Tuesday, March 20, 2012
First day of spring, 4"-6" of snow. Mother nature plays a joke?
SOME CONFUSION from Murph
I spend a rather large amount of time reading different financial sites every day. I do this with the realization that without some really focused study on my part, understanding the details of the financial and banking markets is beyond me. I have to admit that I simply do not have the drive to do the detailed study and I suspect that most people feel the same way. Since the financial markets and the banking stuff is such an important part of our society today, not doing this study is to our complete disadvantage. We really don’t understand the intricacies of what is going on. Although, for most of us the broad macro overview is adequate. Friday’s posting (3-16-12) from Charles Smith concerns “hedging” which he maintains is a part of a majority of citizen’s activities, in that buying insurance of any type is “hedging” and so is saving cash. Hedging is a means to minimize losses, and Charles posits that it is primarily a benefit to the wealthy, since it takes money to do it. Poor people simply do not have the means to protect themselves by this method from catastrophic loses.
Take health insurance. This is a hedge to limit the out of pocket expenses of an expensive health problem or even a catastrophic one. If you want this hedge, you either have to have a class A-1 health insurance policy from your employer (that in fact you ultimately pay for) or you have to pay for such a policy out of pocket. I don’t know about you folks, but we simply do not have the financial resources to pay that out of pocket expense of private insurance. If you have a 6 figure income, it’s not that bad an expense, coming in around $5-$10 grand or so yearly expense. For those of us in the very low monthly income level and are of retirement age, unemployable and experiencing health problems, the only alternative is government coverage through Medicare and Medicaid. Because these hedges limit rather severely the amount of money that the government will pay out for medical costs, many doctors will not even accept Medicare/Medicaid patients. If you show up at the emergency door of a hospital for an emergency medical problem (read heart attack, stroke or accident) the hedge only pays a partial cost of treatment. You are billed for the balance. It is obvious that those of us on SS are not going to have the resources to pay that balance of payment. So, the medical establishment has three options.
1.Forgive the balance, 2. Refuse treatment (called triage) 3. Put you into, for the rest of your lifetime, debt servitude. This can take the form of confiscation of your assets upon death (depending on what state you live in). This method is contained in the very small print on contract forms with state medical insurance forms.
So, financial hedging is very common in all of our society. Where I get pretty confused is in trying to understand the hedging that is predominate within the financial and banking industry. Where it really gets tangled up is in dealing with the companies who issue the hedges against loss and the TBTF institutions. It appears that the government, due to a huge investment by PAC’s, is determined to allow companies to buy these hedges and keep the profits but if they fail, we as citizens have to pay for them. In common usage, it means that these giant companies get to keep the profits but socialize (transfer payments to the general society) any losses they incur. That means that there is no risk factor they have to consider in issuing these hedges and the profits are immense. This of course, leads to a great deal of corruption within the financial system and eliminates virtually all risk factors in its operation.
In my reading of the financial news every day, and trying to understand it at least partially, I am intimidated by the sheer complexity of it all. It appears to me that there is absolutely no way the normal working person is going to understand it. I even wonder if the folks that specialize in the financial part of our society really understand it. Take the tax structure. It is so complex, how could a person ever get through and understand it much at all? I think this is done deliberately. If you don’t have the bucks to hire an army of folks to sort through all this crap, you are being screwed blue and tattooed and the folks (the 1%) that do have the bucks benefit enormously.
This type of complexity that most folks neither understand nor can they deal with on any kind of rational basis is contributing to the decrease in our standard of living and to the enrichment of the elites. Investments by some proportion of the 99% that have some money left over from daily living are becoming non-existent. Looking at economic data, the volume of folks that are investing (called investment volume) in the huge assortment of investment vehicles, has radically declined; only the wealthy can now do so. The commoners are simply not there in mass anymore. Investing in a company to pay dividends in the future during retirement is not a safe place to put money anymore. Now, investments are being made at super nano second speeds on very small margins and even these are becoming very risky. No wonder that the use of hedge funds is so popular among the financial elite, and those are backed up by our tax dollars.
Most of the financial sites I read indicate that the stock market is not an accurate indicator of the financial health of the economy. And yet, that is exactly what the lame stream media would have us believe. That is, if stocks are going up, we are doing just fine. Never mentioning the one big elephant in the room, financial bubbles. Take a look at Apple stocks right now. They are zooming into the stratosphere of stock prices, carrying most of the increase in stock prices. Sure looks like a financial bubble to me, another one. Remember Worldcom and Enron? These bubbles inevitably lead to the small investor losing it all. The housing bubble is a good example. And yet, folks will jump on these bandwagons every time, driving up prices until they burst apart and most will lose their shirts. Oh yeah, some make out just fine and they are the ones with insider information or are very lucky (read smart investors).
I look at financial graphs every day. I have a problem with most of them in regards to folks using them for an investment strategy. We know with no doubt that the markets are very much manipulated. So of what use are financial charts in predicting the future of the markets? Oh yes, sometimes they are dead on, but very seldom. Investments in the fundamentals of companies no longer appear to have much validity. Trend lines are not a reliable indicator of good investments. There simply is too much manipulation and corrupt cronyism within the financial world.
Many, I suspect, share my yearning for a simpler more basic society without all the complexities. But, extreme complexity is what we got to live with. It is nearly impossible to completely withdraw from it. We can simplify our own lives to a very large extent, that is, until we are abruptly brought up short by unforeseen events, like health issues and financial impoverishment. We can prepare to some extent for this, but without fairly hefty financial backup, in an instant, all we have can disappear from circumstances we have no control over. This is a fact of life from the very earliest recording of history. The purpose of government (according to the liberal political folks) is to protect the citizens from such catastrophe. This propagates a dependency upon the government. The radical conservatives want to end this entirely and make it every man for himself. An attitude of “I got mine and if you don’t get yours, too bad” position. Helping with these attitudes is religion, social activism, social Darwinism, our educational system and general social self centered apathy along with the excessive complexity of the society.
Contributing to all of the corruption and manipulation in the financial markets is the propaganda pushed out daily by the lamestream media. The most influential tools ever developed to accomplish this is Edward Bernays. A quote from him;
“The conscious and intelligent manipulation of the organized habits and opinions of the masses is an important element in democratic society. Those who manipulate this unseen mechanism of society constitute an invisible government which is the true ruling power of our country. …We are governed, our minds are molded, our tastes formed, our ideas suggested, largely by men we have never heard of. This is a logical result of the way in which our democratic society is organized. Vast numbers of human beings must cooperate in this manner if they are to live together as a smoothly functioning society. In almost every act of our daily lives, whether in the sphere of politics or business, in our social conduct or our ethical thinking, we are dominated by the relatively small number of persons…who understand the mental processes and social patterns of the masses. It is they who pull the wires which control the public mind.” – Edward Bernays, Propaganda, 1928
This propaganda shows up every day in misleading government statistics, reporting by the laimstream media and the behavior of the majority of the population. Can you believe that vehicle sales have been increasing substantially lately? They account for around 9% of the supposed economic recovery, while average income per family is decreasing and actual unemployment is increasing. Now where are these sales concentrated? Large expensive gas guzzling vehicles are the largest sales volume, which is also including leases. (charts and commentaries from Zero Hedge, Charles Smith and Carl Denninger). Now what I find interesting, with few exceptions, these vehicles are purchased with debt and yet the full price of the vehicle is included in the GNP. In other words, the piling on of debt is counted as income and thus the “economic recovery”. This also indicates that many folks are buying expensive vehicles that the loaning facility never expects to have paid back because they are loaned to folks without the economic means of paying off the loan. Many of the economic stats and charts indicate that consumer debt is increasing rather than decreasing and all of this debt is contributing to the economic recovery. If you are interested in more details of this take a look at this posting;
The main chart on my computer is mostly covered up by adds but the chart can be expanded to full size if you want to see the details.
To those folks that are constantly trying to reassure me that everything is just fine and we have smart folks at the tiller of the ship of state and nothing to worry about, I cry bull shit.
I guess I find relief from it all by escaping into a far less complex life of Louis L’amour novels.