Blockbuster Blunder

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According to an article in the latimes.com movie rental mainstay Blockbuster will file for Chapter 11 around the middle of September. This is because of their growing competition from Netflix and other online streaming companies. Also the heavy load of their $920 million dollar debt. 
 
Blockbuster opened their first store in Dallas, Texas on October 26, 1985. The idea blossomed and became a real success. In stepped, millionaire Wayne Huizenga, the company then enjoyed blockbuster growth. When it was all said and done they sold the company to Viacom for a cool 8.4 billion dollars. After that the troubles began. 
 
Viacom influence on the company never really kept it flying. They were late in embracing the new technology's inspired by Netflix, their closest competitor. Online streaming of movie rentals never was on the drawing board. They were left in the dust by the new upstarts. 
 
The bankruptcy is trying to accomplish many things. Primarily they need to dump 500 to 800 store leases. Last year alone they closed 1000 stores. They need to become a lean company. Probably to many years of the corporation trying to milk a good thing till they drove it into the ground. 
 
With consumers demanding more 21st century ways of delivering video content, blockbuster was to much old tech. People wanted the kiosk convenience of their Redbox in the Wallmart to get their movies. Paying $1 dollar to Blockbusters $5 dollar rental fee was clearly the better choice. Already, Blockbusters only store front competitor, "Hollywood Video" closed up shop in April of this year. 
 
There is always something to learn from watching the big boys crash and burn. Blockbuster was late in adapting to the new business model of a subscription fee with at home rentals Ala, Netflix. They never saw the trend of online purchases, rentals and streaming of content Ala, Itunes and others. These two mistakes alone will push back the company so far it may never catch up. Blockbuster became complacent and stagnant in their business practices. 
 
Our we, in our own businesses and jobs, becoming complacent and stagnating. Our we, diversified and growing like Netflix and Itunes. I can see in my own business if your not paying attention to new ways and ideas' you may someday be out of business. The recession has shone the light on a lot of our old school ways of doing things. Telling us if we want to stay alive in our business, we have to constantly be innovating. 

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More and More Debt

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The United Kingdom owes $90 billion dollars in credit card debt. They have a population is 51 million people. The United States owes $850 billion dollars in credit card debt. It has a population of 305 million people. According to Consumers Reports Magazine and Whatsthecost.com.

In England they pay, just in interest on credit cards, $652,445,625. It's incredible this occurs every month. This is not principle, it's just the interest. That's not including interest on loans, mortgage or other types of debt.

The United States government has a total debt, at the present time, of $13.3 trillion dollars. The yearly interest payment for this debt is $383 billion dollars. According to the United States Department of the Treasury.

In a capitalistic economy like ours we are free to chose to go into debt for whatever reason we like. Some of us do by choice and some in desperation. The banks that provide the easy credit happily extend it to us. It's a service that's mutually desired. The essence of capitalism is the free exchange of goods and services for profit. 

The wisdom of the banks to extend unsecured debt in such a great amount, if defaulted on in great numbers, could bankrupt the company. Also the people taking the large amounts of credit are taking a risk and it could also be their downfall when they can't pay it back. But the risk to both parties is apparent and understood hopefully.

The difference between debt in the private sector and the government is that the private sector it's capitalism and the government it's not. The government goes into debt and has no function to pay it back, only by taxation, taking our money. We must earn our money in the economy to pay back our debt. The government is outside the give and take of capitalism. It's a thorn in the side of capitalism. It holds back the economy and hurts general business functions.

It's bad enough we are tax so heavily and our money is wasted by a government which has a foundation and history of incompetence. This is another reason for smaller government. No place could you find the mishandling of money on such a great scale.

The world has never seen this level of debt. We really don't know for sure what the ramifications will be. For the common man living with high debt payments it's a detriment. When all your money goes out for debt payments, isn't your standard of living lower? Isn't your quality of life much lower. Don't you just go paycheck to paycheck with no end in site, until the day you can't make anymore payments and go bankrupt.

We can agree that in the real world, in our individual lives this is not sustainable. There is a day of reckoning. So doesn't it make sense that there will be a day of reckoning for our government. Doesn't the common sense we all live by apply in Washington DC?

The Bush Tax Cuts

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There is alot of rumbling about the Bush Tax Cuts coming to an end this year. President Obama has been saying he wants the tax cuts to end for the rich but stay for the middle class. 
 
Senate Democrats don't have the votes to pass the Obama tax increases, according to the web site money.cnn.com. Even Democrats know it's a bad time to raise taxes in a faltering economy. 
 
They claim they'd favor a temporary extension for a year or 18 months. Some democrats even want to make the tax cuts permanant. Their theory is that second quarter GDP expanded at only 1.6 percent annual rate for the second quarter. So its not the right time yet.
 
In the Senate the votes are just not there to pass the Obama tax increase. But in the House Obama has the votes to pass his bill. September 13 the Senates recess is over and debate will start over the Obama tax bill. The senate has more deficit hawks than the House and with the Republicans it will be hard to make any quick progress. 
 
Senate Budget Chairman Kent Conrad, D-N.D. said last month he would be reluctant to let anyone's tax cuts expire just yet. He went on to say,"In a perfect world, I would not be cutting spending or raising taxes for the next 18 months to two years. " also that "The downturn is still very much with us". 
 
I disagree with the raising of taxes. Our representatives still don't have a clue how their spending and over taxation is one of our greatest problems. Having stability of the tax rates is important to business and personal planning. Also the Estate tax being brought back is unfair to family's. A lifetime of work has to be double taxed and family wealth has to be stolen from heirs is a disgrace. 
 
Further, I would like to see an across the board 10% reduction in the Federal budget. Just like my budget spending has been reduced in these recessionary times. I have had to increase my work extra to fill some income shortfalls. The government should be run like we run our home finances.

Happy Birthday Social Security

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Social Security becomes 75 this month and it time for it to retire. You have the baby boomers starting to access benefits and some say this will crash the whole system.  
All my life there has been the doom and gloomers predicting the last breaths of this antiquated system. Crisis of insolvency have been heard around Washington DC for years. With good reason, every year the Social Security Board of Trustees issues it yearly report. The report is usually bad. This year their report states that social security will be broke by the year 2037. According to Kiplinger.com this year costs will exceed revenues. In the year 2037 if benefits are reduced to 75% the money can go all the way to 2084. 
 
The accuracy of these estimates are determined by social security administration. It's probably the only federal institution that plans things out that far. According to the Social Security Administration they have to project out this far so minor adjustments can be made so that payments can continue to flow. 
 
Supposedly they actually have been planning for the retirement of the baby boomers since 1955 when they noticed fertility rates increasing in 1946. They have been watching all these years and waiting. They do lots of preparation as do life insurance company's. They know if Congress doesn't act to fix Social Security they are able to pay benefits in full for the next 27 years and pay benefits of 75% from then on. 
 
The only ideas to fix social security they have, are only ones that are consisting of more taxes. Another is raising the retirement age to 70 years old. Both options would face resistance by the American people. The American people want to keep Social Security the way it is and not be worrying about it. 
 
Other ideas our that retirement age should be raised to 70 years old. Also phase out people 45 years old and younger completely. People 46 years old and up will get complete benefits. Those younger will take their social security contribution and put in a brokerage account like an IRA with mandatory contributions. Supposedly this account would appreciate and produce comparable payouts upon retirement at 70 years old. 
 
A rebooting of Social Security is called for. Many a multi plan solution consisting of many different ideas could be initiated. But the final solution in the years to come would be a total dismantling of it completely. The original safety net has grown unwieldy. We can't afford it and can't manage it.  

Book Review: The Elements of Investing

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When reading a good book on investing you try to find some thing new you didn't know or understand before. Many of us that read a lot of person finance or investing books find the information repetitive. So finding these treasures, is the fun of reading, to find that little jewel that makes you look up and take notice. For me I have gotten a lot of info and enjoyment from reading a book called "The Elements Of Investing" by Dr. Burton Malkiel and Charles Ellis. 
 
They have written other books on investing notably "A Random Walk Down Wall Street". That book was a hefty read at 400-500 pages. They have written this new book, which is a boiled down version of just the best stuff. In 176 pages they give just the best advice on investing, saving and how to do it. They write about the different types of investing accounts and what type of investments to put in them. 
 
They describe a wide variety of scenarios and stories of investing and how it works into your life. One of the jewels of this book is their discussion on Asset Allocation. It's explained in a clear and concise way. They write how it's not just important but it's importance is paramount to your success in investing. 
 
What they write about in asset allocation is that whatever your ratio of equities to bonds are, it must be one that you will be able to live with when the market is volatile. If it is wrong you may sell at the wrong time totally destroying your hopes for making a growing portfolio. 
 
Another key technique of good investing is re-balancing your account every year. The first of the year would be a good time to do this. The importance of this is if your 50/50, 60/40 or whatever your equities to bond ratio is, if it goes out of balance, you should sell and buy to get it back in balance. The jewel in this strategy is your selling an asset that has appreciated and buying one that is at a low price. Selling high and buying low at a predetermined time. This technique forces you to take profits and buy low. It restricts you to never buy at the top. It makes a contrarian out of you and increases you rate of return. 

Malkiel and Ellis take on the prognosticators who make a living telling us what to do. They denounce the nonsense they try to tell us. While saying they all get it wrong, in fairness they write about a few who called it right. They go on to say there were a few to get it right but so far in advance that following their advice would have been counter productive. 

The good advice kept coming when they said that it was important to have some fixed income in your portfolio to see you through the time of equity turmoil. It will keep you calm until the roller coaster slows down. 

Many times they told how diversity was key to long term profits. Investing in value and growth equities was important for for a well rounded portfolio. Broad diversity also abroad with investing in fast growing economy's like China, India and Brazil. 

They don't recommend SPDR's or Large-Cap funds, they suggest Total Stock Market Funds that include broad array of stocks like one that follows the Wilshire 5000. Large, Mid and Small-Cap stocks all together. Of course they recommend you do all this investing using only Index funds.

I really enjoyed this book. Its a quick read with a good conversational style. I know I'll keep it and reference again.

The Strangest Secret

Back in 1950's there was a motivational speaker called Earl Nightingale. He was working in the radio industry. He had an insurance company and gave motivational talks. In 1956 he gave his most famous talk. It was recorded on vinyl and won a gold record for 1 million copies sold. It was called "The Strangest Secret".  
It's only a 30 minute recording but carries a lot of good ideas. He talks about the reasons some people have success and some fail. He states out of 100 people only 5 will be financially independent. With people living in a country of abundant opportunity, why is there so much failure? 
 
He says what is the definition of success? It's the "Progressive realization of a worthy ideal". Men fail and they do not know why. They even don't know why they go to work everyday. That by their own choice they conform to what everybody else is doing. There is no success in showing up for a job. A true success is "Doing the job you choose to do deliberately". If you chose a job and educate yourself, you are a success. 
 
He says we live today in a world with a plateau of security. Most everything is available to us, we just have to show up to get it. Just having a job is not success. We have no goals and we don't use are minds and think. 
 
He says the key to success is that "We become what we think". You are what your thoughts are. If you think negatively, you will be negative. If you think good you will be good. You have to believe you will succeed then you will. If you can't find the right circumstances then make them. If you think about frustration, fear and anxiety that's what you will become. If you think about nothing you will have nothing. 
 
The trouble with today's economy is it moves at the speed of it's weakest link. It all up to each individual. We have to use are minds and think. 
 
He states that our minds are the most powerful tool we have. What we put in it is what our lives will become. Our minds are like fertile ground. Our minds like the ground doesn't care what we put in it. It will only return what we put in it. Like the ground, if we plant corn we will get an abundance of corn. If we plant a poisonous plant we will get an abundance of poison. Our minds are the same. He says it a law that we cannot change. 
 
We are the sum total of our thoughts. We have a choice, we can put good things in our mind and live successfully or put bad things in our mind and live in the gutter. 
 
I like a lot of what he has to say. It's interesting that these motivational speakers go back this far and the talks are recorded. I found this on YouTube. 
 
He calls this way of living "The Strangest Secret" because it's been known for thousands of years but very few put it into practice. 
 
I can see if you focus on what your doing and have good goals you will be successful. The most interesting item I thought was when he said if you can't find the right circumstances to succeed then make them. That is very important because we blame the circumstances when we fail at something. We blame other people, place and things. Then we quit and are perfectly happy to say we tried. How many times have you heard that or said that yourself. I have done that myself. Did it occur to anyone to go and make their own circumstances. 
 
Earl Nightingale was a famous motivational speaker in his day and probably helped many people. I'm glad I came across his recordings. He made me think in a different way. Maybe that is the way successful people think. If you ever hear successful people who have built large companies from scratch, this is the way they talk. It's different from the rest of 

us. Earl Nightingale says "You have to act like failure doesn't exist".