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Rich On Money

A Blog Just About Money and Investing

Rich '-' A Blog About Money and Investing

Welcome to my website

My Promise to YOU

If you don’t mind me being politically incorrect, I am going to give you the straight truth about what I have learned about MONEY over the course of my lifetime. You will also understand what is happening in the world of money today. This is my gift to those who choose to read about what I am thinking. I work with a group of people, all of whom report to me.

On the other hand, I report to no one. I have earned that right. I have paid for my mistakes with losses, and sometimes heeding the advice of empty suits. I don’t take too many losses anymore, and you won’t either, if you heed the wisdom that I will impart to you, and it won’t cost you a penny. Just come with an open mind, and leave the rest to me.

August 29th, 2011

Gold May Be Peaking NOW !!!!!

: Stack of Gold Coins

Anybody who knows my work knows that I am actively engaged in the world’s markets including equity, commodities, and currency. I have been following gold for several decades. In fact in 1980 my principal client was the largest gold player in the world. He probably controlled a billion dollars’ worth of gold back then and that’s a 1980’s billion, equivalent to at least $3 to $5 billion now.

Based on my experience I believe gold may have temporarily peaked in the last week at $1897, an all-time high, of course that’s not inflation adjusted, and that’s my problem. The brain surgeons on television keep saying that adjusted for the January 1980 peak of $850, gold would have to peak at $2,330 this time around. What the television commentators fail to take into consideration is you can’t go by a one day blow-off price and that’s what happened in January 1980. No decent economist would ever use a one day price to make future decisions with. It’s inappropriate.

You really have to take a quarterly average or a yearly average, for the period immediately preceding the January 1980 $850 high. If you were to chart an average for the entire year preceding the one day high, it comes to $612. To make $612 in inflation adjusted terms, the number you come up is $1,680. We blew through that number a couple of days ago, when gold peaked at $1,747. We blew out all our gold positions shortly after that price was reached.

In my opinion what happens now is simple. I believe that gold will trade down from these levels and consolidate at a lower level. The market will wash out the amateur money that is gone massively into gold. The crowd is always WRONG, and the crowd is betting that gold will go immediately to $2500. The crowd will be wrong this time as well. When cab drivers are buying gold, the game is over. However after gold settles down for the next several months or quarters, it will be time to get back in for what will probably be a 1000 point move from the consolidation level.

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January 18th, 2011

New Tax Law What’s in it for YOU

President Obama, Nancy Pelosi, and John Boehner

In the closing days of December, President Obama capitulated (maybe) and entered into an agreement with the Republicans to pass a new tax law after 2 years of bickering. It amounts to an $858 billion cut based on the expiration of the old Bush tax rates which are now being extended through 2012. This is what you need to know.

1) The top income rate remains at 35%. It would have gone to 39.6%.

2) Long term capital gains, and dividends are treated the same – a 15% tax.

3) Most workers will get a full 2 percentage point reduction in their Social Security payroll tax which means you will pay 4.2% on the first $106,800 of your paycheck. It was set to go to 6.2% prior to the deal.

4) In 2010 the estate tax was suspended which is why guys like George Steinbrenner passed on all their wealth tax-free to their heirs. The new law has a $5 million exemption. And then there is a 35% estate tax.

5) SPECIAL NOTE: You might not be aware of this but there is now a lifetime gift tax exemption of $5 million. If you are married, as a couple it is $10 million. You can now give your children up to $10 million in gifts without paying a tax on it. There is also a new $5 million exemption from the generation skipping tax.

These are just some of the provisions. There are others that affect municipal bond holdings, and IRA charitable gifts. Other adjustments have been made to the traditional IRA’s. Keep in mind that the budget deficit is approaching $1.7 trillion. That is more money than the budgets of 200 countries in the world put together. This means that coming down the road we will find higher taxes, higher interest rates, increased inflation, and a weaker dollar versus other currencies. Just some food for thought.

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January 15th, 2011

Is Uncle Sam Still Worthy of a Triple A Credit Rating?

: Ben Bernanke & Treasury Secretary Timothy Geithner – It’s not up to them, it’s up to us.

Many people believe that any potential downgrading of the United States credit rating would be years away. I am not so sure. At the moment US Government paper is accorded the highest credit rating possible. We are Triple A and it has been like that since the inception of credit ratings many decades ago. The problem is that Moody’s said that the probability is increasing that it will revise the US credit rating over the next two years or so if no action is taken by America to deal with our creditworthiness.

Such a revision would cause us to go from stable to negative in the view of the credit agency. Moody’s has been rating government debt since 1917 when our initial rating was Aaa, and it’s been that way ever since. Our government and our people must deal with this problem. It is understandable that we must run deficits right now to ward off the continued effects of a severe recession. There are questions as to our desires to deal with our problems. We have simply not taken the steps to deal with our sovereign credit rating. Moody’s also spoke about Britain, German, and France in the report they issued as being countries under pressure. The difference seems to be that these other countries are taking steps to deal with their spending. We in America have to get on board and tell the politicians to rein it in.

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October 30th, 2010

Stock Market is Celebrating Republican Victory early

: Focus should be Jobs, Jobs and more Jobs

The stock market has been in a real bull rally the last few weeks. In my opinion it is anticipating a Republican controlled House of Representatives, and a near change in control in the Senate. This is as it should be all things considered. The people will not be voting the Republicans in so much as they will be voting the Democrats out. President Obama took his eye off the ball when he put the energy of his Administration behind a healthcare reform package since day one for almost two years.

The energy should have gone into JOBS, JOBS, and more JOBS. It is amazing to me how people do not learn from the past, and therefore according to Harvard 19^th century philosopher George Santayana are doomed to repeat it. The model in this case was 1932 when FDR swept into office on the heels of the Great Depression. Two years later in 1934, FDR consolidated his gains by increasing the Democratic base in the Congress. This year, Obama is about to see his base get blown out of office.

The President must be given credit for staving off another Depression which is where we were going when he took office. Between Bush and Obama, we were saved from it, but then very little was done to correct the situation. We have major real problems that need addressing, and small potato issues like gays in the military and abortion rights are not the real issues. What follows are the real issues very simply:

The dollar is at $1.40 to the Euro. The American dollar is not going to serve as the Reserve currency of the world much longer if this continues.
Our education system from kindergarten through high school is ranked as somewhere between number 12^th and 16^th in the world. This is a clear failure of will on our part. Unions that are unwilling to allow change, teachers not held to accountability, political correctness, and a sheer lack of technology applied to a failed 19^th century education model has led to this.
In 1990, the US spent $300 billion per year on defense. Since 2001, we have spent $600 plus billion per year on defense. The Soviet Union is gone, no more 30 minutes, thousands of warheads on either side launch capability, and our defense budget has doubled. Five star General and President of the United States Eisenhower said that we must spend every dollar we must on defense, but not one dollar more than is necessary. We should heed his advice.
The defense budget of $600 billion does not include the cost of either Iraq or Afghanistan which is a supplemental appropriation, another $100 to $150 billion per year.
China and India are on a trajectory to dominate the world economically and take the mantle of power from the United States. Do we want this to happen, or are we just going to let it happen?
We must emphasize jobs, jobs, and more jobs. Everybody in this country should have a college education or the equivalent of some kind of training after high school. It should be a right as a citizen to have such training. Recognize this: Since 1990, there has been no net new job creation among the Fortune 500 companies. All new jobs have come from the entrepreneurial startups in this country, not Detroit, not New York, not the rustbelt of the Midwest, or the old garment manufacturing companies of New England. It’s happening in Silicon Valley and the Sunbelt, and Texas and New Mexico, and Nevada.

Here’s the problem in a nutshell. The Democrats believe in free this and free that, all kinds of inefficient programs that simply have no end to them. On the other hand the Republicans don’t give a dam about the poor and the middle class for that matter. Some of these Republicans look like they need a blood transfusion while most Democratic politicians have never held a real job or done anything in the private sector. We have to wake up soon, the future is upon us and it’s not particularly pretty.

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September 15th, 2010

Your Hospital Bills and You

: You want to wind up like this?

You got to get this right folks. I have clients who go to the hospital and never look at their medical bills to determine if perhaps there are inaccuracies. We are dealing with clerks here. They are not perfect, nor are they even super clerks, so be careful. The old people especially believe that everything is taken care of by Medicare, and so they don’t even bother to look. The first thing you need to understand is what is this going to cost?

When you are in the hospital, the staff thinks they have you by the short hairs and so they take advantage. We know of one patient that was billed over $500 for a couple of doses of a prescription drug she takes that costs about $150 per month for 30 doses. We told the patient to complain to the hospital which she did.

The pinheads in bookkeeping told her she could request an audit if the bill was over $1,000, which in this case it was not. Now if you request an audit, the hospital will try to jack up the bill even higher. Why you ask? It’s to discourage audits of course, but in this case they lowered the bill by $300, because when you have them, you have them.

I have a friend who is an expert on medical insurance. I can’t imagine why he would devote his life to it. He has a law degree from UC Berkeley and his whole world is the world of medical insurance. One day he explained it to me. He said Rich, listen up, medicine is not priced for you, a guy that can walk in and pay cash for something. Medicine is priced for the medical insurance industry, so what this means is they rip off anybody who doesn’t have the power of a medical plan negotiating for him. He was totally accurate.

A big problem right now is hospitals putting you under observation status. This means you are not formally admitted to the hospital, but you are in the hospital. It is supposed to go on for a maximum of 1 to 2 days. We have seen it last for 2 weeks here in Connecticut. So what’s the problem? The problem is that Medicare slaps you with a co-pay of 20%. There is also no coverage at all if you are placed into a post-hospital rehab center, or under nursing care, unless you were first formally admitted to the hospital.

You are talking about potentially seeing a bill for tens of thousands of dollars that you were unaware of coming down the pike. This is why the hospitals show you the bill when it’s all over. If you are there for 2 or 3 weeks, send one of your relatives down to the billing office, with a signed note after a couple of days, and ask to see the bill. Get copies of the bill every couple of days. If it’s out of control, change things right there. Don’t wait until you have to sign foreclosure documents on your home to figure out what is going on.

Do you think that hospitals can’t accidentally move a decimal point over in the wrong direction on a bill? It happens routinely, and it never ends up benefiting you. It always favors the hospital. What about scheduled and then cancelled procedures that wind up on the bill – happens every day. Also keep in mind that the codes they used on those bills are there to annoy you. They are meant to be incomprehensible. That is why you must contact billing, and go through the bill line by line if necessary.

How to Negotiate

You want to be as sweet as apple pie first of all. These people on the other end of the phone are the most abused people in the world. Well actually the second most abused people. The most abused are NYC parking enforcement agents. You talk about being abused. They get beat up on a regular basis. The absentee rate is huge because of the beatings.

Now when you talk to the clerk on the phone, you be as sweet as Pepsi. If you have a bill, trust me, for cash they will knock it down immediately. They want the cash. Discounts on the phone of 20 to 40% are routine if you can pay right there, especially in the first month of the bill.

Don’t be intimidated by the hospital. The other day I took one of the boys I mentor here in Connecticut to the Metropolitan Museum of Art in NYC. I have a membership so I can get him in for nothing but I wanted to teach this 4.0 perfect average high school senior how the world operates. The sign says $10 for students, $20 for adults. I gave Joe $2 and said Joe, you go right up there and tell them you are giving them $2 and show they your high school ID.

They took the $2, and gave him an admittance button. I said Joe, look at how professionally done that $10 sign is? Big letters, it is a major statement. The price is written in stone. My point was and is, nothing is written in stone. You can negotiate anything, especially HOSPITAL BILLS.

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September 13th, 2010

General Motors versus Ford Which way to go?

: Whitacre-one of four GM Chairman in 20 months

I have held Ford for clients for a while now, and it has done very well. The stock trades near $12, and we are in at about $2 per share. It’s up 600 percent for us, and that’s not too shabby. So now I have to make a decision as to whether or not to get out. It peaked at $13, and change. As you know General Motors is ramping up to do an IPO. GM declared bankruptcy after the US government under Obama, put about $50 billion of American taxpayer funds into GM

There is a big GM presence in Canada and our neighbors up north did not want to lose the GM employee workforce in that country with their own recession going on. This means the Canadians put about $10 billion of their own money into GM to keep it going. In return the Canadians got a 12% ownership in GM while the American taxpayers got 62% of the stock.

It is believed that when GM goes public, both the US and the Canadians will sell portions of their respective positions. GM’s capitalization would have to be about $70 billion for the American Taxpayer to get all his money back. When I checked the peak capitalization I found for GM over the last 10 years was about $53 billion. This means GM would have to sell for more than at any time in the last 10 years for Americans to be made whole.

But Wait – there’s more!!!

I mentioned I am thinking of selling Ford up 600% in my case. Well Ford has a $43 billion capitalization and just made $4.7 billion for the for first half of 2010. By contrast GM made $2.2 billion. How can GM be worth more than Ford

on that basis? Some will argue that GM has $8.2 billion in debt on the books while Ford has $27 billion. Ford never went bankrupt, remember? Ford kept its debt, and added more. GM got to wipe the slate clean. I still don’t get it, and getting it is what I do for a living.

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September 13th, 2010

American Strategy in Afghanistan needs Re Tooling

: Taliban fighters get paid $300 per month

Who’s jerking who off to be polite about it? I am talking about Afghanistan because it is draining $100 billion plus per year out of the American taxpayer and the economy with a less than desirable result. Apparently, the United States is failing miserably in its efforts to recruit more soldiers into the Afghan army. A few stats are in order.

It costs the American citizen one million per one American solider to send him to Afghanistan or Iraq for one year. One thousand Americans cost one billion per year, and one hundred thousand Americans which is what we have in that country costs one hundred billion per year. An American private gets $17,000 per year in salary so where is the rest going. It beats me.

Now the Taliban pay their soldiers $300 per month. We could pay an Afghan army $1,000 per month, an unheard of sum in that country, and pull in 100,000 soldiers. The cost would be $100 million dollars per month or $1.2 billion per year, compared to $100 billion for Americans doing the job. In other words it costs over 80 times to have an American do the job as opposed to an Afghan recruit. So I have one question for both you and me. Why are we doing this, this way?

Am I stupid, are you? What’s going on? Who’s making the dough? We have to start treating the dollar with respect if we are to leave a strong, vibrant, healthy country to our children. This is clearly no the way to do things. It was announced today that the Kabul government is having problems recruiting soldiers out of the Pashtuns in the South. One idea was to give each soldier a two month bonus of $300 to sign up. The US would pay for it of course.

The Afghan Defense Minister Addul Rahm Wardak has so far rejected the bonus idea. So now we have an Afghan saying no, I don’t want to use American money to bonus our Afghan troops. What’s going on, am I asleep at the switch We have to deal with these issues if the American economy is to get on track, and only then will the stock market which is my principal occupation have a multi-thousand point run.

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September 13th, 2010

Taxes up or down are Coloring all Investments

: The Recession takes its toll on Larry Summers

Politicians are fickled creatures – they simply can’t make up their minds on the Bush tax cuts, and their indecision is wearing thin on investors. The stock market detests uncertainty. It can deal with just about anything, as it did with the 9/11 crisis nine years ago, which happened just a few blocks from Wall Street.

Today capital gains and dividends are taxed at a 15% tax rate. So is it going to go to 20% which is President Obama’s preference, or is it going to be taxed at normal rates 39.6% which is the preference of many Democratic members of Congress, who obviously have never worked a day in their lives in a normal occupation. One study by a major bank although they usually are as stupid as they come came up with the conclusion that a move to the old taxation rates would trim 9% off the S&P 500 index. Three economists at the Federal Reserve Board said it would have no effect at all. Now you have to remember that an economist is a man that knows a 1000 ways to make love, but has never been with a woman.

So let’s say they raise the rates all the way back to 39 plus percent. For 2013, it would raise about $40 billion, and the deficit is $1.4 trillion. The Democrats in Washington better come up with a better act than this. No one ever seems to ATTACK spending. No one ever seems to question the efficiency of a single program that is in place.

Timothy Geithner the Treasury Secretary supports the tax increases which goes along with his position as Obama’s financial right hand. Two leading economists working for Obama have now bailed out of the Administration. The Chief of Staff Ron Emanuel has made it clear he wants out also, and it is rumored that Larry Summers, former Secretary of the Treasury and now Obama economics advisor wants out but no one wants to hire him.

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September 13th, 2010

Saudi Arabia Buys $60 billion in Arms

: Nixon figured a way to get the Arab dollars back

Today the Obama Administration will be notifying the Congress that Saudi Arabia would like to by $60 billion in advanced military airplanes from United States manufacturers. The next step will be upgrades to their naval and ballistic missile defenses. So if you are an American investor, you might say to me, why is RichOnMoney.com, telling me about this.

It’s because it is a fabulous example of how the world works, and you need to know how the world works. Forty years ago when OPEC was formed, there was a great fear on the part of the United States that we would now transfer hundreds of billions of dollars of American currency and the Arabs would own our existence. President Nixon was about as bright a President as we have seen in the 20^th century developed a novel idea.

We need to get that money back one way or another. He found two ways and did two things. The first thing he did was close the Gold window . Prior to Nixon, you could freely turn in your dollars and obtain Gold for them at $33 per ounce, a policy instituted and reaffirmed by FDR in his Administration. Nixon shut it down. He knew that the Arabs would start converting into Gold, and leave Fort Know empty. Nixon both took us off the Gold standard and refused the dollar Gold transfer policy. Now he had the Arabs up against the wall. He next forced the Arabs to denominate all oil sales in DOLLARS. This was absolutely brilliant. This meant if you were France or Germany or anyone else, and you wanted to buy oil on the world markets, you had to do it in dollars.

Nixon still had to get all that money back from the Arab states. The next steps were again brilliant. He sent every major engineering firm in America to the Middle East to sell the Arabs on building tremendous modern cities in the middle of the desert. Hundreds of billions of dollars would be spent with those engineering firms and others over the next several decades, plus you had the annual upkeep and maintenance, costing tens of billions.

Finally there was the security issue. Let’s sell them armaments, but before we do, we have to inform Israel and give them a veto power over anything we sold the Arabs. We wouldn’t want Arab states using American weapons to wage war against the Israelis. It worked, and the $60 billion dollar Arms announcement today is just the latest incantation of the Nixon policy of 40 years ago. Sometimes Presidents do get it right but there’s just one more thing. Since oil is denominated in dollars, the Arabs had to take the dollars that were left and put it into US Treasury bills and bonds to help us finance the deficit. Another brilliant move, and that’s what Obama is doing right now. He should thank the former President.

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September 6th, 2010

Iraq Why we were there First the region’s history???

: The Shah Of Iran – Our Guy

: Ayatollah Khomeini Replaced The Shah And Wasn’t Our Guy

Why would www.RichOnMoney.com write about Iraq and why we were there? It’s because we spent a trillion dollars on Iraq and that has direct influence on government policy and spending habits, and therefore every investment you will make from this day forward.

Most of what you will read in newspapers, and watch on television is non-sense. It is pabulum for the masses that has been further watered down to the lowest common denominator to make it acceptable to the larger audience. You need to know the truth as an investor so that you can make intelligent decisions. Deal with and embrace falsehoods, and you have a real good shot at losing most of your money.

Let’s get right to the truth, and forget about the phony reasons furnished by high political office holders.

1) The Mideast has oil, lots of it, and we don’t. In the 1960’s, it’s tough to believe that the United States was a net oil exporter, not importer. The situation has reversed today. We are importing most of oil from bad neighborhoods meaning countries we would rather not deal with because of political instability. There is not one democracy in the Mideast among the Arab nations. No democracy means no rule of, or by the people, and therein lays the instability.

2) When England walked out of the Mideast in the 1960’s and told America you take over, we no longer have the money to keep the military going, there was a power vacuum that formed. The United States filled it.

3) President Nixon may have been paranoid, but he was also brilliant. In the showdown against monolithic communism, he sought to have others act as proxies for American power. He did so by forming strong, interdependent alliances with both Saudi Arabia under the House of Saud, and Iran under the Shah of Iran. Saudi Arabia was the money, and Iran was the muscle.

4) Again brilliant in his thinking, Nixon knew that the Arab countries would swallow hundreds of billions of dollars right out of the pockets of Americans and into their own. His thinking was extraordinary, so this is what he did. He denominated oil be paid for in dollars, and at the same time took America off the gold standard. This meant that you could only buy and sell oil in dollars. What were you going to do with the dollars if you were the Arabs?

5) There was no choice; you buy Treasury bills, and notes. America even created a separate process whereby the Arabs could buy Treasury investments more easily. Nixon then sold MASSIVE armaments to the Arabs to such the billions of dollars we gave them for oil right back from them. The Shah of Iran bought so many armaments it’s a wonder Iran didn’t sink right into the desert from the weight.

6) So Saudi Arabia and Iran became our proxies for Mideast power. The Saudi’s with the money and the Shah with the army. We dominated the Mideast for years. The Soviets were unable during this period to make any real inroads into our power base.

Iran upset this arrangement when Islamic fundamentalists led by the Ayatollah Khomeini overthrew the Shah and his government in 1979. We lost the Shah , who was our guy. It was and remains a devastating blow. We tried to get Saddam Hussein to fill the power vacuum left by the Shah’s disposal, but he never really played ball with our side. Even during the Iran Iraq war in the 1980’s we supplied Saddam with armaments and satellite imagery to help Iraq’s troops on the battlefield. The best Saddam could muster was a draw, and the war ended in the late 1980’s.

Next time we will talk about the first Iraq war, and then bring it up to the present.

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