May 22, 2022

Food Stamps For The Wealthy – Millionaires Meet Eligibility Requirements

Newt Gingrich started a food fight at the last Republican debate by calling Barrack Obama “The Food Stamp President” and suggesting that food stamps were creating dependence on the government.  Mr. Gingrich went on to say that he wanted to “help poor people learn how to get a job” so that they could get off the food stamp dole.

Although Mr. Gingrich’s pitch for individual self reliance and hard work resulted in a standing ovation from the Republican audience, the message may not play out as well across the broad spectrum of American society.

For decades, politicians have told the American public that they are entitled to all sorts of benefits and the public has grown to love them.  Promises of benefit cuts or austerity measures do not win elections. In this regard, Mr. Gingrich may lose more votes than he gains by trying to reduce the number of food stamp recipients.  (The food stamp program is now known as the Supplemental Nutrition Assistance Program or SNAP).

Courtesy: inquisitr.com

All well intentioned government entitlement programs expand exponentially over time.  The number of food stamp recipients has exploded to a record 44.7 million people and this is a voting bloc to be reckoned with.  Newt’s somewhat hostile message to food stamp constituents has probably lost him a considerable number of votes.

Mr. Gingrich, who has an incredible depth of knowledge on most topics, seems to be unaware that food stamps have become an entitlement not just for the poor, but also for many who are financially independent and chose not to work or have retired early.

Here’s an example I looked at for a married couple in Connecticut who both chose to retire at the age of 50 since they are financially independent with $5 million in liquid assets.  Since they will live off their savings until they start receiving pensions at age 60, the couple has no “earned income” and can therefore qualify for a decade’s worth of food stamp benefits.

Exactly how can multimillionaires qualify for food stamps?  The reasons lies in the lack of asset testing for SNAP eligibility.  Connecticut, like 34 other states, does not limit eligibility based on assets.  Most SNAP applicants, except for limited exceptions, do not have to report money in the bank, retirement assets, stocks or other assets.

According to the handy benefit calculator from the Connecticut Department of Social Services, the multimillionaire couple cited above are eligible for food stamps to the tune of $367.00 per month.

The food stamp program has grown not only due to tough economic times but to vastly widened eligibility guidelines.  The SNAP program costs the taxpayers over $75 billion per year.  Here’s a partial listing of who can qualify for food stamps.

  • Non-citizens
  • Unemployed
  • Retired social security recipients
  • Working people with low wages
  • Homeless
  • Legal immigrants
  • College students
  • Millionaires showing little or no earned income

The graph below from The Wall Street Journal shows the explosive growth in the SNAP program since 1970.

Courtesy: The Wall Street Journal

Mr. Gingrich drew some well deserved applause for trying to reassert the basic values of American free enterprise and self reliance.  However, based on the vast voting constituency that is now on the food dole, reducing or eliminating the food stamp program is a political impossibility.

More on this topic:

The Entitlement Society – Million Dollar Lottery Winner Feels Entitled To Food Stamps – “I have bills to pay.”

How Much Is A Trillion Dollars? – U.S. Debt Levels Exceed Comprehension

With little press coverage and no debate by Congress, the U.S. debt level is set to automatically increase by another $1.2 trillion in January.

The most remarkable aspect to the latest huge increase in U.S. debt is the manner in which the debt limit was implemented.   As part of last year’s budget agreement, even if Congress decided to vote against the debt increase, the President has the power to issue a veto.  In other words, the debt increase is a done deal – no debate, no discussion.

Massive deficit spending by the U.S. government was supposed to stimulate growth and bring us out of recession as it has in previous economic downturns.  This time, it’s simply not working and the debt levels have reached a tipping point at which economic growth slows as debt increases.

An impressive body of research covering eight centuries of government debt defaults (“This Time Is Different” by Carmen Reinhart and Kenneth Rogoff) resulted in ominously accurate predictions since its publication in 2009.  The collapse of the real estate bubble lead to a collapse of the banking industry which lead to massive government borrowings to bail failed banks and other institutions.

According to Reinhart and Rogoff, a slowdown in the economy leads to further government deficit spending which ultimately puts the solvency of sovereign governments into doubt, which is exactly what’s currently happening across Europe.

Meanwhile, as the U.S. approaches its own tipping point towards insolvency, Americans remain remarkably obliviously to the dangers of mortgaging our future.

How much is a trillion dollars of debt?  The number is so large that it is inconceivable for the average American to understand.  Deep down, the country has a foreboding of impending disaster from our crushing debt burden, but remains oblivious as to the real extent of the problem.

Here’s a visual to put things into perspective.

One Hundred Dollars $100 – Most counterfeited money denomination in the world.
Keeps the world moving.

One Billion Dollars $1,000,000,000 – You will need some help when robbing the bank.
Now we are getting serious!

One Trillion Dollars $1,000,000,000,000
When the U.S government speaks about a 1.7 trillion deficit – this is the volumes of cash the U.S. Government borrowed in 2010 to run itself.
Keep in mind it is double stacked pallets of $100 million dollars each, full of $100 dollar bills. You are going to need a lot of trucks to freight this around.

If you spent $1 million a day since Jesus was born, you would have not spent $1 trillion by now…but ~$700 billion- same amount the banks got during bailout.

15 Trillion Dollars – US GDP 2011 & Debt $15,064,816,000,000- The U.S. GDP in 2011. The debt as of Jan 1st, 2012 is 15,170,600,000,000. United States now owes more money than its yearly production (GDP).

Statue of Liberty seems rather worried as United States national debt soon to pass 20% of the entire world’s combined GDP (Gross Domestic Product).

114.5 Trillion Dollars $114,500,000,000,000. – US unfunded liabilities
To the right you can see the pillar of cold hard $100 bills that dwarfs the
WTC & Empire State Building – both at one point world’s tallest buildings.
If you look carefully you can see the Statue of Liberty.

The 114.5 Trillion dollar super-skyscraper is the amount of money the U.S. Government
knows it does not have to fully fund the Medicare, Medicare Prescription Drug Program,
Social Security, Military and civil servant pensions. It is the money USA knows it will not
have to pay all its bills.
If you live in USA this is also your personal credit card bill; you are responsible along with
everyone else to pay this back. The citizens of USA created the U.S. Government to serve
them, this is what the U.S. Government has done while serving The People.

The unfunded liability is calculated on current tax and funding inputs, and future demographic
shifts in US Population.

Note: On the above 114.5T image the size of the base of the money pile is half a trillion, not 1T as on 15T image.
The height is double. This was done to reflect the base of Empire State and WTC more closely.

Steve Jobs Dead At 56 – The World Mourns

Tribute to Steve Jobs

We deeply mourn the tragic passing of Steve Jobs and join with the world community in expressing our sorry and deep sense of loss. Here are some of the tributes to Steve this evening.

“Apple has lost a visionary and creative genius, and the world has lost an amazing human being.  We will honor his memory by dedicating ourselves to continuing the work he loved so much.” – Tim Cook, Apple CEO

“The world rarely sees someone who has had the profound impact Steve has had, the effects of which will be felt for many generations to come.” – Bill Gates

“Steve defined a generation of style and technology that’s unlikely to be matched again. Steve was so charismatically brilliant that he inspired people to do the impossible, and he will be remembered as the greatest computer innovator in history.” – Eric Schmidt, Google Chairman

Steve was a unique genius and we were fortunate to contemporaneously share his visionary insights.  No one will ever replace Steve Jobs.

Dogs Of The Dow Outperform In 2011

Sometimes, the simplest investment strategy is the best.

The simple “Dogs of the Dow” investment strategy mechanically selects the 10 highest yielding Dow stocks at the end of each year.  The selection is made without regard to fundamental analysis of dividend sustainability or financial strength.  Investment dollars are equally allocated, resulting in an equal dollar investment in each of the 10 Dogs of the Dow.

The “Dogs of the Dow” investment strategy was popularized in 1991 by Michael O’Higgins in his best selling book, Beating the Dow.  Due to the popularity of the book, Mr. O’Higgins was credited by the news media with “inventing” the Dogs of the Dow.  The average investor found the “Dogs of the Dow” strategy compelling based on its simplicity and superior investment results.  According to Mr. O’Higgins, the average annual returns over a 17 year period for the Dogs of the Dow was 17.9% compared to a return of only 11.1% for investing in the entire 30 Dow stocks.

There is an intuitive appeal for the Dogs of the Dow strategy.  Dow stocks are usually large blue chip companies that have withstood the test of time.  Occasionally, even the best run companies with superior management and products can encounter problems that result in a declining stock price.  Assuming that the company has the financial strength to maintain its dividend, buying the highest yielding Dow stocks puts an investor into the companies most likely to experience large price gains as business conditions improve.

There is no such thing as a perfect investment strategy.  The Dogs of the Dow can produce years of sub par returns.  For example, during the three year period from 2007 through 2009, the Dogs of the Dow underperformed the Dow Jones by 7.8%, 8.1% and 5.9%, respectively.  As previously mentioned, the Dogs of the Dow strategy does not analyze the financial strength of the various Dow stocks.  Most of the under performance of the Dogs from 2007 to 2009 was due to the the collapse of financial stocks in the Dow Jones, including Citigroup (C), Bank of America (BAC) and JP Morgan Chase (JPM).

In 2010, the Dogs of the Dow had a total return including dividends of 21% versus a return of 14% for the entire Dow 30 stocks.  This out performance in 2010 almost exactly matches the 6.8% superior return for the Dogs of the Dow cited in Michael O’Higgins book Beating the Dow.

The investment performance of the Dogs of the Dow through September 30, 2011 indicates that the Dogs may again outperform the overall Dow in 2011. As of September 30, 2011, the Dow Jones was down by 5.72% or -644 points while the Dogs of the Dow were down a mere 1.4%.  In addition, the nine month return from dividends on the Dogs of the Dow stocks amounted to 3.15%, resulting in an overall gain of 1.75%.  During a time of zero returns on bank savings and, considering the huge overall sell off in the markets since July, the Dogs put in a respectable showing.

DOW JONES - COURTESY YAHOO FINANCE

The chart below shows the 2011 results for the Dogs of the Dow through September 30.  The largest loser was Dupont which lost 19.9% and the largest gainer was McDonalds which was up 14.4%.  The current highest yielding stock is AT&T (T) at 6% and the lowest yielding stock is McDonalds (MCD) at 3.2%.

DOW DOG STOCK $PRICE 2010 $PRICE $DIVIDEND* DIVIDEND % YTD
YEAR END 30-Sep-11 YIELD CHANGE
ATT 29.38 28.52 1.72 6.00% -2.9
VERIZON 35.78 36.80 2.00 5.40% 2.8
MERCK 36.04 32.70 1.52 4.64% -9.3
PFIZER 17.51 17.68 0.80 4.50% 0.9
DUPONT 49.88 39.97 1.64 4.10% -19.9
INTEL 21.03 21.34 0.84 3.90% 1.5
JOHNSON & JOHNSON 61.85 63.69 2.28 3.60% 3.0
KRAFT FOODS 31.51 33.58 1.16 3.50% 6.6
CHEVRON 91.25 92.59 3.12 3.40% 1.5
MCDONALDS 76.76 87.82 2.80 3.20% 14.4
* FORWARD ANNUAL DIVIDEND Data Source: Yahoo finance

Over the long term, the Dogs of the Dow have delivered documented superior returns.

One argument against the Dogs of the Dow strategy is that the portfolio lacks diversification and is therefore riskier.  For example, many analysts recommend investing in a broadly diversified mutual fund such as the Vanguard 500 Index Fund which invests equally in the 500 different stocks in the Standard and Poors 500 index.  How did that work out this year?

Dogs of the Dow followers, with their small 10 stock portfolio, are laughing all the way to the bank.  The Vanguard S&P 500 Index fund (VFINX) is down a whopping 8.8% (including dividends) through September 30, 2011.

Disclosures: Positions held in CVX, PFE, JNJ, T, VZ

Obama Jobs Plan Bad Joke For Both Employed and Unemployed

The long awaited and hugely hyped Obama “Jobs Solution Speech”, hastily crafted between rounds of golf on the Vineyard, is unlikely to help either the employed or  unemployed.

Obama’s calls his new proposals the “American Jobs Act” but it strongly resembles the $825 billion stimulus spending program of 2009 which was ineffective and failed to stimulate the economy or create new jobs.   Taxpayers will likely fail to see the logic of a $447 billion stimulus program working any better than a $825 billion stimulus program.

The latest proposals out of the White House appear to be another desperate Keynesian attempt to keep the economy on life support long enough to boost Obama’s chances in the presidential election race.  Expecting voters to buy into Obama’s new program pushes the bounds of credibility.  Why would a relatively small $447 billion program work any better than the $4 trillion in deficit financed spending since Obama came into office?

Telling voters that the new half trillion dollar program will be paid for from future mythical budget cuts isn’t likely to fly either after seeing the results of the latest fiasco on deficit reduction talks that lead to a downgrade of the US credit rating.

Half of $447 billion “Jobs Act” program consists of payroll tax cuts for both employers and employees.  While probably adding to aggregate spending, the tax cuts do not address the fundamental problems of unemployment and income stagnation over the past decade.

Why Payroll Tax Cuts Won’t Work

What business bases hiring decisions on a 2% drop in the social security (FICA) tax?  Any business man stupid enough to decide to hire new employees simply because his share of the FICA tax will be slightly lower is already out of business.  New employees are added by businesses when there is added demand for their products and when they are confident that a lasting economic recovery is underway.  Today, there is subdued demand and no confidence – a cut in the FICA tax does nothing to change this situation.

Regarding the payroll tax cut for employees, here’s how one Connecticut resident assessed the situation.

“I am currently making $80,600 per year.   The recent reduction of 2% in the FICA tax resulted in an increase of $31 per week to my paycheck.  Meanwhile, the State of Connecticut just passed the largest tax increase in history, retroactive to the first of the year, which results in paying $17 more per week.  My weekly deduction for medical insurance increased by $12 per week since last year and our employer has suspended pay increases.

My net benefit from the FICA tax reduction is $2 a week.  Meanwhile, the cost of gasoline, home heating, insurance and groceries has risen at least 6% over the past year.  Even if the FICA tax cut was made permanent, an extra $2 per week is certainly not going to motivate me to spend more.

My savings goals for college funding and retirement have been destroyed by a collapsing stock market and zero interest rates on savings.  I  have to cut current spending in order to meet my savings goals and any extra income would be saved, not spent.”

Did Obama talk to any “real people” outside of the group of Washington elites and millionaire celebrity pals he hangs around with?  I think not.

Did Obama talk to any “real businessmen” before coming out with his warmed over and effective stimulus plan?  I think not.

Did Obama talk to “Helicopter Bernanke” about how to spread out the $447 billion of borrowed money?  The government could simply spend the $447 billion by sending every household in America a check for $3,886 attached with a note telling the recipients to thank their grandchildren whose future has been mortgaged.

Voters are rightfully disgusted by the rapid decline in their standard of living, the debasement of the US currency and the self serving dealings of the ruling Washington elites.  To pull out an old campaign slogan, “It’s time for a change”.

There are no easy answers to pulling a debt laden economy out of depression, but increasing transfer payments, small tax cuts, massively increased regulatory burdens, trillions in stimulus spending and zero interest rates have not worked.  Maybe the Washington elites should simply step aside, stop micro managing the $14 trillion dollar US economy and allow the creative forces of capitalism to work

Bank of America Refinance Offer Raises Questions On Wealth Accumulation

A client of mine recently received a mortgage refinance offer by mail from Bank of America (BAC).  The offer showed that a savings of $2,225 per year was possible by refinancing to a new 30 year fixed rate mortgage.

My client called me to discuss whether or not a refinance made sense since her rate was only dropping by .375% to 4.75%.  Conventional analysis of a mortgage refinance usually assumes that a refinance only makes sense if the rate is dropping by at least 1 or 2 percentage points.  Other factors used in evaluating a refinance involve the period of time required to recoup closing costs, how many years the borrower intends to remain in the home and a review of the forecasts for future interest rate changes.

In my customer’s case, not only was the rate decrease small, there was also $5,706 in closing costs which included 2 points.  In addition, the savings that Bank of America projected were based on a 30 year fixed rate mortgage.  Since my customer only had 22 years left on her current 30 year fixed rate mortgage, this meant 8 years of additional payments.

The monthly savings of $185.42 ($2,225 yearly) for a refinance came at the cost of adding 8 more years to the mortgage term.  Despite the monthly savings, the total additional payments over 30 years for the new lower rate mortgage amounted to $48,048, including the financed closing costs.

Was Bank of America trying to fatten their bottom line with a refinance that made no sense?  Depends on your perspective and financial status.  For some households on very tight budgets, reducing the mortgage payment by $185 per month can make life a lot easier.

For other households, the $185 monthly savings can help increase long term wealth using a concept that most consumers have either never heard of or don’t understand.  It’s called compound interest, allegedly described by Albert Einstein as “the most powerful force in the universe”.

In the case cited above, if the homeowner saved the $185 per month from a refinance and achieved a 4.75% return over 30 years, the result would be a nest egg of $141,634.  The power of compounded gains over 30 years far exceeds the additional payments of $48,048 at 4.75% interest paid on the declining balance of a 30 year mortgage.  The homeowner winds up with a net gain of $93,586

A 6% return on the $185 per month savings over 30 years would yield $175,904 and a gain of 8% would yield $252,055.

A refinance that did not look compellingly attractive could actually increase long term wealth for those with the discipline to save.  After considering the options, my client decided to refinance and increased her 401k savings by $185 per month.

Disclosure: No position in Bank of America stock

The Lending Company Of AZ Reports Data Theft But Gives No Help To Those Compromised

Data Theft At Major Arizona Mortgage Company Leaves Many Questions Unanswered

Major incidents of data theft seem to be occurring with alarming frequency.  Even companies with considerable resources seem powerless to prevent the theft of customer records containing sensitive personal and financial data.

Two recent cases involving Michaels Stores and Sony Corp show that even huge companies are vulnerable to hackers.  I will leave it up to the experts to determine whether these data thefts are due to inadequate security protocols, but when they do occur, the company involved should take prompt and serious actions to ensure that damage to customers and employees is limited.

A serious case of data theft has occurred at The Lending Company, a major Arizona mortgage company based in Phoenix, Arizona.  In a letter sent to current and former employees, The Lending Company said,

“We are contacting you about a potential problem involving identity theft.  Recently, we have learned of a data security incident in which someone accessed and potentially downloaded sensitive personnel records including names, contact information, and social security numbers.  We have notified law enforcement  regarding the incident and have provided them with a general report.  Due to the nature of this incident we strongly encourage you to take preventative measures to help prevent and detect any misuse of your information.

We recommend that you place a fraud alert on your credit file…You are encourage to call any one of the three major credit bureaus listed below.”

The Lending Company also suggested that these additional steps be taken:

  1. Check your credit report periodically
  2. Review a copy of the comprehensive FTC guide to guard against identity theft
  3. Contact local law enforcement and file a report if you find suspicious activity on your credit report
  4. File a complaint with the FTC which will add your complaint to their Identify Theft Data Clearinghouse

The response of The Lending Company to this serious case of data theft leaves potential victims of identity theft with many unanswered questions including:

  • How long was it between the data theft and the date is was discovered?
  • Why were potential victims not immediately notified by email or a phone call instead of being informed by “snail mail”?
  • The letter only mentions a theft of personnel records.  Is there also a possibility that the theft of customer loan records occurred, potentially exposing thousands of borrowers to identity theft?
  • Did The Lending Company have reasonable security measures in place to protect customer and employee data?

The Lending Company gave a long list of chores to the victims to minimize their potential losses and aggravation due to identity theft.  Dealing with the credit bureaus, FTC and law enforcement involves a huge time commitment.  Why is The Lending Company not stepping forward with a help line or live support to deal with multiple agencies regarding a data breach that is ultimately the responsibility of The Lending Company?

It is routine in cases involved compromised financial information for the company involved to offer free credit monitoring through a credit bureau which sends alerts regarding potential credit and identity theft risks.  The credit monitoring services also have a team ready to assist victims with fraud resolution and provide identity theft insurance coverage.

The Lending Company is ultimately responsible for the data theft yet has done nothing to assist potential victims other than sending them a letter which basically says “good luck” with your efforts to stop identity theft or fraud that may occur due to data stolen from The Lending Company’s offices.

Companies should be required by law to take immediate steps to protect customers and employees in the case of theft of personal and financial records.  At a minimum, companies who allow sensitive data to be stolen should provide at no charge the best credit and fraud monitoring services available.

The Lending Company has failed to protect data and has now failed to help those who may be at risk of identity theft or worse.  Hopefully, The Lending Company will recognize its responsibility and immediately take more proactive steps to protect its customers and employees.

Nine Reasons Why You Should Absolutely Not Own Gold

As the mainstream press becomes more aware of gold’s decade long advance, the chorus of reasons for not owning gold seems to become louder ever day.   What if the conventional thinkers are correct?  Is gold an over owned and over priced asset that was run up by uninformed investors who are now on the verge of incurring steep losses?

With an open mind, this writer decided to dispassionately review the reasons for NOT owning gold.  I read numerous articles detailing why gold is a bad investment, why it should not have increased in price and why it is certain to disappoint investors.   At the conclusion of my reading exercise, it became obvious that there are, in fact, reasons why gold should be avoided.

I have listed, in no particular order, nine sound reasons for not owning gold.  If you believe that the following events will occur, there is absolutely no reason to own gold, other than perhaps an occasional jewelry purchase.

  1. The Federal Reserve and other central banks worldwide will institute sound money policies that eliminate inflation and maintain the purchasing power of their currencies.
  2. The world economy is on the verge of a golden era of long term, uninterrupted real economic growth.
  3. The risk of default by over indebted nations, businesses and consumers will disappear as the world economy enters a period of high growth.
  4. The return on competing assets such as real estate, bank savings, stocks and bonds will all exceed the return available from holding gold, a non income producing asset.
  5. The rate of inflation will remain minimal.
  6. The benefit of gold’s negative correlation in a portfolio will become unnecessary due to the elimination of black swan events by world governments.
  7. The price of oil and other commodities will remain stable due to abundant and uninterrupted supplies.
  8. The central banks and other large gold holders will liquidate gold positions to redeploy assets into higher return paper assets.
  9. The belief  that gold has intrinsic value, a concept dating from the dawn of human civilization, will gradually disappear as the glow of world prosperity ushers in a new era of  intellectual enlightenment.

Americans Stubbornly Deny All Time High In Personal Income

American workers should be celebrating the latest numbers from the U.S. Department of Commerce that show personal income at all time highs.  Since taking a rather sharp dip during the recession of 2008-2009, personal income has soared to almost $13 trillion, up from $12 trillion in early 2009.

Getting Americans to believe that their incomes have actually increased is another story.  While the Department of Commerce is reporting all time highs in income,  another survey released by Fannie Mae shows the opposite.

Fannie Mae (FNMA.OB) conducts a National Housing Survey every quarter that polls homeowners and renters in depth about their confidence in homeownership, overall confidence in the economy and the current state of their household finances.

The latest National Housing Survey for the fourth quarter of 2010 polled 3,407 Americans and the results do not reflect the rosy income numbers reported by the Department of Commerce.

The survey revealed that 62% of all respondents believe the U.S. economy is on the wrong track, 60% reported that monthly household income was the same as a year ago and 34% said that their monthly expenses were “significantly higher” than a year ago.  Only 19% of those polled said their incomes were significantly higher.

Keep in mind that Americans do not normally “inflation adjust” their perception of personal income – when respondents say that their income has not changed, it means they are receiving the same absolute amount of dollars, unadjusted for inflation.

Total personal income may have increased but income gains seem to have been limited to a small minority of Americans.

In any event, if most Americans have not seen an increase in their monthly incomes, there is little reason for comfort going forward.  As higher oil and commodity prices work their way through the system, the basic cost of living will increase for everyone.  If that’s not enough, once Fed Chairman Bernanke’s obsession with creating higher inflation succeeds, we are all apt to feel poorer.