Nothing But Political Theater

I have a friend who was asked if he has watched any of the Congressional Select Hearing about January 6th.

I thought his response was spot on.

" I watched five minutes. I don't spend my time watching things that are not fair and balanced."

I was very critical of the actions of the rioters who entered the U.S. Capitol on January 6, 2021. 

I stated that Trump had erred in calling his supporters to Washington, D.C. to rally. He should have foreseen that things could spin out of control.

However, I also stated that most of what transpired that day was solely related to the herd mentality of crowds. Most who participated in going into the Capitol were following the herd rather than consciously participating in a riot much less an insurrection.

In fact, videos show that a number of the "rioters" were waved into the building by Capitol Hill police as if they were visitors right off a tour bus.

My suspicion was that there were instigators in the crowd that lit the fuse and the rest transpired organically. 

For example, look at this surveillance video from the Capitol of the first people to breach the building by breaking the windows. They are all dressed alike in black. This is a video you will not see at the hearing or  thousands of additional hours of video on the events of that day that are counter to the narrative you will hear. Why?

Source: https://twitter.com/RickyBeBack/status/1534572036093120513

I still have seen little on who these people were. Were they Antifa? Government informants? The Proud Boys? Something clearly does not add up.

You can read the blog post I wrote the night of January 6 here.

It is fully within the authority of Congress to investigate what happened, who was responsible and consider what could have been done to prevent it from occurring.

However, any hearings that Congress conducts should have both parties represented and the appointees should be made by the leaders of each delegation. Any evidence presented should also not be one-sided. There should be ample opportunity to hear both side of every issue. Rebuttal evidence and testimony should be part of the proceeding.

None of this is a part of the January 6th hearing.

The hearing seems to have as its purpose nothing more than 1) deflect from the current news that is highly damaging to Joe Biden and the Democrats and 2) damage Donald Trump in something that resembles Impeachment #3 in order to attempt to keep him from the Presidency in 2024.

It has nothing to do in looking for truth or justice. That was imminently clear before the hearings even began.

What would be wrong with a fair and balanced hearing where the totality of the evidence could be heard and assessed?

What would be wrong with having some Republicans who supported President Trump participate and be allowed to offer additional evidence or cross examine witnesses?

What bothers me further about all of this how the January 6th riot is being examined but nothing is allowed to be said or investigated about what transpired with the Black Lives Matter riots of the summer of 2020.

For example, the government alleged that the incursion into the Capitol building caused $1.5 million in damages. The BLM riots caused over $1 billion in damages according to estimates. 

Source: https://www.westernjournal.com/blms-mostly-peaceful-riots-cost-1000x-damage-jan-6-capitol-unrest/

The damages did not stop there. Small businesses destroyed. Lives lost. Police cast as villains rather than heroes.

BLM’s riots devastated small businesses, victimized innocent bystanders and sparked an intense incline in violence against police.

Though the Jan. 6 uprising is inexcusable, the left appears determined to emphasize the damage incurred at the Capitol while neglecting the violence that plagued American streets for months last year.

If we can call out the inexcusable actions of January 6th how is it that nobody seems to be concerned about the riots and anarchy we saw in the summer of 2000?

That seemed to the point of Washington Commanders defensive coordinator Jack Del Rio's comments last week when he asked why the BLM riots were not being investigated in the same way that January 6th was. Del Rio seems to have crossed the line when he referred to January 6th as a "dust up".

That ended with Del Rio being fined $100,000.

Del Rio now clearly understands which city he is living in.

He is not in Jacksonville, FL where he used to be head coach of the Jaguars. 

For that matter, consider the media attention given to the January 6th hearings compared to the attempted assassination of Supreme Court Justice Brett Kavanaugh.

I have yet to see any evidence that there was one rioter at the Capitol that had any firearm with them.

I would think it would be pretty difficult to conduct an insurrection without a weapon.

However, a person arrested outside of Kavanaugh's house, Nicholas Roske, had flown from California to Washington with the specific intent to murder the justice.

Roske confessed to police that he intended to kill Kavanaugh because he was angry about the surprise leak of a Supreme Court draft opinion that suggested a reversal of Roe v. Wade, and because he “believed that the Justice he intended to kill would side with Second Amendment decisions that would loosen gun control laws,” according to an FBI affidavit.

Roske appears to have had more weapons in his possession than all of the January 6th rioters combined.

“An inventory search of the seized suitcase and backpack revealed a black tactical chest rig and tactical knife, a Glock 17 with two magazines and ammunition, pepper spray, zip ties, a hammer, screwdriver, nail punch, crow bar, pistol light, duct tape, hiking boots with padding on the outside of the soles, and other items,” according to the criminal complaint. The padded boots would have helped Roske enter and move through the Kavanaugh home quietly.

I don't want to think about the upheaval and foment that would be caused in this country if such an act did take place.

However, The New York Times buried the Kavanaugh story on page A20 while it gave prominent billing to the "Attack on Democracy" and the January 6th hearing on its front page last Thursday.

How could the attempted assassination of a Supreme Court justice not also be considered an act of insurrection and an attack on democracy?

The same was true of all of the Sunday mainstream media news shows on CNN, NBC, CBS and ABC

Source: https://regionalmedia.live/kavanaugh-assassination-attempt-ignored-by-sunday-shows/

From my perspective, the Democrats are doing themselves and the nation a disservice by not even attempting to put on a "fair and balanced" hearing on January 6th.

If there is damning evidence on Donald Trump or anyone else let's have it presented consistent with the standards of American jurisprudence and hear from both sides.

The fact they are not willing to do so speaks volumes. That attitude also means many simply don't want to be bothered watching political theater than something that might inform and persuade.

In fact, a recent Rasmussen survey found that 39% of voters say they will not watch any of the hearings, 22% say they will watch some of the hearings and only 14% of voters say they will watch most of the hearings.

Interestingly, since the hearings began, the percentage of voters who say they are concerned about the Capitol Riot investigation has dropped by 2 points.

Compare that level of concern by voters with other issues.

Source: https://twitter.com/Rasmussen_Poll/status/1536727472015818757

Many are undoubtedly asking what ever happened to the even-handed administration of justice in this country?

I also find it interesting that the biggest argument that the Democrats and others are making against Trump is that he should have just accepted the "results" of the election and moved on. They argue that if he had, the events of January 6th would not have occurred.

Of course, the same people that say this seem to forget that they were still pushing the narrative that Russia had hacked the election results or colluded with Trump to steal the 2016 election through most of Trump's four years.

In addition, if it is important to move on, what point is served in a hearing about January 6th now? It is over and done with. The FBI has investigated and hundreds have been apprehended and jailed. Some have now been held in solitary confinement without bail for 18 months while awaiting a trial. Doesn't the Constitution say something about the right to a speedy trial?

The voters have much bigger concerns on their minds. In fact, election integrity is a much bigger concern than the January 6th investigation if you look at the survey above.

Why do they get political theater rather than a fair and balanced view of the facts?

Why is there more interest in this political theater than anyone looking at policies that would result in solutions to the issues (inflation, election integrity, violent crime, gas prices, etc)  that are on the top of that list of voter concerns?

Results in a special election for a U.S. House seat yesterday suggests that voters believe Democrats are not focused on the right issues.

An 84% Hispanic dominated congressional district near the Rio Grande that had elected Democrats for over 100 consecutive years flipped to the Republicans.

Source: https://www.texastribune.org/2022/06/14/texas-special-election-tx-34-mayra-flores-dan-sanchez/

This district voted for Obama by over 40 points in 2008.

The GOP candidate, Maya Flores, won by 7 points in 2021.

The political reality is that the voters reign supreme in our system.

The lesson---Politicians who play games and participate in political theater will eventually pay the price.

How High Can It Go?

How high will inflation go?

Last month saw an 8.6% year over year increase in the Consumer Price Index.

It is the highest we have seen in over 40 years.

Here is a sampling of some of the items in the index.

Credit: https://twitter.com/byHeatherLong/status/1535245905045209090

You might notice that the shelter component (rent above) is only showing a +5.2% increase over the last year.

How can this be when home prices are +20.6% and rents are +15.4% over the last year?

The CPI shelter number is 5.2% while actual costs are at least three times higher due to the fact that the  calculation for shelter in the CPI is only done semi-annually and totally ignores the actual cost of housing. It is based solely on a survey of what home owners say they would be willing to rent their house for as well as a survey of what renters say they are paying.

However, since that survey question is only asked twice per year it is totally inadequate to reflect actual costs in a period where prices are increasing quickly.

Considering the fact that shelter is the largest component in the index (33% of the total) it is clear that actual inflation is much higher than what is being reported right now.

However, if the shelter number catches up we will undoubtedly see higher inflation pressures based solely on that number even if some of the other components begin to stabilize over time.

If CPI was being calculated the same way it was in 1981 we would now be seeing an inflation number of just over 17% according to an economist who calculates the index using the prior methodology.

Source: http://www.shadowstats.com/alternate_data/inflation-charts

At some point, we should see some moderation in the index if for no other reason than the base index gets higher with each succeeding month,.

At some point the CPI number will come down. That doesn't mean current prices are going to go down.

If gas prices are the same next year that would be a 0% increase in the CPI index. Keep in mind the CPI is only measuring price changes over the last year. The base the CPI is being measured against is getting larger every month for the inflation that started just over a year ago.

Looking at the data I would expect inflation to remain at least 8% through September assuming there is not a total meltdown of the economy that will drastically cut demand pressures. 

Last October is when inflation really starting taking off which is going to provide higher base numbers in the CPI calculation for 2022.

Source: https://www.bls.gov/news.release/pdf/cpi.pdf

I am also assuming that the increases in shelter costs are going to start working into the numbers over the next several months.

It is not out of the question that the economy could roll over into a recession in the next few months.

Consumer sentiment has not been this low since 1952 when the University of Michigan first started tracking it. It should not be lost that there were a lot of times in those 70 years when things looked very bleak. It says something when consumer sentiment is at this level right now.

A big reason for the pessimism is that wage earners are losing ground every month due to high inflation.

We have now seen 14 consecutive months of negative real wage growth.

Nominal wages have been increasing (+11.9% since February, 2020) but prices have increased more.

At the same time in 1981, the last time we saw this level of inflation, the Fed Funds rate was over 13%. Today it is still below 1%.

How much higher will interest rates have to go to bring down inflation and what will it do to the economy, stock market values and home prices?

In the meantime, Joe Biden and the Democrats seem to be incapable of understanding how much of the inflation we are seeing now can be traced directly to their attacks on the U.S. energy sector and their contempt for the use of fossil fuels.

Energy is the most important factor in economic growth. Energy makes the world economy go. We need it for anything we want to do. It needs to be available and it needs to be affordable. The economy does not work without energy. The consumer cannot spend on other things in the economy if they are spending excessive amounts on energy. If the consumer doesn't spend, the economy does not grow. If the economy does not grow, eventually more and more people go without jobs.

Energy costs get baked into everything in the economy. The fuel the farmer uses to plow his fields. The energy used to dry the crops. The fuel needed to transport the grain. The energy necessary to power the bakery that makes the break. The fuel for the truck to get bread to the market. 

When those costs go up employers need to increase wages of their employees due to the higher prices. This in turn turns into a cost/push inflation cycle that pushes prices higher and higher.

Joe Biden is now complaining that the oil companies are making too much money and they need to drill more.

President Joe Biden slammed Exxon Mobil on Friday for what he described as the oil giant’s greedy reluctance to produce more petroleum, just hours after U.S. economists said inflation in May rose at levels not seen since the early 1980s.

However, on the campaign trail he stated that oil executives should be put in jail for drilling for oil.

Source: https://www.dailymail.co.uk/news/article-7837265/We-jail-Biden-wants-prosecute-fossil-fuel-executives-environment-damage.html

Let's also not forget these gems from Biden when he was running for President.

Credit: https://twitter.com/RNCResearch/status/1535667434912464897

Perhaps there is a reason that oil companies are not drilling for more oil?

Does Biden not understand that his policies are the reason that all the oil that ExxonMobil and others already have has become much more valuable and could be sold for much higher prices?

The only blessing in this is that the public at large has been provided a glimpse of what happens to the world when fossil fuels are abandoned  on a "promise" of a green economy.

Things get very expensive and the outlook for everybody gets very bleak in a short period of time when energy costs increase.

Green economics schemes that are done to "save the planet" will inevitably destroy the economy in the process. The only way to avoid that result is if the cost of the new energy inputs are more affordable than fossil fuels.

I have great confidence that given free markets economies and human ingenuity we will find better sources of energy to power our lives. This has been proven time and time again over the course of human history.

However, we have never voluntarily abandoned something that is accessible and affordable for something that is speculative and expensive.

We are in the process of learning a hard lesson

Let's hope that enough people understand it to do something about it.

If not, we have not begun to see where this ends.

Survey Says

Host Richard Dawson made the following phrase famous on the TV game show "Family Feud".

"Survey Says".

Dawson would utter those words before seeing how well the family contestants on the tv show were able to guess the survey responses to various questions.

Could the family contestants correctly gauge the attitudes of a wider population group beyond their family circle and individual experiences?

I always enjoy looking at survey and poll data.

Looking at the data does not tell me if the people in the survey know the right answers.

Their conclusions could be absolutely wrong.

However, it does reveal what is going on in their heads.

Over the last week or so I have come across several interesting surveys.

You can take what you will from the surveys but I would suggest that in a broad sense this indicates to me that there is deep concern across the body politic in the nation right now.

For example, a recent Rasmussen survey found that 55% of American adults believe it is likely that the United States will enter a 1930's-like depression in the next several years.

This is the breakdown of the survey by demographic group. Notice that 44% of Democrats share that view, women are more concerned than men and Hispanics are more concerned than Whites.

That same survey asked people whether today's children would be better off than their parents.

An astounding 56% answered NO. Only 20% said YES.

These answers in itself are major warning signs to me on where the economy is headed in the near term.

Economic growth is dependent in large part on the optimism of people about the future. People have to be optimistic in order to invest, take risks in opening new businesses and the like.

Lack of confidence and fear of the future are the worst things you can have from the public if you want to promote economic growth.

In the RealClearPolitics.com poll average, 71% say the country is on the wrong track. That is up over 20 points in the last year.

The negative outlook of people in these surveys could effectively become a self-fulfilling prophecy.

That is a major reason why Franklin Delano Roosevelt said this in his first inaugural address in 1933.

All of this pessimism does not bode well for Joe Biden or the Democrats right now.

Biden's approval rating hovers around 40%.

How bad is that?

Biden is running about 10 points below where Trump was at the same time in his administration and Trump was battling the false Russian collusion narrative and an adversarial media every day.

Note that Trump's approval was increasing in his second year while Biden's has been declining.

Source: https://twitter.com/mirandadevine/status/1533956072288952320/photo/1

To make matters worst for Biden, 49% of voters strongly disapprove of his performance. Only 20% strongly approve. That translates to a -29% net score.

Source: https://www.rasmussenreports.com/public_content/politics/biden_administration/prez_track_jun07

By contrast, I thought it was interesting that Donald Trump averaged a 33% strongly approve score during his entire term. That was even higher than Obama's average. This would seem to show there is at least one-third of the country that are committed conservatives and not more than 20%who are full-fledged liberals.

Rasmussen's most recent generic Congressional Ballot poll has Republicans favored by 48%-40%. 

This poll would normally be expected to provide a couple points advantage to Democrats due to their registration advantage nationally. 

What are voters most concerned about leading up to the midterm elections according to Rasmussen?

Source: https://twitter.com/Rasmussen_Poll/status/1534248911401107456/photo/1

I would not expect many of you to be surprised by this list.

These are all things I hear often when I talk to people I know.

However, you might notice that these are not issues you hear as much about on the evening news.

They are also issues that Democrats seem reluctant to talk about.

Below is a list of issues you are more likely to hear legacy media and Democrats talking about right now

Rasmussen also surveyed voters to gauge their concerns about these issues.

Do you notice anything between the two lists?

There is not one issue on the list that legacy media and the Democrats want to talk about that rises to the level of concern that voters have on the first list.

You might say there is a major DISCONNECT between what voters say they are most concerned about and what the legacy media and Democrats want them to be concerned about.

Of course, what a survey says and how people will actually vote can be two different things.

We will see how all of this sorts out in November.

However, it has all the makings of a FAMILY FEUD

The surveys say right now that most of the major concerns of the American people are not being taken seriously enough by the media and political elites.

I do know one thing.

When the American people vote their concerns, they win. 

In our system, they have all the power. The problem is that most people don't believe it.

Perhaps the time is coming for the people to send a message to the politicians and media elites so that EVERYONE believes it.

Things That Make You Go Hmmm-June 6, 2022 Edition

Covid Vaccines for Children

The FDA is reported to be close to allowing the Pfizer and Moderna Covid vaccines to be administered to children under age 5 under an emergency use authorization (EUA).

The Pfizer vaccines were granted EUA status for 5-11 year olds last October. Last month emergency use authorization was given for booster shots for these children.

This slide was in the presentation where discussions took place on whether the EUA should be extended for younger children and for the use of booster shots.

Credit: https://twitter.com/covid_clarity/status/1532024672677638144/photo/1

5-11 year old kids 37x more likely to die in an accident than from Covid.

10x more likely to be the victim of a homicide.

3x more likely to die from a suicide and these are elementary age children.

The Covid vaccines are necessary for children because this is an EMERGENCY?

Hmmmm.

Strategic Petroleum Reserve

Joe Biden announced in November that he was going to take oil out of the Strategic Petroleum Reserve in order to bring the price of gasoline down.

All Biden has done is further weakened our national security.

It might as well be called a "Strategic Political Reserve" based on how Biden is using it.

Credit: https://twitter.com/TaviCosta/status/1532395442444673025/photo/1

The price of oil was $75.50/barrel when Biden started raiding the SPR for political reasons.

It is now over $120/barrel.

The SPR was intended to be used when there were supply disruptions when oil could literally not be obtained at any price due to supply cutoffs.

The SPR now has smaller reserves that at any time in the last 30 years.

What happens if a hurricane disrupts supplies in the Gulf Coast states?

What if Saudi Arabia refused to ship us any oil at all?

President Trump wanted to fill the SPR to the brim when oil prices were below $30/barrel. He was rebuffed by Congress.

Biden says he will replenish the SPR.

At what price will that be?

What price will the America people pay if the oil runs out and there is no reserve left?

Hmmm.

American Income Levels By Age

Below are two interesting charts that show the % of earners who make more than $50K and $100K by age.

The first chart shows the $50K income level.

The biggest income gains are made by people between age 30 and 35.

At age 35 the income trajectory of most people levels off. Your relative position is not likely to change a lot from that point forward based on this data.

Source: https://www.visualcapitalist.com/american-income-levels-by-age-group/

The second chart shows the $100K level.

Interestingly, the only ages where more than 20% of those are making six figures is in those over age 65.

I guess seniority has its advantages if you can hang on and continue to work that long.

Source: https://www.visualcapitalist.com/american-income-levels-by-age-group/

Hmmm.

This is Green?

We hear a lot these day about the need to be GREEN.

We are supposed to  think about SUSTAINABILITY in all that we do.

This includes using alternative energy sources (wind, solar etc) and electric vehicles.

This is what we supposedly should we doing in order to save our planet.

However, I thought this was an interesting chart that compares the earth minerals required in an electric car vs. a conventional vehicle and the minerals used in various forms of power generation.

This is green?

Hmmm.

eBay vs. Amazon

There has been a lot of losses on the NASDAQ this year which is home to many stocks that are considered to be economic disruptors.

These stocks often get ahead of themselves as investors are more excited with the story than the company is able to ultimately fulfill those dreams with revenues and profits.

I am reminded of the stock of RCA when radio was just finding its way into every American living room.

RCA hit a high just before the crash of 1929 and it took well over 30 years for it to again reach that stock price.  In the meantime, RCA had also moved into televisions.

The internet/e-commerce boom of 1998-1999 was similar to what we saw in the late 1920's.

For example, consider this Business Week cover from 1999 asking which was the better investment---eBay or Amazon?

Credit: https://twitter.com/MacroAlf/status/1533128351476506626

At that time eBay had a higher market cap than Amazon.

That was also true in 2001 after the internet bubble popped in 2000.

eBay had a market cap of $13 billion in January, 2001. Amazon was valued at $6 billion.

Investors viewed eBay with the brighter prospects long term.

What about the next 20 years?

eBay now has a market cap of $26 billion but it is actually no higher than it was in 1999.

On the other hand, Amazon has grown from a company worth $6 billon in 2001 to one now valued at over $1 trillion.

Investors 20 years ago were too optimistic about the prospects of eBay and vastly undervalued the potential of Amazon.

The question now is which one of those NASDAQ stocks that have been hit hard in 2022 will be the Amazon of the next 20 years?

There must be a pony in there somewhere? *

Hmmm.

* Taken from one of Ronald Reagan's favorite stories.

Worried that the boys had developed extreme personalities -- one was a total pessimist, the other a total optimist -- their parents took them to a psychiatrist

First the psychiatrist treated the pessimist. Trying to brighten his outlook, the psychiatrist took him to a room piled to the ceiling with brand-new toys. But instead of yelping with delight, the little boy burst into tears. "What's the matter?" the psychiatrist asked, baffled. "Don't you want to play with any of the toys?" "Yes," the little boy bawled, "but if I did I'd only break them."

Next the psychiatrist treated the optimist. Trying to dampen his out look, the psychiatrist took him to a room piled to the ceiling with horse manure. But instead of wrinkling his nose in disgust, the optimist emitted just the yelp of delight the psychiatrist had been hoping to hear from his brother, the pessimist. Then he clambered to the top of the pile, dropped to his knees, and began gleefully digging out scoop after scoop with his bare hands. "What do you think you're doing?" the psychiatrist asked, just as baffled by the optimist as he had been by the pessimist. "With all this manure," the little boy replied, beaming, "there must be a pony in here somewhere!"

Can California Survive?

 When I see stories like this I can't help but ask the question, "Can California Survive?"

Not only did one lifeguard top $500,000 in pay but 98 other lifeguards made at least $200,000.

An investigation by OpenTheBooks.com discovered that LA's highest-paid ocean lifeguard, a captain named Daniel Douglas, raked in a total of $510,283 in total compensation last year, nearly half of which – $246,060 – was from overtime pay. Douglas' base salary is $150,054, and he brought in another $28,661 in "other pay" and $85,508 in benefits to surpass the half-million-dollar mark.

Douglas is not the only high-earning lifeguard on the county's payroll. The No. 2 earner in 2021 was lifeguard chief Fernando Boiteux, who made $463,517, followed by section chief Kenichi Ballew-Haskett at $409,414. All told, 98 LA lifeguards made at least $200,000 last year, and OpenTheBooks.com founder Adam Andrzejewski wrote in a substack post explaining the breakdown that "it's time we put Baywatch on pay watch."

The story indicates that there are just 166 full-time lifeguards that are supplemented by 600 seasonal lifeguards. Therefore, that means the median pay for a full-time lifeguard in LA is over $200,000.

Nice work if you can get it.

Of course, someone is paying the bill and that someone is the taxpayer.

California has the highest marginal state income tax rate in the nation at 13.3%. That applies to individual incomes exceeding $1 million.

However, under California's graduated rates, someone making just $61,214 is subject to a 9.3% income tax rate.

As the Tax Foundation graphic shows, that 9.3% rate is much higher than the top tax rate in most states.

Source: https://taxfoundation.org/state-income-tax-rates-2022/

California also has the highest state sales tax at 7.25%. Local sales taxes are typically added on to this up to an additional 3.00%.

The total sales tax in the city of Los Angeles is 9.5%. In Long Beach and Pasadena it is 10.25%.

Californians also pay the highest gasoline taxes in the nation---68.15 cents per gallon.

Property taxes are below the national average (thanks to Proposition 13 passed by the voters in 1978) in California where annual taxes average about .8% of the property value. However, when you take into account California's high median house values, property taxes paid at that median value actually rank in the top ten.

California is a state with over 40 million residents.

However, the top 0.5% of income tax filers by income are shouldering 40% of the state's income tax collections. That is a group of less than 100,000 taxpayers.

These taxpayers are principally tied to Silicon Valley. A large share of their income is not tied to salaries and wages but to income from stock options, dividends and capital gains on stock sales.

It doesn't take a genius to see that funding a large portion of state government and supporting 40 million people, while relying on a small group of people and a continuing stock market boom to pay the bills, is not a strategy likely to endure for the long term.

First, at what point do those paying the bills pack up and leave the state?

Exhibit one is Elon Musk who headed to Texas with Tesla and his other ventures.

That is in addition to other companies who have announced they are leaving California, or have already left, including Hewlett Packard, Oracle, Uber, Airbnb, Salesforce, Yelp, Twitter, and Pinterest.

Second, what happens if those IPO's, stock options and large stock gains go away with stock market losses?

In the early days of the pandemic, when the stock market was in freefall, California projected it was facing a $54 billion deficit after having a $21 billion surplus the year before.

Massive federal assistance and the stock market rebound saved California from economic devastation two years ago and the state projects it will end fiscal 2022 with $41 billion in higher revenues than projected in the original annual budget.

Of course, what does government do when they get more money?

They spend even more more money under the assumption that the good times will last forever.

The chart below shows spending in the California budget in REAL DOLLARS. adjusted for inflation.

Note that spending has almost DOUBLED in the last decade after taking account of inflation.

The last couple of years make it look like an Elon Musk SpaceX rocket taking off.

All of this is still not enough for the Democrat legislators in California who have introduced bills to increase the top tax rate to 16.8% and also implement a wealth tax on those with household net worths that are above $50 million.

What happens if more of those rich taxpayers leave the state and the stock market goes down rather than up?

Governor Gavin Newsom has recently been crowing about his state's budget surplus. He seems to particularly enjoy needling Texas and Florida (no state income states) and their "right-wing" policies in pointing out how a "progressive" state like California can show such impressive budget results.

However, Texas and Florida are also  enjoying record budget surpluses for the current fiscal year.

Source: https://www.click2houston.com/news/investigates/2022/05/20/what-to-do-with-texas-24-billion-budget-surplus/

Florida will also end the year with a budget surplus of over $20 billion.

Source: https://www.flgov.com/2022/05/20/governor-ron-desantis-announces-record-budget-surplus-as-floridas-economy-continues-to-outperform-the-nation/

Both states have no income tax and are not dependent on a relatively few wealthy taxpayers and the stock market as California is.

I am fairly certain the lifeguards in Texas and California are also not being paid over $200,000 per year.

Can California survive the government structure the people have put in office?

Make no mistake this could not occur without votes for the representatives who have allowed all of this to take place in what once was called "The Golden State".

The wagon is getting heavier and heavier in California. More people are in the wagon and fewer and fewer are pulling it.

How does this end well?

Basic common sense says it doesn't.

Rough Seas Ahead?

There is a lot of angst lately about the direction of the stock and bond markets.

Huge losses have been sustained across both categories.

U.S.Treasury bonds have traditionally been considered a safe haven for investment portfolios.

Not this year.

Long treasury bonds have declined almost 13% since January 1.

The total bond market in the United States (treasuries, corporates, high yields, state and local, etc) was about $47 trillion in 2021. Bond losses in total are probably over $5 trillion.

I saw one report in Barron's that put U.S. stock losses alone this year at over $10 trillion.

The NASDAQ composite index is officially in bear market territory having declined over 20% year to date.

The S&P 500 index is down over 13% for the year.

Losses for the owners of Bitcoin have been over $1 trillion.

It has been a horrendous year to be an investor.

However, Barron's also reported that in the previous two years household net worth in the U.S. ballooned by $34 trillion fueled by government Covid aid and the low interest and money printing policies of the Federal Reserve.

When you consider that U.S. GDP is $24 trillion, the fact is that U.S. consumers were handed almost two years of income in increased values of their homes, their 401(k) accounts and stock and bond portfolios between April, 2020 and the beginning of this year.

This might also give you some idea of where inflation is coming from today.

It is also worth keeping in mind that the last 40 years have provided the best investment environment in which to build wealth that has ever been available in the history of investing.

In those four decades all someone had to do was save and invest and it was almost impossible not to become wealthy.

$1,000 invested in the S&P 500 on June 1, 1982 would be worth over $36,000 today without taking account of dividends.

$1,000 invested in the NASDAQ composite over the same period would have grown to more than $60,000.

You could have even accumulated almost $30,000 with $1,000 invested in long-term treasury bonds over the last 40 years.

The secular decline in interest rates over the last 40 years effectively put the winds at the backs of anyone who had money to invest.

This chart graphically shows that decline in interest rates over those 40 years.

The recent increase in interest rates looks like a small blip when viewed in historical context.

Therefore, while what we have experienced this year feels bad, the reality is that for most investors it is merely a small setback compared to prior gains.

However, what lies ahead?

If interest rates continue to climb, how much will that headwind affect other asset classes?

It can't be good for most home values since increased mortgage rates limit how much a buyer can pay for a home unless incomes increase to keep up with higher rates.

That has not been the case for a long time.

Higher yields also make bonds more attractive relative to stocks.

I came across the following chart by Nick Maggiulli that shows a downward slant similar to the interest rate chart above.

However, this is a graph of the Dow Jones average from September, 1929 to July, 1932 in which the index fell almost 90%.

Credit: https://ofdollarsanddata.com/rallies-to-the-bottom/

As you can see, there were a number of major rallies along the way when investors thought the bear market was over during the early stages of the Great Depression.

Each brought false hope.

Similar volatility was seen in the 2000-2003 period where we saw a number of 20%+ rallies that turned out to be head fakes as the overall trend headed downward.

What do I make of all of this?

If you look at the big picture, the losses sustained thus far are very small in comparison to the gains that came before.

In addition, as long as the Federal Reserve is tightening and interest rates are rising, stocks, bond and house values are going to be fighting a significant headwind.

The risks on the downside appear far greater than any potential upside---by a large margin.

Expect a lot of volatility in the stock market. There will be some significant down days in the market but we should also see some big rallies.

However, the major trends are what you need to keep your eyes on.

On inflation.

On what the Fed is doing.

What is happening with interest rates.

Joe Biden announced on Tuesday that he has a three-point plan to fight inflation.

The first point he made was that he was not going to interfere with the Federal Reserve which has primary responsibility to control inflation. 

Of course, it was Biden and the Federal Reserve who were telling us last year at this time that we should expect any inflation to be merely "transitory".

That alone does not inspire a lot of confidence about any "plans" they have to bring down inflation.

In addition, right after I saw Biden's plan where he said he was not going to interfere with the Fed I saw this.

Biden says he is not going to meddle with the Fed but the first thing he does is meet with the Federal Reserve Chairman?

What are Biden's other two priorities to fight inflation?

Working to reduce prices, especially gas prices. However, Biden's policies have largely caused the increase in gas prices.

In fact, last week Biden was praising high gas prices as an "incredible transition" to allow the world to move away from fossil fuels.

Source: https://nypost.com/2022/05/23/biden-praises-gas-prices-as-part-of-incredible-transition/

Biden also said he is going to reduce the federal deficit.

No, he said nothing about reducing federal spending. That would be too logical if you wanted to curb deficit spending.

Biden is going to do it with "common sense reforms to the tax code". In other words, let's raise more taxes.

When a ship is facing headwinds and high seas you want a steady hand at the controls.

Everything points to the fact that we should expect some very choppy seas ahead.

A steady hand?

Let's hope there are enough life preservers on board.