Friday, August 3, 2018

Change of Address

Long-time readers will recall my negative-love of Google.  They were the first company I recognized whose business model was to monetize your privacy for their profit.  (I marveled and still marvel that nobody cares.)  But Google is like a toilet-paper, a necessary convenience, especially for bloggers.

For years, they have hosted this blog but have now decided to "update" the program.  Therefore, the address changes from the old to:

I apologize to you for this inconvenience, but Google does not.

Thursday, August 2, 2018

When Worlds Collide

When I was doing graduate work at the University of Dallas in international trade, we had to also study cultural distinctions and how such distinctions impact business.  For example, never prop your feet up in the presence of Arabs, as showing the sole of your feet is considered dis-respectable.  Another example is the importance of "face" in China.  In fact, it is so important that it's importance has its own word - Mian zi.  The rules of respecting "face" are equally as complicated.  The difficulty of negotiating with the Chinese is legendary.

But, what happens when Mian zi comes face-to-face with a gigantic American ego?

Wednesday, August 1, 2018

Blaming Bill and Newt

I believe Bill Clinton and Newt Gingrich deserve a good portion of the blame for our poisonous political environment.  They accepted the economic advice from both Republican economists and from  Democratic economists that multi-lateral trade agreements improved the economy of all trading partners.  Bill and Newt then ushered NAFTA into existence.

But, the Republican economists and Democratic economists also advised that millions of workers would be damaged by NAFTA and that programs to retrain and/or relocate those workers were essential.  Bill and Newt only paid lip-service to that economic advice.

Those millions of Americans who were robbed of the America dream became understandably angry.  (Read Hillbilly Elegy by JD Vance.)  They were the "forgotten Americans."  These millions wanted revenge and became Trump's "base."  They wanted to break everything in Washington, and Trump is doing their bidding.  The poison in our political body is the totally unnecessary anger from globalization.

Bill and Newt paved the way for The Donald.

Sunday, July 29, 2018

Made Food Great Again

Sara Grillo is one of my favorite financial writers.  In her most recent, she discusses how convenient it is for commission-paid salesmen of life insurance, annuities and long-term care insurance to emphasize how much longer people can live.  These salesmen prey upon the “worst-case” fear of not dying.  She goes on to point out that 39% of all Americans are obese, which statistically reduces longevity.  The target market of these salesmen is 40-59 years old, where 44% are obese.  This high-commission salesmen are selling products to people who are not likely to need them.  My perspective is that there is always a need or demand for high-margin products — if not to buy, then certainly to sell.

As a society, we tend to be judgmental of people with weight issues.  There are even politically correct words to use.  But, it is more than a simple issue of morality or moral weakness.  It is more than a simple issue of medicine and mortality.  It illustrates one correctable weakness of our “free enterprise” system.

The most powerful industry in the U.S. is advertising.  It tells us what we want, how we vote, and what we eat.  Do you really think McDonald’s would spend billions to advertise high-margin junk food, if it could make as much money on healthy substitutes?  If you are a purist that thinks companies should be able to advertise whatever they like, you would approve of prime-time TV commercials for assault rifles, whiskey, and “escort services.”  The TV networks would love to sell high-margin air time to them.

Maybe, only radical socialists would advocate restrictions on advertising?  But, can we not agree that “sugar kills?”  Yes, it tastes good, but it is unhealthy.  Can we not restrict advertisers from promoting sugar-cereals to kids, at least?  Try buying products not spiked with sugar.  One reason so many foods are spiked with sugar is that it is cheaper, due to huge sugar subsidies to a few American families who don’t need it.  It may be politically convenient to accept campaign funds from the sugar families.  It may also be a sin to approve of such subsidies.

To make America great again, use the funds subsidizing unhealthy sugar to subsidize the purchase of long-term care insurance.  

Saturday, July 28, 2018

Nervous Supply-siders

One important measure of how you are doing financially is the size of your pay check.  That’s no different than economists looking at changes in the Gross Domestic Production or GDP.

For the second quarter of this year, GDP grew at a 4.1% rate, which is good — real good, in fact.  It was the fastest growth in four years.  Bottom Line:  the economy is doing great, with no sign of recession on the horizon yet!

But, there are some things to watch carefully.  A full point of that 4.1% jump was due to a surge in exports, along with a decrease in imports.  This simply cannot continue with a strengthening dollar.  (Also, the numbers are skewed slightly by the sudden jump in the export of soy beans to beat that tariff.)

Second, the 4% increase in consumer spending, which is 70% of GDP, cannot continue over the long term with 3% annual salary raises, unless there is some sad growth in credit card debt

From a political perspective, our President has predictably declared a victory and further predicted GDP growth could explode to an astronomical 8-9% — as they say, “from his lips to God’s ears”!

From an economic perspective, Supply-side economists are trying to understand why a deficit stimulus plan of a $1.5 trillion tax cut plus a $700 billion spending increase has not bumped a reliable 2% economy any more.  In fairness, any assessment is premature, and we should be patient a while longer, although I am not optimistic.

An Easy “Victory”

Imagine my beloved Dallas Cowboys calling a press conference to declare themselves the winner of the next Super Bowl, just because their former quarterback, Tony Romo, had purchased season tickets!  That’s no more ridiculous than declaring victory in our trade war with Europe, just because they agreed to work toward “zero tariffs.”

Facing an imminent 25% tariff on cars exported from Europe to the United States, the EU bought precious time by allowing our President a photo opportunity to declare victory, simply by agreeing to talk more.  They will use that time to build economic protections from an unpredictable negotiating partner.  It is no more meaningful than buying season tickets to watch future games.

“Victory” means more when history agrees . . .

Friday, July 27, 2018

The Existential Planner

A financial planner works with people to sort through their individual financial problems and opportunities to create security in the long term.

An existentialist is more focused on freedom in the short term.  To a normal borrower, a 30-year mortgage is servitude, but finds it is worth being a servant in the long term.  To an existential borrower, it is 360 different questions.  Every month, an existential borrower will ask “is it still worth yet another month of servitude?”  (They probably deserve lower credit scores.)

The existentialist planner understands the expectation of death tomorrow, that is so common among existentialists, but nonetheless condemns “short-termism”.  You will never hear an existentialist planner say “what, you’ve been making $200 thousand a year for twenty years and haven’t saved a dime??  What’s wrong with you??”

The existentialist planner is far less judgmental.  Nobody is perfect!

Monday, July 23, 2018

No Offense Intended

Let's say I want to control my group or tribe or nation.  I could use charisma, or I could use force, or I could use religion.  I may not have the needed charisma, which is a fickle thing anyway.  I could use force, but killing is just wasting those economic assets known as humans.  So, I would probably use religion, which seems to come natural to humans and could more easily build long-term security for me and my family.

To use religion, I would first create some magical story, history, hierarchy, rituals, etc.  But, to provide that sense of permanence and grandeur, I would also need a proper structure, calling it a temple or church or something.  The bigger and grander, the better!  It is a useful crowd control tool.


I first stumbled across Erich von Daniken's best-selling Chariots of the Gods in the mid-1970's and found it to be mildly interesting.  His theory was that extraterrestrial visitors ("ancient astronauts") had visited our planet, leaving mysteries behind.  As it would require "proving a negative" that his theory was wrong, I remained curious about certain of the mysteries, such as the famous Nazca desert pictographs.

There is now a television show called "Ancient Aliens," which I normally avoid, taking strong issue with their argument that any unanswered rhetorical question automatically proves the theory, e.g., is it possible that UFOs landed in Washington, D.C., and stole 585 brains?  There is no way to prove such a fanciful event did NOT occur.

So, producers of this new TV show have scoured the globe in search of every odd-looking hill to raise silly rhetorical questions, such as "did the government of China cover this huge pyramid that might hold secrets left by UFOs"  My suspicion is that some control-freak two thousand years ago wanted to put his people into religious servitude and built the only thing he could build -- stacks of rocks.  What did you expect control-freaks to build two thousand years ago -- Trump Tower?? 

Sunday, July 22, 2018

Park Thoughts

During long walks in First Landing State Park, I enjoy listening to the podcasts of Freakonomics by Stephen Dubner.  He uses economic reasoning to focus on mundane subjects and always interviews experts on the subject.  Today, it was the question of "choking" or failing to perform when under pressure.

It was not surprising that intelligent people are more likely to "choke" than less intelligent people.  It was only a little surprising that women are more likely to "choke" in a room full of men than men are to "choke" in a room full of women.  The more interesting part was that "choking" is less likely in physical events than cognitive events.  The body handles pressure better than the mind.  For example, one of the worse things a kid's soccer coach can yell in a big game is "concentrate," which is helpful only in practice games.

One method to avoid "choking" is the standard - practice, practice, practice.  Another was to think about your "pinkie toe" - seriously - it is akin to maintaining a swing-thought when you play golf.  And, of course, if public speaking unnerves you, imagine your audience is sitting there naked.  Think about anything other than . . . "will I choke?"

A long walk in a beautiful place should be good for both your body and your mind . . . and it is!

Coming Home To Roost

If you need another reason to be disappointed at our form of government, remember this:

Back in the early 1990's, Congress was considering the proposed North America Free Trade Association (NAFTA).  A steady stream of economists testified in many different hearings before Congress on the benefit of globalization in general and the principle of comparative advantage in particular.

However, virtually every single one cautioned there will always be "winners & losers" to any major government action, but the benefits of globalization greatly exceeded the costs.  That was true, unless you were one of the losers.  The government promised to  provide for retraining (they called it re-skilling back then), as well as relocating those who needed it.  Of course, there was only token retraining and zero relocations. 

You may notice that the areas hit hardest by globalization are the most loyal Trump supporters.  In addition, being relatively unskilled and living in more remote areas, they feel the most threatened by immigration, which reinforces their support for Trump.

Thus, the failure of government to heed the warnings of economists over thirty years ago lead to the election of President Trump. 

The lesson is:  Listen to economists!!

Friday, July 20, 2018

Kudos to Trump

Initial Jobless Claims have not been this low since 1969.  There are actually more job openings than job seekers.  The problem is obviously that the job seekers don't have the skills that employers need.

Quietly, behind the scenes, Ivanka Trump has corralled fifteen large employers to pledge in writing to increase skill training, by expanding apprenticeships, increasing OJT, and training new employees.  Altogether, the companies signing the pledge include IBM, GM, Walmart, Lockheed Martin, and others.  They have pledged to train 3.8 million workers over the next five years.

Our antiquated, hide-bound educational systems have not kept up with the changing needs of employers.  Almost 20% of all job-types didn't exist in 1980.  This is formal acknowledgement that employers now must complete the work that our educational systems did not.

The problem with most programs is the lack of follow-up.  I hope Ms. Trump will hold the corporate feet to the fire.  Maybe, her Dad will even help?

Kudos, Ivanka!

Wednesday, July 18, 2018

Favorite Market Strategist

One of my long-time favorite market strategists is Dr. Jeremy Siegel from Wharton.  His latest commentary shows his belief that the stock market would jump 10% - if the trade wars would suddenly end.

That is consistent with my belief that the market has moved sideways all year, even though corporate earnings continue to rise strongly.  The stock market has not kept up with rising earnings.  It is being depressed by the trade wars.

One difference I have with him is that he believes the low unemployment rate will drive the Fed to increase rates two more times this year, while I believe the Fed will be too afraid of the stock market's reaction to inverting the yield curve and will only raise rates one time.

Tuesday, July 17, 2018

Flatter Yield Curve -- Who Cares?

Wall Street Wags are fretting about the "flat yield curve" but fail to mention that such a yield curve has accurately predicted 14 of the last 7 recessions.

First, the yield curve is the difference between interest rates on 2-year Treasury bonds and 10-year Treasury bonds.  Longer term rates are higher than short term rates for several reasons.  The longer term means more things can go wrong, i.e., the borrower's credit will go bad or inflation may worsen.

Second, short term rates are largely driven by the Fed.  Long term rates are largely determined by the supply and demand for long term bonds.  But not always!

Third, for the last 18 months, the Fed has been raising interest rates in the short term.  Since Quantitative Easing began, the Fed began stimulating the economy by buying long term bonds, driving down those rates.  In other words, the Fed has flattened the yield curve, not the economy.

Fourth, virtually all other economic data indicates a strong U.S. economy.

Fifth, fret not!

Sunday, July 15, 2018


Many pundits are going crazy, trying to figure out the relationship between Trump and Putin.  One even remarked that their relationship is the greatest mystery of this century.  Actually, I think the answer can be found with Trump's shock when he learned that Vice President Pence had never earned more than $200 thousand a year and had only $15 thousand of cash in the bank.  (Nobody can ever forget how often Trump bragged about his own wealth.)  Trump questioned how Pence could be any good, if he never made any money.  Knowing Pence could nonetheless deliver the evangelical vote, Trump hired him anyway.

Now, with an estimated $200 billion of wealth, Putin is easily the wealthiest person on the planet.  Trump may or may not anticipate needing Putin's money in the future, but I think Trump sees Putin as someone to worship, because he worships wealth.  Unfortunately, like most worship, it clouds Trump's judgement.

If Putin is the wealthiest person in the world, then surely he also deserves the most respect.  Well, doesn't he?  Your President thinks so . . . .

Sugar Man

Sugar man, won't you hurry
'Cos I'm tired of these scenes
For a blue coin won't you bring back
All those colors to my dreams

Silver magic ships you carry
Jumpers, coke, sweet Mary Jane

Sugar man met a false friend
On a lonely dusty road
Lost my heart when I found it
It had turned into a dead black coal

Silver magic ships you carry
Jumpers, coke, sweet Mary Jane

Sugar man you're the answer
That makes my questions disappear
Sugar man 'cos I'm weary
Of those double games I hear

Sugar man, Sugar man, Sugar man, Sugar man
Sugar man, Sugar man, Sugar man

Sugar man, won't you hurry
'Cos I'm tired of these scenes
For the blue coin won't bring you back
All those colors in my dreams

Silver magic ships you carry
Jumpers, coke, sweet Mary Jane

Sugar man met a false friend
On a lonely dusty road
Lost my heart when I found it
It has turned to dead black coal

Silver magic ships you carry
Jumpers, coke, sweet Mary Jane

Sugar man you're the answer
That makes my questions disappear
Cold Facts
(C) 2008

Saturday, July 14, 2018

Fear Not Inflation

Let's assume you get a 100% VA mortgage for a new house.  Let's further assume that, ten years later, your mortgage is down to $80 thousand, and your home is now worth $125 thousand.  Originally, the loan-to-value of your mortgage was 100%.  But, that dropped to a much safer 64% ten years later (80/125).  My point is this:  there are advantages to inflation.

Debt can either be repaid or inflated away.  Our national debt was over $21 TRILLION.  Do you really think we're going to repay that in your lifetime?

The latest data from our Producer Price Index is up 2.7% on year-over-year basis.  The Consumer Price Index is up 2.9%.  While that seems modest in comparison to the Reagan era, remember it was only four years ago that the Fed was worried about deflation, when values decrease -- a much more pernicious problem.  The Fed had been praying for 2% inflation, and we have now blown past that goal.

There are two types of inflation: demand-pull and cost-push.  Demand-pull inflation occurs when increased demand for a product/service pulls up the price.  That is NOT the type of inflation facing America today.  Instead, we are facing cost-push inflation, where the increasing price of inputs causes final product prices to increase.  Today, with our capacity-utilization about 80%, there is very little excess production capacity.  One of the most important inputs is labor, and there is very little unemployment to draw into the workforce.  Salaries have started to rise and can be expected to rise faster.  Lastly, don't forget that tariffs also increase costs.

Inflation is coming!  Rejoice!!   

Thursday, July 12, 2018

A Lesson From Tragedy

Since my father told me about his experience in World War II, seeing a freshly liberated Nazi concentration camp, I have been very interested in the Holocaust.  Recently, I had the opportunity to tour the Richmond Holocaust Museum, which I highly recommend.  While I am steeped in the horrible atrocities committed against the Jews, I've become interested in the aftermath, after the surviving Jews were put into Displaced Persons (DP) camps.  Unfortunately, there was no plan after that, and hundreds of thousands of people were forced to just languish in these camps, sometimes for years.  From concentration camps to DP camps, they were still not free.

So, here are many thousands of good, decent people who just want a better life.  Is there a lesson for us today?

Various Jewish organizations in the U.S. saw the problem and tried to help.  They sent teachers to teach local languages to the Jews, who mostly spoke Yiddish.  They sent teachers to teach sewing, baking, carpentry, etc.  It was not a major coordinated program by all Jewish organizations.  Each synagogue sent whomever was willing to go, to teach whatever they knew.  By all accounts, these teachers were a big help in helping the survivors adjust and find work.

Now, draw a comparison to the flood of refugees from Latin America.  Rather than a revolving door at the border, why don't individual Hispanic organizations send whomever is willing to go, to teach whatever they know, to the various refugee holding areas in this country?  They could teach English, keyboard skills, car mechanics, etc. 

It just seems wasteful to buy plane tickets for people to leave, when we have 6.8 million unfilled jobs?

If Jewish organizations could help their refugees after World War II, without government involvement, why can't Hispanic organizations do the same today?

Wednesday, July 11, 2018

T - I - G - H - T

In your lifetime, how many times have there been more job openings than people looking for jobs?

Today, there are 6.6 million unfilled job openings and only 6.0 million people looking for work.  More precisely, there are 6.6 million openings for skilled workers and 6.0 million unskilled job applicants.  The "skills gap" has never been greater.

Another indicator of a tight job market is the number of people quitting their job.  Workers don't usually quit their job, unless they believe they will find another job quickly, often at higher pay.  The percentage of the workforce who quit their jobs last month was 2.4%.  That is the highest since 2001!

Most economists agree that one of the primary constraints on our GDP growth is our inability to grow our workforce.  Republicans take the easy route of blaming Americans for being lazy, ignoring the "skills gap."  Pulling more unskilled workers off the couch and into the workforce will NOT help.

As growth is largely inside smaller companies, those companies are unable to fund apprentice training programs.  Also, since government, at every level, cannot afford to educate the workforce, that burden just falls onto young people and their families.  If they cannot or will not fund job training, they might as well stay on the couch.  There is no agreement on how we bridge the gap between companies who need skilled labor and workers who want to learn skills.

Bring on the machines . . .

Tuesday, July 10, 2018

Two Special Places In Hell

Few of us maintain our mental sharpness until the end.  Mental fuzziness should be a final luxury at the end of life, not open season to be preyed upon.  Unfortunately, I just read about yet another Ponzi scheme, stealing $102 million from about 600 seniors in Florida, and I hope there is a special place in Hell for those who prey upon the vulnerable. 

However, there is something unusual about this case.  When a financial advisor retires, it is not uncommon for him/her to sell their "book of business" to another advisor.  That is how the crooks in this case acquired senior investors to fleece.  I think financial advisors should bear some responsibility for selling their "book" to an unsavory advisor.  The selling advisor should conduct reasonable due diligence that the buyer is not a crook.  That is the fiduciary thing to do!

The tricky part is which authority should have jurisdiction?  If the selling advisor is retired, neither the SEC nor FINRA have direct jurisdiction.  If local law enforcement has jurisdiction, with their minimal financial training, how can they determine "reasonableness" of due diligence?  The selling advisors should also have their own special place in Hell.

Sunday, July 8, 2018

Prayers To Thailand

Although I seldom do it anymore, I have been a scuba diver for most of my life.  In 1975, I had the opportunity to dive a cave off the Suwannee River in the Florida Panhandle.  That was enough to convince me that cave diving is vastly more difficult and dangerous than regular open water diving.  I learned my lesson and never did it again.

Watching the rescue of the Thai boys is spell-binding for me.  Already, a Thai Navy Seal has died.  While four boys have been rescued, I am praying for the rest and ALSO for the divers.  One, cave diving is dangerous enough but, two, working with a kid who may panic at any second represents another major danger to the divers.  I hope the boys are somehow tranquilized, for the sake of the divers.

It would be an honor to salute those divers!


Q.  Do I believe the Russians tried to influence our 2016 elections?
A.  Yes

Q.  Do I believe it was authorized by President Putin?
A.  Yes

Q.  Do I believe Putin wanted to help candidate Trump?
A.  It was far more important to Putin that Clinton lost..

Q.  Why did Putin hate Clinton so much?
A.  He believes she tried to interfere with HIS election in 2014.

Q.  Did she try to interfere with Putin's election?
A.  Yes, but only with her comments, not with any cyber warfare -- a major escalation.

Q.  Did Trump collude with the Russians?
A.  I would be surprised if he did.

Q.  Did Trump's campaign collude with the Russians?
A.  I would be surprised if they did not.

Q.  Is the current relationship between Trump and Putin unhealthy?
A.  Yes, but not as unhealthy as his relationship with our allies.

Q.  Is President Trump is a threat to our national security?
A.  Yes

Q.  Do I still believe President Trump will leave office before 2020?
A.  Yes, "the wheels of justice grind exceedingly fine" and Mueller has been grinding a long time.

Q.  Do I suspect President Trump obstructed justice?
A.  Reflecting his lack of respect for norms, I would be pleasantly surprised if he did not.

Q.  Is it possible to understand Trump's "base" without reading Hillbilly Elegy by JD Vance?
A.  No

Saturday, July 7, 2018

Q2 Column

To read my latest column for Inside Business, go to: 

Thursday, July 5, 2018

Oversold ?

According to Goldman Sachs, the smartest people on Wall Street work at Goldman Sachs.  Indeed, their research department actually deserves that accolade.  Their latest analysis suggests commodities will benefit strongly from the stronger dollar.  More significantly, they believe there is too much angst over the current trade war, calling such fears "oversold."  I hope they are right!

My concern is that we have entered a very strange new world.  There is no person alive who has ever experienced a worldwide trade war.  Plus, economists have been getting migraines trying to build an econometric model of such complex worldwide change.  The fine analysts at Goldman Sachs are not concerned, but I still "toss & turn" at night . . .

Wednesday, July 4, 2018

The Courage To Be Free

There are economic systems, and there are political systems.
Examples of economic systems include capitalism and socialism.
Examples of political systems include democracy and dictatorship.
Of course, there are degrees of each.

The combination of capitalism and democracy is called free enterprise.
The combination of socialism and dictatorship is called communism.
You can have the combination of capitalism and dictatorship, such as today's China.
You can have the combination of socialism and democracy, such as early Israel.

On July 4th, 1776, we declared our independence from Britain.
Nobody said Happy We're-Not-Brits Day.
Nobody said Happy Democracy Day.
Nobody said Happy Capitalism Day.

Now, we just wish each other Happy Independence Day.
Then, we look for sale items . . .
Does anybody remember Patrick Henry's words on March 23, 1775?
"Give me liberty, or give me death!"

He didn't say "give me capitalism, or give me death."
Nor "give me free enterprise, or give me death."
Nor even "give me democracy, or give me death."
Maybe, he just meant "the Brits gotta go?"

Saturday, June 30, 2018

A Bloodless War

I was talking with some fellow students of economics.  We started discussing the 0.2% drop in estimates of Q1 GDP growth, but that quickly morphed into a discussion on politics.  With a bunch of economic nerds and with a rich assortment of economic datapoints, why were we talking about politics?

As we talked through that, it became apparent that, despite the overwhelming majority of the economic datapoints being positive, we were all experiencing a heightened anxiety, due to the current trade war.  That is an enormous economic variable, and nobody has much experience modelling such a war.  The history of trade wars is more confusing than instructive.  Besides, no country has ever declared a trade war against so many other countries at the same time.

So, the minor drop in Q1 GDP growth can be interpreted either as some developing weakness in the economy or, more likely, as simple noise from the collection of data.  There!  We discussed economics.  Now, what's the latest data from the front lines in our trade war?  And, why is it being run by politicians instead of economists?

Friday, June 29, 2018

President Zuckerberg

Zuckerberg is founder and CEO of tech giant, Facebook.  To my knowledge, nobody ever accused him of being a nice guy.  Still, he was man enough to recognize the intrusion and interference of Russia into both our 2016 election and 2018 election.

In May, he convened a meeting in Menlo Park of executives from all the major tech firms to discuss ways to prevent any further election interference by the Russians.  The FBI and Department of Justice were represented but offered nothing.  Obviously, protecting the integrity of our elections is a higher priority to tech firms than our Federal government.

Maybe, when they meet privately in Helsinki next month, President Trump can ask President Putin to be nice and stop interfering, please.

But, then again, to my knowledge, nobody ever accused President Trump of being a nice guy either.  So, which non-nice guy should be president?  Which non-nice guy is trying to protect our elections?

Wednesday, June 27, 2018

Paging Pandora

The opening salvo in this trade war was the immediate rejection of the Trans-Pacific Partnership (TPP), which I wrote then was a mistake.  The Administration looked only at the raw commercial aspect of the TPP, ignoring its wider significance, especially the economic containment of China.  It was a clear rejection of geo-politics as part of trade policy.

There is no disagreement that it is time to update our many trade agreements.  For example, the NAFTA agreement is 24 years old and does need updating.  However, I've written before that it is worrisome that we are trying to renegotiate our many bi-lateral and multi-lateral agreements -- all at the same time.

In particular, I'm worried about our bi-lateral negotiation with China, the world's second largest economy.  Our logic has been that our larger economy gives us a greater capacity to suffer economically.  After all, $50 billion is a smaller percentage of the U.S. economy that the Chinese economy.  Also, timing is thought to be on our side as our economy is booming, while the Chinese economy is somewhat sluggish.  (Unfortunately, the most recent data shows their economy is picking up.)  Their stock market has already entered bear market (down 20%), which is attributed to trade war fears.  Our President cares about the U.S. stock market, while the Chinese president Xi is immune to any pressure from the Shanghai stock exchange.

Other differences in perspective also matter.  The Chinese always take the long-term view, and trade negotiations normally take a very long time.  The Chinese are not motivated by any short-term WIN, which makes for good TV.  In addition, their leaders are in a better position of political strength.  Their hold on power is undoubted.  While Trump's political strength has increased significantly in recent months, imagine how that would change if there is a "blue wave" in November and Mueller's investigation is damning.  That is a strong motivation to conclude our trade negotiations sooner than later.  Long-term thinking versus short-term thinking?  Undoubted political strength versus tenuous political strength?

What, indeed, is in Pandora's box?  Who knows?

Monday, June 25, 2018

Sociological Wisdom ??

James Davison Hunter is a brilliant sociologist at the University of Virginia.  As he is an excellent but prolific writer, I have barely begun reading everything he has produced.  But, my thinking has already started to evolve.

There are military wars, and there are culture wars.  Military wars are usually caused by tribal conflicts or economic conflicts.  Culture wars are more complicated.  Because religions have been in conflict for centuries, we assume that conflict continues.  However, conflict today is less between religions and is greater within religions.  For example, there is more conflict between traditional Protestants and non-traditional Protestants and there is less conflict between, say, Protestants and Catholics.  The same tension exists within Islam and within the Jewish faith.  

Describing this as conflict between conservatives and progressives is not helpful.  The division does not focus on the degree of centralized power.  It is more about the use of power to find truth.  Traditionalists find truth in the past and believe traditions are useful and reassuring.  Futurists find truth within individuals and believe traditions are interesting but restrictive.

As an example, traditionalists within the Protestant faith have more in common with traditionalists in the Catholic faith or the Jewish faith or even within Islam than one would expect.  While the trappings and traditions may vary, all wish to cherish the lessons of the past.  Likewise, the non-traditionalist or futurist wing of the four main religions have more in common with each other than with the the traditionalist wing of their own religion.  The futurists don't want "somebody else's truth."  

The conflict between traditionalists and futurists rarely leads to military war but is the predicate to culture wars.  In the U.S., the culture war is not between Republicans and Democrats.  Our culture war is between traditional Republicans and futurist Republicans, likewise for Democrats.  Because the conflict over truth takes place within the unrelated, arbitrary organisational structure of Republicans and Democrats, it is extremely unlikely there will be military conflict.  The conflict over truth is submerged in and contained by the phony political conflict between Republicans and Democrats.

Dr. Hunter, forgive me for my loosely-written interpretations, but I thank you anyway!

Sunday, June 24, 2018

"Crucify Your Mind"

Was it a huntsman or a player
That made you pay the cost
That now assumes relaxed positions
And prostitutes your loss?
Were you tortured by your own thirst
In those pleasures that you seek
That made you Tom the curious
That makes you James the weak?

And you claim you got something going
Something you call unique
But I've seen your self-pity showing
As the tears rolled down your cheeks.

Soon you know I'll leave you
And I'll never look behind
'Cos I was born for the purpose
That crucifies your mind.
So con, convince your mirror
As you've always done before
Giving substance to shadows
Giving substance ever more

And you assume you got something to offer
Secrets shiny and new
But how much of you is repetition
That you didn't whisper to him too.

Cold Fact
(c) 2008

Saturday, June 23, 2018

> 100 %

When was the last time you went to:  

Go, go look at it now.  There are lots of numbers, all rising rapidly.  Today, focus on two of them in particular.  First, in the upper left, find the national debt, which is now over $21 TRILLION.  Second, near the center, find the Gross Domestic Product, which is now over $20 TRILLION.  In other words, our debt is more than 100% of GDP.  That's an important relationship.

Economists debate whether a "death spiral" begins automatically at 100% or 110%.  The U.S. has several advantages, allowing us to exceed that automatic death spiral for now, but nobody knows how much for how long and in what interest rate environment.  So, why take that chance?

Keynesian economists and Supply-side economists focus in increasing GDP, which is fine.  Only Austria economists focus primarily on the level of debt, which is even better.  

The first step is to stop digging the hole deeper.  The second step is to raise revenue.  Good Luck!

Friday, June 22, 2018

Our Growth "Governor"

I hate to sound like a broken record, but . . . the Index of Leading Economic Indicators (LEI) was up again last month.  This traditionally means there is no recession on the 12-18 month time horizon.  Our economy being propelled by new manufacturing orders, consumer expectations, stock prices, and capital goods.

But, there is an interesting change.  The LEI has slowed over the last three months - still positive but slowing.  Apparently, the lack of available labor is starting to slow us down.  This doesn't indicate a recession, but does indicate that the labor shortage is becoming a "governor" on our growth.

The traditional Republican view is that we could get more workers if people were forced to work.  While I agree those people should get no welfare nor food stamps, I think American employers would prefer non-lazy workers.  Whether those lazy people get benefits or not, that sidetracks the issue --   we need more non-lazy workers.

The traditional Democratic view is that we should allow more immigration.  Visions of the Border Patrol pop into the mind, but don't forget - America is blessed with a long line of applicants for LEGAL immigration.  We need them, and they want us!  Unfortunately, our quota system is obsolete and will soon be limiting our economic growth.

More LEGAL immigration is NOT bad.  In fact, we need to OPEN the doors to more legal immigrants.

Thursday, June 21, 2018

Spread Too Thin ?

Long ago, when I was living in Texas, I read a short book, whose name is now long lost inside my memory.  It speculated on how America would be different if Hitler had won World War II.  Not surprisingly, it described a dystopian America as merely a state of the Ayran Nation.  There would be no Blacks, no Hispanics, no Asians and no American Indians.  America would be lily-white.  There would be no churches, no Catholics, no Jews, and no Protestants.  He predicted a socialist nirvana, even comparing it to an idealized North Korea, under Kim Jung On's grandfather.

Obviously, he has been wrong, but he was trying to show how much hangs in the balance on major strategic decisions.  His argument was that it only took one wrong strategic decision by Hitler to save everything we hold dear.  That one decision was to open war with Russia, forcing him to fight a two-front war.

I worry that President Trump is fighting the current trade war on too many fronts.  First, he killed TPP before it even started.  Then, he threatened  NAPFA, fighting with Mexico and Canada, before declaring war on the Eurozone.  Now, he has declared war on China.  How many wars can we fight?

Yes, a trade war has a lower body-count that a military war, but trade wars have often led to military wars.  Make no mistake - trade wars are deadly serious!

Successfully concluding any one trade negotiation first would provide a useful template for future negotiations.  Instead, we are manufacturing maximum uncertainty, and we all know how much the stock market hates uncertainty.  As uncertainty rises, the stock market declines.

Wednesday, June 20, 2018

Invisible and Vulnerable

While it is painful to watch the vulnerable children along our southern border, it is at least visible.  Less visible is mistreatment of another vulnerable population, i..e., the elderly.  It doesn't happen to large groups but to one lonely invisible individual after another.

But, did you know that you can be fined between $500 and $1,000 if you know of any elder abuse and don't report it?  In most cases, that is because you don't know HOW to report such abuse.  It is quite simple -- pick up the phone and call 1-888-832-3858.  

Now, do the right thing and report anybody who abuses an elderly person!

Tuesday, June 19, 2018

At Any Cost

It was in Billings, Montana on May 26th, 2016, when the President promised:

“We’re going to win. We’re going to win so much. We’re going to win at trade, we’re going to win at the border. We’re going to win so much, you’re going to be so sick and tired of winning, you’re going to come to me and go ‘Please, please, we can’t win anymore.’ You’ve heard this one. You’ll say ‘Please, Mr. President, we beg you sir, we don’t want to win anymore. It’s too much. It’s not fair to everybody else.’”  

Intractable problems can be solved by moderates . . . or bullies!  Thanks to gerrymandering, there are not enough moderates in Congress to solve the immigration problem.  Maybe, we do need a bully?

I recall the logic of another president, who concluded it was better to kill a hundred thousand Japanese than to lose another ten thousand Americans.  Maybe, emotional scarring ten thousand brown kids is a small price to pay for making the President a "WINNER?"

That definitely would NOT make me feel like a winner.  John McCain is one of my personal heroes, and he described Trump's policy of separating kids from illegal aliens as "an affront to decency."  

Is "winning" really that important?  Who wants to win, if this is what you have to do?  What kind of ego demands "winning" at any cost?  Is the Wall really worth sacrificing our decency to get it?  

That is too high a price for solving even an intractable problem.

Monday, June 18, 2018


As 2018 dawned, it looked like we were enjoying synchronized global growth.  The U.S. had led the world out of the recession and now looked forward to the increasing growth in Europe and Asia.  But that didn't happen.  Instead, the U.S. has gotten stronger, while the others fell further behind.

For example, the Chinese central bank cancelled a scheduled increase in interest rates.  Capital Investment and Retail Sales both weakened last month.  The Chinese slowdown slowed the rest of Asia, as usual.

However, Europe has been an even bigger disappointment this year.  Eurozone growth has dropped from 0.7% in Q4 of last year to only 0.4% in the first quarter of this year.  The ECB has reduced its full year Eurozone growth estimate from 2.4% to 2.1%.  One big reason for this slowdown is Germany, the world's third largest exporter, the level of exports has fallen in three of the first four months, dropping 2.5% in April alone.  Germany's estimated full year GDP growth has been cut by half.

One minor reason was the surprisingly widespread flu epidemic.  A major reason was the populist takeover of the Italian parliament, which strengthened the wait-and-see attitude of corporations across Europe.  (Everybody remembers the fiscal crisis in 2010 precipitated by Greece.)  In January, 26% of German consumers expected economic conditions to deteriorate, compared with 43% today.  There is considerable anecdotal evidence that corporations are hunkering down and conserving their resources to survive a possible trade war, which is prudent. Rising caution is a wet blanket on the stock market.

This is not to suggest an investor should sell their international stocks.  Don't forget -- A well diversified portfolio will include some exposure to international stocks.

The President said trade wars are "easy to win." 

Let us pray . . . for a quick peace!

Saturday, June 16, 2018

Suicide Mission ?

Republicans abuse Supply-side economics, which argues that a tax cut increases the budget deficit in the short run but decreases the deficit in the long run.  They are hostage to the baseless belief that all tax cuts are beneficial at all times.  Republicans are not aware that a tax cut will not cure the common cold.

Democrats abuse Keynesian economics, which argues that budget deficits are good during recessions, which are repaid when the economy improves.  They are hostage to the baseless belief that deficits don't matter.  Democrats have never experienced an economy good enough to pay down the debt (except for Bill Clinton, who did.)

Unfortunately, both Supply-side economics and Keynesian economics have become religions.  Austrian economics remains mere accounting, i.e., debits and credits.

For some reason, bond specialists in particular are true believers in Austrian economics.  In a recent speech, the current "Bond King" Jeffrey Gundlach, said "This is almost a suicide mission.  At some point, with debt and its service cost increasing, there will be a collision.  There could be a solvency problem."

Think about it:  interest rate increases are appropriate during the latter stages of business cycles.  Budget deficits are more appropriate during the early stages.  Assume you had an adjustable-rate mortgage, and you get notified that the rate will increase from 4.5% to 5.5%.  Would you want to increase your mortgage amount, or would you want to start paying it down faster?

Our national debt is increasing while interest rates are increasing, which is very rare.  A 1% increase in debt service on $20 trillion debt is $200 billion each and every year.  That would be enough to fund the beloved "Wall" and build a dozen hospitals . . . each and every year.

The inevitable train-wreck is not in the foreseeable future, but it is out there.

Thursday, June 14, 2018

Mixed Blessing

Those old enough to remember the U.S. economy during 1970's will remember the panicky headlines about runaway inflation.  Do you remember the stories about elderly women eating dog food?  Do you remember Gerald Ford's WIN Campaign, which meant Whip Inflation Now?  Nobody wishes for a return of that level of inflation again!

But, a little inflation is a big blessing, and it looks like we're getting a little.  The Producer Price Index (PPI) was just released and shows 3.1% over the past year, while the Consumer Price Index (CPI) showed 2.8%.  Of course, the recent rise in oil prices boosted both indexes somewhat, but the "core" level of inflation was still well above the 2% goal of the Fed.  In fact, a little more would be good!

Why is inflation a good thing?  In a macro sense, it reduces the burden of debt.  The rule-of-thumb is that national debt should not exceed the GDP.  Our national debt of $21 TRILLION is a little over 100% of GDP but rising.  (The 2019 deficit alone is expected to add another 4.5%.)  To bring that ratio back below 100%, we need to inflate GDP.  If you worry about the level of national debt (and I do), then pray for more inflation.

At the corporate level, the same thing happens.  Whatever the level of debt, it is being paid with cheaper dollars, because inflation devalues currency.  As an example, if the level of debt payments is fixed while income is driven up by inflation, the debt payments require a smaller and smaller percentage of the rising income.  Likewise for the consumer level.  A little inflation is your friend!

Economists argue incessantly about the desired level of inflation, but all agree anything below 2% is bad, and anything above 8% is bad.  It is a big sweet spot, and it will be sweet to "inflate away" our debt.

Wednesday, June 13, 2018

Braking While Accelerating

Traditionally, increases in interest rates in one country draw money from other countries, seeking the higher rate, which causes the currency of the first country to appreciate and the currency of the second country to depreciate.  For example, to move funds from Japan to the U.S., you have to sell your Yen to buy dollars, which drives up the value of the dollar, because the demand for the dollar increased while the demand for the Yen decreased.  So far this year, interest rates have risen and the dollar has strengthened.  With today's expected increase by the Fed, it is expected the dollar will continue to strengthen.

But, to an unusual extent, currencies are reacting less to interest rates and more to political expectations.  When Italy spooked the market recently, there was no change in interest rates by the ECB.  Yet, the euro took a beating.  The increase in interest rates in the U.S. is too small to explain the big rise of the dollar.  Geopolitical enthusiasm for the Trump Tax Cuts (AKA the Trump Fiscal Stimulus) increased demand for dollars to buy equities more than the increase in demand to buy bonds.  That geopolitical enthusiasm was rocket-fuel to the dollar already propelling upwards by interest rates.

It is not happened in U.S. history before, that we have the Fed applying monetary brakes, while the central government is hitting the accelerator with a stimulus plan. In the short run, it doesn't matter but could be important in the long run.  That means, in the short run, the dollar will remain strong, but, in the long run, who knows?

Sunday, June 10, 2018

R.I.P. The Right Thing

For far too long, investors have been confused about investment advisors and stockbrokers.  Investment Advisors are just that -- stockbrokers are just salesmen.  Stockbrokers have loyalty to their companies.  Investment Advisors have loyalty to their clients. 

Also, stockbrokers can charge hidden fees.  Investment Advisors can NOT!  For example, stockbrokers can invest your money into mutual funds that pay "kickbacks"  (12b1-1 fees) or send the stockbroker and spouse to Hawaii or whatever.  Stockbrokers do NOT have a fiduciary responsibility to their clients.  Investment Advisors do!

A fiduciary responsibility does not mean an Investment Advisor cannot do something stupid.  It does  mean we can NOT hide anything from the client!  (No mutual fund company ever pays us a dime.)

For years, we have asked that stockbrokers stop selling and adopt the fiduciary standard.  They fought vigorously.  However, Congress was on our side and instructed the SEC to establish the regulations, which would require stockbrokers to be fiduciaries.  After years of inaction by the SEC, the Department of Labor (DOL) finally acted and issued rules requiring the fiduciary standard for all retirement accounts (but only for retirement accounts).  Stockbrokers fought back, delaying implementation for over two years.  But, neither the President nor the DOL Secretary stood up for the fiduciary standard.  Investment Advisors then resorted to the courts, but it looks like that effort was killed by the Fifth Circuit Court of Appeals last month. The Trump-controlled SEC still says they will do something, but it is unclear what or when.  More confusion, not less confusion is expected.  The Right Thing will wither away . . .

The battle has been lost.  Stockbrokers are free to keep getting hidden fees and withholding the truth about their conflicts of interest.  They won, and investors lost!  

Saturday, June 9, 2018

The 13th Step

I know, I know . . . America is going to pot, and the young Millennials will only make it worse!  They're lazy know-it-alls.  They eat healthy but don't attend church?  They even have premarital sex!  I know, I know!  However, they do see one thing clearly -- the vileness from the Republican Party and the Democratic Party. 

They also clearly see the vileness of Fox and MSNBC, the propaganda arms of the Republican and Democratic Parties.  That's why Millennials created "Newsy" for themselves, but you can watch it too.  (Channel 136 on Cox.) 

Republicans will call it Fake News, because Newsy does NOT have the Republican slant.  Democrats will be condescending about Newsy, because it does NOT have the Democratic slant.  Therefore, it must be just right for Millennials . . . and me!

As part of a 12-Step Program, I've often recommended that "news addiction" be treated by avoiding news one day each week.  Maybe, we should first ease into our addiction recovery by spending the day watching the laconic news of Newsy as the first step.  It doesn't have the breathless anxiety of Fox nor the indignation of MSNBC.  Newsy lacks emotions, which is refreshing! 

Just the facts, ma'am!

Thursday, June 7, 2018

Friend or Foe

Most people realize their knowledge is limited when discussing stocks, bonds, and other types of investments.  But, everybody thinks they're an expert on cash, probably because they use it everyday.

Our currency says "In God We Trust."  It does NOT say "In Cash We Trust!"  There is nothing sacred about cash.  It is just another asset class.

But, it is an asset class that impacts the rest of the portfolio.  Too much cash limits portfolio growth, in the long run.  Too little cash limits portfolio losses, in the short run.  (If you are so scared of short term market gyrations that you cannot sleep, then you are too timid to be a long term investor anyway.)

As a portfolio manager, I see cash as insulation, like you have in your attic.  It stays the same year-round, about 5% of the portfolio, even in the face of recessions, which come and go.  However, I do like greater insulation in the face of a financial crisis and try to increase cash then, to maybe 25%.  That gives a little "dry powder" for when the crisis passes, which it will. 

There is nothing sacred about cash.  It is neither friend nor foe.  It is merely a portfolio tool to maintain minimal liquidity and insulate risk over the long term.  Love your portfolio, not your cash!

Monday, June 4, 2018

Just Say No

I was visiting with one of my Democratic friends, and she said "Scratch any Republican and they will automatically complain about the lamestream media."

The irony of this is that, she said, since the viewership of Fox News exceeds the viewership of CNN and MSNBC - combined - that Fox is now the lamestream media.

She went on to say Republicans laugh at their allegiance to Fox, while Democrats have little allegiance to CNN or MSNBC.  Democrats are not united by CNN or MSNBC, but they are united in their revulsion at Fox . . . interesting!

It is well-known that we choose our political cocoons.  Republicans choose Fox, while Democrats choose anything but Fox.  But, she said political cocoons are as addictive as street drugs.  "Just say no" doesn't work with drug addicts or partisans.  We have twelve-step programs for drug and alcohol addiction, but how about our addiction to partisan news?

How do we get Republicans to watch less on Fox, while Democrats watch more on Fox?  She strongly agreed with my practice of a news-free day each week.  It builds discipline.  I agreed!

But, news-free is not the same thing as non-partisan news.  The best we can do is balance partisan news between Republican and Democratic news sources.  Or, as she styled it – “Break out of your cocoon!  Watch both!”

Sunday, June 3, 2018

YTD Snapshots

From time to time, it is useful to look for underlying trends in the market.  Looking at the YTD data through May 31st, it would be hard to miss the impact of two trends, i.e., a possible trade war and the increase in interest rates.

The large multinational companies would be more impacted by a trade war than smaller companies.  To prove the point, large cap stocks were up 2.2%, while small cap stocks were up 8.17%.

When interest rates rise, investors wait for the higher rates and slow down their purchases of those stocks that are normally bought for the stable dividend income.  To prove the point, S&P growth stocks were up 6.62%, while value (dividend-paying) stocks were down 2.84%.

To further prove the point, technology stocks (which pay little or no dividends) were up 11.26%, while consumer staples and telecoms (which usually pay handsome dividends) were down a whopping 12.49% and 10.48%, respectively.

There is no obvious impact from the Mueller-malaise hanging over Washington.  As the November elections approach, I expect uncertainty to increase, which is a weight on the market, but I expect a robust "Santa Claus" rally late this year.

Friday, June 1, 2018

More Good News

Today's "Jobs Report" was simply great.  Headline numbers are:

1.  New jobs created in May was 223 thousand, substantially more than the 188 thousand estimated.
2.  The previous two months were revised higher by another 15 thousand jobs.
3.  The unemployment rate is only 3.8% - the lowest since the global financial crisis
4.  Under-employment (U-6) dropped from 7.8% to 7.6% - also the lowest since the global financial crisis of 2008/9.
5.  Unemployment among blacks dropped to an all-time low of 5.9%.

The futures market were largely unchanged.  For every investor delighted with the American job engine, another investor was frightened that a good jobs report makes the Fed more likely to raise rates, and they balanced each other.

I am concerned that the President, who is always given the number late the day before, tweeted this morning that he was excited about the jobs report at 8:30 AM.  I'll give him the benefit of a doubt that he was not telegraphing the good report to his Wall Street buddies, but hope he will learn that his tweet was inappropriate and doesn't do it again.  Every investor should get the news at the same time, whether they read the President's tweet or not.

Wednesday, May 30, 2018

Sniffing a Crisis ??

Let's take a look at economic data released in the last few weeks:

1.  Consumer confidence rose again in May.
2.  The increased gas prices are not expected to be impact consumer disposable income significantly,
3.  Existing home sales dropped 2.5% due to lack of homes to sell, which is a good problem.
4.  Home prices have risen 6.5% since April of last year and show no sign of slowing.
5.  Transportation orders are up 12.5% year-to-date.
6.  Other durable goods orders are up 7.3% YTD.
7.  Unemployment (U-4) is at a sixteen year low.

There is nothing in that data suggesting an economic recession is on the horizon, even though people worry about it constantly.  That is a waste of perfectly good worry!

If you must worry, then worry about another financial crisis, which is different than a recession.  They happen more quickly and do more damage than a recession (although recessions can be triggered by a financial crisis).

A plausible scenario leading to a financial crisis might, for example, involve a heavily-indebted, poorly run country, like Italy, for example?  The debt or bonds of that country is largely owned by banks.  Whenever repayment is in question, the value of those bonds go down. Since that is a direct charge against either earnings or capital, those banks then reduce lending.  Not by coincidence, that's what's happening right now to banks, especially in Europe but also in money-center U.S. banks.  Because bank stocks are a major component of the U.S. stock market and an even larger component of the European stock markets, those bank stocks can easily crush the whole market.

The "nice" thing about a financial crisis is that there are usually many false alarms.  I think today's Italy scare is just another false alarm, for several reasons, but it must be watched carefully.  If you read that a few derivatives, such as credit default swaps, actually default, then call your financial advisor immediately . . . as well as your priest, preacher, rabbi or whomever . . .

Sunday, May 27, 2018

From An Unknown Source

Our flag does not fly because the wind moves it.
It flies with the last breath of each soldier
who died protecting it!

God bless them, every single one!

Saturday, May 26, 2018

An Earned Salute

When I was a boy, I remember my father telling me many times I should get a "do-nothing government job."  It was an extra bonus that nobody could ever be fired in such a job.  That never made sense to me, as I strongly believe that work is good for the mind, body and soul.

Those abusive practices continue today, as numerous government-worker-friends have assured me.  Each one has a story of some incompetent or lazy worker who keeps getting shifted around, because it is too difficult to fire anybody.  The pendulum has clearly swung too far.

So, it does my heart good to read that President "Jerk Who Trashed John McCain" has signed three new directives aimed at this problem.  It is unclear how much muscle these directives have.  It may just be rhetoric to feed his base, but it is nonetheless a hopeful sign.

As much as it pains me to salute this President, I do so!


I will not say . . . I told you so.
I will not say . . . I told you so.
I will not say . . . I told you so.

We've all seen those new home gadgets from Amazon, called Alexa, which allows the homeowner to ask questions, both big and little, as well buy things conveniently.  Google has a similar gadget.  They just sit on your counter, waiting for instructions.  Of course, it is listening to everything being said.

In fairness, it really is convenient to sit on the sofa and say "Alexa, please order a 46-pack of Starbucks Veranda k-cup pods."  Like magic, it will show up at my door two days later.  Amazon wants to free me from the awful inconvenience of sitting down at my computer and typing.  For that minor convenience, I have to surrender the privacy of my conversations.

Friday, it was learned that, in at least one instance, the gadget recorded a conversation between a husband & wife, before sending a recorded copy of that conversation to a third-party in the husband's contact list.  How embarrassing!?!

The continuing flow of increased conveniences comes at the cost of decreased privacy.  CNBC star Jim Cramer labelled naysayers as "privacy fanatics," which is a label I proudly wear.

I thought everybody in high school was forced to read George Orwell's iconic book 1984, but I guess not.  If he was still alive, he would be saying . . . I TOLD YOU SO!

Friday, May 25, 2018

Indignation Evolution

I recall writing years ago that "if we are free only to be respectful, then we are not really free at all."  Yet, I was quite angry when the NFL players refused to stand during the national anthem.  It was disrespectful to a symbol that is intensely important to me.  I reacted too strongly to that slight.

After evolving, I realize a lack of respect is not the same thing as actual disrespect.

The new NFL rules now require players to stand during the national anthem if they are on the field.  If they chose NOT to respect the flag, they are free to remain in the locker room, until the national anthem is over.  That way, they are not DIS-respectful on the field.

I would modify that rule, requiring players to remain in the locker room, if they cannot refrain from spitting, swaying, and gawking at cheerleaders during the anthem.  Show respect for the flag or stay in the locker room!

Thursday, May 24, 2018

Look, It's Alive !

As we witness the highly partisan attacks on such institutions as the FBI and EPA, it is easy to overlook some surprising life in our long-dead Zombie Congress.

Last August, the Senate passed "right-to-try" legislation, which permits terminal patients to try unproven drugs.  The House passed it this week, and it goes to the President, who is expected to sign it into law.  I applaud this!

The Republican argument was that individuals should be able to make as many decisions for themselves as possible.  The Democratic argument is that dying individuals make easy targets for unscrupulous drug providers.  Further, the Democrats said a dying person is a useful statistic in medical studies.  That's where the Democrats lost me.  It is one thing to be denied a medical choice because the drug is too expensive, but it is an entirely different thing to be denied because my death might or might not be a useful data point.

Now, if Congress can just do something about the exploding deficit, without sinking into the Keynesian or Supply-side swamps . . . 

Wednesday, May 23, 2018

Fear of Peasants

When I went to China a few years ago, my strongest impression was just how frightened the central government is -- afraid of their own people.  That makes the tightest controls on freedom necessary.  After all, with a minimal middle-class, China could have a billion poor people take to the streets -- how scary is that visual image?

Three years ago, they started the Asian Infrastructure Investment Bank (AIIB).  Because that overlapped the World Bank and Asian Development Bank (ADB), the purpose was not obvious.  Today, the AIIB only has loans outstanding of about $4 billion, compared to $139 billion for ADB and $185 billion for the World Bank (globally, not just Asia).  Digging deeper, AIIB has $19 billion of paid-in capital and a capital base of $95 billion.  Yet, total loans are only $4 billion?  Why isn't AIIB making significant loans?  They raised a huge amount of capital and then chose to do nothing with it.

It was not so long ago that China had aspirations of their currency challenging the dollar as the dominant world currency.  The huge AIIB could lend only yuan, thus making the yuan more prestigious.   However, that also increased demand for yuan, which in turn caused the yuan to be become more valuable.  That appreciation in their currency naturally caused import prices to rise and exports to fall -- a potential disaster for a government afraid of its own people.

As President Trump negotiates the new trade paradigm, I hope he will play on the Chinese fear of Chinese people.  After all, the U.S. could begin buying the yuan to push up the exchange rate, causing problems for the Chinese.

The difference between a trade war and a currency war is similar to the difference between a recession and a financial crisis.  A trade war and a recession send signals they are on the horizon.  A currency war and a financial crisis happen relatively quickly and do more damage.

I hope the president will let the Chinese that know we are aware of their soft underbelly but nothing more.

Monday, May 21, 2018

Rat Poison Squared

Warren Buffett was wrong!  He recommended against buying both Amazon and Google.  He was wrong!

So what?  There is also a rumor he might actually be human!

One of his primary rules is to buy what you understand.  Who understood Google when they heard about it the first time?  Techies just delight in saying that non-techies are Luddites,  I'm proud to wear that label, alongside Warren Buffet.

Earlier this month, he predicted that crypto-currencies like Bitcoin "will come to a bad ending" and referred to them as "rat poison squared."  Words matter but not much!  I described crypto-currencies as "an elegant solution to a non-existent problem." 

It is the wild, wild West for currencies, indeed!  You will not see Warren nor myself there!

Saturday, May 19, 2018

Yet Another School Shooting

Gun lovers (like myself) say "This is crazy!"
Gun nuts say "This is crazy!"

Gun lovers say "There's too many guns!"
Gun nuts say "There's not enough guns!"

Gun lovers say "Conduct real background checks!"
Gun nuts say "Background checks give the government too much power!"

Gun lovers ask "Does everybody have the right to have guns!"
Gun nuts say "It's already illegal for crazy people to have guns!"

Gun lovers ask "Do you really think the government could confiscate 330 million guns from 120 million people?"
Gun nuts respond "Yes, that's why they have black helicopters and storm-troopers!"

Gun lovers ask "Which is more important:  the Second Amendment or your kid?"
Gun nuts respond "What a rude, stupid question - to rude & stupid to answer!"

Gun lovers say "You do know the Second Amendment is not absolute?  You cannot own a bazooka or a tank or a bomb."
Gun nuts say "The Second Amendment should be absolute, but the Feds are infringing on our rights!"

Gun lovers say "This is crazy!"
Gun nuts say "This is crazy!"

Friday, May 18, 2018

Loving the Pampered?

How can anything so routine and mundane put so many smiles on so many faces worldwide?  I've been bewildered by this all my life but am finally starting to understand . . . maybe.

The British Royal family is arguably the best known family on the list of the world's ten most pampered families.  Despite that elite status, working class people worldwide cheer whenever a Royal gets married or has a baby.  There is obviously some emotional need being satisfied by this fascination with Royals.

Maybe, they fill a void in our lives, which seem dull in comparison, I guess?
Maybe, we need to see it is possible to float above the gnawing fray of daily life?
Maybe, we need to see that the most pampered among us still have emotional problems?

Because I tend to be dismissive of people who are unfamiliar with work, I tend to be dismissive of the Royal family.  However, when I see so many smiles on so many faces, I am thankful to the Royal family.  I don't need to understand it -- I will just enjoy it!

So, good luck and best wishes to the new bride and groom . . . and the next bride and groom as well!

Just keep those smiles coming!

Thursday, May 17, 2018

Capital Punishment

I have long urged investors to make sure there is always a custodian (TD, Schwab, Pershing, etc.), because that keeps their advisor honest.  But, I'm increasingly despondent, as I was just reading about yet another Ponzi scheme, based in Boca Raton, stealing $1.2 BILLION from 8,400 investors, mostly in Florida and Colorado.

It is a travesty to measure a Ponzi scheme by the dollars stolen.  It should be measured by the number of suicides, early deaths, divorces, college degrees lost, hearts broken, etc.

The article was styled "Sanctioned Schemers Keep Shilling."  In this case, there were 17 unregistered "salesmen" representing the "perennial problem:  insurance agents with problematic histories selling securities, who market themselves to individuals as wealth and retirement advisors."

"problematic histories" . . .

Punishment for these crimes is usually little more than loss of license, being barred from the industry, and maybe a little time at some country-club prison.  Then, they are free to destroy the dreams of even more investors.

Some crimes are so heinous, that offenders don't deserve a second chance.  Investors do!

Wednesday, May 16, 2018

In the beginning . . .

. . . there was Benjamin Graham, the father of investment management and author of the dryly titled Security Analysis.  He was the mentor for Warren Buffett.  Graham advocated a "bottoms-up" approach to investment management, which requires exhaustive analysis of all financial statements, physical inspection of all facilities, and probing interviews with senior management.  The criticism of this approach is that investors get the best companies but maybe in the worse sectors or countries.  Most Chartered Financial Advisors (CFAs) are disciples of this approach.

Then, there was Harry Markowitz, the father of Modern Portfolio Theory (MPT), which won the Nobel Prize.  He advocated that a portfolio of stocks should be shaped to get the best return for the amount of risk taken.  He found that a portfolio of both large and small companies offered the best return for the least risk, but in a constantly-changing ratio.  It is a "top-down" approach, finding the worst-performing stock in the best-performing sector will out-perform the best-performing stock in the worst-performing sector.  Most Certified Investment Management Analysts (CIMAs) are disciples of this approach.

Since then, there has been an endless stream of improvements to MPT, such as "passive versus active" investing, factor-based investing, etc.  But, these improvements were designed to improve the growth prospects of portfolios, ignoring the fact that an increasing number of investors are more focused on income than growth.

Now, along comes Dedicated Portfolio Theory (DPT), which calls for two portfolios - one dedicated to growth and one dedicated to income.  The income portfolio contains individual bonds, not bond funds.  Assuming at 4% distribution rate, an investor could, for example, put five years or 20% into the income portfolio, preferably with zero-coupon bonds maturing once a year.  Maintaining this dedicated income portfolio is more important then the growth portfolio.  At the end of each year, one must decide whether to roll funds from the growth portfolio by a technique called Critical Path, which is beyond the scope of this blog.

My impression is that DPT offers some cold comfort to those investors who fret endlessly about having enough income.  DPT is an interesting but over-hyped concept.  MPT will still be employed to manage the growth portfolio . . . thankfully!  DPT is no big deal!

Monday, May 14, 2018

Rising Interest Rates ??

It is widely assumed that the Fed will continue raising interest rates, and they will.  They want to "normalize" the level of interest rates, as well as having some "dry powder" in case the economy stumbles and needs lower rates.  Plus, they believe higher rates will encourage increased savings.

There is also a technical reason to believe interest rates will increase.  Now, take a look at this graph:

Without getting too technical, the London-Interbank-Offered-Rate (LIBOR) is unusually higher than the Fed Funds rates.  That means the spread between the two rates is too large.  Stated differently, That also means that the Fed Funds rate is too low, relative to LIBOR.  With the flood of U.S. Treasury debt now in the pipeline, from the 2018 tax cut, those new bonds will not sell nor be absorbed into the bond market without an increase in the rates they pay, which decreases the spread between the two rates. 

Yes, higher rates are coming.

But, I suspect the fear of higher interest rates is unreasonably high, as the Fed will not raise rates too much too fast.  First, real estate developers hate higher rates, as that drives down real estate values (study "cap rates").  Ask our President about that one.  Second, every percentage point increase in interest rates increases our annual debt service expense by $200 billion.  Do the math -- 1% on $20 TRILLION of national debt.  Imagine creating a new annual expense that large without Congressional approval.  Lastly, the stock market doesn't do well when interest rates increase too much.

The future of interest rates is obvious . . . but it is not scary.

Saturday, May 12, 2018

Rich Folks Hoax

The moon is hanging in the purple sky
Baby's sleeping while its mother signs
Talking 'bout the rich folks
Rich folks have the same jokes
And they park in basic places

The priest is preaching from a shallow grave
He counts his money, then he paints you saved
Talking to the young folks
Young folks share the same jokes
And they meet in older places

So don't tell me about your success
Nor your recipes for my happiness
Smoke in bed
I never could digest
Those illusions you have going

The sun is shining, as it's always done
Coffin dust is the fate of everyone
Talking 'bout the rich folks
The poor create the rich hoax
And only late breast-fed fools believe it

So don't tell me about your success
Nor your recipes for my happiness
Smoke in bed
I never could digest
Those illusions you have going

(c) by Sixto Rodriquez on "Cold Fact" in 1970

What I Wished For ?

Long time readers will recall ten years ago or so that I lamented the death of democracy when Republicans and Democrats could not even do the things they agree on -- for fear of "cooperating with each other."  I pondered endlessly about Erdogan's famous comment that "Democracy is like a train - when you get to your stop, you get off."  I longed for a Strongman-type leader who would break the logjams and Make American Democracy Great Again.

For awhile, I hoped that Donald Trump was that leader -- that Bull in a China Shop who would break everything and then put it back together.  But, I never wished for a Bull in the pharmacy next door, nor a Bull in the grocery, nor a Bull in the gas station, nor a Bull in the church, nor a Bull anywhere else.

I feel partially responsible.  How much breakage is too much?

Friday, May 11, 2018

The Rubicon

There is no American I respect more than John McCain.
there is no American I respect less than Donald Trump.

Wednesday, May 9, 2018

Your Personal Roadblocks

The media reports the unemployment rate each month, which is currently about 4%.  Economists normally look at the JOLTS report, which shows the number of job openings is a record high 4.2%.  In other words, there are more job openings than there are workers to fill those jobs.  This is a all-time record.  The job market is TIGHT!

Equally important, workers rarely quit a job without having another, almost always at higher pay.  A high number of quits suggests a tight job market.  About 2.2% of workers quit their jobs last month, the highest since 2001.  This also puts upward pressure on wage expenses.  The job market is TIGHT!

The increased job openings are pretty much across the spectrum.  Transportation, warehousing, information, and construction are producing the most jobs.  Education, health, wholesale trade, and finance are producing the least, relatively speaking.  The job market is TIGHT!

If you cannot find a job in this market, there is something wrong.  Either your job expectations are unreasonable or you won't get the right training or you are unwilling to go where the jobs are and expect the jobs to come to you.  All of these reasons are called "self-sabotage," where potential workers create their own impediments to work.  They sabotage their own job prospects.  Do you know anybody like this?

If you cannot get a job today, it is because you do not want a job enough to remove your own impediments or roadblocks .

Monday, May 7, 2018

A Planner Too Long ?

In 1985, I watched the classic Out of Africa movie with Meryl Streep and Robert Redford.  She played a wealthy Danish woman who came to Kenya and fell in love with a professional game-hunter.  By the end of the movie, she had lost her wealth, and he had lost his life.  A sad love story, the film nonetheless won seven Academy awards.

In 1988, I earned my certification as a financial planner.

For some odd reason, I wanted to see the movie again last night but saw it this time through the eyes of a long-time financial planner.  Instead of seeing a wealthy Danish woman, I saw a hopeless romantic, who wanted to plan everything in detail, including her love life.  Instead of seeing an impossibly handsome professional game hunter, I saw an unstructured vagabond this time, who lived only for the day, abhoring any long-term planning.

Instead of seeing star-crossed lovers this time, I saw a couple with different planning needs.

How do you reconcile these different planning needs?  While not very romantic, it is essential to talk about the need to plan.  How do you tell your kids to find a mate who is a good financial planning candidate?  Well . . .  good luck on that!

Sunday, May 6, 2018

Take A Stand !

Suppose I owe you a lot of money and then suppose I only pay you 77% of what I owe you.  How happy would you be?  Now, suppose you knew 20 years before that it would happen.  Would you try to do something about it?

Social Security is a pay-as-you-go entitlement, meaning money paid into the system immediately goes out to recipients.  Up until 1965, there were roughly ten workers to support each retiree.  Today, there are about 3.4 workers who are paying my monthly Social Security checks.  Thanks, guys!

The demographics are that men are living longer,while the birth rate is declining.  Either we start having more babies and allowing more immigrants, or men have to stop living so long.  (While older women still outnumber men on Social Security, the gap is closing.)  The demographics are not helpful.

The revenue provided by workers has been less than entitlements paid since 2010, and we are already dipping into the "reserve funds."  And, the trend is getting worse, with the fund being dissipated by 2034.  At that point, it is estimated your monthly check will be reduced to 77% of what it is now.

Our options are to increase the labor pool, increase Social Security taxes on workers, scrap the Social Security fund and simply pay entitlements out of the government's general revenue fund (which moves the deficit from one account to another), start decreasing the monthly checks, cutting off people like myself who don't need it, or the politicians' favorite -- just do nothing and hope something good happens.  What would you do?

As long as Republicans believe that "what works in theory will work in practice" and as long as Democrats want to obviate poverty and unhappiness in every identity group, Congress will remain impotent.  I marvel that this subject has not been discussed with Republicans in control of all three branches of government.  Would Democrats have done any better with control of all three branches?

I recall a Congressman who said the job of Congress is to "do nothing, do nothing, do nothing, and then over-react!"  Sadly, he was being honest.

But, what would you do?

Saturday, May 5, 2018

The Joy of Regulation

It is fashionable to "trash-talk" regulations, and some of that is fair.  However, some regulations are better than others and are actually good for America!

Famously described as "financial weapons of mass destruction" by Warren Buffet, derivatives have posed ever-greater risks to the financial system and were largely responsible for the global financial crisis of 2008/9.  I have often said I would sell 25% of stocks when the first derivatives blow-up occurrs and the remainder when the second derivative defaulted.  That's how big and real the risk has been.

One real problem in regulating derivatives is that they are traded off-the-exchanges, meaning we could not be sure how big a problem they presented.  This lack of transparency made it difficult to estimate the threat.  Fortunately, bank regulators rode to our rescue.  As they audited bank statements, they hounded the bankers to justify every investment decision involving the use of derivatives.  As a result, the value of derivatives actually employed has fallen markedly.

Going into 2008, there were about $35 TRILLION, declining to $15 TRILLION at the end of 2016 and "only" an estimated $11 TRILLION today.  This is great progress!  Federal auditors should be applauded, for reducing the risk of these "financial weapons of mass destruction."

But money hates transparency, and nobody is confident how much of a problem "dark pools" are becoming.  These are large pools of money that some banks, particularly offshore banks, and some offshore money managers to trade stock positions without transparency.  In other words, you can buy or sell stocks and other assets, while nobody knows it.  More pointedly, nobody knows how much leverage was used for each of those purchases.  U.S. bank regulators have far less regulatory authority with these offshore dark pools.

Like water flows to the lowest point, money flows to the lowest point of regulation and transparency. 

Stay tuned to this potential problem . . .

Friday, May 4, 2018

The Need To Please

On a long flight recently, I took the opportunity to read a biography on Tiger Woods. Everybody knows the story of Tiger, but I am interested in father-son relationship between Earl-Tiger.    Earl was a former Green Beret, who was determined that his son could change the world, literally.  He had a disciplined focus on that objective.

Earl taught Tiger the disciplined focus of Special Forces - accomplish the mission.  I remember a Colonel saying “you may have to go through hell to accomplish the mission and, if so, I expect you to go to hell!”  For example, Earl would shout obscenities at Tiger as he was swinging at the ball, simply to break Tiger’s concentration.  It is no surprise that Tiger became such a focused competitor.

The difference between father & son was that the son had a need to please his parents.  Earl had no need to please anyone.  (Any such need by Earl would have been extinguished in Special Forces.). Tiger’s need to please his father probably made him the greatest golfer of our time.  I suspect that also made him emotionally vulnerable, making him different from his father.

Teaching disciplined focus to an emotionally vulnerable person is problematic.  Normally, the more focused you are, the less people are pleased with you.  In Tiger’s case, the normal response was overwhelmed by the millions of dollars suddenly flooding into his family, as well as the glory and adulation by millions of fans.  Tiger thought he was pleasing the whole world and was proud of that.

As they say, pride goeth before the fall, and Tiger fell hard.

Maybe, the lesson learned is that hard-charging Alpha-male fathers can, with the very best of intentions, do real damage to their sons - at least sons with a need to please.

Friday, April 27, 2018

Land of Concertina

If you have ever wanted to see the beautiful country of South Africa, I recommend you do so within the next year. The pot is beginning to boil!

GDP growth rate is flat, compared to 2.2% in the U.S. and 6.8% in China.

Inflation is 6%, compared to 2% in the U.S.

Unemployment is 27%, compared to 4.1% in the U.S.  To appreciate how destabilizing this is, remember that U.S. unemployment never exceeded 25% even during The Great Depression!

Despite the “fall” of apartheid 25 years ago, the issue of race still dominates everything.  Remember the U.S. Emancipation Proclamation was in 1863, and we still have racial strife —154 years later.

The immediate past president is facing charges of corruption and wii probably go to jail next year.  His many supporters have a history of “taking to the streets.”

The current president is advocating confiscation of white-owned farmers without compensation.

Two hundred people move into Capetown everyday, fleeing violence in rural areas.

A tourist bus was fire-bombed in Soweto last week.

There is a national transportation strike by buses and taxis.

Government workers are striking for higher wages.

Everywhere I look, I see fences topped with sharp concertina wire.

Did I mention that 2019 is an election year, when passions are normally aroused.

Visit now or wait until the smoke clears, literally.

Saturday, April 21, 2018

Et Tu, Brute ??

It is bad enough that the morally-challenged technology firms in Silicon Valley argue they have a right to know everywhere you go online, everything you buy in stores, every event you attend, and every lever you pull on election day.  But, those big tech firms are nothing more than apologists for advertising firms.  After all, who doesn't want personally-targeted advertisements?

I've never viewed economists as morally-challenged but now have doubts.  Using deep data-mining and machine-learning, they are starting to use statistical techniques like gradient boosting and the random forest approach to predict recessions.  After all, who doesn't want better economic forecasting?

A "self-fulfilling prophecy" is a prediction that actually happens because of the prediction.  In economic terms, if people believe a prediction that the economy will go into recession, then they will decrease their spending, which puts the economy into the predicted recession.

Believing "the road to hell is paved with good intentions," how do we prevent the inevitable?  Just because something can be done, it doesn’t mean it should be done.  The problem with waterfalls is that they are low on the horizon and hard to see . . . 

I expect better from economists!  Stooping to the level of Facebook or Google is disappointing.