The “Top 5 Things An Investor Should Know” - #3

It’s been a while since I focused on “The top 5”…but given the past two weeks of declines in the markets, I think it’s time to trot out number three (#3). If you haven’t read #1 and #2 or just want a refresher, you can read them here (#1) and here (#2). I also touched on the following topic briefly in a previous post here.

So here we go…The Top 5 Things An Investor Should Know - #3

#3 - Risk is Underestimated

Do you really know how much risk you can handle?

If you’ve ever gone into an investment broker’s office or opened a broker account of any sort, you’ve probably filled out a “risk tolerance” questionnaire. This is a tool to help the investment broker figure out how much risk you are willing to take on as part of your investment strategy (and to cover his tail should an investment he put you in not pan out…“your questionnaire said you can accept high risk!”). As an example, a question might ask:

You just invested $20,000 and the market falls the following week. During the fall, you lost 50% of your investment. What would you do?

A) Take your money out
B) Reallocate your money to other investments
C) Do nothing and hope it recovers
D) Keep contributing to the investment regularly.

Depending on how you answer gives the broker an idea of your tolerance for risk and risky investments.

Now, this is all nice and good, but the reality of losing 50% of your new investment (for example) is a lot more stressful than when you’re sitting in a nice peaceful office filling out something on a clipboard. If you were to fill out the survey during a market decline, I’d guarantee your answers would be different than if you filled it out during a period when the market is averaging a 15% return. All the surveys go out the door when reality hits. That’s a big problem. Your risk tolerance really can’t be identified by a survey.

Statistical Flaws

The second problem we face is that the underlying statistical approach to risk (and to which the approach of our financial system is based on) is flawed.

I’ll try and make this as simple as possible…

From your high school mathematics days (or maybe college statistics class) do you recognize the chart below? It’s the “Bell shaped curve” or “normal distribution” diagram. From it, we can infer that given enough observations and time, such observations will form the following line (plain English: over a certain time period, take all observations, graph them, and you should get this curve).

As this graph shows, the number of standard deviations (σ) you get away from the center (mean), the less chance of an “outside event” happening.

For example, take the average height of men in the U.S. (see my lame bell curve illustration below). Most men fall within being 5’8” to 6’0” tall. That’s within standard deviation of 1 on either side of the mean. Thus 68.26% of men fall within that height range.

Going out another standard deviation of +/-2, you have men that fall within 5’6” and 6’2”. Thus, 95.44% of men are accounted for.

By the time you get to a standard deviation of +/- 3, you can account for 99.74% of explainable observations and thus have a 0.26% chance of an even further “outside event” occurring.

So someone that is 7’0” tall has a very small percentage chance of occurring.

Stick with me, this is going somewhere…now let’s apply it to finance and investing.

Let’s look at the historical daily percentage change of the Dow Jones Industrial Average ("The Dow" – a stock index comprised of some of the 30 largest U.S. companies) for the last 90+ years.

My note: The following information (and height summaries above) has been summarized and represented from an excellent book called The (mis)Behavior of Markets by Benoit Mandelbrot (a great read for any of you mathematics nerds out there with a lot of time on your hands - ha!).

Based on the theory of a normal distribution curve (like the graph), we should expect that a swing of more than 3.4% (positive + or negative -) in the market should occur approximately 58 times. In fact, such a swing in the Dow occurred more than 1,000 times since 1915!

A swing of 4.5% or greater should occur 6 times. We’ve had over 370!

Swings of more than 7% should come once every 300,000 years (a probability of about one in 50 billion). 48 happened in the twentieth century alone!

For fun, the 29.2% drop that occurred on “Black Friday” October 19, 1987 was something like a 22 standard deviation event and had a probability of less than one in 10⁵⁰ – odds so small that it is without meaning. It’s a number outside the very scale of nature.

Either we are having a century of really bad luck, or our statistical models used for understanding risk are flawed.

Components of Risk

Finally, there are multiple components to investment risk (see chart below for some examples).

Let’s spotlight a big one that is relevant from this past week: “Political” risk.

As you are most likely aware, Standard & Poor’s (S&P) credit ratings agency downgraded the U.S. debt on Friday, August 5th and all Hades broke loose in the markets this past week. Here’s a snippet from Bloomberg's "U.S. Loses AAA Credit Rating as S&P Slams Debt, Politics —"

Standard & Poors downgraded the U.S.’s AAA credit rating for the first time, slamming the nation’s political process and criticizing lawmakers for failing to cut spending enough to reduce record budget deficits.

S&P lowered the U.S. one level to AA+ while keeping the outlook at “negative” as it becomes less confident Congress will end Bush-era tax cuts or tackle entitlements. The rating may be cut to AA within two years if spending reductions are lower than agreed to, interest rates rise or “new fiscal pressures” result in higher general government debt, the New York-based firm said yesterday...

“More broadly, the downgrade reflects our view that the effectiveness, stability, and predictability of American policymaking and political institutions have weakened at a time of ongoing fiscal and economic challenges to a degree more than we envisioned when we assigned a negative outlook to the rating,” S&P said.

S&P put the U.S. government on notice on April 18 that it risked losing the AAA rating it had since 1941 unless lawmakers agreed on a plan by 2013 to reduce budget deficits and the national debt. It indicated last month that anything less than $4 trillion in cuts would jeopardize the rating.

Did you see that? “…the effectiveness, stability, and predictability of American policymaking and political institutions have weakened…” This is political risk - uncertainty of what our government officials might do.

Don’t let the word “credit” trick you here…to be clear, S&P is downgrading our credit based on uncertainty of our political resolve to handle our debt (political risk) not our ability to pay our debts (credit risk). The Treasury department repeatedly noted in the days leading up to the debt ceiling deadline that bond holders would be paid first so that the U.S. would not default on its debt obligations. Thus, credit risk was taken off the table. What wasn’t taken off the table was political risk.

Side bar: In my opinion, the downgrade was a good slap in the face wake-up call for our federal government. The elephant in the room finally was called out. Our federal government is fiscally driving the country towards the drop-off of a very large cliff…and someone finally shouted “look out!” It’s unfortunate that there is now much finger pointing between political parties as to who’s to blame for the downgrade instead of banding together to fix the problem. The political jockeying for position is a stench in my nostrils. But I digress…

We now have tangible examples of what political risk can do here…the charts below (click to enlarge) are of the largest one day percentage drops in the S&P 500 index and Dow Jones Industrial Average. Thought you’d be interested to see where some of the one day drops this last week measured up…

FYI – the 8/8/11 date noted is the first day of trading after the S&P downgrade.

Here’s the bottom line: “Unlikely events in the financial markets are far more likely than most investors believe.”

-Nassim “Nicholas” Taleb, author The Black Swan (Not the movie, but the financial book).

So, I’m sure your next question is something like the following:

“So, how do I eliminate risk?”

That, my friends will have to come in another post…

Double Bonus Day...

The clock is ticking on the debt ceiling deadline…thought I’d post two related items: "Regarding Defaults and Debt Ceilings" - and - "Why You Should Care about the Budget and the National Debt". 

It's double bonus day!  Enjoy.

Regarding Defaults and Debt Ceilings…

It would be an understatement to say that much of the media is focused on the debt ceiling and the showdown on Capitol Hill to get a deal worked out so both sides will go for raising the debt ceiling. “To cut (entitlements), or not to cut”, “to raise (taxes), or not to raise”…that is the question…

Everyone is concerned (including the chairman of The Fed and the Secretary of the Treasury) that not raising the debt ceiling would most certainly cause the U.S. Treasury to default on paying its debt obligations and spark another world-wide collapse in the markets. While a market collapse isn’t outside the realm of possibilities, it is the long-term implication (default or not) that I’d like to look at for a moment…

To aid this post, I’m putting up excerpts from an article from Yahoo! Finance from March 8th. The information is just as relevant today as it was four months ago. My comments will follow.

Any emphasis in the article is my own.

"No Way Out" of Debt Trap, Gross Says

Debt, debt and more mounting debt is plaguing countries around the globe.

In the U.S., states across the country face a collective $125 billion shortfall for fiscal 2012, while Congress is facing a budget gap nearly 10 times that size.

PIMCO founder Bill Gross -- one of the world's largest mutual funds managers, who focuses mostly on bonds -- has previously said that if the United States were a corporation, no one in their right mind would lend us money. For the last decade, we’ve been “relying on the kindness of strangers” to help cover our debts…

By “strangers” he is referring to our foreign counterparts, like China for example. Basically, for years Americans have spent their hard-earned dollars on less-expensive Chinese made goods. With great gratitude, China turned around and used all those dollars to buy up U.S. Treasuries and other dollar-denominated assets.

But now after years of reckless spending, America’s debt level is nearing a breaking point and can no longer rely on foreign capital as a last resort. “When a country reaches a certain debt level, confidence in that country’s ability to repay that debt becomes jeopardized,” says Gross, citing the work of Ken Rogoff and Carmen Reinhart in This Time Is Different.

The budget crisis situation unfolding - at the state and federal government level - does not bode well for working men and women in this country. There are really only two choices, says Gross. And, neither favors your pocketbook:

Option #1 – Keep spending and do nothing
Option #2 – Balance our budgets by cutting entitlements

House Republicans ran and won on a platform to cut billions from the budget. But for President Obama and Congressional Democrats, those cuts go way too far at a time when the country is still struggling to recover from the worst recession since the Great Depression. Goldman Sachs and Bill Gross agree and have warned that cutting too much could stifle growth.

Meanwhile, neither side has gotten serious about reforming entitlement programs like Social Security and Medicare, which account for more than a third of Uncle Sam's budget.

If the country cannot come to grips and cut back on entitlement programs, U.S. debt will continue to grow and governments around the world will lose faith in the U.S. dollar. Foreign goods would become more expensive, says Gross, while our standard of living would drop.

Under the second option, if entitlement programs are cut, many Americans would naturally have to learn to live on less and take a hit to their standard of living.

“There is really no way out of this trap and this conundrum at this point,” says Gross. From an investment perspective his advice is to stay clear of “bonds in dollar denominated terms” and to be “wary of higher interest rates going forward.”

There are two things we can glean from the above:

1. The guy who runs one of the world’s largest mutual fund companies (managing over $1 Trillion in assets), who managed the world’s largest mutual fund (PIMCO Total Return Fund), and who has made a living (the majority of which) has been in creating and managing BOND FUNDS is saying “stay clear of bonds in dollar terms” (A.K.A., U.S. Treasuries) and has done so with PIMCO!!!!
   
   This is serious stuff and has huge investment implications…why?
   
   For starters, if you don’t know anything about bonds, read this post from a few months back to understand how the valuation of bonds is directly linked to the movement of interest rates. In short, as interest rates go up – which they will (as we are sitting at historically low interest rates courtesy of the Federal Reserve’s decisions) – the value (price) of those investments will decline. So anyone holding those bonds (like PIMCO which held a ton of U.S. Treasuries), would see a loss on their investment.
   
   Additionally, normal investment advice goes something like this: “the older you get (and need more fixed income) the less risky your investments should be – so as you get older, begin changing your asset allocation where you hold more bonds than stocks.” Many blended financial products hold U.S. Treasuries (not all, but many). Target date funds are one example of this common investment advice put into practice and a financial product where the investment company automatically changes the fund investment mix for you the older you get (see chart below for illustration of the changing mix over time - click to enlarge). This is important to realize as such an investment will most likely take a hit in an environment of rising interest rates.

2. Lastly, and more importantly, Bill Gross is contemplating the fact that the U.S. may default on its promise to pay holders of our debt. While this may seem far-fetched to some, he pointed out in the above article (and which I tried to highlight with overly gratuitous large font) that it is the confidence level of those buying our debt that is important. Whether or not we actually default is beside the point. If investors decide it’s not a good investment anymore then that changes the demand for our debt and we may no longer be able to find buyers of our debt to finance our government’s spending habit – this is a long-term problem. This is what Mr. Gross sees if things don’t change. The confidence level is the main driver, not an actual default. Even if we skirt default this time around, our financial house is a mess as a country.
   
   Standard and Poor's (rating agency) warned just the other day there is a 50% chance it will lower the U.S. government's AAA credit rating by one or more levels within three months - even if Congress raises the debt limit in time to avert a default (don’t look now, but the U.S. has already been downgraded by smaller and lesser know rating agencies: Weiss Ratings – from C to C-; Egan-Jones – AAA to AA+; and Dagong (Beijing) – AA to A+). Not good news. Our friendly “strangers” that are financing our debt (30% of our debt mind you – see chart below - click to enlarge) may not find our debt so attractive anymore if we are no longer seen as a sound investment with a AAA rating. If they disappear as investors of our debt, how will we be able to pay our credit card bill as a nation?

So pay NO attention to the hoopla in the media (it’s all political theatrics on display anyway). Extending a debt ceiling or not is secondary to the real issue – the long-term confidence level of those “strangers” financing our spending. To default is a short-term problem. To lose investors of our debt is a long-term and much bigger problem.



 

Why You Should Care About the Budget and the National Debt…

All the national debt talk can seem so nebulous. After all, talking about trillions of dollars is difficult to conceptualize.

If you see the ticker at the top of the page, it breaks down our debt situation. Over $14.3 trillion in debt. That equates to over $46,000 per citizen. How about this…Our spending rate is roughly $58,000 per second. Truly astounding.

So why should you care? If unchecked, those figures have the potential to swell and affect us in very BIG ways.

Here are the BIG ways – I’ll unpack each below:

1. Interest rates will rise
2. Slower growing economy
3. Higher taxes
4. Higher inflation

Interest rates

Historically low interest rates for the past few years have helped the federal government out in big ways – they are able to finance their excessive spending by selling U.S. Treasuries at very low rates, thus having to pay out less money in payments. Foreign investors fund more than 30% of our debt. While those entities will probably continue to buy our debt if they have confidence in our ability to make good on payments, they are not likely to want to keep buying it with such low rates of return. So three possibilities exist – based on a demand for higher rates, we either 1) will have to pay higher rates (FYI – that means that even just a 1% rise in interest rates equals approximately $150 billion in extra debt payments – ouch!), 2) lower the value of the dollar (debase the currency), or 3) do a combination of both.

Additionally, interest rates on U.S. Treasury bonds are a benchmark for consumer loans (mortgages, car loans, credit card rates, and student loans). When interest rates go up for Treasuries, so do rates for consumers products…I guarantee many people inside the U.S. will feel that.

Slower growing economy

This is pretty straight forward - if interest rates go up, then a larger portion of the government’s budget has to go towards interest payments. This means less money is available for economically “stimulating” activities and government spending – building roads, buying weapons, providing tax incentives, providing benefits, etc. Less money in the spending/consuming machine results in a slowing or retracting economy.

Higher taxes

As I’ve said before in a previous post, our government has a spending problem because we love entitlements and a full service government. Unfortunately, we aren’t willing to pay for it. It is ideal if you can cut spending first before raising taxes, but desperate times call for desperate measures. At some point, the government is going to do something to gain more revenue. Exhibit A: In the near term, the Bush era tax cuts expire in 2012. That’ll be a big deal and based on how Congress treats the issue (extending the cuts or letting them expire) we’ll see where they stand: cut spending or raise taxes.

Higher inflation

Here’s where it gets a little more complex, so I’ll try and make it simple.

Our government borrows money (sells U.S. Treasury bonds) on relatively short terms (2-year, 5-year, 10-year, etc.). And, just like many corporations, it borrows new money every few years (issues new debt) to pay off the old debt – a kind of “never ending re-financing” loop, if you will (yes, it sounds strange, but such are the tactics of a government that pays out more than it takes in – you have to keep the Ponzi scheme going somehow).

However, if investor confidence wanes regarding U.S. bonds and investors head for the door (selling existing U.S. bonds or simply not buying them), we have a problem: the short-term debt can no longer be rolled over (because no one wants to buy it). What happens then? The Fed will have to print more money to buy the maturing debt – thus bringing inflation to our doorstep.

Inflation hurts everyone, simply put. Higher prices on goods and services, higher rates on any financial instrument you may use to borrow with (mortgages, car loans, student loans, etc.), etc.

The “wealth effect” created in the stock market by inflation (where people “feel” wealthier because their stock investments are going up) is only short lived as real pocketbooks feels the pinch of higher prices on everything in the real world.

Those who are really hurt are those on fixed incomes (the elderly and disabled) as their dollars don’t stretch as far buying the same goods and services whose prices are now going up.

Bottom line:

So, (while painfully obvious now) having a growing national debt hurts everyone. You should care.

“Now you know. And knowing is half the battle.”

(Quote courtesy of G.I. Joe.  For a little G.I. Joe cartoon nostalgia and a message about telling the truth, click here).

Budget Debate Primer...

One of my past-times is following the national debt (I know, NERD!). In recent weeks, thanks to a Congressional budget standoff which almost shut down the government, we saw Paul Ryan (R – Wisconsin) take the first step and a huge swing at the budget deficit ($6 Trillion reduction proposal), and then received a retort from President Obama with his own budget cutting attempt ($4 Trillion reduction proposal). What we have on our hands is a good ole’ fashioned budget fight in full swing in the nation’s capital.

This is pretty much all you’re going to hear from now until the elections next year (if you don’t, you better find a new candidate to back as this is a serious issue facing our country)…so I thought I’d prime the pump and visually give you some illustrations to help lay the groundwork so you’ll be ready to understand what all will be referenced and challenges ahead.

To begin with, here’s what the government spends our money on (see below illustration) - four things:

1. Mandatory (Social Security, Medicaid, and Medicare are in this)
2. Defense (Military spending)
3. Non-defense (Education, Health, Benefits/Transfer payments)
4. Interest (Interest payments to all the holders of our debt per the continual issuance of government bonds).

Next, here’s the breakdown of what’s in each category and where the money further goes within each category.

Now, let’s slice the budget another way. Here’s a look at how the biggest individual components from the different categories take up the budget.

And yet again, another way of looking at the largest budget contributors…

Finally, follow this link for a clever look at the national debt broken down. While the information discussed is actually from 2009, the concept of "scale" is what's important and what the video cleverly points out (thanks Pop for sending to me!).  Contrary to a previous post about education and the startling statistics about students not learning anything, this student in the link seems to have actually applied himself and learned something…

A couple of notes I find interesting:

Social Security: Long gone are the days when the Social Security trust fund – where payroll taxes not needed for current payouts are held – actually had ANY funds. That’s right, currently the trust fund consists of $2.6 trillion in IOUS from the U.S. Treasury. The funds needed to pay current benefits have been borrowed over the past two decades to pay for other federal programs (remember Al Gore’s “Lockbox” in 2000? This is what he was talking about – no more raiding the SS trust fund to pay for other programs). Current taxes paid in by today’s workers aren’t held for their future use in the trust fund, but are used for today’s retirees.

Net Interest on Debt: It’s calculated that we will spend about $250 billion in interest to the owners of U.S. Treasuries (both U.S. owners and those abroad). This is a BIG DEAL. Let’s stop and think for a moment. As of right now, we have historically low interest rates. This has allowed the Treasury to keep a lid on how much we pay out to the holders of our debt. But – what happens when interest rates rise almost certainly in the near future? The cost of those payments increase as the interest rate rises! That $250 billion will increase dramatically. Ouch. Much more of the budget will end up going to interest payments in the future instead of to the other categories. Not a good thing…

Now for my two cents:

The following are the underlying problems that the U.S. government will buck up against during the coming budget fights (these are probably obvious, but worth keeping at the forefront of our minds as politicians will do their best to divert your attention):

1. Regardless of your political affiliation, we all need to agree that something needs to be done to reduce the deficit (obviously the “how” is what’s up for debate – stay tuned: soon to follow is a post about “the national debt and why you should care…”).
2. The problem is that doing what needs to be done is not politically popular and the party that flinches and really does what should be done is effectively putting a gun in their mouth and pulling the trigger. Why? See #3…
3. Cutting entitlements, military spending, and raising taxes will not score a political party any points in elections (side question: is this the democracy we want to live in where our representatives are more concerned about re-elections than solving problems?). The American people like having a “full service” government, feeling safe, and receiving entitlements. We might as well make this into a universal law…people want a “free lunch”. Gone are the days of “ask not what your country can do for you; ask what you can do for your country…” We now only ask “what our country can do for us…” and demand not to pay for it.
4. Thus we (the U.S. government) have a spending problem because of wars and the demand for entitlements.
5. To further the problem, cutting spending is much more difficult – not just because of drawn out wars and the demand for entitlements – but because of the dependency that has been created by adding them over the past century (e.g., nobody wants to reduce the social security benefits that the retired population receives and that so many are planning on having as part of a fixed income) – thus many expenses have to be slowly reduced instead of an all at once cut (something that will be fought every step of the way and has the possibility of being overturned).
6. We (the U.S. government) also have a taxing problem. Obviously no one likes to pay more taxes. But over time, tax rates have been cut back and back and back.
7. We will have to come to grips with the fact that, to aid in reducing the deficit, we may have to cut spending AND increase taxes. There…yes, I said it. That’s painful. Man, it’s even painful to type. But getting out of our mess WILL require sacrifice.

Historically, what you’ll see (and what is currently playing out in D.C.) are Democrats fighting tooth and nail to not cut entitlements but willing to raise taxes (especially on “the rich”). On the other side of the aisle you have Republicans not wanting to raise taxes but are willing to cut entitlements. Thus we are left with an impasse because neither group will do what’s necessary (albeit it unpleasant) – a combination of both. I like to call this the “beef or chicken” conundrum and was able to find a picture that expresses my sentiments nicely (below). Label each animal whatever party or view you want, they are interchangeable. The point is, neither option (cutting entitlements and raising taxes) is pretty. But for the good of the country, we need to choose BOTH.

I’d also like to take a minute and highlight two theories related to entitlements and economic growth as we’re on this subject.

One school of thought, which much of our government programs are built on (whether we realize it or not) is the economic theory of a “zero sum game.” Simply put, “a zero-sum game is a mathematical representation of a situation in which a participant's gain or loss is exactly balanced by the losses or gains of the other participant(s). If the total gains of the participants are added up, and the total losses are subtracted, they will sum to zero.” Read more about game theory here if interested.

To illustrate: I have a pie with 8 slices. You take 1. I now have 7 slices and you have 1. The total amount of pie is still 8 slices…but the balance of who has what changed. This is a zero sum game.

The second school of thought revolves around growth economics. Read here if you want more. Simply put, if you “grow the pie” everyone gets a little more. So if we have a pie that is 10 inches in diameter, what we really want is to get a pie that is 12 inches or 14 inches or 16 inches in diameter – so everyone can have more pie.

If we dig a little deeper, we’ll notice that our government seems to operate in both of these theories.

Applied to government programs, we treat entitlements as a zero sum game. The employed population has taxes taken out of their earnings. Some of those taxes go to Medicaid, Medicare, Social Security, unemployment benefits, etc. Others are now a recipient of our earnings. The employed population’s loss is another’s gain.

Government spending and the national debt; however, are based in growth economics. The government assumes that our economy will always be growing (after all, this is America, right!?!?). If we have more economic output, businesses make more in profit, people get raises, and more wealth is in the system – tax receipts go up and consumers pump more money into the economic system (or so the story goes…stay tuned for a post on wealth inequality in America). You’ll also hear that “tax cuts will help spur growth.” So why not spend in excess…there’s no time like the present, right? “Sure spend more now and go in the hole because our economic growth will make up for it and one day we’ll use the surplus tax receipts to cover the debt.”

I hope you realize it, but “one day” is not coming. The problem, as you may have already observed (other than the fact that economic growth does not equal wealth and prosperity for everyone) is that our government increases spending as the economy grows. Government spending does NOT stay flat. As the economy grows, we increase entitlements, create more programs, add more agencies; A.K.A. “increase the size of government.” And yes, just to be clear, cutting taxes can help spur economic growth. But the increase in government spending negate the growth (most of the time the government outspends the growth…imagine that).

Keep these two concepts of a zero sum game and growth economics in mind over the next year and a half as we lead up to elections.

Much of the discussion related to budget cutting will revolve around the concept of a zero sum game. There will be emotional ploys about cutting entitlements and certain groups of people receiving less. Of course, the reality of cuts will be painful to many – there is no escaping it. This is a red herring; however, and a way to divert your attention from the real problem.

The real problem stems from the government’s inability to curtail growth in spending during the good times. Just like the good consumers that we are, in good times we go out and spend. In the bad times, we pinch every penny. The government is no different as they spend more in the good times (except that they have a credit card with no limit to use in both the good and the bad times). We are in this spot because they couldn’t stop spending. The problem with using growth economics as a basis for spending is the issue of fiscal discipline; i.e., disciplined controlled spending. And our government CAN’T DO IT. Think I’m joking? How many of you want to bet that the government won’t vote to raise the debt ceiling yet again? Not likely. It’s easy to say economic growth with make up for spending sins, but if spending increases in tandem with that growth, you don’t realize a gain. And we have need for some BIG gains to overwhelm a BIG debt.

Thus we are left with the following (albeit it simple) list of necessary solutions (in an ideal world):

• Stop the spending hemorrhaging and roll back big government (yes, it’s going to hurt).
• Increase taxes (yes, I said it again and it pains me to write it just as much as before) to balance the budget and be able to pay for spending and live within our means.
• Have a growing economy and bank the growing tax revenues instead of spending it – to reduce the debt.

Notice I mentioned “in an ideal world”. Now, if you can find a politician in the next year who will say all of the above, he/she should be your candidate! Cheers!

Take the Red Pill (Easter Edition)...

Yes, strange title for a post…

In light of the holiday just past and of all the things I write about, none is going to ever be as important as what follows in this post. Amongst all the blogging done, I would be doing a disservice to you if I did not share the following and highlight something of dire importance that can shape the rest of your life and outlook. For a moment, we’re going to take a step back from financial matters and try to understand a primary truth – one that is a base for which we stand in life. If we miss out and misunderstand this truth, we will never ultimately find fulfillment in our lives.

Now, for those of you movie buffs, you’ve undoubtedly seen The Matrix and recognize the title reference for the “red pill”. If you’ve seen the movie, you’ll recall the following scene when Neo first meets Morpheus. For those of you that haven’t seen it, you can watch the clip here.  To set up the clip, know that the setting you see is actually taking place in “the Matrix” – a computer generated world to which our hero, Neo, is actually unknowingly connected. Morpheus, the wise sage and leader, is actually “free” and lives in reality – he is only temporarily connected to the Matrix in order to visit Neo and to try and bring him out (I know, I know…confusing. You’ll have to see the movie if you haven’t…really good flick).

Morpheus: I imagine that right now you're feeling a bit like Alice. Tumbling down the rabbit hole?
Neo: You could say that.
Morpheus: I can see it in your eyes. You have the look of a man who accepts what he sees because he's expecting to wake up. Ironically, this is not far from the truth. Do you believe in fate, Neo?
Neo: No.
Morpheus: Why not?
Neo: 'Cause I don't like the idea that I'm not in control of my life.
Morpheus: I know exactly what you mean. Let me tell you why you're here. You're here because you know something. What you know, you can't explain. But you feel it. You felt it your entire life. That there's something wrong with the world. You don't know what it is, but it's there…Like a splinter in your mind -- driving you mad. It is this feeling that has brought you to me. Do you know what I'm talking about?
Neo: The Matrix?
Morpheus: Do you want to know what it is?
(Neo nods his head yes.)
Morpheus: The Matrix is everywhere, it is all around us. Even now, in this very room. You can see it when you look out your window, or when you turn on your television. You can feel it when you go to work, or when go to church or when you pay your taxes. It is the world that has been pulled over your eyes to blind you from the truth.
Neo: What truth?
Morpheus: That you are a slave, Neo. Like everyone else, you were born into bondage, born inside a prison that you cannot smell, taste, or touch. A prison for your mind. (long pause, sighs) Unfortunately, no one can be told what the Matrix is. You have to see it for yourself. This is your last chance. After this, there is no turning back.
(In his left hand, Morpheus shows a blue pill.)
Morpheus: You take the blue pill and the story ends. You wake in your bed and believe whatever you want to believe. (a red pill is shown in his other hand) You take the red pill and you stay in Wonderland and I show you how deep the rabbit-hole goes. (Long pause; Neo begins to reach for the red pill) Remember -- all I am offering is the truth, nothing more.
(Neo takes the red pill and swallows it with a glass of water)

“It is this feeling that has brought you to me…do you know what I’m talking about?”

The “American Dream.”

Yes, the American Dream. This notion of attainable happiness – the world that has been pulled over your eyes to blind you from the truth. The truth that you are a slave. A slave to ambition and “trying to work your way up the ladder.” A slave to the consumer mindset. A slave to image comparison with neighbors, friends, relatives, and strangers – to keeping up with the Joneses. A slave to the fleeting notion that if “you just had a little more” stuff, money, a bigger house, another vacation, etc. that you’d be happy and that all of your problems would be solved.

It is this notion that is bothering me…it is the “splinter in my mind”.

Let me share with you my heart for a moment:

I don’t know if anyone has told this to you or not, so it’s worth saying: It doesn’t matter how much stuff you have or attain. It doesn’t matter how much money you make or don’t make. It doesn’t matter what vacations you go on, what car you drive, or what house you live in. None of it, repeat, none of it will give you lasting happiness.

Bending our lives over so we can attain the American dream results in giving up our soul for the worship of an idol. That idol is ourselves. The American dream is about us, dear reader, and our attainment of happiness.

The thing we don’t realize – the unfortunate irony – is that we as humans are a black hole and no amount of consumption of stuff will satisfy us. We also don’t realize and understand that money and wealth and “stuff” is a tool only, but we treat it as if it can produce life sustaining and life fulfilling happiness. We’ve all been duped.

The truth is that life isn’t devoid of an alternate reality. Like in The Matrix, we see the physical – but that’s not all there is. The spiritual exists also. In this painful twist of ironies, it is actually the spiritual which will ultimately provide us with life fulfilling happiness. No wonder we are a confused, unhappy, and lost civilization…we’ve lost touch with this unseen reality and have instead tried to rely only on ourselves.

Many of you may know of, or at least heard of, author C.S. Lewis. Most notably, you’d recognize him because he wrote the Chronicles of Narnia series, made popular most recently by the Disney movies. Among his other numerous writings, is a theological book called Mere Christianity (which I’d highly recommend if you haven’t read it) which is a collection of transcripts of broadcasts Lewis did in the 1940s laying out the case for the Christian point of view. The reason I bring it up is that Lewis was at one point an atheist who later came to faith in Christ. His observations and perspective are incredibly relevant to our “alternate reality” conundrum. Lewis puts it like this,

“If I find in myself a desire which no experience in this world can satisfy, the most probable explanation is that I was made for another world.”

Interesting, no? Sounds like he was a “consumer” who had a light bulb moment…

How about one of the wisest (and wealthiest) figures in human history to further hammer home the point? King Solomon. After ranting about building cities and palaces, attaining wisdom, being richer than all others, indulging in all pleasures, Solomon states:

“Yet when I surveyed all that my hands had done and what I had toiled to achieve, everything was meaningless, a chasing after the wind; nothing was gained under the sun.” - Ecclesiastes 2:11

Think these guys are on to something here?

Stuff isn’t going to satisfy. Attaining the “American Dream” isn’t going to satisfy. The real truth is summed up best by Lewis again in Mere Christianity:

“Until you have given up yourself to Him (Christ the Lord) you will not have a real self…”

Relaying the words of the Lord and speaking on His behalf, the Old Testament prophet Jeremiah says this:

“My people have committed two sins: They have forsaken me (God), the spring of living water, and have dug their own cisterns, broken cisterns that cannot hold water.” -Jeremiah 2:13

Isn’t it about time that we stop “digging our own cisterns”; trying to satisfy ourselves by our own devices through incessant consumption? Isn’t it about time that we got serious about finding our satisfaction, not in stuff, but in the eternal – in the Lord Jesus?

Here’s the challenge laid out:

“No one can serve two masters. Either he will hate the one and love the other, or he will be devoted to the one and despise the other. You cannot serve both God and Money.” ~ Jesus (Matthew 6:24)

“Money” in this sense can easily be identified with “ourselves”, as money is what we try to use to placate ourselves and fill our black hole of a soul. We cannot serve both God and ourselves.

So here it is…your matrix moment…

“This is your last chance.”

You take the blue pill, the story ends and you continue to believe whatever you want to believe and go back into a self-induced consumer coma.

Or, you take the red pill and pursue a new reality and see how deep the rabbit hole goes - losing your old self and finding a new identity shaped by Christ Jesus.

All I’m offering is the truth…the choice is yours.

"For everyone has messed up (sinned); we all fall short of God's glorious standard."  Romans 3:23

"But God demonstrates his own love for us in this: While we were still sinners, Christ died for us."  Romans 5:8

"...if you confess with your mouth, 'Jesus is Lord,' and believe in your heart that God raised him from the dead, you will be saved."  Romans 10:9

Jesus answered, "I am the way and the truth and the life. No one comes to the Father except through me.  John 14:6

"Yet to all who received him, to those who believed in his name, he gave the right to become children of God--children born not of natural descent, nor of human decision or a husband's will, but born of God."  John 1:12-13

"Whoever believes in me, as the Scripture has said, streams of living water will flow from within him."  John 7:39

If you'd like to dialogue more about this man, Jesus Christ, or want to know more about his life, death, and resurrection, or about putting your faith in him, please email me...I'd love to continue the conversation.  Click here: Send Me an Email

Ode To An MBA...

Many of you probably have noticed the lack of posts over the past few months. The wave of the last class and last semester of grad school finally overwhelmed life and swept over me…so naturally some things had to give. The good news is that I’m done! I also have a backlog of thoughts and things I want to share with you in addition comments on current events and developments (and oh my goodness, is there a lot going on!)…

To start with, in honor of the past year-and-a-half of the pursuit of higher education, I thought I’d take a post and lay out some stunning things you may or may not know about the quest for higher education.

To begin with, viewing the graph below, you’ll notice household debt broken down into categories. What’s interesting to see is that student loans (in red) are just about equal to other “minor” consumer spending debts (credit card, auto loan, etc.). Aside from owning a house, education debt is one of the next largest debts households face. What you don’t see in this chart are the previous charts before this one. Student loan debt has slowly been creeping up. This is kind of the “official chart” (haven’t found a more updated version than the below), but according to recent information I’ve read, student loan debt has already eclipsed credit card debt in January of this year (student debt: $851B, credit card debt: $828B). Regardless of its size in the household debt category, student loan debt is much worse than having credit card debt or a mortgage.


Before we go any further, we’ll pause and have some history regarding the pursuit of a college education…

Lyndon Johnson (LBJ) in 1965 signed the Higher Education Act (HEA) as part of his “Great Society” undertaking. Students could go to college with federal guaranteed loans and scholarships.

However, in 1978 an interesting trend was uncovered. Many doctors and lawyers began discharging their student loan debt by filing for bankruptcy immediately after graduation…thus legislation was enacted (Bankruptcy Reform Act) to disallow a discharge of such debt for 5 years after the first payment on a loan was made. In 1990, the period was extended to 7 years. In 1998, congress completely eliminated the ability to discharge student loan debt in bankruptcy.

Yes, you read that right – loans for education are the ONLY type of loan that has a federally backed “no-escape” clause. Keep in mind, this was on federal guaranteed loans and scholarships. It didn’t take long; however, until in 2005 the bankruptcy code extended the same “no escape” stipulations to private student loan lenders. ALL student loans are impossible to discharge now.

In addition, and more disgusting is that many protections were removed from student loans. Miss a payment and you could have your wages garnished without a court order, have your state professional license suspended, have social security or disability income garnished, even have any tax refunds owed withheld (no! not my refund!).

“Why on earth were protections removed?” you may ask?

Here’s my best attempt at a short answer – each bullet cascading and building on the next point:

• Sallie Mae is the largest originator of student loans – federal guaranteed loans, mind you.
  
• If you default on your loan originated by Sallie Mae, the government pays Sallie Mae the balance plus interest (they guaranteed the loan, remember).
  
• Thus, the government is now out on the deal. They WANT to get their money back and have made it so that they WILL. The collections agency can get it in whatever way they can, thanks to the changes in legislation and removal of protection.
  
• The collection agencies add 25% to the loan as a collection fee and get a 28% commission on the loan (out of your pocket, of course).
  
• Oh, by the way, Sallie Mae owns the collections agencies they send after you. How convenient.

To further the problem, the Obama administration enacted changes to the student loan program within the past few years (Education Reconciliation Act). And wonderful changes they were (insert tongue in cheek) – they cut lenders out of the loop, effectively allowing all loan profits (that used to go to the lenders) to go to the government. So, the government now makes more money than before by cutting out the middleman. Of course, there still isn’t any consumer protection for the graduate who defaults and that graduate is in debt to the government until they take every last penny to pay off the loan, plus fees, plus commissions, etc.

So really, “how bad is the student loan situation?” you may ask?

• 25% of government student loans default (on average)
  
• Those in school at community colleges have a 30% default rate
  
• Those in 2-year colleges have a 40% default rate

For perspective, consider that at the height of the subprime mortgage crisis in 2008/2009, default rates on mortgages were 25%. In contrast to student loans, these were mortgage loans that people could walk away from in bankruptcy. But, no one defaulting on a student loan gets such a luxury.

Let’s think about an even bigger implication here. Since defaulted school loans are a net gain to the government and its collection agencies, where is the incentive to keep the cost of tuition at a reasonable level? Answer: there is none! Higher prices for education = bigger loans. Bigger loans = more defaults. Bigger defaults = more profit. Think the government wants to step in a put a collar on the rising costs of education – thus slowing and capping a stream of revenue?

Another nugget of information: The cost of going to college in the U.S. has risen ten-fold during the last 30 years (compared to a six-fold increase for health-care and three-fold for inflation) – see below chart.

Here’s some more numbers:

• For 2010-2011, an in-state undergraduate degree at a four-year university (including room and board) averaged $16,140 (up 6.1% from last year).
  
• To go out-of-state, expect to see an average of $28,130 (up 5.6% - including r&b).
  
• To go to a private four-year school was $36,993 (including r&B – up 4.3%).
  
• 2/3 of college graduates (bachelor’s degree) graduate with school debt.
  
• The average college student graduating has $23,000 of debt.

Wow.

Oh, but wait... A report based on the book Academically Adrift: Limited Learning on College Campuses found that after two years, 45% of students learned little to nothing. After four years? 36% learned almost nothing.

Double wow!

“How can that be?” you ask? “How can over 1/3 of students learn next to nothing?” How about a multiple choice test and you choose the answer:

1. Professors spend too much time on research in order to be published, gain recognition, and get grants for the university and their departments – neglecting students and/or delegating teaching to graduate assistants.
   
2. The use of lectures, reading PowerPoints as a means of lecture, and giving multiple choice tests promote passive learning and promote one of the lowest levels of learning – see cognitive domain
   
3. Students are spending more time experimenting with biochemistry – practicing turning alcohol into urine.
   
4. All of the above

So, we’re paying all this money and not getting any results or learning much. Yet, employers and the world at large seem to view getting a degree as a good thing – and those with degrees, who learned mostly nothing over four years, earn higher wages than those without them.

How can things get more backwards?

Stuff like this makes me stop and wonder about my own children and the future of their higher education. With education rising ten-fold, will my kids be able to attend college with that kind of price tag? With the money we are trying to save for them, will it be enough to allow them to attend a college of their choice and not have to take out student loans? Even if they go, will they learn anything?

Even deeper though, I find myself stopping and asking: “at what point did attending college become the norm? It seems as though high schoolers about to graduate believe they are entitled to a college education. Isn’t getting an education a privilege and not an entitlement?” Perhaps students would learn more if they actually valued the opportunity instead of took it for granted. Perhaps my own children need to “have skin in the game” and should consider the following should they want to attend college:

• Postpone going to college, work, and save up money to pay for it.
  
• Bust their tail academically and earn scholarships.
  
• Work part-time or full-time while attending school.
  
• Go to a two-year school or community college to cover core classes and transfer in to a four-year school to specialize in a degree.
  
• Utilize online education.
  
• Don’t go to college and instead, specialize in a trade.

I know, I know. I may just be overdramatic on this. But I want my kids to value an education and actually learn something if a boat load of money is going to be spent on said education. In today’s world, that seems to actually not be the norm. If that’s the new “normal”, I definitely want my kids to be counter-cultural.

On the Road to Recovery…A Free Ride for GM…

I couldn’t decide on a single title for this post…so I chose both that I was considering! You’ll see why shortly.

If you missed the news a month or so ago, the “new GM” (General Motors) has climbed out of bankruptcy and their stock “went public” – that is, their stock was re-listed on the New York Stock Exchange (NYSE) and is available for purchase, sale, trading, investing, etc. Their stock was up 3.6% on the first day of trading and closed at $34.19.

The offering's total value was around $23.2 billion, including $18.2 billion from the sale of common stock and $5 billion from selling preferred stock.

So who’s a big beneficiary of the offering other than GM? The federal government, actually, – bail-out’er of bail-out’ers – which took in about $13.6 billion from the offering after it sold shares, reducing its ownership in the company.

"But wait, didn’t GM already pay the government back?” you may ask. “How did they have ownership of GM stock in the first place?”

Good questions and I’m glad you asked. Yes, GM made a very public announcement about paying back the government years ahead of schedule in early spring of this year.

Watch the GM video here.

But there’s more to it than meets the eye (as always).

Let’s look a little deeper…

If you recall, the government bailed out GM to the tune of about $50 billion. The government didn’t actually cut a check and hand over $50B, however. The government actually gave GM a loan of $6.7 Billion (at 7 percent interest) and then purchased GM stock with the rest – giving the government approximately a 61% ownership of GM.

GM did pay back the government this year – but just the loan of $6.7 billion, not the full $50 billion – a little nugget they conveniently failed to mention to the public.

There’s something a little more disturbing just under the surface here, however.

If you stop and question, you may ask yourself, “how can a company that went into bankruptcy afford a $6.7B payback with interest? Isn’t that one of the reasons you go into bankruptcy – because you can’t pay your bills or service your debt? And isn’t the company still broke and not turning a profit?”

Again, good questions.

It appears as though GM is taking money out of one pocket and putting it in another. Believe it or not, when GM went into bankruptcy, the government put $13.4 billion in an escrow account as “working capital” for GM. It is from this escrow account that GM paid back the $6.7 billion!

Yes, that’s right…they used government money to pay back government money!

To further top this situation off, GM applied to the Department of Energy (DOE) for a $10 billion loan (at 5 percent interest) to retool plants to meet new fuel economy standards.

Folks, maybe it’s me, but I’m not buying into the “GM is a responsible company and turning things around – and as evidence we’re paying back our loan early” line. This isn’t about paying back debt – it’s about refinancing! Think about it. Is it better to have a loan with a 5% interest rate or one with 7% when you’re taking out a loan on billions of dollars?

Oh, but it gets better…

In spite of the shenanigans, GMs future is looking bright as our government decided to disregard years of precedent in taxation and bankruptcy laws.

“Wait, what’s that?” you ask?

Yes, the government has done GM a favor and allowed the newly created GM to assume the benefit of tax losses from the old GM.

For simplicity sake, a company with a net loss doesn’t have to pay taxes. If you make a profit, you have to pay taxes on that profit. If you don’t, the government doesn’t have you pay taxes on negative profit. But to complicate the matter, companies can utilize a “loss carry forward” – meaning that if you have a net loss one year, you can carry forward some of that loss and apply it to another year in the future (I believe it currently stands that you have to apply it within the next 7 years). The benefit of the loss carry forward is that you can apply the loss to the year in which you have a profit and pay less taxes. BUT…when a company goes into bankruptcy they have to forfeit the old company’s tax losses – thus eliminating the opportunity for loss carry forward.

However, the government decided that they will let GM exercise a tax-loss carry forward on roughly $45 billion of net operating losses from the old GM.

Translation: the new GM won’t have to pay $45 billion in taxes on future profits thanks to the carry forward (that’s, of course, assuming that they’ll make any profits – ha!).

Now, I understand the reasoning for this favor – the government is ensuring that GM will be profitable in hopes that ultimately their stock will rise (after all, the government owns shares of GM).

But what does this also mean? That’s a windfall of $45 billion in tax receivables for the government. What a great way to boost our revenue as a government while we’re at the very junction of trying to crack down on spending and look for ways to boost revenues! Waive off $45 billion…go ahead! Makes good sense to me (can you detect my sarcasm?)!

Call me crazy, but it would appear that the government has handed GM another bailout. Maybe it’s just me…

For those of you keeping score, that would be: $50B bailout (includes $6.7B loan) + $13.4B escrow + $10B DOE loan + $45B carry forward = $118.4 Billion!

At least GM said “thanks” to us, the taxpayers, for funding their incompetency (and for also funding the “thank you” commercial).

Watch GM’s “thank you” here.

What a great commercial, no? I’m getting all misty eyed. (Your sarcasm detector should be off the charts right now).

After watching that as a taxpayer, I’m thinking I want my money back from GM.

That $13.6 billion the government just got back from selling some GM stock isn’t looking so good anymore….I think I’m gonna be sick.

But hey, the new Volt looks cool right?

Bonus video – Spoof of the “we paid back our loan video”

Bonus video 2– yet another dumb GM commercial. How many companies want to draw attention to their failures? Is this supposed to inspire me to run out and buy their vehicles? After watching this, I can't help but ask "what took you (GM) so long to 'get down to business'?"

Lying With Statistics (part 2)...

As a follow-up post to “Lying with Statistics”, here is a little more information that was requested by one of our readers.

I compiled the chart below from a couple of sources. You’ll notice the “official unemployment” rate goes all the way back to the 1940s, yet the U-5 and U-6 numbers begin in 1994. Here’s some background as to why I’m showing it this way:

For starters, you need to know that the Bureau of Labor Statistics (BLS) uses statistical information compiled from the Current Population Survey (CPS). The CPS is a survey conducted by the United States Census Bureau for the BLS.

The CPS began in 1940, and responsibility for conducting the CPS was given to the Census Bureau in 1942. In 1994 the CPS was redesigned as a result of research that started in 1986 and a complete overhaul occurred relating to how the CPS was administered and what type of questions were asked.

Prior to 1994, the alternate measures of unemployment had different names because the BLS drastically revised the questions in the CPS and renamed the measures. U-3 and U-4 were eliminated and the U-5 (the “official” unemployment rate reported up to 1994) remained the same measure but was renamed U-3. U-6 and U-7 were revised and renamed U-5 and U-6.

Confused yet?

Let’s show it this way:

CPS alternate measures of unemployment before 1994:

• U-1 Persons unemployed 15 weeks or longer, as a percent of the civilian labor force
• U-2 Job losers, as a percent of the civilian labor force
• U-3 Unemployed persons aged 25 and older, as a percent of the civilian labor force aged 25 and older (the unemployment rate for persons 25 and older) *To be eliminated after 1994*
• U-4 Unemployed persons seeking full-time jobs, as a percent of the full-time labor force (the unemployment rate for full-time workers) *To be eliminated after 1994*
• U-5 Total unemployed persons, as a percent of the civilian labor force (“official” unemployment rate)
• U-6 Total persons seeking full-time jobs, plus one-half of persons seeking part-time jobs, plus one-half of persons employed part time for economic reasons, as a percent of the civilian labor force less one-half of the part-time labor force *To be renamed U-5 after 1994*
• U-7 Total persons seeking full-time jobs, plus one-half of persons seeking part-time jobs, plus one-half of persons employed part time for economic reasons, plus discouraged workers, as a percent of the civilian labor force plus discouraged workers less one-half of the part-time labor force *To be renamed U-6 after 1994*

CPS alternate measures of unemployment after 1994:

• U-1 Persons unemployed 15 weeks or longer, as a percent of the civilian labor force
• U-2 Job losers and persons who completed temporary jobs, as a percent of the civilian labor force
• U-3 Total unemployed, as a percent of the civilian labor force (“official” unemployment rate – formerly U-5)
• U-4 Total unemployed plus discouraged workers, as a percent of the civilian labor force plus discouraged workers
• U-5 Total unemployed, plus discouraged workers, plus all other marginally attached workers, as a percent of the civilian labor force plus all marginally attached workers (formerly U-6)
• U-6 Total unemployed, plus all marginally attached workers, plus total employed part time for economic reasons, as a percent of the civilian labor force plus all marginally attached workers (formerly U-7)

With such changes occurring in 1994, I think it’s best to simply start the data there to reflect the new way of reporting for U-5 and U-6. Anything I could find for U-6 or U-7 data before 1994 was scarce at best as well as conflicting. So as to not make a possible error in reporting U-5 and U-6 before 1994, I’ll show it this way. What did carry forward was the “official” unemployment rate (regardless of it being U-5 before 1994 or U-3 after) – I’m showing that all the way back to 1948.

I’ve also included a chart showing 1994 to present.

And now, to the charts!

Note: the blue shaded areas represent recessions.

Click on the image to open a larger view in a new window.

I would like to take a moment and share some of my reflections with you, dear reader. Here at Candid Financial Conversations, I admit, I write a lot of sarcastic and jabbing posts. I probably step on toes. As I’ve said before, my attempt in this blog (aside from general education for the common investor) is to make you feel a bit unsettled. If you don’t get uncomfortable about the current situation, how can you expect to have any movement whatsoever? The worst enemies to democracy, change, and helping shape the future are apathy and comfort.

All that being said, know that I don’t take the reality of unemployment lightly. We have and are continuing to undergo a truly historic economic and financial downturn (in spite of what you may hear from those on TV – our beloved “sensationalist talking heads”). This downturn affects individuals, families, and communities. It’s because of this very reality of unemployment and job loss due to these kinds of circumstances that I feel a duty to pull back the curtain and expose the wizard. What I cannot stand is for those in power to mislead through the use of spurious and fallacious statistical trickery for the benefit of political gain and/or repression of the masses. It is truly unacceptable.

Some of you may have been or are currently affected by the current economic situation and have lost a job. My heart goes out to you and you have my prayers…

Respectfully,
~Aaron