Saturday, May 21, 2016

Self-Deluded Pensioners Get Burned

In 1982, that's 35 years ago, in San Francisco, I was sitting at the table representing industry opposite the longshoremen in the West Coast Master Contract negotiations.  The "strike issue" was unfunded pension liability.  With post-war pension promises which had been going on for 35 years proving impossible to meet, the unions wanted change: pension liabilities funded.

Reagan was the new president, and his first act was to bust the Air Traffic Controllers union.  As our chief negotiator noted, "The worm had turned."

Our chief strategist noted all the small unionized trucking companies could not afford to go out of business, because of what was owed to the unions.  That may sound odd, but there are laws protecting pensions, and about the only way to get out is bankruptcy.  Well, in bankruptcy the owner of the company gets nothing also.

Well, the bankruptcies came, the pensions busted, workers burned, but guess what?  Not a single protest march, no riots, no nothing.  So onward it went.  Either companies, like airlines, went bust and the liabilities were bailed out by taxpayers, or businesses got bought and their liabilities were assumed by the new owners.  But even then, Fedex bought Flying Tigers because Fedex's pension was underfunded and Flying Tigers was overfunded.  So in that case, a solvent pension was made insolvent.

AS these union pensions faded, so did their membership level.  In the early 2000s the autoworkers union started to organize college teaching assistants, since colleges were growing and TAs could be tapped for pension contributions.  My nephew studying for his PhD in philosophy at University of Washington, and working as a TA, was obliged to join the autoworkers union.

That is to say a couple of things.  The promises made were never intended to be met.  The creativity of avoiding responsibility is astonishing.  The time it takes to reach crisis is very long indeed.  But now the fights over who gets what is getting specific.  A month ago one huge pension was suggesting a 23% reduction in pension payments.  Well, turns out a 60% cut will not do the trick.  Even then a taxpayer bailout is needed.  And this is just the first, and early problem to be addressed.  (The problems were perfectly clear in 1982.  Now people are getting around to "doing something.")

Another point:  No one making any contribution to any pension plan in the last 35 years should have believed they would ever see any returned.  That, given the readily available facts, would be an exercise in gross, willful self-delusion.  If they got any, well, that was just the ponzi early payout.

So here we are:

At that time, pension benefits for about 407,000 people could be reduced to "virtually nothing," he told workers and retirees in a letter sent Friday.
In a last-ditch effort, the Central States Pension Plan sought government approval to partially reduce the pensions of 115,000 retirees and the future benefits for 155,000 current workers. The proposed cuts were steep, as much as 60% for some, but it wasn't enough. Earlier this month, the Treasury Department rejected the plan because it found that it would not actually head off insolvency.
The fund could submit a new plan, but decided this week that there's no other way to successfully save the fund and comply with the law. The cuts needed would be too severe.

This is just 400,000 pensioners.  There are probably another 50 million people with pensions which necessarily will face the same problems.  If you are affected, you have a choice.  Try to join the fight at the trough for what little there may be, or start your own business.

And to note, none of this problem would be possible except for the practice of lending credit at interest, since there is no rational limit on what promises can be issued as asset-less credit.

Benecredit business start-up is at once part of the solution for everyone, and for yourself.

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Friday, May 20, 2016

Toward Interest-Free Banking

A loan is always a charitable event, but it can be made evil by charging interest.  Interest is wrong because it always does harm.  The interest free loan in charity cannot be replaced by any other instrument, but for the interest bearing loan there are countless alternatives for financing business.  Interest bearing (usury) loans are simply unnecessary in a free, prosperous, just economy.   On the other hand, usury cannot legally exist without hegemonic (state) support.  If states were to delegitimize usury, that is make it no more enforceable in law than gambling debts, usury would move to the edges like drug addiction, prostitution and gambling.  There is not much incentive to repay interest when there is no sanction for not paying interest.

(Ironically, although Vegas gambling debts are not enforceable by law, the fact that the casino lent you $10,000 in chips (interest free!) is a loan enforceable by law.)

Sweden has a bank that operates as most banks once did.

According to JAK's philosophy, economic instability arises out of and is a consequence of the levying of interest.
JAK operates under the following principles:
  • Charging interest is inimical to a stable economy
  • Interest causes unemployment, inflation, and environmental destruction
  • Interest moves money from the poor to the rich
  • Interest favours projects which yield high profits in the short term
The ultimate goal of JAK is to abolish interest as an economic instrument and to replace it with instruments that are in the best interests of the people. The main aim of the bank is to provide its members with a viable, feasible financial instrument, sustainable for the environment and serving the local economy.

If you read the wiki entry, you'll note the bank once issued its own currency, as all banks once did, until outlawed by the Hegemon.  You'll note their structure makes their assets also high and dispersed fruit, as we know the hegemon is seizing low hanging fruit first, and now, as with robbing pensioners on fix-incomes through low interest rates.  But then, to be a pensioner in a usury-based system, and then to be robbed in your old age by that same system is rather condign, no?

JAK came to my attention compliments of this accountant, Samer Hijazi, who added...

Other institutions include Kingdom Bank in
the United Kingdom, Pax Bank and Liga
Bank in Germany, the Catholic Family
Federal Credit Union and Holy Rosary
Credit Union in the United States and
the Institute for the Works of Religion
in Italy (more commonly known as the
Vatican Bank)....The Catholic Church continues
to condemn usury but even the Vatican Bank
participates in the global interest based financial
services system.

Just so.  Read his concise history of interest, with which I cannot quarrel.  A point to be taken is there already is a completely viable means of being interest free in the world, but the more the better. Samer Hijazi clearly gets both sides of the issues, so it is good to read he has assumed a place of leadership in usury-free practice.

The oldest bank in the world is a Catholic bank, but much deformed over 550 years of financial temptations, and now requires bail-out.

And as an aside, I would note that the fees JAK charges members was what the Catholic Church once theorized was acceptable in a charitable loan, and the overall term for this was interesse in Latin, meaning a loss. When Calvin bid welcome usury the protestants took the same term and changed it to a right to a gain.  You can see etymologically how the argument of covering a loss (chimerical opportunity cost) moved to a right to a gain. Policy laundering did the rest.

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Thursday, May 19, 2016

Austrian Economics: A Gateway Drug

Austrian economics is a great gateway drug.  If you were raised in the west, your economics is Keynesian.  The hard-honest grow beyond that to maybe the Chicago School, and the Monetarists, and maybe a side trip with the German Historical school, and then libertarian of the laissez-faire mode, and then there is the Austrian School, then of course anarchy. The Austrian School is the last stop before you are no longer allowed in the conversation, and it is considered extremist, when it is merely shallow-radical.  I place Stockman higher than Mish as a commentator, on par with James Grant, Frank Shostak, etc, as the best of the best as Austrian commentators.  But having move beyond the Austrian analysis to anarchy, that is to say free markets, their analysis falls short.  For example, I am a doctrinaire free trader, but I see plenty wrong with the chart:
The Keynesian money printers and doctrinaire free traders, of course, say there is nothing to see here. Americans purportedly choose to borrow massively from their foreign suppliers in order to import cheaper foreign goods and services.
No, they didn’t “choose” to bury themselves in debt; they were induced, incentivized and subsidized by cheap credit. The free market does not steal from the future to live high on the hog today because honest interest rates clear the market before debt bubbles gets out of hand.
Stockman blames "cheap credit" as if credit has a price, something absolutely every version of capitalism features, hence my rejection of capitalism.  EZCredit, malcredit is the problem, no matter what the price is.  Whether it's 26% on a pair of jeans, or 18% on a auto loan, or 2.6% on a home loan, it all does damage.  To guide Stockman, I note a free market cannot steal from the future because in a free market there is no hegemon to enforce immoral claims.

Of course people "choose" to borrow massively, especially wen the vote no war, and get wars, vote no bailouts, and get bailouts, vote no stadiums and get stadiums; whose to blame them when they are offered an "education" and a car on an EZPayment plan, the whole world has gone to hell anyway, compliments of lending credit at interest.

It is lending credit at interest that is entirely the problem and utterly unnecessary.  To say so is to lose your place at THE table, the one where you get to argue with the toast of the town.  If you do not do credit at interest, well, you might as well be Hutterite.

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Wednesday, May 18, 2016

Why We Hire Designers: Compete on Design

On one hand, even though we have the idea for the product or service, we need to hire designers for what they know and we do not.  On the other hand, we can hire designers for what they know and we do not.  It works both ways.  Here is a sound designer on concerts:
"But you have to remember that our hearing is not linear, meaning that 10 instruments will sound just twice as loud as 1, and 100 just twice as loud as 10. Combine the two and you have to realise that 100 instruments will sound just 4 times as loud as 1 - which explains why in a concerto the soloist (say a single violin) is perfectly audible "against" an entire orchestra (without having to tweak the sound with microphones and all that kind of stuff)."
Well.  If that is just one element that a sound artist knows and brings to a project, think of all the other things we do not know.  Designers are paid on royalties, and I have a simple royalty contract if you'd like a .pdf of the same.  Just email me ...

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Tuesday, May 17, 2016

No Pension Recovery, More Loss for 30 Years

When a financial advisor uses terms correctly, give him a listen:
“Either deflation is going to accelerate, which is most likely, or they [central banks] will turn to real inflation, real printing, rather than just credit inflation. Either way it’s disastrous.”
Good, he has money and credit right.  But disastrous for whom?  Just about everyone, since just about everyone in in this pickle:
 “The whole idea you buy stocks and hold them for 30 years was never correct. … The typical investor should be out of stocks and out of bonds and wait for a crisis, and buy during a crisis.”
But our entire patterns, practices and laws are based on this being true.  For anyone who has been deferring income into pension plans, guess what, the longer you wait, the less you get.  Since how and when you withdraw is set by law, you are a sitting duck.   With inflation your money will buy less as it comes out, with deflation it will bu more, but Uncle Sam will them tax is more heavily on the way out, even if it is tax exempt.

People who think medicare or social security will do, well, it is worse off than the pensions.  This from Mish:
My favored scenario is a series of five to fifteen percent declines over a number of years, with smaller and less frequent rallies, where every rally is a trap.
Such a slow bleed would be far more painful to pension plans counting on eight percent annualized returns.
Crash?  It probably already happened.  The damage is done during the boom.  What have we seen?  The slow bleed. The elders are the first to be harmed, and they are not in a position to complain.  This will get around to everyone, no matter what happen on Wall Street or in Washington.  Neither has anything to offer Main Street.  A real estate crash is inevitable at some point, since it is wildly overpriced.  The bottom of the market is not low prices, but no customers.

Don't get in the fight over dwindling assets.  Start creating your own by starting up your own business.

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Monday, May 16, 2016

Everybody is Lying - A New Opportunity

If you approach any given problem, politics, economic, medicine, education...  the problem is everyone is lying.  People know it, and no longer trust the hegemon, hence the outlier (pun?) candidates.

I was speaking with an int'l banker of a top-notch bank and to my question as to what degree negative interest rates affected his work, he replied in effect nothing compared to the fact everyone is lying.  The facts used as a basis for loans are lies, so making loans is hard.  Well, that same bank is now state's witness to avoid prosecution on gold price manipulation, a form of lying.

Back in the 1970s I was radicalized on medicine by my godfather, and MD, who kept pointing out the science was fraudulent on medicine.  What about the watchdog, the FDA?  Regulatory capture: the regulators are owned by the regulated. He is now deceased but this would not surprise him:
“It is simply no longer possible to believe much of the clinical research that is published, or to rely on the judgment of trusted physicians or authoritative medical guidelines. I take no pleasure in this conclusion, which I reached slowly and reluctantly over my two decades as an editor of the New England Journal of Medicine.”  – Dr. Marcia Angell, a physician and longtime editor-in-chief of the New England Medical Journal (NEMJ) (source)
and this...
“The case against science is straightforward: much of the scientific literature, perhaps half, may simply be untrue. Afflicted by studies with small sample sizes, tiny effects, invalid exploratory analyses, and flagrant conflicts of interest, together with an obsession for pursuing fashionable trends of dubious importance, science has taken a turn towards darkness.”  – Dr. Richard Horton, the current editor-in-chief of the Lancet – considered to be one of the most well respected peer-reviewed medical journals in the world. (source)
Yes, we are all on our own.  We are now living in chaos, and the only route out is to escape to anarchy. Self-employment is anarchy, properly understood, for you serve yourself best by serving others best.

So what is the opportunity? let me go back thirty years when I was pursuing a master of arts.  My program obliged me to take a statistics course, something to dread.   The professor announced the first day it was absurd that we would learn statistics in one semester, so instead of teaching us to do statistics,  he'd teach us to be consumers of statistics.  He teach us to test the study, spot failures, look for valid and reliable, in essence when it was science and when it was junk.

Now, at the time there was a database called ERIC, in which resided any educational research that mattered.  The term paper was to find an example of science in that database and test all of the elements of the study, demonstrating we students knew good work when we saw it.  Well! by the end of the course, I was into a dozen studies all of which quickly failed to meet the test, so I visited the professor with the complaint that I could not find any science, so far it was all junk.  He had the most wicked grin on his face.  He replied, "That's right, it's all junk. You passed."

I'd say another problem with lending credit is truth does not matter, since there is no rational limit to what you can "fund."  The hegemon can fund it all.

You win a gold medal by 2/10ths of a second.  In the next 40 years, the ability to spot BS will be a decisive factor, and the ability to spot science exponentially valuable.  If we return to benecredit (interest-free, asset-based vendor financing), you'll only be funded if you are accurate.

The professor who taught the class has long since retired.   I certainly cannot teach his course.  If anyone knows of a good stats teacher who wrote a book of teaches online, I'd be delighted to promote him on this blog.  If you are expert and want to deliver a course through schools noncredit, I'll send you a book on how to, gratis.

Prerequisites to business start-up:  Ogilvy on advertising and statistics as a consumer.



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Sunday, May 15, 2016

Advice For Dinosaur Retailers

Stop breeding, and try to put on some weight, it's going to get colder soon:
 The combination of slower in-store sales growth, an increase in less-profitable online sales, and steady spending on stores has made it harder for many retailers to maintain healthy profit margins. Stock prices are responding accordingly.  
But but but...  I thought online sales were riskless, easy, fantastic profits.. a no brainer.
E-commerce sales, not physical stores, are driving a bigger portion of retailers' year-over-year sales growth at established stores
Here we go again... measuring from a truly insignificant amount to a merely insignificant amount, using words like "bigger" and "growth." 
America has more retail square footage than Australia, the U.K., Germany and Mexico combined
Because USA is a consumeristic society, and those are materialistic societies.  We buy junk and throw it away, they buy quality and keep it.  That our poor are fat is an example of the difference.  It takes far more retail infrastructure to serve a consumeristic society than a materialistic one.

Ungh... ROIC?  A rent-seekers metric if ever there was one.
One way for investors to figure out which companies are following Home Depot's example and keeping a lid on unproductive store growth is by watching a company's return on invested capital (ROIC), a metric Gutman figures has a 90 percent correlation with stock performance at the retailers he follows. The idea is that the better a retailer deploys its capital, the higher its stock price tends to go. 
This assumes the point of retail is to make money for investors, not serve customers.  Any surprise they are dying?
Dick's Sporting Goods, ... 7 percent increase in square footage from 2013 to 2015 and 1.5 percent decline in sales per square foot (when excluding e-commerce sales) during that time. With Sport's Authority's bankruptcy and impending store closures, Dick's is eager to pick up some of its competitor's locations. That could help boost short-term sales, but comes with diminishing returns, as mounting competition squeezes specialty athletic gear retailers.
A better plan for Dick's and other struggling retailers might be to focus on how to make their existing stores better. 
Dinosaurs had plenty to eat toward the end, with so many dinosaur carcasses to cannibalize. A better plan for you is to open a sporting goods store near where a Dick's or Sports Authority closes and offer the materialistic customers what they want.  There will be enough business to discover in that vacuum to support a lifestyle.  For the next 40 years accumulation will be confiscated, necessarily so. 

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