YOUR MONEY
  
Is there no end to 2008?

The US sub-prime housing bubble that burst in 2008 and lead to a massive, world wide financial crisis, is still not over some 8 years later. 

Deutsche Bank, Germany's largest, is now in the final stages of settling with the US Department of Justice and is being asked to pay fines of US $14 billion because it was a key player in the 2008 financial fiasco. 

As worded in the National Post (Oct. 1, 2016, FP 6) the bank has acknowledged "misselling mortgage-backed securities before the financial crisis". 

Such wording is overly polite and highly misleading. 

Firstly,"misselling" is a very polite way of saying: you did not do your due diligence and sold your customers investments that were 'crap' and you knew it -- or should have known it. 

Secondly, the world wide financial crisis was the end result of these bad securities as they spread the fallout from the US sub-prime housing to banks and investors all around the world. 

If it is required to settle at US $14 billion, Deutsche Bank may well go bankruptcy as the German government has refused to bail it out. 

 In fact, the bank is facing some 7000 lawsuits on this issue and others around the world (G&M, Sept.27, B6). 

So, we are not yet free of fallout from the financial crisis and stupid -- read greedy - decisions of a decade ago. 

Justice has been slow in using her sword, but it is happening. 

As the film, The Big Short, noted at its end, not a single company, CEO or trader was ever charged or convicted for the massive abuse that was the sub-prime mortgage market and the dubious securities that were created on its foundation. 

Maybe this time there will be real consequences. 

As recently noted in Time magazine re: Wells Fargo fraud (see earlier blog), only when CEOs go to jail will Wall Street and its European and Asian equivalents wake up and stop trying to make "money out of nothing".

YOUR MONEY

Lament for Canada Savings Bonds

Rumour has it that the federal government is considering ending the 70 year run of Canada Savings Bonds as sales have plummeted in recent years.

At one point my parents and I were avid and regular Canada Savings Bond buyers.  

CSB interest rates were very good and bonds backed by the federal government  was a 'safe' choice. 

But well over a decade ago  provincial governments entered the field with somewhat higher rates, and similar bonds issued by banks as GICs -- insured up to $100,000.00 per account - with even higher yields, simply blew away Canada Savings Bonds. 

Put simply, CSBs are no longer competitive and anyone can easily do better. The rates for 2016 now posted are: Premium Bonds for 3 years at 1.0%!!;  and traditional bonds at 0.5%!!

So the end of the CSB program will be missed on nostalgic grounds; killed off by the federal government with its cheapskate approach.

YOUR MONEY

Wells Fargo and Chrysler manipulations

This week a major U.S. bank and Fiat Chrysler have been ‘reprimanded’ for encouraging local branches and staff to cook the books and inflate new orders.

Fiat Chrysler, which suddenly became Canada’s top car company based on sales, was caught inflating its sales numbers by offering bonuses to dealerships who increased sales year or year or month to month.  To achieve this, the company stopped using as its sales criteria the moment when a customer takes ownership of a vehicle; instead allowing the figure for dealer ‘orders’ and similar dubious ‘sales’ to be used.

Dealerships could reap significant bonuses with higher car numbers, while company prestige as the top car manufacturer in Canada was a goal, and one that would increase the stock’s share price.

And so the game began across the land at Fiat Chrysler locations.

As for Wells Fargo, its CEO, in the rush to increase customer accounts (both bank account and credit card accounts), instituted a quota system and heaven help the branch manager or lowly teller who did not get extra business for the firm.  Under such constant pressure and threat of being fired, local branch managers and tellers fraudently, i.e., without the prior knowledge or consent of clients, created ‘ghost’ bank accounts and added new credit cards to their existing services – all with, of course, additional monthly fees.

According to Time magazine, this program between 2011 and 2015 – some 4 years until whistle blowers came forth – created over 2,000,000 ‘ghost’ accounts and credit cards and earned the bank $2.6 million in additional, fraudulent fees (Time, Oct,. 3, 2016 p. 14).

Under pressure from government authorities, both Fiat Chrysler and Wells Fargo CEOs have proclaimed their ‘mea culpa’ and are taking ‘remedial action’ under government threat.

So what do we learn from these 2 events in radically different economic sectors?

Simply, that to get ahead of the competition CEOs are willing to use carrots or sticks as motivators for their employees, and, in the end, those on the battlefront will be tempted -- and often fall prey-- to these pressures and break the law.

MEDIA and YOUR MONEY

are pumpkins no longer sacred?

 

Outside of Christmas, Halloween is the largest celebratory event of the year for children of all ages.

Front lawns are decorated with RIP headstones, skeletons, witches and children dress up to walk the streets in weird dress as they go to collect free candy and treats under the old threat of "Trick or treat." - i. e., give me treats or I will do something nasty to you or your home.

And, off course, scooping out pumpkins and carving out eyes and mouths with sharp or oddly shaped  teeth is a hallowed Halloween tradition.

What would this celebration of a pagan night of the living dead - --renamed and commemorated by the Catholic  Church as All Saints' Day - be without such carved and illuminated glowing orange pumpkins?

But that is soon to change in the name of commerce and mass marketing.  Home Depot, and others I am sure, are now selling  pumpkin decorative plastic add-ons with the body parts of Disney and Marvel movie characters. 

You can add Mickey's 3D plastic head, arms, body and legs to the side of a pumpkin thanks to plastic spikes.

In theory,  since pumpkins have 4 sides, up to 4 such Hollywood characters could be added -- creating an ongoing cavalcade parade.

If people are eager to buy USB thumb drives made to look like Mickey Mouse or Spiderman or Olaf from Frozen or some Peanuts or Warner Brother cartoon character -- I confess that I  have bought Marvin the Martian, Tweety and Sylvester thumb drives for our family --

does adding such characters to Halloween Jack O Lanterns cross some ethical and moral line?

As a traditionalist,  I say yes.  People may still hollow out pumpkins for roasting seeds and making pumpkin pie and soup, but without those spooky and individualized, carved faces --  and openings for a candle or L.E.D. light to eerily illuminate the dark--  it will not be the same!

Hollywood has gone too far and I hope the buying public and children will draw the line and say NO to such purchases. 

Otherwise, expect Santa Claus to add Disney or Marvel or Peanuts character logos on the front or back - or both sides -- of his red suit and cap.

And maybe some company will pay him millions to do so with his plain, boring white beard.

YOUR MONEY

How to avoid Destroying the World Economy

It is now exactly 8 years since the Financial Crisis due to earthquake-like disasters in U.S. subprime housing market, leveraged and over-extended (bankrupt) Lehmann Brothers and forced, worldwide bank write offs of billions of dollars as stupid, leveraged certificates (based on those U.S. bad housing loans) all collapsed as the bubble burst.

Since then, ‘emergency aid’ of previously unheard levels -- of trillions of dollars --- Central Banks has continued for close to a decade:  Growth and GDP and China-- the world's second largest economy and till now the world’s unending maw for raw materials -- have never recopvered and  leveled off at under 2% in the developed world and to well below Chinese government's inflated figures of 7% to 9 %.

The new normal has been very modest growth of 1% to 2% across the developed world -- and even China.

Consequently Central bankstried and continue to kick start growth to well above 3% with cheap money and negative interest rates (as a penalty for saving) but these strategies have proven dismal failures in Japan (for some 30 years), America and Europe with no  impact on manufacturing and corporate investment and expansion.

Instead, almost free money has fostered more and more reckless speculation and high risk ‘gambling’ by the super rich, sovereignty funds, derivatives funds, international bank stock brokerages and even pension plans. 

Making things worse has been the vacillation and hollow warnings of upcoming interest rate hikes from Federal Reserve Chair Janet Yellen. In September, 2015,-- a full year ago -- she warned one and all that the Fed would soon start to raise rates at ¼% every few month so as to return to ‘historic normal’ levels of 4% to 5%.

But she has been more like the Boy-who-cried-wolf as rate hikes have not materialized whatsoever and the pronouncement this past Tuesday was that no increase will occur until December at the earliest.

Surprise, surprise!!!  With a close Presidential and Congress elections just over a month away, would anyone in their right mind 'rock the boat' after a full year of delay? 

Who would have guessed.

So we all must wait for another 3 months -- or more -- for any start to a return to 'economic normalcy'.

The Fed., put simply, continues to  created uncertainty and toys with the financial plans of all concerned: those who benefit from almost-free money and those who are facing destitution and ruin on fixed incomes.

Everyone is left dangling.

And as any student of the world stock markets know, we are in the 8^th year of the recovery and a recession may be around the corner – based on historical cycles.

But the new normal of the last few years defies old thinking.  Stocks in the U.S. are at highly inflated valuations compared to earnings – some 23 to 1 rather than the standard, safe risk factor of 17 to 1.

And exchange volumes are down and relatively few players are in the game and calling the shots.

Q: So what would revive the world economy and normalcy - or at least the developed world?   

A:  RAISING INTEREST RATES! 

Starting with an automatic increase in December , 2016 – we have already lost a full year to dithering and hypocrisy and cowardice – and announcing a fixed schedule for further regular increases in 2016 and 2017 that must be set in stone!


Yes, expect a stock market swoon for at least a few days or more, and gold will do its usual piroet, but the economy is NOT the stock market or the price of gold,; it is main street and the fileds of farmers and ranchers of middle America and Canada.

Put simply, a 1/4 % rate hike is not the end of the world when prime rates are close to zero instead of historic post-WWII norms of U.S 4% to 5%.

And the above would send clear messages and have immediate impact:

1. no more rampant speculation with free government money

2. No more housing market free for all as totally unqualified buyers get stuck with huge mortgages they will not be able to pay at 3% interest let alone the historic house mortgage  norms ranging from 6% to 7%.

3. Companies still sitting on trillions of dollars will expand and invest in their businesses immediately before interest rates rise to the above mentioned normal levels.

Kindness and cheap money has not worked..

Penalizing savings with below inflation returns and negative interest rates has not worked either.

 Pension plans and seniors and insurance companies have all suffered as a result and face insolvency.

Capitalism and logic demand that Central banks raise rates and do so on a fixed, written-in-stone schedule: to end uncertainty and rtoller coaster stock market volatility. 

Only this will save the world economy.

TECHNOLOGY and MEDIA

Apple – iPhone 7 and wireless ear bud insanity

As anyone reading this blog knows, I have never been a big Apple fan as they have always taken credit for innovations by others though Steve Jobs more artistically packaged them, usually in Zen white boxes.

So here is the bottom line:

This super/over-valued company (which cuts tax corners and cheats on its taxes as the EU has now revealed) has not had a new successful ‘invention’ in years and is doing catch up all the time.

Apple TV has failed dismally and the Apple watch has gone through 2 or 3 upgrades and is still – like the Samsung and other predecessors – a niche product that most buyers soon leave in a drawer.

And as smart phones by all manufacturers have systematically and more and more widely replaced iPods and similar music only devices, cameras, desktop computers and even laptops and tablets, Apple, among others, now finds itself in a pickle.

Its smart phones account for 70% of revenue – and no new ‘break through’ device is on the horizon for Apple or any of the numerous, other competitors.

Apple Pay may help the bottom line, but it was a concept invented years ago in Africa to meet the needs of people without any nearby bank branches.  Barclay’s of Britain then copied the concept and it has spread around the world and even now to the mighty Apple.

So, for the moment, smart phone ‘upgrades’ is everyone’s focus and selling point.

And this brings us to the iPhone 7 and iPhone 7 Plus.

Will a faster processor and fancier cameras really get people to abandon last year’s purchase?

Are wireless/cordless ear buds superior?   Because that IS the only ‘new’ feature of the iPhone 7 lineup.

And please note that it is NOT an Apple creation; far from it.

I t is a descendent of the Bluetooth wireless technology invented by Ericson in 1994 – over 20 years ago!

And again, even for smart phone use, Apple is not the great innovator as wireless ear buds have been available for almost a year from Motorola and Bragi. (See https://9to5mac.com/2016/01/08/iphone-7-wireless-headphones-beats/)

The above website already has warned the wireless ear buds require separate chips and batteries that will run less than 4 hours.

And so far, feedback and reviews have been less than enthusiastic.

Individual ear buds are already being lost and the separation of the cord – the pseudo-umbilical cord – will not be an easy adjustment.

More importantly, the new ear buds, as a 3rd level of digital sampling and compression is simply BAD for sound quality which no extra speaker can overcome.

Digital sound is ‘sampling’ and there is always some ‘dropped’ notes and sounds in digitizing.  That was a secret Sony and other kept hidden for decades as quality analog and vinyl records were replaced by sampling CDs.

All sound on an iPod and iPhone or competitor devices which store sound as digitized files already have degraded the original analog sound, and further file compression to save storage space creates another layer of deteriorated sampling.

Compared to a live a concert or vinyl record, such digitized and compressed sound is noticeable ‘dulled’. 

Just ask Neil Young who has withdrawn his music from Spotify as streaming is even worse.

And replacing analog cords with another layer of digital compression causes further degradation and quality drop.

Put simply, the iPhone 7 and wireless ear buds add a 3 round of sound quality reduction.

Just check the test results comparing iPhone 6s corded system and iPod 7 wireless at http://bgr.com/2016/09/20/iphone-7-headphones-jack-sound-test/.

Such a tradeoff will not create the havoc that 8 track produced as adjoining songs slipped into each other, but quality will certainly decline.

So, because our ears are designed to hear continuous sound waves and are sensitive enough to discern the disparity between continuous, layered analogue sound as in a symphony concert or U2 vinyl record recording – people talking, instruments playing, by comparison digitized ‘sampling has a ‘tinny’ and ‘dull’ quality.

Adding a third digital and compression round on an iPhone 7 is, consequently, a very BAD idea.

If Apple needed more space to ‘squeeze in’ better camera technology and other features, the price of cutting the analog cord is too high.  And a conversion cord adaptor will not solve the problem. 

Garbage in … garbage out.

Better to make the device less anorexic and keep the sound quality higher.

Perfectionist Steve Jobs may well be rolling over in his grave.

TECHNOLOGY

Electric car mania and the laws of  Physics

Gwyn Morgan in his July 4, 2016 article (G&M, B2) points out some basic facts of the Laws of Physics: namely, that every time a form of energy is converted from one state to another there is a significant ‘loss’ at each step.

Energy Loss Chain

  1.  Building and running machinery to create electricity in power plants or wind turbines or solar panels. This involves converting mechanical ‘energy’ and usually electricity itself to operate and monitor the equipment.

      2.   Transmission and distribution Loss – i.e., leakage from electric overhead lines, transformers, etc. increases with distance, so the greater the distance from the power generation site to the end use, the more electricity leaks out.  According to the Electrical Engineering Portal (http://electrical-engineering-portal.com/total-losses-in-power-distribution-and-transmission-lines-1) line leakage is around 17% and another 50% is lost in the distribution network.

     3.  Conversion of electricity to battery storage chemistry in electric cars, etc..

     4. Conversion of battery chemistry back to electricity.

Such losses can easily amount to 75% according to Gywn Morgan, and therefore it would be better and simpler to simply put gasoline and diesel into our vehicles than have all these numerous and wasteful ‘intermediate steps’.

So keep it simple and stick to Gaia’s ready to-use-gifts: natural gas, petroleum and even coal.