Politics, Economics and Investments: Don's Thoughts

By Donald M. Kinzer

Don believed the economic and financial markets have missed the key event holding back world growth: globalization. Globalization unleashed over one billion consumers and workers with the fall of the Berlin wall in 1990. The subsequent decline in communism was an historical economic event which had both positive and negative elements. The most negative element for the developed world was the limits on growth which are thus limiting employment. As the developed world has tried to maintain its lifestyle, even with the slower growth, it has resorted to more and more debt. Many advanced countries are now approaching historically dangerous debt levels. The resolution of this struggle between developed and developing countries will prove whether globalization has been a positive or negative force.

• Language: English
• Publisher: AuthorHouse
• Release date: Jun 2, 2014
• ISBN: 9781496912626

Donald M. Kinzer

Don Kinzer spent most of his professional life in investments and financial management. He worked at Dominion Bankshares/First National Exchange and Shenandoah Life Insurance Company. He taught financial courses at Hollins University and Roanoke College. Don was an avid tennis player, a student of investment markets, and enjoyed a good Budweiser.

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© 2014 Donald M. Kinzer. All rights reserved.

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Published by AuthorHouse 05/13/2014

ISBN: 978-1-4969-1263-3 (sc)

ISBN: 978-1-4969-1262-6 (e)

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To My Beloved Katie Girl

From Dad

Contents

Preface

Foreword

Chapter One

The Current Unsustainable Situation

Chapter Two

Globalization

Chapter Three

Asset Bubbles

Chapter Four

Home Ownership in the U.S. and the Housing Bubble

Chapter Five

The Problem with Republicans

Chapter Six

The Problem with Democrats

Chapter Seven

Investing

Chapter Eight

The Energy Revolution

Chapter Nine

Some Concluding Comments

Don’s Reading List

Preface

This book discusses financial trends in terms of the overall economy, the U.S. political process, and the investment prospects currently and projected into the future.

Chapter One deals with the current financial and economic trends in the United States. These trends regarding the deficit and the Federal Reserve’s massive bond purchase program are not sustainable. Further, the Federal Reserve’s program establishes a new frontier in monetary policy which is a major experiment without a predictable outcome.

In the next chapter, I will argue that globalization has fundamentally changed economic growth and employment prospects for the U.S., Western Europe, and Japan. The U.S. has lost more than 10 million manufacturing jobs in the past 30 years. Virtually all of these are permanent losses. The lack of emphasis on globalization’s impact on the U.S. and other advanced countries is difficult for me to comprehend. I will offer my explanation of why globalization is such an economic force and why it gets so little attention in the U.S. media.

Chapter Three discusses asset bubbles which have occurred since 1970 and Chapter Four addresses the housing bubble specifically. Asset bubbles have occurred throughout history. During the late 1960s, Keynesian oriented economists, such as Paul Samuelson, believed that bubbles were a thing of the past. In fact, they believed that with the proper application of Keynesian economics, even business cycles could be eliminated. However, we have experienced a series of extraordinary bubbles with first, the commodities bubble of the 1970s, then the commercial real estate bubble of the late 1980s, then the stock market bubble of the late 1990s, and finally the housing bubble which burst in 2008. Bubbles contribute to economic growth when they are inflating, and tend to cause recessions when they burst. These four bubbles have punctuated the economy since the 1970s. Currently, we have the possibility of another bubble occurring in the bond market, as the Federal Reserve holds interest rates at artificially low levels and governments worldwide are running significant operating deficits.

Chapters Five and Six deal with the financial problems from the standpoint of the two political parties: first with the Republicans and then with the Democrats. The first graph in Chapter One shows the revenue of approximately 15% of GDP and expenses of approximately 24% of GDP. These points are about equidistant from the 19-20% average federal expenditures and tax revenue versus GDP which we have had since World War II. Republicans characterize the problem as a spending problem, not a taxing problem, and the Democrats believe that further increases in spending are necessary to stimulate economic growth. I believe the truth is somewhere in the middle and that both spending cuts and increased revenue will be necessary to bring the deficit down to a manageable size. This will be further complicated by the slower pace of economic growth caused by the globalization trends.

Chapter Seven deals with investments and how they are impacted by economic and political trends. And finally Chapter Eight deals with the energy revolution now occurring in the U.S.; one of the most positive areas of potential growth in 2013 and beyond.

Chapter Nine are some conclusions I have reached. They are not all inclusive; and they do not solve all the world’s problems. Moreover, they are suggestions for the President to consider as he tries to manage the problems of the world.

Foreword

This book was Don’s last project. Don completed it as his Parkinson’s disease continued to progress. He began by writing down his thoughts, but most of the book was dictated and transcribed by Judi Pinckney, a loyal associate. Don wanted very much to see it published.

The book is a collection of Don’s thoughts on the economy, politics, and the financial markets. It is pure Don Kinzer. The book relates personal experiences, conversations, observations, and just plain thoughts on many different topics. Most importantly, the book encompasses Don’s career as a professional investor and a Chief Financial Officer for a regional bank and for an insurance company, and as a private investor for his personal portfolio.

Don was convinced that globalization, which started with the fall of the Berlin Wall was the primary cause for the slow worldwide GDP growth. He was convinced it is the primary cause of the economic problems of the western world (Western Europe, England, and the United States). Don did not see an early resolution to the globalization issue and felt it would be a long, long time before the western world experienced above average GDP growth again.

Don was also convinced there was a worldwide bond bubble building that would have severe consequences. He felt the impact on individual investor’s fixed income investments would be devastating.

Don’s views on politics were quite strong. He blamed both parties for the economic mess we have been in. Neither the Republicans nor the Democrats are facing reality with the demands they each propose in Congress. It is very much a Mexican standoff with no easy resolution.

Finally, Don finishes with some ideas of how to better our current economic and financial situation. He by no means says he has all the answers, but has good food for thought.

Don was a beloved friend, confidant, tennis buddy, party associate, and many other wonderful relationships. I miss him very much.

Now to read Don’s thoughts—its’ time to begin his labor of love.

Peter Dawyot

Chapter One

The Current

Unsustainable Situation

Before 2009, the budget deficit of the United States was being funded by foreign countries with which we have a negative balance of payments: primarily Japan, Saudi Arabia, and China. Now it is primarily being funded by the Federal Reserve. The Fed is buying 80+% of new U.S. Treasury debt issued. Perhaps this change was caused because the countries were getting imbalanced on Treasury securities in their investments. Regardless, it has allowed the Federal Reserve to reduce interest rates to historically low levels. Moreover, it has allowed the Federal Reserve to maintain a very loose monetary policy since 2009.

The American people have spoken: they don’t want their benefits reduced and they don’t want their taxes increased. So said a New York Times analyst summing up the 2012 election. However, there’s one major problem with this position: it resulted in a deficit of almost $1 trillion as shown in the graph below. In 2009, federal expenditures exceeded 25% of GDP, the highest since World War II. Revenues (taxes), on the other hand, were below 15%, the lowest since World War II. While some improvement has occurred since then, the country’s budget is still in deficit. The spread to GDP is now 4% vs. 10% in 2009.

A deficit of almost $600 billion is still projected for 2014. In Obama’s first term, deficits totaled almost $5