Keynesian deficit spending madness

I will begin writing about high dividend stocks again after a little vacation.  I’m going to concentrate on non-US high dividend stocks.  But until then check out this interesting, short article on GDP growth.

Government deficit spending was the only reason the US 3rd quarter GDP grow went up.  This is a recipe for disaster.

Of course, GDP is a made up Keynesian number that really makes no sense, but it is widely believed and followed by the public at large.  This article explains the inherent fallacies that make up the GDP number (C+I+G=Baloney )

Subscribe today for free at to discover high dividend stocks with earning power and strong balance sheets.

Be seeing you!

Published in: on October 29, 2012 at 11:58 am  Leave a Comment  

Keynesians make no sense. See why with some humor.

This guy does a humorous job of explaining the stupidity of Keynesian economics in a few minutes.

Be seeing you!

Published in: on September 10, 2012 at 4:28 pm  Leave a Comment  

The Importance of Saving Money

South Park clip inspired by MF Global and other legal thefts:

Don’t put your hard earned savings into the common brokerage accounts.  Consider putting some of your savings into bitcoins.  Learn more at .

Be seeing you!

Published in: on September 4, 2012 at 10:29 pm  Leave a Comment  

Why California and Other State Pensions are Just Like Social Security.

The California government employees pension fund (CalPERS) is caught in a war between the current government workers and the retired government workers.  It is the biggest pension fund in the USA and its problems are typical of all government pensions.  It has overpromised and it is underfunded.  This is not going to end well for California state retirees, current government employees, or California taxvictims.

CalPERS Defends Pension Benefits While Risking Losses

By James Nash – Aug 19, 2012 10:01 PM MT

The California Public Employees’ Retirement System, the largest U.S. pension, is defending government workers against criticism of their benefits even while it risks losses as municipalities, faced with rising retirement costs, file for bankruptcy.

Pension funds like to buy bonds because fund managers believe that bonds carry less risk than stocks.  Therefore, CalPERS is a large buyer of municipal bonds.  It bought Stockton and San Bernardino municipal bonds.  It probably bought Greek bonds also.  Why not?  The knuckleheads running this fund lost almost a billion dollars on Enron and WorldCom bankruptcies (  The $290.8 million at stake amount to one-tenth of one percent of the funds assets.

The $239.1 billion fund is the largest creditor in bankruptcy cases filed by two California cities, Stockton and San Bernardino, since the end of June, with a total of $290.8 million at stake.

Current government workers in Stockton and San Bernardio account for 0.7% of CalPERS total contributions.

Increasing retiree obligations are straining budgets of cities across the Golden State, still grappling with income- and sales-tax revenue reduced by the longest recession since the Great Depression. The two bankrupt cities represent 0.7 percent of employer contributions to CalPERS, according to actuarial statements. Still, others may follow if judges relieve them of pension commitments, said Karol Denniston, a bankruptcy lawyer at Schiff Hardin LLP based in San Francisco.

“The briefs that have been filed by the insurers are interesting in that they’re arguing that CalPERS should be treated like any other creditor,” she said by telephone. “CalPERS is going to argue that they’re a different kind of creditor, in that they hold the money in trust for the retirees.”

Stockton, a city of about 292,000, about 80 miles (130 kilometers) east of San Francisco, and San Bernardino, with 209,000 residents, about 60 miles east of Los Angeles, both cited rising employee retirement costs as factors that drove them to seek court protection. A third community in bankruptcy, Mammoth Lakes, hobbled by a legal judgment, owes CalPERS $4.2 million, according to its filing.

Stockton Precedent

“Where this is so important is that we know Stockton is going to be precedential,” Denniston said.

CalPERS is a Stockton bondholder (they are playing the role of the northern European bankers) and Stockton is in serious financial turmoil (they are playing the role of Greece).

Stockton is trying to become the first American city since the 1930s to use bankruptcy to force bondholders to take less than the principal they’re owed. The city will need approval from a federal judge in Sacramento to impose any cuts on creditors.

In an Aug. 2 statement responding to insurer Assured Guaranty’s objections to Stockton’s bankruptcy filing, CalPERS general counsel Peter Mixon argued that the interests of pensioners should trump those of other creditors.

Mr. Mixon’s comments are designed to elicit emotional support to CalPERS predicament by claiming that the public employees are not in a position to evaluate credit risk.  CalPERS fund managers are responsible for evaluating municipal government credit risk.  CalPERS fund managers had proven themselves to be as stupid as the northern European bankers that lent money to Greece.

“The obligations owed to the public workers of the city have priority over those of general unsecured creditors including bondholders,” Mixon wrote. “Unlike insurance companies, policemen, firefighters, and other public employees are not in a position to evaluate credit risk of their employers.”

Even as it defends its standing in the Stockton case, CalPERS is working to counter the notion that pension costs are a significant factor in current and potential municipal bankruptcies.

‘Not Fair’

“It’s not fair to scapegoat public employees and pensions for the financial woes of our cities,” Rob Feckner, the chairman of the CalPERS board, wrote in an Aug. 8 op-ed in the Sacramento Bee. Feckner is an executive vice president of the California Labor Federation, which represents 2.1 million unionized workers, about half of them in government.

So, what then are the real causes of current and potential municipal bankruptcies?  Not unsustainable pensions with rising costs.  Oh, no.  I couldn’t be that.

“The real culprit is the economy and housing market, along with financial decisions made by city officials,” he said. “Pension costs are a small piece of the budget.”

CalPERS’ position contradicts the realities facing many municipalities, said Chris McKenzie, executive director of the League of California Cities. Reducing pension costs is the top priority this year for the Sacramento-based organization, McKenzie said by e-mail.

Rising Costs

“Cities statewide have seen pension costs rise to the point that they are no longer viewed as sustainable,” McKenzie said. “Soaring pension costs are a serious concern.”

While pension costs are roughly 10 percent of most city budgets, municipalities need flexibility to deal with them when revenues slump, said Dan Pellissier, president of California Pension Reform.

CalPERS is a ponzi scheme just like Social Security.  It is obligated to pay the pension to the retirees, but they also know that city/county/state budgets will be destroyed by rising pension costs.  Current workers in the ponzi scheme must be courted and reassured that the ponzi scheme really isn’t a ponzi scheme.  The current workers are needed to pay for the retirees.  That’s why CalPERS representatives are talking out of both sides of their mouths.

“It’s ironic that CalPERS is defending a system that is placing an unsustainable burden on employers’ budgets,” Pellissier said in an interview in Anaheim, California, where he spoke at a CalPERS forum on pension legislation. “CalPERS has to find out a way to work with government agencies that have overpromised benefits based on contribution rates that have been artificially low.”

So we learn that the municipalities are the source of 14 percent of CalPERS income annually.  As CalPERS investment returns fall short of their assumptions of 7.5% rate of return they will demand higher contributions from current workers to “save the system”.  Eventually, the retirees will get screwed when the younger California voters outnumber them.  This will take a while, but it will happen.

More than 1,500 cities, counties and other units of government pay into the fund, according to a CalPERS fact sheet. Such employer contributions accounted for $7.5 billion, or less than 14 percent of CalPERS’ total income in 2010-11; most of the income came from investment earnings.

Investments Return

CalPERS, which posted a 1 percent return on investments for the year ended June 30, has about 72 percent of the assets needed to pay long-term obligations to retirees, spokesman Brad Pacheco said.

CalPERS claims to have 72 percent of the assets it needs to keep the ponzi scheme going (based on false assumptions to begin with).  But let’s assume Mr. Pacheco is correct.  Where is CalPERS going to get the other 28 percent of assets that it needs to keep things going?  Its going to get it from the current workers in the form of higher contributions.  The more municipalities that go bankrupt; the more CalPERS doesn’t have enough assets to cover the current pension obligations to retirees.  This is exactly the same problem as Social Security and Medicare, but on a state level.

Even if the three bankrupt cities withheld their entire payments due to CalPERS, it would not “move the needle” on the pension’s funded status, Pacheco said in an e-mail message.

Robert Udall Glazier, a CalPERS deputy director, said leaders of the fund view cities’ financial distress “with great concern.”

“These cities,” he said, “are our partners in providing services and a better quality of life for Californians.”

Let me translate: We need the money from the current city employees to make up for our poor investment performance and growing pension payouts.  If the stock market doesn’t do what it did from 1982-2000, then we’re screwed.  If the Federal Reserve prints trillions of dollars and the banks lend it out, then there will be massive inflation which will destroy the asset value of all these bonds we’ve bought from the Greeks – Ahem! I mean cities.

The Stockton bankruptcy case is In re Stockton, 12-32118, U.S. Bankruptcy Court, Eastern District of California (Sacramento).

To contact the reporter on this story: James Nash in Los Angeles at

To contact the editor responsible for this story: Stephen Merelman at

The good news is that the State of California, the counties, and the cities will not be able to afford all the stupid government spending and regulations that they have put into place.  There will be more freedom once they go bankrupt through visible default on their welfare obligations.  That is good for individual liberty.

Subscribe today for free at to discover high dividend stocks with earning power and strong balance sheets.

Be seeing you!

Published in: on August 23, 2012 at 1:03 pm  Leave a Comment  

TIP OF THE WEEK – Avoid Bank Safe Deposit Boxes For Valuables

Avoid Bank Safe Deposit Boxes

Jason Brizic

August 17th, 2012

This story should concern you if you value your privacy and have a safe deposit box.

Your possessions such as precious metals and family heirlooms are not safe in a bank safe deposit box.

Bank officers can get into your safe deposit box for flimsy reasons.  They will also open your box if a government agent has some paperwork to open it.

Here is just one reason why you should avoid bank safe deposit boxes:

For more tips, go here:

Published in: on August 17, 2012 at 1:31 pm  Leave a Comment  

Stay away from European Equities and Why.

MarketWatch commentator Charles Sizemore wrote an article that says that the German government’s actions are key to the future of the Euro and the Eurozone.  He’s right about that because Germany is the most solvent of the EU nations, but he has way too much faith that the German government will come to the rescue of the PIIGS (Portugal, Italy, Ireland, Greece, and Spain) governments.  My comments are in red.

Aug. 14, 2012, 12:01 a.m. EDT

Here’s what keeps me awake at night

By Charles Sizemore

September 12, 2012. This is the date that may ultimately decide the fate of the euro zone.

It has nothing to do with Greece, Spain, Italy or any of the other problem children of Europe. No, it is Europe’s stern school mistress Germany that holds the fate of the currency zone in the balance.

On Sept. 12, the eight justices of Germany’s constitutional court will meet to decide the legality of the euro zone’s rescue fund or, more accurately, the legality of Germany’s participation in the bailout fund under the German constitution. Should Germany back out due a court veto, it’s difficult to see the euro surviving the crisis of confidence that would follow.

The German government can’t afford to bail the PIIGS out forever.  The PIIGS have social welfare programs that are still growing.  There is no “real” austerity going on.  The PIIGS simply cut back on the rate of growth and call that “austerity”.  They will be back for more handouts.  The German Constitutional Court knows this.


Americans are no strangers to debates over constitutionality. The 5-4 decision to uphold the Obama administration’s health care overhaul was one of the biggest headlines of 2012. But the German debates are a very different animal.

There are two competing clauses in the German constitution. One declares Germany to be "a democratic and federal state" with power determined "through elections and other votes."

This would seem to preclude Germany from granting control of its budget to an EU watchdog or obligating the German state to bail out euro zone neighbors; the judges have already questioned whether such transfers of sovereignty are permissible.

But then, the German constitution also calls for Germany to strive for a "united Europe," which would be presumed to include some degree of fiscal union. In effect, the fate of Europe depends on which clause of the German constitution the justices decide take precedence.

When clients ask me "what keeps you up at night," this is it. I fear that lack of German commitment could cause the entire European project to unravel.

This obviously doesn’t keep him up at night because he says later in this article that he is long European equities.  He’s so worried at night that he has an overweight allocation to European equities.

If the German court finds the bailouts unconstitutional, then Germany would have to amend or even rewrite its constitution in order to participate — which would require a referendum. And how likely does that sound?

The German voters will not support an amendment to their constitution that signs them up for a permanent bailout of the PIIGS.  Only the German politicians are eager to tax the German people for the money.

Even if a charismatic leader were to convince German voters that constitutional change is the right thing to do, these things take time, and time is a luxury that Europe doesn’t have at the moment.

Now that I have sufficiently scared you, I should point out that I do not see the German constitutional court torpedoing the bailouts. They know what is at stake, and they don’t want to be responsible for the death of the European project.

The German Constitutional Court knows what is at stake.  They know that the PIIGS will be back for more, and more, and more.  They know the Euro is in serious danger and  will likely die anyways, so why drag Germany down with it.  The court members have not staked their careers and legacy on the idea of the United States of Europe.

I am comfortable being invested in European equities, and Sizemore Capital has an overweight allocation to European equities in its Tactical ETF and Sizemore Investment Letter portfolios.

Charles Sizemore is a Keynesian investor and is going to lose a lot of money for himself and his clients if he believes that the Euro can be saved by Germany and the ECB printing press.  The Euro would have been saved already after 23 summit meetings if it could be.  There is no way to stop the PIIGS from defaulting if they don’t implement drastic government spending cuts.  Look at the voter backlash in Greece.  The voting population doesn’t want austerity.  The Greece voters want the free handouts from the northern European countries like Germany and Finland.  It can’t go on forever.

Still, investors have to consider the "what ifs" when they put capital at risk, and it makes sense to keep a little cash on the sidelines — just in case. It wouldn’t be the first time that ideology trumped pragmatism in a high-profile court case.

A growing number of Greek citizens are putting their money in German banks so that it is out of the country if Greece exits the Euro.  Some are converting it to Bitcoins to escape a possible devaluation in the event that Greece leaves the Eurozone before Germany or Finland.

If we get a selloff in the days leading up to the court’s decision, I would view it as a buying opportunity. But if the German court strikes down the bailout facility or attaches so many conditions as to make it unworkable, I recommend that investors consider selling all European equities and all but your highest-conviction core American positions as well. Because at that point, the probability of a full-blown meltdown on par with that of 2008 becomes uncomfortably high.

Let’s assume that the German court approves of the bailout facility and attached so few conditions to make it completely workable.  This will only slightly delay the day of reckoning for the Euro.  Again, the PIIGS have not changed any social welfare policies that go them into the unsustainable mess.  There is no real austerity (drastic government spending cuts).  So, they will be back for more bailouts, but the next time it will be time for the Germans and other northern Europeans turn to pay up.  What happens to the European stocks at that point in time?  They go down.  Why do they go down?  Because saved capital will be diverted from equities to taxation or the buying of PIIGS and European government bonds.

Stay away from European equities and Mr. Sizemore’s investments.

Disclosure: I own no equities at this time.

This commentary does not constitute individualized investment advice. The opinions offered herein are not personalized recommendations to buy, sell or hold securities.

Disclosure: Mr. Sizemore is long European equities.

Subscribe today for free at to discover high dividend stocks with earning power and strong balance sheets.

Be seeing you!

Published in: on August 15, 2012 at 12:07 pm  Leave a Comment  

First Look at Penn West Petroleum (PWE).

What does the company do to earn profits?  Penn West Petroleum Ltd., based in Calgary, Alberta, is an independent Canadian energy company focused on the exploration and production of oil and natural gas resources in nearly 6.5 million acres across Saskatchewan, Alberta, and British Columbia. At the end of 2011, the company reported proven reserves before royalties of 499 million barrels of oil equivalent. Daily production averaged about 163,000 barrels of oil equivalent in 2011, at a ratio of 63% oil/37% gas.

Morningstar’s take: Penn West seeks to develop oil and gas reserves in the relatively mature environment of the Western Canadian sedimentary basin. Management’s strategy is two-pronged: Develop additional reserves in existing producing zones through horizontal drilling and enhanced recovery efforts, and perform exploratory drilling to add new reserves. Exploration efforts are concentrated in light and medium oil plays, as Penn West seeks to increase oil in the production mix and take advantage of more the desirable oil pricing environment.

Bonds outstanding: none

Times bond interest earned: not applicable

Preferred stock: none.

DIVIDEND RECORD  Penn West Petroleum (PWE) paid a monthly dividend through 2010.  In 2011, they switched to quarterly dividends.  But, they also cut the dividend in 2009, 2010, and 2011.  Here are the annual dividend payments over the last few years.

Dividend: $0.27 quarterly ($1.08 annual dividend)

Dividend yield: 7.6% ($1.08 annual dividend / $14.19 share price)

Dividend payout ratio: 85.7% using earning power of $1.26 per share

EARNING POWER – $1.26 @ 474.58 million shares

(Earnings adjusted for changes in capitalization)


Net income


Adjusted EPS



$176 M

242 M




$1,221 M

383 M




($144 M)

413 M




$1,110 M

452 M




$638 M

467 M



474.58 M

Six year average adjusted earnings per share is $1.26

Consider contrarian buying below $10.08 (8 times average adjusted EPS)

Penn West Petroleum is currently trading at 11.3 times average adjusted EPS.  This stock is priced for value.

Consider value buying below $15.12 (12 times average adjusted EPS)

Consider speculative selling above $25.20 (20 times average adjusted EPS)

BALANCE SHEET – The company’s lack of current assets and cash compared to current liabilities shows its financial weakness


Book value per share: $19.10 ($9.067 B equity / 474.58 M shares)

Price to book value ratio: 0.74 (under 1.0 is good)

Tangible book value: $14.78 (equity – $2.02 B in intangibles / 474.58 M shares)

Price to tangible book value ratio: 0.96 (under 1.0 is really good)

Current ratio: 0.50 (over 2.0 is good) ($675 M current assets / $1.333 B current liabilities)

Quick ratio:  no cash so N/A (over 1.0 is good) 0.36 according to  They probably used the receivables as a substitute of cash.

Debt to equity ratio: 0.38 (lower is better)

Percent of total assets:

            Real assets (property, plant, and equipment) – 79.27%

            Current assets – 4.3%

            Intangibles – 12.86%

            Other long term assets – 3.57%

CONCLUSION – Penn West Petroleum is currently a high dividend stock, but its dividend is not entirely safe.  The company reported disappointing 2nd quarter 2012 earnings.—update-20120810-00378

Oil and natural gas prices have been down and will go down further when the worldwide recession worsens.  It is a value stock by common measures trading at only 11.3 times average adjusted earnings, but I think you’ll be able to buy it below $10.00 per share when the recession hits in 2013-2014.  I don’t like the weak current ratio and quick ratio.  That makes the balance sheet weak in my opinion.  Put this one on your watch list for under $10.00.


DISCLOSURE – I don’t own Penn West Petroleum (PWE).

Subscribe today for free at to discover high dividend stocks with earning power and strong balance sheets.

Be seeing you!

Published in: on August 10, 2012 at 2:40 pm  Leave a Comment  

Watch Milton Friedman Put a Young Marxist Michael Moore in his place

Milton Friedman was not a libertarian, but he believed in the free market a hell a lot more than today’s so-called conservatives.  Friedman advocated income tax withholding.  Government spending grows out of control when taxes are withheld from individual’s paychecks.

Watch Friedman totally destroy a young Michael Moore’s illogic in this short video.

Subscribe today for free at to discover high dividend stocks with earning power and strong balance sheets.

Be seeing you!

Published in: on August 8, 2012 at 3:05 pm  Leave a Comment  

Dilbert Visits His Chase Branch Office

Dilbert deposits some money at a JP Morgan Chase branch office.


He should be pulling out $300 cash per week out of ATMs or the banks vault.

Subscribe today for free at to discover high dividend stocks with earning power and strong balance sheets.

Be seeing you!

Published in: on August 7, 2012 at 9:12 am  Leave a Comment  

Why the US Government Is Going Bankrupt

Subscribe today for free at to discover high dividend stocks with earning power and strong balance sheets.

Be seeing you!

Published in: on August 7, 2012 at 8:32 am  Leave a Comment