the buyer will pay you money (premium) into your account. This premium is yours to keep no matter what. As you can see this is a good way to generate extra income from your stock portfolio. I realize that I should post an example soon.

September 24, 2010: In our complex and swirling market economy this simple equation is of paramount importance. It is: MONEY=OPPORTUNITY. Now, if you tax opportunity away from those who have made it within the rule-of-law, do you not also tax it away from those who wish to make it? You can’t hurt the one (the so-called rich) without hurting the other.

The simple point is: the policies of class warfare don’t work. Everyone becomes poorer!

September 23, 2010: Let’s talk about economic psychology. What is economics? When you hear the phrase such as the “laws of economics” it sounds vaguely similar to the scientific phrases like the “laws of physics” or the “laws of chemistry”. Hence, people incorrectly associate economics with science–Not True. Economics is….. the study of human behavior in its historical setting. The study of human behavior, if anything, is a branch of psychology not science. The first of the modern economists (Adam Smith for example) were philosophers who had an appreciation of human behavior.

I think you will agree with me that human behavior has not changed much if any in the last 1000 years. Human behavior goes to extremes. This is especially true with markets. Markets go to extremes on both the upside and the downside. It is rare that when markets decline they stop somewhere in the middle. I believe this is now the case with both the real estate and the stock markets in the U.S. They both went to rather high levels and now have come back to rest at average evaluation levels. They have not gone to their extremes on the downside. If economic psychology holds, their respective declines are not over. Their declines can take several more years to play out. If you are investors in either one of these markets, you should hedge your positions by having ample liquidity as a backup. For the stock market look at the Sept. 21st post. Consider selling call options against part of your stock portfolio to give you some protection against loses.

September 22, 2010: The positive power of negative thinking is an unusual way to start off a post for today. But, let’s delve outside-of-the-box for a minute. It is commonly accepted in western thought that a positive mental attitude is necessary and vital to achieve success and advancement. Not true! What is important is to take positive action. Attitudes are like the weather–they are always changing between being very positive and being very negative. Most of the time you are in the twlight zone of not knowing what your real attitude is.

Now let’s apply the first paragraph to you in the context of the larger economy. You should be asking the question of what steps do I need to take to survive if the economic train comes off the tracks due to misguided economic/political policies (negative thinking but realistic). The positve action you should take is to focus your sights on increasing your free cash flow in your business or your cash flow on a personal level. Free cash flow is the wherewithal–the tool–you can use to take advantage of opportunities when things go bad. On a business level it will allow you to buy market share by buying your competitors when they stumble. Negative thinking is transformed into something positive. Tomorrow, I need to go into economic psychology. In the meantive take a look at the video “Economics For the Average Joe” @: http://www.youtube.com/watch?v=Osbb3RR8-rE . I think you will find it entertaining and informative.

September 21, 2010: The stock market has been in a rally mode for the past two to three weeks. The rally, though, is unconvincing. Think of a car accelerating up a mountain road. In order for the car to increase its speed, it must have power behind it. The same is true with a strong rally in the stock market. It must have power behind it. In the stock market’s case the power is volume. The volume has not been there. The composite trading volume has been running far less than the average of 5.4 billion shares per day. This rally lacks power. In addition, the Death Cross is still alive and well. (For a definition please go to http://bit.ly/dm6U1M .) If you wish to get into the stock market, please hedge your bets by selling covered call options on part of your investment. This is what I do in my investment portfolio.

What stocks are good candidates to buy and sell covered call options against? Take a look at the Sept. 20th post.

September 20, 2010: The 10 largest divident payers in the U.S. are AT&T, Exxon Mobil, Chevron, Procter & Gamble, Johnson & Johnson, Verizon, Phillip Morris International, Pfizer, General Electric and Merck. They have a dividend yield on or near 4%. Another interesting thing about these companies is that you can sell covered call options against them to increase or boost your cash yield.

September 17,2010: Body Surfing and Opportunity-there are similarities between body surfing and opportunities whether on a personal or professional level. You can go a lot further by riding a small wave that is building momentum than the crest of a larger wave. The “crest” of a larger wave is what is popular and what the herd follows. In life find your own wave and build its momentum. Never play another man’s game; play your own and play it well. Keep on surfing!

September 10, 2010: We all try to divine the direction of the economy whether for business or personal gain.

Friedman’s Law, named after the late Nobel economist Milton Friedman, can give us a reliable tool for gauging the economy’s direction. It states that when the size of government is growing faster than growth in the economy, the national economy at best will stagnate and at worst will decline. Why? Government spending extracts real resources from the productive private use and diverts them to unproductive public use.

With the latest stimulus package that Congress passed, government spending will be growing at strong double digit rates. Meanwhile, the economy is heading south. Don’t expect any miracles. The business economy, at best, will just limp along. The real danger coming up is substantial tax increases.

(Note) I will be away for most of next week on business and vacation. The Posts will resume Friday, September 17th.

September 9, 2010: The Fine Art of Problem Solving— I can not in all honesty tell you how to solve each and every problem you have. But, I can tell you this that NO problem can be solved from the same level of consciousness that created it. I wish I can take credit for this observation, but the credit is due to Albert Einstein. In other words, what he is saying is that no problem (personal or professional) can be solved within the paradigm or model it was created inside of. You will have to reach outside of the proverbial box to come up with a solution to solve or, at least, manage the problem.

September 8, 2010: The information paradox: A funny thing about our information economy and culture—we are swamped with an abundance of information from the internet, TV, radio, etc. Instead of giving us a clearer insight into the future, it leads us astray and confused. Confusion leads to a lack of decision making and bewilderment.

Keep it simple! The predominate economic trend for the next 10 years will be a deleveraging environment by individuals. We are still in the early stages of this long-term process. The net result of this will be a slow growth business environment with stubbornly high unemployment. It doesn’t have to be this way. Good economic policies will turn the economy around within two years at most. Bad economic policies (high taxes and inordinate regulation) will prolong the pain and misery. The choice is ours.

September 7, 2010: What is the Purpose of ANY investment? The purpose of ANY investment is to increase one’s net worth. The term “net worth” applies to more than stocks, bonds, or real estate. You, your family, and your community can also be viewed as an investment.

Thinking in terms of increasing one’s net worth forces individuals to expand their time horizons. What actions can I take today that will increase my net worth or value over the next 5 to 10 years? For example, why do individuals invest their time and money in going to college or trade school? Obviously, they are not making significant monies while attending school. But, they are learning a particular profession or trade (skills) that will increase their Net Worth or value in the marketplace. By so doing, they will have the potential of increasing their incomes.

September 3, 2010: Many of you, like myself, are investors in the stock market. No person knows exactly where the market is headed, but the Death Cross is still alive and well. (For a definition of the Death Cross please go to http://bit.ly/dm6U1M .) The key level on the S&P 500 stock index to watch is 1040. As of this posting, the market is above this level. If it should fall precipitiously below this level, then the direction of the stock market is strongly down. The next support level for the S&P 500 would be at approximately 950. Keep an eye on the 1040 level. The stock market has rallied the last several days, but let’s see if this rally holds after Labor Day.

September 2, 2010: You can not spend your way to prosperity. Any stimulus program the Federal Government enacts will FAIL. Why? Because, they assume that the multiplier effect is greater than 1.0. In the last 50 years this has never been the case. The largest multiplier effect that I have seen in the research is 0.8. Anything less than 1.0 is contractory. This is why Obama’s $780 billion stimulus plan is failing. Real and sustainable economic growth comes from unleashing the creative spirits of entrepreneurs. This is accomplished by giving individuals the incentives to work, save and invest in their futures. You do this by not burdening entrepreneurs by high taxation and regulation. Unfortunately, in the U.S. we are moving in the opposite direction and will pay the price.

September 1, 2010: Where goes the price of oil? Like it or not we are a hydrocarbon based society and it will stay this way for the next three decades or so. Therefore, the price of oil and, hence, fuels are of vital importance. The price of oil is based on the demand for oil vs. supply. Worldwide supplies of oil are slowly increasing. Now the demand side of the equation. Since 2005, China was responsible for the entire increase in worldwide demand for oil. If growth in China should slow from its rapid double-digit pace (which I believe it will) to a single digit pace, the rate of growth for oil demand will decrease. This will put downward pressure on oil prices. In addition the major consuming nations, including China, are making major steps in increasing energy efficiency. Longer term this should decrease the demand for oil, but not necessarily natural gas. With supply and demand going in the opposite directions, by 2035 we could be awashed in oil. This would be just the opposite of the doomsday forecasters.

August 31, 2010: Friends, it’s not over! What’s not over? I am referring to the long-term decline of both the real estate and stock market.

Why? Markets, no matter what they are, obey a simple rule. They go to extremes on the upside and when the bubble bursts they fall to extremes on the downside. In their decline they do not stop when they reach fair or median prices–they continue downward to their bedrock prices. This is a long and painful process.

In the U.S., stock and real estate prices have not reached their negative extremes yet. Median real estate prices will continue falling and bottom out to where they were before the great real estate bubble began–about 1998-99 levels. The stock market (S&P 500 index) will fall to multiples of between 5 to 9 times earnings. This would put the index somewhere between 450 to 500. This would be another 50% decline from where we are today.

These predictions may sound extreme right now—but human behavior has not changed. This time it IS NOT different. As we use to say in the Boy Scouts–Be Prepared.

August 30, 2010: All movement in the course of life is turbulent and, therefore, unpredictalbe. In designing your plans or strategies (on a personal or professional level) be of a confident nature, but make contingent plans in case a quick exit is needed. In other words know the “exit” of any plan or strategy you decide to implement. You can always step up to the plate again.

August 27, 2010: The cardinal rule of investing is–never play another man’s game. No matter how good the investment may seem if it doesn’t mesh with your personality or suitability requirements, go play somewhere else. In other words, find your own game and play it well. Focus on what you do well.

August 26, 2010: If you could take all the wisdom in the world and boil it down to one sentence, what would it be? This one sentence would be–there is no such thing as a free lunch. There is always a price or consequence to be paid. The price or consequence could be positive or negative depending on many factors of which you may not have much or any control over.

For example, in interpersonal relationships honest communication is both important and essential. You can control the “what and when” of your communication, but you can not control the resulting impact (positive or negative) it has on the other person. This, honest or otherwise, is the cost or price of your communication.

August 25, 2010: Where goes housing? This is the $64,000 question. Price movements are simply a function of supply and demand. The supply of unsold homes in July, 2010 grew by 2.5% over June, 2010. We now have an inventory of unsold homes that will take at least 12.5 months to clear. This is the highest level in more than a decade. With the expiration of the $8,000 tax credit and, also, nearly one in four mortgaged homeowners owe more than their home is worth, the demand is falling. It also doesn’t help that lenders are become much more strict in their lending requirements. The result—demand is falling while supply is increasing. What is the direction of residential real estate prices in the U.S.—DOWN. On average prices can fall another 10% at least. This would put recent buyers who used the $8,000 tax credit underwater. Foreclosures will then increase adding to the supply.

August 24, 2010: How to Get the U.S. Economy Galloping

First, you must define who are the real “movers and shakers” of economic growth? The genesis of economic growth are those individuals who put their money (capital) at risk to start legitimate business enterprises and hire people.

Therefore, to get our business economy moving in the direction of sustained growth, implement these three simple tax policies:

1. Effective January 1, 2010 the Capital Gains tax rate is ZERO.
2. Effective January 1, 2010 the corporate income tax rate is ZERO. Corporations don’t pay taxes, people do (corp. pass on all taxes in higher prices for goods and services).
3. Effective January 1, 2010 the top marginal personal income tax rate is 25%. Eliminate all tax phase-ins, phase-outs, and the alternate minimum tax.

This is the first but very important step. The next step involves the other important economic ingredient–the Federal Govt. spending habit. If the Federal government doesn’t get a rope around its out-of-control spending habit, it will suck vital resources out of the private sector lessening the positive impact of the three tax policies above. Federal spending should not increase any faster than the rate of increase in population and consumer prices. This would currently be about 3% per year. This number includes all Federal spending along with entitlement programs.

If these three actions are implemented, our economy will begin a prolong period of sustained economic growth. The stock market will boom and New Wealth will be created.

It will take guts and determination for a national leader to fight for this.

August 23, 2010: I really doubt that the stock market is going to do much over the next 5 to 10 years. If so, then it is important to own stocks that pay a reasonably good dividend (about 3% or more). Why? From 1972 to 2006, stocks in the S&P 500 that paid a dividend year over year had an average return of 10% per year. Those that didn’t pay a dividend had an annual return of 4%. Be careful though. If the dividend yield seems out-of-line with reality, then something could be amiss. Also, if the dividend per share is more than 50% of its earnings per share, this could be a warning that it may not be sustained. Lastly, many of the companies in the S&P 500 index that pay a dividend have call options available. Selling a covered call is a conservative way of boosting your yield and cash flow. I will have to give an example of this in another posting.

August 20, 2010: Taxation–how much is enough? No one should have to pay to government more than 20% of their income in total taxes. Total taxes in the U.S. would be those taxes paid to the local, state, and Federal governments. Unfortunately, even those in the middle income brackets pay well in excess of 20% of their income (35% to 40%) in total taxation. When you get above the 20% mark, you are becoming a Serf and the government is becoming your Master.

Be Free & Prosperous!

August 19, 2010: Does the U.S. economy really needs the RICH? Yes, folks we really do need them. The top 5% of Americans by income (income over $200K per year) account for 37% of all consumer outlays, while the bottom 80% account for 39.5% of outlays. It has been the rich, not the middle class, that has keep economic growth positive over this past year. This, though, is not sustainable. Their savings rate has gone from positive 26% in 2008 to negative 7% in the first quarter of 2010. The rich will have to cut-back on their spending. This will impact economic growth going forward. In addition, the expiration of the Bush tax cuts on Dec. 31,2010 will further impact the rich and limit the amount they have to spend. This will further impede economic and employment growth.

The parts of the economic machine are interconnected. We need the wealthy to provide the impetus or spark to keep the U.S. economic locomotive moving. You hurt them with higher taxes; it comes back to hurt the rest of society.

August 18, 2010: Prosperity and wealth is not the birthright of any nation, including the United States. Prosperity springs from giving incentives for individuals to productively use their creative energies to better themselves. This includes economic/political policies that encourage work, saving and investment. This means keeping the tax rates on income (both corporate and personal) and capital gains low. Productive investment translates into a higher standard of living for society.

August 17,2010: The trend is your friend. And, so it is when it comes to our business economy. The overriding trend for the next 5 to 10 years in the U.S. economy is a DELEVERAGING process. The consumer must go through a massive process of deleveraging before vibrant economic growth can be sustained. For example, the ratio household debt to income topped out at 132% in 2007–a record. It has sinced fallen to 122% of income. In year 2000 it was at 90% of income and in the 1980′s it averaged 70% of income. It will take a debt ratio of 90% or less to sustain economic growth of over 3% annually. To achieve this ratio, it will be a long and painful process. Unemployment will stay historically high for some time to come.

The future will belong to those individuals and companies that have wherewithal and liquidity take advantage of opportunities.

August 16,2010: A very important equation in the business of life is: MONEY= OPPORTUNITY.

If you tax away opportunity from those who have made it, do you not also tax it away from those who wish to make it? You can’t hurt one without hurting the other. The parts of our economic system are all connected. The politics of class warfare do not work. Economic policies (higher taxes) that try to punish “the rich” will ricochet and hurt all members of society.

August 13,2010: What is the future of employment in the U.S. and, most likely, in the western industrialize countries? I ask this question assuming present policies stay on course. Policies can change, but I have to go by what is not what might be. A recent cartoon in the Wall Street Journal answered the question best. The cartoon showed a line of professional looking men lined up at a job fair. One of the individuals was holding-up a sign in large letters saying “will work for less”. In a recent interview a professional man looking for a job told the interviewer “I don’t care about being overqualified. I will take a pay cut. I want a job.” The year-over-year growth in wages and salaries has turned negative. It will be difficult to sustain economic growth at 3% or more when workers’ pay is not increasing. Now, throw in the scheduled tax increases coming in 2011 and you have perscription for some real economic problems.

Maybe this is what the recent dive in the stock market is telling us. It doesn’t have to be this way. More next week on how to turn the economy around.

August 12,2010: One of the popular themes in western culture is to have “balance” in your life. This sounds pleasing to one’s senses, but in reality it is a bunch of nonsense. All movement in the course of life is turbulent and, therefore, unpredictable. When you are in balance, all the forces are equal and you are stationary. To be balanced is to be stagnant; growth comes out of turbulence. Think about all the great inventions and discoveries that have made life more enjoyable. These were accomplished by individuals who had a driving ambition or goal to be successful. They were not in balance. Out of turbulence can come both opportunity and success.

August 11,2010: It’s Alive, It’s Alive–The Death Cross Lives— The Death Cross occurs when the 50 day moving average of the S&P 500 stock index pushes below its 200 day moving average. It is a very bearish signal for both the stock market and the economy in general. The last Death Cross was in Dec.,2007 and the S&P 500 lost more than half of its value and we entered a serious recession. In early July, 2010 we entered another Death Cross. Beware–the death cross is signaling that we may have some really serious economic problems as we go into 2011 and maybe 2012. Maybe, just maybe, these problems have to due with the massive tax increases that will hit the U.S. economy on January 1, 2011.

August 10,2010: COST-DRIVEN VS. PRICE-DRIVEN PRICING—–Cost driven pricing is taking in all your costs and adding a profit margin on what you sell. Price driven pricing is coming up with a price that will cause your product or service to move. It’s usually a lower price, but with that comes less competition. If you get a handle on costs, become price driven and get market share—you will beat out the competition. In the economy we are in for the next decade at least, the model to follow will be price driven pricing. The GOAL is to get market share.

August 9,2010: The U.S. economy really needs the RICH. Yes, folks we really do need them. The top 5% of Americans by income (income over $200K per year) account for 37% of all consumer outlays, while the bottom 80% account for 39.5% of outlays. It has been the rich, not the middle class, that has keep economic growth positive over this past year. This, though, is not sustainable. Their savings rate has gone from positive 26% in 2008 to negative 7% in the first quarter of 2010. The rich will have to cut-back on their spending. This will impact economic growth going forward. In addition, the expiration of the Bush tax cuts on Dec. 31,2010 will further impact the rich and limit the amount they have to spend. This will further impede economic and employment growth.

August 6,2010: The one thing a government should NOT do is Never, Never raise taxes when you are in a recession or struggling to come out of it. Unfortunately, the Obama administration has not learned this lesson and we will all pay the price. If the expiration of the Bush tax cuts are allowed to happen plus other major tax increases for 2011 are implemented, the economic train will come off the tracks in 2011.

August 5,2010: The Next Bubble: The one that is now being formed in long-term U.S. Govt. Bonds. Once investors realize that our Congress is either incapable or unwilling to reduce the deficit, these bonds will collapse in price sending interest rates much higher in a fragile economy. We are living on borrowed time. Beware of the dangers of investing in long-term U.S. Government bonds.

August 4,2010: Money (capital) goes and stays where it is treated well. With the expiration of the Bush tax cuts on 12/31/2010, the top rates on income and capital gains taxes will be increasing. We will then be faced with the situation where the U.S. will have both capital gains and corporate income taxes significantly higher than the majority of modern western industrialized counties. You don’t have to be an Einstein to figure-out what the economic outcome might be.

August 3,2010: The Purpose of ANY investment is to increase your Net Worth–not to Make Money. When you think in terms of “making money” your thinking tends to be short-sided with the good possibility of making long-term bad decisions. Thinking in terms of “Net Worth” forces you to take the long view. What actions can I take today that will increase my Net Worth or value 5 to 10 years down the road.

August 2,2010: For the trading week ending on July 30,2010, the S&P 500 stock index is still in a Death Cross. For an explanation of the Death Cross please go to http://bit.ly/dm6U1M . What this means that in spite of the recent rally in the U.S. stock market, the primary trend is down. Until the death cross reverses itself, the trend is down.

The Daily Post is a post from: Business Speaker

There are only FIVE generators of wealth in any society. These five are:

1. Fishing

2. Mining

3 Agriculture

4. Manufacturing

5. Construction.

That is the list. Have you noticed what is missing? What is missing is the service industry. The service industry in and of itself is not a wealth producer. It is to be of service to one or more of the five wealth producers. As societies advanced and become more economically productive, the majority of workers are employed in the service industries. If you think about it, this makes sense, but without the five wealth produces the service industry would wither.

The above five are the “what” of the wealth producers. Now–who are they? They are those men and women who put their capital on the line to start a legitimate business. They are called entrepreneurs.

Society should encourage this type of behavior with low taxation with sensible rules and regulations. Unfortunately, in the United States we are going in the opposite direction, and society will pay the price with reduced economic growth and employment opportunities. There are no free economic lunches.

Be Prosperous,

Sanford Kahn, Business Speaker/Author

The 5 Wealth Generators is a post from: Business Speaker

Today, the U.S. dollar is a true fiat currency (meaning it has been decreed a currency the central government).  It has no backing other than the full faith and credit of U.S. politicians.  Scary!  President Nixon ended the last gold backing of the dollar on August 15, l971.

Now, politicians can expand the total debt of the U.S. to pay for any program or programs they wish without having to worry about draining the gold supply from Fort Knox.  If worse comes to worse (it will), they can always print the dollars to pay for their programs.

How long can this game continue.  Simple—it can continue until confidence in the government’s ability to manage its financial affairs is lost.  Then, the game is over.

I can’t predict when, but eventually the U.S. will have to return to some type of commodity backing of its currency.  The result of this will be deflationary.

Your Dollar is Worthless! is a post from: Business Speaker

Those in power (namely politicians) will say that this time it is different. No it isn’t! Looking back at eight centuries of financial idiocy, the key marker that signals when the game is over happens when the ratio of government debt to GDP reaches 90%. Beyond that point financial instability and a loss of confidence by investors start to take over.

In addition, there will be a dramatic slowing of economic growth by at least one percentage point per year compounded. The ratio for the U.S. in now 92% and still exploding. Once this ratio reaches 100% of GDP (very soon), the United States will, most likely, lose its AAA credit rating. We will become another Greece with all the ramifications. The loss of our AAA credit rating will substantially raise interest rates throughout the economy. The biggest impact will fall on real estate prices—and you thought real estate prices have bottomed out.

If nothing is done to rein-in this excessive and wasteful debt explosion, the next recession will be long and deep. The only glue that holds the U.S. economic machine together is confidence. Take that away and watch out below.

My advice that I have for you is the saying on the bottom of my business card–”Liquidity Is King–Not Elvis.”

Be Solvent & Free,
Sanford Kahn

The Game is OVER! is a post from: Business Speaker

I can not in all honesty tell you how to solve each and every problem you have. But, I can tell you this that NO problem can be solved from the same level of consciousness that created it. I wish I can take credit for this observation, but the credit is due to Albert Einstein. In other words, what he is saying is that no problem (personal or professional) can be solved within the paradigm or model it was created inside of. You will have to reach outside of the proverbial box to come up with a solution to solve or, at least, manage the problem. This takes a creative imagination.

Be Prosperous,

Sanford Kahn, Business Speaker/Author

The Fine Art of Problem Solving is a post from: Business Speaker

In the popular media December 21,2012 is portrayed as the terminus date of the human race as we know it. Since this is widely broadcasted in the media, it, most likely, will not happen in the expected manner. What could happen is the unexpected and unthinkable.

The year 2012 may not be the end of the Earth or even mankind—but it could be the end of our constitutional economic/political system. Why? By the year 2012, with the U.S. Federal Government rapidly increasing its total debt, we will have a debt to GDP ratio of over 100%. The interest on this debt will be staggering and unaffordable. The politicians in Washington will take the easy path out and try to inflate the debt away.

The consequences of this will be shocking to our political system. Inflation is the Great Destroyer of the middle class. Standards of living for the vast majority of Americans will decline precipitously. With our social fabric weakened or non-existent, I doubt the middle class will peacefully standby and see their savings and living standards destroyed. There will be chaos and bedlam in this country. The unthinkable can then happen–a quasi civilian/military dictatorship to restore order. Kiss the Bill-of-Rights goodbye.

Right now–I admit– the probability of this happening is remote. BUT, it is not as remote as it use to be.

Be Prosperous,Sanford Kahn, Business Speaker/Author

2012–Adios Mankind?? is a post from: Business Speaker

Why not buy shares in a very large integrated oil company that pays a good dividend and sell a call option against these shares to generate extra income. A call option gives someone the right (not the obligation) to buy your shares from you at a certain price within a certain time limit.

For example, let’s say you buy 100 shares of Exxon Mobile Corp. (symbol XOM) at today’s price (Apr. 12, 2010) for $6,871.00. You sell a call option for someone to buy your 100 shares (one call option =100 shares) from you between now and the third Friday in October for $7,000. For this you will receive $274.00 (today’s closing price). This $274.00 is yours to keep no matter what.

Assuming prices remain constant (which they will not), what is your annual rate-of-return? You earned $274.00 in six months or $548.00 on an annual basis. Divide $548.00 by the cost of your 100 shares of XOM ($6,871) and you get an annual return of 8.0%. In addition, you earn a 2.40% annual dividend return on your 100 XOM shares. This gives you a total annual return of 10.4%. Not bad, but there are risks.

RISKS: There is no such thing as a riskless investment. If your 100 shares stays at or north of $6,871, you will make your 10.4% return. Of course, if it should shoot up to $90/share, you could have made more by just owning the shares and not selling a call option. But, this is a hedging investment strategy.

The real risk: Oil is a commodity and it can and most often is very volatile in price swings. If the price of oil should plummet, so will the price of XOM stock. You will then incur a real loss. The premium you collected, $274.00, will give you some downside protection but not enough in a highly volatile market.

FINAL NOTE:

You should only employ this investment strategy if you feel it is suitable for your investment objectives

. In the calculations above, I omitted commission costs. If you wish to employ this strategy, do not use a full-service brokerage house. Their commissions will decimate your rate-of-return. You should use a discount broker and do it online.

How to Protect Yourself From Rising Fuel Costs is a post from: Business Speaker

I wrote the book,

The Thirteen Great Economic/Business Myths That Dominate Our Lives

, to give individuals a different and unique insight into some of the great myths that have a profound impact on our lives. The most important chapter is #12 on How to Prosper in the Coming Age of Poverty and Privilege. This should be read first. The next most important chapter is #10 on Positive Mental Attitude Myth. Read this next.

The book is available on amazon.com for $9.95 plus shipping

. I strongly encourage you to purchase this book. We are in a different economic environment than what existed before 2007 and the same-old, same-old will Not work.

To order, please go directly to
http://www.amazon.com . In the Search Box put in “Books” from the drop down menue. Type my name,sanford kahn, in the adjacent open space and then hit the GO button.

If you want to prosper, then you have to escape the gravitational pull of inside-the-box line of thinking. This book will help. Please order and read it.

Be Prosperous,
Sanford Kahn, Business Speaker/Author

http://www.businesstrendspeaker.biz/welcome

PS A quote from Mr. Mark Lambert, CEO-Real Estate Development, Mission Viejo, California

Society’s MYTHS that Screw Us UP is a post from: Business Speaker

Forward

About the Seven Precepts

The Seven Precepts were developed to give people a different and realistic view on life and events—devoid of popular myths and seductive illusions. They are based in part on my 30 years of experience as an economic/business author and speaker. The precepts are based on the classical definition of economics—the study of human behavior in its historical setting. In other words, economics is psychology.

These precepts are unique in that they are the result of combining the laws of economics, sociology, and physics into a set of seven basic statements to be used as a guidepost, to make your life more enjoyable and understandable. They are not religious dogma, but instead are a reference for confronting and resolving many of life’s conflicts.

Precept #1

The eternal truth of the universe is that all actions provoke reactions. In human terms these reactions or consequences may be positive or negative. Someone or something has to pay a price or cost. There are no free lunches.

For example, in interpersonal relationships, honest communication is both important and essential. You can control the “what and when” of your communication, but you can not control the resulting impact (positive or negative) it has on the other person. This, honest or otherwise, is the cost or price of your communication.

Another example—in economics you can not simultaneously control the cost and quantity of any product or service. If you try to control the cost (price controls), the quantity (and quality) decreases. This is the result of trying to control the price of any product or service.

There are always consequences or costs to any action taken by an individual and their consequences have to be weighed against the cost of the proposed action.

Precept #2

In physics there exists a law titled the “conservation of matter”. It basically states that matter can not be easily created or destroyed. However, the states of matter can be changed. For example, by applying enough heat to a solid you can transform it into a liquid, as with ice. A liquid heated to the boiling point can be changed into a gas. In all cases they are still the original matter, but in a different state.

In a similar vein, using the law of the conservation of matter, there exists in all societies a conservation of personal power. It states that Personal Power can neither be created nor destroyed, but it can be transferred.

Societies have two and only two broad options

. Through their respective governments, they can institute policies that will empower the individual or policies that will empower government. If you wish to empower the government for greater economic stability, then you must transfer some of your personal power to it.

There are consequences to both broad options (Precept #1). One set of policies will lead to a growing set of opportunities for advancement while the other will lead to dependence and stagnation.

Precept #3

The purpose of life is to grow and prosper within the rule of law and the bounds of morality.

Among human beings, the notions of growing and prospering are subjective, that is, they are individually conceived. If prospering to you means sitting on a mountaintop pondering your existence, so be it. On the other hand, you may wish to grow and prosper and add to the wealth of your society by opening up a legitimate business enterprise. The latter is more preferable than the former because it adds to the wealth and well being of society.

The above paragraph begins with the phrase “the purpose of life”. Many individuals who ponder their existence ask the perpetual question—what is the meaning of life? This is a difficult question to answer because they are asking the wrong question.

You find meaning for your life within the context of its purpose. Define that first and then a better insight into the meaning will follow.

Precept #4

All movement in the flow of life is turbulent and, therefore, unpredictable. In other words, life isn’t linear (a straight line). As a result of the turbulent flow of life, the future is unknowable. Predicting the future is an exercise in probability analysis. For example, if I take these actions now, there is a 70% probability that in two years I shall arrive at this outcome.

Turbulence almost guarantees that it is not a question of if something will go wrong with your life plans, but what and when? Therefore, in designing your life strategies plan in broad strokes and have a fallback position.

Given the turbulent nature of life and its unpredictability, the question for you should be: “how do I capitalize on its opportunities”? The future belongs to those individuals who can quickly discern, adapt to, and exploit the unpredictable movements in the turbulent flow of life. Stagnation produces nothing over time but decline.

Precept #5

The purpose of ANY investment is to increase one’s net worth. The term “net worth” applies to more than stocks, bonds, or real estate. You, your family, and your community can also be viewed as an investment.

Thinking in terms of increasing one’s net worth forces individuals to expand their time horizons. What actions can I take today that will increase my net worth or value over the next 5 to 10 years? For example, why do individuals invest their time and money in going to college or trade school? Obviously, they are not making significant monies while attending school. But, they are learning a particular profession or trade (skills) that will increase their Net Worth or value in the marketplace. By so doing, they will have the potential of increasing their incomes.

Precept #6

God is no tyrant. He enforces no preordained plan for the conduct of human affairs but, instead, has bestowed upon the people the power to create a heaven or hell on Earth. Whether man thrives or perishes is dependent on the choices he makes.

I realize that this precept may be controversial and even heretical to those who believe in some divine plan for mankind. There is a divine plan but it is so simple it flies over the heads of the majority of mankind. The plan is—there is no plan, only the one you create.

At this point it would be wise to re-read Precepts #1 & 2. Every choice has a cost or consequence.

Precept #7

Mortals can’t be perfect. We are not designed that way. You might say this by definition. Only God (however you define it) is perfect.

When mortals try to be perfect the result will be nothing but problems and potential disaster. Why? There is an old Greek saying that explains why the path of perfection for mortals leads to disaster. It is: for whom the Gods will destroy they first make overconfident. When individuals are overconfident they charge ahead oblivious to the dangers and crosscurrents that await. In other words, they are oblivious to the consequences (risks) of their actions (precept #1).

While mortals can not be perfect they can be better. As Ben Franklin noted centuries ago—best is the enemy of better.

Epilogue

“To be balanced is to be stagnant: growth comes out of turbulence”.
Sanford Kahn

The 7 Basic Precepts That Govern Life & Events is a post from: Business Speaker

There is an old Greek saying that rings so true today. It is—for whom the Gods will destroy they first make overconfident. There is a subtle difference between being confident and being overconfident.

When you are confident in designing your plans or strategies, you have a belief in yourself and your abilities. But, as a mortal, you recognize that there is a possibility of failure—even if no fault of your own. You have done your homework and feel strongly that the odds of success are in your favor. This is called a calculated risk and we all take them. Recognizing that events can move against you, you have taken this into account to mitigate any negative developments.

Now let’s move on to overconfidence. When one is overconfident, he or she feels that their plans or strategies will succeed no matter what happens. In other words, there is no chance of failure. Failure is out of the question. As a result, there is no downside exit strategy in case success eludes you. This is a pure prescription for collapse. Why?

Mortals, by definition, are imperfect beings; only the Gods are perfect. Overconfidence is the terrain or territory of the Gods. Mortals can not enter here. Mortals are allowed to be confident but not overconfident. When mortals get overconfident, the Gods get jealous and take their revenge. You have stepped on their territory and events will go against you.

In designing your plans or strategies (on a personal or professional level) be of a confident nature, but make contingent plans in case a quick exit is needed. You can always step up to the plate again.

Be Solvent & Prosperous,
Sanford Kahn, Business Speaker/Author

The Gods and Mortal Overconfidence is a post from: Business Speaker