What do you know...? What a strange country in which we live! I'm an optimist. But I'm also a realist. Thus, I am an optimistic realist. When the state is on the cusp of what will likely be one of the most austere and financially challenging times in the state’s history, decisions are complex. In a state where literally thousands of residents depend on the tourism industry for their livelihood, the COVID pandemic has had… and will continue to have… a devastating effect on residents who will have to make a decision as simple as “Do I pay the rent… or do I buy groceries?” This is not rocket science. And this is definitely not pono. Here’s something I bet you didn’t know: The Federal Reserve said it is buying exchange-traded funds (ETFs) that track the corporate bond market. This is an unprecedented action for our economy; this is a first for the U.S. central bank. I realize many people are trying to make sense of far too many things, and the Fed is literally the farthest thing from most people’s minds right now. But it shouldn’t be. And here’s why… Have you taken a look at the stock market lately? Over the last few weeks, the stock market has literally reached record highs. How can this be? In an economy where many businesses have been closed for a while… and where many of those same businesses will soon close forever, the stock market is still cresting over the previously set high. What a strange country in which we live! The number of unemployed citizens has reached staggering heights. And, though the numbers of new filers for unemployment has begun to slowly decrease over the past few weeks, no one seems to be aghast at how or why the stock market continues to belt out fabulous prices per share. Well, neighbor, when the Federal Reserve starts buying Exchange Traded Funds, they are quite literally, propping up the stock market. What Is an ETF? An exchange traded fund (ETF) is a type of security that involves a collection of securities—such as stocks—that often tracks an underlying index, although they can invest in any number of industry sectors or use various strategies. ETFs are in many ways similar to mutual funds; however, they are listed on exchanges and ETF shares trade throughout the day just like ordinary stock. Some well-known example is the SPDR S&P 500 ETF (SPY), which tracks the S&P 500 Index. ETFs can contain many types of investments, including stocks, commodities, bonds, or a mixture of investment types. An exchange traded fund is a marketable security, meaning it has an associated price that allows it to be easily bought and sold. (from Investopedia). Moreover, the Federal Reserve is also purchasing Corporate Bonds, a type of debt security that is issued by a firm and sold to investors. The company gets the capital it needs, and in return, the investor is paid a pre-established number of interest payments at either a fixed or variable interest rate. Essentially, by buying Corporate Bonds, the Federal Reserve has become the largest lender to corporate America, skipping banks and all of the United States' programs that were set up to help businesses in desperate times. And, make no mistake, these are desperate times. …but only for SOME people. (read more details at the bottom of this page) For other people… For example, those employees of the State of Hawaii... …and especially those people who have the power to borrow money at borrowing rates near zero… …there is a massively massive mountain of money being created right now. And guess where that ETF and Corporate Bond spending money came from (?) ANSWER: The Coronavirus Aid, Relief, and Economic Security (CARES) Act. That’s right: our Federal government is using COVID funds to prop up the stock market. I will re-state the previous sentence for clarity: The Federal government of the United States of Americ is using COVID funds to prop up the stock market. It gets “better.” To be eligible to sell the corporate debt directly to the Fed, companies must have a rating that is at least Baa3 (from Moody's) or BBB- (from Standard & Poor's). Just so ya know - that’s barely investment grade. In other words, the companies’ debt can be rated as “just above” junk bond status. *THIS*, ladies and gentlemen, is why the stock market is soaring while the nation seems to be hurtling towards one of the worst recessions we’ve seen in a very long time. At some point, all of this debt will become payable and due. And, much like the buzzing commuter trains along the subways of New York City, the slide in the market will become unstoppable. Many economists agree with me. On the other hand, there are some economists who don't quite agree; but they don't disagree either. Why? Because... THIS HAS NEVER BEEN DONE BEFORE! Accordingly, no one knows what will really happen. Now… I’ve explained why the stock market is insanely high, despite some serious business headwinds. The preceding paragraphs, though somewhat convoluted, “clearly” explain how this is happening. As for the raises for Hawaii’s state government workers, there simply is no justification. But remember, Hawaii: you put these folks there; you literally gave them the power to make decisions FOR you. That was the deal when you voted them into office. But there was never a caveat that they had to make GOOD decisions. That was not part of the deal. And the lawmakers know it. And now you do, too. ~ Aloha ~ John H. Clark III is an optimistic realist. Principal consultant at The PIE Group, and Executive Director of TeenBuilding USA, [a non-profit 501c(3)], John believes better development of leaders is what we (all) need. And to be better organizations, we need more good leaders, not followers. To build better leaders, we must start with the individual (you, she, he, and me). Described as “an innovative leader,” John teaches leaders, organizations, and individuals how to inspire each other. With a bold goal to inspire a worldwide community of optimistic realists who continuously accept, adapt to, and achieve the bold and beautiful concept of The Ideal Life, John is leading a movement to inspire people to apply his trademarked mantra {Accept. Adapt. Achieve! ®}. An innovative business manager and retired naval officer, John is fascinated by leaders and organizations that make the greatest impact within their organizational culture and within the “real” world — people who “get it.” Over the course of his life as a military leader, corporate mentor, and innovative content creator, John has discovered a wealth of insight about how we think, act and communicate within our respective work/life environments. As a career naval officer, mentor, educator, and optimistic realist, he has devoted his life to sharing insights to assist in our quests to become better at what we all do – live @ work! An optimist with a penchant for writing about realistic solutions to the challenges of everyday life, John is the author of 3 books: a leadership-development insider, The Ideal: Your guide to An Ideal Life, a teen-focused guide, Getting Out: Expert Advice for Today’s Teens, and the Christian-based book, God’s Heartbeat: A Powerful Premise for Leading a Christian Life. He delivers a unique and refreshing point of view to life's seemingly overwhelming situations. Through books, blogs, and everyday conversation, John's message resonates with an empowering blend of ideals that enrich, uplift, and “authorize” people to set and achieve goals far beyond current mindsets. His trademarked phrase is a winner: How the rich get richer... using YOUR money: As reported by Markets Insider in late June, the Federal Reserve purchased $428 million worth of corporate bonds in response to the coronavirus, including companies like Coca-Cola, AT&T, and Berkshire Hathaway.
Think about this fact for a moment: In February of this year, the stock of Coca-Cola was trading near $60 per share. This past Friday (August 14), the price was $48.45. Likewise, earlier this year, the stock price of AT&T was near $40 per share; it closed Friday at just over $30 per share. But get this: In late February this year, the stock price of Berkshire Hathaway was… hmmm… actually Berkshire Hathaway Energy is a PRIVATE company. Forget the fact that the stock prices of Berkshire Hathaway’s other PUBLIC companies (BRK-B) sells for $210 per share; and (BRK-A) sells for (wait for it…) $316,251.00 per share. That’s right, folks… your government is spending COVID money to prop up the share price of a slice of a conglomerate that has a share price of over three hundred thousand dollars! Barely a week later, on July 7th of this year, Berkshire Hathaway Energy, a subsidiary of Warren Buffett’s Berkshire Hathaway Inc., announced that it had “executed a definitive agreement to acquire Dominion Energy’s natural gas transmission and storage business.” If you have ever wondered how the rich get richer, consider this small subscript in history, as the Federal government uses YOUR money to prop up stock prices. Dominion Energy is an American power and energy company headquartered in Richmond, Virginia that supplies electricity in parts of Virginia, North Carolina, and South Carolina and supplies natural gas to parts of Utah, West Virginia, Ohio, Pennsylvania, North Carolina, South Carolina, and Georgia. Dominion also has generation facilities in Indiana, Illinois, Connecticut, and Rhode Island (from Wikipedia). Again… this is how YOUR money – OUR money is being spent (via money lent to the Federal Reserve). Other corporate stock purchased by the Fed include: $16.4 million dollars of AT&T debt; $7.6 million dollars of Boeing debt; $6.6 million dollars of Coca-Cola debt; $5.1 million dollars of Exxon Mobil debt; $7.9 million dollars of Ford debt; $8.7 million dollars of Walmart debt; and $6.2 million dollars of Philip Morris International debt. Worst of all, when Congress initially "allowed" this purchasing of corporate debt, the related businesses had to have significant U.S. operations and a majority of its employees in the U.S. As the funds began to flow, that requirement was dropped. So now, the CARES Act is not about "saving American jobs and American businesses." But boy, oh boy! Look at that stock market go! The news is not all bad, though. After slumping to a seven-year low in April, retail sales bounced back to their pre-pandemic level in just a few months. As of July, they were at their highest level on record. But let’s not remove those sad-face masks just yet… The retail rebound has been driven by a few strong categories. According to the latest data, “compared with July last year, sales were up 24.7% at ‘non-store retailers,’ a sector that includes ecommerce platforms. Sales were also strong at building and garden supply retailers, grocery stores and stores that sell sporting goods, hobby supplies and musical instruments.” Of course, these sectors are expected to do well amidst a pandemic, when most Americans are at home, purchasing over the web, and initiating home-improvement and self-improvement projects. Meanwhile, the report showed gas stations, department stores and clothing retailers are still operating far below normal. Here in service-heavy Hawaii, the numbers remain absolutely appalling. ...which makes those pay raises for Hawaii State workers look absolutely ridiculous. ~ John H. Clark III |
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