Ravengate
Partners - Stock market, economic and political commentary by Patricia Chadwick

© Copyright 2015 Patricia W. Chadwick

Now don’t get me wrong. I do not support Bernie Sanders’ bid to become the presidential nominee of the Democratic Party. Far from it. In fact, I strongly disagree with almost everything he espouses regarding economic policy.

I believe that Bernie’s policies, if put into practice, would do serious damage to the fabric of the American economy. The entrepreneurial spirit that is the bedrock of American economic success would be smothered. And so would the appeal of this country as a melting pot, attracting the best, the brightest and the most ingenious from around the globe. Gone would be the opportunity to start with little or nothing and be able, through dint of hard work and creativity, to achieve a life’s dream.

But I must admit that I find Bernie Sanders refreshing.

That’s because Bernie doesn’t have the proverbial finger in the air to see which way the political wind is blowing. There’s no sense that his minions (if he has minions!) are poring over poll data to detect trends that would be advantageous to embrace.

What you see with Bernie is what you get, and it’s been that way for more than forty years. His principals, his political philosophy, his rhetoric have changed little since the days of protest in the 1960s.

One might argue that therein lies a problem — the fact that part of the process of maturing in life is the ability to change one’s point of view and to recalibrate the naïve assertions of one’s youth. How many radicals of the 1960s are today’s millionaires (and maybe even billionaires)? For myself, I fully admit to having altered my point of view on many issues — both economic and social — over the last forty years.

But not Bernie. He’s been a self-proclaimed bedrock socialist since he had unkempt black hair and carried his young son to a rally in the early 1970s. Today all that’s changed is the color of the unkempt hair. Have you noticed how many young people attend his rallies and speeches? His appeal is not dimmed by the fact that he could be grandfather to them all. Press reports indicate that no Presidential candidate in this season has had as many attendees.

Crowds demonstrate excitement, but polls indicate the breadth of appeal. In, of all places, conservative New Hampshire, Bernie Sanders (as of this morning) is the leading presidential candidate. Maybe it’s just part of the friendly neighbor effect, but in truth there aren’t two more politically diverse states than the Yankee neighbors of Vermont and New Hampshire.

I think Bernie’s appeal over his Democratic opponents derives from his candor, the evidence of his conviction in his long-held beliefs and his total disregard for what the establishment thinks of him.

He’s David — the one without the heft of money and connections. He’s facing Goliath — the powerful, the globally renowned, with armies of sophisticated fundraisers and business people to ensure the necessary conclusion.

We know the outcome of that Biblical story. Wouldn’t it be fun to see it happen again.

© Copyright 2015 Patricia W. Chadwick

Service just “ain’t” what it used to be (almost).

The friendly telephone operator to whom you could speak by dialing 411 (for information) or 0 (for help with a call) has long been extinct. In fact, our millennial children most likely don’t even know what those two words strung together mean.

A more current example of the disappearance of service is the now expected experience in many department stores (with respectable names like Bloomingdales, Lord and Taylor, and on and on) where service seems to have metamorphosed into “self” service.

Gone are what once were ubiquitous salespeople, who cheerfully (or occasionally not) helped to find the dress or blouse or cooking pot you were searching for. Gone, too, are the friendly directions that would be provided if you couldn’t find a product. “Go to the far end, and it’s just there on the right.” And despite the fact that cash registers still dot the floors of fancy department stores, they now seem to sit unattended.

Retail stores seem more like mausoleums — silent tombs, laden with clothing draped on hangers or stacked on shelves, inanimate objects separated by aisles through which unspeaking human beings roam aimlessly, as if in a daze.

Perhaps they really are in a daze, thinking, “Why can’t I find anyone to help me?” Perhaps they’re also thinking, “I might as well buy my stuff online.”

And therein lies the problem. The internet is now the go-to place for shopping, which means that the stores can’t afford the luxury of keeping salespeople, and adequate inventory and perhaps even the rent they must pay. It makes one wonder how long it will be before the mall itself is extinct.

So what a surprise I had a few days ago when, twice in one day, I was the recipient of the most splendid service in a retail store.

The first was Sephora, the French chain of cosmetics stores that first came to this country in 1998, a year after being acquired by LVMH. I was on a mission: to find a particular brand and shade of lipstick, as well as organic mascara. I had barely stepped into the store, when I was approached by a smiling young woman, dressed in a snazzy black tee shirt.

“May I help you?” she asked. I was taken aback, having anticipated roaming around the store searching for two items that would seem like needles in this (beautiful) haystack of a store.

Within moments, I had what I needed. “Let me check you out,” she then said, and lickety-split, I was done. As I headed for the door, I was congratulating myself on my good fortune to have received such lovely service. But then I saw that there was, in fact, a sea of black tee-shirted young men and women, all employees of Sephora. Like cheerful butterflies, they were flitting from one needy customer to another. “Come this way,” and “Of course we can,” were the refrains.

No wonder Sephora has been such a success, I thought as I headed down the street to my next chore.

This was a far more stressful one. The hard drive on my MacBook was failing, and I needed help fast because computers that act up make me panic.

Having been to the Apple store many times, I expected to be greeted with courtesy and professionalism. But I was coming without a scheduled appointment at the Genius Bar, a no-no in the world of high tech. When I described my crisis to the cheerful greeter, she must have sensed my anxiety because, within a few minutes, I was sitting at the Genius Bar.

My “genius” truly was that, as well as thoughtful and solicitous. When it became evident that my morbidly sick hard drive was beyond the scope of Apple’s genius and his tools, he gave me the name of a company that would make things all better. And he was right. I left the Apple store far less stressed than I entered it.

The pleasure of being treated with such care and respect twice in one day was long lasting.

It’s gratifying to see that some companies have found a way to offset the convenience of online shopping with a level of service that makes you want to return.

© Copyright 2015 Patricia W. Chadwick

Perhaps it’s hubris on my part to write a blog about the definition of marriage with the Supreme Court only weeks or perhaps even days away from ruling on the matter (Obergefell v. Hodges), but I have to admit being flummoxed by the state of near hysteria that has been generated in this country over the definition of the word.

It seems to me that, in our culture and under our system of government, marriage has two definitions. It is (a) a civil contract and (b) a religious institution.

This distinction is based on the premise of the separation of church and state as a fundamental tenet underlying the first amendment of the Bill of Rights of our Constitution.

Religions that practice in the U.S. are free to define marriage within the context of their own principles and philosophy. It is not unusual for some religions to deny, or require a special dispensation for, couples seeking to marry if they do not share the same religion. The government (AKA the state) may not ordain what constitutes a valid religious marriage.

To the best of my knowledge, every state in the union accepts as valid the marriages performed by members of religious groups (except for polygamy which was outlawed by the U.S. Congress in the late 19^th century).

The other side of that coin is that the state governments have the authority to establish their own criteria for civil marriage. In the past, many states required blood tests to help maintain public health and safety, but over time, nearly every state has abolished that requirement.

Today more than a handful of states (some of them in the heart of Bible Belt America) allow for common law marriage, but most do not. But that does not in any way require a religious organization to sanction common law marriage (and few do).

Most religions condemn adultery; many also condemn common law marriage. But there hardly seems to be a wave of hysteria over the fact that such “sinners” might be customers of religious-minded business owners. The issue has only arisen over the discussion of same sex marriage. It seems a bit hypocritical to me.

If the self-righteous are truly honest in their claim that their religious freedom is threatened by the requirement that they might be “forced” to do business with sinners, they should be willing to post in their place of business a sign that might read something like this:

Please note: We value our customers and want to give you the best service. However, if you have ever engaged in any of the following acts that we consider to be sin, please be advised that we do not wish to have you as a customer.

Following would be a list of everything they deemed to be a sin.

That would be honest and forthright and truly nondiscriminatory, allowing them to bear the commercial impact of choosing to deal only with those they considered to be sinless. It would also put them out of business in about a day.

Nearly forty years ago, a gay friend of mine with a serious heart problem told me of his concern that should he die before his partner, the inheritance taxes would force the sale of their modest weekend cottage in the Hudson River valley. In my mid-twenties at the time, I was haunted by the gross unfairness facing so many Americans. Some fifteen years later, my friend’s heart gave out as he sipped a martini during a Sunday lunchtime in his beloved retreat. His partner never had to face the loss of his home, as he succumbed to cancer three days later. They were spared the heartache they feared.

Much progress has been made since then, which is good. Let’s hope that the impending decision by the Supreme Court will put an end to the chimera that freedom of religion can deny citizens their civil rights.

© Copyright 2015 Patricia W. Chadwick

Dear Admiral Rogers,

Despite the fact that Senator Rand Paul achieved his objective of preventing a renewal of the Patriot Act, I want you to know that I give you authority in your capacity as head of the NSA to gather the data from my various telephones that you deem necessary to protect me (and all Americans) from the growing dangers of terrorism.

And if Congress passes a watered-down version of the Patriot Act, thereby restricting your organization’s ability to collect the data, you have my permission to continue acquiring whatever data you need from my telephones.

And by the way, Admiral, I have spent the last week questioning numerous friends and acquaintances on this issue. The political spectrum of my friends is wide indeed, ranging from the uber right-wing Tea Party to Libertarian to Republican to Democrat and even radical left-wing socialists.

While not all those I contacted feel as I do, the vast majority are in agreement. I was surprised to find that most of those who took issue with me on this matter are in fact Democrats, hardly a group of fans of Senator Paul. They said it was a distrust of government that led them to their point of view.

It’s understandable that many people distrust government, but we know it’s the venality of politics, not our structure of government that is at fault. Back-room deals, pork barreling and too much quid pro quo — all for the purpose of self-perpetuation in government.

Back to the issue at hand, I find it implausible that the NSA has either the interest or the capacity to sit around all day listening to the content of my (notice the emphasis on ‘my’) myriad phone calls — to family, doctors, coworkers, service providers, restaurants and friends here and abroad. It would take armies of government employees to achieve that level of scrutiny, far more than the 35,000 to 40,000 people who work for the NSA. I suppose conspiracy theorists might argue that the listening could be farmed out to “subcontractors.”

I took the time to listen to Senator Rand Paul on Sunday, and there is no doubt that he is earnest in his belief that the gathering of telephone data (note: just the gathering of the data, not eavesdropping) is a violation of the Fourth Amendment to the Constitution, which states “The right of the people to be secure … against unreasonable searches and seizures, shall not be violated ….”

I am no constitutional lawyer. But like most of my friends and acquaintances, I expect the government to do everything in its power to keep us (and in fact the free world) safe from an enemy that is at war with our values, our form of government and our way of life.

I view the gathering of telephone data as one tool in our government’s arsenal. It hardly seems like an “unreasonable seizure.” In fact, I can see no way in which my liberty is curtailed by it; rather, I feel more secure in the knowledge that the government is doing everything in its power to track and destroy those who would wage war on us.

Thank you, Admiral, for your years of service to our country. I hope you will be granted the tools necessary to fight an enemy we know is growing stronger by the day.

© Copyright 2015 Patricia W. Chadwick

It’s been interesting (and gratifying) to observe that a number of the largest employers of minimum-wage workers in this country have “voluntarily” pre-empted Congress by announcing an increase in their base wages to a level that is higher than what Congress proposed in the Fair Minimum Wage Act of 2012.

For those who think that the minimum wage is paid primarily to teenagers, the statistics may be surprising. According to the U.S. Bureau of Labor Statistics, in 2013, over 75% of minimum-wage earners were older than twenty, and about one-quarter of them were above the age of forty. Fewer than 3% were over sixty-five, and women comprised 62% of minimum wage earners.

This past month, Walmart raised its starting pay to $9/hour with the promise of a further increase to $10/hour in February of 2016. Target, Gap and McDonald’s (at its 1,500 owned outlets in the U.S.) have made similar announcements.

For years, we have heard that any legislated increase in the minimum wage would actually hurt workers because companies would be compelled to lay them off in droves. But it’s the employers themselves who are now upping the ante! Is this a case of: (1) “moral suasion,” (2) guilt, (3) economic reality, or (4) doing what management believes is in its own best interest?

Perhaps it’s a combination of all four.

Increasing the base pay for workers at large and profitable companies like Walmart and Target will surely translate into a happier workforce (and there are many studies that indicate a positive correlation between employee satisfaction and improved productivity). In addition, workers at retail and supermarket chains tend to do their shopping with their employer, so increasing the employees’ pay will likely lead to enhanced revenues.

It seems to me that Walmart and others have made a logical business decision, even if it took them years to get there. Now let’s hope they will stay ahead of the curve and increase that minimum wage as they continue to reap productivity increases. Remember, wage increases that don’t outstrip productivity gains will not cause inflation.

I can still hear Sam Walton (founder of Walmart) when he would discuss his growing company in the late 1980s. “Walmart is unlike any other retailer,” he’d say. “Every quarter you should see our gross profit margins fall.”

Fall? That seemed like heresy in the retail industry.

“I plan to pass on the cost savings I get from my manufacturers to the consumer,” he said over and over again. “The reward will be in my revenue growth.” He was right — that’s what made Walmart the outstanding retailer it is today.

Let’s keep an eye on the earnings growth of these companies that are leading the pack in terms of raising wages for their employees. I bet we’ll be pleasantly surprised to see that rising wages won’t hurt profits.

But there’s another side to the minimum wage debate. Many of the businesses that hire minimum wage workers are not highly profitable corporations. Rather, they are the core of what makes up middle America — myriad small enterprises that rely on temporary and relatively unskilled (and often youthful) employees. For them, the burden of a significant mandatory increase in wages could be devastating.

Going from $7.25 per hour to $10.10 (as President Obama has called on Congress to do) is a nearly 40% increase, far higher than any previous raise. Inflation (CPI) since 2009 (when the rate was last raised) has been a cumulative 10.5%. That would suggest a minimum wage of $8.

It appears that the government has a separate agenda — namely to bring minimum wage earners to the point that their income will exceed the poverty level. That sounds like a noble cause, and it may even be a sound economic one. Why should the public be funding a transfer payment to subsidize those on the minimum wage? (And if anyone today is trying to live solely on a minimum wage income, they will require welfare payments.)

On the other hand, if the minimum wage is raised too sharply, it will likely backfire. Small companies really will have to lay off workers.

The history of minimum wage increases in this country is odd, to say the least. Unlike Social Security payments, which have been indexed to inflation since the 1970s, the minimum wage, first introduced in 1938, is not. In fact, there have been ten-year gaps when it wasn’t changed at all.

Congress could mitigate the negative impact on small businesses by phasing in the change and also legislating that the minimum wage be increased in January of each new year by the CPI of the prior year (as is done with Social Security). That would treat minimum wage earners no worse than most other employees and would provide small businesses with more predictable labor costs.

After years of Congressional gridlock, it’s been gratifying to see a number of bipartisan issues be resolved since January. Congress needs to address this issue in a common-sense way. Much of the rhetoric from the right about how “any” increase in the minimum wage would have serious negative impact on the economy has been de facto refuted as the large companies have become the leaders in this round of increases.

And maybe the leadership taken by these major corporations will serve as a catalyst for other companies. At the least, the bar has been raised. Workers know that some companies will pay more than others.

© Copyright 2015 Patricia W. Chadwick

Two prominent Republicans recently came out on opposing sides of the Social Security “means testing” debate.

Governor Chris Christie (who has yet to declare himself in the 2016 Presidential race) dared to touch that “third rail” (one that most politicians fear will electrocute them) by declaring that Social Security benefits should be means tested because as it stands today, the arithmetic simply doesn’t work.

Donald Trump (who has hinted that he might throw his hat in the ring for President) took a different tack, arguing that Social Security isn’t an entitlement; it’s honoring a deal.

But if the point is to protect the beneficiaries, will be destroyed by bankruptcy?

Over the weekend, I did a simple analysis by going online to my own social security account (www.ssa.gov/myaccount). You can do it too; when you go to the site, simply click on “Sign In” and set up your own account. You will be able to see year by year your FICA and Medicare wages, and there is a summary of what you and your employer(s) have contributed since your first day of work.

I have already reached the age at which I can collect social security, but I have chosen not to take it yet because I am still working and don’t need it.

BUT and this is a HUGE BUT,

I am eligible, by virtue of the fact that I have turned 66, to receive (and have in fact elected to do so) a monthly payment that is equal to half of what my husband currently gets. Note that this is in addition to what he receives and my current Social Security income does not tap into my future benefits. In fact, my future benefits will increase because I have chosen to receive them at a later date.

Had I chosen to take my normal Social Security payments at age 67, the amount that I (and my employers over the years) had accumulated would have lasted nine years. That’s right. I would have used up all the money associated with my earnings by the time I was 75. But my life expectancy at 67 is another 18.62 years!!!  That means from the time I reach 75 until I die (and if I live till 75, my life expectancy is another 12.77 years or nearly 88 years of age) I will be receiving Social Security money that I never contributed.  Even a third grader can make that calculation.

So Governor Chris Christie is right. The arithmetic simply doesn’t work and it never will, particularly now that the 76 million baby boomers are retiring at the rate of 10,000 per day!

In large measure the numbers no longer add up because longevity has so vastly improved since Social Security was instituted during the Depression in 1935. Back then, life expectancy at birth was 67 years for men and 73 years for women.  Contrast that with today – 76 years for men and 81 for women. And it goes without saying that trend will continue – the older you get, the longer you will live.

Means testing is the only way today to make a dent in the Social Security deficit. In fact the very concept of “SOCIAL SECURITY” implies a benefit for someone in need, as so many were during the dark days of the Great Depression.

Retirees who have been fortunate enough to accumulate significant assets by the time they retire are not in need of that security. But is there anyone in Congress who is bold enough to touch that “third rail” with a logical, sensible and viable formula for means testing? Is anyone principled and courageous enough to take a short term political risk in order to tackle a serious long term problem? Sadly, I doubt it.

Donald Trump is right on one thing: his recommendation that individuals be allowed to dedicate a portion of their own payroll taxes to a personal Social Security account that they could invest is spot on.

Today the money you have deducted from your wages to fund Social Security is not yours; it’s the Government’s money. And if you die prematurely, it is not part of your estate. A personal Social Security savings account would be yours.

For those who fear that private social security accounts run the risk of being subject to the vagaries of the markets, there are plenty of safeguards that could be installed to minimize those risks. The value of compounding returns to monthly contributions is monumental. But that will be the subject of another blog in the near future.

© Copyright 2015 Patricia W. Chadwick

The employment numbers are up and then down. Consumer spending is strong and then weak. Student loans are up, and they never go down. What does this mean for the prospects for economic growth in the U.S.?

One thing is for sure — without vibrant consumers, our economy will not grow at a robust rate. And without a decent level of earnings and rising wages, there will not be vibrant consumers.

So what to do? Here’s one suggestion — cut income taxes for the middle class! They’re the ones who are responsible for the vast majority of the day-to-day consumer spending in the country. They’re the ones who need to save month in and month out for their own retirement. They’re the ones who are burdened by the albatross of educational loans.

All we seem to hear about is how the tax rate for corporations is too high, and capital gains tax rates need to be cut. Nonsense!

Let’s look at the economy in three parts: the corporations, the 1% and all the rest.

During the Great Recession, Congress, as part of its enactment of the stimulus package, gave a special tax break to the corporate sector, in the form of what was called “bonus depreciation.” It was meant to entice companies to engage in capital spending projects that they might not otherwise have made. Frankly, that was a bit of a silly notion. Companies do not (and should not) make long-term investments based on depreciation schedules.

Furthermore, if it was meant to help an economy in dire straits, why is that tax break still in effect seven years later, when corporate profits are at an all-time high? For each of the last several years, Congress has deliberately allowed this benefit (call it “corporate welfare”) to stay on the books, enabling many giant and highly profitable companies to reduce their federal income taxes. It was an ill-fated idea that has been a boon to corporate cash flows and a bane to the coffers of the U.S. Treasury.

Quantitative easing by the Federal Reserve has been a stimulus to the stock market, allowing the already well-to-do (call them the 1%) to become even wealthier. But relative to the vast population as a whole, the uber wealthy can’t spend enough money to impact the economy. Sure they can buy $100 million pieces of art and more private planes and make worthwhile contributions of appreciated stock to good causes, but most of their wealth is invested and turns into even more wealth. I’m not saying that this is evil, but it certainly lacks as a meaningful stimulus to the economy.

Since the Great Recession, the vast middle-class population of this country has found itself squeezed between meager salary increases and rising costs for a wide array of items that somehow don’t seem to be reflected in the CPI — rising co-pays for doctors and medicines, insurance premiums, real estate taxes (based on the increasing value of a house they have no intention of selling), sales taxes, airfares, water and on and on. The one bright spot has been the fall in the price of energy, but who knows how long that will last?

So let’s get to the point. How about a massive income tax cut for the middle class? Something that would hit their pocketbooks in a real and positive way right now? Let’s start with eliminating all federal income taxes on the first $30,000 of wages. According to the tax form calculator (www.taxformcalculator.com), that would provide an additional $2,493 of spending money each year to every wage earner.

Given that there are about 77 million wage earners in this country, that would put an additional $200 billion in consumers’ pockets, or 1.2% of our nearly $17 trillion GDP.

If someone complains that the government can’t afford to lose that $200 billion transfer from its coffers into the hands of consumers, my advice would be to end the bonus depreciation for capital spending; then the spigot from corporate taxes will start to flow once again into the U.S. Treasury.

We are entering the silly season — political gamesmanship for the throngs who think they want to become president in 2016. Let’s see if any one of them addresses this issue of such economic and social importance. If one candidate is bold enough to tackle this issue in a constructive and comprehensive way, I’ll vote for him or her.

Paris is arguably the most sensually appealing city in the world, and that’s probably damning it with faint praise. Walking the streets of the Left Bank is like being treated to an afternoon massage. All the tension evaporates from one’s shoulders and neck.

Entering a restaurant — fancy or simple — puts a smile on one’s face. And enjoying the meal that has been prepared with exquisite attention to both flavor and presentation slows the pulse and lowers the blood pressure. Foie gras, steak tartar, escargot — in Paris they enhance good health rather than clog the arteries.

The pace of life in Paris is conducive to longevity, even though smoking is rampant. There seem to be far more cigarettes than cell phones. Cigarettes are the symbol of pleasure; cell phones of pressure.

Paris is art — its bridges, gardens, shops and ateliers; its architecture, designed to allow the sun to grace the sidewalks along its wide boulevards all day long. And, of course, its myriad museums — best enjoyed in small doses and unrushed. Support for the arts is manifest everywhere, paid for by a steep tax rate that doesn’t seem to ruffle French feathers.

That’s the glorious side of Paris, a cultural paradise — a heaven on earth that makes one want never to leave.

But there’s another Paris, and it’s a puzzling one, so seemingly incongruous in the atmosphere of elegance and sophistication that defines the city and makes you breathe deeply and say, “Oui, this is what life is all about.”

The other Paris is the city that says, “Non!”

“Non”, we will not serve you and your friends at the café until the last person in your party of twelve has arrived.

“Non”, you may not check your coat in the cloakroom at the museum, even though I am on duty and being paid, the museum is open and the coat closet is empty.

“Non”, you may not evict the stranger who has broken into your apartment while you were away and is now living there as a squatter. What? Isn’t one’s home sacrosanct from invaders? “Non”, not in Paris.

As a visitor, I find myself at a loss to understand this paradox. I wonder about its origin, since this attitude seems to have been a part of the city for ages. Could it date as far back as the French Revolution? Is this the way an oppressed people rose up and showed that they too could have a voice?

Interestingly, the Paris of “Non” is unaffected by the political party in power; it is neither left-wing or right-wing; it’s beyond politics.

When one discusses this puzzling anomaly with Parisian friends, they simply shake their heads and groan. They too experience it; it’s not reserved for foreigners.

Fortunately, experiencing the elegance and sophistication of the Paris of “Oui” is such a delight that the Paris of “Non” acts like a mere footnote. As it should be.