Economic Statistics and Investing 101

Well we are approaching the final trading days for 2010 on Wall Street.  As this year comes to an end I wanted to go over the move we have seen in commodity prices since last July:

Sugar +106%
Cotton +75%
Corn  +72%
Silver  +67%
Wheat  +65%
Coffee  +49%
Copper  +48%
Rice  +45%
Soybeans  +43%
Oil  +33%
Gasoline  +20%
Gold  +18%

These price increases have taken place in the last 6 months.  Now the pundits on CNBC and other financial publications claim that these rising prices prove the economy is in the begining stages of an incredible rebound.  I hate to be johnny rain cloud here but the economy isn't going anywhere.  Lets take a look at some statistics on how the economy is doing.

Since December of 2009 we have added on average 79,000 jobs per month.  The population growth in the United States on average is 175,000 per month.  We are not even creating enough jobs for people entering into the work force.  Baby boomers who were planning on retiring have now come to the conclusion that they are going to need to continue working since their 401k's have taken large hits and their homes they were planning on selling have decreased 20-50% depending on the location.  This means younger adults entering the workforce will not be able to slide into jobs that are being vacated by recent retiree's.

Unemployment is still near 10% using government statistics, but probably closer to 20% if you take the underemployed and discouraged workers into account.

While it is true that companies are reaping big profits, these profits are mostly coming from the growth of emerging markets in Asia.  Many U.S. companies are hiring, but the jobs are being created over-seas where there is less regulation, less unionization, less taxes, and more growth.  This is one of the reasons the stock market continues to do well despite a struggling U.S. economy.

Consumer spending is up here in the United States, but most of this spending is from wealthy Americans who have invested in the financial markets.  They have made big returns this year, especially if they have been using leverage which can maximize your return by a couple hundred percent.  The Federal Reserve's policy of Quantitative Easing has made it pretty much a sure thing to make money in the stock market.  The wealthy are the people who benefit most from this since they have the capital to be able to invest in companies and commodities that will benefit most from stimulative monetary policy.  I can personally attest to this, using leverage in the futures market I was able to produce a 150% return this year.  The problem is most people aren't educated in the field of finance in order to take advantage of monetary policy coming out of the Federal Reserve.  The top 10% wealthiest Americans own 98.5% of all stock in the country.  The other 90% have stagnant or non-existent wages, rising costs for fuel and food, continued falling home prices, and rising debt levels.

In 1970, jobs in the goods producing sector accounted for 31% of all jobs, today they account for only 13.8% of all jobs.  In 1970 we were also a net exporter (we shipped more goods to other countries than we brought in), now our economy is a consumption based, debt fueled economy.  This is a classic late stage trait of declining empires. 

Using Federal Reserve monetary policy, the wealthy continue to position themselves to do well in the financial markets even if the U.S. economy is struggling.  Many people, especially on the left believe that rich people are to blame and should pay a higher percent in taxes.  I don't blame the rich at all for taking advantage of monetary policy and increasing their net worth using the financial markets.  I did the same thing.  The blame should not be on the rich, it should be on government using manipulative policies causing prices of assets to rise only because of an increase in the money supply.  The only thing higher taxes will do is push more jobs overseas and increase the demand for CPA's to help more people find ways to shelter their incomes from taxes. 

In my opinion, the increase in the prices of the commodities I mentioned above are not because the economy is now firing on all cylinders, it is because of the printing of money by the Federal Reserve.  The last time the Federal Reserve had a stimulative monetary policy was in 2001, most of the printed money went into the housing market.  Today, the Federal Reserve has an even more stimulative policy.  But this time, I see the money flowing into the commodities market instead of the housing market.  Once bubbles burst (such as the housing market), they take a long time to come back.  The tech bubble of 2000 as measured by the NASDAQ, still isn't anywhere near the level it was when it burst.  So in my opinion, investors are not going to speculate in the real estate market for at least the next decade.  As evidenced by the last 6 months, commodities look like the place to invest.

You don't have to be a rich person in order to participate in the upside in commodities.  You can open up an individual brokerage account at a discount broker like Scottrade, Schwab, etrade, or Ameritrade.  The cost to buy any amount of shares of either a stock or Exchange Traded Fund is under $10.  It literally doesn't cost anything to invest, it only costs you a considerable amount of money if you need advice.  Their advice typically also has a lot of conflicts of interest.  Being a stock broker, I can attest that brokers will try and steer you into funds that make them the most commission.  Here are a few examples of some picks I like that will give you exposure to commodities, but before buying these you should consult your financial advisor to see if you have the risk tolerance and time horizon to ride out the volatility.

For exposure to the agriculture sector which I believe will do well with continued inflation and stimulative monetary policy:  MOO  (this is the ticker symbol, go to finance.yahoo.com and type this symbol in to see a quote.

For exposure to Gold you can use the ticker symbol GLD.  This fund holds physical gold and tracks the price of gold.  If you want to take additional risk then you could use UGL.  This is the double long gold fund.  So if gold goes up 1% you will make 2%.  This fund uses leverage (borrowed money to increase returns), so make sure you understand the risk before investing in UGL.

For exposure to Silver you can use the ticker symbol SLV.  This fund also holds physical silver and trades like a stock.  If you want to take more risk you can use the symbol AGQ.  This is the double long silver fund, which means you will double the percentage gain silver makes, but also double your loss.  So again, make sure you understand the risks before investing in AGQ.

For exposure to oil I like the Canadian Energy trusts.  Their are a few that trade here in the U.S.  I like these over U.S. oil companies since I believe that energy companies here in the U.S. will most likely have excess profit taxes placed on them once gasoline passes $4.00 / gallon which I believe will happen by summer of next year.  These Canadian energy trusts will be converting to corporations in Jan 2011, but I still believe they will continue to do well with where oil prices are at.

Those are just a few ideas that I think are good plays for the next 5 years.  You can buy all of these funds by opening up a brokerage account at any of the brokerage houses I mentioned above.  Most of them you can open an account with as little as $500.  Its time for the rich to  not be the only ones who benefit from the financial markets being manipulated higher.  Take the information I have given you here as a starting point for additional research.  A few books I would recommend to get you started are Peter Schiff's, "Crash Proof 2.0", Jim Cramer's, "Real Money, Sane Investing in an Insane World."  After reading these books I am confident you will understand the financial markets and the economy enough to get started.

Since I am a licensed securities representative it is important you read the disclosure below:
Strategies or investments discussed may fluctuate in price or value. Investors may get back less than invested. Investments or strategies mentioned on this website may not be suitable for you. This material does not take into account your particular investment objectives, financial situation or needs and is not intended as recommendations appropriate for you. You must make an independent decision regarding investments or strategies mentioned on this website. Before acting on information on this website, you should consider whether it is suitable for your particular circumstances and strongly consider seeking advice from your own financial or investment adviser.

Legalizing Marijuana

One major difference between Libertarians and Republicans is the difference in opinion on whether or not to legalize marijuana.  Let me first start out by saying that I have never tried marijuana, nor any other illegal drug.  My mom worked for a hospital in the chemical dependency department so I knew I had no chance of getting away with it.  But I knew many people that habitually smoked marijuana in high school and college. 

The media has done a great job of confusing us on what we should be focusing on.  I don’t think the question is whether or not we should legalize marijuana; the question we should be focusing on is whether or not it is the government’s role to tell me what I can put into my own body.  Our founding fathers believed the government should be as small as possible, believing in personal responsibility.  The founders didn’t write the constitution with the intent of having the government taking on the role of parenting.

In my opinion the founders wrote the constitution with one specific goal, that the federal government exists to protect the rights and freedoms of the American people…period.  So when the legislature writes laws, we need to start asking ourselves if the specific law being created is designed to protect our liberties.  It seems to be a pretty tough case to make that banning the use of marijuana is needed to protect freedom.  You’re probably thinking, “if laws should only be created to protect the individual rights and freedoms of the American people, then most of the federal laws written shouldn’t even exist.”  I would say you are right.  A common argument people make is that traffic laws wouldn’t exist if we were to take this approach.  Here is where I disagree.  Traffic laws are state laws, which mean the people of that state have a say in how the traffic laws are enforced.  So if you don’t like the 65 mile an hour speed limit in CA, you can vote with your feet and move to Texas where on the open roads the speed limit is 80 mph.  The state that has more stringent laws will lose more and more people to other states; this in turn would cause CA to reconsider how strict their laws are.  But if you have the federal government creating laws, there is no way to move to another place to get around it, unless you have dual citizenship. 

Prop 19 was recently voted down in the state of CA.  This would have legalized marijuana for recreational use.  While I disagree with the outcome, I do like the fact that the people got to vote on it.  What I don’t like is the federal government already has passed a law that makes it illegal to use marijuana.  So even if Prop 19 passed, it still would be against federal law to smoke marijuana in CA.  If you understand the 10^th amendment it is clear that the federal government has no constitutional right to tell CA they can’t legalize marijuana.  The constitution was shredded a long time ago in D.C.  But what bothers me is that if we think the constitution is outdated and we should no longer be bound by it (which I disagree with that), then let’s have that argument.  Let’s not pretend we are upholding the constitution, when every politician knows they don’t even take a second look at it after swearing before taking office to uphold it.

I know a lot of people disagree with my stance on legalizing marijuana.  And you know what, 2 years ago I would have thought there is no way I could ever support legalizing it.  But in my last few years of studying history and politics, I have realized how corrupt, self centered, arrogant, and manipulative politicians can be.  I have come to realize we must keep government as small as possible to minimize the effects these corrupt people have on the United States.  They will literally sell their soul to make sure they pay back those who donated to their campaigns in order to get even more donations for their next campaign. 

I know there is a possibility that there could be some deaths related to people who were under the influence of marijuana and killed someone in a car crash.  But freedom isn’t free.  Benjamin Franklin was quoted as saying, “those who would give up essential liberty to purchase a little temporary safety deserve neither liberty nor safety.”  The TSA doing unreasonable searches on innocent people looking to board an airplane start to come to mind also when thinking about this quote. 

Let’s look at some of the benefits of legalizing marijuana.  For one, drug cartels get an incredible amount of cash flow growing and distributing marijuana in the black market.  If we legalize marijuana, it would be equivalent to repealing prohibition which is widely believed to be the reason organized crime no longer exists.  You could no longer purchase marijuana from your buddy down the street who got it from the local drug dealer; it would force everyone to buy it out in the open.  You would have to show your ID to prove you are over 18 or 21 (depending on state law) in order to purchase it.  The price for marijuana would come down dramatically. 

States would also benefit because there would be an incredible amount of tax revenue from the regulation of marijuana.  CA especially could use the additional tax revenue to help fund Sea Otter research and all the other bogus programs we like to fund in this ridiculous state. 

I know people consider marijuana to be a gateway drug, and they are probably right.  But if we give the government the power to control what we can put in our bodies, we open up the door for them to make it illegal to put other substances in our body.  We all know that there is no way we have enough money to fund government controlled healthcare.  Some sort of rationing is going to have to take place; there just isn’t enough money to go around.  Mark my words, government is going to make it either a crime, or create a large tax on sugar to try and raise the money to fund healthcare.  We can’t allow government to continue to make additional power grabs to take more control over our lives.  It must stop now.  We must reverse these ridiculous laws that might save a few lives, but sacrifice the principles that we were founded on.  When it comes to erring, we must error on the side of freedom.   

The new FDA Bill

They’re at it again.  The Senate passed the Food Safety Modernization Act (S.510).  It is heading over to Obama’s desk for his signature to become law.  You can all now rest assured that Food Safety is now more “Modern.”  What a joke.

I read about 100 pages of this bill (http://frwebgate.access.gpo.gov/cgi-bin/getdoc.cgi?dbname=111_cong_bills&docid=f:s510es.txt.pdf).  In my opinion this bill is another major power grab by the federal government.  It gives the FDA total control of our food supply.  Probably the most scary part of this bill is allowing the FDA to force companies to recall their product if the Secretary has deemed there is a “reasonable probability” that the product could potentially cause death to animals or humans.  This bill also is going to cost farmers a lot of money due to the extra cost of having to fill out additional paperwork. 

I have seen rumors floating around the internet saying that this bill makes it illegal to grow, sell, or trade your homegrown food.  I went searching through this bill to see if I could prove that.  There are no specific comments about growing your own food that I could find.  But that doesn’t mean it’s not possible for this to happen.  Numerous times this bill mentions that the Secretary can create rules as he goes in order to carry out the purpose of the bill.  So basically a single person has the power to create rules that the rest of us have to follow.  This completely goes around Congress.  Land of the free…what a joke.   This bill also names the Department of Homeland Security to work side by side with the FDA to enforce this bill.  That should raise a few concerns.

This bill benefits the larger food companies.  It’s no surprise that Monsanto, Kraft, and Nestle all supported this bill and gave large campaign contributions to its sponsors.  The larger companies have the capital to cope with the additional paperwork and any adjustments needed to be made to their factories.  This again puts smaller companies at a disadvantage, and in fact, will probably force some smaller companies that were already struggling to close their doors.

It is laughable that people are blaming Capitalism for the cause of small businesses being shut down.  WAKE UP PEOPLE!  Capitalism hasn’t gotten a fair shot in over 100 years in the United States.  Large companies are buying off politicians to make sure they continue to have a competitive advantage over small business.  We are too busy watching Jersey Shore, trampling people on Black Friday to buy a T.V., going to clubs, going to sporting events, ect.  I can’t understand why so many people continue to bury their head in the sand.  This country reminds me of a bunch of people dancing on the deck of the Titanic as it’s broken in half about to go to the bottom of the ocean. 

This country was set up by the founders with most of the power being in the state governments, with a lot of power also given to local governments.  This was their way of making sure that the people were the ones in control of their government.  Can we honestly say today that the power still resides with the state and the people?  Or has the federal government become the supreme ruler of the nation?  We must spread the word of what is happening to our nation.  We are already going to experience a lot of pain in the next few years, but let’s come out on the other side proud of what we accomplished in the face of disaster.  Make sure you’re not one of the people begging the government to help you once things get bad.  I can guarantee that the next set of bills to take away what’s left of our Liberty are already written, they are just waiting for the next emergency to be put to a vote.  If we’re prepared, then we can think rationally and stand up to these bills.  I guess Benjamin Franklin summed it up best, “Those who would give up essential liberty to purchase a little temporary safety deserve neither liberty nor safety.”