IMPROVE THE NATION

Here’s the deal. I have been working on a fund raising project for one of my favorite organizations. My wife and I support several besides the church we attend. As I talk to my friends I find that mostly they seem to be scrapping by and in a mood of uncertainty and pessimism about the future. Does that seem strange given the state of the U.S. ? Probably not!

What are we to do? Vote and hope the newly elected officials will fix the problem? We’ve been doing that for over two centuries and since I can remember (about 65 years) the situations has continued to move downward. Why do we continue to place our hope in the same proven to be wrong set of people? Reading history prior to the U.S. points out the same problem. In most of the cases, we find that the nation or nations finally failed and exist now only in the history books. Yet we continue on. Isn’t that the definition of insanity. Continuing to do the same things over and over again and expecting a different result.

I say hogwash let’s move forward and use our God given gifts in more productive ways. So, maybe I’m just stubborn and stupid. But, some of the things I see to do seem to be much better.

The fund raising project is for an organization named “Young Life”. Young Life is a non-denominational Christian organization focused on bring teenagers to Christ. Some of you might not think that is a good idea. But, I think it is. I have the opportunity to meet, mingle and work with many of these teenagers. I talking here about millions of kids around the world. I don’t know millions. Its millions that have been and are being impacted. I met maybe a couple of hundred or more. In all cases, these youth are the ones I would like to see grow up and build our nation by working, living and governing in it. These teens have been nurtured by local leaders in clubs all around our nation and the world. These local clubs exist and are supported by local parents who care about their kids, their community and their nation. The project I’m raising funds for is to remodel a house at a Young Life property. It is the only Young Life property that focuses on educating young parents in the ways of Young Life. The main effort of this camp occurs in a twelve week period ever Summer. They conduct a weeklong intense program billed as the best year of your life. I’ve gone there, been there and its true. Right now they can accommodate about 30-35 families per week. This one project will allow them to increase that number to about 37-42. It has the potential of allowing Young Life to reach another 100 or so teens every year. So, I think the small project of raising $150,000 will have a bigger impact on the nation than all the current “stimulus” programs.

I’m not asking you to write in and offer to help with this project. No, I suggesting that maybe in your community you can spread the word and become a light for a better way to make our nation strong. And, probably some of you are already ahead of me on this. I don’t want to be judgmental. I just wanted to let you know how I feel and what I’m thinking.

MORE ON HEALTH CARE

HEALTH CARE

Our law makers are creating a health care package that will be effective, efficient, inclusive and affordable. WOW, I can hardly wait. How do you think this will be put together and how do you think it will be funded? We are now beginning to see and hear glimpses of the package. I expect our health care providers are going to be just as excited as I am. They will have to provide more care for more people for less money. Businesses will be thrilled as well. They will be required to provide more benefits with less payment by the employee. I don’t suppose they will have to raise their prices to pay for the extra expense. The customer will pay more for their products and the employees will get fewer and smaller pay increases. Oh! I guess the customer and the employees are the same people. I should of said that U. S. citizens will earn less and pay more to live. Not to mention that taxes will be increased to cover the government portion of the new costs. Sounds like a win for everybody.

How about the health care itself? Already in place are many qualifiers for receiving health care. I have a friend whose mother has advanced kidney failure. Her kidneys are functioning at 12% of normal. Without dialysis she would die in about two weeks. She is in her early 80’s. She is not eligible for kidney transplants because of her advanced age. In-home dialysis care is very expensive and extended care facilities are even more expensive. I wonder how many older citizens have similar conditions. I’ve been told that a very high percentage of the nations health care costs (perhaps 80%) occur in the last several months of life (perhaps 3 months). Do you think this is true? As the end of life approaches many of us will get desperate to find a cure for the disease or condition that is killing us. Some folks have said that they want no heroics to stay alive when approaching the condition of a less than quality life style.

Why not devise a system for health care qualification that encourages healthy living and helps to control the cost when healthy living is no longer an option. Here’s a rudimentary , simplistic idea that folks in Washington might want to consider. It has been said that we should live three score and five years of a very healthy and productive life. So, if age 60 were set as a target we could make sure that a very high percentage of the people reach that age and that for those who cannot afford to pay for their own health care our government could pay for them. Perhaps in order to qualify for those payments they should consider living a healthy life. Like suppose we imposed some weight and diet guides. And, maybe we insisted that folks don’t smoke or drink excessively. To encourage this we might impose a physical fitness test beginning for everyone at age 60. For people who are spending too much on health care the physical fitness qualifier might be applied at an earlier age. I would suggest an easy qualifier like walking five miles in two hours or less. People who don’t qualify would have to pay for their own health care. They would not be included in any insurance groups. What would the cost impact be if we only had healthy people in the insurance groups? Some of you might want to invest in spas and fitness centers. Beer companies and cheap booze manufacturers might want to duck. Tobacco control would be more or less automatic. Recreational drug use would greatly reduced. People would in general walk and bike more and drive less. We would have proportionally more sidewalks, hiking trails and bike trails than roads. I suppose we would have fewer people wanting or receiving heroic life support. There are some things about this type of plan some people would not like. But, I suppose that is true of all the plans suggested and/or used to date. It is much like the old native American Indian health plan. Once we get old and not able to function well we just take off into the wilderness. What are wilderness areas for anyway?

WHAT HAPPENED?

I just finished reading Fareed Zakaria’s article (The Cover Story in Newsweek June 22,2009) “The Capitalist Manifesto; Greed is Good”. The article is very good and everyone should read it in about three years when the U.S. and Global economies are running at an improving pace. Go to the following link.

http://www.newsweek.com/id/201935

DERIVATIVES

What the heck are they? Some of you know about this from your college math days. Now I’m talking about stocks. How in the world do you get the first or second derivative of a share of stock.

The first derivative is a share of stock. A share of stock is supposed to represent ownership in a public company. And, it does. But, the value may not be quite what the buyer expects. Did you ever notice when looking at the data associated with the stock of a public company the column headed by something like P/E? P stands for Price and E stands for earnings. Will Rogers said “When buying stocks. Buy them when the price is low and sell them when the price goes up. If the price doesn’t go up, then don’t buy them”. Great advice. 

A price earnings ratio of ten ( P/E = 10 ) tells us that the current price is equal to ten times the annual earnings. You need to be careful here. The first question is” which annual earnings”. The number could be based on the trailing earnings. That might be the prior fiscal year. Or, it could be based on the earnings for the latest four quarters. Or, the P/E could be based on an estimate of future earnings. 

When you invest $100, how much do you expect in return? A good return might be 10% per year. If one borrows $100 from a bank at 6%, he will pay $6 in interest every year he  keeps the money. So we could borrow $100 at 6% and then invest it in a company with a P/E of 10 and we would theoretically be ahead every year by $4. Except, how do you get the money out of your stock investment? They might pay dividends. But, hardly ever do they pay out all their earnings in dividends to the shareholder. So, you might have to sell the stock to someone. Now when you buy the stock you pay the brokerage firm a fee and when you sell the stock you will have to pay a fee. These could be as much as 1% on each end. I wonder what the market price of your stock is one year later? If the P/E is still at 10, what would the price be? It depends on the earnings of the company one year later. If the earnings went up 10%, would you expect the stock price to go up 10%? What is the possibility of the a company raising its earnings 10% in one year? Do you know? How would you decide which stock to buy? I guess we could look at the earnings history of the company. I happen to know that a company that is able to increase its earning 10% consistently every year is a very well run and fortunate company. Ten percent is hard to achieve. Most good companies have annual earnings increases in the range of 5-8% annually. Companies with earnings growth rates in this range usually don’t have P/E ratios of 10. In average times their P/E ratios will be more like 17-22. So, an investment of $100 in this company would be represent earnings in the range of 5% of the share price. Do you still want to take the risk of paying $6 to invest in a company that makes $5 on your investment? 

When the market crashed in 2008, the average P/E on the NYSE was north of (bigger than) 40. You not only have the variable of how the company business is going but pricing is confounded by the rational or irrational buying action of individuals and 

HEALTH CARE

Comments about private enterprise vs. government:
Wal~Mart has announced going into the prescription drug business. Caterpillar is their first customer. They will buy better than the health care companies. They will manage the business better than the health care companies. Both are better than government control. The current system is loaded with dishonest practices. The care providers bill more than they need. The insurance administrators adjust the bill down by 50% or more and then pay 70%-80% of the remainder sometimes. And, they tell you how much you might be billed. I guess if you get billed more you don’t need to pay the additional? Why not let anyone in the private sector enter into the supply of health care without government interference? Fear that the ones who try to take advantage of the system won’t be provided with health care. The taxpayers end up paying the bill any way. And, the bill they pay has the government overhead tacked on. That overhead is usually 90% or more of the cost. What is the solution? Two plans. One for the honest hardworking, able to pay citizens. Another for the ones who can’t or won’t pay. Let the public sector take care of those. There are many 501 (c) 3’s working on that now. And, they are all encumbered by government regulation and interference. There are at least 28 forms of 501 © companies “authorized by the Federal Government”. Just having to be authorized is more than enough interference. Why don’t we the people get going and take care of this health care problem? Everyone can become a volunteer. Each one can find a church or private company to work for on a volunteer basis. Let’s go for it. Let’s make this nation stronger.

FISCAL RESPONSIBILITY (A novel idea)

Why don’t we as a nation rise up and fix the obvious problem? We are in debt. We are taxed on average more than 50 cents on every dollar we earn. We cannot tax our way out of debt. We have to bring discipline into the spending equation. Cut the National budget deficit to zero today. Just spend less than the tax income. This is the principle that leads to individual security and freedom. When our leadership example is a debt, more debt example how can we expect the people to change? If we want to rebuild the nation, we must become fiscally responsible. Just saying we will reduce the deficit is not good enough. Eliminate the deficit and begin paying off the debt. Become a nation with no debt. The people will rally around this principle. We will be able to take care of the needy in the private sector. Why not have a government that does the things it is supposed to do. Build roads and dams and infrastructure. Maintain a low level of social chaos. A police force that enforces a simple set of laws. And, a military force that protects our borders.

PERSONAL INVESTING THOUGHTS

Today I’ve been thinking about investment returns. When investing in an opportunity what kind of return should we expect?

There are two places to invest, your own business or a business you don’t own.

If you invest in a business you don’t own, then you can own part of it. If you buy stock, you own part of it. If you buy bonds or loan them money, you invest without becoming an owner.

How much do you expect to get back from your ownership? I think 10% per year is a good target return. But, the higher the expectation the lower the chance of achieving your expectation. So, generally lower expectation is considered lower risk, i.e. more likely to happen. Higher expectation is higher risk, i.e. less likely to happen.

The DJIA 30 index stocks have averaged a little more than 6% per year growth since 1935. The S&P 500 index has average a little less than that since its inception in 1969. At times these averages were in higher return territories. This is especially true in the period between 1985 and 2007. I don’t believe the real foundational returns ever exceed the trend lines of about 6%. But, one could venture into this financial situations and make returns greater than 6%. Many have done it.

The companies listed in the 30 Industrials do not all sustain real growth of 6%. There is a range above and below this average. Some might be as high or even higher than my target range of 10%. Others have to be below, maybe even losing money in order for the average to be 6%. And, the same company is likely to experience performance at different levels in the range over time. But. it appears that the average sustainable rate is somewhere around 6%. Always remember the companies listed in these indexes are the better companies. If one stumbles, it is likely to be replaced by a higher performance company. In the stock market, there are many companies that are not making money and some that never make money and eventually fail. The higher a company’s current return, the less likely they are to maintain or increase the level of return.

Be careful how you invest. If it sounds to good to be true it probably is.

There are many investors and investor groups who “gamble” in the open stock market. They chart the market and individual stocks trying to predict the ups and downs. Buying low and selling for a profit not based on the real performance of the companies. In this arena there are always gainers and losers. If someone makes money on the daily or periodic fluctuations, another person has to lose an equal amount.

HAVE WE GONE CRAZY?

The country is going crazy. Economic activity is down from last year…down a lot. The people and businesses of the country tell vividly the state of our economy. It is what it is. Since 1985 and maybe before the country has been building a house of cards. We have been building a house with less foundation than is structurally required to hold it up. And, it has fallen to the level our more solid underpinnings.

Now congress is attempting to develop a stimulus plan to rebuild part of the fallen house. Most of what we hear about the developing plans indicates not much foundation building is included. So, the result is likely to be a big tax burden and no solid growth. The result will be a huge anchor for future generations of Americans. Some of those Americans are my children and grandchildren.

Why not admit our past mistakes and let the chips fall? Why not work on foundation and simply use the stimulus dollars to bailout the unfortunate ones who have lost their jobs and homes and need help to survive. Providing them with hollow jobs with no foundation would be a lie. We would be trying to provide hope that is hopeless. Let’s all stop living beyond our means and begin to live sensibly. Many of us can use our excess to help those in need. Will Rogers said it in 1929. “There is still the same amount of money around, its just in the wrong places.” The debt levels we have been promoting have fooled us into believing that there is more money somewhere. And, many banks and investment companies have tried unsuccessfully to turn that debt into assets and sell it for a profit. Those cards have tumbled. We should not try to build them back.

I say work together for the common good of the people and the nation. Let no one go hungry or be cold. Let’s build infrastructure and foundation and slowly but steadily improve our national strength. Let’s don’t pretend to be more than we are. Especially, let’s don’t pretend to be the savior of the world. Let’s not talk and spend beyond our means and capabilities. Let’s stop spending money we don’t have. Let’s act like America before its too late.