1855 Trawood Ste 204 ● El Paso, Texas 79935

915-595-2751 mbj@whc.net

Newsletter October 2013

In Touch Financial—William Lenderman, III Financial Mentor

Phone: 915-595-2751

Email: WL3@whc.net /Website: keepingintouchfinancial.com

Experiencing Success One Good Idea at a Time”


Most of you know that I spend at least three hours per day, every day of the year, studying developments in the economy, government policies, and the trends which develop as a result. My main purpose is to try to look ahead in order to spot potential dangers and to take full advantage of opportunities as they occur. The following items are a result of information I uncovered in my research. The information is not always directly applicable to our personal finances, but it certainly can be interesting and worthwhile knowing for other reasons.


Charter schools are a private version of the normal government schools, which we experience on a daily basis. The industry has been growing by leaps and bounds from its beginning. Private investors establish schools that tend to concentrate in specific areas of education.

These schools have been enormously profitable for investors. To start, the money invested is given a thirty-nine percent tax credit. This means that a $1,000,000.00 investment provides $390,000.00 in tax rebates. In addition, the profitability of the schools attracts private investors from all over the world. Administrators are highly compensated.

Sadly, the educational accomplishments for these schools tend to be spotty, despite the fact that they can choose the students they are willing to accept and quickly expel those who don’t measure up to their standards.

Data from 26 states shows that charter schools show no improvement in reading scores for more than half of the students. Nineteen percent of the students had worse results, and roughly one-forth did somewhat better. In math, twenty- nine percent of the charter schools deliver better math skills. Forty per cent showed no difference, and thirty-one percent faired worse.

It was shocking to see, that on the whole charter schools spent $774.00/ yr more per student on administration and $1140.00/yr less on instruction than regular government schools.

All of this indicates the fact that should be obvious to everyone. Homeschooling is the finest form of education existing in the world. Even parents who are uneducated when they begin to teach their own children grow rapidly in knowledge and understanding. Both they and their children gain greatly from the experience. Children, often as young as twelve, are ready to go to college because of the superior education they receive at home. I emphasize, the education level of the parents seems to have no significant effect on the outcome for either parents or children. I have said it many times. When it is possible, the most wonderful gift which can be given to children is a Mother at home who gives her children individual training and loving care.  That fact has always been true. I doubt it will ever change.


Due to the anticipation of changes required by Obamacare, companies are reducing the hours for their workers to below thirty hours per week. Even though many large companies have been given a one-year reprieve, the trend continues since companies do not want to be accused of making this change simply because of cost savings. By keeping these individuals at work less than 30 hours per week, there is no requirement to provide health insurance for them. The prices companies expect to pay for health insurance are likely to exceed soon the salaries paid to some employees. Few companies could possibly survive such an enormous expense.

IBM is now dropping one hundred-ten thousand retirees from its company sponsored health plan. This is another direct result of company attempts to reduce costs as much as possible in view of the full implementation of the Obama plan.

The grocery chain, Traders Joe’s, which has been one of the most generous companies in regard to company provided employee benefits, has just announced that employees logging fewer than thirty hours per week will need to buy their own insurance next year. They are giving each part timer a $500.00 check to help them purchase their own coverage.

Although Americans have been promised the ability to keep their existing health insurance plans, this option will not remain for very long. Existing plans are forbidden to raise their prices. As a result, as costs and claims substantially rise, the insurance companies will be forced to abandon these plans. At that point, the only choice individuals will have to become part of the government mandated plan or to pay a substantial penalty for refusing to buy insurance. For people making $100,000.00 or more, the penalty the first year will be one percent of their taxable income. The next year it will be two percent. The third year it will be two and on-half percent. It is obvious that the penalties will eventually rise to the point where they will be greater than the cost of the insurance. When that time arrives, everyone will be forced into the new plan, whether they want insurance or not.


Imagine walking into a room which feels uncomfortably hot. You might walk over to the thermostat to see the actual temperature. If the thermostat should read ninety-eight degrees, there are any number of ways to correct the situation. A reasonable person might turn on the air conditioner or open a window. A politician, looking for a shortcut, might simply hold an ice cube to the thermostat until it reads seventy-two degrees. Would that fix the problem?

The Dow Jones Industrial average was designed years ago as an index of America’s industrial companies. An industrial company is a company that makes things. The manufacturing of goods is the basis for the strength of any economy.

Sometime, shortly after the year 1971, when America was taken off the gold standard, the industry began to decline. By 1982, the stocks of most companies that made things had dropped enough that one industrial company was dropped from the index and American Express, a financial company, was added to replace it.  There have been any number of changes since that time.  The phenomenon has been accelerating.

As of the end of September 2013, Alcoa, Bank of America, and Hewlett Packard are being removed from the index. Goldman Sachs, Visa, and Nike are replacing them. You may recognize two of the companies leaving the index are industrial companies. Only one of the replacements is an industrial company. The other two are financial companies.

The Dow Jones Industrials tell an interesting story. As a result of the changes over the last thirty years or so, it is no longer the index of American manufacturing that it once was. It is also a poor thermostat for the health of the stock market since companies are dropped when their stocks are trending down. They are then replaced with stocks of companies that are currently on the uptrend, simply because they are on the uptrend.

For that reason, I suggest you be very careful in using the Dow Jones Industrial index to determine whether the stock market is going up or down. In many cases, there is a very little correlation. Many people are losing money in the market while the indexes go up. They must believe that they have simply made bad choices, while the indexes falsely indicate other people in the market may be doing well.

The Dow is just one of the indicators which serve to encourage people to play in the gambling casinos called the stock and bond markets. Only recently, I talked to two individuals who claim to have as much money now as they had fourteen years ago in their investment portfolios. I have not been able to verify that information. Of the hundreds of people I have met in the last fourteen years since the market peaked in March of 2000, I have never met anyone who has recovered from those days, with the possible exception of these two.

It seems prudent, that if you wish to place your bets in the stock and bond markets, do so only with money you are willing to lose. It is possible that you could do well. The record of the last fourteen years has proven this strategy to be a losing gamble for most. The ninety-five percent of Americans who follow the herd and take direction from these false indictors lose big. The five percent who do their own thinking avoid these pitfalls and succeed. Welcome to the five percent.


There is a troubling development involving the large banks. There are only approximately four and one-half trillion dollars existing in the world in printed form on green paper. Ten years ago, the major banks held approximately sixty-six and one-half trillion dollars in derivatives. Derivatives are simply bets in the financial markets. As of June 30th, this year, the derivative exposure is approximately two hundred thirty-six and one-half trillion dollars.  Some analysts suggest the number is more like one quadrillion. This means that the money they have bet in the marketplace is at a minimum, at least fifty times the amount of physical American dollars which exist in the entire world.  How would it affect you if you lost anywhere between fifty to two hundred times your total worth at the gambling table? Can you imagine the effect on the world economy when that giant bubble breaks?

At present, hundreds of small banks are suffering under the oppressive weight of bureaucratic regulations and the expense of complying. About five per week are being closed by the government and sold to larger banks. If this trend continues, most of the small banks are likely to disappear. The large banks which have gobbled them up are likely to follow since they have been gambling and losing their money in wild bets that have gone bad. At that point, the collapse of the large banks should be inevitable.


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