Friday, May 20, 2016

Branding America

Nobody will ever say Donald Trump is not a great branding genius.  He easily branded Jeb Bush as "low-energy", Cruz as "lying-Ted, Rubio as "little Mario", and Clinton as "crooked Hillary."

However, the brand he built around himself is worth billions, probably 40% of his net worth.  He makes millions each year from others who use his brand.

There may be something that the ill-fated Trump vodka can teach us.  A businessman with no experience in vodka came to him with the idea of selling upscale vodka.  For a minimum of $2 million plus a huge share of the profits, Trump agreed to loan his name.  As the businessman tried to find a distiller to actually make the drink, Trump focused on the glass bottle design and introducing the marketing campaign.  During the launch party, blondes licked a large chuck of ice encasing a bottle of his vodka.  One topless lady was there wearing only the Trump logo painted on her chest.

After repeated efforts to manufacture the drink economically, the businessman walked away.  Naturally, Trump sued.  It is no longer sold in the U.S. and little is sold abroad.  Not much of a success, indeed!

The irony is that Trump never tasted his own product.  After watching a brother die from alcohol, Trump despises it and never imbibes.  None of his children touch alcohol.  Smart employees are never seen having a drink at parties.  He once admitted the hypocrisy on a radio show, saying somebody else would sell it, if he did not.

Is there anything we can learn from this experience?

Thursday, May 19, 2016

The Only Game In Town

Starting at 1400 hours or 2 PM yesterday, I'm sure the traders on the floor of the New York Stock Exchange were calling for motion-sickness bags, as the 200-point roller-coaster ride began.

That's when the Fed released their minutes from the last meeting of the FOMC or Federal Open Market Committee, which decides on changes in interest rates.  Those minutes said they were serious about raising rates next month.  Of course, the stock market did what it does best - it overreacted!

You'll recall the Fed finally raised interest rates by a quarter-point last December, for the first time in nine years.  They also said they expected to raise rates four times in 2016.  At the time, I wrote they might raise rates once, maybe twice, but certainly not four times.  As much as I hate to agree with Goldman Sachs, the Fed will NOT raise rates next month.  Would you raise rates without knowing Q2 GDP growth nor the BREXIT vote?  Not a chance!

Their intentions are good.  They want to normalize interest rates as the U.S. economy stabilizes, following the Great Recession.  Increasing interest rates in the U.S. by a whopping one percent should not be a big deal, but the Fed has become the de facto central bank of the world.  Because the U.S. is once again the economic engine of the world, any increase in interest rates in the U.S. will impact the whole planet.  To be clear, slowing down the U.S. economy will slow down the whole world, and that is why the head of the International Monetary Fund has pleaded with Fed Head Yellen not to raise rates.

Under the old economic order (everything prior to 2008), the stock market watched Fed actions carefully and overreacted only slightly.  In those days, the market had the opportunity to overreact to fiscal policy (by Congress) as well as monetary policy (by the Fed).  With monetary policy the only game left in town, the stock market's overreaction to monetary policy is here to stay, unfortunately.

Wednesday, May 18, 2016

Advice 4 Young Advisors

Everyday, I receive emails from various firms that offer to teach me how to network and get referrals from centers-of-influence, such as attorneys, CPAs, and insurance agents.  My advice to young advisors is to hit the delete key.

Over many decades of experience, I have received a handful of referrals from attorneys and exactly zero from either CPAs or insurance agents.  Almost all insurance agents are your competitor, with their array of mutual funds, and many CPAs maintain "sweetheart" arrangements with other advisors.

Of course, one can argue that just proves that I did need their service in getting referrals.  My experience has been that existing clients are the best source of additional clients, especially those additional clients who are worth keeping.

Don't waste your time . . . and don't waste your money!

Moderation In All Things

I like, enjoy, and respect Warren Buffett.  He is not an advocate of frequent trading, especially to time the market ups-and-downs, and he has said his favorite holding period for a stock is forever.  His comments are frequently cited as corroboration for the "buy-and-hold" approach to investing.  Unfortunately, this approach has become more than a theory.  It has become a religion to some advisors and their clients.

Frankly, it is difficult to deny the impact of market timing.  Take a look at this graph:

 Chart of the Day

While it is true that a clairvoyant investor with perfect knowledge could have realized a gain of 119%, IF they had invested all their money at the market's nadir on March 19th, 2009 and held it until today, NOBODY actually did that.  It is strictly a theoretical possibility!

But, if a less clairvoyant investor had invested in December of 1999 at the peak, the Dow is up a mere 7.4% on an inflation-adjusted basis - over SIXTEEN years -- so, how happy is that "buy-and-hold" investor? 

Like most things in life, moderation is more appropriate than the extremes of either "buy-and-hold forever" or frequent trading to "time the market."  Some advisors insist their clients always remain fully-invested.  I subscribe to the notion that your cash level should reflect your anxiety level.  As your fear rises, so should your cash level.  Yes, that may hurt your investment performance in the long run, but it will also protect your health if you can sleep better at night.  After all, what is more important -- your investment performance or your health?  No, seriously??

"Buy-and-hold" investing ignores a person's shifting risk tolerance.

Monday, May 16, 2016

Uncertainty = Inflation ??

Back in the good old days (you know, the 1970's), inflation was a real problem.  The solution to solve that problem depended on your economic dogma.  The Monetarists argued that inflation occurred when you had too many dollars chasing too few goods.  The goods available for purchase would soak up whatever dollars are available for those goods.  The Keynesians argued that inflation occurred when the demand for a good was greater than the supply of those goods.  The demanders bid up the sales price of the goods.

The non-dogmatic economists noticed the relationship between wage growth and productivity growth.  When wages grew faster than the productivity (output per man-hour), inflation occurred.  So, to cure inflation, simply slow down wage growth or improve productivity.  There are two ways to improve productivity, i.e., employees can work harder, or management can buy machines/computers to make workers more productive.

Monetarists have been screaming for years that the rapid increase in money supply will ignite inflation.  Keynesians have been disagreeing, arguing that demand is far too weak to cause any increase in prices.  Non-dogmatic economists have said it is a purely academic discussion, since there is no inflation today, despite popular misconceptions.   However, things may be changing.

Over the past twelve months, wages have grown slightly over 1%, while productivity has increased only 0.6%.  Given increased awareness of the rising income inequality, few will argue wages are rising too rapidly.  This discrepancy between wage and productivity growths suggests business is a drag on the economy, and this could ignite inflation.

This is not to suggest business is somehow evil for not increasing business investment faster.  It is to suggest that business is fearful of increasing their cash outlay in the face of uncertainty.

Sunday, May 15, 2016

Everybody A Victim

Every religion has been persecuted.  Some have been persecuted horribly on a huge scale, like the Jews.  Some have been persecuted for long periods, like the early Christians in the Holy Lands or, more recently, the 22 young men beheaded on a Libyan beach for being Christians.  Some persecutions have already receded in our Western memories, like the cruel multiple Crusades against Muslims.  But religions have long memories.  Persecutions are never forgotten.  The histories of Asia and Africa are little different -- just different names for the persecutors and the victims.

Persecution is not limited to religions.  Tribal or ethnic persecution is also commonplace.  Remember the Balkans in 1991, when Serbs and Croats made killing each other a sport.  Remember the Rwanda massacres in 1994, when the Hutu tribe massacred not less than 500 thousand members of the Tutsi tribe.  The most deadly long-running tribal persecution has been the continuing conflict between the Sunni and Shiite tribes of Muslims.

Although often presented humorously, the feud between the Hatfields and McCoys in the US was just persecution based on family names.  Persecution is easy -- so easy, it can be almost humorous, unfortunately.

I attended an award ceremony last week, where the government employee receiving the award lamented the fact that government employees are disrespected (read:  victimized) by business workers, who believe government employees are pampered with expensive benefits, making business employees victims.  A lawyer whispered to me that nobody is more disrespected (read:  victimized) than lawyers.  (Lawyers are victims too??)

Is it ever good to be a victim?  A relative of mine believes there are only two types of people -- the minority who need respect and the majority who need pity.  It is not that respect has to be won, while pity is reserved for the losers.  Instead, it is a question of whether persecution serves the purpose of delivering pity to the majority?

As long as "them vs. us" exists, persecution will continue.  I think existentialists are less likely to see the world in term of "them vs. us."  Because we tend to see ourselves as individuals drifting anonymously through existence, we see it as "them vs. me".  Persecution makes no sense in a world of existentialists, where all "them" are the same -- regardless of religion, tribe, family, or occupation.  In a world of existentialists, there is nobody to persecute -- only other drifting individuals.

Thursday, May 12, 2016

Bernie Sanders Is Right

Bernie Sanders and I share at least one attitude, i.e., neither of us trust Goldman Sachs.  Of course, one of us does respect the research department of that investment banking giant.  For example, here are some of their latest thoughts:

1.  The GDP of the U.S. will drop from 2.4% last year, to only 1.4% this year and 2.1% next year.  Both Japan and the Euro area will continue to grow at last year's pace for both this year and next.  This suggests we are in the middle of a "growth" recession but not a "real" recession.  (A growth recession is simply a slowdown in the rate of growth but not an actual contraction.)

2.  Over the next twelve months, the U.S. stock market will appreciate a mere 2%, compared to 9% in Europe and a whopping 16% in Japan.

3.  Interest rates (10-year Treasuries) will increase from 1.8% to 2.9% over that same period, over twice as much as the increase in interest rates in Japan and Europe.  (This would be bad news for U.S. bondholders, but I don't expect rates to rise that much.)

4.  The dollar will gain 4% against the pound and 16% against the euro but lose 20% against the Japanese yen.

5.  Oil will gain 30% in value over the next twelve months, while gold will lose 21%.

There was also an interesting discussion, explaining the difference between millennials and baby-boomers.  We senior citizens buy fancy possessions for status among each other, while millennials buy fancy experiences for the same reason.  "Experiences could mean anything from a great weekend trip to a good education, running a marathon to a selfie with a celebrity.  Experiences tend to be more unique and hence more likely to be shown off in front of friends." 

Is it time to sell the Mercedes and take a vacation . . . or just get a face-lift?  

Tuesday, May 10, 2016

Red Sky At Night

Because the spew of economic data is similar to drinking from a fire hose, it is helpful to focus on the most important data -- employment.  If employment is improving, the economy cannot really be too bad.

After a string of good employment reports, the April report released last week disappointed most analysts.  Of course, one month does not a trend make!

Looking deeper, the number of jobs openings increased to 5.75 million, which is the highest in ten months and close to all-time highs.  The number of actual hires decreased to 5.29 million.  This gap between job openings and hires is increasing, suggesting it is becoming harder to find qualified job-seekers in a tightening labor pool.

In addition, total separations decreased slightly, due to significantly fewer layoffs.  Offsetting this is the rising number of quits, which is a good sign.  People don't usually quit their jobs unless they think any unemployment will be temporary.

Regardless of what individual economic data points might indicate and regardless of  what the politicians might say, a recession is NOT on the horizon.

I am told that sailors often say "red sky in morning, sailor take warning - red sky at night, sailor's delight."  While I know nothing about weather, the economic sky tonight looks pretty red to me!

Sunday, May 8, 2016


George Washington, Thomas Jefferson, Dwight Eisenhower, my father, Chesty Puller, Irene Gut, Trammel Crow, all American POWs, especially John McCain, and all soldiers who died on the battlefield, of all armies.  They are all personal heroes of mine.  I'm not sure if I love them more or respect them more, but they are all personal heroes to me.

One name may seem out-of-place -- Irene Gut.  In the Fall of 1939, she was a skinny 17-year-old Catholic girl from Poland, who was gang-raped and beaten by the Russians, captured by the Nazis and forced to work as a waitress in the officers' mess (or dining room).  Twelve Jews worked for her in the officers'laundry, whom she courageously saved from extermination by becoming mistress to a Nazi major, finishing the war as a POW held by the Russians.  Eventually migrating to the U.S., she became old and destitute, burdened with a husband suffering from Alzheimer's.  To brighten her last years, the Jewish community in America came together to care for her husband and support Irene until her death.  Jews refer to such courageous people as "Righteous Gentiles" and give them great respect.  Irene Gut also deserves that respect!  Yours too!

You can learn about this remarkable woman from her highly readable biography, called In My Hands:  Memories of a Holocaust Rescuer I went to a remembrance ceremony for Irene last week and wondered how anybody could ever forget her . . . ?

Friday, May 6, 2016

Neutron Bonds II

Do you recall the initial collapse of the stock market in 2008 was caused by "securitized mortgage-backed securities?"  A bunch of mortgage loans were assigned to a bundle, and pieces of that bundle would be sold to bond investors.  It was ideal for the banks making loans, because those newly-made loans would not stay on their books, thereby restricting their capital.  Turnover of mortgage loans is very profitable.  It was ideal for bond investors, because the interest earned on mortgages was greater than interest earned on corporate bonds.  It was even thought to be safer than corporate bonds, because each mortgage had a piece of physical security -- collateral called "somebody's home."  What could go wrong?

Recently, I needed some expensive dental work, where the front desk suggested I get an interest-free loan for one year.  Obviously, they were getting paid a commission for anybody who got an interest-free loan, so it was good for them.  To a financial advisor, that meant I could keep my money invested in the stock market for another year.  As an economist, I knew the lender was making money somewhere, somehow, from somebody.  As a financial planner, I knew a devil was hiding in the details somewhere, so I studied those details and found that the lender has a "gotcha" interest policy, i.e., one day late on anything, and the interest rate immediately jumps from 0% to 25% on the original balance.

You guessed it -- in order to make more health care loans, plans are now being made to securitize them, or put them into a bundle that bond investors can buy.  All that penalty interest would provide a better return to the bond investors than they can get elsewhere.  Of course there is no physical security or collateral.  Plus, health care debt can be discharged or wiped out when the borrower files for personal bankruptcy.  What could possibly go wrong?

It is probably a year before these "neutron-bonds" become available and should be treated like the plague -- avoid all contact -- RUN!

Slowing Success ??

Marketwatchers will testify that the most important economic report each month is the "Jobs Report" which is issued on the first Friday of each month.  In other words, today!

Briefly, 160 thousand new jobs were created last month, with the unemployment rate remaining at 5%.  Economists were expecting 200 thousand new jobs.

But, what does that raw data mean?  It means there has probably been some slowdown in expected GDP growth but nothing worrisome yet.  Republicans spin it as proof of failing Democratic policies.  Democrats spin it by saying unemployment is getting so low that it is increasingly difficult to create 200 thousand jobs each month.  I see both arguments as irrelevant, maybe bordering on stupid!  We need 80-90 thousand new jobs per month to absorb new people coming into the workforce.  Anything above that is gravy!  One report means nothing to economists.

But, why is all this important?  Those dinosaurs, known as "long-term thinkers" (anything longer than 90 days), fret that the trend line for new jobs may be changing its gradient or slowing down.  Short-term thinkers, otherwise known as CEO's and most investors, will celebrate this report, because it means the Fed will not raise interest rates next month.  This report means investors have another month to live in needless fear of the Fed.

Wednesday, May 4, 2016

Trump-care ??

Some people are smart.  Some people are smart and educated.  Some people are smart,educated, and nice.  Carolyn McClanahan is one of the latter.  Trained as a medical doctor, she subsequently became certified as a financial planner, combining two arcane disciplines into something understandable.  She also writes a blog, and here is the link to a particularly interesting blog entry about Trump's views on healthcare:  

(Please "cut and paste" it into your URL box.)

I Was Wrong

I predicted Donald Trump would surely implode long before now, but he is now the presumptive nominee.  Kudos to him on that accomplishment!

But, why are my many Republican friends bouncing between despair and embarrassment?  My many Democratic friends seem to be bouncing between glee and rapture.

I would caution my Democratic friends not to be so optimistic.  I dismissed Trump when he badly trashed the former nominee and 5-year POW John McCain.  That was a bright red line for me!  I thought the good Republican voters would feel the same way, about trashing a genuine American hero.  I was wrong!  Promising everything to everybody is always a winning strategy.

Apparently, it is okay to trash anybody . . . except Trump.

Tuesday, May 3, 2016

Negative Interest Rates

The concept of negative interest rates is getting a lot of attention in the financial press and on Wall Street.  This reflects just how "upside-down" the world has become.  Imagine going to the bank for a car loan.  You still have to pay it back, but they will pay YOU interest for borrowing the money, reducing the monthly payment.  Who wouldn't do that?

Clearly, the purpose of negative interest rates is to increase borrowing, but that can be analogous to "pushing on a string."  You cannot make businesses or people borrow, if they fear the future.  Negative interest rates would increase the supply of funds to be borrowed but not necessarily the demand to actually borrow those funds.  Six central banks have already adopted the concept, but it is still too soon to gauge any success.  The Fed has said it is simply studying the concept.

Is pushing down interest rates good for the economy?  If so, how much?  Former Fed Head Ben Bernanke said modestly negative rates will have no effect.  How much longer should savers be penalized with low rates?  Does the interest rates on bonds really reflect the underlying credit risk?  I think not, and this greatly affects the traditional asset allocation between stocks and bonds.  Does that increase risk for the average investor?  Probably!

Plus, banks are more likely to lend money, when they are already profitable.  Negative interest rates would actually reduce profitability of banks, because the Fed would no longer pay banks for their reserves held at the Fed and would require banks to pay the Fed for the privilege of leaving money at the Fed.  Bank of America estimates its earnings-per-share (EPS) would drop 7%.  Instead of encouraging loan growth, negative interest rates may discourage loan growth.  In addition, other banking fees paid by customers are almost certain to increase.

Economists are busy cranking up arcane econometric models of negative interest rates, but nobody really knows the impact.  The great unknown revolves around the impact such interest rates will have on the velocity of money or how many times will the money supply be used in a year.  Nobody knows.

Investment genius Warren Buffett also has a genius for crystallizing complex subjects.  He said negative interest rates make money in the mattress more valuable than money in the bank.  He's right, because you don't have to pay your mattress to store your money.

From my perspective, this is the turning point, when monetary policy is virtually exhausted, and the economy can wait no longer for fiscal policy, which is controlled by Congress.  If Congress remains impotent, the Fed may be forced to buy a little extra time by using negative interest rates, but I hope not.  Negative interest rates are not good . . . unless you are desperate!

Saturday, April 30, 2016

Thank You, Warrior Lodge !

Nothing - absolutely nothing - brings a bigger tear to my eye or bigger lump in my throat than our brave American infantry soldiers!  Of course, governments always encourage such emotions among their citizens, even France.  It is a useful opiate for the taxpayers and the mothers of sons who serve.  But, those emotions can also be raw and real.   Here is a wonderful opinion by a French solder of his fellow American soldiers.  (It has been copied from the "Warrior Lodge" website, with gratitude.)

DoD Photo

A French Soldier's View of US Soldiers in Afghanistan

A French Soldier's View of US Soldiers in Afghanistan.

What follows is an account from a French ISAF soldier that was stationed with American Warfighters in Afghanistan sometime in the past 6 years. This was copied and translated from an editorial French newspaper.  Grammatical errors have been kept in-tact to preserve authenticity.


"We have shared our daily life with two US units for quite a while - they are the first and fourth companies of a prestigious infantry battalion whose name I will withhold for the sake of military secrecy. To the common man it is a unit just like any other. But we live with them and got to know them, and we henceforth know that we have the honor to live with one of the most renowned units of the US Army - one that the movies brought to the public as series showing "ordinary soldiers thrust into extraordinary events". Who are they, those soldiers from abroad, how is their daily life, and what support do they bring to the men of our OMLT every day? Few of them belong to the Easy Company, the one the TV series focuses on. This one nowadays is named Echo Company, and it has become the support company.

They have a terribly strong American accent - from our point of view the language they speak is not even English. How many times did I have to write down what I wanted to say rather than waste precious minutes trying various pronunciations of a seemingly common word? Whatever State they are from, no two accents are alike and they even admit that in some crisis situations they have difficulties understanding each other. Heavily built, fed at the earliest age with Gatorade, proteins and creatine- they are all heads and shoulders taller than us and their muscles remind us of Rambo. Our frames are amusingly skinny to them - we are wimps, even the strongest of us - and because of that they often mistake us for Afghans.

And they are impressive warriors! We have not come across bad ones, as strange at it may seem to you when you know how critical French people can be. Even if some of them are a bit on the heavy side, all of them provide us everyday with lessons in infantry know-how. Beyond the wearing of a combat kit that never seem to discomfort them (helmet strap, helmet, combat goggles, rifles etc.) the long hours of watch at the outpost never seem to annoy them in the slightest. On the one square meter wooden tower above the perimeter wall they stand the five consecutive hours in full battle rattle and night vision goggles on top, their sight unmoving in the directions of likely danger. No distractions, no pauses, they are like statues nights and days. At night, all movements are performed in the dark - only a handful of subdued red lights indicate the occasional presence of a soldier on the move. Same with the vehicles whose lights are covered - everything happens in pitch dark even filling the fuel tanks with the Japy pump.Here we discover America as it is often depicted: their values are taken to their paroxysm, often amplified by promiscuity and the loneliness of this outpost in the middle of that Afghan valley.

And combat? If you have seen Rambo you have seen it all - always coming to the rescue when one of our teams gets in trouble, and always in the shortest delay. That is one of their tricks: they switch from T-shirt and sandals to combat ready in three minutes. Arriving in contact with the enemy, the way they fight is simple and disconcerting: they just charge! They disembark and assault in stride, they bomb first and ask questions later - which cuts any pussyfooting short.Honor, motherland - everything here reminds of that: the American flag floating in the wind above the outpost, just like the one on the post parcels. Even if recruits often originate from the hearth of American cities and gang territory, no one here has any goal other than to hold high and proud the star spangled banner.

Each man knows he can count on the support of a whole people who provides them through the mail all that an American could miss in such a remote front-line location: books, chewing gums, razorblades, Gatorade, toothpaste etc. in such way that every man is aware of how much the American people backs him in his difficult mission. And that is a first shock to our preconceptions: the American soldier is no individualist. The team, the group, the combat team are the focus of all his attention.

(This is the main area where I'd like to comment. Anyone with a passing knowledge of Kipling knows the lines from Chant Pagan: 'If your officer's dead and the sergeants look white/remember it's ruin to run from a fight./ So take open order, lie down, sit tight/ And wait for supports like a soldier./ This, in fact, is the basic philosophy of both British and Continental soldiers. 'In the absence of orders, take a defensive position.' Indeed, virtually every army in the world. The American soldier and Marine, however, are imbued from early in their training with the ethos: In the Absence of Orders: Attack! Where other forces, for good or ill, will wait for precise orders and plans to respond to an attack or any other 'incident', the American force will simply go, counting on firepower and SOP to carry the day.

This is one of the great strengths of the American force in combat and it is something that even our closest allies, such as the Brits and Aussies (that latter being closer by the way) find repeatedly surprising. No wonder it surprises the hell out of our enemies.)

We seldom hear any harsh word, and from 5 AM onwards the camp chores are performed in beautiful order and always with excellent spirit. A passing American helicopter stops near a stranded vehicle just to check that everything is alright; an American combat team will rush to support ours before even knowing how dangerous the mission is - from what we have been given to witness, the American soldier is a beautiful and worthy heir to those who liberated France and Europe.

To those who bestow us with the honor of sharing their combat outposts and who everyday give proof of their military excellence, to those who pay the daily tribute of America's army's deployment on Afghan soil, to those we owned this article, ourselves hoping that we will always remain worthy of them and to always continue hearing them say that we are all the same band of brothers".

To those who bestow us with the honor of sharing their combat outposts and who everyday give proof of their military excellence, to those who pay the daily tribute of America's army's deployment on Afghan soil, to those we owned this article, ourselves hoping that we will always remain worthy of them and to always continue hearing them say that we are all the same band of brothers".

Everyone complains about the quality of 'the new guys.' Don't. The screw-ups of this modern generation are head and shoulders above the 'high-medium' of any past group. Including mine.So much of 'The scum of the earth, enlisted for drink.'

This is 'The Greatest Generation' of soldiers.

They may never be equaled.

Friday, April 29, 2016

"Too Good" = Bad

A cult always ends in either sadness or ridicule.  Sometimes, they implode -- think about the Jonestown tragedy in 1978.  Sometimes, cults just lose their attraction -- think about the 1837 classic book by Hans Christian Anderson called The Emperor's New Clothes.

Most money managers insist they never invest in "cult-stocks."  At the same time, they will pay 70 times the earnings-per-share (EPS) to buy a share of a cult and then sell it for only 10 times EPS.  That is the case of Apple (AAPL).  Yes, Apple stock has made a lot of money for a lot of people.  That's because it became a cult stock, with a mystical leader named Steve Jobs.

I can offer an educated opinion on which companies will experience increased sales and EPS, but I have no idea which stocks will become a cult-stock.

Yesterday, Apple reported its first quarter's financial results, which would have been fine, until compared to earlier quarters.  Oh, no, the emperor is naked!  Apple is just another company!?!?  Then, another bombastic billionaire pronounced Apple's disappointing financial results were the fault of China and that he was selling all his Apple stock.  Not content to shut-up at that point, he then added that a "day of reckoning" is approaching for the stock market.  The Dow promptly dropped 200 points.

For the first time in years, Apple is beginning to look attractive to me, as the "true believers" get flushed away from the stock.

But, is the stock market facing a "day of reckoning?"  Absolutely!  It is called the business cycle.  A recession is coming, but not today and not in the near future.

Wednesday, April 27, 2016

A Black Problem

From my perch overlooking the Chesapeake Bay, where it drains into the Atlantic Ocean, where the first English colonists landed in 1607, and where numerous naval battles occurred during the Revolution and the War of 1812, I have seen all manner of naval vessels, from aircraft carriers to submarines, as they glide silently past our beach.

Today, the most common ships passing offshore are container ships.  But, just a few short years ago, it was coal freighters.  The worldwide demand for coal was so strong that coal freighters had to wait in line for days -- to get a place in the harbor where they could take on coal.  The demand for coal was greater than our ability to deliver the coal, most of which arrived by train from West Virginia.  I recall one Sunday afternoon counting 22 coal freighters waiting to take on coal.  Today, I see zero!

Since 2011, twenty thousand jobs have been lost in the coal business.  The combined market value of all coal companies is down a whopping 94% in those five years.  Indeed, for the first quarter of this year, coal has fallen 38% since the same period last year.

So, it is not surprising when huge companies like Peabody take bankruptcy.  Peabody was the largest coal company in the United States.  One could just shrug their shoulders and assume that is just the price of capitalism, but there is one problem -- who is going to pay for cleaning up the pollution left behind?  Some states wisely required cash bonds to clean up the pollution before the polluting could begin.  Some states unwisely did not.  Nobody knows if the cash bonds will be sufficient to clean up the mess.  The environment desperately needs to be protected by the bankruptcy courts, which is one strange state of affairs.  Only the bankruptcy court can require creditors to wait before being repaid, until the pollution is cleaned up, but how long will that take and how will that be measured.

What a mess - both environmentally and legally!

POST NOTE:  I have learned there is a new regulation, requiring coal freighters to moor somewhere else, far away from Navy sea lanes for national security reasons.  That is the reason I see none from my perch.  Nonetheless, the market value of coal companies has still dropped 94% for a reason, and there is still a risk to the environment if the coal companies disappear.

Monday, April 25, 2016

Snoozzzzzzz . . .

2016 started off the year in the wrong direction and quickly picked up speed, reaching the bottom on February 11th.  Since then, the S&P 500 is up almost 14%.  What happened?

We started the year with a worldwide collapse in commodity prices, primarily due to a suspected collapse of China.  Since then, there has been a dramatic rise in commodity prices, including oil, steel, and agricultural products.  China may indeed collapse some day due to their strange set of debt problems, as some argue, but it is not today! In fact, it's property market is showing signs of stabilization.

As a result, stock markets in commodity-producing nations (MSCI Emerging Markets index) are up 25% and still look attractive, with a 3% yield and a price-earnings ratio of only 14.  The new survey of Wells Fargo's International Business Indicator shows improved sentiment, with 64% of CEOs expecting improved international trade for their companies.

The pundits remind us that "corporate profits are the mother's milk of stock prices," which is a good reminder of what's really important.  But, 78.3% of the companies reporting for the first quarter show earning that are better than expected.

Even the internal dynamics of the market are looking positive, with all ten sectors of the S&P 500 trading above its 200-day-moving average.  This has happened four times since 1993, with an average gain over 16% over the following twelve months.  Small cap stocks are also looking stronger.

Of course, will all this be enough to avoid the "summer-swoon" we ordinarily see, beginning in May? Who knows?  But, I do suspect it will strengthen the normally weakest season of the year on Wall Street and put the market in a better position whenever the bulls do return.

Regardless, I'm sleeping well . . .

Friday, April 22, 2016

Precluding the Inevitable ?

It is hard enough to legislate or regulate behavior at any time, but it is almost impossible when wearing blinders.

No question, it is a heart-breaking waste of life when someone intentionally overdoses themselves with painkillers.  Therefore, we have made access to painkillers much more difficult for everybody.  It is far better for more people to suffer pain, as long as we keep a certain few from abusing painkillers?

At the same time, has anybody noticed the percentage of suicides committed by using guns has decreased.  A new report by CDC shows guns accounted for 55.4% of suicides by men in 2014, down from 61.7% in 1999.  For women, it has decreased even more dramatically, from 36.9% to 31.0%.

Since more people are committing suicide by using painkillers, can we then reduce regulation of guns?

The question is not serious, of course.  The question is whether people, who want to die, can be denied.  If we outlaw both guns and painkillers completely, will we then forbid access to tall buildings or put barbed wire around every mile of railroad track or along every bus line?  Shall we put cushions around all bridge abutments?  (The Bible already says suicide is a sin, but does that really matter to anyone who wants to die.)

I remember when my mother was dying slowly.  We had take her to a pain management doctor.  Just getting into the car was a painful horror for her.  Plus, every bump in the road or turn of the road caused her more pain.  We were creating pain to get pain relief.  The doctor was obviously more concerned with following the law about pain relief, than actually relieving pain.

Since a person, who wants to die, cannot be denied, should we force them to blow their heads off in a bloody mess or just let them slip away in a pleasant stupor?

Thursday, April 21, 2016

Nice Guys ?

Nice guys don't always finish last!

So far this year, bank stocks are down about 6.4%.  Revenues are down about 10%.  J.P. Morgan was down 3%, Bank of America was down 7%, Citigroup was down 11%, and Morgan Stanley was down 21%.

Oh, yeah . . .  and Goldman Sachs was down 40%.

Wednesday, April 20, 2016

Party Hardy ??

You will recall there are two types of market analysts, i.e., technical and fundamental.  To a technical analyst, they can see the future by using charts and graphs.  To a technical analyst, looking at this chart tells them the market is behaving normally and should go higher:

Chart of the Day
You can see there is considerable room for the Dow to rise before it hits the red resistance line.  And, notice that it actually broke through the green support line but fortunately bounced back quickly.  This underscores just how vicious the downdraft was in January.  The collapse of the oil market pushed the Dow below its natural level of support.

There are two types of fundamental analysts, i.e., bearish and bullish.  (Sometimes, analysts change types but not often.)  The bears - they will be with us always.  The sky is always falling somewhere!  Their strength is that they keep more cash on the sidelines, which cushions both the tops and bottoms.  Their weakness is that they assume nobody has the answers, if they don't have the answers.

Bulls are also a constant on Wall Street, even though some pundits just call them "suckers."  Their weakness is that they keep too little cash on the sidelines.  Their strength is their assumption that things will be fine, even though they have no idea how that will happen.  Paraphrasing Warren Buffet, who said he doesn't know where the stock market will be next week, but he does know where it will be ten years, which is UP.

Today, the technical analysts are agreeing with bullish fundamental analysts - Party On, Garth!

Monday, April 18, 2016

Doomed In Doha ?

Even in an age of cynicism, hope sometimes still triumphs over wisdom.  Can you believe -- there were actually some investors who hoped something constructive would come out of the Doha conference of oil-producing nations.  Fat chance!

In a market glutted with over-supply, everyone could see production cuts are necessary.  Of course, there was no agreement on who would bear the pain of production cuts, which are nothing more than revenue cuts.  Since Iran was held out of the market for so long by economic sanctions, they feel entitled to increase production, while other nations must cut production.

It is no coincidence that the conflict came down to Saudi Arabia versus Iran.  They are the two dominant nations in their respective branches of Islam and very competitive with each other.  Saudi Arabia is the Sunni leader, while Iran is the Shiite leader.  For Saudi Arabia to accept the pain of production cuts, while Iran increases production, it would be seen as a triumph of Shia over Sunni.  Apparently, nations can compromise on economic issues but not religious issues.

Happily, the stock market did not have its hopes too high.  Even though oil has fallen 6% overnight, a huge drop, the futures market indicates only a half-point loss in stocks.  There must be more than a few cynics on Wall Street?

Saturday, April 16, 2016

Caribbean Misery

Sometimes, my inner Mr. Spock fails me.  (You'll recall him as the analytical, logical, and unemotional character in the classic Star Trek series.)  I try to channel him on any analytical work that I do, but my inner-Spock failed me when studying the problem of Puerto Rican bonds.

Puerto Rico is a small country of only 3.5 million people, whose government has issued an astronomical and unsustainable $80 billion in debt.  That population is now actually decreasing, as people "desert a sinking ship," most migrating to the U.S. and I don't blame them.  But, population or birth rate is what got them into this pitiful condition.

This is a very different situation than Greece, where voters kept voting themselves more and more benefits, until their fast-growing debt crushed their slow-growing economy.  The Puerto Rican voters didn't vote themselves too many benefits, except for the luxury of creating too many new Puerto Ricans.  Greece can survive by lowering their standard of living to Puerto Rico's current level, but Puerto Rico cannot lower their standard of living without creating empty stomachs.

The short-term solution to the Puerto Rican debt burden is force bondholders, which are mostly hedge funds, to write off some portion of that debt, but how much is enough for island nation to recover?  The long-term solution to this problem is to carpet-bomb the country with condoms.  They absolutely must control their birth-rate.

I remember listening to a debate about hunting sweet-faced wild deer.  One argument was that, no matter how large a land area, the deer will eventually over-populate it.  That was why they should be hunted, to control their population growth.  That is the case for Puerto Rico -- too many mouths, but it was not Greece's problem.  So, the difference must be sociological and not biological, but what is it?

Mr. Spock knows what to do about Greece.  Mr. Spock does not know what to do about Puerto Rico, where the human suffering could be too great without U.S. assistance.  The decision is not analytical but emotional.  Is it our job?  They are not a state, but they are a U.S. territory, and their citizens are also U.S. citizens.

Whatever we do, we should require both a balanced budget amendment and free family-planning in the future .

Thursday, April 14, 2016

Golden Predictions

There is a huge investment bank that just agreed to pay a $5 BILLION penalty for its actions in selling mortgage-backed-securities -- you know, those securities that ignited the global financial crisis in 2008/9.  (In my less-than-humble judgment, they escaped blame far too easily.)  Still, they have a great research department, which predicts:

1.  The S&P 500 will rise about 2.5% over the next twelve months.  (No collapse)
2.  GDP growth in the U.S. will rise only slightly from 2.1% this year to 2.2% next year.  (Steady)
3.  GDP growth in Japan, the U.K., and the Euro area are also essentially flat for two years.
4.  GDP growth in China will continue to slow from 6.9% last year to 6.1% in 2018. (Big deal)
5.  Interest rates will rise about half a point in Europe & Japan but a full point here within 12 months
6.  The Euro will lose 16.3%, while the Yen will appreciate 15.7% over the next twelve months.
7.  Oil with increase to $57/bbl in the same time frame.  (Let us pray)
8.  Gold and cooper will lose about 18% of their value over the next twelve months.

I would not argue with any of those predictions, except that I don't believe the Fed will have four quarter-point increases in a year when GDP growth is only 2.2%.

My prayer is that their prediction of oil increasing to $57/bbl is correct.  Yes, that would increase the price-at-the-pump for the otherwise healthy consumer sector, but it would also "save" the energy sector and lessen the likely huge loan losses at the banks, which reduces credit availability for everybody else.

Wednesday, April 13, 2016

L-T-C Financial Plan

As a CERTIFIED FINANCIAL PLANNER (R) professional, I approach the subject of long-term-care for the elderly very seriously.  There is little room for humor in this subject, but there is SOME.

Say you are an older senior citizen and can no longer take care of yourself and the government says there is no Nursing Home care available for you. So, what do you do? You opt for Medicare Plan G.

The plan gives anyone 75 or older a gun (Plan G) and one bullet. You are allowed to shoot one worthless politician. This means you will be sent to prison for the rest of your life where you will receive three meals a day, a roof over your head, central heating and air conditioning, cable TV, a library, and all the Health Care you need. Need new teeth? No problem. Need glasses? That's great. Need a hearing aid, new hip, knees, kidney, lungs, sex change, or heart? They are all covered!

As an added bonus, your kids can come and visit you at least as often as they do now! And, who will be paying for all of this? The same government that just told you they can't afford for you to go into a nursing home. And you will get rid of a useless politician while you are at it. And now, because you are a prisoner, you don't have to pay any more income taxes!

Is this a great country or what? Now that I've solved your senior financial plan, enjoy the rest of your week!

Maybe, this "joke" says more about the uselessness of obstructionist politicians or the growing need for more capital punishment, but I still got a smirk out of it!