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A breaking economy Update 8 15 2021

Breaking Economy or broken Capitalism?

The basic premise of Capitalism is a transaction between individuals where two parties buy, sell or swap goods or services at a price that is agreeable to both and the value of the transaction is kept by both.

This basic transaction has enabled humankind from the beginning to exist by acquiring what they need from other members of the species.

The economic model of Capitalism is this same mechanism but on a grander scale.

The transaction can be modified with the agreement of both participants. As long as the participants and the only the participants make the modifications to the agreement, a capitalistic transaction still has taken place. Simply put, it is willing transaction between two parties or more to the satisfaction of all without outside interference.

That said, in recent months, I been asking myself if our economy is indeed broken, but knowing that as long as transactions are taking place, the economy is functioning, hence by definition, is unbroken.

It would be impossible to actually break an economy, as people will always need to procure things from one another. However, it is becoming evident, as it has happened so many times before in humankind’s history, that intervention into this basic transactional event can move an economy towards a breaking point.

When interference into this basic transaction occurs, economic distortions materialize that begin to seemingly make little sense. These distortions are caused by intervention into this basic transaction. The intervention can be a natural obstacle such as bad weather, but more often in modern society, it is a third party interfering with the agreement between the original participants.

Examples of third party interference would be forcing one party to accept the terms of the other (think terms or conditions not agreeable to one or both parties), adding or subtracting from values of the items exchanged (think forced rationing or mandated minimums or maximums) , or demanding a subsequent value transaction for every standard transaction (think tax or subsidy).

Obviously, in our modern day society, the basic transaction is laden with dos and don’ts, rules and regulations, deductions, surcharges, fees or taxes. The worth of each transaction has been altered by such additions or subtractions and because of decades of intervention, we may finally be seeing what starts to resemble a breakage of the economy. Some may call it a tipping point.

Examples of these distortions today would be our high unemployment rate while businesses have difficulty-finding workers (this condition persists nationwide), a severe misallocation and highly unbalanced distribution of wealth, and a necessity to manufacture intrinsically worthless receipts (our currency and deficit spending) to address the economic maladies that have materialized because of these distortions. Other symptoms include the necessity of an ever-increasing safety net to constituents (despite improved efficiencies throughout history in manufacturing techniques) a perceived need for ever-increasing regulation and taxation in order to sustain the `system` and increased violence and unrest as a result of these economic distortions that wreak havoc on members of the economy caused by more and more interventions. The more havoc that materializes, the more these third parties feel it necessary to intervene.

Plainly put, what started as a simple transaction has somehow morphed into something that no longer accomplishes its original purpose.

Having attracted intervention by a host of others not part of the original transaction, the simple exchange of goods and services has morphed into something almost completely unsustainable. What started as a working economic model moves more and more towards an unfunctional one. In summary, the Capitalistic economic model is nothing more than people buying and selling at an agreeable price to both, with their needs fulfilled and the value of the transaction kept by both. When man tries and improve on this basic transaction for whatever the perceived reason, the natural economy begins to break apart as the basic transaction is interfered with.

In conclusion, our economy may not be broken, but to this analyst, may have reached a point as to be almost unrecognizable as to its original intent. Despite this, the interventions continue to increase, and the parties responsible for these interventions is growing larger by the day. What comes next is usually more interventions to try and correct the distortions that the previous interventions have caused.

Opinions expressed here are those of Mr. Cuniberti and not those of any bank or investment advisory firm. Nothing stated is meant to insure a guarantee, or to be construed as investment advice. Neither Money Management Radio (“Money Matters”) receive, control, access or monitor client funds, accounts, or portfolios. For a list of the services offered by Mr. Cuniberti, call (530)559-1214. California Insurance License #0L34249 and Medicare Agent approved. Insurance services offered independently through Marc Cuniberti and not affiliated with any RIA firm or entity. Email: news@moneymanagementradio.com.

Is a market correction near term headed our way? Update at Money Matters 8 /13/2021

Is a market correction overdue and in our near future?

They say history never repeats but it sure can rhyme.

If that’s the case, I feel like writing some poetry today.

During the first week of February 2020, I was sent photos of an empty city in China by an acquaintance of mine, that city being the now famous metropolis of Wuhan.

As I stared at the empty airport and shopping malls of what would later become, arguably, the birthplace of CoVid-19, my mind immediately connected to the concern I had about the markets and where they were headed due to the Trump tariffs.

With the Dow close to an all-time high, rising from the Trump election in November of 2016, I was already looking for an excuse to move portfolios out of the markets. The fear, at that time, was that the tariffs imposed on China would knock China GDP (total output of the economy) down by more than a percent, and that the markets would sell off on a weaker than expected Chinese GDP number.

Seeing an empty city in the busiest country on the planet due to some virus called Corona, I went back to research the effect a similar event had on Chinese GDP.

The 2003 Severe Acute Respiratory Syndrome (SARS) event sickened about 8,000 people and had a mortality rate of 10%. SARS caused Chinese GDP to back off 1%, and back then, China was only the 5^th largest economy worldwide,

Doing a quick check at worldometers.info/coronavirus/ (an excellent site for CoVid stats), mortality rates were at 3% and the number of CoVid infections stood at 35,000. A shockwave went through me. With the Dow at or near an all-time high, with the tariffs already causing me concern as to their effect on the Wall Street, and now staring at a virus that already had ten times the infections then SARS which knocked off 1% off Chinese GDP, and China now the second largest economy in the world, I penned an article Feb 10^th, 2020 entitled “Corona Virus Effect on Markets”.

The article’s main theme was that investors were not considering the possible effect that an exploding Corona virus could have on markets.

Specifically I wrote:

“Unless Corona is soon contained, a lingering presence could rattle markets long term with severe consequences being possible” (Feb 10, 2020)

“Severe consequences” turned out to be true if not the understatement of the century.

On my subsequent Money Matters radio program I warned the same and announced I had initiated appropriate measures in stock portfolios.

Starting a few weeks after that article, in the first few days of March, the Dow began its historic 38% slide in a record shattering time of only three weeks.

Fast forward to today and I am beginning to get the same feeling as I did back then.

The similarities are striking. The Dow is again pressing up against an all-time high. Bailout packages, unemployment bonus checks, paycheck protection reimbursement programs (PPP) and other subsidy programs have ended or are ending soon. CoVid cases are spiking and in certain areas, exceeding the highest infection rates of the summer of 2020.

We are finding out that the vaccines are not the panacea we thought they were, and in the midst of a massive resurgence of the new Delta variant, much of the U.S. is reopening with a vengeance.

Theme parks are open, football stadiums will soon be packed full of fans, 700,000 motorcycles enthusiasts will soon be arriving in Sturgis for the annual motorcycle rally, and restaurants, theaters and other venues are opening up to record crowds.

Once again, I find myself looking for a reason to sell in an attempt to preserve that which the rebound in 2020 may have given us. Once again, I have installed stops (orders to sell should prices drop) in all portfolio positions.

Although such methods do not guarantee against losses, stops can help eject positions automatically if markets start down hard.

And like a bad dream that keeps coming back, Wall Street investors seem to be ignoring the possibility that once again, as CoVid revisits its assault on the human species, in its doing so, could also once again cause a severe reaction in the markets.

Keep in mind no one can predict market movements at any time and past performance does not guarantee future results. Contains the opinions of Marc Cuniberti only and should not be construed as investment advice or a solicitation to buy or sell any securities, nor represents the opinion of any bank, investment or advisory firm. Neither Money Management Radio (“Money Matters”) nor Bay Area Process receive, control, access or monitor client funds, accounts, or portfolios. California Insurance License #0L34249. Insurance services offered independently through Marc Cuniberti and not affiliated with any RIA firm or entity. (530)559-1214

How high can it go Update July 25, 2021

How high can it go?

From the March 2020 “CoVid” low of the Dow 18,000’s, the index has recently breached the 34,000 level.

3,000 more points on the Dow (DJIA) would make a double. Considering the massive damage done to world economies from the imposed shutdowns on both business and travel, the possibility that the Dow would reach such a milestone so soon is indeed perplexing, if not outright bordering on the unbelievable.

Gaining 3000 more points is not a given by any stretch, but the fact that the Dow is even close to a double in the face of such economic calamity begs some sort of explanation.

Analysts everywhere have opined on just why and how the incredible rally in stocks has occurred given the circumstances. We can comfortably conclude we will never know the exact reasons for the astonishing increase in stocks. The cross currents of markets and the aggregate whims of investor sentiment can never be scientifically explained, hence the reason economics is a more a study of sociology then of science.

The difference being a scientific conclusion can be replicated and its equations categorized, while markets movements are just the sum of investor beliefs and whims at any given time. As such, nothing concrete can ever be concluded where the human psyche is involved.

The next question is just how high can this market go.

No one can say how high it might go, how long it might take, or how low it might fall to, or if anything happens at all.

Whatever direction the markets do end up going will solely depend on the sum of all the beliefs and subsequent actions of the billions of players in it. As such, forecasting market direction is akin to knowing the exact path a leaf will take during a windstorm, which is an exercise in futility.

Keeping this fact in mind, investors can take a variety of actions in their portfolios:

Do nothing (hold their positions whatever happens)
Sell all their positions immediately
Sell a portion of their positions immediately
Sell all or a portion of their positions if and when prices hit a predetermined point
Buy more positions at a predetermined point
Buy opposing positions in an attempt to hedge (counter balance the account, keeping in mind it may not be possible to achieve a counter balance due to the nature of markets)

In my experience, many investors and advisors opt for #1. Moreover, I can comfortably say the majority of economic news outlets lean into the same. In other words, “hold for the long term”.

Past readers of Money Matters know I am not a wholehearted supporter of hold for the long term for a variety of reasons:

I do not know how much “long” I have left in my “term”, and truthfully, neither does anyone else.

Hold for the long term assumes markets always come back. Based on the advisor restriction from authorities that a licensed advisor can never guarantee markets movements of ANY kind, the statement speaks for itself. Never say never. Markets may always come back, until they don’t.

The pain and stress of a severe market crash can be excruciating. That translates to “unhealthy”, and during extreme crashes, that can be detrimental to one’s health and wellbeing, and possibly even one’s life.

Buy low and sell high is an old market adage. It isn’t “Ride ‘em wherever they go”. I will leave it to the imagination as to how that applies. Buying stocks when they are all beat up and riding them higher means profits. You can’t do that without dry powder.

Much like leaving a slot machine when you have lost enough money, my strategies center around #4, and that is simply knowing when to get out of dodge. Consider selling at least some of your holdings if things get ugly to lessen the pain, and make that decision before hand and stick to it.

In other words, leaving the casino when you have lost enough money, rather than to keep pulling the handle, all while watching your bank account dissolve into the nothingness of a market crash.

Opinions expressed here are those of Mr. Cuniberti and not those of any bank or investment advisory firm and should not be construed as investment advice. Neither Money Management Radio (“Money Matters”) receive, control, access or monitor client funds, accounts, or portfolios. For a list of the services offered by Mr. Cuniberti (530)559-1214. Calif. Insurance Lic #0L34249. Medicare Agent approved. Insurance services offered independently through Marc Cuniberti and not affiliated with any RIA firm or entity.

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Update on the Promise of Progress, Medicare and Fire Insurance June 29, 2021

Progress makes the world get better and better over time- Bureaucrats are destroying that unwittingly

Remember the “Promise of Progress”?

Man will improve manufacturing methods, streamline methodologies, develop faster computers, grow bigger apples and do it faster, and we would all have more leisure time to sit by the beach and contemplate the meaning of life.

Well, most of that happened, except for the last part. We did get faster computers, better growing and manufacturing techniques, and improved just about everything we did. Heck, we can even talk to each other on the phone from the top of Everest or research the entire contents of the now defunct Encyclopedia Britannica while sipping a Latte’ at the local coffee house.

Despite all this, we seem to have to work harder than before, work longer than before, and still can’t seem to make ends meet.

I seldom see any discussions about the thwarted promise of progress.

Perhaps we’ve all forgotten. But this analyst has not and asks the question: “What went wrong”?

Seemingly, whenever mankind figures out a way to make things cheaper, faster or better, somebody eventually wants to tax it, alter it or break up the company that does it.

Either that or those that fail to compete complain enough to somebody and then the subsidies come out that sustain the old methodologies, and therefore the higher costs and subsequent waste of our natural resources.

Examples are everywhere.

Amazon excelled at making things cheaper through widespread pricing awareness and now those threatened by it cry foul. Apple made phones wanted by many and now finds itself in front of the powers at be to answer for its “crimes”. WalMart, Costgo, Sams Club and a host of other big box stores and mega-chains suffer the slings and arrows of those who can’t compete and then find mandated (and usually arbitrary) costs attached to their products under the guise of fairness.

The list goes on and on.

Next will be that as the automated robot replaces more and more people (and their costs) I have no doubt a robot tax will soon follow and probably an ongoing one at that.

It seems like being too successful is not allowed.

Get too big or sell too cheaply and prepare to be roasted. Find a way to make things faster than the next guy, and you can expect somebody in the ivory halls of the state or the Feds to find a way to make your goods or services expensive again through some sort of “tax” or “retribution“ payment.

Don’t get me wrong. I am not against taxes, but I am a fan of sitting by the beach, and when I was growing up, I believed in the promise of progress.

Not so now.

Anytime something gets cheaper or better, the “better” parts stays around but the cheaper part doesn’t last long.

Rising prices now seems the norm, no matter what we do, brought about by either inflation, taxes, fees or surcharges.

Seems like competition is becoming a dirty word, that innovation eventually leads to handcuffs, or that novelty leads to complaint.

Have we forgotten that improvement in its many forms is a good thing?

True, some may be displaced as that very same improvement obsoletes methodologies and dries up revenue streams resulting in failing businesses. But this is the natural progression of innovation.

Capitalism calls it “creative destruction”. Most people just see the destructive part, and fail to see the creative part. The creative part is what brings about the promise of progress, the lower cost or better mousetrap, and forces those run over by innovation to become more efficient and find a better way to do whatever it is they do.

And there lies the real benefit to mankind. Better or faster, equates to “more efficient”. More efficient means less using less resources, whether it be power, materials or even saving time. All those add up to using less of our planets resources.

Less resource consumption (efficiency) means more product being available to more people (like food), less pollution, less greenhouse gases, and a more sustainable world.

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Update on fire insurance June 16, 2021

Fire policies written daily

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Once again we come into the fire season and the calls about and for fire insurance policies abound. As an agent and owner of an insurance company, I find homeowners asking good questions and not so good questions, of which some are based on misconceptions about what is going on in the industry as it relates to homeowners policies.

Some time ago most residential homes were covered under one inclusive policy called an HO3 (HO= homeowners).

With the increase in wild fires, many insurance companies took huge losses and over time, some have elected to remove the fire portion of coverages from their policies. They also removed lighting, wind and internal explosion and other related coverages for a variety of reasons.

Insurance companies may still offer coverage for your home, but many have removed the fire and related risks mentioned above.

On rare occasions, an insurance company will still offer the all in one HO3 in fire areas but homeowners won’t know this unless they submit an application. The why or why nots as to why an insurance company may make these rare exceptions have some rhyme and reason to it, but usually that is known only to the insurers.

Nowadays it is common to have a fire policy and what is called a “wrap” policy or better known as a “Difference in Conditions” policy (DIC). The DIC is written by your regular insurer if they decide not to offer you a complete policy (HO3), and then you will likely need a California Fair policy for the fire portion of the coverage.

Cal Fair is not a state agency. It is a group of all the insurers that do business in the State and operate much like the “assigned risk” coverage for bad drivers. Cal Fair is all these insurers grouped together which then share in the losses and gains of the combined policies.

One could argue they may be financially bulletproof, which means unlike some insurance companies that may have gone under due to massive wildfire losses in recent years, Cal Fair may draw on the resources of the combined strength of the entity. They are also covered under the California Insurance Guarantee Association. (https://www.ciga.org/about_ciga.html).

Many of the phone calls I receive complain about Cal Fair and some say they want other options. When asked why, they usually respond, “because they’re too expensive”.

I always respond with the same answer, which is “usually no agent wants to write a Cal Fair policy because its compensation to agencies may not be commensurate with other rates. In addition, if you’re stuck in a hole and only one guy throws you a rope, you don’t complain. Your choices are if you don’t like Cal Fair, don’t get insurance. And when you’re regular insurer does come back to insure fire, you will probably wish you had Cal Fair”.

I say this because I find Cal Fair to be highly regulated, scrutinized and skinny on compensations as mentioned above. Not so with the big insurers in my opinion. So if you think Cal Fair is high, just wait. My opinion again of course.

The trick to navigating all this is getting a responsive agent who will take the time to discuss coverages, limits, deductibles and explain how it all affects your premiums. I can honestly say many customers I talk to tell me horror stories of agents not returning phone calls or not even answering their phones, being rude or short, telling customers they’re just too busy, or out of state cookie-cutter type agencies winging quotes with little discussion to the client.

The best way to make sure you get the right coverage at the right price is to work with an knowledgeable local agent, who will call you back, explain the policies, take the time to make sure all your questions are answered and get you the right limits and deductibles for your situation.

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