How To Retire Early – Part One

June 29th, 2015

How would you like to retire early?  Maybe 62 is a good age or maybe you’d like to retire at 60 or even 55.

But unless you’ve won the lottery, have a government pension, or are the favorite niece or nephew of a rich uncle, you may find it difficult to achieve your goal.  If can still be done, though.  You have two options: cut your expenses or increase your retirement savings.  Better yet, do both.Retirement 1

More specifically, you should be able to take that job and shove it at an age earlier than 65 if you do the following:

Cut back on your expenses.  Even people who think they’re living frugally usually aren’t.  How often do you dine out?  Do you stop for coffee on your way to work?  What do you spend on hair stylists, clothing, manicures and pedicures?  Do you do your own landscaping and mow your own lawn?

Non-essential expenses add up.  Review everything you spend and make a cost-benefit analysis.  Determine whether the convenience and pleasure you derive from your expenses is worth the investment.  Maybe Two-Buck Chuck is no substitute for your favorite Côtes du Rhône, but would you rather drink good wine or retire early?  You may not be able to do both.  Read the rest of this entry »

What Yellen Should Have Said

June 22nd, 2015

The question reporters should be asking now is, what did the Federal Reserve Board’s Open Market Committee do for two days last week?

The statement it issued based on its meeting is a rehash of its last statement, which itself was not worth repeating.  Check the link from The Wall Street Journal, which you can use to compare the two most recent statements (as well as others), and you’ll see that the Fed mailed it in this time.

Yellen

These folks are managing our economy.  The fate of the world is in their hands.  And the best they can do is come up with an update to a previous statement.  No wonder the economy has practically flatlined throughout the current “recovery.”

It’s worth adding, though, that the Fed’s Seinfeld approach of having meetings about nothing may be better for the economy and for the American taxpayer than the previous chair’s pronouncements about Operation Twist and unlimited QE programs.

The latest Fed statement starts with this: “Information received since the Federal Open Market Committee met in January suggests that economic growth has moderated somewhat.”  Really?  What does “has moderated somewhat” mean?  And where is the “information” received from?  NSA wiretaps?  Drones?  Ben Bernanke’s blog?

Read the rest of this entry »

Central Bankers: Masters of the Universe

June 15th, 2015

Earlier this month, along with our usual dire observations about an economy that has come unhinged, I noted that the world was not coming to an end.  On closer inspection, I may have been wrong on that one.

One sign that all is not right in the world of investing is the increasing volatility.  Volatility is not a good thing for investors seeking to limit their risk and markets recently have been as spiked as Jonestown Kool-Aid.  The results could be nearly as disastrous. Volatility

As the chart shows, currency, oil and interest rates have been up, down and all around.  Bonds, too, have been volatile, and price shifts have been taking place with increasing frequency.

It makes me uncomfortable when I see government bonds flash crashing along with currencies of developed markets with enormous debt levels.  The Swiss National Bank’s unpegged its currency and, if Japan keeps burning yens, China is likely to unpeg its currency. When that happens, it isn’t going to be fun.

Why is this happening?  Because central bankers have become the masters of the universe.  Make that Masters of the Universe.

As Zerohedge notes, “For the last few years, valuations in more and more markets seem to have stopped following traditional relationships and instead followed global QE.  Likewise in meetings with investors, we have been struck by how little time anyone spends discussing fundamentals these days, and how much revolves around central banks.  Record-high proportions of investors think fixed income is expensive and think equities are expensive.  A growing number of property market participants seem to think real estate is expensive. And yet almost all have had to remain long, as each of these markets has rallied.  Could it be that central bank liquidity has forced investors to be the same way round more so than previously, and that this is making markets prone to sudden corrections?”  Read the rest of this entry »

Economic Schizophrenia

June 8th, 2015

Schizophrenia is “a long-term mental disorder of a type involving a breakdown in the relation between thought, emotion, and behavior, leading to faulty perception, inappropriate actions and feelings, withdrawal from reality and personal relationships into fantasy and delusion, and a sense of mental fragmentation.”Personal Income

In general use it is referred to as “a mentality or approach characterized by inconsistent or contradictory elements.”  It is also often used to refer to someone with a split personality.

It is a truly severe mental disorder that is difficult to treat.  And it seems to be a perfect description of today’s economy.

Thursday: Don’t Raise Rates This Year

As a recent example, consider last week’s announcement by the International Monetary Fund (IMF) that it was lowering its growth estimate for the U.S. economy from 3.1% to 2.5%.  Both estimates are well below the 3.3% annual growth rate that was the norm before the financial crisis, but even 2.5% is average the average we’ve seen throughout the Obama presidency. Read the rest of this entry »

Stock Market Continues to Set Records, But Why?

June 1st, 2015

Let’s take a simple quiz and answer the following multiple choice question.

The stock market is hitting new highs because:

  1. Corporate earnings are at an all-time high.
  2. The economy is recovering.
  3. The market is being manipulated by the Federal Reserve Board.
  4. Investors lack common sense.

Corporate earnings are supposed to drive stock prices.  That used to be true, before the market was made dysfunctional by Fed mingling, high-frequency trading, overbearing regulations and other factors.  It’s not true anymore.  At least not now. S&P 500

The stock market has been setting records, even though S&P company earnings declined 13% in the first quarter of 2015.  That follows a 14% declined in the fourth quarter of 2014.  Do you see a trend here?

As our friend Charlie Bilello of Pension Partners, LLC pointed out on Contra Corner, six out of the ten major S&P 500 sectors showed year-over-year declines, including consumer sectors, which were supposed to have benefited most from a decline in gas prices.

Read the rest of this entry »

Habitat for Inhumanity

May 25th, 2015

The idea was logical enough.

Reduce interest rates, making housing more affordable, which would produce a recovery in the housing market.  The housing market was at the heart of the financial crisis, so bringing the housing market back to health would, presumably, bring the economy back to health.

That conclusion was sound, too.  Housing is a leading economic indicator, so a recovering housing market should mean a recovering economy.

But in economics, as in life, things don’t always go as planned.  The housing market still hasn’t recovered.  And, while low interest rates may have given housing prices a boost, they have not increased home ownership.Home Ownership

In addition, government programs have only made matters worse, while costing taxpayers a bundle.

As Lance Roberts noted on his Street Talk blog, “trillions of dollars have been directly focused at the housing markets including HAMP, HARP, mortgage write-downs, delayed foreclosures, government backed settlements of ‘fraud-closure’ issues, debt forgiveness and direct buying of mortgage bonds by the Fed to drive refinancing and purchase rates lower.”

Yet, as the chart shows, the net result has been that the home ownership rate has dropped to where it was in 1980.

Why did government help” fail would-be homeowners?  Read the rest of this entry »

Bet You Can’t Count to a Quadrillion

May 18th, 2015

When someone uses “quadrillion” in a headline, you know you’re in for a bit of an alarmist rant. We’re talking 1,000,000,000,000,000, which, stated another way, is a thousand million million.  Or a million billion.  Or a thousand trillion.

Stated in dollars, that’s more than the debt racked up by the federal government since President Obama took office.  Way more.  It’s even way more than the Federal Reserve Board spent buying bonds when it was in QE mode. Chart 1

So when Bill Holter of Global Research wrote an article with the headline, “Derivatives are a $1 Quadrillion ‘Ticking Time Bomb,’ ” it caught our attention.

So did the series of charts he included, which showed movements in the government bond market that were double-black-diamond steep, even without moguls.

We’re talking government bonds here, not junk bonds, not commodities, not emerging market stocks.  Government bonds are Nebraska – flat and predictable.  During volatile times, they’re the bunny slope, not a double-black diamond.

So what’s up with the volatility?

Read the rest of this entry »

Brady Plot Puts U.S. Economy on Verge of Deflation

May 11th, 2015

The Federal Reserve Board – which may be the smartest deliberative body on the face of this earth – bought more than $3.5 trillion in bonds in an effort to raise the inflation rate to 2%.

It failed.  In fact, the inflation rate is lower now than it was before the bond buying began.RED CARPET AT THE MET COSTUME INSTITUTE GALA 2011

Why that is so now seems pretty obvious.  It’s Tom Brady’s fault.  We don’t know that for a fact, of course.  How can we prove it?  But, as attorney Tom Wells might put it, it’s “more probable than not.”

The hunky quarterback of The New England Patriots likely involved his wife, former supermodel Gisele Bündchen, since she’s retired now and has nothing better to do.

To again borrow the words of Wells, Brady was “at least generally aware” of the Federal Reserve Board’s attempts to increase the rate of inflation to 2% … and so he set out to thwart that attempt.  (We’re not sure how being “generally aware” differs from being “aware,” or why it needs to be modified by “at least,” but it sounds pretty ominous.)

Read the rest of this entry »

How Low Can You Go?

May 5th, 2015

The weather has done it again.

The U.S. Bureau of Labor Statistics last week reported annualized growth of a piddling 0.2% for the first quarter of 2015.  The culprit, of course, is not bad policy, but bad weather, if you believe the Federal Reserve Board.

Last year the economy would have boomed during the first quarter, no doubt, if not for the “polar vortex,” but instead it shrunk by more than 2% (experts use the oxymoron “negative growth”).  The same people who believe that will likely believe that the U.S. economy would have boomed during the first quarter of 2015 if not for the dreadful winter.

At least no one’s using the term “polar vortex” to describe the non-stop snowfall that hit much of America this past winter.  And this year’s first quarter growth is multiples better than last year’s first quarter mini-recession.

Winter may be over, but the economy remains cooled.  The Fed is likely hoping for monsoons, tidal waves and earthquakes over the next few quarters to rationalize yet more non-growth in an economy that falls short of Fed projections.  Per the chart below, the Fed has been overly optimistic about economic growth for each of the past four years – and that streak is likely to continue this year, given first quarter performance. Fed Growth Predictions

Fed predictions for the future continue to be rose-colored, but not as rosy as they were previously, based on the Fed policy statement issued last week.

“Federal Reserve policy makers said some of the headwinds holding back the U.S. will probably fade and give way to ‘moderate’ growth,” Bloomberg reported.  Maybe the Fed considers 0.3% annualized growth to be “moderate,” since it would be a 50% improvement over the first quarter.

Read the rest of this entry »

Is This Any Way to Run a Country?

April 27th, 2015

For as long as any of us has been alive, America has had a better way.

Our free market economy, complemented by the freedoms documented in our Bill of Rights, have combined to make America the envy of the world.  Our economic strength has also translated into an ability to spread freedom in other parts of the world.  Based on the strength of our principles, our economy, our people and our leadership, America won the Cold War without firing a shot.

But what’s happening today? Obama

Growth is taking place at a glacial place, debt is out of control, incomes are down and unemployment has been chronically high.

“Compared with the average postwar recovery, the economy in the past six years has created 12.1 million fewer jobs and $6,175 less income on average for every man, woman and child in the country,” former U.S. Senator Phil Gramm wrote last week in The Wall Street Journal.  “Had this recovery been as strong as previous postwar recoveries, some 1.6 million more Americans would have been lifted out of poverty and middle-income families would have a stunning $11,629 more annual income. At the present rate of growth in per capita GDP, it will take another 31 years for this recovery to match the per capita income growth already achieved at this point in previous postwar recoveries.” Read the rest of this entry »