Entering the Deflationary Phase of Our Lives

It is the end of the year time to start gathering all the bits and pieces of data to start our annual tax preparation process.  Many of my friends look upon the tax preparation process as being capture by the secret police, being held in incommunicado and being questioned with techniques that Richard Cheney would approve.

I look at it as a time to compare the data to our annual plan.  Yes we actually do have a plan for our finances, technically I currently am pretty much the only one in the household who actually looks at and acts upon it.  I do present a quarter report to the family as to where we are according to the plan.  This is as exciting as dry toast, and for some just as palatable, their eyes actually do roll up into the back of their heads.  I do update the plan annually during tax time.

But in reviewing the plans of the past few years something has quietly slipped into the documents.  That something is that our expenditure on durable goods has all but disappeared, and that our expenditures for nondurable goods for at least 2/3 of our household have taken a significant downturn.  The only exception is for the last of our children who in a few years will be on his way in the world.  We have started down the slipper slope of becoming a deflationary household.  I full expect that within 8 years we will be a fully deflationary household.

Yes we still buy food, and we buy some clothing (when they wear out as opposed to out growing them), the number of gallons of gasoline that we purchase is down (I know what some of you might be thinking, this guy is anal retentive or suffers from some compulsive disorder if he tracks fuel usage on his vehicle) (fuel use is down not because of the price, but mainly because of the lack of need).  We currently live in a town that is walk able, and to tell the truth rather difficult to find places to park a car, so we walk.  Instead of buying new books at the bookstore we frequent the used bookstore.  Some of the books we keep, some we recycle back to store for others. For me there is something about reading a real book as to reading a book on the computer screen.  Call me old fashion, it is ok my son does it all of the time, but I can fix the car and he cannot.

Now for a little side trip about E-readers (If you are not interested skip to the next paragraph, otherwise just humor an old man).  What I really dislike about them is why does Amazon really need to know what books I read, how long it took me to read it, and what pages did I seem to spend the greatest amount of time on, and how many times did I look at that page.  Amazons ability to delete products off my system, for whatever reason is scary.  The device is a “Chatty Cathy” trying to gain access thru any and all networks.  I see my wife’s e-reader trying to gain access to our home network all the time (it was given to her, and not by me).   Her little device has found a neighbors network (Wide Open) to stick its vampire fangs into (it can now talk to the mother ship all the time) so it happy now and is not an issue to me anymore.

Back to the post, as I started looking at the 2013 plan I see more indications that our household will become even more deflationary.  We currently have no plans to replace automobiles, we currently have no plans to purchase any replacement electronic equipment (just had the caps replaced on my computer monitor, it’s a good monitor should last another 5 years), no purchases planned for kitchen equipment.  No plans to remodel our home.  As I look out into next year as far as our household is concern we currently do not have plans to purchase any durable goods we are in the mid life of all of our major household system, and we have found that in several cases it was cheaper to replace the compressor in the refrigerator rather than purchase a new one.  We do not eat out much, prepare most of our food, some prepared food items, but not many.  We do have a few vacation trips planned, but nothing earthshaking.

As I stated earlier we are well on our way to being deflationary; it appears that we will not be stimulating growth of the economy in any meaning full way.  The really bad news is at some point in the future it is only going to get worse as we start to draw our respective (my) social security, and (her) government retirement.  The only ray of sunshine is that I plan to wait on my social security, I do not need it at this time and it appears that the government does.

Oh Goodie

First the cliff, and now the ceiling! Sounds like something Stan Freberg would write. What is next?  Rivers turning to blood, raining frogs, Lice, Flies, Livestock dropping in the fields, Boils, Hail, Locust, Darkness, and last but not least that all time favorite death of the first-born male (you and your cow), unless you had applied lambs bloods to your door post. (Wait has that been done before?)

So what will get us first the falling off the cliff or get crushed by the ceiling?

Don’t you just love it when a plan comes together?

We have historical evidence that it took 12 Plagues to force Pharaoh to relent.

How many will it take to get the House of Representatives to relent?

In the mean time, how about a round of drinks in celebration of the 7 years of lean that we are about to embark on, as if the past 4 were not enough.

How I started the ball rolling

From time to time various individuals who I have met or word with will ask me a series of questions concerning how my wife and I got to where we are financially.  Many of these individuals confess that the task appears to be too daunting, complex and insurmountable, and as a consequence they give up before they try.

First my advice is free and unsolicited and as such it should be viewed with a critical eye.  What is in it for me is one of the first questions you should ask?  I do own the funds that are detailed in this post.  I have no other vested interest in the organization that sell and manage these funds other than I own them.  I receive no direct material gain if you choose to purchase these funds.  Instead of re telling the story, I can just point to this post.

I am describing the path that I took it is not the only path.  My path may or may not work for you, either way I hope the best for you and yours.

After making up our minds that we were going to save for our future, making up our mind was easy; the saving would be a bit more difficult.  How did I get started building our investments?

Many years ago when we started our investment program many of the tasks appeared to be difficult if not impossible, we to were lost and confused.  The first step was to start small, so we did some research and picked a portfolio to mimic.  The requirements for this first portfolio were that we had to understand it, which means that it had to be simple, that entry cost had to be low, for we did not have much in the way of disposable cash.

By taking this path realize that you are taking a somewhat passive path, which to my way of thinking is good, you should have other more pressing issue in your life to attend to, your spouse, your children, your self, your job.  That you are willing to accept the gain or loss the market via its indexes is providing, you are not trying to beat the market you are trying to be the market.  The instruments will to some extent under perform the market, due to their fee and expense structure, so therefore fees and expenses do matter.

In our case we initially selected what would eventually be called the “Couch-Potato” Portfolio published by Scott Burns, a blend of two Vanguard mutual funds Vanguard 500 Index (VFINX), and Vanguard Total Bond Fund (VBMFX) split 50/50.  Please note, that at the time we started Electronic Traded Funds (ETF’s) did not exists.  Discussion of ETF versus Mutual Funds is a subject for another day.  This is a presentation of the path that we took using the investment vehicles that were available at the time.

After a few years we decided that the next step was to build a portfolio that is 50 percent “Couch-Potato Portfolio.” and 50 percent “Margaritaville” Portfolio.   The “ Margaritaville” portfolio is a blend of three Vanguard mutual funds, Vanguard Total Stock Index (VTSMX), Vanguard Total International Stock Index (VGTSX) and Vanguard Inflation Protected Securities (VIPSX).  Within the “Margaritaville” portion of the portfolio, 34 percent is allocated to VTSMX, and 33 percent to VGTSX, and VIPSX.

Once the portfolio was now approximately 50 percent “Couch Potato” and “Margaritaville” another modification was made, and this one would be much more complicated.  This was the integration of this portfolio into the “Aronson Family Taxable” into our portfolio.  We wanted our portfolio to be 50 percent our hybrid Portfolio (50 percent “Couch Potato” and “Margaritavile” and 50 percent Aronson Family Taxable.

The Aronson Family Taxable portfolio is composed of 11 different Vanguard mutual funds.  The good news was that 3 of the funds in the Aronson were already in our hybrid portfolio, namely Vanguard 500 Index, Vanguard Total Stock Market, and Vanguard Inflation Protected Securities.  Therefore they could serve double duty count for the hybrid portion of the portfolio and count for the Aronson Family Taxable portion of the portfolio.  We need now to add positions in Vanguard Extended Market (VEXMX), Vanguard Small Cap Growth (VISGX), Vanguard Small Cap Value (VISVX), Vanguard Emerging Market Stock (VEIEX), Vanguard Pacific Stock (VPACX), Vanguard European Stock (VEURX), Vanguard High-Yield Corporate (VWEHX), and Vanguard Long-Term Treasury Investor (VUSTX).  At this point all I can say is thank God for spreadsheets.

Once parity was achieved with this new hybrid portfolio (“Couch Potato”, Margaritaville”, and Aronson Family Taxable, I thought that I was done, until I read about and did research on the Yale U Unconventional Portfolio.  This model portfolio of 6 Vanguard mutual funds performance was pretty remarkable even when compared to the Aronson Family Taxable portfolio.  The Yale U Unconventional Portfolio contained 6 Vanguard mutual funds, of which we already held position in 4.  This time we had to add Vanguard Developed Markets (VDMAX) and Vanguard REIT (VGSLX) to the mix.

Initial portfolio weighting between the respective portfolios was 17.54 percent for the “Couch” and “Margritiaville” portfolios, and 35.09 percent for the Aronson Family Taxable and Yale U Unconventional portfolios.  This results in a portfolio that is 69.65 percent Stock, and 30.35 percent Bonds.  25.94 percent of the stocks are Foreign.

I wanted a little more of the portfolio in stocks and I wanted the put more emphasis on domestic stocks.  After a little spreadsheet magic I settle on a portfolio weighting of 9.1 percent for the “Couch” and “Margaritiaville” portfolios, 36.04 percent for the Aronson Taxable, and 54.05 percent for the Yale U Unconventional.  This blended portfolio assets were now 73.06 percent in Stocks and 26.40 percent in Bonds.  22.40 percent are Foreign.  This final portfolio and its allocation is just my preference, it is my sleep point.

Somewhere along the way Vanguard had decided create different class of shares for their various funds, investors, admirals, and institutional, your basis determined which class of share you owned and purchased.  Eventually we had amassed enough value in each of the funds that they were converted from investor shares to admiral shares.  These conversions were handled as a stock-split.  It was not a taxable event to convert from investor share to admiral share.  The only difference between the shares was that the management fee are lower, depending on the fund the management fee was reduced b at least by .5 to .6.  The result is more of the earnings are returned to you, and that is a win for you.

All of this was not done overnight, it has taken 25 years to get all of the foundations built.  Now we just keep adding courses of bricks to the walls.

As our Hybrid portfolio investment goals are as follows.

VBMFX         4.50 %
VFINX            9.91 %
VTSMX          21.08 %
VGTSX           2.97 %
VIPSX             16.49 %
VEXMX         3.60 %
VISGX            1.80 %
VISVX            1.80 %
VEIEX            6.31 %
VPACX          5.41 %
VEURX          1.80 %
VWEHX         3.60 %
VUSTX           1.80 %
VDMAX        8.11 %
VGSLX           10.81 %

According to the Quicken Calculation since 1978 we have seen an IRR of 8.44 percent, which I consider to be well within acceptable limits, our money is doubling every 8.5 years.  Do I have any regrets, just three, and they deal with not having more cash on hand to take advantage of the events in 1987, 2003, and 2008, but I do not lose sleep on them.

Well there it is the path that I started on and continue on today.  Feel free to use it if you want, or do not use it is your choice.  I wrote this for my son and daughter, and a few of my friends in hopes of explaining my crazy and sometimes difficult ways that they have observed from time to time.

The ultimate end goal is to have enough investments that produce enough income to provide us a nice comfortable income in our retirement.

What is a millionaire

But what is a millionaire?  What do the various groups that are using the term (Democrats, Republicans, Liberal, Conservatives, Libertarians, Independents or any other group that you can think of) mean when they use the word?  What is the term “millionaire” a code word for?  To tell the truth I have no earthly idea at this point in time?

It used to be that when a person was a millionaire he or she current net worth (Assets – Liabilities) was equal to or exceed $1,000,000.00 Dollars.  It was not used as a term to describe someone who income (gross or net) exceeded $1,000,000.00 Dollars per calendar year.  I have no idea what one would call this individual other than possibly blessed and or extremely lucky.

So is a person who has a net worth in excess of $1,000,000.00 Dollars rich?

So is a person who has a net income in excess of $1,000,000.00 Dollars rich?

Lets take the first question.  The answer depends.

I have a cousin who is mentally handicapped he has the ability to function as someone in the third grade.  Both of his parents are now deceased.  After all was said in done the proceeds from their estate was worth slightly more than a million dollars at the time of his fathers death.  Based on various sources his most likely projected lifetime would be on the order of 26 years (the average of various life expectation tables).   We then performed calculation assuming a 4.0 percent inflation rate (computed average 3.23) and 4.0 percent net rate of return (25 year annualized return for SP-500 was 9.28), this calculation indicated that he could expend at most 35K$ per year for his assisted living arrangement and not out live his trust.  Would you classify this individual as a millionaire?  (Net Worth now is in excess of 1M$, but annual income below US Average)

Lets take the second question.  Again the answer depends.

I have another cousin (other side of the family) who is also mentally challenged he has the ability to function as a college graduate he actually graduated from college.  He has a position that has provided him and his family a 7-figure income for many years (Medical Sales will do that).  So on the surface his salary and bonus is slightly over  $1,000,000.00 Dollars (he is a very good salesman, he has almost sold me once or twice).  He lives in a very nice Mac Mansion (Not paid for), he drives a very nice high end Japanese luxury sedan (Not paid for).  He has his hobbies (not paid for).  His American Express bill some months is equal to significant percentage of Americans annual salary.  He has loved often but typically not wisely which has resulted in a cash flow hole that will end some 6 years in the future.  But at the end of the day he has a negative net worth, even with his company life insurance his creditor will still lose.  Would you classify this individual as a millionaire? (Net Worth is less than 0$, but is annual income is way above US Average)

So today what do we really mean when we say millionaire?

I think that in reality our government and individuals in our government actually uses both definitions, it just depends who is talking and what they are talking about. (They never really tell you which definition that they are using after all “In confusion there is Profit” (“Operation Petty Coat” Universal International, 1959)

The first definition (Traditional/Historical) is used when the Government is in the business of collecting estate taxes.  1M$ is a great deal of wealth transfer not to tax, whether you are a Republican or a Democrats.

The second definition (Non Traditional) is used when the Government is in the business of collecting income taxes.  Applying the current low rate to such large amount of income appears to be pure folly especially given the current fiscal situation.  Granted that the number of individuals making these high incomes is a relative few it is being made and it is being made because of the features, benefits and or accommodations of our current system of government.  It is highly unlikely that these individual would be as fortunate operating somewhere else in the world.  It should also be remembered that individuals or relatively large groups of individuals making incomes in excess of 1M$ is historically a relatively recent phenomena.

I am starting to think that more and more individuals are also using the nontraditional definition that a millionaire is an individual whose income whether earned or unearned is in excess of 1M$, but I suspect that will change if and when a relative dies and that relative has an estate in excess of 1M$ that they might share in.

To set the record straight by the traditional definition my wife and I could be classified as millionaires, we have a net worth in excess of $1,000,000.00 Dollars but at no time in our life have we ever received income in excess of $1,000,000.00 Dollars in income.

We have never met the requirements of the second definition, and I suspect that we will never will we are too old, and too slow, and quite frankly do not really need or want the hassle.  They do not pay you that kind of money because you look and smell nice, ok for a few select individual they do, but for most of us they don’t.

We both have college degrees, and we have worked for all of adult lives.  We own a modest house that is paid for (It has been our only house).  We made a concerted effort to pay off the mortgage as soon as possible (did not really care about the mortgage deduction since at best we put a dollar out the door in interest and received a deduction of at best 39 cents.  At the end of the day we were out at least 61 cents.  Pay off the house, and invest that dollar, give 25 cents to the Government and keep 75 cents, a much better deal.  One I am out 61 cents and the other I am up 75 cents.  It is a game of inches).

We own two cars, one (mine) is over 11 years old hers is 5 years old both are paid for.  It is cheaper to fix then purchase a new one.  A vehicles only real purpose is to get you from point A to point B in a safe, comfortable and most cost effective manner, nothing more nothing less.

We strive to live below our means, and yet we live comfortably.

We set about from the beginning on living on one of our salaries and saving the others salary.  We chose to live on the lesser salary and save the greater salary.  We did not get here over night.

We invested in the herds (Indexes Stock, REITs, Bonds, Foreign Markets). Our investments were diversified.  We did not nor do we actively trade.  We invested in funds with low expenses and fees.  Our expectations for our investments are modest.  We did not seek to out perform nor did we want under perform the market.  We know that we cannot beat the market.

We do not invest in things we do not understand or do not make sense.  The majority of our investments are in companies that make things that people need versus making things that people want.  Our investments are not exciting or for that matter entertaining (you want exciting and or entertaining try the movies or the circus).

We tend to our investments like a garden.  Periodically we do pull the weeds (losers) and compost them (reinvest the proceeds).  We will sell when it makes sense (High) and buy when it makes sense (Low).  Investments are for the most part spreadsheet driven it removes the emotions of the moment.  We practice the three-day rule on large purchases or sales of any investment, in other words no quick snap decisions.

We have found that the hardest thing to do concerning investing is that sometimes you must do nothing.  Do not have a clear idea of where to invest your money then let it sit in cash.

We periodically review our contribution allocations and make adjustments if the situation requires, it is not set it and forget it.  We keep enough of our investments in cash to pay our modest expenses for 12 to 18 months.

A smaller government, why not smaller congressional support staff?

According to the CNBC post

 “The truth is that both the president and House Republicans have agreed to shrink a critical part of the government to its smallest in at least half a century.”

www.cnbc.com/id/100326700

Does it not stand to reason that the Senate and House member’s staff should also shrink?

Does it not stand to reason that the White House Staff should also shrink?

As of 6 January 2011 House Resolution 22, reduced each members authorized level for 2011 and 2012 by 5 percent of the 2010 level.  2011 allowances range from $1,356,975 Dollars to $1,671,596 Dollars with an average Member’s Representational Allowance of $1,446,009 Dollars.  This according to the Congressional Research Service document found at the following link

library.clerk.house.gov/reference-files/112_20120104_Salary.pdf

Well it time for another House Resolution to fund the Member’s Representational Allowance.  It was nice that they took a 5 percent hit off of the 2010 allowance levels.  The question now is what about 2013 and 2014 Members Representational Allowance?  Are we the people only going to get a token reduction, or will congress step up show some leadership reduce their spending on their own offices and staffs?

The distinguished members of the Congress of the United States should step up and take one for the team cut your staff positions, not one of the lower paid slots, no fish bone the salaries, and pick a salary that will make a statement, that you care.

I know it is hard to come to plate, and then crowd the plate, know that the pitcher is going to throw the heater at you, and you have to step into the pitch, it will hurt but you will get on base and after all you know you cannot score unless you are on base.

I am sure that like most business, your largest expense item in your Members Representational Allowance is personnel, people are not cheap, and good people are really not cheap.  At the present time you are limited in the number of individual you may hire full time and part time (There is just so much of God’s work that must be done, what was leadership thinking when they came up with this).  Additional limits have been placed on the maximum salary that you may pay individual staff members (Good people are really expensive). Finally your Official Office Expenses are capped (do these people not know how expensive office supplies and equipment are?).

It is tough being a member of the United States Congress, and it just keeps getting harder in that you must stand for re election every two years (What were the founding fathers thinking), especially now given that you must start your campaign for your next term no sooner than you were elected to the current term (24 hour news cycle is a bitch).  To make matter worse the voters actually expect you to do something legislatively (What were they thinking, or were they even thinking?)

I know reducing your Members Representational Allowance, by any significant percentage (25-45 percent) would not significantly change the current deficit picture, the few hundred Million dollars of savings would hardly change the current very deficit number.  But a mighty Oak grows from an acorn, and a start is a start.  One must begin the journey somewhere.

I know that a 25 to 45 percent reduction in the Members Representational Allowance would put a great many good people out of work, but good people typically do not have a problem finding a new job, or at least that is what you are told.  If these individual are not fortunate to find a new position, well there is always unemployment insurance (Or did we gut that fish), anyway if they are unemployment it is certainly cheaper for the United States, unemployment payment is considerable less then their current salaries, and after all it all comes out of the same pot, and you still have your position (That a good thing, right?) and you will have reduced United States government expenditures, and made government smaller (I am sure that these two items were central to re election campaign).

Maybe it is not an Emergency?

13 December 2012 NATO announced that the Patriot PAC 3 batteries requested by Turkey on 30 November 2012 would be honored.  2 Batteries from Germany, 2 Batteries from Netherlands will be supplied. 14 December 2012 United Stated Department of Defense announced that it would contribute 2 Batteries to the NATO mission to Turkey (Deployed from Europe). It is expected that these batteries will be operational at the end of January 2013.

In this case NATO is providing 1 enhanced ADA Battalion (Not America Disabilities Act)(Air Defense Artillery) (6 Batteries versus normal 4 Batteries), The United States to provide 400 troops, German is providing approximately 400 troops and the Netherlands is providing approximately 360 troops.  Total initial troop commitment 1160 soldiers.  All parties emphasized in their respective announcements that unit will be under “NATO control”.

Wait it gets better as stated in the NATO press release the unit will not be operational until the end of January 2013.  Hopefully this will be so that the troops that are tagged with this deployment will be allowed to spend this Christmas with their families.  Glad it is not that much of an emergency.  On a side note it is a clever way to extent the ballistic missile shield closer to Iran, but I am sure that had nothing to do with the decision to forward deploy this ADA Battalion.

Just how long are they going to be forward deployed is the next question?  Will the troop elements be rotated out on a regular basis, so as to spread the pain among the PAC-3 batteries in Europe?

Even with allowing the troops to stay in Europe until after Christmas, the long deployment time for the Battalion is a direct results of the fact that the various parts of the Patriot system, namely the radar units, command and control centers, and communication and support facilities (power generation) can not be transported by air to Turkey they are either too big or too heavy, or too big and heavy, instead they must be shipped by ground and ship.

It brings to mind the remarks I heard from Retired Marine Corp General Cartwright in a conference where he chided the various chief of the services, he chide the Army for being too heavy and too big to move by air, and chided the Air Force for not being able to move the heavy and or big, and not being able to move enough of it in a timely manner, and finally the Navy for being able to move the big and heavy unfortunately they are too slow to be considered a rapid reaction assets.

In this case NATO is providing 1 enhanced ADA, The United States to provide 400 troops, German is providing approximately 400 troops and the Netherlands is providing approximately 360 troops.  Total initial troop commitment 1160 soldiers.  All parties emphasized in their respective announcements that unit will be under “NATO control” isn’t that nice.

Turkey will supply the physical security forces, and combat engineering support to ready the physical battery sites.  And it goes with out saying, but I will say it anyway that the United States will fill in the holes, i.e. the logistics train that will be required to support this forward deployment.  The United States in all likelihood will be the source of operational spares, since we have the deepest stores.

The 1160 troops associated with the enhanced ADA battalion will require a large logistics train to support it.  Most of the operational support will come out of Europe, another mission for the 21 Theater Sustainment Command.  It takes a great deal of Food, Fuel, Fiber, Shelter, Equipment, and Communications to support 1160 troops downrange.  Lucky for us the natives are friendly, or the footprint would have to be even larger.

NATO also announced that they would be deploying AWAC assets to provide additional coverage for the area, the commitment of another NATO critical asset.  Bad news there is limited maintenance support for this system in Turkey, oh well what a few more trips back and forth between Turkey and Geilenkirchen FRG, it is just a few tons of F-34/F-35 to make that trip.

Currently there are only 74 E-3 AWACS in the free world, NATO has 18 aircraft, France has 4, Saudi Arabia has 13, the United Kingdom has 7, and the United State 32 aircraft, with the majority assigned to the 552^nd Air Control Wing.  At best 80 percent are available for operations at any time, the rest are in maintenance cycle.

NATO had difficulties using their own assets i.e. 18 AWAC to support their operations against Libya lucky for the British, French, and the United States, mainly the United States.  What will we see in NATO’s support of Turkey?

The PAC-3 Batteries are a critical item for the Netherlands and Germany, given that Netherland only has two Squadrons (Battalions) (8 -12 Batteries total), and Germany has 6 Battalions (24-36 Batteries total).  The assets are anything but common.

God only knows what this is going to cost?  God only knows who is going to pay for it?  But my bet is the United State will pay for it either directly or indirectly via our funding of NATO.  It is unfortunate fact that the world is an expensive place.  Let the sequestration begin.

One more step toward the fungibility of the Employee

International Business Machine, AKA IBM, AKA Big Blue, just announce another step in their program to overhaul their pension program.  Here is the link.  Many years ago they converted from a defined benefit plan to a defined contribution plan.  New employee had no choice it was the defined contribution plan for them.  Retired employees and some soon to retire were allowed to stay in the defined benefit plan.  The rest of IBM employees were converted to the defined contribution plan from the defined benefit.  The amount of each employee defined benefit was calculated buy a disinterested third party hired by IBM (believe that and I will make you a great deal on some sea side property in Kansas) and an appropriate amount (given the growth assumptions) was placed in to the defined contribution plan for each employee.

The defined contribution plan was not that bad, IBM did have a matching contribution to the plan.  That contribution was made at the end of every pay period.  But gosh that is a great deal of money to tie up in an accounts that IBM cannot use, it is all those pesky fiduciary rules and regulations created to conform to ERISA of 1974.

So now IBM has decided that rather than make their matching contribution at the time that the employee makes his contribution, they will hold their contribution back until the end of the year, and make one lump sum yearly contribution.  That way IBM can still use the funds for their own needs.  IBM makes a defined benefit contribution of between 6 and 10 percent for each employee depending on the employee contribution.

With 95,000 employees in the United States, and an average salary in the 80K$ dollar range we are looking at some serious money in the range of 456 Million Dollars.  That is some serious change that the corporation could be using rather than have it tied up in employee retirement accounts.  If the employee turn over rate is near 5 percent, well that nearly 23 Million Dollars that the corporation gets to keep, it is truly good to be the king.

IBM is just recording IOUs for their contribution to each employee and they are put into an account and if the employee is still with company come the time that the lump sum is paid they get it.  The bad news for the employee is that they must still be employed by IBM when the lump sum is paid, otherwise no joy.  IBM is being a true sport to those employees who retire before the date that the lump sum is paid, they will still get IBM contribution, but they are not doing that out of the kindness of their heart, that is the law.

In the spring of this year IBM announce a plan for selected individuals, those close to retirement by the end of 31 December 2013 the option of working 60 percent of their schedule, being paid 70 percent of their rate, but with full benefits with a guarantee of their employment until their retirement date or 31 December 2013 which ever came first.

Given that IBM was “rebalancing its workforce” an IBM spokesman characterized this program as being “rather unique”.  If an employee did not join this program well then they would certainly be subject to resource actions, since according to the same IBM spokesman “IBM will continue to rebalance its skills and resources based on customer needs”.  Which was a nice way of saying you will be leaving sooner rather than later.

Another whack job by those lovable bastards that are drawing the big bucks enjoy, and making the hard decisions.

Morgan Stanly Financial Adviser, He or She is your new best buddy.

Who are we talking about, why of course your Morgan Stanley Wealth Management Financial Adviser (MSWMFA) that is who.

Let see his or her compensation plan was just changed to encourage him or her to increase revenue and allow him or her to buy discounted stock in Morgan Stanley, it is structured as a forgivable loan in 5 years, assuming that they are still employed at Morgan Stanley.  Even better it is a pretty slick way for Morgan Stanley management to keep the money in house.

He or she now will get a bonus of between 2 and 5 percent of the new assets/revenues that he brings in provided he or she is in the top 40 percent.  He or she is incentivized to bring in more than $750,000.00 of revenue by reducing the by 2 percent the bonus that is pay to all who brought in at least $750,000.00 in revenue.  Something tells me that generating $750,000.00 of revenue will not even get he or she close to being in that top 40 percent.

Morgan Stanley or more precisely the MSWMFA will be hunting whales, and big dumb ones at that.  I wonder if they are white, wait that was another story?

If you are already a customer of MSWM stand by for a the message from your MSWMFA that in all probability your assets are slightly (completely?) allocated incorrectly (Wrong) and that if you want to hunt with the big boys (more like be hunted by the big boys) you are going to have to make some adjustments in your assets allocations (Completely gut your current portfolio and try something completely new and totally different, how about options, better yet how about naked options, how about using the stock that you think that you already own, in reality it just a book entry, Morgan Stanley is holder of record, as collateral, we can loan you the money, and our rates are competitive, with every other brokerage house, how about credit default swaps, synthetic derivatives).  Surprise, surprise your MSWMFA is just the one who is able to assist you in this effort (Commissions and Fee oh goodie, how nice, thank you may I have another).  But of course nothing in this world comes free, and it will cost you a little in the form of commission, fees, and possibly taxes to be paid, to reposition you for the coming new market (We are going suck you dry if we get half a chance)(Is this the new normal?).  You do want to be ready for the coming new market?  Of course you do.

These individuals are called Financial Advisors, not Securities Brokers for a reason, and a great deal of that reason has to do with how disputes are handled and who they are or are not reported to.  This is very true when their advice is poor, well remember you signed that agreement that says you cannot sue, no you must use mediation, with their mediators (Good Luck with that).

Greg Fleming needs to keep his job, your MSWMFA needs to keep their job, although I suspect that come this time next year there will be less of them.  They are ready willing and able to keep their jobs even if they have to do it all at your expense.  So be a good a sport and just give Morgan Stanley your money (Do it for the children, Theirs).  They are people just trying to take make a buck.

The Morgan Stanley Corporation reminds me of the words of the Giorgio Moroder song “Blood from a Stone” from the remake of Metropolis.

“Turning for the wheels of gain. A system with a power of it's own, to draw blood from a stone.”

In this case maybe the lyrics should be changed to “draw blood from your stones”.  You have been advised of the situation, what happens next is totally up to you.

Fungible Employee’s

America’s slow long-term employment recovery, one possible source is the Fungible Employee and their increased use.

First a little definition is required.  A good is considered to be fungible if one unit of the good is substantially equivalent to another unit of the same good of the same quality at the same time and place.

Having sat in on a great many management meeting where one of the major topics was reduction of operating cost as a means to increase profit, it became clear that many of my much younger managers had a complete and utter lack of sensitivity to or for our employees.

Many of these B school graduates were on a quest, for something more holy than the grail.  They were on the quest of the fungible employee.  These managers wanted to replace as many of our current employee with as many fungible employee as possible.  We were in the business that was quickly gravitating to what many in our industry considered to be a commodity.   So profit margins were being hammered every quarter.  Our competitors were pushing for market share just as we were. Product pricing was being squeezed.   Competitors are trying to differentiate his or her commodity from the other guy’s commodity in an attempt to justify their products cost.

It just like I remember from air combat training once you are in the merge it quickly becoming a knife fight to the bottom, both side losing energy as the fight spirals closer and closer to the ground as each side expends energy in an attempt to gain an advantage until some become a smoking hole.  Some of the competitors have deeper pockets and other revenue streams so that they could stay in the fight longer, others were not so fortunate.

Never in any of the discussions did I here an utterance about competence or quality, or what would it do to our product, or for that matter what it would do to the company’s reputation.   Almost every single discussion concern cost, and those that did not concern cost concerned plans to acquire these fungible employees.

The have many names, the most common being temp worker, and they did not have to work for a temp agency.  To some extent contract employees can be considered fungible in that they also have some of same endearing qualities.  I do not remember any discussions about reduction in demand for our products.  When I asked once about this, after I pulled all of the arrows out, I knew not to ask again.

I am no longer with that company, for even my position was determined to be fungible.  Funny thing is that for a significant percentage of the individuals in those meeting many also found that their positions were fungible.  I am much luckier than many of them I could afford to retire, and so I did, many of the others are still looking for the next Eldorado, to them I say Bonne Chance.

The following is a list of the endearing qualities of the fungible employee.  It is not meant to be exhaustive, but it does contain what I consider to be some of the more important elements that senior management finds attractive.

1.              Fungible employees have no hidden cost, all their costs are known.

2.              You do not have to find work for them when your contracted tasks are completed, they can be released.

3.              They are no long term or reoccurring commitments of corporate or company resources (Sick Leave, Retirement Contribution, Health Insurance).

4.              No employment taxes owed to the government.

5.              Reduced Human Resources department.

6.              Reduced or elimination of training costs.

7.              No Unemployment payments or claw backs.

8.              Can be released at any time for any reason, no justification required.

9.              No expectation of increased costs as they gain mastery of their tasks.

10.          Short term commitment

11.          Cost can be renegotiated at the end of term.

For the employer it is a really great deal.

For the employee it is a really sucky deal.

Here is what the fungible employee gets out of the deal, and what a deal it is.

1.              No employment stability in your life (The company has no plans to bring you on full time no matter how good of job you do).

2.              Your earnings can be highly variable, depending on employment situation (You will work only when you are needed and not a moment longer).

3.              You could or will be responsible for all of your employment taxes.

4.              You could or will be responsible for all of your retirement contributions and or programs.

5.              You could or will be responsible for all of health insurance cost.

6.              You are responsible for your own training.

7.              Your ability to borrow from financial institutions is questionable. (Your employment history is pretty shaky).

8.              Get sick at your own peril.

9.              Take a vacation at your own peril.

10.          Slack off just a little at your own peril.

11.          Get injured at your own peril.

12.          If you do not like the deal, do not take it, we will find someone else.

13.          You are a commodity get use to it. (Welcome to the Brave New World).

What are THEY thinking about?

Or Why is the United States Stimulating the German Economy?

What are THEY (Department of Defense just in case you do not know who they are, not to be confused with THEM a bunch of giant ants in the desert of New Mexico) thinking about when it comes to stimulating the German Economy to the tune of at least .75 Billion Dollars to replace the primary United States Armed Forces medical facilities in Europe LARMC (Landstuhl Region Medical Center)?

LARMC is still operational.  Given that there is an overall force reduction currently taking place in all armed services.  The operational tempo down range (Afghanistan) is dramatically being reduced daily (You know we are wining the hearts and minds of the Afghan people, just like we did in Iraq, it is almost time to declare victory and leave, God knows that many of our Allies have.).  Given the mood of the Senate and their reluctance to keep US Forces in Afghanistan after 2014, the observed reduction in operational tempo may be even further reduced.  The reduction of forces forward deployed in Europe (2 Infantry Brigade Combat Teams (170, and the 172) disbanded in 2012).  The Department of the Army downgrading of United States Army Europe USAREUR commander slot from a General O-10 to a Lt. General O-9.  The current USAEUR actions to consolidation and or reduce the number of United States Army Garrisons in Europe.  The Department of Defense plans to pivot of our forward force structure from being concentrated in Europe to being concentrated in the Pacific.  Further announced reduction of personnel in Europe (Lajes Field reduction have just been announced, and the Portuguese government is not happy.  After the Portuguese government the United States is the largest employer on the island.).

Given all of the above, why is it that the Department of Defense, and more particularly the Department of the Army is trying to spend at least $750,000,000.00 ($ 750 Million, or $ 0.75 Billion) on a replacement facility for the Landstuhl Regional Medical Center?  (Replacing the facility did make sense with are past operational tempos in Iraq and Afghanistan, because it was busting at the seams.)  More importantly do THEY really think that they can build a replacement facility for that amount?  Given their track record on other project (pick on any one) and the current currency conversion ratios it is looking rather questionable. Additionally all constructions that take place on the local facilities has to be funnel through a single German corporation, we promise that we will get you the best price.  Look at the mess that was the KMCC.  To date the Department of the Army has a Total Obligation Authority of $197,592,000.00 or $197.595 Million Dollars.  Next years numbers are not out yet, that will be sometime in February 2013, and I can hardly wait.

It will also be a game of bait and switch, if the new hospital is built, at Rhine Ordnance Barracks (ROB), the next thing you will hear is that there is not enough supporting facilities at ROB, and that these facilities which existed at Landstuhl will have to be recreated at ROB to provide the same level and ease of support.  Surprise that will be at least another Billion Dollar shot into the local German economy.

Yes the current facility is old, but it is paid for.  Yes it separated from either of the two major DOD facilities located in Kaiserslautern.  Yes that makes more expensive to secure, but because it is separated, all of our eggs are not in one basket we do gain some security via separation.  If a foreign power wants to take the facilities out they (not the DOD) will now require the use of a large force structure to accomplish the task.  Larger force structures are harder to hide.  Attacking multiple targets, and being successful requires higher levels of execution, higher levels of coordination, higher levels of communications, and as stated earlier a much larger force, and the job does not scale linearly, it is exponential.

Remember Pearl Harbor, it was harder to guard all of the aircraft dispersed in their revetments, and harder to destroy aircraft in their revetments from sabotage, so General Short ordered all of the aircraft pulled from their revetments and lined up on the flight line, that way it would be easier to guard, and consequently easier to be destroyed by a concentrated attack.  The IJN air staff and strike leaders were pleasantly surprised when they discovered most if not all of the United States Army and Navy air assets neatly lined and boxed together at Naval Air Station Ford Island, Naval Air Station Kaneohe, Marine Corp Air Station Ewe, AF Bellows, AF Wheeler, AB Hickam.

One reason for the proposed consolidation is that operations and maintenance and security at these spread out facilities is expensive, and this is one way to reduce these re-occurring costs.

If the Department of Defense/Department of the Army with the blessing of the United States Congress is so dead set about spending this money, why not spend it somewhere back in the United States Where the Pork would help some congressman in his up coming election in two year?  Why are we the United States going to drop at least three quarter of Billion Dollars into the German economy?  Why are we stimulating the German economy?  Why are we not stimulating the United States economy?  I ask one question to members of the House and the Senate why is this pork not being kept at home?  Are large numbers of German citizens now voting for members of the House and Senate and they must be repaid?  Is this the United States way of paying German for the use of their troops in Afghanistan?  What are THEY thinking about?   It is not too late to stop.

Dear Mr. West you are not Abraham Lincoln, it is not even close

Comparison to Abraham Lincoln, come on Mr. West, please start taking your medication and start that long painful road back to reality?

Yes Abraham Lincoln was elected to a seat in the United States House of Representatives Once 1847-1849, and true to his words, he had pledged that he would only seek one term in the United States House of Representatives, he did not seek reelection to the United States House of Representatives. Lincoln record for the United States House of Representatives is 1 for 1.  Mr. West your record for the United States House of Representatives id 1 for 3, not even close.

Abraham Lincoln was elected to five terms and serves 4 terms in the Illinois House of Representatives.  He was elected to 4 consecutive terms Illinois House of Representatives 1834-1842.  He was elected to a 5 term in the Illinois House of Representatives, but resigns in 1854 in order to run for the United States Senate.  Lincoln record for the Illinois House of representatives is 5 for 5.  Mr. West your record for the Florida House of Representatives is 0 for 0.

Abraham Lincoln record for United States Senate is 0 for 2.  Mr. West your record for the United States Senate is 0 for 0.  I know this is unfair, since you have not chosen, or have you been chosen to run for either of the United State Senate seats for the State of Florida.

Abraham Lincoln record for the Office of the President of the United States is 2 for 2.  Mr. West your record for President of the United States is 0 for 0.  Again I know that this in unfair, since you have not chosen, or have you been chosen to run for the Office of the President of the United States.

How many legal cases did Abraham Lincoln argue before the Illinois Supreme Court, that number would be 175 cases, more remarkable is that in 51 of the cases he appeared as the sole counsel for his client.  How many case have you argue before the Florida Supreme Court, that right it is 0.

While in the service of the United States Military in the Black Hawk war, how many times did Abraham Lincoln face an Article 32 Hearing?  For Mr. Lincoln that number would be 0.  While in the service of the United States Military how many times did you face an Article 32 Hearing?  For Mr. West that number would be 1.  Did Abraham Lincoln receive an Article 15, nope, did you receive and Article 15, yep.

By all of these measures you have essentially passed your Wassermann which is one of the few tests that one does not want to pass.  Although not specific to a certain sexual transmitted disease it can be used as indication of life threating infectious disease (Malaria, Tuberculosis,).  Please Mr. West for your sake and the sake of your family please seek immediate medical treatment.  Malaria and its resulting fever could be a possible explanation for your delusions.