Sunday, December 31, 2017

The 10% Rule

After telling my father about a minor "dust-up" with four black youths when I was about 12 years old, my father explained to me that "10% of black people are bad people."  After scratching my head, I asked what percentage of white people are bad people, and he told me . . . 10%.

His point, obviously, was that 10% of all types of people are bad people.  That applies not just to blacks and whites, but also to Protestants, Catholics, Jews and Muslims.  It applies to Americans, Russians, Chinese and everybody.  Conversely, it means that 90% of all people are good people, who should not be penalized for the bad 10%.

Now, here comes the hard part:  90% of all Republicans are good people, and 90% of all Democrats are good people.

So, if you're still looking for a New Year's Resolution and you're a Republican, then be it resolved you will actually befriend a Democrat in 2018, and conversely for Democrats.  Note that befriend does not mean merely shake hands with them.  It means getting to know them, their family, their hopes and dreams, and to study their perspective on reality.

Or, are you part of the 10%?

A Banner Year

2017 was a banner year.  Stocks were up.  Bonds were up.  Commodities were up.  It was a very good year indeed!

The largest company stocks did best, with the Dow rising 28.11 percent.  (Your portfolio probably didn't rise nearly that much, unless you invested solely in the Dow without diversifying or invested very heavily in technology.)  The merely huge companies in the S&P 500 index rose 21.83 percent, while middle size companies rose 16.24 percent and smaller companies rose a "mere" 13.23 percent. 

This out-performance by the largest companies reflected the fact that most are multinational and benefited from the economic recovery around the world.  In addition, investors believed the multinationals would get a tax break on repatriating their cash from abroad, which they did with the new Republican tax plan.

The improving economy outside the U.S. should not be ignored.  European stocks were up 26.18 percent, while Asian stocks were up a whopping 45.06 percent.  Even Latin America stopped limping along and rose 26.93 percent (although it stumbled some in the fourth quarter).  This non-U.S. growth is one of the strongest fundamentals of our current U.S. stock market.  Pundits call it a "synchronous global recovery."

Increasing profits and decreasing taxes during a global recovery is the secret potion for a good 2018.

Saturday, December 30, 2017

Missing The Point

Point #1:

Fox News argues 24/7 that Secretary Clinton leaked national secrets and abused email protocols.  If so, the Secretary should be punished.

Point #2:

Non-Fox News argues 24/7 that President Trump colluded with Russia to influence our voting.  If so, the President should be punished.

Point #3:

All U.S. intelligence agencies concluded that Russia interfered with our election process.  If so, that country should be punished.


Why is it so difficult to focus on point #3 alone?  Punishment for the Secretary or the President would be national disgrace or even imprisonment.  What should the punishment be for Russia . . . or Putin?

The perpetrator of this crime - hacking our democracy - is known.  Merely improving our defenses against such hacking is not punishment for Putin.  It is merely another punishment for our taxpayers.

Forget Clinton.  Forget Trump.  A "pound of flesh" is due from Putin!

Wednesday, December 27, 2017

2018 New Year's Resolution

In the early nineteenth century city of Nottingham in England, working conditions for working men and women were barely human.  In a effort to gain negotiating strength for possible unionization talks with the textile industry, workers began destroying machinery.  When violence broke out, the mill owners began shooting the workers, and the rebellion from 1811-1816 was finally put down by military force.  The workers became known as Luddites.  While their motivation was to unionize and improve their working condition, their name has become synonymous to anybody opposed to increased industrialization or technology.

After a recent misadventure in the mysterious and treacherous world of software, I became divorced from my computer calendar.  As one of those jerks who made others wait in line when checking out of the dentist's office, so I could enter the next appointment into my phone, I suffered immediate withdrawal pains without my computer calendar.

Yes, I know that our electronic calendars spy on us, which is creepy.  Who cares if I get a haircut every 4.17 weeks?  Go ahead, enter into your calendar that you're traveling to Kansas City in July.  You'll start getting hotel advertisements in Kansas City as the date approaches.  But, I also know that calendars have been a disappointment to "data-gatherers" like Google, Apple, Microsoft, etc.  If it has been a disappointment to them, then it is probably safer for us to use.

My late mother always encouraged me to make a New Year's Resolution each year, in order "to become a better person."  So, I think my 2018 resolution will be to rediscover my inner-Luddite and to return to using a pocket calendar, foregoing my computer calendar.  I bought it last night and won't ever suffer those withdrawal pains again!

Sunday, December 24, 2017

Let It Snow. Let It Snow . . .

During the past week alone, we have learned:

1.  New home sales are surging, up 17.5% in November.
2.  Consumer Sentiment was the highest in 2017 since the year 2000.
3.  Personal Income is rising nicely, up 0.3% in November alone.
4.  Inflation is quiet.  The PCE deflator is up on 1.8% year-over-year.
5.  Core inflation is up even less, only 1.5% year-over-year.
6.  Consumer spending rose twice as much as expected in November.
7.  Shipment of non-defense capital goods (less aircraft) has risen for ten straight months.
8.  The current account deficit with other nations dropped 24% between Q2 and Q3.
9.  The Index of Leading Economic Indicators has risen 15 straight months.

You have to look hard to find negative economic news.  While there is always a recession ahead of us, it is very far ahead of us indeed.  There are very few signs on the horizon.

I don't recall a period when good economic news was so abundant.
Like snow, good news falls quietly. 
Happy Economic Holidays, America!

Saturday, December 23, 2017

Mourning the Dead

Bill was my buddy.  He was from Kentucky, and we were bunk-mates in Officer Candidate School, room-mates in Paratrooper School, and next door neighbors in the Special Forces Officer Course.  In Vietnam, he commanded a platoon of "tunnel rats" - those guys with the terrifying duty of flushing the Vietcong out of tunnels.  Accepting his immediate death, one Vietcong soldier bravely popped up from a hole along the treeline and began firing.  Both of Bill's shins were shattered.  His war on the battlefield was over, but the far worse war in his mind was just beginning.  He killed himself in 1985, and I cried.  What had been a treasured friendship in my life became a gaping emptiness.

A bit dramatic maybe, but it is not unlike the emptiness I feel when a treasured value is lost.  While nobody patronizes me about the loss of my Army buddy,  I am patronized about my feelings with respect to privacy.

At one time, privacy was central to being American.  We were a sturdy people who braved the wild to make a better life and, as an example, didn't "cotton" to Federal revenue agents snooping around the farm during Prohibition.  We were men of few words.  The Second Amendment was not just about protecting our guns but protecting our freedoms, including our freedom of privacy.  There are 350 million guns in America, and we still lost our freedom of privacy anyway.

The mother of the Libertarian Party was Ayn Rand, who wrote convincingly of the need for strong individuals to stand up against the government, who snooped on everything you did.  George Orwell's classic book called 1984 described a government dedicated to destroying privacy.  Orwell had no idea that corporations were a greater threat.

Today, younger people patronize those old fools who remember privacy and still treasure it.  Just like they can't even pretend to understand my loss with Bill, they will never understand why the loss of privacy is important to an old fool.  They just snicker or chuckle at the obsolete value.

The only thing worse than an old fool is an old existentialist, who sees life as a wide frigid river, full of ice floes, each inhabited by a single individual, flowing toward their inevitable death.  Younger people laugh at old existentialists, saying "at least you can die alone in privacy."  (Apparently, they are unaware of the myriad machines, tubes, & electrodes that monitor the dying process, whenever possible.)  There is more privacy on the ice floe.

Before retiring last night, I checked my iPhone and found that Apple had gone into the pictures on my phone.  By facial recognition, they determined the most common face, which was my wife, and arranged a photo montage of her.  Apple could tell the date of each photo and arranged the photos of my wife in chronological order.  They even set it to music.  Kindly, they allowed me to choose between four or five innocuous songs.  Thru the kindness of artificial intelligence, it allowed me to choose between the long or short version of the montage and even to stagger the length of time each photo was displayed.  Of course, they did not extend to me the courtesy of asking whether I wanted such a wonderful montage, much less whether I wanted their software program to organize my life.  They violated my privacy!  Creating something nice doesn't change that.  Regardless, my privacy was violated, which I'm sure was legal.  However, should it be legal?  Ayn Rand railed against government snooping, but does that make corporate snooping acceptable?

The point is this:  The loss of a freedom hurts as much as the loss of a great friend.  Freedom of privacy is gone, and that makes me sad.  Emptiness doesn't always fill up again.  Sometimes, the emptiness remains.  Please be considerate of the emptiness of others, without patronizing old fools.

Wednesday, December 20, 2017

Only Two Choices

Q.  What's the difference between Democratic economists and Republican economists?

A.  Democrats like Keynesian economics,while Republicans like Supply-side economics.

Q.  What's the similarity between Democratic economists and Republican economists?

A.  Both love budget deficits but strongly deny it!

Q.  How do they justify such budget deficits?

A.  Republicans use deficits to make the economy better, while Democrats use deficits to keep the economy from getting worse.

Q.  Do either Republicans or Democrats ever reduce the national debt?

A.  No.  (Bill Clinton was the rare exception.)

Q.  How long will we keep hitting ourselves in the head with a hammer?

A.  I don't know . . . until we kill ourselves?

Q.  How will we know when the political system is broken?

A.  Don't you already know?

Monday, December 18, 2017


Pacific Investment Management Company (PIMCO) is a giant, well-respected bond firm.  However, their latest market commentary actually made me laugh.  They see continued economic growth, unless there is a ZOMBIE APOCALYPSE.

The flow of economic data in the U.S. is remarkably positive, and it has been joined by a flow of positive economic data around the world.  This is an extremely rare situation, where most of the world is enjoying solid growth.

They also believe the Republican tax cut will stimulate the economy slightly in the short term (maybe a modest 0.3% next year), but like myself, they believe it will stimulate the economy at the wrong time and only create inflationary pressures in the long term.  This will cause long-term interest rates to increase.  PIMCO would encourage you to refinance your mortgage now.

In other words . . . investors should continue to enjoy the ride!

Sunday, December 17, 2017

Mystery Manipulator (s)

I believe the U.S. intelligence agencies, that the Russians meddled in our presidential campaign last year, and think it deserves further examination.  Unfortunately, any discussion of this subject gets mixed into a discussion about potential involvement by the Trump campaign.  Whether anybody from the campaign colluded is a separate issue from the Russian meddling.  Forget collusion and stay focused on Russia trying to mold public perception!

Separately, the Federal Communications Council (FCC) was proceeding to shut down net neutrality.  Part of that process is to solicit feedback from the citizenry.  Apparently, there were two million fake responses.  Literally thousands of dead people apparently sent emails from the grave.  It's not funny.

I can understand what Russia gains from the U.S. electing a Russia-friendly president, but I don't see what the Russians gain from a regulatory agency transferring control of the internet to cable companies and other internet service providers.  This makes it possible that someone besides Russia is trying to mold public perception.

You may argue that molding public's perception of what they need is done everyday by the advertising industry, and you would be correct, but this is different.  Somebody was trying to mold public policy at the FCC.  Who and why?

Some may argue that non-Fox news is all fake news, but is public opinion becoming fake-public opinion?  If public opinion is polluted, why should politicians pay any attention to it?

If Proctor & Gamble can tell you the best soap, what is wrong with the Russians telling you who would be the best president.  What is wrong with a mystery manipulator encouraging you to surrender control of the internet?  The mystery is the problem.  As Justice Brandeis said a century ago "sunlight is the best disinfectant."

Keep digging . . . 

Saturday, December 16, 2017

And, You Are . . . ?

Long ago, my father told me not to discuss politics or religion, because people take offense so easily.  I cannot ignore politics in my profession, but I never write about religion.  But, sometimes you read something so amusing that it has to be shared.  During a recent sermon, I learned churches and synagogues have too many of the following individuals:

Mrs. Eve Environmentalist, who tells us to be gluten-free, vegan, organic, tree-hugging, hemp clothed, and drive a hybrid.

Mr. Adam America, who tells us to work hard, start-up a business, go from rags-to-riches, honor the flag, do military service, and sing the national anthem.

Mr. Sam Community Service, who tells us we must do social work, pet-adoption, save-a-starving child-in-Africa, and make a difference.

Miss Patty Pious. who tells us we must do church-on-Sunday, prayers-at-night, grace-before-meals, prayer-warriors, and must share-our-testimony.

Mr. Jim Social Justice, who tells us we must march, protest, advocate, resist-the-man, dismantle patriarchy, and fight oppression.

Since there are too many of these individuals, I wonder what type of individuals are too few?

Thursday, December 14, 2017

Choice of Altars

Hillsdale College is a well-respected conservative think-tank in Michigan.  A good friend gave me one of their recent policy opinions to read, which I did gladly.  The gist of it was that the problem with Democrats is that they worship at the altar of identity politics, dividing America instead of unifying it.  The writer argued Democrats are less patriotic than Republicans.  That may be a fair criticism, but it is not a new one.

The Republicans have been criticized for worshiping at the altar of ideology, i.e., if something works in theory, it must therefore work in practice.  An example is the belief that human behavior can be dictated largely by taxes.  Personally, I cannot imagine many normal people actually quitting a job, selling their house, leaving their friends, and moving his family to another state just because of taxes.

Despite this difference between the parties, there is one huge similarity, which is largely ignored.  The majority of both parties don't believe in Keynesian economics nor Supply-side economics.  They believe in Austrian economics, i.e., that budget deficits do indeed matter, contrary to what former Vice President Dick Cheney counseled President George W. Bush.  They don't believe that deficit budgets are required when the economy is good.  They don't believe that tax cuts are necessary when the economy is good.

Monday, December 11, 2017

A Non-Theory

When I was taught the "scientific method" long ago, I recall the arduous process of moving an idea from hypothesis to theory to principle.  While I don't have time to go through that lengthy process, I do have a hypothesis.

While the stock market invariably over-reacts, it over-reacts to different news, depending on where it is in the cycle.  During bear markets, the stock market largely ignores political news and over-reacts to economic news.  During bull markets, it largely ignores economic news and over-reacts to political news.

During bear markets, politicians can't do as much damage to the stock market as they can during a bull market.  Conversely, economic data is considered less of a risk during a bull market, leaving politicians as the primary risk factor.

Another distinction is that economic data can predict the future, while politicians cling to the past.

Bitcoin, Bitcoin, and Bitcoin

After months of 24/7 saturation coverage, you can recall that certain exhaustion you feel the day before an election.  You have hope, because the election is the next day.  Still, you can barely tolerate coverage for another 24 hours.  That's the way I feel about bitcoin!

In the business media, coverage has been bitcoin, bitcoin, and bitcoin.  That one crypto-currency began trading in the futures market yesterday, and the world did not end.  In fact, bitcoin was up nicely but only on low volume.  It is a triumph for the "true-believers" of bitcoin.  For myself, it is just one step closer to a potential financial crisis.  The total value of bitcoins is now about $300 billion and rising.

So many questions, so much hype:

1.  Bitcoin solves what problem?  That's assuming you are not a criminal needing money that cannot be traced.

2.  Doesn't the world have too many currencies already?

3.  Money can already be wired around the world in minutes, without the wild price fluctuations of bitcoin.

4.  While there are a finite number of bitcoins, there is no limit on the number of other crypto-currencies. (There are already a hundred such currencies.)

5.  It is not like gold, that you can touch.  There is no collateral.

6.  It is not backed by or guaranteed by any government anywhere.

If you desperately want the "cocktail party" bragging rights of owning bitcoin, I wouldn't buy more than one.

The accounting behind bitcoin is called blockchain and may have great value, but must first demonstrate some ability to be audited.  Patience is recommended.

Tomorrow, my prediction is that business media coverage will still be bitcoin, bitcoin, and bitcoin.  Of course, I'm praying for an election- ANYTHING - to silence the constant, breathless coverage of bitcoin?

What bubble?

Sunday, December 10, 2017

More Technology = Less Privacy

Being a sports fan offers a fun opportunity for both competition and silliness.  American football fans are no different.  As a long-suffering fan of the Dallas Cowboys, I have a Cowboys jacket, a Cowboys sweatshirt, a Cowboys tee-shirt, a Cowboys watch, and even a pair of Cowboys underwear (TMI).  But, the Cowboys' reach for profits has reached new heights with the sale of drones, complete with the Cowboy logo for only $69.95 this holiday season.

Unfortunately, it is not funny.   Drones are dangerous toys - dangerous to privacy.  While the overall construction industry is booming, the association of pool builders has reported that drones are a primary reason for the decrease in the building of swimming pools.  The privacy of your backyard is just one more privacy right to lose.

In addition, I know of no pilots who think more drones will make flying safer.  Drones are dangerous toys - dangerous to air travelers.  Already, some states have found it necessary to make flying a drone while drinking alcohol a crime.  But, who cares?  There is profit to be made in selling drones!

While the loss of privacy from drones is tiny compared to the loss of privacy by Google, it just proves, once again, that the pursuit of profit overwhelms the right to privacy.

Shame on the Cowboys and other corporations that enable the loss of your privacy . . . for their profit!

Sorry, Cowboys, but honesty is another form of tough love!

Friday, December 8, 2017

Fond Reunion

Absence makes the heart grow fonder, even for economic data.  While the monthly jobs report is not the most instructive economic report, it has long been the most popular and has the most short-term impact on the stock market.

Today's report continued a long string of good reports, with 228 thousand new jobs being created last month, more than the 195 thousand that pundits expected.  The unemployment rate remained unchanged at 4.1%, near a seventeen year low.  Average hourly earnings inched up 0.2% last month and 2.5% over the last year, which is not bad.  The Labor Force Participation Rate remained 62.7%, which is unchanged.  The only negative was that the U-6 level or long-term unemployed inched up to 8.0%.

Because of the dislocations caused by the terrible hurricane season, the monthly jobs report for the last three months have been tainted and confusing.  Finally, we got a clean, traditional jobs report, and it was a good one.

Normally, a good report decreases the probability of the Fed increasing interest rates, but I don't think that is true this time.  The Fed is committed to removing monetary stimulus, because the economy is strong and doesn't need it.

So, why do we need a tax cut if the economy is already strong enough that the Fed is raising rates?

Thursday, December 7, 2017

A Little Wine Is A Good Thing, Just Like Inflation

Arguably, the oldest living Libertarian is Alan Greenspan, who is more famously known as Chairman of the Federal Reserve immediately prior to the Global Financial Crisis of 2008/9, when he argued for loose governmental regulation, particularly of financial institutions.  As any good Libertarian would, he believed that people would always act in their own best interest, and it is not in the best interest of bankers to destroy their financial institutions.  Therefore, bankers would be prudent, instead of working to maximize their short term compensation plans.

He now believes the new tax bill, which is pending in joint committee, will not increase growth but will cause stagflation to return.  I agree with one of his points, i.e., that the decreased spending should occur first and then a tax cut later.  Our national debt is far more dangerous that a GDP growth rate of "only" 3 percent.

But, he uses the Keynesian argument to reach his conclusion on inflation.  Deficit spending increases the demand for goods & services, making buyers "bid up" the prices of those goods & services.  The alternative argument is Monetarism, which believes that inflation is "everywhere and always a monetary phenomenon."  In other words, increasing the money supply causes inflation.  They like to say that the available supply of goods & services will "soak up" all the available money.  Inflation can be controlled by decreasing growth in the money supply. 

While decreasing the balance sheet is not exactly the same as decreasing the growth of the money supply, it is certainly analogous, and that is what the Fed is currently doing.

I don't think Mr. Greenspan is correct, but I hope he is.  Moderate inflation cures many ills, at least for a short period.  The Fed has been trying to increase inflation for years and failed.  So, I'm not overly worried about inflation . . . for now!

Friday, December 1, 2017

Shiny Objects

Readers will recall that I predicted in March that President Trump would be impeached.  Today's news only makes me more confident that it is true.  Only a resignation could preclude the impeachment.  But, I mourn for the country, because impeachment is an agonizing experience and is bad for the country.  It will not make us any less partisan.  If it must be, then I pray we pull the band-aid off quickly and get it over with!

With respect to the stock market, it will always over-react, and this is no exception.  With today's announcement, the market plunged before recovering somewhat.  Once the market realizes that a President Pence is more stable than the current president and once the market realizes this news doesn't make a recession any more likely, then the market will stop over-reacting.  Until then, fasten your seat belt!

Remember:  Focus on corporate earnings, not politics -- which are shiny objects distracting us.

Thru The Looking Glass

When I was a young economics student, I was fascinated by economic cycles.  Wouldn't it be great to be an investor with full knowledge of the next recession?  Those cycles ranged from 4 years to 52 years and had exotic names like Juglars and Kondratieff.  However, regardless of the cycle you choose, we are late and should have already had a recession by now.  In other words, we are overdue for a recession!

So what?

It is hard to over-emphasize the importance of how unhinged the economy became during the global financial crisis of 2008/9.  The heroic actions of the Fed, which I strongly support, overhauled the economy in general and the stock market in particular.  Economic cycles became obsolete, as our highly capitalistic economy became a managed economy.  Because the Fed recognizes that it has pushed us into a strange new world, they are attempting to slowly dis-engage, restoring capitalism a little bit each month. 

The Fed controls monetary policy but not fiscal policy, which is controlled by Congress and the President.  America fought the greatest recession since the Great Depression with one hand tied behind our back.  The Fed did their job, and Congress did nothing.  Now that the Fed is withdrawing slowly, Congress is finally attempting to do something to fight the global financial crisis of 2008/9.  The Pentagon is often accused of fighting the last war, and Republicans now are doing the same.  I would have applauded the pending tax bill if they had done it in 2008/9.

Wall Street had adjusted to an impotent Congress and has been positively giddy that Congress may not be impotent after all.  Wall Street should be reacting to corporate profits, not politics.

Speaking of profits, there is one economic cycle that may still be useful.  As a percent of GDP, corporate profits increase during the recovery phase before peaking and then decreasing.  Corporate profits have reached historic highs but so has the GDP.  As a percent of GDP, corporate profits have stopped growing.  That does not mean a recession is close or worrisome.  But, it should temper our expectations for continued growth in the stock market.  Everybody knows the market cannot rise 30% year-after-year.  Unfortunately, if we only grow 10% next year, it will feel lackluster.  It shouldn't!

Wednesday, November 29, 2017

Chicken . . . or Egg?

Consumer confidence has reached the highest level in seventeen years.  The stock market has hit record highs.  Is that a coincidence or a real relationship?

Almost all economic data is related to other economic data.  But c onsumer confidence is more closely related to the level of unemployment than the stock market.  When jobs are plentiful, consumer confidence is higher.  Likewise, plentiful jobs indicate the economy is good, which also helps drive the stock market upward.

There is also a class distinction.  The stock market reflects the attitude of the upper income levels, while consumer confidence more closely reflects the attitude of the middle class.  Either way, it looks like it should be a good holiday season for retailers.  (One worrisome sign is that the savings rate has been decreasing for over a year.  To finance a holiday spending spree, consumers are likely to rely on their addictive credit cards, which favors financial stocks.)

Such economic data does not change greatly over a short period of time.  Both the stock market and consumer confidence have enjoyed a fairly steady improvement since 2009.  And, there is no sign of the next recession, especially during this holiday season.  So, enjoy! 

Tuesday, November 28, 2017

Very Bad Timing

I am a Supply-side economist . . . some of the time.  I am a Keynesian economist . . . some of the time.  And, I am an Austrian economist . . . some of the time.  There is a time and a place for each of the three major schools of economics.

Supply-side economics and Keynesian economics are useful for "jump-starting" a moribund economy.  Austrian economics is best for long-term management of the economy.

The good news is that the economy is doing well right now.  While there are always predictions of doom, there is no strong economic predictor of a recession in the foreseeable future.  The economy does not need to be "jump-started" right now. 

The current tax proposal would have been great in 2008 . . . but not in 2017.

Even worse, some salesmen are pulling numbers out of their imagination.  Secretary of the Treasury Steve Mnuchin is one of my favorite Cabinet officials, but he is overly-zealous in his sales pitch.  Repeatedly, he says the tax cut "will pay for itself."  Supply-side believers argue that a tax cut will so stimulate GDP that increased tax revenue will flow from increased economic activity.  They call this "dynamic scoring," and it works . . . some of the time.

According to Mnuchin, the $1.5 trillion tax cut will be replaced by the additional $1.5 trillion of new tax revenue from the newly-stimulated economy.  The non-partisan Wharton Budget Model predicts the tax cut will add at least $1.4 trillion and maybe $1.7 trillion to the debt.  Even the highly-partisan supply-side believers at the Tax Foundation believe the tax cuts in the House version will add $1.08 trillion to our national debt, while the Senate version will add $516 billion to our national debt.  Either way, even Supply-side "true-believers" cannot believe Mnuchin's numbers. 

When the true-believers don't believe, neither should you.

Monday, November 27, 2017

Non-Binary News

News from Fox News is considered true-news by Republicans.  Democrats consider most news from Fox News as fake-news.   This is the partisan perspective, and it is unfortunate that we take such a binary view of news.  It is far too multi-faceted for binary views.  There are more than two perspectives.

All the major news sources -- Fox, CNN, MSNBC, networks, etc. -- are overly U.S. centric.  There a big world outside the U.S. that gets too little coverage.  Yes, there is CNN International, British Broadcasting Corporation (BBC), even PBS.  There is also al Jazerra and Russia Today (RT) but their bias is easier to recognize than finding their station in the cable line-up.  This is the geographic perspective of news.

Now, there is another perspective -- the age perspective.  Republicans and Democrats view the world thru a partisan lenses.  Millennials have a different view that neither Fox nor non-Fox stations recognize.  They want their own lens and now have "newsy news".  Originally launched in mid-America Missouri in 2008, it has been acquired by E.W. Scripps & Company, which turned it into a network this year.

Just as baby-boomers view the world differently from the "Greatest Generation," the Millennials view the world differently than the older generations.  They have a refreshing look at how to present news.  (Locally, it is channel 136 on the Cox line-up.)   Of course, since it is non-partisan, Republicans and Democrats will both label "newsy news" as fake-news. 

Maybe, it's not??

Thursday, November 23, 2017

Happy Thanksgiving!

I was not captain of my high school football team, nor did I ever date a cheerleader.  Long ago, I accepted the reality that I would never be President of the United States, nor even an Army general.  That was fine for me but is not fine for many other people, unfortunately.

Wellschmerz is the German word for that emotional problem that develops when one realizes they will never reach their life goals.  It is more common in males and can be very debilitating.  Not infrequently, it leads to suicide.

Apparently, psychologists believe the cause was obviously unrealistic goals and that only the passage of time will solve the problem of Wellschmerz, but that time can be shortened considerably, by remembering a half-empty glass is still half-full and being grateful for the half-full.  It is important to be thankful for the half-full glass every day.  To all sufferers of Wellschmerz, our American Thanksgiving should be your reminder . . . to be thankful for something every single day!

Numerous studies have shown that being grateful provides a positive impact both in the workplace and in relationships.  Famously temperamental Mark Zuckerberg challenged himself to write a thank-you to a different person each and every day of 2014.

Can you write a thank-you note to any single person TODAY?

Wednesday, November 22, 2017

Tax Support

The S&P 500 has set 54 new all-time highs so far this year.  Most believe the elevated level of the stock market is due to the flooding of cash into the economy by the Fed since 2009.  That was an important factor but is decreasingly so, as the Fed reduces its balance sheet by selling off some of its bonds and raising interest rates..

More importantly, the stock market reflects higher corporate earnings, and those earnings are expected to continue increasing next year.  But, there is something else supporting the stock values right now.

A price normally reflects the supply and demand for that product.  If demand increases, buyers will bid up the price.  If supply increases, sellers will have to lower their price to sell their products.  The same is true for stocks.  If more people want a particular stock, it will rise in value.  If fewer people want that stock, it will fall in value.

Right now, there is a shortage of sellers in the stock market.  One reason is that sellers think prices will continue to rise.  Another reason is that they think their capital gains will be taxed at a lower rate next year.  Why sell it today and pay a 20% capital gains tax, when you can ride the increasing value and sell it in January, paying only a 15% tax?

The combination of higher expected corporate earnings next year and the reluctance of sellers to sell this year are both contributing to the 54 new all-time record highs.  If the stock market gets scary in January, don't be surprised . . . nor frightened.  

Monday, November 20, 2017

Present Shock ?

In his iconic 1970 book Future Shock, Alvin Toffler pointed out how the rate of change was increasing.  At first, it seemed to elaborate the obvious.  However, deeper analysis demonstrated that the rate of change was feeding on itself and would continue to increase at a faster and faster rate.  He argued that we need to increase the speed of our decision-making to accommodate the increased rate of change.  In the 47 years since then, I've seen nothing that suggests Toffler was wrong.

During the last six years of the Obama Administration, we had political gridlock in Washington, primarily driven by the radicals elected due to gerrymandering.  I had hoped that the Republican takeover of all branches of government would have resolved the problem of gridlock, but it has not.  The radicals remain.

Now, I read the latest survey out of India, which is the world's biggest democracy, where 53% of the voters favor a strong-man form of government instead of democracy, just to break the deadlock and get things moving again.  Surveys in Indonesia and South Africa found the same thing -- exasperation with democracy.

The strong-man president of Turkey, Recep Erdogan, famously said "democracy is like a street car.  When you get to your stop, you get off."

It may be that we have out-lived the need for democracy, but many of us still have a romantic notion of what democracy can be and are reluctant to let it die.  The only way to save democracy is to increase the speed of decision-making or legislating in Washington.  How?

Sunday, November 19, 2017

Happy 2018 ?

There is a difference between trust and respect.  For example, I have no trust for the giant investment house of Goldman Sachs but have great respect for them, especially their research.

Their latest forecast is (1) that the stock market should be as strong in 2018 as in 2017 and (2) that, if Trump doesn't get a "win" on tax reform, he will be too politically weakened to renegotiate NAFTA.

With respect to 2018, they note that worldwide economic growth continues to improve and that monetary policy remains very easy worldwide.  The biggest threat to this forecast remains policy errors, like a trade war.

With respect to Trump renegotiating NAFTA, they argue that he will have lost political strength, if he goes a full year without any legislative proof that he really can do anything to make America great again.  While NAFTA is a good thing, it does need to be updated, although President Trump might not be the right person to update it. 

"A Mind Is A Terrible Thing To Waste"

It started as a trickle and soon became a stream and now it is a river.  The current news coverage on sexual harassment has focused our attention on a low profile but very real problem.  This is a good thing!

First, there can be no justification or excuse for sexual harassment, but a little perspective is always helpful.

About 17 years ago, I worked with a woman who was both a good employee and a good person.  After she left the bank for a better job, I quipped that I would miss "her beautiful green eyes."  My boss then chastised me for "inappropriate language in the office."  If complimenting a person whom I had never touched and whom I was unlikely to ever see again was wrong, I did the only logical thing and thereafter avoided all unnecessary contact with women employees.

Vice President Pence does the same - he has no lunches alone with a woman and attends no parties without his wife if alcohol is served.

Extreme Judaism and extreme Islam both separate the genders as much as possible.  While it is difficult to believe that extreme religious beliefs are ever right, maybe they are not entirely wrong.

While sexual harassment is morally wrong, the shunning or marginalization of women is an economic wrong. 

Thursday, November 9, 2017

A Weakening Euro ?

So, the central banks in the United States, Canada, and England have all started to raise interest rates, as part of their normalization after the global financial crisis.  The ECB says they will also -- someday.

Rising interest rates push that country's currency exchange rates up.  Since the ECB declined to raise rates last month, the euro has declined 2% against the dollar.  That's a huge move in one month.

The spread in interest rates between the U.S. and the ECB can be expected to rise, according to the futures market.  That spread is 151 basis points now but 200 basis points in twelve months.  That means the futures market expects the euro will continue to fall.

A weakening euro provides a tailwind to business in the ECB and a headwind to business in the U.S.  More importantly (?), that also means it will be cheaper to wait until next year before booking a European vacation.

Wednesday, November 8, 2017


Economists often advise people who cannot follow all the economic data each month to simply follow the monthly "jobs report" issued by the Department of Labor on the first Friday of each month, because the economy must be strong if the job market is strong.  It includes the normal monthly unemployment rate.

Some economists prefer the U-6 unemployment rate, which measures the long term unemployed.  Some politicians prefer the Labor Force Participation Rate, which measures how many people are not looking for work.  (Spoiler Alert:  Both numbers are much improved since the global financial crisis of 2008/9.)

The economic report I prefer to watch is the "Jolts Report" or Job Openings Labor Turnover Report.  Last month, there were 6,100,000 job openings in the U.S.  That is the most this century!  Businesses are finding it difficult to find qualified applicants.  If you cannot find a job now, you need to go back to school instead.  The jobs are out there waiting.

The Quit Rate seems to have stabilized at about 2.2%, which means 2.2% of the labor force quit their jobs last month.  That is the highest since 2007.  Because workers seldom quit without another job waiting for them, a rising Quit Rate means greater confidence among workers and is a good thing. Interestingly, the Quit Rate seems to have stabilized at this high level, as the average age of workers has continued to increase.  Older workers are less likely to quit than younger workers.  A younger workforce would have a higher Quit Rate.

The job market is great.  The stock market is great.  So, why do we need to stimulate the economy with a huge tax cut?

The argument is that the economy is only good, not great.  It is also argued that the job market is not truly great until average wages rise faster.  Another argument is that too many people are not in the workforce.  All of that is true, but I still don't see how a huge tax cut will help, while I do see clearly how another $1.4 trillion of national debt will hurt us . . . and our grandchildren.

Wednesday, November 1, 2017

Roses Are Red, Violets . . .

Let's see . . . GDP growth last quarter was unexpectedly high at 3%, unemployment is very low, stock market values are up . . . it is small wonder that the latest Consumer Confidence Index is the highest in almost seventeen years.  There is always another economic recession somewhere out there, but it is not visible on the horizon yet.

Watching for an economic recession is one thing, watching for a financial crisis is something different.  And, a financial crisis is much worse than a normal recession!

Those confident consumers have nearly stopped saving, down to 3.1% of income, which is down from 6% just two years ago.  The national debt continues to rise, credit card usage is up, and corporate bonds are being issued at a rapid rate (to lock-in low rates on money they may need in the future)  Total debt is rising.

Remember the Minsky Moment, named after the American economist, Hyman Minsky, who believes a debt balloon will continue to expand -- until it pops, producing a financial crisis.  It is very premature to start worrying about a financial crisis, but it deserves more attention right now than the economic data deserves.

The decision by the Chicago Mercantile Exchange (CME) to begin a futures market in bitcoins worries me, and I will be watching it carefully.  You should too!

Rhetorical Question

If you are one of my Democratic friends, please stop reading now.  You won't understand it and will have that silly "deer-in-the-headlights" look on your face.

If you are one of my Republican friends, I have long agreed that the news media has a Democratic bias, at least a 51% bias.  (However, since Fox-world has a 30% share of the news market, the Democratic bias cannot be more than 70%.)

So, if we suspend the first amendment and only allow Fox to report the news, will Donald Trump be a great President . . . or will he still be an egotistical egomaniac? 

Sunday, October 29, 2017

Emotional Numbness

The President has declared opioid usage a national health emergency, and I applaud anything to help those people trapped in addiction.  Missing from the discussion, however, is the historical sweep of drug addiction.  There has never been a time in my lifetime that there was NOT a drug problem of some type.

As a boy, I remember my father making me watch a TV show about heroin.  Many decades later, I still recall one particular scene of an otherwise-upstanding young man literally laying in the gutter, while begging for more heroin.  As a teenage, I remember seeing "Reefer Madness" - a video showing marijuana as a killer of morals, which I was required to watch again in Army Officer Candidate School.  In college, the rage was LSD - a time of "turn on, tune in, and drop out."  Then, speed became popular - which would turn a lazy bum into a workaholic, until he collapsed.  The first time I saw coke, was on the hood of new Cadillac in Florida, as bankers swarmed to snort it.  Then, there was quaaludes and assorted other drugs that have crossed the stage since then and passed out of fashion.

My point is NOT that opioids are not a problem.  My point is NOT that opioid addiction is not a personal tragedy.  My point is NOT that addicts don't deserve help.  My point is that some other drug will take the place of opioids in the future.  Which drug will that be?  The most recent data from Colorado shows clearly that opioid usage has declined as marijuana has become legalized and used more regularly. 

My question is whether the drug is a cause or a symptom of another problem.  Because different drugs become fashionable at different times, I'm suspicious that there is a certain personality type that is prone to addiction.  Would it not make sense for psychologists to identify those people at an early age and begin treatment before they seek out drugs to deal with their problems?

Maybe, if Americans had taken Nancy Reagan's advice decades ago to "just say no," we would not have the opioid problem today.  But, we do!  Well-meaning admonitions like that won't give relief to those who need it.

Saturday, October 28, 2017

Cold Reality

Iceland is a fascinating little island-nation with a population of a mere 335 thousand, much less than the city of Virginia Beach for example.  Often called the "land of fire and ice," it is indeed a land of contrasts from glacier-covered active volcanoes to magnificent art galleries.  Despite a jaw-breaking language, the population is remarkably well-educated and well-read.

While I believe that people are just people everywhere and that "the Russians love their children too," I did find a special, laconic disposition of Icelandic people.  Their speech is melodic and hypnotizing.  Except for their politicians, I've never seen an angry Icelandic person.

Speaking of politics, Iceland neatly separates its economic and social issues.  It is progressive on issues such as same-sex marriage and abortion but conservative on business regulation.  (It is oddly conservative on alcohol consumption!)

Karl Marx famously said that capitalistic systems may be efficient, but they are also cruel.  Iceland could have been a case-study for him.  It's economy was traditionally built on fishing and farming.  In the halcyon days of minimal worldwide financial regulation before 2008, Iceland added a potent third new industry - banking - and proceeded to make loans worldwide and, more importantly, buying derivatives, such as credit default swaps.   This country consequently became the first country to collapse during the global financial crisis, and its people suffered greatly.  One important economic tool is the currency exchange rate.  Iceland devalued its krona over 50%, which means all imports suddenly cost 50% more.  GDP promptly shrank and unemployment tripled.  They saw the cruelty of capitalism up-close and personally.

Slowly, the capitalistic Icelandic economy fought back and recovered.  Today, it has the fastest growing GDP (7.2%) among developed nations and a mere 2.6% employment.  Their economy is booming.  Banking has been replaced by tourism.  Over two million tourists visit this tiny country annually.  Construction cranes dot the horizon in their capital city of Reykjavik.

But, like people are the same everywhere, politicians are the same everywhere.  Icelanders are voting today to replace their year-old government, because the leader's father wrote a letter asking for a pardon or "honor restitution" for a pedophile.  Understandably, snap elections were called immediately, and we will know soon enough who the new leader will be, but it doesn't really matter, because Iceland will continue to be socially progressive and economically conservative.

Iceland is a must-see country!  Go, see it now . . . 

Friday, October 27, 2017

A Fake Hatchet Job ?

Hundreds of times, I've posed the question of "is 6% a good portfolio return?"  The answer, of course, is -- it depends!  If you take very little risk and get a 6% return, it is a good return.  If you take a lot of risk and only get a 6% return, it is a terrible return.  Your return has no meaning without knowing how much risk you took.

You would expect a novice who knows nothing about risk and investment management to make the mistake of ignoring risk, but you would expect something more from The Wall Street Journal.  They just completed a lengthy expose' on the use of Morningstar's star ratings of mutual funds, which is the starting point of any discussion of mutual funds.  A fund can have as many a five stars, but that doesn't have any predictive value.  Few five star funds remain that way for ten years.  Their investment returns can vary wildly from very good to very bad. 

Morningstar doesn't promise that a five star fund will increase in value.  They look at the risk-return relationship of the mutual fund, the level of fees charged in comparison to similar funds, the qualifications of the portfolio manager, the strength of the mutual fund sponsors and other factors.  Morningstar merely estimates if the particular fund has the tools and integrity to continuing earning five stars.  There is more to life and more to investing than getting a 6% portfolio return.

Your independent judgement of mutual funds cannot be out-sourced, but Morningstar is a good place to start your studies.  It is a launch pad, not a landing pad.

One would not expect to read "fake news" in the conservative Wall Street Journal . . . nor an article as misleading as this one.  What did Morningstar do wrong to deserve such a "hatchet job?"

Thursday, October 26, 2017

Parsing Capital Goods Orders

Economists have been waiting for the economic data to become misleading due to the impact of our terrible hurricane season.  Fortunately, the monthly "durables report" helps separate the one-time data from the more durable.  It is one of the more important monthly reports.

Overall, capital goods order rose another 2.2% in September, following a 2.0% jump the previous month.  That is a very strong increase, with stronger than expected growth in civilian aircraft sales and weaker than expected growth in auto sales, despite the hurricane damage to cars.  Stripping out defense spending and civilian aircraft sales, the rate of growth drops to a still very robust 1.3% monthly increase in capital goods orders.  Over the last quarter, this has risen at a very strong 11.3% annualized rate.

Bottom Line:  the one-time impact of the hurricanes has been less than expected and has not yet confused the economic data.  More importantly, the underlying data continues to look strong.

Party on, Garth!

Wednesday, October 25, 2017

It Matters

Janet Yellen has been Chairman of the Federal Reserve System since the retirement of Ben Bernanke, but her term expires in February, and President Trump is looking for her replacement.  She has indicated that she would like to continue in her current job, but is opposed by the Area 51 Republicans primarily because she was originally appointed by former President Obama.  The first choice of Area 51 Republicans is Stanford professor John Taylor, whose formulaic approach to regulating would be more predictable and less flexible in a crisis than now. 

Gary Cohn is the current Chairman of the President's Economic Advisors and is supported by the establishment Republicans.  With a long career at Goldman Sachs, he is probably too stained to be appointed, despite his other impressive qualifications.  Or, those establishment Republicans could content themselves with Kevin Warsh, who is very young and unproven but has already served a partial term as a Fed Governor under a Republican administration. 

Democrats would be most content with the reappointment of Janet Yellen or current Fed Governor Jerome Powell, who are less likely to raise rates quickly.  Democrats also know their opinion doesn't matter on this.

The President is a real estate developer, who are generally heavy borrowers and therefore prefer lower interest rates.  Besides, increasing interest rates will increase the cost of carrying our $20 trillion of government bonds, which takes money away from other Trump priorities.  It also decreases consumer spending by voters.  I would not be surprised if the President supports the Democrats on this important appointment and appoints either Yellen or Powell.  If so, expect little disruption in the credit markets. 

Monday, October 23, 2017

Clear Sailing

As a long-time member of the National Association of Business Economics, I follow their surveys closely.  In their latest, it is clear they see no prospect of recession during the next two years.  Here are some thoughts:

Look at the sharp rise in earnings from the third quarter (Q3) of this year to the next quarter.  Obviously, other members are more optimistic than I am, and I hope they are right.

Also, notice the declining growth in earnings while sales remains relatively flat.  That is a normal behavior for later stages of the business cycle.  But, we are not near the end of the business cycle.

Thursday, October 12, 2017

A Time and A Place

During the Great Depression, Democrats faced a moribund economy and needed to jump-start it.  To do so, they adopted Keynesian economics which calls for deficit spending.  This is sometimes called "demand-side" economics and is the mirror image of "supply-side" economics, which has been adopted by Republicans.

One calls for the government to increase its demand for goods & services, while the other calls for businesses to increase the supply of goods & service whenever they get a tax cut.  BOTH jump-start stagnant economies, and BOTH cause huge government deficits, and BOTH promise the deficits are temporary, which will decrease over time, as the economy gains strength.

Does either approach make sense now, in 2017?  NO!  This is time for Austrian economics.

Nobody likes to admit the economy is doing just fine.  It doesn't need to be jump-started.  Trump's cutting of red-tape will do more good for the economy than a tax cut will.  When the economy is doing well, you don't cut taxes -- you should repay debt incurred during the last round of supply-side or demand-side deficit creation.  That's the Austrian approach, i.e., balance revenue & expenses whenever possible and keep debt minimal.

President Trump is drinking the supply-side Kool-Aid, when he actually needs a good Austrian beer!  Let the economy grow and use the surpluses (once we get some) to repay debt.  Cutting spending is good, cutting taxes is not . . . at least, not now!

Wednesday, October 11, 2017

Losing Our Focus

Political parties are obstacles to clear thinking.  My Democratic friends are incensed that Trump & Company colluded with the Russians, while my Republican friends call it a "big nothing-burger."  Their thinking is polluted.  Neither has identified the all-important issue: 


We should be talking about punishment for the Russians.  We must have an agreement with the Russians never to do this again, or we must launch a major cyber attack on them immediately.  Why are we talking about "nothing-burgers?"  Whether it impacted the election or not is totally irrelevant.  Do you think they were trying to NOT impact the election?


To my Democratic friends, show some faith in Mueller.  He is like a tumor, growing more malignant every day.  If anybody at Trump & Company colluded with the Russians, Mueller will identify it.  There are only two things you can do -- Be patient and focus on the important issue:


To my Republican friends, get out of denial.  If somebody colluded with Russia, they sold out their countrymen, both Republicans and Democrats and deserve to punished.  If not, this too shall pass.  Your job is to focus on the important issue:


There must be retribution!  How would you do it?  When?  Would you negotiate a preemptive treaty with the Russians or just attack?  Do you limit the attack to cyber-attacks or extend to military attacks?  How can anybody talk about "nothing-burgers" when the United States has been attacked?  Remember:


Nothing else matters . . . nothing else matters . . . 

Tuesday, October 10, 2017

Good Guy Finished First

University of Chicago professor Richard Thaler wins this year's Nobel prize for economics for his groundbreaking discovery that human beings are . . . well, human!

You see, for the sake of convenience, economists have always assumed that people act rationally, in their own best interest.  Supply-siders like to believe taxpayers would set aside any tax savings and invest it to "create jobs," despite over-whelming evidence that people either just save it or pay down debt instead.  When gas prices drop, do people use their cost savings to create jobs or switch to premium gas or make another trip to McDonald's with the kids?  It is irrational that the overwhelming number of baby-boomers have no savings, but who needs savings if you're going to live forever?  Are people rational decision-makers?  No!

People behave irrationally, because they are . . . well, people.

Dr. Thaler elaborated that obvious fact and developed ways to make economic assumptions about human behavior.  He is the father of "behavioral economics" and absolutely deserves the Nobel prize.

Yep, a good guy with a great sense-of-humor finally finished first!

A wider perspective is that economics has been dominated by econometrics or applied statistics for the last twenty years or so.  I can see the tide is changing, and there is finally room in economics for non-economictricians, who can actually speak "human." 

Friday, October 6, 2017

Third Quarter Wrap-Up

For those interested in my latest column for Inside Business, you can read it here: 

Labor Market

Even though the United States LOST 33 thousand jobs in September, the jobs-market is HOT!  The unemployment rate is only 4.2%.  The more important U-6 level of unemployment, which includes the long-term unemployed and those only marginally attached to the workforce, like those who hold serial part-time jobs, has fallen to only 8.3%, which is the lowest level since 2007.

The only reason the U.S. lost jobs last month was due to the hurricanes.  Many of our economic data points will be skewed by this over the next few months, so we have to "look around" the data.  If you look around today's jobs-report, you will see the jobs-market is HOT!

If you still have a kid living in your basement, who believes he/she cannot get a job, NOW would be a good time to evict them forcefully if necessary.  Do them a favor and EVICT them.  It is not even tough love, it is just love to evict them. Of course, there is something called "frictional unemployment" that recognizes a job in Oklahoma is not much good for a person in North Carolina, who doesn't even know a job opening exists.  That's why they call it a job-search, which is so simple on the internet.

Despite the good news that the jobs-market is HOT, the stock market was not happy.  The conventional wisdom is that the Fed is more likely to raise interest rates when the job-market is HOT.  Interestingly, the current Fed-head, Janet Yellen, finds the relationship between jobs and inflation is not as strong as before.  With unemployment so low for so long, inflation should be a problem now, but it is not, contrary to what hand-wringers say.  I do believe Yellen will again raise interest rates in December anyway, not because she wants to preclude an inflationary outbreak but because it will be her last opportunity to do so before her term expires -- a fitting "swan song."

Did I mention the jobs-market is HOT?  Now, go worry about something else . . .

Wednesday, October 4, 2017

Advantage: Males ?

On the first Monday of each month, the Department of Labor releases its closely-watched "jobs report."  Democrats focus on the unemployment rate and advocate more help for the unemployed.  Republicans focus on the labor force participation rate (LFPR) and complain people are obviously lazy.  (The LFPR loosely measures what proportion of the population either works or wants to work, with the rest being too lazy to support their families.)  The LFPR is currently 62.9%, which is much improved but still suggests 37.1% are students, homemakers, or "useless."

During the global financial crisis, the unemployment rate was very high and the LFPR was low.  Fortunately, that has reversed.   There is no question that, once unemployment benefits expire, the long-term unemployed often fall out of the work force.  (Frankly, if I was a unemployed factory worker stuck in some backwater town of the Midwest during 2009, I would have also been tempted to simply watch "Wheel of Fortune" every day.)

That's the old spin on LFPR.  Inside that number today, there are some interesting changes going on, particularly that women are more likely to be part of the workforce and men are less likely.  One reason is that man-dominated manufacturing sector has not recovered enough but has been mechanized enough that the sector now needs fewer workers.  The female-dominated service sector, on the other hand, has continued to grow, increasing demand for more workers.

Also, with longer life expectencies and the demise of pension plans, we watched the number of males over age 55 retiring actually decline for many years.  Men over 55 were working longer, because they had to!  That appears to be changing now, as more men over 55 are now retiring than entering the market.  That is not true for women.  Stuck in lower-paying service sector jobs, women over 55 continue to flood the labor market.  Another reason for this is that women are less-likely to be disabled and can actually work longer, having been stuck in jobs that were less physically demanding.  Plus, with their longer life expectencies, they need a larger retirement "nest egg" than men do.  Women have to work longer.

Assuming work is bad, it looks like things are getting better for older men, while getting worse for older women.

Tuesday, October 3, 2017

One More Time

I like guns.

How many times have I started a blog with that simple statement?  After each mass tragedy, I try to explain all gun owners are not gun nuts and not all gun nuts are "Area 51" Libertarians.  There are degrees of madness.

My father originally taught me about guns, when I was a little boy.  They were tools, like hammers or saws.  You kept them nearby, in case you saw a snake or a rabbit for the dinner stew.  Guns were mere tools!

I remember my grandfather showing me his shotguns, saying he was ready for the Communists to come over the hill in mountainous rural Virginia during the late 1950's.  He knew perfectly well that was not going to happen but found it a convenient justification for his shotgun collection.  He had no idea of Ayn Rand's Libertarian beliefs of evil Federal government forces trying to enslave us.  He just wanted a justification.

Often as a boy, I saw shotguns but never saw a fully-automatic assault rifle until I was in the Army.  They were useful in spraying rice paddies or other open areas with maximum firepower.  They had no purpose except killing other human beings.  Is that a mere tool?  A hammer drives nails.  Assault rifles kill humans.

Now, our country is terrorized by "Area 51" gun-nuts, who swear any regulation on guns is a slippery slope to confiscation of all guns.  They are simply NUTS!  The NRA started off legitimately but has descended into madness.  It is now clearly a terrorist organization and should be treated as such.  They are the most dangerous lobbyists in America.  While they have a convenient "slippery slope" theory, they have no decency as human beings.

From a regulatory standpoint, Americans can "walk and chew gum at the same time."  We can allow the sale of handguns while forbidding the sale of bazookas.

From a psychological standpoint, I've never seen any research that a guy with 43 guns has some sort of penis-related issues but would not be surprised.

From a religious standpoint, since you can buy a $50 conversion kit on the internet to convert your semi-automatic rifle into a fully automatic one, I pray that whomever sold those kits to the Las Vegas shooter burns in hell forever!

Monday, October 2, 2017

Letting Grudges Go

Many times, my late mother cautioned me not to carry a grudge.  She wisely said the weight of that grudge gets heavier over time.

I've just finished watching the epic new documentary by Ken Burns on "The Vietnam War" and  thought of her advice frequently.  That film is a seminal and definitive work on a long-running national agony and is highly recommended.  During the closing credits, Paul McCartney's iconic song "Let It Be" played mournfully, and I wished that was possible.  I want to let it be and realized then that the grudge may have become heavy.

I'm not mad at John Kennedy for sending the first Special Forces units there.  "SF troopers" expect to be the tip of spear, to be the "eyes & ears."  But, their assessment was confused and tragically wrong.  However, I am mad as hell at Lyndon Johnson for escalating the war. and I'm mad as hell at Richard Nixon for uncorking a torrent of lies and deceit, as he plunged us deeper and deeper into an unwinnable war.  But, I am not mad at Gerald Ford who accepted our obvious defeat and withdrew our remaining forces, preventing the waste of more American boys, although he had to abandon almost a million of our allies.

There will be many who say this documentary ignores the nobility of trying to save a remote country from the clutches of Communism.  Likewise, there will be many who say this documentary ignores  the permanent breach of trust caused by this war between the government and the governed in America.  I'm mad as hell at both sides.  Surely, we are now post-spin and willing to accept that both sides have valid points. 

I'm mad as hell as those who labelled returning veterans as baby-killers and worse.  I'm not mad at  today's young people, whose lives are too full of exciting things to remember Vietnam -- which is just another war in a long line of wars, like Afghanistan.

And, I'm mad as hell at people of good intentions and pretty words, who believe you can successfully fight a guerrilla force with conventional forces.  Not learning that lesson has already cost the lives of many Americans in Afghanistan.

The documentary left me with one strong impression.  Other veterans have figured out a way to "let it be" and have moved past the experience.  The Vietnam Memorial has been sitting there for 35 years, and I've been too cowardly to visit.  Maybe, it is finally time to visit . . . and to find a place to bury this grudge.

Saturday, September 30, 2017

Snapshots of Deep Thoughts

One of the few Wall Street firms I respect is McKinsey & Company, which is part think-tank and part strategic consultants.  They have recently published a new strategic study, identifying four "super" trends, which will shape our civilization over the long-term.  They expect these trends are so powerful that "we are in the midst of change 300 times more powerful and 10 times faster than that of the first industrial revolution."

The four super-trends are:

1.  Globalization -- (sorry, Mr. President!  The Principle of Comparative Advantage can only be slowed but not repealed.)
2.  Technology accelerators -- not technology per se but its accelerators -- like Amazon.
3.  Global age wave -- the average age is rising worldwide, and may be impacting productivity.
4.  Increasing Urbanization -- only 3.5% of America's land mass is in cities where almost half of us live -- 46 of the world's 200 cities will be in China by 2025

But, how does that impact the job of financial planners?
1.  Job obsolescence risk -- we must help clients explore and understand the vulnerabilities of their job security.
2.  Changes in investing strategies -- reconsider the holy 60/40 portfolio, Monte Carlo analysis, asset allocation, etc.
3.  A different old age -- our life expectancy has increased ten years since 1960, increasing Social Security obligations and the burden on our "nest eggs."
4.  Behavioral finance is more important -- the 24/7 onslaught of news makes clients too pessimistic - they need coaching as much as expertise.

The Perpetual Life of Alarmists

There has never been a day in my life that some intelligent person was not predicting the "sky is falling" -- the economy is crashing and you should buy gold.  For many years, I just assumed a given percentage of any society is allocated to quacks.  Now, I'm starting to see a common denominator between many of them, i.e., Ayn Rand.

Make no mistake:  I loved reading her books and think I have read everything she ever wrote.  I was taken by the need of each individual to stand up for his/her beliefs.  However, she also wrote extensively of how central government is never to be trusted, as you would expect from any Russian refugee like her.  Sinister black helicopters hover everywhere in her world.  I never accepted that vision, as it assumed the central government was more competent than anything I had ever experienced.  Apparently, many of her followers did accept that.

As a Russian refugee, her economic sympathies naturally lay with the Austrian School, that any government action merely clogs the gears of free enterprise.  So, if the central government is evil and is significantly involved in the economy, I guess it should not be surprising that Rand disciples always believe the sky really is falling.

The latest in a long line of doomsayers is Doug Casey, who describes himself as an anarcho-capitalist or someone who advocates extreme self-reliance, unfettered capitalism, and abolishment of almost the entire government.  He has long embraced gold and recently embraced bitcoin and other crypto-currencies, which are free from governmental manipulation.  He makes his living selling books about the coming collapse of western civilization, revealing a deep belief in both Austrian economics and in Ayn Rand.

He also has long advocated that Americans unleash themselves from America, by investing assets overseas and having multiple passports.  I have long distrusted anybody practicing in this area of finance.  Run -- from anybody recommending "asset protection trusts" from any island-nation!  There is something sleazy to selling passports in exotic places.  Last week, I was offered a valid passport from the island-nation of Saint Lucia for $145 thousand.

Oddly, his belief in "Black Swans" sounds more like a disciple of Keynesian economics (see Minsky's Moment) than Austrian economics.  But, he remains true to Rand's belief that the government of the greatest country in history exists for the sole purpose of repressing its people.

If you like Casey's alarmism, then buy his books.  If you believe Casey's alarmrism, especially in the foreseeable short-term future, then run for your life!

Friday, September 29, 2017

Salesmen & Sales Tools

Some years ago, a friend said to me:  "My stockbroker says I have a 92.4% probability of achieving my financial goals, so what can you do for me?  He was referring to a favorite sales tool of stockbrokers, i.e., a Monte Carlo Analysis.

I told him:  " Absolutely nothing, if you really believe that some canned program on a stockbroker's laptop can analyse all the unknowables of the worldwide stock markets over the next fifty years and do it accurately enough to give you that probability within a tenth of a percentage point."  We talked more, and he eventually became a client.

If you want to confuse a client, just throw a few graphs and a bunch of technical jargon at them.

One problem with Monte Carlo Analysis is that it assumes all outcomes have a normal distribution, which means it assumes an equal number of positive outcomes and of negative outcomes.  It also assumes that outcomes are random, ignoring the fact that the stock market tends to be random in the short run, cyclical in the mid-term, and trending in the long run.

Another problem with Monte Carlo Analysis is that it ignores the correlation between market events.  An example would be a general quickening of market gains when interest rates are lowered and the reverse when interest rates are raised.  There are numerous other correlations that are ignored.  The stockbroker-salesman would have you believe that none of those correlations affects the probability of achieving your financial goals.

The biggest problem is that Monte Carlo Analysis ignores the sequencing of outcomes.  If the stock market crashes early in your retirement, it is very likely your nest egg will never recover.  As the brilliant technical analyst Jim Otar explains it:  "It only takes a little push of small, adverse events to turn a "median" portfolio into an 'unlucky' one, however, it takes a whole lot of large, favorable events to turn a "median" portfolio into a 'lucky' one."

I love Monte Carlo, one of the world's greatest places, but I hate Monte Carlo Analysis.  You should too!

Thursday, September 28, 2017

Clash of Rights

Colin Kaepernick was a quarterback for the San Francisco 49ers football team last year when he decided to remain seated or "take a knee" during the national anthem.  I condemned that action by a wealthy player, whose only experience with uniforms was the sports-type.  However, at no point have I questioned his right to free speech  -- but is no place safe from serious subjects?  Is there no place I can go where that I can be free of every quack's opinion?  That's the purpose of the public square, whether newspapers, television, or dirt in front of the courthouse.  Do your demonstrating there!

You cannot demonstrate in the middle of the street for safety reasons.  Likewise, you cannot scream "fire" in a crowded theater for the same reason, but a demonstrator can follow you into a public restroom and stand outside the stall to convince you they are victimized.  That is their right, sorry about your privacy.  Some sports stadiums are publicly-owned and some are privately-owned.  All are subject to the right to free speech of anybody feeling aggrieved for any thing.  Even churches are subject to demonstrations.  What about those crazy Baptists from Kansas who demonstrate at the funerals of our fallen heroes?  Does their right to free speech override the wishes of the dead soldier's family.  Unfortunately, yes.  Does their right to free speech override my enjoyment -- at all times and in all places?

What is wrong with enjoying a simple sporting event, or must we wait until absolutely no American is feeling aggrieved or victimized . . . about anything?  Football is one of my guilty pleasures.  Is it wrong to enjoy it without a painful reminder that my country is racist?

I will defend to the death your right to free speech  . . . but not everywhere.  

Wednesday, September 27, 2017

The Duty to Discard

I have settled estates and administered many trusts, as well as doing the estate planning for maybe a thousand people, but I will now add a new rule to estate planning - the Duty to Discard.  It is indeed a duty of each person.

No parent wants their children to fight among themselves, much less over minor possessions.  However, some of the kids will become angry with other siblings over who gets things like Mom's favorite clock or Dad's favorite shotgun.  There are ways to prevent this.

Every possession is not a priceless treasure.

No parent wants the child's pain of losing a parent to be greater than necessary.  Yet, aren't you making it more difficult if your children have to decide whether to keep Dad's old military uniform or Mom's photo album of her trip to California . . . or whether to discard those items.  If kept, they will just remain in a storage unit for the life of the child, when a grandchild must decide what to keep or discard. 

Also, do you want to add guilt to the grief your children feel?  If discarding your old uniform suggests the child will think less often about you, does that mean they will never think about you without the uniform?  Of course not, every kid walks around with a thousand memories in their head.  They don't need the myriad trinkets collected over a lifetime to remember you.  They will never forget you, regardless of the trinkets.

Every possession is not a priceless heirloom.

When I do your estate planning, I will ask about your plan to discard unnecessary possessions.  It is my duty to ask.  It is your duty to make it easier for your kids, not tougher.  Losing a parent is hard enough without all these unnecessary complications!

Saturday, September 23, 2017

Who Needs A Financial Advisor Anyway?

I have a wonderful client who lives in a very high-end retirement facility.  During our last meeting, she told me about her many friends who don't have a financial advisor and try to manage their nest egg with certificates of deposit.  They are just trying to reduce their expenses, as any financial advisor would recommend they do.

They see investment management as the sole function of financial advisors.  Why incur the cost of a financial advisor if you're only investing in certificates of deposit?  Fair question, indeed!

A highly-respected industry leader of mutual funds is Vanguard, who has a well-deserved reputation for controlling costs.  They did a recent analysis of the value of financial advisors,  Of course, there is an investment management aspect to it, but that ignores the value brought by asset allocation, asset location, rebalancing, and the all-important behavioral coaching.  Vanguard's analysis showed a 3% average annual improvement in portfolio returns by using an advisor.  My client's friends would be heart-broken to learn they were short-changing their returns by so much each year.

I do take issue with two aspects of Vanguard's analysis.  First, it ignored the value of estate planning.  A seemingly little thing like making sure a person's nest egg is titled properly can add enormous value.  Second, it assumes the reduction of risk has no value -- really?

Nonetheless, the value of their analysis is that it documents that financial advisors do add value.

Friday, September 22, 2017

Amortizing the Cost

In 2009, the economy was plummeting into another economic depression.  At a time when we needed a government hand, Congress achieved perfect impotence and could do nothing.  The only remaining defense was the Fed, which rose to meet the challenge, thankfully.

Libertarians became unhinged at the new "activism" of the Fed.  Of course, nobody was more upset about this than the Fed itself.  How would you like to be the last line of defense against another depression?  The Fed certainly did not ask for that job.

The next few years saw both massive and imaginative measures taken by the Fed.  However, at some point, the Fed had to be "normalized."  In December of 2015, they raised short-term interest rates for the first time in years and then did it again without significant impact on the economy.  Yesterday, they said we should expect another increase in December of this year and several next year.  The stock market just yawned.

More importantly, they said they would begin "shrinking" their balance sheet next month by $10 billion per month, eventually rising to $50 billion.  This is significant.  During the fight against depression, the Fed became the source of funds for market liquidity and for deficit spending.  They did this by buying bonds (primarily government and mortgage bonds) and putting those bonds on their balance sheet -- to the tune of almost $3 TRILLION.  Now, selling bonds by the Fed reduces liquidity, because they are paid by money from the buyers, removing that money from circulation.  Shrinking the balance sheet. by selling off the bonds it owns, could be both tricky and dangerous.

If they sold that huge quantity of bonds suddenly, the bond market would surely crash, causing interest rates to spike.  By selling the bonds slowly, the bond market should be able to absorb it.  Wall Street must have agreed, because the stock market just yawned again.

Saving the economy is not unlike buying a house, which can be done relatively quickly but then take a very long time to pay off.  It has been eight years since the Fed started its recovery operation and is just now starting to amortize the cost.  Be patient . . . and hope that you live long enough to see the balance sheet get back to normal.

Thursday, September 21, 2017

Wrong Class

Recently, I found myself in a class that was primarily stockbrokers.  One of the speakers told the attendees that they had to be more than mere financial advisors.  They must also become financial coaches, he told them.

That jarred me slightly, thinking "doesn't everybody know that?"   Of course, I'm used to the world of Certified Financial Planner (R) professionals -- not stockbrokers.   In addition to our legal obligations to the client as a fiduciary , we are also trained in estate planning, retirement planning, education planning, and tax planning.  We are uniquely qualified to be a "financial coach" to our clients.  A stockbroker is a mere investment salesman.

I have no idea how many times I've given advice on buying new cars or selling old homes.  Estate planning should be a continuous process, which means a continuous flow of advice.  I've helped clients negotiate severance payments, as well as making gifts to children and grandchildren.  A growing area, unfortunately, is advising the children of clients on their education loans.  This year, I even advised a client on funding a university professorship.  That's what you call "financial coaching," not merely selling investments.

Sorry about you stockbrokers out there!  Maybe, I should be more careful in the classes I attend?

Wednesday, September 20, 2017

Not Accumulating

A well-trained investment advisor has been taught concepts like asset allocation, Modern Portfolio Theory, re-balancing, etc.  Younger advisors tend to view these tools are revealed secrets of the investment gods.  While older advisors respect these tools, especially the time-worn wisdom of the tools, some have become suspicious that these tools work better during the accumulation phase of a person's life than the "decumulation" phase or retired phase.

Investment research has focused on accumulating assets or building a nest egg for retirement, but do those same rules apply when a retiree begins consuming the nest egg for income?  For example, Modern Portfolio Theory shows that returns can be maximized and risk reduced, by investing the portfolio into many different asset classes.  But, why does it make sense to invest any of a retiree's nest egg into small cap growth stocks which never have dividend income for the retiree, instead of large cap value stocks, which is the "happy hunting ground" for dividends?

Another questionable rule-of-thumb is that retirees should be protected from the stock market, but what is their protection from inflation?  Assume a 60/40 portfolio that is 60% stocks and 40% bonds..  Wouldn't it make more sense to spend the bonds first, allowing the stocks to appreciate as long as possible?  I know, I know . . . but what if we had another 2008/9 crash?  Have you noticed the stock market has doubled since then?  Have you noticed that many, many stocks pay higher dividends than bonds?

Just because inflation is not a problem today, we cannot assume it never will be.  With increased life expectancy, shouldn't retirees have as much protection from inflation and that permanent loss of purchasing power it causes, as from the temporary loss of principle during a recession?

For some reason, research into decumulation is mostly from Canada, not the U.S.  Canadian friends tell me they are not as consumed with leaving money for their kids, compared to Americans.  They like to "help your kids with warm hands, not cold ones."

Rules during the accumulation phase of a person's lifetime are fairly well accepted.  That body of knowledge is the conventional wisdom of accumulation.  The conventional wisdom of decumulation is still being developed.  Stay tuned . . . .

Wednesday, September 13, 2017

Suspended Econimation

The past is prologue to the future . . . except when it isn't!

What goes up must come down . . . except when it doesn't!

It has been 14 months since the stock market had a 5% drop, compared to an average of 6-9 months.  It has been 20 months since it had a 10% correction, compared to an average of 12-14 months.  In other words, we are overdue.  So what?

While the economy and the stock market are two different things, they are connected, and the economic data continues to look fine, not great but fine.  Economic recessions are much easier to predict that stock market corrections.  Besides, normal run-of-the-mill recessions are nothing to be feared anyway.  That's when you "buy and hold."

Geopolitical problems can always depress the stock market, but they are usually transitory.  The destruction of the Korean peninsula would not permanently depress the market but would cause a temporary 10% correction or so.

Many of the rules-of-thumb that have helped us navigate the stock market for decades seem less helpful in this environment, and this is important -- we have been in an artificial economy since 2009, suspended from reality by the Fed.  That is not a complaint - the Fed saved us from a depression by their extraordinary efforts.  The "animal spirits" that drive a strong economy cannot surface while we are in "suspended econimation."  The Fed knows this and wants to increase interest rates and shrink its balance sheet.  They have repeatedly stated their intention to do both, only to delay their plans.  President Trump is likewise a dove on interest rates, preferring low rates and a weak dollar.  He will not be pushing the Fed to do what it needs to do and what it wants to do.

The longer we live in a state of suspended econimation, the more difficult the return to economic reality in the future.  In the meantime, investors should just enjoy the ride . . . while always keeping their finger near the SELL button.

Monday, September 11, 2017

Experience Matters!

Freakonomics author, Stephen Dubner, has an excellent podcast, coincidently named Freakomonics, that is quite enjoyable when I exercise.  A  recent podcast interviewed an economics professor from GWU in Washington.  She was a native of Italy, whose accent made it difficult for me to understand her.

She discussed how the economic behavior of different generations reflects the experience of each generation.  The older generation worked at one job most of their life, with job security, healthcare, and a reasonable pension.  Younger generations changed jobs frequently, experienced long periods without healthcare, were bombarded by financial drug-dealers offering addictive credit cards, and saddled with educational loans.  The older generation sees economic behavior in black & white terms of what's right & wrong.  They don't understand the economic behavior of younger generations, who likewise don't understand the older generations.  They listen to each other but don't understand.

I thought about the professor's accent.  I knew she must be speaking English, but I swear I understood little.  The language-variable was just too great.  The difference between generations is not an age-variable but an experience-variable.  I did not grow up in Italy and struggle to understand the language.  Likewise, I did not reach adulthood in the boom-times of post WWII and struggle to understand the black & white thinking of the Greatest Generation.

It is not the job of a financial advisor to think in black & white terms of good & bad.  It is never appropriate to be morally judgmental of the younger generations.  Our job is to help each individual client understand him or herself!

Saturday, September 9, 2017

Measuring Costs

Houston's economy is huge.  The GDP of its SMSA is $550 billion.  That is about 3% of our national GDP but accounts for a disproportionate 6.6% of our growth.  It is booming.  Population increased by 824 thousand since 2010.  That increase is bigger than the entire city of Charleston, South Carolina.

Things have changed.

The economic damage of Hurricane Harvey is staggering.  The damage to homes is estimated at $40 billion, with another $5 billion for autos.  As businesses are temporarily out-of-business, there is another $30 billion in costs.  The total could easily exceed $90 billion.

How to think about that loss?  It is estimated that only 15% of Harris County's 1.6 million homes had flood insurance, compared to 50% in New Orleans before Katrina.  In other words, Houston homeowners will have greater out-of-pocket losses.  You can expect many homeowners will simply walk away from homes with the most damage.  It only takes a few deserted, derelict homes in a neighborhood to hold down the market value of all homes in that neighborhood.  You can expect many other homeowners to raid their retirement plans for money to fix up their homes.  You can expect many retirements to be postponed, many vacations to be cancelled, many weddings to be minimized and many more life disappointments.  What are those costs?

Where will that $90 billion come from?  Mostly debt, by homeowners, by government agencies, even by insurance companies.  More debt requires more interest payments.  More interest payments mean less money for other things.  It means less money for hospitals, schools, and bullets.

Plus, $90 billion does not measure the emotional loss of a family's "safe place."  It does not measure the loss of old photo albums or grandma's old wedding dress or a little girl's favorite stuffed bunny.

Oh, did I mention that Florida is even bigger than Houston, and Irma is even bigger than Harvey?