Monday, May 30, 2011

Risk Assessment

The purpose of good management and good investing is to find the most realistic/likely scenario out of all the rosy and frightening scenarios. As the risk of loss goes up the rate of return must also go up. We expect more for the amount of risk we are willing to face. Natural and prudent in almost all situations. The problem these days is that it is really hard to accurately see what the future holds 12-18-36 months from now. Is it truly as rosy as the Administration says-? If so, why do they "fudge" the numbers-? I say "fudge" because it seems someone is selecting the data that will support their political needs.

From Yahoo News/Reuters comes the report that "Nervous Investors Demand Bigger Returns".

"The world looks a lot more dangerous than it did only a few months ago and signs are that U.S. stock investors are starting to demand more for the added risk.

With important manufacturing and jobs data due next week, it could start to get even riskier.

That means nervous investors are likely to keep a lid on equity prices this year as they grapple with slowing global growth and a host of geopolitical risks from the Arab Spring to debt defaults in the euro zone.

Are we facing a period of higher economic and military risks. Will our political leaders/masters actually do something responsible and adult-? will we get words and spin or action-?

I have little faith in those sheep who claim to be our leaders but act like masters. Deeds count for more than words. Washington and our politicians generate words by the metric ton. Yet, even they do not know for what they are voting. They know little and careless about the effects of their pounds of verbiage. If it has a good sounding title, then what devilment is inside is fine. Their only concern is that no angry responses come back to them, specifically. Words are easy to hide behind. What have they done-? The Democrats haven't offered any budget proposals for over two years. Why-? Do they lack ideas or fear the reality that comes from standing for something-?

A question I have not found anyone able to answer; " We have borrowed and spent over one trillion dollars in something called stimulus. Have we received as much national economic good as if we had chosen one million citizens at random and given them one million dollars, tax-free-?"

I doubt that most people can tell you that a trillion is one million, millions. That number is simply too large for most of us to comprehend. We are running a debt of almost one million, five hundred thousand millions at present. We are strapped. If we have a national disaster we will be hard pressed to respond.

The usual answers are to raise taxes. But most often our sheepish leaders sell us a tax increase as applying only to the rich. What they do not tell us is that there are not enough rich people to pay for the mess we're in.

Their forecasts imply that a tax increase will bring no change in behavior on the part of those feeling the brunt. we all now that if our taxes go up, much like the cost of food and transportation, we have less to support the lifestyle. It does not take a leap of genius to realize that those who earn less also pay less. The rich own things. Our tax structure is based on income. Their income can be adjusted to earn less with much less pain than the poor or middle classes. As a past company owner I know that if we needed new equipment that cost would come from my income. Same with new facilities, repairs, upgrades, and increased wages. The owner gets paid last. Raise my taxes and I spend more on my company. I doubt that I am the only one who would make that choice.

The middle class has no such option. They are stuck with what they earn. If the company can't pay more then change jobs. But with this current high level of unemployment there are easily a couple of hundred people who will step up for that "low" paying job... So in reality, any tax increase is going to hit the middle class hardest. Our leaders cannot understand that -or- they think we can't. Either way, we're being lied to.

If we raise taxes and they hit the middle class will they demand higher wages or buy fewer consumer goods or simply hunker down and wait for this cycle to end-? My guess is a bit of all. Raising wages would work if customers would pay a higher price. If they refuse to buy the company goes under. A bankrupt company gets no praise for raising wages and paying more in taxes...

How does a country go bankrupt-? When we have no more credit and have refused again and again to cut our expenses what happens-? When a country spends itself into insolvency-what happens-? We don't know. It hasn't happened to the U.S. before. smaller countries have been rescued and placed on strict fiscal austerity budget. Do we turn over our country to the IMF and World Bank-?

So, yes. These are perilous times. Things must change and change quickly. will our "leaders" actually lead-? They claim to be Leaders every two years. Yet, now, when we really need some leadership we seem to be lacking.

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