Correct Yourself

August 31st, 2015

Last week was a tough week for investors, given that the market dropped for six consecutive days. It was an even tougher week for financial advisors and investment managers who have been advising clients to keep a heavy allocation of stocks in their portfolios.

Advisors who are telling their clients to invest a greater percentage of their portfolios into stocks should be able to answer clients’ questions about why they are so optimistic that stock prices will continue to increase.Exp_2013_11_21_0

Investors, likewise, should ask why they are following that advice.  Investors need to be accountable for their future.  If their advisors are wrong, they will pay the price, not their advisors.

Answer These Questions

Given the state of the world economy – and stock markets throughout the world – many questions need to be answered.  Here are some of them:

Where is future growth going to come from? Don’t look to China, which may claim to be growing at 7% this year, but few believe it. Don’t look to the U.S., where baby boomers are retiring and millions of people in all age groups have stopped looking for work.

Read the rest of this entry »

Five Reasons Why Wenning Advice Is Worth More Than Buzzfeed

August 24th, 2015

You may have heard that Americans are now getting their news online, instead of reading it in newspapers.  They’re not.

Most of what appears online and is called “news” fits that classification only in the broadest sense of the word.  Instead of going online to read about the Iranian nuclear deal, the economic turmoil in China or continuing slow growth in the U.S., Americans are reading about the Kardasians, Caitlyn Jenner and ex-Subway pitchman Jared Fogle.FTSE

If you doubt the above, consider that NBCUniversal just announced it is investing $200 million in Buzzfeed, which now has a value of $1.5 billion.

Buzzfeed, as you’re probably aware, is a site that is notorious for its lists.  Today, for example, you can find “16 Sexts Every Twentysomething Actually Wants,” “40 Random Thoughts We’ve All Had The Night Before School” and “99 Names For B**bs” (Note: our standards are higher than Buzzfeed’s, but you can probably figure it out).

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China’s Fix Could Break Things

August 17th, 2015

Imagine if free markets were allowed to be free.

Of course, in today’s world, they’re not.  Central bankers and government agencies have taken control.  Not knowing what to do with it hasn’t stopped them. 

China is the latest case in point.  We recently suggested that investors worry about China, not about Greece, although for a tiny country Greece gives everyone plenty to worry about.  But China should be the center of everyone’s attention, given its attempt to fix its falling stock market and boost imports by devaluing the yuan.China

While it’s impossible to guess the intentions of China’s rulers – and they’re not about to share them – the 1.9% devaluation announced last week smacks of desperation.  China’s stock market has been swooning this summer and its exports are down by 8.3% (much larger than the expected 1.5% decrease), which is not good for future growth.

In addition, The Wall Street Journal noted, “Pockets of manufacturing have been especially hard hit, as reflected in sluggish electricity use and falling rail cargo. Especially scary is the prospect of deflation; producer prices were down 5.4% from a year ago.”

Read the rest of this entry »

Yellen’s Soliloquy: To Raise or Not to Raise

August 10th, 2015

To raise, or not to raise – that is the question:

Whether ’tis nobler in the mind to suffer

The barbs and insults of outraged pundits and journalists

Or to raise rates in spite of a sea of troubles

And by raising rates extend them. To stagnate, to grow —

No more (than 2%) – and by a flatlined economy to say we end

The headache, and the thousand natural shocks

The stock market is heir to.

We could go on imagining Fed Chair Janet Yellen in the role of Hamlet, another famous person who met with tragedy due to procrastination.  We could make note of “the law’s delay, the insolence of office, and the spurns that patient merit of th’ unworthy takes,” even if we don’t know what “spurns” Shakespeare was talking about when he wrote Hamlet.

We could go on, but “conscience does make cowards of us all,” so we’ll leave it at that and turn instead to last week’s comments by Dennis Lockhart, president of the Federal Reserve Bank of Atlanta.  Lockhart said “the economy is ready for the first increase in short-term interest rates in more than nine years and it would take a significant deterioration in the data to convince him not to move in September.” Yellen as Hamlet

The experts will tell you that anticipation of increasing rates is built into current stock prices, but if that’s the case, why did stock prices drop to their lowest levels since February after Lockhart’s remarks?  Maybe it was the disappointing earnings reports for the quarter, or the still-not-there employment numbers, but the most direct correlation appears to be with the fear of rising interest rates.

Keep in mind, too, that the statement didn’t come from the chairwoman.  Granted, Mr. Lockhart is a member of the Federal Open Market Committee, but he’s not Janet Yellen.  Perhaps the idea was to see what impact his comments would have so the Fed as a whole would still have the option to not raise rates in September.  Mr. Lockhart apparently drew the short straw at the last FOMC meeting.  Read the rest of this entry »

Maybe the Fed Is Just Lazy

August 3rd, 2015

Just last month we reported that the Federal Reserve Board’s policy statement was almost identical to its previous policy statement.  Now the Fed has issued another policy statement – and it’s almost identical to the last one.

Granted, there’s not much to say.  The economy has flatlined, the Fed has run out of policy tools and it’s mid-summer … a time when many people spend more time avoiding work than actually working.  But this is the Federal Reserve Board we’re talking about – the people who are in charge of our economy, since neither President Obama nor Congress want to do much about it.

So, for those of you who remember what a “carbon copy” is, the latest policy statement is a carbon copy of the last one.  Maybe we should just re-run our previous blog post. Yellen, Janet

“The most notable change,” as Goldman Sachs’ Chief Economist Jan Hatzius wrote, “was the addition of the word ‘some’ in the committee’s description of desired progress in the labor market.  Specifically, the June FOMC statement said that it will be appropriate to raise interest rates ‘when it has seen further improvement in the labor market’ (and is reasonably confident that inflation will move back to two percent).  Today’s statement said that rate hikes would be appropriate after ‘some further improvement in the labor market.’ ”

So “further” became “some further.”  Read the rest of this entry »

Today’s Economic News: Woe Is Me

July 27th, 2015

The summer weather and the media’s focus on positive economic news may have you feeling cheerier than usual these days.

Two words: “Bah, humbug.”  Or maybe, “Get real.”

Focus, for a minute, on the cloud, rather than the silver lining; recognize that evaporation has caused the glass to be less than half full (and more than half empty); see the bubble bursting, the interest rates rising and stock prices dropping.  In other words, get realistic about the economy.

In the Keynesian world, the more government spends, the more the economy is “stimulated.” In the real world, more spending means more debt, higher taxes, more regulation and GDP growth well below the historic norm. Chart 1

In the imaginary world, central bankers and government officials can keep the economy growing indefinitely and can boost asset prices to new records forever.  In the real world, asset prices are at artificially induced levels; reality will take hold when the Federal Reserve Board raises interest rates, when China’s stock market tanks (as it has begun to), when Greece is booted out of the Eurozone, or when Iran uses the $150 billion it receives from the lifting of sanctions to further its war against the U.S. and Israel.  Read the rest of this entry »

Worry About China, Not Greece

July 20th, 2015

When’s the last time markets reacted positively to anything happening in Greece?

Last week, just 10 days after Greek voters voted against a resolution that would have required stiffer austerity measures in return for a third Eurozone bailout, the Greek Parliament voted 229 to 64 with six abstentions in favor of harsher austerity measures than would have been required if voters approved the resolution.

As The Economist put it, “Grief, psychiatrists say, has many stages, from denial to acceptance; and Greece seems to have raced through them all.” Shanghai

So Greece needs psychiatric help.  That should have been clear years ago.  These are the folks who elected Alexis Tsipras of the wacky extreme-left Syriza Party as their prime minster.

Tsipras quickly found that his socialist machismo wasn’t very effective, given that his country needs billions of euros just to survive.  So maybe it’s not surprising that he and the Greek Parliament caved so quickly.

Not everyone was pleased. Fellow Syrizan Zoi Konstantopoulou, the parliamentary speaker, called it a “very black day for democracy in Europe.”  Since when does a socialist worry about democracy?

But enough about Greece.  Which country should we be worried about?  Read the rest of this entry »

Big Board Floored

July 13th, 2015

The Big Board is not so big anymore.

A decade ago, it accounted for 80% of stock trades.  Today, it accounts for 20%.  There are also far fewer publicly traded companies in the U.S. – 5,000+ today, compared with 8,000+ in the 1990s.  The NYSE lists about 2,800 of them.

To trade directly on the NYSE, you used to have to buy a “seat.”  In the 1990s, seats sold for as much as $4 million.  Today, you can buy a license to trade on the NYSE for $40,000.

Regardless, when “the leading stock exchange in the world“ shuts down, even for just a few hours, it’s big news.

The NYSE shut down for three-and-a-half hours on Wednesday, which was unprecedented.  Little information has been shared, but the NYSE has blamed the shutdown on a technical glitch.  Call us skeptical, but the odds of a computer glitch shutting down the NYSE, grounding United Continental Holdings planes and bringing down The Wall Street Journal’s website all on the same day are pretty small. Labor Force_1_0

Thanks to Edward Snowden and irresponsible practices by the U.S. Office of Personnel and Management, people who are not our friends now have access to a wealth of information about us.  We’d rather not think about what will happen if Chinese or Iranian hackers disrupt our electrical grid, but it’s something that should concern all of us.  Its impact not only on your investments, but on our national security, would be devastating.  Read the rest of this entry »

How to Retire Early – Part Two

July 6th, 2015

In part one of “How to Retire Early,” we focused on the need to reduce expenses and control debt.  Doing so can create the foundation for a retirement plan by making money available for investment.

What should happen next?  Here are a few suggestions:Retirement 4

Consider all sources of income.  Typically, retirement income comes from a combination of an employer pension, personal savings and Social Security income.  Compare what you are eligible to receive with what you will need.

If you have a shortfall, consider all of your options for making it up before you retire.  You may decide to work part-time.  It you have a marketable skill, you may even be able to develop a base of business that provides you with enough income to meet your needs without dipping into your retirement savings for a few years.  Or maybe you have space you can rent out to produce more income. Read the rest of this entry »

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 »