1st QUARTER UPDATE: TACO BELL & BILL GATES

     This week we want to provide a 1st Quarter 2019 update on five issues we previously studied.  Periodically reviewing these business and monetary lessons in the context of new events helps us re-instill the proper fundamentals and understanding.
     As a follow up to our post proposing "Corporate Universities," three economists - from Northeastern University, Harvard, and the Federal Reserve Bank of Boston - released their study of 36 million online job postings between 2007 & 2012.  When the economy was much stronger in 2007, only 13% of postings required a bachelors degree, and when the economy was slower and unemployment higher in 2012, over 22% of postings required bachelor degrees.  Companies can be much more selective when we all need a job.  But economic growth flips the tables in favor of us job seekers, and as a perfect example, Taco Bell, yes Taco Bell, recently expanded its benefits package to cover $5,000 a year in college tuition.  Now, thanks to growth, Tommy can demand that Taco Bell pay for his college while he serves those double-stuffed Gorditas through the drive-thru window.
     Also following our theme, Oren Cass has released "The Once and Future Worker," and Isabel Sawhill authored "The Forgotten Americans," both arguing that we waste too much taxpayer money on ineffective education.  The federal government spends $160 billion of your money each year for college expense, but only 36% of Americans now graduate from a 4-year program.  The Feds only spend $20 billion of your money on career and technical education and job training.  Cass and Sawhill assert that we should re-purpose college funds, along with means-tested programs such as food stamps and the Earned Income Tax Credit, into these technical programs and job training.  They must both be JAM Views readers!
     Speaking of growth, our mantra, even the European Union is starting to convert.  Economists from the EU and the IF Institute, a German think tank, released the first dynamic-scoring tax model for the EU.  As opposed to the previous static models which never accounted for the tremendous increase in tax revenue from higher GDP growth, which our Posts have proven repeatedly, the EU is finally starting to incorporate dynamic models which predict revenue boosts by stimulating job creation.  Starting with this experiment in Brussels, we can only hope they expand growth ideology and fiscal changes to stimulate the economies throughout Europe.  One more time:  Tax cuts and less-oppressive regulations significantly increase government tax receipts.  Period.
     You recall that we stated that "banks only loan money to people who don't need the money."  Again back in 2007, banks held approximately 14 cents of reserves for every dollar you actually deposited with them, which reflects a normal reserve in what they term a "fractional-reserve banking ratio." (Yes, the bank only keeps 14 cents of your money in the vault and leverages the rest on loans and investments, so if everyone stops by to pick up their money at the same time, your taxpayer dollars will have to bail them all out again.  I don't make this up.  You try to run your business books that way, and see how long it takes for the SEC and the IRS to knock on your front door.  You're not in the club.).
     I digress.  Yet, according to a study released by retired Senator Phil Gramm and Thomas Saving, the banks are now holding $1.31 of reserves for every dollar they owe you.  The reason is that the Federal Reserve is paying them an above-market interest rate on these reserves, so they won't loosen the purse strings and loan you money for your new business.  Banks are holding onto almost 10-times the required reserves.  The Fed should lower the rate they pay banks, so the banks are incentivized to make loans to you, in-turn not stalling our strong economy until true signs of inflation emerge.
     Earlier we were pretty rough on U.S. Attorneys and members of the Bar as we explained the illegal shutdown of David Ganek's $4 billion hedge fund, Level Global, and the class-action attorneys' attempts to blackmail Apple, Google, and Microsoft app platforms.  But, let's continue because no group deserves it more.  Michael Ledeen of the Foundation for the Defense of Democracy released an explanation of the recent, bizarre sentencing hearing for General Flynn.  While the media reported a narrative that the judge rebuked the General and his patriotism, Mr. Ledeen, who was actually in the courtroom, tells a different story.  He believes the judge's aggressiveness sprung from his frustration at "his failure to persuade Mr. Flynn to reconsider his plea (of guilt): If Mr. Flynn won't fight, Judge Sullivan won't do it for him."  Mr. Ledeen summarized his view as "I do not believe Mr. Flynn lied to the FBI.  I think he lied when he made his deal with Mr. Mueller, and his confession was a false one."  Recall your JAM Views lessons:  The great majority of what we hold as true, likely is not.
     Also, certain attorneys are finally fighting back against state laws mandating membership in the Bar, just as other union members have gained more rights to make their own decisions not to join after the Supreme Court decision in Janus v. Afscme.  Against the 32 states in which membership is mandatory, Messrs. Huebert and Sandefur of the Goldwater Institute now claim this requirement is unconstitutional in violation of attorneys' freedom of speech.  They claim the "bar associations wield massive political influence on everything from tort reform to judicial appointments, (and) it distorts American democracy, too."  Maybe we'll let these gentleman be JAM Views guest bloggers!
     Finally, as a follow up to our "Capitalism + Philanthropy = The Answer," Bill Easterly came out against Bill Gates in an effort to teach us that "countries respond to incentives to grow, and organizations like the World Bank and IMF don't design aid programs around incentives."  In other words, giving money to others doesn't work; it actually imprisons them.  Easterly argues that only market-oriented development works, not state-driven approaches.  "When you allow it to happen it does generate miracles and revolutions - but usually not the way the experts intended or planned.  The author of "The White Man's Burden:  Why the West's Efforts to Aid the Rest Have Done so Much Ill and So Little Good" concludes with, "Core Econ 101 principles have stood the test of time, and let's just try to stick to those."
     Again, it looks like our capitalistic members are making progress spreading the good words of self-interest and common sense.  We are making headway, even with the French.  Who would have thunk it?  Keep up the good work, and have a safe and prosperous week.

"People are finding a way to solve their own problems, despite the arrogance and the incompetence of the experts."  -  Bill Easterly

* Thank you to the WSJ, Forbes, and Fortune for many statistics and quotations.

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WHAT DOES A "SMART INVESTOR" LOOK FOR IN YOUR BUSINESS PLAN?

     In case 2019 is your year for finally taking the leap and starting your own business, I wanted to give you a few Cliff Notes for creating the business plan and investor pitch book. You want to create the strongest plan possible for your own thorough due diligence, and you want to prepare the most enticing and informative pitch book to convey this amazing opportunity to others.
     If you are feeling insecure about your lack of experience or weak resume, throw those fears aside as creating a startup is the ultimate exercise which brings a clean slate and a world of opportunity to everyone who dares to dream.  Always know that the great business leaders you read about are also the product of some really lucky breaks (along with a hell of a lot of hard work), and most have numerous failures in their history, even some epic disasters.  Take it from a guy who knows!
     So, here are 13 points for you to consider this week when taking the plunge:

1.  As obvious as it may seem, please ensure the physical copy and digital copy of your plan are professional and beautiful.  I can't tell you how many times would-be-entrepreneurs pitched me with books full of typos, terrible grammar (even worser than mine!), and pages falling out.  Don't trip out of the starting gate.

2.  Table of Contents.  Again, this seems obvious, but it is very important since almost no investor reads the entire plan.  Different investors will flip to the sections they focus on and find most important.  Most only read one or two sections before they decide whether they have any interest.

3.  Executive Summary.  Ensure this is succinct and grabs the reader's attention just like the first chapter of a suspense novel.  Think "rule of first impressions," and do whatever you can to keep the reader reading.

4.  Business Description.  This is a high-level overview of the venture.  This section touches on who, what, why, how, goals, and expectations.  This is organized and modular for the investor to be able to focus on his areas of concern.

5.  Industry Background.  Educate the prospect on the industry's historical data, current status, size, features, trends, and  opportunities you can exploit.  Pull out your old SWOT analysis graphs.

6.  Competitive Analysis.  Who are your current and prospective rivals?  What are their strengths and weaknesses?  Why are you newer, faster, higher quality?  What is your niche?

7.  Market Analysis. Focus on the end consumer (person or business) and what they want or need.  Steve Jobs said people don't know what they need until you show them.  And did you ever know that you couldn't survive without an iPhone and  Google?

8.  Management Team.  This is the most important section for many sophisticated investors.  They believe strong business leaders can run a varied set of businesses, and that winners will win again.  You need to include detailed bios, and again, don't worry about past failures, because they also want to see lots of bruises and tough experience.  Show how the bios are relevant to the venture's success and how the synergistic team will compliment each other.  Also include plans to recruit, hire, and train the remainder of the company personnel.  Don't forget the relevant legal and contractual issues such as non-competes and non-disclosure agreements.

9.  Operations Plan.  Clearly explain how you are going to execute this service or produce this product.  Include workflows, processes, and critical paths.  Are we staying domestic or producing products overseas?  What equipment or real estate is necessary?

10. Marketing Plan.  Explain the high-level plans for print, online, and social media, and then highlight the central themes.  Always focus on benefits to the end consumer as opposed to the features of the product like most of your competition.

11. Sales Plan.  If applicable describe your experience in building sales teams and strategies.  Smart money knows that you might have the world's greatest widget, but if you don't have a brilliant sales process, you will always fail.  Conversely, many companies have mediocre products or services, but have a sales leader who can still knock it out of the park.

12.  Financial Plan.  If not your strength, get some help here to ensure you present proper financial statements and pro formas.  Provide two sets:  One for startup capital and launch, and another set for ongoing operations.  Include the balance sheet, income statement, and cash flow statement.  Invest in QuickBooks, and you will find this easier than previously thought.  Tip: The smart investors will cut your pro forma revenue numbers in half and then double your expenses.  Make sure the numbers still work.

13.  Compliance, Structure, Legal, Regulatory.  Without causing the investor's eyes to glaze over, cover the government oversight groups for this business, how it fits with the Labor Department (W-2/1099), and what is the liability.  Address patents, copyright, trademarks, and other relevant business details.

     Now once you have replaced the ink-jet cartridges in your house printer nine times, you are ready to rock the world with this new business plan!  Create an overview pitch book for your uncle who is actually just investing because you were the only one to listen to his stories after everyone else went to bed.  Then create a very detailed book for the NASA engineer prospect who loves to dissect your analysis.
     Have different elevator speeches and lunch presentation ready.  At lunch, simply cover the people, the opportunity, and the risks and rewards.  Once they are intrigued, you will go through the plan in detail.  Understand your audience at all times, and focus on chameleon communication.  If they don't understand, the answer is always no.
     Finally, include in the plan, and always explain to potential investors, how they are going to exit this opportunity.  After the 2008 Financial Crisis, investors must now first understand their liquidity.  They don't want to be stuck in an investment when the financial markets hit gridlock, and they don't feel as comfortable with indefinite time frames as they used to.  If it's a real estate enterprise, allow investors to exit after each property, or entity, is sold.  Allow them liquidity (swap and drop) while other investors may desire to roll gains tax-deferred into the next venture (1031 exchange).  Help them see the successful culmination of your dreams.
     Yes, this takes an incredible amount of work and vision, but our JAM Views members are up to the task.  How about 2019 is your year to make the leap?  What would you do if you knew you could not fail?

"We have been taught that negative equals realistic and positive equals unrealistic."  - Susan Jeffers

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CAN WE POSSIBLY CONTROL THE SPENDING SIDE NOW?

     As we kickoff 2019, I believe we will be force to buckle our chin straps and pull up our socks.  We are likely in for a Battle of the Bulge in defense of responsible economics, and against a surge of nonsensical socialism.  As Nancy and Chuck take the reins this month and begin to deal with the man who prides himself in "The Art of the Deal," I believe deals are likely to get done.  Unfortunately, a betting man would wager that these deals increase budget deficits, increase the national debt, empower government instead of the individual, and work to more than offset the nearly-miraculous growth, productivity, and employment success achieved the last two years.
     Mitt Romney took some cheap shots at the current Administration in the Washington Post this week as he feels out his 2002 Presidential campaign possibilities, but even he could not help but compliment the tax reform, the deregulation, and the China trade battle.  Daniel Henniger wrote that even the Brookings Institution recently claimed there are 150 Administration deregulation initiatives (smaller government) completed or under way affecting telecom, finance, housing, environment, health, agriculture, labor and education.
     JAM Views is diligent to remain apolitical, because the human brain will instantly construct a wall against values it construe are against its own core beliefs.  I remind our members that our mission is truth and understanding, without labels and preconceived constructs, so that we may remain open to facts, math, and true determinants of behavior.
     The socialists now feel empowered to make another surge against our freedom and our economic miracle.  Rep. Alexandria Ocasio-Cortez's "Green New Deal" moves federal tax rates back to 70% on top-income earners (business owners who just moved unemployment to its lowest level since 1969 because of the tax cuts).  Can anyone say "Jimmy Carter?"  Paul Krugman, the only Nobel Prize economist who will never be invited as a guest blogger on JAM Views, came to Cortez's defense this week citing studies which calculate the optimal tax rate at 73%, and even 84% (for every $100 you earn the government lets you keep $16).  The problem is that listening to these people is like watching "Jerry Springer" and "Love & Hip Hop" after work every day.  It melts your brain slowly, and soon you believe that jumping over chairs to fight your pregnant cousin and throwing plates across crowded restaurants is acceptable behavior.
     Holman Jenkins wrote that the goal of these new, wild tax and spending plans is to make them sound plausible enough to lure millennial voters off the couch (put down the Xbox) and into the voting booth.  "Like the young everywhere, they are excited by radical proposals as long as somebody else is paying."  (JAM Views flashback to Margaret Thatcher's famous line that the problem with socialism is you "always run out of other people's money.")
     Speaking of sounding plausible, Prof. Steve Hanke of John Hopkins and Prof. Stephen Walters of Loyola Univ. Maryland propose that we push for a limited constitutional convention to propose a balanced-budget amendment to the Constitution.  They need 34 states to convene and 38 to ratify, but they claim 28 states are already on board.  Many believe this is our only hope, since the politicians employ "lying prices" to lull us into going along with each budget increase.  For example, over the last decade we went along with paying $27.2 trillion for federal services, but the actual cost was $35.6 trillion.
     The politicians simply printed $9 trillion extra out of thin air to make up the difference and added it to our children's debt.  Hanke and Walters claim this is the ultimate crime on our children for "taxation without representation." If we understood the big picture better, we could see this is the same as you and I buying a private plane and telling Learjet to "send the bill to our sons and daughters, and make sure the grandkids kick in a good amount also."
     The infrastructure deal by itself has the potential to blow all of our hard-fought progress.  The President will enjoy being America's "Builder-In-Chief," and Nancy and Chuck will throw in so much pork and income-redistribution that the government will eat the last remaining sectors of the free market.  Nancy's $1 trillion infrastructure proposal last year included $2.5 billion for research on the effects of oil spills and sea level rises (who gets that $25 billion?  Friends of Nancy.), $25 billion for commuter rail projects which is to bail out California's massively-over-budget bullet train, and $3 billion for charging and refueling stations for their Teslas.  A billion here and a billion there, and we might start talking about some real money!
     And the numbers are just pulled out of the sky, because they are spending your money - why not $35 billion for studies on sea levels rising?  There is also a line item for unspecified funds for "locally driven initiatives to preserve and expand affordable housing." (Can you say "Barney Frank and mandatory loans to consumers we knew could never make the first payment?"  Didn't end well).
     The WSJ Editorial Board has attempted to provide some sane advice on the infrastructure issue by writing, "A real compromise on public works would leverage some taxpayer money to raise more private funds to build the most urgent projects while easing permitting rules and political red tape."  JAM Views says the private market should handle the whole project and, if allowed to be truly competitive, it will be ahead of schedule and under budget (See Trump Times Square Ice Rink).
     We must remain diligent this year.  There are two sides to our personal P&L's and two sides to our Government P&L.  Even if we make great progress on the revenue side, it is all for not if we allow it and more to be spent by adding more crushing debt.  Outsized debt always, eventually, destroys, and don't forget that when they tell you the "lying price" of a $20 trillion current national debt, it is truly, at least, $70 trillion with all of our bills coming due.  Boston University economist Laurence Kotlikoff claims the current number is actually $200 trillion!
     With interest rates rising, and us trying to swallow the huge increase in money supply and debt from the last decade, I say we double check those chinstraps and pull up those socks!

"When I say 'capitalism,' I mean a full, pure, uncontrolled, unregulated laissez-faire capitalism with a separation of state and economics, in the same way and for the same reasons as separation of state and church." - Ayn Rand

* Many thanks to the WSJ, Forbes, and Fortune for the above statistics and quotes.
* Many thanks to my Academy basketball teammate, Scott, for when times were tough yelling at us to "Pull up your socks!" and he still does...

* For more information on Jeff's Books, Blog, and Legal Challenge, please visit www.jeffmartinovich.com.

** To access JAM Views directly please visit jeffreyamartinovich.blogspot.com 

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THE TALE OF AN ALMOST CONGRESSMAN

     Lately, I have had the opportunity to work with Jeff, a new friend with good stories of his brief campaign for Congress in the recent 2018 election.  An interesting story interrupted his campaign, which we can cover one day over cocktails at the Bistro, but I wanted to pass along some of his insider experiences which are, of course, "all about the money."  For more research on economic realities in the political arena, I read Ken Buck and Bill Blankschaen's recent book, "Drain The Swamp."  Ken Buck was elected as a freshman congressman in 2014, and, unfortunately, his encounters and well-documented facts are congruent with Jeff's tales.
     The reality is so terrible, and the numbers are so large, that the great majority of U.S. citizens cannot translate or understand what it all truly means, but for us JAM Views members I wanted to ensure we attempted to grasp at least a small part of the government economic behemoth we have allowed to evolve, or spoken better, allowed to entropically degrade into disorder.
     Let's first remind ourselves that the Founding Fathers' original intent was a 2-year term in which our citizens would give up their time on the farm to serve the nation and determine legislation for the benefit and protection of their neighbors.  Now, we have 435 House Members and 100 Senators who mostly make politics their career, a life funded completely with money out of your paycheck every 2 weeks.  At the one million civic and charity events we all attend, I have always wished that, just once, instead of the host of ceremonies first introducing the "Honorable Joe" or "Honorable Joy" for us all to stand and applaud their attendance, that the public servants, themselves, would first stand and give an ovation to all of the business owners who have funded their extravagant life, and just say "Thank you." (To borrow a little Nicholson from "A Few Good Men").
     So what do all of these public servants do?  They raise money from sunrise to sunset, first by asking for it (Did you ever see the "60-Minutes" where the Congressmen spent all day in the call centers asking for donations?) and second by forcibly taking it from you in fines and fees.  Then they spend it on whatever will propagate their continued entrenchment.  Let's cover specifics (another reminder is that we have allowed these politicians to balloon the National Debt to the reported $20 trillion, but the true number is $90 trillion once you include all unfunded liabilities such as Social Security and Medicare).
     As a freshman congressman you are now paid a $174,000 salary and provided a $1.2 million budget for staff and resources.  You officially work 111 days a year, of which 30% is considered travel days.  Next, you must earn your way onto a committee.  For a "B" or "C" committee, you must raise an additional $220,00 for the Party, the NRCC or DNC, and for an "A" Committee with more visibility you must raise $450,000.  Now to move up the food chain, you simply become a rock star raising money for the Party, and you never go against the Party leadership by voting your conscience.  To become Chairman of a "B" committee you must raise an additional $875,000 per year, and for an "A" committee $1,200,000 per year.  To rule the world, the Majority/Minority Leaders must raise $10 million per year, and the Speaker of the House, re-incoming Nancy Pelosi, must personally raise $20 million.  Overachiever Paul Ryan personally raised over $50 million for the NRCC in 2016.
     Now you know why they spend all day in the call center!  For these efforts, you get to travel on cool CODELS (Congressional Delegations) across the globe to in-person understand the plight of the Norwegian Ground Squirrel or to learn about Peruvian herbs' promising pharmaceutical potential.  But, be careful, because if you happen to vote against your Party's orders, the trips and the committee assignments are the first to be yanked. (Years ago when I told my wife that I was leaving the large company to open our own firm, the first question was, "Do we still get to go on all the amazing trips?")
     Now when we shift over from the legislative branch to the executive branch (federal agencies - DOJ, EPA, FDA, OSHA, DOA, etc.), it gets really scary.  The Office of Budget and Management states that these federal agencies in 2015 raised $516 billion dollars in fees, fines, and settlements, all ON TOP OF the billions of your tax dollars already budgeted to run these agencies!  Stay with me.  The Constitution states in Article 1 that Congress controls all revenue collected by the Government.  Yet, Congress has un-constitutionally delegated this authority to these agencies, and there is very little tracking, much less accountability, of what happens to this money.  The Government Accounting Office (GAO) calls this half-trillion dollars Non-Appointed Fund Instrumentalities (NAFI's) and is pretty honest about the fact that they do not publish what happens to these dollars.
     This is how the 1984 Comprehensive Crime Control Act allowed Asset Forfeiture to explode.  The more the agencies seize from you, the higher their salaries, the more their agency expands, and the more tactical war gear is purchased to use against civilians.  I have submitted three FOIA requests to the FBI (you should do the same), and I received mountains of paperwork detailing information about my homes, cars, investment accounts, assets, and liabilities.  This is the goal.  Follow the money.  State agencies team up with federal agencies in order to operate under the broader federal statutes in Equitable Sharing Programs, and the state actors seize the citizens' assets, keep 80%, and share 20% of the booty with the federal agency for renting their statutes.  This doesn't concern you until one day it does.
     It is one mammoth unprecedented money grab, your money, by the Freshman Congressman you first send off to the Emerald City, and it flows through to every agency you can imagine.  You are busy, the kids have to get to soccer practice, and most of this sounds like Gobblygook (technical economic term), but I just want you to at least have a small window into what is really happening to your taxes, fees, and fines.  Can you even imagine if with the snap of your fingers you could erase all of this Government waste, corruption, and control from your life?  What would you do for your family with the 20-30% more in your paycheck every two weeks?  If everyone said, "No more!" could we then achieve our 6-8% growth rate?  Would the standard of living of every American radically improve if we got rid of the Looters?
     You're damn right it would.

"It is the duty of the patriot to protect his country from his government."  -  Thomas Paine

** For more information on Jeff's Books, Blog, and Legal Challenge, please visit www.jeffmartinovich.com.

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