Wednesday, January 31, 2018

A Long Night of Doubt

I love this country.  I love the people who occupy it.  I love the dirt they walk on.  I love the ideal that America represents.  And, I still love the Reaganite view that America is a shiny city on the hill, offering hope for a better world.

There was only time my love of country trembled.  That was October 20th of 1973.  It was a Saturday and one of those rare nights that I took my wife out to dinner.  When we got home, there was breaking news that Attorney General Elliott Richardson had resigned. Coming in the midst of the Watergate scandal, that news was ominous, and I suspected more news would follow.  When I later heard that the Deputy Attorney General, William Ruckelshaus, had also resigned, I knew bad things were happening to the country I loved and broke out a bottle of Bushmills.  By the time, it was announced that the special prosecutor Archibald Cox had been fired, I probably had tears in my eyes.  Was America the Beautiful just another over-rated banana republic?  Did I fight for a banana republic?

Sometime in the wee hours and halfway through the Bushmills, I needed to get outside and took a walk, soon finding myself by the local lake, sitting on the ground.  While I'm sure my eyes were at least moist, I remember seriously debating whether it would be necessary to fight for this country again?  Surely, the Bushmills was talking, I  guess.

After sleeping it off and taking two aspirin, I sat in the morning sun and realized that America would survive Richard Nixon and that America was still worth fighting for.

America will not long tolerate any tin-horn Benito Mussolini-wannabe.

Image result for benito mussolini

Monday, January 29, 2018

Investing Fashion

In his 1958 book titled The Affluent Society, economist John Kenneth Galbraith popularized the expression "conventional wisdom," which describes the consensus opinion of the day.  He wrote extensively about how "wisdom" becomes "conventional" but not as much about how that consensus changes over time.

In the investing world, Benjamin Graham's classic Security Analysis in 19344 gave birth to the notion that only an extensive analysis of a company's financial statements, accounting and footnotes qualified a person to have an opinion on a particular stock.  He had charts and graphs to prove investors using his method outperformed those who didn't.

Recognizing that the vast majority of investors had neither the talent nor the time to conduct such painstaking analysis on every stock, mutual funds were born, which substantially outperformed the typical investor.  They had charts and graphs to prove it.

As the investing fashion evolved, then came "passive investing," which demonstrated that the average mutual fund did not perform as well as the stock market, as a whole.  While they could not demonstrate ALL mutual funds under-performed the market, they had charts and graphs to prove the AVERAGE mutual fund that actively managed their portfolio was not as good as an un-managed or passively managed index fund, which merely mirrors an index such as the S&P 500.

That conventional wisdom morphed index funds into exchange-traded-funds (ETFs), which had several advantages over mutual funds, especially on costs.  To nobody's surprise, they had charts and graphs to "prove" that cheap ETFs outperformed the average mutual fund.

Now, the conventional wisdom or fashion-of-the-day is that the active management used by regular mutual funds improves the performance of passively-managed ETFs.  And, they have charts and graphs to prove it.  Benjamin Graham must be smiling . . .

While I cannot predict hemlines or the next investing fashion, I can predict they will have impressive charts and graphs to prove . . . whatever!

Friday, January 26, 2018


When I took my first course in economics, I was lucky to sit between old high school buddies.  On my left was Bobby Brontosaur, while Ty Rannosaur sat on my right side.  We were taught that money was (1) a medium of exchange, (2) unit of account, and (3) a store of value.

Our professor never said that bitcoin was a medium of exchange, but it is!  Bitcoin can be used to buy all the heroin you want or pay a ransom for a loved one.

He never said that bitcoin was a unit of account, but it is!  You can measure the value of a kilo of heroin in terms of bitcoin.  Of course, the number of bitcoins is a moving target.

Likewise, he never said that bitcoin is a store of value, but it is!  Of course, that store of value may last only ten minutes before it soars or plummets.  Valium anybody??

While bitcoin has some loose relationship with our definition of money, I agree with my fellow dinosaurs that bitcoin is dangerous.  It is not because bitcoin can be confused with "money." Bitcoin may be a threat to our monetary system.

The amount of money in the country ("money supply") has a big impact on the economy.  An increase in money supply without an increase in products to buy will cause prices to rise.  That is the primary reason for the Federal Reserve Bank.  They control the supply of money in this country.

While supply of bitcoin is theoretically limited (trust me, they say), there is no limit on the number of crypto-currencies.  Nobody is even sure how many crypto-currencies are out there.  Experts quibble that there are at least 1,000 new crypto-currencies and may be as many as 1,500, but nobody is sure! During the Revolutionary War in the U.S., states were printing their own currencies.  Just imagine how confusing that was!  Too many currencies is a glue in the wheels of the economy.

True-believers argue that the stock market is worth $28 trillion, the government bond market is worth $20 trillion, and the gold market is $7 trillion.  That makes the $180 billion market for bitcoin too tiny and benign to pose any systemic risk.  Of course, that ignores the other crypto-currencies and, more importantly, it ignores the multiplying effect of futures contracts.  The market-backed securities market was also relatively tiny, when it nearly took down the United States economy in 2008/9.

While I suspect the associated  blockchain might be a real innovation, I am totally confident that additional currencies are not, especially any unregulated currency!  A common currency in Europe (the euro) has been a good thing for them.  Imagine each country reviving their old currencies again!  It would be crazy . . . my dino-buddies agree!

Terry Dactyl

Thursday, January 25, 2018

Tree-Huggers Legacy

Back in the 1970's, "pointy-head tree-huggers" began insisting that their investment dollars not fund "unethical" companies, e.g., defense firms or those who did business with South Africa.  They insisted on SRI or socially responsible investing.  Mutual funds were developed just for SRI investors.

That has now morphed into ESG investing, which stands for environmental, social, and governance.  Polluters are obviously unacceptable, but the target is also on those companies who produce or supply socially destructive products like cigarettes or racist websites.  More interestingly, they also target those companies with opaque accounting or governance.  Companies with only token oversight from their "lily-white" Boards or frequent governmental investigations are finding some investors will simply boycott them.  There are now numerous ESG mutual funds and even exchange-traded funds for ESG investors.

This style of investing began abroad and has grown much more slowly in this country.  A recent survey of ESG investors in the U.S. found that 82% of females and 90% of Millennials support ESG investing.

Once again, old white Anglo-Saxon protestant investment managers need to catch up . . .

Wednesday, January 24, 2018

No To Robo ?

"Robo-advisors" refers to canned software programs that claim to do your financial planning at a nominal cost.  That software does a decent job of retirement planning but a lousy job with the rest of the planning issues.  It has been especially popular among Millennials, who argue a real financial planners just takes your data and uses the same software anyway.

There is considerable consternation among real financial planners that they are being replaced by a computer.  The latest data suggests just the opposite.  Millennials are more likely to pay for a real financial planner than expected.  That is because they have learned:

Information is free but wisdom has value!
As a small boy, I remember my mother buying me a 20-volume set of the Encyclopedia Britannica.  I thought that was all the information in the known world and revered it for many years.  While I don't remember the cost, I recall it took her twelve months to pay if off.  Today, all that information and more is available free everyday on the internet.  Information is free indeed!

Wisdom is knowing what you don't know!

Millennials do have a few differences.  As "digital natives", only 23% of Millennials care if their planner is located in their geographic area.  They put more emphasis on experiences, over things.  Once they experience a 2008/9 global financial crisis as adults, they will have gained some wisdom!  As their responsibilities increase and their available time decreases, they will also learn:

Wisdom is knowing what you cannot do!

To my fellow Certified Financial Planner (TM) professionals, I would remind you of how frightened CPAs were with the introduction of TurboTax software.  They feared being replaced by software.  Today, there are more CPAs than ever before, and they are busier than ever before.

Millennials are less trusting of financial advisors than their parents were, and that is a good thing.  Once Millennials understand the fiduciary rule, they will come to real financial planners.  Millennials may be slow in getting to us, but they will come . . . 

Tuesday, January 23, 2018

Party On, Mohamed

Mohamed El-Erian was born in New York City in 1958, to an Egyptian father and French mother.  Educated at Cambridge and Oxford, he went on to manage the Harvard endowment fund, to be co-CEO of bond giant PIMCO, along with the legendary Bill Gross.  Today, he is Chief Economic Advisor the PIMCO parent company of Allianz.  He is also one of my favorite thinkers!

Yesterday, I attended his lecture entitled "Are we in a bubble?"  Before he began, he polled the crowd to see how the crowd would respond.  Two out of 3 attendees said:   No, the stock market is not in a bubble.

He went on to explain that the current melt-up in the stock market is because the Federal government just decreased corporate expenses significantly with a tax cut, leaving more profit for the company.  However, he pointed out there are three mistakes that especially worry him.

The first is a geopolitical mistake, mentioning North Korea in particular.  As wars consume vast quantities of money and material, (not to mention human lives), that is money and materials not available for other things.

The second is a market mistake, such as a new "flash crash".  As he was speaking at the ETF Conference, he was brave to mention that ETFs might cause such a market mistake.  (He did not mention bitcoin, but that is my worry.)

The third is an economic mistake.  While he gave high marks to the U.S. Federal Reserve for smoothly beginning a normalization of monetary policy (think:  higher interest rates), the thing that keeps him awake at night is the possibility of the four biggest central banks all raising rates at the same time and doing so too quickly.  That is a scary thought indeed!

After all that, he re-polled the audience and learned that now three out of four attendees thought:  No, there is no bubble in the stock market.  In other words, the more he identified his worries, the less worried the audience became.  Maybe, the ability to articulate an anxiety reduces the fear caused by  that anxiety?

Separate from all that, I confess to having great respect for him personally.  When he was co-CEO of PIMCO, his daughter wrote him a letter listing the 22 major events in her life that he had missed. He immediately resigned from PIMCO.

Lastly, he is famous for being a truly die-hard fan of the pathetic New York Jets of the NFL.  He hates the New England (think:  Boston) Patriots so much that he bets against them even though he knows he will lose.   Sure wish I could watch the Super Bowl with him . . . 

Thursday, January 18, 2018

A No-Confidence Vote? Nope!

The November report on international capital transfers was interesting.  Both foreign governments and foreign citizens decreased their holdings of Treasuries by $18.8 billion.  Some think that represents a no-confidence vote in the Trump Administration.  What do you think?  It tells me that foreigners believe the dollar will continue to weaken, and they don't want a low-yielding investment that will lose value (when the cheaper dollar no longer converts into as many euros or yen for repatriation). 

A decreasing demand for Treasury bonds will also help the Fed as they try to increase interest rates.  To continue selling so many Treasury bonds, we will see interest rates rise, to encourage buying.  Also, a cheaper dollar makes imports more expensive, which "imports inflation," which can be controlled with higher interest rates.

At the same time, foreigners increased their holdings of American equities by $12 billion in November and a record-breaking $48.6 billion over the three-month period.  So much for that no-confidence vote, huh?  It tells me that foreigners believe the increase in stock market values will more-than-offset the loss from the falling dollar.  That may be a vote of confidence, reflecting improving economies worldwide, not just the U.S. economy.

The Good Times are rolling!

Tuesday, January 16, 2018

2018 -- Good or Great ?

Bob Doll is the chief equity strategist at the giant investment firm of Nuveen.  He is generally bullish and has a good track record on his predictions, which I have studied for years.  Generally speaking, he expects the economy to be stronger than the stock market in 2018.  His ten predictions are:

1.  For the first time in a decade, real GDP in the U.S. rises 3% this year.
2.  Fewest number of countries in history will be in a recession this year.
3.  Unemployment will be the lowest in nearly 50 years, while wage growth will be strong.
4.  The difference between long-term and short-term continues to drop, as short-term rates rise faster than long-term rates.
5.  A 5% correction in the stock market is overdue.
6.  The S&P 500 will end the year at 2,800 -- up 7%
7.  Stocks will beat bonds for the seventh straight year, which hasn't happened in a century.
8.  Share buybacks will decrease, while corporate capital expenditures will increase.
9.  Telecom, information tech, and health care stocks will out-perform utilities, energy, & materials.
10. Republicans will lose the House in November and "further distance themselves from Trump."

Saturday, January 13, 2018

Getting Tiresome

It takes very little to convince Democrats that the President is racist. 
It takes even less for the Republicans to blame it all on the media.

The President's recent comment on which immigrants should be allowed was, in the words of Speaker Ryan, unfortunate and unhelpful.  My first thought is that Trump's alleged comment has given license to the media to grovel for viewers by repeating the curse word over-and-over again.  The repetitive media can now seem "edgy" with simply cursing.  As a veteran, I have heard and used every curse word many times.  It doesn't offend me.  But, it is just stupid and unseemly to repeat them over-and-over again just to appear edgy, regardless of any license given by the President.

My other thought is that, while I do suspect the President is bigoted,  I'm not convinced he is racist.  Prejudice extends to many forms of bigotry besides racism.  I could more easily be convinced he is bigoted about poor people, regardless of color, recalling that he questioned the Vice President's job qualification because he only made $200 thousand annually.  His rhetorical question might be recast as:  "Why do we need more people from poor countries?  People from rich countries like Norway are more likely to bring more skills that America needs."

Once an egocentric egomaniac, always an egocentric egomaniac . . .

Friday, January 12, 2018


Tradition links the past with the present and hints about the future, plus there is a certain serenity that comes with respecting tradition.

Like most people, I've attended countless Protestant and Catholic weddings, along with a good number of Jewish weddings, but I had never attended an Orthodox Jewish wedding until recently.  It was a large affair, with an estimated 350 people attending.  The actual wedding ceremony was longer than most and very structured.  Frankly, I could not understand much of it.  All men sat on one side, and all women sat on the opposite side.  Once the groom stomped a wine glass ceremoniously, it became quite a party.

There was a great deal of dancing at the party, except men and women did not dance together.  The women danced in a clockwise circular fashion, and the men danced in a counter-clockwise circular fashion.  There was very little drinking to justify so much laughter.  It was fellowship personified.  In fact, this wedding was the most joyous wedding I've ever attended.  It was also the longest.  After five hours, we left, while the party continued.

Conservative existentialists would view such a long, joyous event as absurd, because everybody is just going to die anyway.  Reform existentialists would view it as a pleasant way to spend time, while waiting for death.  Normal people would view it as an opportunity to be young and hopeful again.

In a word, Orthodox Jewish weddings are . . . joyous!  

Thursday, January 11, 2018

Hail To The (Bond) King

Jeff Gundlach is the founder of DoubleLine Capital in Los Angeles and is often called the Bond King.  He has just released his predictions for 2018.  In no particular order, they are:

1.  No recession on the one-year horizon.
2.  Unemployment will drop another 75 basis points, lower than 3.5% (hard to believe)
3.  The S&P will rise the first half of 2018 but end the year lower.
4.  Like stocks, the dollar will strengthen the first half of 2018 but then fall.
5.  Among other reasons, this makes commodities very attractive by mid-year.
6.  Stocks are more expensive in developed nations than emerging ones.
7.  "The high on bitcoin is in" -- stay away!
8.  Ten-year Treasury yields are about 2.54%, but won't hurt stocks until it hits 2.63%.
9.  Importantly, he predicts 10-year Treasuries will reach 6% by the next presidential election.

Monday, January 8, 2018

Non-Fake Analysis

For gluttons of honest analysis, my latest column for Inside Business lives here: 

Saturday, January 6, 2018

Hidden Nuggets

Each month, the Department of Labor issues their "Jobs Report" on the first Friday.  Most people just look at the number of jobs created and the rate of unemployment.  In the latest, for example, it was 148 thousand and 4.1% respectively.

Buried inside, there were other numbers of note.  First, there was the U-6 level of unemployment, which measures the people "only marginally attached to the labor force" -- mostly people who want full-time work but can find only part-time work.  Last month, it dropped to 8.1%, a huge improvement from the nearly 20% it reached in 2009.

Second, unemployment among blacks has dropped to only 6.8%.  While this is much higher than unemployment among whites, it is still the lowest since the Department of Labor began publishing this estimate in 1972.  Nothing will prevent summer riots any better than keeping this rate low.  Unfortunately, there is substantial research that indicates that black unemployment will begin rising before white unemployment does.

Third, Republicans closely follow the Labor Force Participation Rate (LFPR), which measures the percentage of population that either works or is looking for work.  Unquestionably, that percentage has deceased over the last twenty years for many reasons, including the increasing number of baby boomers who are retiring.  It should be about 70% but has stabilized about 62.7%.  The only demographic group with an increasing LFPR is women aged 25-54.  Does that reflect increasing opportunity for young women or decreasing usefulness of young men?  My feeling is that both are true.

There was an article in The Wall Street Journal a few years ago that 30-year-old women on Wall Street find men their age behave like the kids they used to babysit.  If true, why?  

Friday, January 5, 2018

Take This Job And Shove It

There was a minor earthquake yesterday in San Francisco.  It is NOT true that the earthquake was caused by the millions and millions of Millenials, who were rolling their eyes when they heard that Attorney General Jeff Sessions had given license to the U.S. Attorneys across the country to begin prosecuting marijuana cases again.  Generally speaking, Millenials have as little respect for pot laws, as Fox viewers have respect for the news media.  But, that's not important.

The investment perspective is always more important.  All U.S. marijuana companies immediately dropped, after his announcement.  The pot index or EFT (MJX) started the day at $36.84 but dropped to $34.19 and closed the day at $35.47.  You would think a stock would drop more than a mere 3.7% when the Attorney General unleashed the Justice Department on them?  The reason is that most publicly-traded marijuana companies are not inside the United States.  Canada and Australia are now dominating the U.S. in this sector.  Australia has even announced plans to make the export of medical marijuana a trade priority.

Those jobs are NOT coming home.

Thursday, January 4, 2018

Marathon Bulls

The bulls have been running on Wall Street for nine years.  They should be tired, but they apparently are not. 

Generally speaking, as long as profits continue to increase, the stock market should continue to increase.  Decreasing tax expense means increased profit (unless the money is allocated to other expenses like labor).  In addition, the global economic recovery continues, further increasing profit.

You'll recall that the stock market depends on three legs, i.e., economic, financial, and political.  The economic data, both here & abroad, continues to be strong.  The financial data continues to be strong.  The political leg is the weak one, but that doesn't seem to matter, at least not since the 2016 election.  The stock market is either ignoring the poisonous political atmosphere or is developing an immunity.  My take is that the economic and financial data are so strong that the bulls can run on two legs, at least for awhile -- until the 2018 election comes into focus.

I correctly predicted a Trump victory in 2016 would produce a sudden plunge but quick recovery.  It is still too early to make any predictions about the 2018 election, other than that the bulls will need to rest before then.  A 10% correction or drop in the stock market would be good for us in the long run!

Bring it on!  

Tuesday, January 2, 2018

Fake People, Not Fake News

Most Federal agencies are required to solicit feedback from the public before making any significant change in regulation.  When the Federal Communications Commission (FCC) was preparing to eliminate net-neutrality, they first solicited public opinion.  Afterwards, it was discovered that about a tenth of the opinions expressed were bogus.  Many people were surprised to learn they had written a letter.  Even dead people wrote letters to the FCC!  All of these fake letters opposed net-neutrality.

The Department of Labor is now soliciting opinions on the Fiduciary Rule, which would require financial advisors to act in the best interests of their clients for retirement accounts.  Again, fake letters are now showing up.  So far, 20 of the 345 letters audited by the Wall Street Journal are bogus.  All were opposed to the Fiduciary Rule.  The 20 alleged writers were surprised to learn that they wrote a letter on a subject they didn't understand.  How would you feel if your name had been signed to a letter you didn't write?

The question begged is:  who is doing this?

Since Democrats generally favor net-neutrality and the Fiduciary Rule, it would be convenient to suggest the Republicans are behind these fake letters, but that ignores the many foreign players.  Not even the "Area 51" wing-nuts would stoop to fraud, in order to win at all costs, would they?

What's the point of soliciting comments if they are fraudulent?  It is just another nail in the coffin of democracy.  If somebody would sign somebody else's name to a letter, why wouldn't they mail in absentee ballots?  These are NOT victimless crimes -- no more victimless than the Russians hacking our election.

All of us are the victims.