“A SELF INFLICTED WOUND”
"We Promise a second revolution, the general principal that payment of debt should take
precedence of all other expenditure."
Henry Adams and Thomas Jefferson, 1792
"The political fiasco we just witnessed in Washington cannot really have happened!"
Ray Dunlap, 2011
The Serenity Prayer: "God grant me the serenity to accept the things I cannot change; courage
to change the things I can; and the wisdom to know the difference."
Reinhold Niebahr, 1943
It's 11:00 pm Thursday night and I've turned the TV off, recycled my Barron's and New
York Times, and finished reading Bloomberg/Businessweek. The headline in Barron's
reads "STUPID FIGHT - What Washington's Messy Budget Battle Means for Stocks,
Bonds, and the Economy," while the cover of Bloomberg reads, "Why The Debt Crisis
Is Even Worse Than You Think.”
The past week and quarter have been filled with a pathetic display of partisan politics
and even worse partisan coverage by the news channels, culminating today with a
huge unnecessary panic frenzy in the stock market. CNN even began running
a countdown clock with the days, hours, and minutes remaining to August 2nd, as
though this were some kind of race or game show.
Ironically, in the midst of all of this hoopla, prior to this week's stock sell off, the stock
averages were all climbing on great earnings from most of the companies who had reported.
The reasons for those gains were that companies have learned how to be profitable
with lower revenues and smart, long-term stock investors invest in companies
not countries - and companies are earning a lot of money and sitting on tons of cash.
Ironically, as well, interest rates on US Treasury bonds, which were predicted to rise
dramatically due to our pending default, instead fell significantly. As of today, August
4th, the yield on the 10 year Treasury Bond stands at only 2.40%!! This means that
soon, thirty year fixed mortgages may fall below 4%, and CD rates will remain below
1%.
What this all translates to is the fact that our political system is broken and it is broken
badly. Most of our Congressmen (and women) and Senators are not "leaders" but little
more than egomaniacs running for re-election, and they are voting based on the greatest
number of phone calls, emails and texts received versus what's really needed for
our country.
We have known for over THIRTY YEARS that people are living longer and that Medical
care, with its new technologies, is costing taxpayers billions more each year. Everyone
knows that life expectancy increases mean that millions of us who were actuarially
supposed to die (at 76 for men - and 79 for women) are just not cooperating!! We
are not only living longer, but we are also having hip and knee replacements and MRI's
and EEG's and EKG's. We are staying in the ICU for weeks at a time at a cost of tens
of thousands per week, and we have NEVER deposited enough in payroll taxes to pay
for all of this care.
Many of us will then need to stay in nursing homes for many years costing Medicaid
$4,000 - $12,000 A MONTH! The simple fact is that none of us who live past age 80
have paid in enough to cover the Social Security and Medicare benefits we will receive
- and it is our younger neighbor's tax dollars that will pay for all of these benefits.
THERE ARE NO GOVERNMENT FUNDS, only tax dollars collected from taxpayers
allocated by politicians who have proven themselves worthless!!
If I sound frustrated, it's because I am frustrated, and if I
sound angry, it's because I am angry.
I've heard many times this week that this is a "Self Inflicted Wound," and it is exactly
that. We did this to ourselves with greed, stupidity, and carelessness. No one wants to
sacrifice and no one wants to face the truth. While everyone wants "spending cuts," no
one wants their own Medicare or Social Security payments affected, the Defense
budget reduced or Medicaid benefits lowered. No one wants to pay any higher taxes,
even if hedge fund managers making tens of millions of dollars are paying at a measly
rate of 15%. No one who has a public sector job wants to contribute more for their
health insurance or pension plans. In many of the Northern states Union
employees voted against even small increases in their Health Insurance and Pension
contributions, even while more than ten percent of their tax paying neighbors have
no job, no pension, and no health coverage at all.
I am so saddened by the seemingly unlimited degree of selfishness that I can barely
process it all. The newest approved plan allows for a $2.4 TRILLION increase in the
Federal budget deficit cap, with $1 Trillion of spending cuts now, and another $1.4 Trillion
to be cut by Thanksgiving. A "Special Committee" will be appointed by The President
and Congress made up of six Democrats and six Republicans to determine what
cuts and taxes are needed to find these savings. I guess that the Simpson-Bowles bipartisan
report last fall, and the Gang Of Six bipartisan report last month are not
enough.......are you kidding ??????
No one has the guts to deal with exactly what the problem really is, and it all has to do
with life expectancy, lower returns on the funds deposited, and promises to retirees
that simply cannot be met mathematically. It is really simple math, and it can be solved
if our leaders would only be honest and not political.
And the back-lash of all of this rancor and ineffectiveness is that, for no logical reason,
the capital markets are taking huge hits - causing you and me and millions of our fellow
citizens to go through yet one more “roller-coaster” stock market ride.
I've decided to list what I believe should be obvious to any politician who cares more
about America than being a Republican or a Democrat. It should be obvious whether
you are a Liberal, Conservative, Independent or a member of the “Tea Party.” These
are raw facts that should not even be the subject of debate.
THE FACTS
1) When you’ve receive more in benefits than you and your employer have paid
in to any retirement or insurance program, plus interest, it is then an entitlement
paid by someone else's tax dollars.
2) Just because someone is a "Senior" does not therefore mean they are also
automatically poor. Warren Buffet is a “Senior,” and I am tired of politicians saying
we cannot cut benefits to “Seniors.”
3) The budget problems are fixable, and we can reduce our spending if we really
want to. Military bases in Europe and Japan may need to be closed, and government
employees may need to work more than twenty five years before being able
to retire, but we can fix our ludicrous spending addiction if we choose to. Some
additional taxes will need to be paid, and some tax loopholes will need to be
closed.
4) Even if US debt ratings are lowered from AAA, where else will China or anyone
else invest their conservative monies instead of with the United States? Japan?
Europe? Latin America? I don't think so. We will still see investors buy our
Treasury bonds.
5) If the US does not figure this out soon, we will likely experience even more serious
market consequences, and slipping back in to another recession is the last
thing any administration wants to happen. A government-induced recession
would certainly spell the end for this President as well as many members of Congress
who fairly would be blamed for the mess. Government is the problem and
they are dragging business sentiment down with their dog and pony shows.
6) The newly approved "deal" does virtually nothing to reduce our long term deficit,
again kicks the can down the road, and is back loaded to do virtually nothing
until 2013. Geez, why is that????
7) You cannot pay out $100 for every $50 you collect forever, and if you think you
can, ask Greece, Italy, Spain, England, Ireland, California, and every other town
and state that cannot meet its insurance and pension commitments now that the
baby boomers have actually begun retiring.
8) Companies all over the world have made a fortune for over fifty years by selling
products to baby boomers. We know how many of these “Boomers” there are,
and we knew when they would begin turning 65. We knew how much they paid in
to Medicare and Social Security and how much we promised to pay out to them.
Why can't we just admit that we have not been honest about all of this and come
clean to save the country?
9) The Credit Rating Agencies who are threatening to lower the US bond ratings
are possibly even more useless that politicians. They had AIG rated “AAA” up to
the day they collapsed, and rated Credit Default Swaps and most other leveraged
mortgage products “AAA” up through their total collapse in 2008. Good job
Moody's and Standard and Poor’s protecting all of us!!
10) In my opinion we cannot solve these problems without major cuts and some
additional revenue. There is no magic answer and no easy choice. The Simpson-
Bowles proposal was right on target and recommended that a little pain by all of
us is the only solution, and that means everyone. Public employees need to
compromise, someone needs to pay more in taxes, and the collective "needs" of
the country need to be more important than the "desires" of special interest
groups including corporations, AARP, hedge fund managers, and Unions.
Concerning the markets and your portfolios, as of today, the world stock market averages
are in free-fall. Corporations are mostly reporting excellent earnings, but the fear
of governmental and debt problems have caused markets to sell off the past two
weeks, giving back all of this year's gains. With all of the unrest in the markets, I have
been significantly more defensive than at any time over the past two years and am
closely monitoring all of your holdings on a daily basis.
The emotional and financial tolls caused in 2008 are still very fresh in my mind, and
while I am looking long-term at a portion of your portfolio, I cannot ignore the short term
risks that currently exist. These are extraordinarily challenging times and they are
made more stressful by the minute-by-minute news coverage filled with partisan rhetoric
on just about every network. We are working hard to do all that we can to maintain a
calm and clear perspective, and to try and balance risk and reward in this rapidly
changing economic environment.
We would again like to thank you for your continued trust and support and welcome
any questions you may have concerning your personal needs and concerns. I wish
this were a happier and more upbeat letter, but I strongly believe that a dose of honesty
and reality are much needed at this time.
Respectfully,
Ray |
