No More Good News, Please

Who doesn't like low gas prices at the pump?  Economists get positively giddy at the increased discretionary income for consumers, when they pay less at the pump.  But, enough already!  At some point, the long term damage exceeds the short term pleasure.  Take a look at this chart:

There has been a decisive breakout to the downside.  In other words, the past offers little or no guidance for the future.  We all know the reasons for this "brave new world."  First, demand increases has slowed due to improved car efficiency.  Second, there have been several major new oil fields, increasing supply.  Third and a big one, fracking in the U.S. has made us the world's greatest oil producer again, stripping OPEC of its power.  There was a time when the mere threat of a war in the Middle East would have driven up the price of oil.  Now, not even a good old-fashioned shooting war will help.  

Last week, OPEC had the opportunity to reduce supply but chose not to do so, because it would reduce their income.  OPEC is now impotent.  Saudi Arabia is no longer the "swing-producer."  The United States is!

But, the point is -- oil prices have become TOO low.  Houston and other cities are getting crushed.  Houston is the only major city in the country with an increasing foreclosure rate.  I know that pompous, blowhard Texans don't get much sympathy, but we will soon see huge write-offs in banks, which decreases their ability to lend to healthy industries.  Master Limited Partnerships (MLPs), which make their income from rent charged to move oil or gas thru their pipelines, have gotten crushed in the stock market, even though their income is unchanged.  Income investors have become overly frightened.  Major oil companies have been safe dividend producers for decades, but there is now legitimate worry that those dividends will be reduced.  The instability of oil prices is spilling over into the banking industry and the stock market.  As the damage spills into increased default rates for the many bonds issued by fracking companies, the "high-yield" bond market will get hurt even worse!

Non-serious oil watchers interpret the fall in oil prices as evidence that worldwide demand is falling, because worldwide economic growth is falling.  I believe the increased supply is far more relevant than any decreasing demand.

This is a time for the federal government to add to the National Petroleum Reserve, while prices are low, with the side benefit of stabilizing the dangerously low price of this important commodity.  Beyond that small, temporary effort, there is little any government can do.

The brokerage firm of Raymond James has a good track record predicting such things, and they just predicted oil prices have hit bottom.  I hope they are right!

There is too little pain at the pump . . . we need more pain!  It will be good for us!!

In A Time of Dudes

Yesterday, about thirty people gathered around a grave site in a remote section of Quantico National Cemetery, south of Washington, D.C.  Each drank one can of Bud Light beer and then scattered back to their individual lives.  It was a wry, fond tribute to an unknown American hero, Gregory Wright.  I suspect he would have liked it that way.

A Marine, a Seal, and a CIA operative - he was cut from the same clothe as Chris Kyle, the not-unknown American hero in the movie Sniper.  Unfortunately, Gregory died alone, lying on the ground in Iraq, protecting his men.  He lived in obscurity and died in obscurity and undoubtedly preferred it that way.

As I looked around the acres of tombstones, perched silently on the gently rolling grounds, I noticed most of the graves held veterans of WWII, of Korea, and of Vietnam.  There were surprisingly few since 9-11.  As wars have become more technological, fewer and fewer Americans actually fight for their country.  While I can see that is a good thing, because fewer American mothers will get that dreaded knock on the door.  I also see it with some sadness.  Americans are increasingly insulated from the horrors of war -- horrors that the rest of the world still feels.  Few families actually know the name of somebody who died in combat since 9-11, and even fewer are related to any of those fallen heroes.  Will that increasing insulation make us more warlike?  Listening to the current clamor for war makes me suspect it might be so.  Why not go to war . . . if you don't have a kid-at-risk?

It is good for the soul to respect and appreciate men like Gregory Wright.  Real men like he and Chris Kyle make America safer for all those "dudes," who have been taught to politely mouth "thank you for your service," albeit with no idea what that really means.

I cannot look at a Bud Light again without smiling and thinking of Gregory.  I know he would smile as well!

Whistling Past The Crime Scene

If it is hard to walk and chew gum at the same time, how difficult must it be to walk, chew gum, and whistle at the same time?

After the latest mass killing, the predictable Democratic response has been to put some control over gun availability.  That, of course, is correct.  The predictable Republican response has been that the hallowed Second Amendment guarantees the right of every American to own as many bazookas as they want, and that we should instead focus the discussion on improving mental health care.  That, of course, is also correct.  Now, mass killings have taken on a stronger third and even-more-complicated dimension - terrorism, either foreign and domestic.

Mass killings have become a Gordian knot, i.e., something so complicated that it cannot be solved by reason and patience.  In mythology, nobody could figure out how to untie the famous knot, until Alexander the Great pulled out his sword and severed it.  Problem solved.

Where is Alexander when we need him?  While he had no use for the niceties of democracy, maybe he could walk, chew gum, and whistle at the same time.

Welcome Back, Mr. Spock

The popular Executive Officer aboard the U.S.S. Enterprise in the classic Star Trek was Mr. Spock.  He was known for his faithful worship of logic - the more pure, the better.  I expect he sold all his stock holdings long ago and got out of the market.  It became too illogical for him in 2008.

There was a time when the stock market behaved logically.  Good economic news made the stock market more bullish, and bad economic news made the stock market more bearish.  Then, there was the Global Financial Crisis of 2008/9, when central banks began directing the economy.  Everything changed.

The market reasoned that the central bank, (the Fed) would decrease its financial support, when good economic news was received.  This increases uncertainty, which the stock market loathes.  So, we got into a pattern of reverse-logic, i.e., good news = less Fed support = more uncertainty = lower stock prices.

Yesterday, something remarkable happened.  The Department of Labor issued its monthly "jobs report," and it was considerably better than anyone expected.  In other words, it was good economic news.  However, instead of going down, futures rose immediately, and the stock market roared all day.

The Reason:  The Fed has been hinting very loudly that it will almost certainly raise interest rates this month, which reduced uncertainty.  The Fed was removed from the equation.  Once again:  good news = higher stock prices.

It is akin to watching a distant nephew who finally "got his act together" and behaved logically, for a change - a refreshing change.  Mr. Spock would be proud!  

Burying Seeds

For most people, the 2008/9 Global Financial Crisis was a bad dream.  For those in the investment business, it was a nightmare.  So many things went wrong.  Modern Portfolio Theory failed.  It was useless, and we were dangerously close to a systemic failure of the financial system, like 1929.

The Fed rose to the occasion by taking both unprecedented and repugnant measures, such as the bailout of Bear Stearns or of AIG.  It put the Fed in the business of deciding winners and losers, which nobody wanted -- least of all, the Fed.  To prevent this from ever happening again, language in the 2010 Dodd-Frank law will only permit loans to a minimum of five firms.  If only four firms are in trouble, they can all go out of business.  It takes five firms to survive.  There are other provisions to limit the powers of the Fed, such as limited collateral types and quality, such a loan term and other constraints.

It is often said that the seeds of the next crisis are buried in the ashes of the last one.

Do we really want to reduce the flexibility of the Fed, our last line of defense against depression and systemic collapse?  Sure, nobody wants the Fed or anybody else picking which companies survive and which that fail.  I applaud the objective . . . but it is not our first objective.

Our first objective during a crisis is to stop it, to prevent it from getting worse, which requires both imagination and flexibility.  Anything that threatens the first objective is nonsensical.  These restrictions on the Fed are nonsensical.  It is like saying the President of the United States cannot commit less than 100,000 troops into any given combat zone.

If we want to get vindictive (and we should), then we should change the law, so we can punish the decision-makers who put us into such a crisis as 2008/9.  We shouldn't execute an entire firm for the misdeeds of a few executives.

Yawning At The Yuan

The International Monetary Fund (IMF) has decided to include the Chinese currency (known as the Yuan) as the world's newest reserve currency.  In the short run, this should have a mild bullish effect on their currency and mild bearish effect on the euro.  In the long run, it has little economic significance.  However, it does have considerable political significance, especially inside China.  The Chinese people feel justifiably proud of their nation's arrival on the world's stage.

So, who cares?  Or, who cares if the Yuan is a reserve currency or not?  I don't!  I'm yawning.

Elevating the Chinese currency is more a reflection of change than a real change.  I'm far more concerned about their financial power and, increasingly, their military power.

It is far more significant that the amount of Chinese reserves of currencies of other nations -- foreign reserves -- is incredibly high.  China holds 31.25% of all foreign reserves held by ALL nations.  China's foreign reserves exceed those of the next five highest countries - combined.  For example, Japan is second at 10.53%.  Saudi Arabia is third at 5.8%.  The Eurozone is fourth at 2.15%, followed by England at 0.9%.  The United States of America, the world's most powerful nation, holds a mere 0.34% - one third of one percent - of the world's total foreign reserves.  The Eurozone, England, Japan, and the U.S. long enjoyed reserve currencies and were simply overwhelmed by the financial liquidity of China.

Another perspective is that, while no nation spends as much money on national defense as the U.S., our spending has increased a mere 0.4% over the last ten years.  China has increased their military spending a whopping 167% over that same time frame.  And, they are still sitting on 31.25% of the world's financial reserves!

It is far more important that China is still ramping up their military spending and have the financial muscle to ramp up their military spending even more . . . much more.  That doesn't change whether the Yuan is a reserve currency or not.

Advising New Advisors

Purportedly, it is an old mafia axiom that you should - keep your friends close and your enemies closer.  If true, doesn't that also mean that - your enemies are closer to you than your friends?

Over the decades, I've had clients who were older and younger than myself, although most have been older.  I've had both male and female clients, although most have been male.  I've had clients who were Republicans, Democrats, Libertarians, Anarchists, and even genuine Independents.  I've had clients who earned their money, that inherited their money, and that married their money.  I've had clients who were atheists, Protestants, Catholics, Jews, Muslims, Hindu, and even one Sikh in McLean.  But, the most difficult clients-of-all are . . . family.

Don't ask me why?  It just is!  Maybe, the better question is why do you keep a family member as a client?

It is never fun to fire a client.  Besides the minor loss in income, there is a real feeling of failure, because you really want to help every client.  While firing any client is difficult, it is even agonizing to fire a client who is also a family-member!  It is also more legally complicated.  A contractual relationship exists between an advisor and a client.  Firing a family-member-client may end the contractual relationship but does not change the family relationship, legally.  They are still in your family, just not in your book-of-business.

A family-member-client is like a tar-baby.  The more you do, the more stuck with them you are.

Hello, young advisors out there -- when asked to take a family member as a client -- RUN!

RUN AS FAST AS YOU CAN -- RUN AS FAR AS YOU CAN -- JUST RUN!

Investor Types

Some investors just want to make a profit and pay little attention to the number or the amount of risks taken.  They want to buy stocks and sell them quickly for a profit.  I call them "gunslingers."

Some investors just want a stable income and pay nominal attention to the value of their portfolio.  They accept a volatile portfolio value but not a volatile amount of income.  I call them "retirees."

Some investors have too much cash for FDIC guaranties and must expose some of the assets to the stock market.  They don't love profits as much as they fear losses.  I call them "depositors."

Some investors want "good" companies and then hold them "forever."  Because they don't sell, they pay little attention to taxes.  I call them "Buffett-babies."

Some investors want their portfolios diversified across various asset classes, which is re-balanced on a periodic basis.  They follow the textbooks.  I call them "theory-lovers."

Some investors want their portfolios diversified across various asset classes.  They believe re-balancing is over-rated and allocate some satellite portion of their portfolios to their strong convictions.  I call them "smart investors."

Some investors want "wholesome" companies that don't sell tobacco, alcohol, sugar, or other products that have hidden costs to society.  Called Socially Responsible Investing (SRI), doing good is as important to them as doing well.  Some advisors call them cry-babies.  I call them "conscientious."

Now, former Vice President Al Gore, of all people (?) is popularizing "sustainable investing."  It is different from the standard SRI.  He argues that the value of the stock must reflect the sustainable value of the product.  For example, sugar is instrumental to worldwide obesity.  At some points, governments will overcome the sugar-lobby and start taxing the product to pay for increased healthcare costs, thus driving down the value of sugar companies.  It is just a matter-of-time, they say.  Another example would be oil companies, who carry vast oil reserves on their books at market prices.  However, since that amount of oil will never actually be pumped out and sold, when fossil-fuels are obsolete, the value on the books is too high.  Normally, I would call all this "pollyanna-ish."

But, give the Nobel Peace Prize winner credit for this -- his investment firm has placed #2 in the U.S. over the last ten years!  I call that "impressive, very impressive, indeed!"

Life Imitating Ayn?

While the Bible remains the best-selling book in history, the second best-selling book has long been Atlas Shrugged by the late Ayn Rand, the iconoclastic mother of Libertarians.  The premise of her classic is that America's business leaders keep disappearing.  Conspiracy-lovers suspect the government is kidnapping them, swooping them away in black helicopters.  As it turns out, however, they have all fled to a secret hiding place, because they can no longer tolerate governmental control of every minute detail in their lives, especially in their businesses.

As much as I enjoyed the book when I read it some 50 years ago, I found the premise implausible, because the "government" is not competent enough to accomplish much of anything and certainly not anything as complicated and far-flung as a mass kidnapping.

However, something is happening in China!  Many of their top business leaders have recently disappeared.  Some have reappeared but without explanation.  Some may have disappeared forever.  Li Hejun was chairman of energy giant Hanergy who unexpectedly failed to show up at the annual meeting in May, causing the stock to drop a stunning 47% in one hour.  The CEO of China Aircraft has also disappeared.  There is some speculation that CEOs are disappearing due to the government's anti-corruption drive.  Maybe . . .

But, many of the disappearances have been among bankers and brokers.  For example, the CEOs of both the China Minsheng Bank and Guotai Junan International have also disappeared.  There is some speculation that the central government is seeking to punish anybody who may have contributed to the Shanghai market crash in August.  Maybe . . .

The Chinese do not hesitate when executing "wrong-doers."  But, there have been no reports of CEOs being executed, just disappearing.  At least, not yet . . .

Would you like to be the CEO of a Chinese company?

Thankful For . . .

I am thankful that jobless claims fell by 12,000.

I am thankful that durable goods production rose 3%.

I am thankful that worker pay rose 0.4%.

I am thankful that worker spending rose 0.1%.

I am thankful that the savings rate rose to 5.6%.

I am thankful I don't have to merely guess about the economy.

I am thankful for the numbers that guide my forecasts.

I am thankful for all the geeks who produce those numbers.

I am thankful for the freedom of information, so I can have numbers.

I am thankful my parents gave birth to me in America.

I am both thankful and proud to be an American!

Waiting For Janet Godot

Sixty-six years ago, Samuel Beckett wrote the great existential play Waiting For Godot.  In that play, several travelers are waiting for a very long time for the arrival of Godot.  The story focuses on the interrelationships while they wait . . . and wait.  Things get increasingly testy between them as they wait . . . and wait.

Waiting for the Fed to raise interest rates has become like Waiting for Godot.  To be clear, there is no economic reason for the Fed to raise interest rates.  Their dual mandates are to control both inflation and unemployment.  Guess what:  Neither is a problem, and neither needs to be controlled!  Neither inflation nor unemployment provides an excuse to raise interest rates.

However, the cry to "normalize" interest rates has become deafening, by both conservatives and investors.  The conservatives argue that the Fed has taken extraordinary steps to make a Democratic president look good.  I believe, however, that the Fed has taken extraordinary steps in monetary policy to prop up the economy while fiscal policy remains impotent, and I believe they would have done the same if a Republican was president.  Regardless, this complaint has become increasingly shrill.

Investors also want interest rates to rise because they are tired of living under the guillotine.  If the Fed raises rates rapidly, the stock market is clearly over-valued.  If the Fed raises rates slowly, the stock market is probably fairly-valued.  This uncertainty is a serious worry for investors.  After the Fed declined to raise rates in September, the stock market fell, because the market was expecting the level of uncertainty to decrease, but that didn't happen.  If the Fed doesn't raise rates during its meeting next month, I expect stocks to fall again.

Madam Chair, please raise our interest rates once and then go away!

The Market That Didn't Bark

Just as Sherlock Holmes attached significance to a dog that didn't bark, the stock market is usually telling us something when it doesn't over-react.

Most pundits expected the stock market would be down sharply on Monday morning following the Friday terrorist attacks in Paris.  However, by Sunday night, the futures market has actually turned slightly positive.

When the market opened on Monday morning, it started sinking, not badly but sinking.  About eleven o'clock, there were rumors that the French air attack on Syria had destroyed oil facilities, and the price of oil started rising.  This focused the market's attention that reducing the oil glut would be good for most every economy.  Stocks began to soar.

So, why didn't the stock market tank?  First, it would have been more likely to tank, if the terrorist attack had occurred on U.S. soil, instead of foreign soil.  Second, since the attack was on Friday, investors had a two-day weekend to adjust.  Third, and I hate to say it, we have become more sanguine about terrorism.  There have been attacks, and the economy labored on.  There will be more terrorist attacks, and the economy will continue to labor on.  The economic cost of terrorist attacks is not as great as the emotional costs.

20/20 Hindsight

Was Saddam Hussein a bad man?  Absolutely!  Did he deserve to die?  Absolutely, as slowly and painfully as possible!  Is the world a better place without such a monster in it?  I'm not so sure anymore.

But, how could the world not be a better place without such a sick, degenerate monster in it?  If his presence in this world kept other even-worse monsters out of it, the world would be better off with Saddam in it.

Iraq sits on the great fault line between Sunni Muslims and Shiite Muslims.  Although a Sunni, Saddam didn't care about the tribal warfare inside his religion.  He executed both with equal indifference.  Iraq existed as a terrible police-state, where the people had no rights and lived in constant fear of the authorities.

Was Iraq a bad place to live?  Absolutely!  But, isn't it even a worse place now, with open warfare between the Sunni ISIS and everybody else?  Saddam shot lots of people.  But at least, he didn't behead them.  The Iraqi people have suffered greatly, since the execution of Saddam

His death opened the gates of Hell for all the demons of Islam to escape.

I keep remembering General Colin Powell's mention of the "Bed, Bath & Beyond" rule:  If you break it, you own it.  Last night, France made another payment on that purchase.  I am so sorry for them!

Peeking Into 2016

While I cannot recall ever hearing anybody say that the legendary investment bank of Goldman Sachs was kind or charitable or even decent, I have often heard people say respectful things about the research department of Goldman Sachs.  Therefore, I try to follow their research closely.  Here are some of their latest expectations:

1.  World GDP growth will pickup from 3.2% this year to 3.6% next year.  GDP growth in the U.S. will slow slightly from 2.4% this year to 2.3% next year.  China will continue to slow from 6.9% this year to 6.4% next year.  The Euro-zone will increase from 1.6% to 1.8%, while England will increase from 2.7% to a respectable 3.0%.

2,  The S&P 500 will be flat over the next twelve months, while European stocks will rise 6.7% and Japan could rise a whopping 12.3%.

3.  Interest rates (10-year) will rise 80 basis points (0.8%) over the next twelve months in both the U.S. and Europe.  (I don't believe this.)

4.  The dollar will continue to rise, compared to the euro or pound.  They expect the euro to breach parity and "break the dollar."  Specifically, they expect the euro to drop another 13.6% to only 95 cents.  The pound could drop another 5.2%.

5.  Commodities will continue to get crushed by the lack of global growth.  Gold will drop another 8.1% over the next twelve months.  (Don't you know Goldman hates to say avoid gold?)  Copper is sometimes called "Dr. Copper" because of its track record in predicting the global economy, and it is expected to drop another 12.4% over the same period.

Interestingly, Goldman believes now is a good time for Buy-Write funds, which are mutual funds that own stocks for growth but also sell call options against those stocks for income.  All I can add is -- Amen!

Forgiving and Forgetting

How long does it take to "let bygones be bygones?"  Years ago, I heard a minister preach that you should forgive and forget when you are young.  When you are older, the forgetting gets easier but the forgiving gets harder.  That may be true.

In January of 1970, I was discharged from the Army and returned to Old Dominion University to finish up my first degree.  With my short hair and rippling muscles (yes, long ago!), I walked into the Student Center for the first time.  On the left side was a long table with 7-8 students sitting around it, when one tall, lanky student with dirty long hair and ratty jeans pointed at me and said "Look, a baby-killer!"  The students at his table laughed and turned away from me.  Being tightly-disciplined, I ignored his comment and let him live.  But, I still remember him, even after 45 years, especially on Veteran's Day.

I have no idea whatever happened to him.  Even after letting my hair grow and becoming a lazy college student myself, I rarely returned to the Student Center before I graduated.  But, if the Good Lord would let me pistol-whip one person on this planet, I would have to track down that hippie-punk.  Perhaps, I could then let bygones be bygones and put it behind me.

Until then, I will just remember those veterans I was honored to serve with . . .

Fear Not The Reaper

One of the few affable economists in this nation is the highly-regarded Jeremy Siegel of Wharton.  Last week, he made two comments that, at first, appear incongruent.  First, he said the latest jobs report practically assures an interest rate increase when the Fed meets next month.  Second, he predicted the Dow could reach 20,000 next year, up 13.5% from yesterday's close.

In other ways, he is predicting a nice healthy bull market despite a rising interest rate environment.  Many investors find the two conditions incongruent.  That's why the market almost always drops when the Fed threatens to raise rates.  However, history teaches us something different.  The stock market normally rises until the third or fourth interest rate increase -- but only if the market thinks more increases are not imminent.

Even if last week's job report does push the Fed to raise rates in December, instead of March, there is no reason to suspect the Fed will launch a long series of rate increases.  Given the lack of inflation and given the relatively weak world economy, I still expect the Fed to raise rates once, just to silence its many critics.  The American economy can easily afford a minor interest rate increase, even though large multinational export companies will be hurt somewhat from the strengthening dollar, which results from an interest rate increase.  (The bigger problem is below everybody's radar screen --  with $18 TRILLION in debt already, a quarter point increase in interest costs will blow a $45 billion hole in our Federal budget and add to our national debt -- go slow, Janet!)

Dr. Siegel teaches us that an interest rate increase by the Fed is not to be feared.  He's right!

Little Problems

I have problems.  You have problems.  Everyone has problems.  But, not everyone has the same problems.

Once a year, the Financial Planning Association teams up with the National Council of Mayors to host pro bono financial planning in twenty cities across the country, by CERTIFIED FINANCIAL PLANNER (TM) Professionals, for those people who cannot afford such individualized attention.  Today was that day.

One person was a 64-year-old taxi driver, still without Obamacare, but with surgery for bladder cancer this coming Friday.  He doesn't have the luxury of waiting for Medicare.  I hate it when I have to recommend bankruptcy.  Another was a 62-year-old women whose husband deserted her AFTER he punched out her front teeth.  Even without those teeth, she somehow found a low-paying job and survived by maxing-out her credit cards.  Now, she has a job -- but way too much credit card debt.  And, to top it off, she also has problems with the IRS now.  I steered her into credit counselling and explained the OIC process or offers in compromise with the IRS.  She seemed grateful for my advice, or maybe she was just grateful that somebody actually listened to her problems.  I don't know.

Yes, I have problems . . . little problems.  I hope your problems are also little.  I wish nobody had big problems.  But, they do!

When I sit down for Thanksgiving Dinner this year, I will indeed be very thankful for my problems . . . my little problems!

Short Term Myopia

The most watched economic data point has always been the monthly "jobs report" published by the Department of Labor on the first Friday of each month.  Today, that report was just GREAT!

Last month, 271 thousand jobs were created, far more than the 182 thousand that was expected.  The previous two months were revised higher by another 12 thousand jobs.  The traditional unemployment rate dropped to only 5%.  The more important U-6 level of unemployment, which includes those forced to take part-time jobs when they want full-time jobs, fell to 9.8%, the lowest in seven years.

The reason this data point is so closely watched is that it is thought to be the best "real-time" indicator of the economy.  In an economy where almost 70% of all spending is spending by consumers, the health of the consumer is critical, and that depends on the health of the job market.  Therefore, a good report should push the stock market higher, right?

In a normal economy, that would be true.  When the report was released this morning, Dow futures quickly dropped 40 points - why?  Because good news is bad news, when the stock market is obsessing over the Fed raising interest rates.  The Fed's job is to depress both unemployment and inflation.  If unemployment goes too low, many economists believe that inflation will result.  The Fed must balance both priorities.

It is time for the Fed to "normalize" interest rates and begin raising them.  Unfortunately, that pushes the dollar up, which hurts our exports and our biggest industrial companies.  That short-term reality scares the market.  I expect the market will drop dramatically if the Fed does raise rates next month, before rebounding.  Logic only prevails in the long-term, not the short-term.

A great jobs report should be enjoyed, not feared.  So . . . ENJOY!

Investing Religions

There are religions in the investing world.  One example is the Warren Buffett religion, that preaches you should buy what you like and keep it forever.  Another is the Benjamin Graham religion, that preaches you should not buy anything until you have exhaustively studied all financial information, all public information, and maybe a little private information as well.  Another religion is Modern Portfolio Theory, which argues investment returns can be maximized while investment risks are minimized -- the Holy Grail -- if your portfolio is carefully diversified across many asset classes, not just many stocks.  Then, there is also the passive religion, which preaches you should just buy an index of the stock market, like the S&P 500, and then go to sleep, trusting the resilient American economy to make you healthy in the long run.

I'm attending a conference on another investing religion, called "chartism" or technical analysis, which preaches you can base your investment decisions on graphs alone.  Some adherents don't even know the names or businesses of the stocks they buy and sell.  They simply stare into computer screens,searching for graphs that appear to relate to each other.  This seems to have some magical hold on the adherents.  After all, sunspots do impact the stock market, you know!

Like all religions, it does have some merit.  Graphically illustrating the relationship between stock market and interest rates or price-earnings ratios, for example, is quite helpful in teaching concepts but should have no magical hold over investors.

Like all religions, it also has fanatics. Deep in the confines of my suspicious mind, I sometimes wonder if chartists would even know when to use the restroom without a graph to tell them.  Frankly, I find that making decisions by looking at a chart is merely a crutch for lazy investors.

Where Are The Lions?

Why did Romans spend good Roman money to attend contests between lions and Christians?  Wasn't the victor pretty obvious?  What was the contest anyway?

Why do I spend good American money to attend football games between the Dallas Cowboys and anybody else?  The participants are always changing.  I don't know and have never met any of the players, and I have no loyalty to any individual team member.  Does the contest even matter?

Jerry Seinfeld likens professional sports to "cheering for laundry," as the players wearing the uniforms are always changing.  Only the laundry remains.  It is not like cheering for your high school football team, where you probably knew some of the players.

Psychology-types suggest it is a collective "Walter Mitty" wish to somehow live vicariously through the "heroic" players, experiencing both emotional highs and emotional lows.  Sociology-types suggest it reflects a longing for more heroes in a disappointingly complex society.  Maybe, it is just an excuse for guys/dudes to get together, drink beer, eat chicken wings and act stupid?  Maybe, sports allows us to feel like we are part of something bigger than ourselves?  Maybe, sports satisfies some primeval male-bonding need?  I remember reading somewhere that women talk face-to-face, while men talk shoulder-to-shoulder.  Between cheers, I guess?  A more existential view is that, as long as we are experiencing emotional highs and lows, we must still be alive.

An economist might look at professional sports as just one part of the vast entertainment industry.  It is no more noble than a soap opera.  But, it does contribute to GDP, employing thousands of non-players, and paying billions in salaries.  Maybe, it even lessens negative social costs, such as juvenile delinquency, by keeping kids off the street.

Of course, the only thing that really matters is whether the Cowboys win or lose!

Rolling Crisis?

When I moved from the barely-growing mid-Atlantic to rapidly-growing Texas in the late 1970's, I was grateful that at least some part of the country was growing.  A few years later, Texas experienced an oil crash.  I remember seeing bumper stickers that read:  Please God, let there be one more oil boom, and I promise not to waste it next time.

As Texas slipped into recession, the northeast started booming. A few years later, Texas enjoyed a housing boom caused by the Garn-St Germain bill, that allowed Savings and Loan Associations to do almost anything.  Of course, that caused lending excesses, which then caused a real estate recession scandal  in Texas, while California began enjoying a boom in technology.  Economists reasoned that the United States is so huge that some sort of recession is always "rolling around" the country and called them rolling recessions.

Some pundits humorously suggested there is only one recession, and it just keeps rolling around the country.

In 1997, Asia entered into a serious recession.  However, their recession became a financial crisis and pulled most of the developed world into a recession.  In 2008/9, the United States endured a financial crisis that pulled the global economy into a recession.  In 2010/11, Europe endured a financial crisis and almost pulled the global economy back into recession.  (While we didn't go back into recession, our stock markets certainly suffered.)

Today, there is concern that Asia is slipping back into recession and possibly another financial crisis.  The Shanghai Stock Market collapse sure smells like a financial crisis, at least to the nose of a financial economist.

I wonder if those now-older pundits would humorously suggest there is only one financial crisis, and it just keeps rolling around the world.

Thank You, John !

Almost every family has some goofy, old aunt or uncle who always complains "the end is near, and we're all going to die."  Wall Street is like that, especially about all things political.  When the sky is not falling, it is like Sherlock Holmes' dog that didn't bark.  The lack of an expected response can be very telling.

Did you know the Federal debt ceiling has to be raised next week?  Did you know that the Federal budget expires December 11th?  Did you know the Federal Highway spending ends in two days?   Now, what could possibly go wrong?

Yet, Wall Street is not over-reacting.  Uncertainty increases bearishness, but Wall Street is not particularly bearish.  (In fact, October has been kind to the bulls.)

The Fix is in!  Wall Street is not over-reacting to this uncertainty, because it is not uncertain.

My expectation is that John Boehner is now free of his radical Republicans and can cut a deal with Democrats.  What a refreshing change!  His expected response would be to delay, blaming it on the Democrats, instead of his own right-wing extremists.  He is above partisan dictates and can now be a statesman!  He can even c-o-m-p-r-o-m-i-s-e . . .

Finally!

All this tells me the market has already factored in a deal.  Therefore, I don't expect a bullish response when the deal is announced.

Obama Is A Failure

But, so was Ronald Reagan, George H.W. Bush, Bill Clinton, and George W. Bush.  All promised to "do something" about the loudness of TV commercials.  That has been the most common complaint to the Federal Communications Commission since 1980, averaging over twenty thousand complaints each year.

At least Obama "did something" and got Congress to pass the Commercial Advertisement Loudness Mitigation Act (CALM).  In 2013, commercials were supposed to become less loud.  Did you even notice?  I didn't think so.

The burden of compliance is on TV broadcasters and cable providers.  They have purchased equipment to insure that average commercial loudness is no greater than the programming.  Quickly, the advertisers found a way around this by introducing a few seconds of silence at the beginning and end of commercials, keeping the average acceptable but changing peak loudness even more abruptly, still making viewers look for the remote.  Now, there are arguments about excluding the increased bass during the commercials.  The battle has temporarily shifted from the legislators, who are claiming they "did something," to regulators, who are being over-whelmed with technicians and lawyers.  The battle will eventually have to return to the legislators.

If the President of the United States is the most powerful man on the planet, why are they impotent against the advertising business?  Because the advertising business is the most powerful business on the planet!  That business is powerful enough to convince people they should eat unhealthy food.  It is powerful enough to convince people that credit card debt is good.  It is even powerful enough to make people vote against their own best interest.  It has no moral compass.

And, it is more powerful than five different Presidents of the United States of America!

Shelter In A Storm ?

For those of us who worry about a global economic slowdown, there is one sector of our U.S. economy that should remain largely immune, and that is homebuilding.  First, relatively small amounts of inventory have been added since the Great Recession, while population has increased.  With demand for housing rising faster than the supply of housing, it is not surprising that rents are rising faster than the rate of inflation, especially among Millennials.  This has made builders quite optimistic, with the Builders Sentiment Index reaching it's highest level in ten years, since October of 2005.  With that confidence, they have been building and building, especially multifamily.  The third quarter of 2015 was 13.1% higher than Q3 of last year.

The faster inflation of rent for Millennials and the record-low mortgage rates should continue to pull them into home-buying.  Of course, having watched their parents or friends' parents lose their homes in foreclosure, a great many Millennials have been slower than past generations to "put down roots" and buy homes.  Interest rates are not going to get lower, and houses are not going to get cheaper.  The Millennials have some catching-up to do, and that will be good for the country, regardless of the rest of the world!

Quarterly Column

My latest column for Inside Business lives at:

http://insidebiz.com/news/paying-globalization-third-quarter