Tuesday, December 31, 2019

It Really Should Be a Happy New Year!

First, forget about resolutions. A year ago I posted this article that provides insight on what you should be doing, not just at the beginning of the year, but all year long.

10 Life-Changing New Year's Habits

Other reasons to celebrate, especially if you live in the United States.

Democrats peddle doom, but the middle class never had it so good
These days when you listen to the gloom of the media and many of the presidential candidates you have to wonder what country these Debbie Downers are talking about.

Former Vice President Joe Biden recently declared “the middle class is getting crushed … and the working class has no way up.”

Sen. Bernie Sanders stews that President Trump’s policies have brought “handouts for billionaires and hunger for the poor.”

Mayor Pete Buttigieg claims that many working families are struggling so much financially they don’t have enough income to be able to “afford a two-bedroom apartment.”

The Washington Post says that Americans are awash in debt that they can’t repay.

Time out for a dose of reality. If things are so bad, how is it that a new poll from CNN — hardly a network friendly to Mr. Trump, finds three of four Americans rate the economy as pretty good or really good.

We have become so rich as a nation that even most poor families can buy dolls and baseball bats and $100 Nike basketball shoes for the kids, and cellphones that have more computing power than every computer used to put a man on the moon.

It is nonsense to say the poor and the middle class are worse off than 20 or 30 or 50 years ago. Read more...

Here are some facts about the American economy:
  • Jobs have grown for 106 consecutive months, the longest streak on record.
  • At 121 months, this is the longest bull market in American history.
  • The unemployment rate has been at 4 percent or less for 16 consecutive months, the longest such streak in 50 years.
  • Inequality remains a crucial problem, but wages are now growing the fastest among the lowest-wage industries, thanks to state-by-state increases in the minimum wage and the effects of low unemployment.
  • The University of Michigan’s consumer-sentiment index, which peaked at 112 in 1999, has hovered above 90 for more than four years, something that hasn’t happened since the 1990s.
  • Latino unemployment has fallen to its lowest rate on record.
  • Black unemployment, too, has fallen to its lowest rate on record, and, as the investor and Bloomberg columnist Conor Sen points out, the unemployment rate for black teenagers, which peaked at 48.9 percent in 2010, has plunged to yet another record low in 2019.
There is no recession, not yet, but it always pays to be prepared, something I've been preaching all along. 

Monday, December 30, 2019

U.S. Economy Better than Ever

We're being told on a daily basis by Democratic candidates how bad things are, how the middle class is disappearing, how capitalism has failed, and we should embrace socialism. 

But that is not what's really happening. 

From the Washington Times:
2019 was a very good year, despite a dysfunctional Congress. A few weeks ago, a friend said she had noticed that clothing was getting less and less expensive and, in fact, many items seemed to be getting less expensive...
In the United States, there are more jobs than workers. Wages for all groups are rising faster than prices. What is particularly remarkable — and a very good sign — is that wages for the lowest income and least skilled are rising faster than other groups...
Medical advances are accelerating, with people not only surviving from many ailments that would have killed them a few years ago, but living relatively normal lives after serious cancers, heart operations and accidents. Recovering quicker and better after a medical problem is a cost reduction in the price of being ill. Serious medical scientists at leading schools now believe that we are likely to be able to reverse aging in as little as the next two decades — so hang on if you can...
The table below shows how little time you need to work, in contrast to 50 years ago, to buy the same stuff or much greater varieties of the same stuff. (In 1970, the average wage was $3.22/hour; today it is about $25/hour.)...
The real wealth and well-being of the vast majority of Americans have risen faster for the past three years than almost any time in history. The grumpy old nay-sayers are obviously wrong — pay them no attention and count your blessings.

Quotes of the Day

From Justin Haskins at FoxNews and Stopping Socialism:
If you asked our foreign enemies to come up with a plan to destroy the American economy and plunge our country into another Great Depression, they couldn’t come up with anything that would do the job as well as the Green New Deal.
Read more.

From Derrick Wlodarz at betanews:
So what has censorship in the modern age for the Facebooks and Twitters of the world devolved into? Siloed decision making by secretive "boards" that have limited diversification of background and worldview, all pushing ever-changing directives out to technical teams which must implement these wishes into algorithms for their respective platforms
Yes, at a 10k foot view, that's the most common protocol for how censorship is implemented as a matter of policy for the tech giants. If this shadowy process doesn't raise an eyebrow, it darn well should.

Worst of the Decade: Celebrity Freak-Outs:
“One of the things I stopped doing is do not read the news at night because I was waking up in the middle of the night from nightmares of just screaming. I had one dream....I was in a boardroom. There was a long table, and it was just the guy who’s in the Oval Office right now sitting there, and I walked in, and I was screaming, screaming, don’t you care about the next gen....I was going crazy at him and screaming and yelling, and that was 2016. I woke up in a sweat and I went, ‘Oh, my God I’ve gone insane and I have to stop reading the news at night.’” - Julianna Margulies

Saturday, December 28, 2019

Markets Hit Record Highs: Now What?

So, how did the markets do on Friday (Dec 27, 2019)?

Well, the Dow was up about 23.87 points (0.08%) to 28,645.26. The S&P 500 was unchanged at 3,240.02, but it still managed to lock down a fifth straight week of gains. The Nasdaq slipped 0.17% to 9,006.62. All three averages hit new intraday highs in yesterday's session.

The S&P 500 is set to break a historic record. Right now, it's gained 29.3% this year. If it can achieve the 29.6% (or better) mark, it will be the best year - ever. The last time it hit that benchmark was in 1997.

So now what? If you're invested in equities, do you sell? Or do you continue to hold? Or if you're not invested, do you buy? If you think the answer is to just buy and hold, you're in the wrong place. My philosophy is buy, hold, and sell. See my article Beware Your Broker to get started. The last bear market was a 57% decline and took 6 years to break even. I can't handle that for my retirement, can you?

So we will sell, when market conditions tell us to. The best method for most investors is to follow the trend. This doesn't mean you'll buy at the exact market low, or sell at the exact market high, but you'll catch most of the uptrends this way.

And there are two ways to look at trend.

1. When evaluating the trend change, you must remember the definition of a trend and objectively read price action to ensure what you are seeing meets the criteria. An uptrend is a series of higher lows in price followed by higher highs. A downtrend is lower highs followed by lower lows. Be careful not to look at every high and low. The trick is to be able to identify the impulse and corrective movements in the markets. The starts and ends of those movements are the highs and lows you want to use.

Looking at the trend change from 2007 into 2008’s bear market, prices were making higher lows and highs on the weekly chart until late 2007. The first indication of a new downtrend confirmation came by the end of Nov 2007. It would have been OK to exit the market at that point, or at least take 50 percent off the table. Once price made a lower low in January 2008, the bearish trend was confirmed. At this point, long positions should have been exited by now and shorts entered.

2. With a moving average, the daily variations in the market are smoothed out and it is easier to spot trends. During that same period from 2007 into 2008, you can see how the 50 and 200 day moving average changed, providing a valid reason to sell in late 2007.  Note when the crossover occurred when the red line crossed below the blue line in November 2007.

There is never any reason to hold through a bear market. As the bear market begins to lose strength and changes trend again (average about 15 months), then you'll see the same signs, but in reverse, telling you to get back in. 

Wednesday, December 25, 2019

A Christmas Gift for U.S. Taxpayers: Government Waste

Absurd things the U.S. government spends money on. Your money on. And we're more than $23,000,000,000,000 in debt.
  • The NIH and NSF are spending $1.2 million to study online dating habits
  • The State Department is spending $15.825 million on free college for international students
  • USAID is spending $20 million to teach Lao to Laotians.
  • The State Department is spending $2 million to improve TV programming in Moldov
  • The U.S. gave the Asia Foundation, which is "committed to improving lives across Asia" about $17 million. And $16.7 for international fisheries commissions.
  • The National Science Foundation spent $103,777 to teach social scientists how to apply for grants. 
  • The Pentagon sent $2,7 million in surplus military gear to police in Thetford Township, Michigan, population 7,000. 
  • The National Science Foundation spend $650,000 to see if STEM majors benefit from a college program based on social justice

The Federal Government also wasted American's tax dollars as it: 
  • Attempted to increase trust between Tunisian political parties and citizens: $2 million
  • Converted an abondoned mental hospital into DHS HQ: $2.2 billion
  • Supported "Green Growth" in Peru: $10 million
  • Fixed vehicles in New York City falsely claimed Hurricane Sandy damaged: $5.3 million
  • Increased the capacity of the Pakistani film instrustry: $100,000
  • Paid out billions from Medicare in improper payments: $48 billion
  • Taught English and IT skills at Madrassas: $150,000
  • Studied frog mating calls in Panama: $466,991
  • Paid for Goggle Scholar search in Hawaii: $51 million

The list goes on and on...

Tuesday, December 24, 2019

Interesting Reads

Recalling the Battle of the Bulge
Seventy-five years ago, at the Battle of the Bulge (fought from Dec. 16, 1944, to Jan. 25, 1945), the United States suffered more casualties than in any other battle in its history. Some 19,000 Americans were killed, 47,500 wounded and 23,000 reported missing.

Stock Picking is Hard. Deciding What Kind of Investor You Are is the First Step
For new investors, the universe of investing can feel a little like the ancient terracentric paradigm. Daily stock prices are quoted. Big movers are highlighted on television. But why stocks are moving remains mysterious.

Government Mandates and Crummy Dishwashers
American dishwashers used to work. They were wonderful labor-saving devices. They kept our kitchens cleaner. They sanitized the dishes, helping to stop cross-contamination and generally improving health over the iffy process of handwashing. …Then one day they just stopped doing the work. What happened?

In a remarkable essay last week titled, “We’re Getting a Clearer Picture of the Climate Future — and It’s Not as Bad as It Once Looked,” David Wallace-Wells of New York Magazine wrote, “the climate news might be better than you thought. It’s certainly better than I’ve thought.” The essay was remarkable because Wells, a self-described “alarmist,” is also the author of The Uninhabitable Earth, which describes an apocalyptic vision of the future, dominated by “elements of climate chaos.”

In this article, the author ranks a subset of the CCC [Dividend Champions] stocks and present the 10 top-ranked stocks for consideration. He uses a ranking system derived from David Van Knapp's quality scoring system, which employs five widely used quality indicators from independent sources and assigns 0-5 points to each quality indicator, for a maximum of 25 points.

Sunday, December 22, 2019

The Week Ahead; Dividend Update

Investors are due for a light period of action with Christmas landing right smack in the middle of the week. The markets close at 1:00 p.m on December 24 before taking a day off on Christmas. Despite the holiday vibe, intriguing economic reports will come in this week on new home sales and durable goods, although the earnings calendar and corporate events schedule are both bare.

Across the Pacific, the latest update on China trade data could be interesting, while Chinese, Japanese and South Korean leaders are gathering in southern China to work on a potential free trade deal. Finally, even if you don't believe in Santa Claus, you can believe in the Santa Clause rally. The S&P 500 Index has posted an average gain of 1.3% during the final five trading days of the year and the first two tradings days of the new year over the last 70 years. 

However, markets in general are overvalued based on the Shiller PE Ratio (chart below), but are no where like it was during the dot.com boom in 1999, so markets can go higher. This is not predictive of any market turn, but is based on average inflation-adjusted earnings from the previous 10 years. 

Dividend Update

There are no projected dividend changes this week due to the holiday week so let's take a quick look at the dividend yield leaders heading into 2020. 

Some of the highest yielding stocks on the Dow Jones Industrial Index are Exxon Mobil (NYSE:XOM) at 5.02%, Dow (NYSE:DOW) at 5.14% and IBM (NYSE:IBM) at 4.82%. 

On the S&P 500 Index, yield leaders include Duke Energy (NYSE:DUK) at 4.20%, People's United Financial (NASDAQ:PBCT) at 4.19% and Valero (NYSE:VLO) at 3.81%. 

On the Nasdaq 100, Kraft Heinz (NASDAQ:KHC) at 5.02%, Gilead Sciences (NASDAQ:GILD) at 4.29% and Western Digital ((NASDAQ:WDC) at 3.40% are at the top the list.

Before investing in individual stocks for dividends, please see Dividend Safety and Using Dividends to Improve Returns.

I generally look for dividend paying ETFs (and many are now paying dividends monthly, instead of quarterly) for the diversification, though I've been know to own individual stocks also.

Friday, December 20, 2019

The Santa Clause Rally

While spending an interesting week in an advanced futures trading class, we noticed an uptrend in the market (indexes).  The markets frequently rally at this time of year, or the so-called Santa Clause Rally. This week was no different.

U.S. stocks notched another record setting day, as the Santa Claus rally continues. It was more mixed internationally in equity markets. U.S. Treasury yields fell slightly, but the Dollar Index was higher, courtesy of a larger drop in European yields and continued uncertainty surrounding Brexit. Gold and oil were lower. Personal Income topped estimates with Personal Spending matching expectations. University of Michigan Consumer Sentiment hit a one and a half year high. Nike posted upbeat quarterly results, but disappointing margins pressured shares of the athletic and apparel maker, while shares CarMax fell after results fell short of estimates. For the week, the major indexes advanced solidly led by the Nasdaq’s 2.2% gain.

State Tax Changes as of Jan 1, 2020

Thirty-four states have major taxes changes taking place on Jan 1, 2020.

You can view the details here:

State Tax Changes as of January 1, 2020

Sunday, December 15, 2019

U.S. News & World Report Recommendations: Here's My Take

In a recent article U.S. News and World Report recommended 11 stocks that pay "great" dividends.

Here's my take. The whole purpose of this exercise is to illustrate that while a lot of people are making recommendations, only you can do the research and exercise due diligence before investing your own money. My recommendation if you're looking for yield is to search for an ETF that offers decent yield, and can spread the risk among dozens of companies. While you might get a little less yield, you get less risk.

Altria Group (MO)
Current Yield: 6.7%
Besides investing in cigarette brands, its PE is twice the sector average, earning are not growing and its dividend payout ratio is high. Sales and earnings growth is anemic. I would avoid.

Macherich Co. (MAC)
Current Yield: 11%
This is a REIT that invests in malls. That for me says no. There are better REITS out there.

Macy's (M)
Current Yield: 9.9%
At one time, Barron's recommended Macy's when it sold for $35 per share. It now sells for $15. The company has no sales or earnings growth, so there is a reason for the high yield. Unless you want to take the risk of a turn around play, I'd avoid this stock.

Helmerich & Payne (HP)
Current Yield: 7.4%
This is an energy firm that provides drilling rigs to larger firms. The rig count is down about 20% over the last couple of years, so I don't see a lot of growth. Why am I worried about growth? Without growth, dividends can't keep up. While I'd do more research, I do have some energy in my portfolio, but mostly pipelines and delivery companies. Tread with caution.

Williams Companies (WMB)
Current Yield: 6.9%
Another energy company, but one that operates natural gas and oil services in the processing and transportation area. This might be a good contrarian play, but their payout ratio is over 100%, so there is risk here.

Iron Mountain (IRM)
Current Yield: 7.6%
This company started out as a document storage company and has moved into information management and security. It stock price is fairly stable and it has been growing dividends. Probably one of the magazine's better recommendations.

L Brands (LB)
Current Yield: 6.7%
A specialty retailer, which includes Victoria's Secret, Bath & Body Works, White Barn and others. Probably a better play in the retail sector, with a low payout ratio. I still am leery of the retail space, but this might be a good investment if you are knowledgeable about retail.

Invesco Ltd. (IVZ)
Current Yield: 7.5%
This firm offers ETFs. Its share price is down about 50%. A turnaround play? Why not check out their ETFs instead.

CenturyLink (CTL)
Current Yield: 7.1%
A telecom company who has been growing through acquisitions, so the company has a lot of debt. If you're interested in telecom, you might check out AT&T, Disney, or Verizon. These have lower dividends yields but might be better choices.

Saturday, December 14, 2019

Most Americans Do Not Trust the News Media

Most Americans Do Not Trust the News Media
A poll by MSN.com. While not statistically valid (the sample was not selected according to survey principles), it is interested that 65 percent out of more than 600,000 responses say the mainstream news reports false or misleading information. 

Asked differently, How much do you trust the news media? 58% out of 250,000 people said not much or not at all. 

Friday, December 13, 2019

Retails Sales Disappoint

Retail sales rose 0.2% in November, below the consensus of 0.5%. Vehicle and gas station sales accounted for most it, up 0.5% and 0.7%, respectively. Excluding these two categories, retail sales were flat.

Part of the disappointing performance was likely due to seasonality. The late Thanksgiving holiday this year left six fewer days in the holiday shopping season than last year. Several retail categories posted notable declines, including apparel, sporting good and hobby stores, and health and personal care stores. Restaurant sales fell for the second straight month and by the most in a year. Those were offset mostly by gains in electronics and online shopping. Measures of discretionary retail sales and its core picked up 0.2% and 0.3%, respectively, both below their historical means.

On a y/y trend basis, retail sales were up 3.5%, which is better than the pace early this year, but worse than the average in 2018. Discretionary retail sales y/y growth and its core have also improved over the course of this year, and show consumer resilience and underlying strength, despite heightened economic policy uncertainty overall.

CEO confidence continues to slump
The CEO Economic Outlook Index from the Business Roundtable fell another 2.5 points in Q4 to 76.7, its lowest level in three years. It was the seventh straight decline in CEO confidence, weighed down by trade policy uncertainty, the global growth slowdown, and the contraction in U.S. manufacturing. It’s worth noting that the survey was taken well ahead of the Congressional approval of USMCA and today’s announcement of an imminent phase-one U.S.-China trade deal. Both have the potential to lift business confidence.

CEOs project a modest uptick in sales growth ahead, but both capex and hiring are expected to continue to moderate. CEOs project 2.1% real GDP growth in 2020.

Business inventories up
Business inventories rose 0.2% in October, its first increase in three months, and matching the consensus. But business sales ticked down 0.1%. As a result, the inventory-to-sales ratio edged up slightly to 1.40, its highest level since November 2016. The increase was most pronounced at the wholesale level, where inventories are highly correlated with imports and trade tensions have led to inventory accumulation ahead of anticipated tariffs.

Import prices rise slightly on fuel
Import prices rebounded 0.2% in November, matching its biggest gain since March, and in line with the consensus. Fuel prices rose 2.6%, the most in six months, but nonfuel prices slipped 0.1%. The decline was concentrated in capital goods and food prices, each falling 0.3%.
On a y/y basis, import prices were off 1.3%, falling for the eighth straight month, but the deflationary momentum diminished somewhat, as fuel prices rose. It also reflected a slower pace of appreciation of the U.S. dollar.

Thursday, December 12, 2019

Trump Says Trade Deal Close; Market Jumps

SPY Chart by TradingView. The SPY jumped about 2.5 points on the announcement at 8:35 a.m. via Twitter. The chart here is dynamic and will change as time goes on.

Wednesday, December 11, 2019

Dividend Safety

I don't normally invest in individual companies -- though I will make exceptions. I'm retired so my days of high-growth investing are mostly over; having said that, I still want some growth in my portfolio. But I want income, and besides bonds, which are pretty boring, I like dividends. 

 But if you're investing for dividends and you're investing in a company, you must insure dividend sustainability. When a company reduces or suspends its dividend, the normal result is the stock will tank, erasing all your gains and creating a loss. 

(This is why I'll invest in an ETF that focuses on dividends, especially if they pay out monthly, which individual companies don't do. This spreads the risk around).

The most important factor is a company’s payout ratio. This is the percentage of net income a company pays its shareholders as dividends. The lower the payout ratio, the safer the dividend payment.

The second factor is the company’s debt-to-equity ratio. The more debt a company has, the harder it is to run a business. This includes paying a dividend.

The third factor is free cash flow. This is the cash leftover after expenses.

When any of these factors flashes red, it means a company’s dividend is in trouble.

Warren Buffett, one of the greatest investors of all time, must have overlooked this when he bought a 27% stake in Kraft Heinz (KHC) in 2015.

Not long after, Kraft’s sales flatlined. Earnings rose slightly, but this came from cutting costs, not growing sales.

Nevertheless, Kraft kept raising its dividend—until it couldn’t.

In February 2019, the company slashed its dividend 36%. The news pushed Kraft off a cliff. Shares plummeted 30% in a single afternoon, dropping from $49 a share to $31. It still hasn't recovered.

Let's take Kellogg (K) as another example. It currently sells for about $66 per share and has a dividend yield of 3.42 percent, which is nothing to right home about anyway, unless it was a growth company, which it is not.

 It hasn't cut its dividend yet, but it doesn't pass the small test for sustainability, in my opinion.

First off, Kellogg’s payout ratio is 106%. That’s bad. It means the company pays $1.06 in dividends for every $1 in profits.

Even worse, this is “normal” for the company. Its average payout ratio for the last five years is 107%.

Meanwhile, Kellogg has a lot of debt. Its long-term debt-to-equity ratio is 281%. And its free cash flow has sunk an average of 6% per year over the last five years.

These are warning signs. Pay attention, please. 

Tuesday, December 10, 2019

Investing Advice and the Four Most Dangerous Words in the English Language

I took Chris Haroun's finance course at Udemy and found him fun to watch. Here, he provides some insight to investing. Owning stock is like owning a business. Investing is long-term. Day trading is not a sustainable business model.

Monday, December 9, 2019

What's Holding You Back? You Are

The end of 2019 nears. This is always a good time of year to review your goals and plans and update them for the next year.

It's also a good time to review the basic principals for sound financial planning and maintaining your financial freedom -- and if you've not gained financial freedom yet, continue with your striving for that goal. It's a life changer.

So what has been holding you back? Still living paycheck to paycheck? Or do you have too much debt and maybe having difficulty paying it down? Here are some of the most common ways people are subconsciously (or even consciously) sabotaging their own financial well-being.

1. You don't follow a budget

Following a budget is important for anyone, regardless of their net worth. Without one, you might do more spending than saving. That could lead to debt and it will certainly hamper your ability to prepare for your future.

Study this article on How Do I Create A Budget. Then do it. 

2. You don't set clear financial goals

Most people aren't likely to save just for the sake of saving, but they're more willing to do so when they have a clear idea of what that money is going to get them. You probably have some financial goals even if you haven't sat down and thought about them before. Maybe you want to buy a home or a new car, take a vacation, or retire by a certain age.

Think about what kind of money each of these goals will take and start budgeting for them. You might find that with a little diligence, you don't need to be a millionaire in order to achieve many of the things that you want to do. Although if becoming a millionaire is one of your goals, you can start planning for it too by trying some of the other tips listed here.

3. You're carrying a lot of debt

Nearly everyone carries some debt at some point in their lives, but large amounts of debt can cripple your ability to save for your future or improve your lifestyle. It can be the number-one wealth-buster. Taking steps to pay down your debt now will free up more cash you can put toward your other financial goals. Consider reducing your spending and putting extra money toward your debt. Use tax refunds and year-end bonuses too. Refinancing might help you score a lower interest rate.

There are two effective ways to pay off your debt. Pick the one that works for you. I used the second one to pay off all my debt and became debt free.
  1. Prioritize your debts with the highest interest rate first. Make the minimum payment on all your debts and then throw all your extra cash at this one until it's paid off, then move onto the next one and keep doing this until you're debt-free.
  2. Prioritize your debts by the smallest balance due first. Make the minimum payment on all your debts and then throw all your extra cash at this one until it's paid off, then move onto the next one and keep doing this until you're debt-free. 
4. You don't have an emergency fund

An emergency fund may not seem like a key to becoming wealthy, but it's a cornerstone of your financial security. Your emergency fund covers unplanned expenses like a job loss, medical emergency, or insurance claim, so that you don't have to take on debt when a financial emergency arises. A single financial emergency that you're unprepared for can take weeks, months or even years to recover from, all the while you're not able to put any extra money toward saving for your future.

An emergency fund should contain at least three months of living expenses. Six months is better if you want an extra cushion. If you have high-deductible health insurance, make sure your emergency fund contains at least enough to cover this deductible in case of a medical emergency.

If you don't have one, start with an initial goal of $2,400.

5. You don't invest

Some people shy away from investing because they see it as risky, and there is definitely an element of risk to it. But these people often overlook the guaranteed loss of money if you keep it in a savings account. Inflation drives up living costs over time, which means your dollars have less buying power every year. Yes, savings accounts do offer interest, but the national average is just 0.07% APY. Inflation averages about 3% per year. When you invest, you can earn at least 7% or 8% annual rate of return, depending on how you allocate that money.

Another barrier that keeps people from investing is a lack of knowledge. But today, there are robo-advisors that you can use even if you don't know anything about investing. You could also employ a professional to help you choose your investments and manage your money effectively.

6. You live beyond your means

A lot of people try to live like millionaires even when they aren't millionaires themselves. But the truth is, most people with a seven-figure net worth aren't that different from the rest of us. They're not out driving fancy sports cars and yachting between their multiple private islands. They still have a job and they still have a budget that they stick to.

Our media is always trying to get us interested in the latest and greatest thing, but it's important to be realistic about how these items are really going to impact your life. Don't buy things just because you think it'll impress others or make you feel rich. There's always going to be another thing you want and that cycle will never end if you give in to it. Instead of trying to look rich, focus on actually becoming rich by saving and planning appropriately for your long-term financial goals.

7. You don't expect to become wealthy

It doesn't sound like it would make much of a difference, but if you don't expect to become wealthy, you could be setting yourself up to fail. You might be less likely to try investing or start your own business because you just assume you can't make it work. It's true that some people have an easier road to wealth than others, but people from all types of backgrounds have become wealthy and you can too if you're determined enough.

8. Other tips for financial well-being:
  • Automate your savings
  • Be on the same page as your significant other
  • Invest in yourself. Have a philosophy and educate yourself. Continuously
  • Take steps to minimize your taxes
  • Develop a second (or third) income stream

Friday, December 6, 2019

Weekend Reads

Quantum Economics

Today’s economists may think that’s [inductive reasoning] what they are doing, but they often aren’t. They begin with models that purport to include all the important variables, then fit facts into the model. When the facts don’t fit, they look for new ones, never considering that the model itself may be flawed.

Furthermore, as I have shown time and time again, they assume away reality in order to construct models that are in “equilibrium” with themselves. This is supposed to give us insight into the reality that has been assumed away. 

Comparing Capital Gains Tax Proposals by 2020 Presidential Candidates

In less than two months, voters will cast their choice in the Iowa caucus to begin the process of selecting the next Democratic presidential candidate. The candidates currently in the top 3 polling positions—former Vice President Joe Biden, Senator Elizabeth Warren (D-MA), and Senator Bernie Sanders (I-VT)—have all proposed sweeping changes to the tax code, especially the taxation of capital gains and dividends.

Class-Warfare Taxation, Government Spending, and Economic Growth

Arthur Okun was a well-known left-of-center economist last century. He taught at Yale, was Chairman of the Council of Economic Advisors for President Lyndon Johnson, and also did a stint at Brookings.

In today’s column, I’m not going to blame him for any of LBJ’s mistakes (being a big spender, creating Medicare and Medicaid).

Instead, I’m going to praise Okun for his honesty. Is his book, Equality and Efficiency: The Big Trade Off, he openly acknowledged that higher taxes and bigger government – policies he often favored – hindered economic performance.

More Americans Want Bigger Government, But Not Socialism

In September and October, Gallup conducted in-depth surveys on Americans’ views on the role government should play in our lives. The result was that most Americans believe the government should do more to solve problems and make our lives better. In short, most Americans want bigger government.

The problem is, they don’t want higher taxes to pay for it. And for now, at least, a majority doesn’t believe socialism is the answer. There is a lot of interesting information to be gleaned from the latest slew of Gallup polls released in November.

Job Numbers Higher, Unemployment Rate 3.5 Percent

Nonfarm payrolls (chart) jumped by 266,000 jobs month-over-month (m/m) in November, compared to the Bloomberg forecast of an 180,000 increase. The rise of 128,000 seen in October was revised to a gain of 156,000 jobs. Excluding government hiring and firing, private sector payrolls increased by 254,000, versus the forecasted gain of 178,000, after rising by 163,000 in October, revised from the 131,000 increase that was initially reported.

Note: Job numbers include 50,000 GM workers who returned to work. 

The unemployment rate dipped to 3.5% from October's 3.6% rate, where it was expected to remain, while average hourly earnings were up 0.2% m/m, below projections of a 0.3% increase, but October's initially-reported 0.2% rise was adjusted upward to a 0.4% gain. Y/Y, wage gains were 3.1% higher, versus estimates of a 3.0% pace, and versus October's upwardly-revised 3.2% increase. Finally, average weekly hours remained at 34.4, matching estimates. 

Today's upbeat Labor Report followed yesterday's unexpected drop in jobless claims to aid sentiment as employment data continues to be a key to watch for any signs of a breakdown in the bifurcation in the economy between weak manufacturing/capex and stronger services/consumption.

The University of Michigan's Consumer Sentiment Index rose to 99.2, above the consensus of 94.7 to 97.5 and higher than November's 96.8 level.

Thursday, December 5, 2019

SPY ETF Closing Price

Tuesday, December 3, 2019

Markets Turn as December Opens

As I write this, the market is down (DJIA) about 325 points, or 1.2 percent. After a loss of 268 yesterday, this is the largest decline in more than two months. The decline is reportedly a reaction to weaker manufacturing data and Trump's remarks on a trade deal.

I've been talking about this possibility for longer than that. See What Do I Do Now, from Sept 24; This Pattern Is Another Warning Sign, Nov 2;  and of course, some advice in general portfolio management for any market: What should my investment strategy be right now if a recession is imminent? or Have a Smart Trade Plan Before You Invest.

Many brokers and advisors and other "experts" on portfolio management prescribe the buy and hold, yet reallocate, method. This involves deciding on a mix of investments, for example 60 percent stocks and 40 percent bonds (or fixed income). Then on a regular basis, you re-balance the portfolio to maintain that ratio.

There are studies that show this is a valid method that creates higher annual returns over a long-term period, such as 30 years. If you have 30 years until you plan to retire, it might be worth your benefit to explore this theory of portfolio management.

But if you are at least 50 years old and thinking about retiring, or have already retired, this is not for you. If the market tanks, you can't wait six to 10 years for the market to break even. If you're using your portfolio to supplement your retirement earnings, if your portfolio's value sinks 50 percent, how would this affect those draws?

I have written several articles over the last year about this. You can start with this on from last January: Beware Your Broker. You can then browse the posts from this year on the blog archive list at the right.

Sunday, December 1, 2019

Have a Smart Trade Plan Before You Invest

When you buy a stock, it’s likely because you sense an opportunity. But how often do you establish the parameters for making profits? How will you know when to get in or out of a trade?

These are questions you should ask yourself before entering a trade. Creating a step-by-step trade plan—a blueprint for how to build positions and reshape them as conditions warrant—can help you develop a disciplined approach to your trading.

Before beginning any trade plan, perform a quick self-evaluation:
  • Are you buying a stock for fundamental or technical reasons?
  • Which investing style do you prefer (e.g., growth or value, trend or countertrend)?
  • Determine your view of market sentiment: Is momentum generally tilted up or down?
Once you have your bearings, and you’ve identified a list of stocks or exchange traded funds (ETFs) based on your research analysis method—fundamental, technical or both—you’re ready to embark on the actual planning. Here are five key steps to help you create a smart trade plan:

Know your time horizon

How long do you plan to hold a stock? What purpose will it serve in your portfolio?

Your trade time frame depends on your trading strategy. Generally speaking, traders fit into one of three categories:
  • Single-session traders are very active and are looking to gain from small price variations over very short periods of time.
  • Swing traders target trades that can be completed in a few days to a few weeks.
  • Position traders seek larger gains and recognize that it often takes longer than a few weeks to achieve them.
Determine your entry strategy

Once you have a list of stocks and ETFs you’re considering, look for entry signals—for instance, divergences from trend lines and support levels—to help you place your trades. The signals you employ and the orders you use to make good on them hinge on your trading style and preferences.

Trading is risky. A good trade plan will establish ground rules for how much you are willing to risk on any single trade. Say, for example, you don’t want to risk losing more than 2–3% of your account on a single trade, you could consider exercising portion control, or sizing positions to fit your budget.

Here’s a scenario: A trader with $150,000 in total capital is interested in a stock trading at $67 a share. This trader’s maximum budget per trade is $15,000, or 10% of the account. That means the maximum number of shares of this stock the trader can buy is 223 ($15,000 ÷ $67). Let’s say the trader’s risk per trade is 2%, meaning the trader wants to lose no more than $3,000 of his or her total $150,000 on the trade. Dividing that sum by 223 shares reveals how much the stock can drop per share ($13.45), establishing a stop price for limiting losses ($53.55). The trader may never have to use this stop order, but at least it’s in place if the trade moves the wrong way.

Review your trade performance

Are you making or losing money with your trades? And importantly, do you understand why?

First, examine your trading history by calculating your theoretical “trade expectancy”—your average gain (or loss) per trade. To do this, figure out the percentage of your trades that have been profitable vs. unprofitable. This is known as your win/loss ratio. Next, compute your average gain for profitable trades and average loss for unprofitable trades. Then, subtract you average loss from your average gain to get your trade expectancy.

A positive trade expectancy indicates that, overall, your trading was profitable. If your trade expectancy is negative, it’s probably time to review your exit criteria for trades.

The final step is to look at your individual trades and try to identify trends. Technical traders can review moving averages, for example, and see whether some were more profitable than others when used for setting stop orders (e.g., 20-day vs. 50-day).

Sticking to it

Even with a solid trade plan, emotions can knock you off course. This is particularly true when a trade has gone your way. Being on the winning side of a single trade is easy; it’s cultivating a continuum of winning trades that matters. Creating a trade plan is the first step in helping you think about the next trade.

Wednesday, November 27, 2019

Advice Worth Taking

Year-end is rapidly approaching, which means it's time to review your investing or trading rules. Below, I have some time-honored advice that may help. Both Dennis Gartman and Bob Farrell are legendary traders, and they kindly shared the rules they’ve found most helpful.

Both these guys are traders, rather than investors, but a lot of the advice is helpful regardless of the long-term strategy you use.

NEVER, EVER, EVER ADD TO A LOSING POSITION: Adding to a losing position eventually leads to ruin, remembering Enron, Long Term Capital Management, Nick Leeson and myriad others.

TRADE LIKE A MERCENARY SOLDIER: As traders/investors we are to fight on the winning side of the trade, not on the side of the trade we may believe to be economically correct. We are pragmatists first, foremost and always.

MENTAL CAPITAL TRUMPS REAL CAPITAL: Capital comes in two forms... mental and real... and defending losing positions diminishes one’s finite and measurable real capital and one’s infinite and immeasurable mental capital accordingly and always.

WE ARE NOT IN THE BUSINESS OF BUYING LOW AND SELLING HIGH: We are in the business of buying high and selling higher, or of selling low and buying lower. Strength begets strength; weakness more weakness.

IN BULL MARKETS ONE MUST TRY ALWAYS TO BE LONG OR NEUTRAL: The corollary, obviously, is that in bear markets one must try always to be short or neutral. There are exceptions, but they are very, very rare.

"MARKETS CAN REMAIN ILLOGICAL FAR LONGER THAN YOU OR I CAN REMAIN SOLVENT:" So said Lord Keynes many years ago and he was... and is... right, for illogic does often reign, despite what the academics would have us believe.

BUY THAT WHICH SHOWS THE GREATEST STRENGTH; SELL THAT WHICH SHOWS THE GREATEST WEAKNESS: Metaphorically, the wettest paper sacks break most easily and the strongest winds carry ships the farthest, fastest.

THINK LIKE A FUNDAMENTALIST; TRADE LIKE A TECHNICIAN: Be bullish... or bearish... only when the technicals and the fundamentals, as you understand them, run in tandem.

TRADING RUNS IN CYCLES; SOME GOOD, MOST BAD: In the “Good Times” even one’s errors are profitable; in the inevitable “Bad Times” even the most well researched trade shall go awry. This is the nature of trading; accept it and move on.

KEEP YOUR SYSTEMS SIMPLE: Complication breeds confusion; simplicity breeds elegance and profitability.

UNDERSTANDING MASS PSYCHOLOGY IS ALMOST ALWAYS MORE IMPORTANT THAN UNDERSTANDING ECONOMICS: Or more simply put, "When they’re cryin’ you should be buyin’ and when they’re yellin’ you should be sellin’!"

REMEMBER, THERE IS NEVER JUST ONE COCKROACH: The lesson of bad news is that more shall follow... usually hard upon and always with worsening impact.


DO MORE OF THAT WHICH IS WORKING AND LESS OF THAT WHICH IS NOT: This works well in life as well as trading. If there is a “secret” to trading... and to life... this is it.

CLEAN UP AFTER YOURSELF: Need we really say more? Errors only get worse.

SOMEONE’S ALWAYS GOT A BIGGER JUNK YARD DOG: No matter how much “work” we do on a trade, someone knows more and is more prepared than are we... and has more capital!
PAY ATTENTION: The market sends signals more often than not missed and/or disregarded... so pay attention!

WHEN THE FACTS CHANGE, CHANGE! Lord Keynes... again... once said that “ When the facts change, I change; what do you do, Sir?” When the technicals or the fundamentals of a position change, change your position, or at least reduced your exposure and perhaps exit entirely.

ALL RULES ARE MEANT TO BE BROKEN: But they are to be broken only rarely and true genius comes with knowing when, where and why!

Bob Farrell was a widely followed genius at Merrill Lynch. Wall Street people still speak of him reverently. Some of the greatest traders and investors I know referred to his rules on a frequent basis, and I suggest you do the same. Here are his rules with commentary from MarketWatch’s Jonathan Burton.

1. Markets tend to return to the mean over time

By "return to the mean," Farrell means that when stocks go too far in one direction, they come back. If that sounds elementary, then remember that both euphoric and pessimistic markets can cloud people's heads.

"It's so easy to get caught up in the heat of the moment and not have perspective," says Bob Doll, global chief investment officer for equities at money manager BlackRock Inc. "Those that have a plan and stick to it tend to be more successful."
Excesses in one direction will lead to an opposite excess in the other direction

2. Think of the market as a constant dieter who struggles to stay within a desired weight range but can't always hit the mark.

"In the 1990s when we were advancing by 20% per year, we were heading for disappointment," says Sam Stovall, chief investment strategist at Standard & Poor's Inc. "Sooner or later, you pay it back."

There are no new eras -- excesses are never permanent

This harkens to the first two rules. Many investors try to find the latest hot sector, and soon a fever builds that "this time it's different." Of course, it never really is. When that sector cools, individual shareholders are usually among the last to know and are forced to sell at lower prices.

"It's so hard to switch and time the changes from one sector to another," says John Buckingham, editor of The Prudent Speculator newsletter. "Find a strategy that you believe in and stay put."
Exponential rapidly rising or falling markets usually go further than you think, but they do not correct by going sideways

This is Farrell's way of saying that a popular sector can stay hot for a long while, but will fall hard when a correction comes. Chinese stocks not long ago were market darlings posting parabolic gains, but investors who came late to this party have been sorry.
The public buys the most at the top and the least at the bottom

Sure, and if they didn't, contrarian-minded investors would have nothing to crow about. Accordingly, many market technicians use sentiment indicators to gauge investor pessimism or optimism, then recommend that investors head in the opposite direction.
Fear and greed are stronger than long-term resolve

3. Investors can be their own worst enemy, particularly when emotions take hold.

Stock market gains "make us exuberant; they enhance well-being and promote optimism," says Meir Statman, a finance professor at Santa Clara University in California who studies investor behavior. "Losses bring sadness, disgust, fear, regret. Fear increases the sense of risk and some react by shunning stocks."

After grim trading days, it's easy to think you're the patsy at this card table. To counter those insecure feelings, practice self-control and keep long-range portfolio goals in perspective. That will help you to be proactive instead of reactive.

"It's critical for investors to understand how they're cut," says the Prudent Speculator's Buckingham. "If you can't handle a 15% or 20% downturn, you need to rethink how you invest."
Markets are strongest when they are broad and weakest when they narrow to a handful of blue-chip names

Markets and individual sectors can move in powerful waves that take all boats up or down in their wake. There's strength in numbers, and such broad momentum is hard to stop, Farrell observes. In these conditions you either lead, follow or get out of the way.

When momentum channels into a small number of stocks, it means that many worthy companies are being overlooked and investors essentially are crowding one side of the boat. That's what happened with the "Nifty 50" stocks of the early 1970s, when much of the U.S. market's gains came from the 50 biggest companies on the New York Stock Exchange. As their price-to-earnings ratios climbed to unsustainable levels, these "one-decision" stocks eventually sunk.

Bear markets have three stages -- sharp down, reflexive rebound and a drawn-out fundamental downtrend

4. When all the experts and forecasts agree -- something else is going to happen

As Stovall, the S&P investment strategist, puts it: "If everybody's optimistic, who is left to buy? If everybody's pessimistic, who's left to sell?"

Going against the herd as Farrell repeatedly suggests can be very profitable, especially for patient buyers who raise cash from frothy markets and reinvest it when sentiment is darkest.

5. Bull markets are more fun than bear markets

No Kidding

This is not the first time, nor will it be the last, when I bring these rules to your attention. I suggest, when you are feeling particularly bullish or disastrously bearish, pull up this post and reread it.

Saturday, November 23, 2019

Week in Review

I don't always do a week in review, but I thought it would be helpful to take a look at what's going on. (It's easy for individual investors to create their own week in review. Use the Economic Calendar, sign up for market reviews with your broker, and visit web sites such as CNBC, Yahoo Finance, Forbes, Seeking Alpha, Market Watch, etc.)

Markets Finish Session Higher, Fail to Post Weekly Advance

The U.S. equity markets finished the last trading session of the week modestly higher, but failed to post gains for the week, as the omnipresent uncertainty swirling around a U.S.-China "phase one" trade deal that has hampered conviction all week tempered some upbeat news on the manufacturing front and some mixed retail sector earnings reports. Markit's manufacturing and services sector reports came in stronger than expected, and the University of Michigan's Consumer Sentiment Index was unexpectedly revised higher.

Jobless Claims Indicate Slower Growth

The risks of marginally slower payroll growth in November as well as an incremental rise in the unemployment rate are the indications from initial unemployment claims which, in data that track the sample week of the monthly employment report, came in at a higher-than-expected 227,000 in the November 16 week. Comparisons with the sample week of the October employment report show a 9,000 increase in claims with the 4-week average, at 221,000 in the latest week, up nearly 6,000. The 221,000 4-week average is the highest since June.

Leading Indicators Signal Slowing Growth

The index of leading economic indicators continues to signal slowing growth going to into year end and next year. The index fell 0.1 percent in October and follows a revised 0.2 percent decline in September and another 0.2 percent decline in August. Weakness in manufacturing components has been the persistent theme in the slump with easing in labor strength also a negative factor for the index.

Existing Home Sales Jump

Favorable mortgage rates together with high levels of employment are giving housing, a sector that had been flat, a strong lift going into year end. Existing home sales rose 1.9 percent in October to a 5.460 million annual rate, lifting the year-on-year gain to 4.6 percent. Recent reports have been the best since early 2018.

Single-family resales jumped 2.1 percent in the month to a 4.870 million rate with year-on-year change at plus 5.4 percent. Condo resales came in steady at a 590,000 rate but, in contrast to the larger single-family category, are down 1.7 percent on the year. The median price for single-family sales, at $273,600, is 6.2 percent higher than a year ago with the median condo price, of $248,500, up 5.6 percent.

Market Warning Signal Still Valid

On Nov 2, I discussed high-yield bonds sending the stock market a warning sign. This continues to indicate a possible correction in the market. Note that HYG just formed a “lower low” on the chart. And that’s after a number of lower highs since the peak in late October. This signals the trend is shifting into more bearish action. We may not be there yet, but it's something to watch closely.

It looks to me that if HYG closes below $86.20 anytime over the next few sessions, then we’ll have a decisive breakdown from that pattern and junk bonds will be headed lower.

And, if junk bonds head lower, then the stock market should follow close behind.

Friday, November 22, 2019

Seven Facts (or Myths) About Investing

Putting money in the market and hoping for the best. Most advisors will tell you that. I have actually been told that by a financial advisor, that I should always be fully invested. I did not hire him. I actually don't need a financial advisor. Neither do you if you learn the principles.

Phil Town presents the following video on facts and myths about investing.

He asks the following questions, and provides some insight. Well worth the 12 minutes.

1. True or False? The stock market always goes up in the long run.

2. True or False? Those few people who beat the market in the long run only do so because they have either studied hard or have above-average IQs.

3. True or False? Real estate does not need to be part of everyone's portfolio.

4. True or False? Risk and reward in the stock market are related. If you want a higher return, then you must be willing to take more risks.

5. True or False? The best way to offset the risk of investing in the stock market is to diversify across a large number of stocks.

6. True or False? A broad market mutual fund is the best choice for a low-risk retirement account like a 401(k) or an IRA.

7. True or False? Almost no one beats the market in the long run.

Notable Quote

Jim Geraghty, writing for National Review:
Marco Rubio’s “Common Good Conservatism” and other conservatives expressing more skepticism of the free market are all fascinating, but I remain unconvinced that you’ll have a lot of success trying to fix cultural problems with federal government policy solutions. We’ve got serious and worsening troubles: addiction, suicide, cycles of despair, forgotten communities, isolation, and alienation. But if your plan is to turn to government to fix it, you’re ultimately trusting the same institution we trusted to provide medical care to veterans. The federal government has a lot of good people working for it, but they’re mostly stuck in structures and cultures that incentivize the status quo, punish risk-takers, minimize accountability and disregard efficiency. Could we change that? Maybe, but it won’t be easy, and it won’t happen quickly. The problems we face weren’t created in a small office in a federal building Washington, and they won’t be fixed there.

Thursday, November 21, 2019

Become a Better Money Manager

From my point of view -- or as they say, IMHO -- none of the above "reasons" -- I'd like to call them "excuses" -- are valid for not having retirement savings. All of them can be overcome by following basic financial principles. The following are time-tested principles, which have been repeated over and over again. What most people lack is the willingness to actually do them, rather than just think about them. 

1. Set SMART financial goals

The first step toward achieving your financial goals is to set parameters against which you can measure your progress. That means ensuring your goals are Specific, Measurable, Achievable, Relevant and Time-bound, or SMART.

Using the SMART approach will force you to be more precise about what you want to achieve and give you less room to make excuses should you fall short. Here’s an example to get you started:

Vague goal: Contribute to my 401(k) each month.

SMART goal: Contribute 5% of my salary to my 401(k) each month in order to receive my employer’s full matching contribution.
  • The goal is specific: If you don’t already know your employer’s matching percentage, ask your Human Resources department.
  • The goal is measurable: You can easily see whether you’re having enough deducted from your paycheck each month to get the match.
  • The goal is likely achievable, since it’s a small percentage of your pay and can be automatically withheld.
  • The goal is relevant, as retirement savings is among the most important financial issues anyone will face.
  • The goal is time-bound because you’ve committed to contributing a specific amount each month.
Be sure to take the time to actually write down your SMART goals, which will form the basis of your financial plan. Research has shown that creating a written financial plan is more effective than simply thinking or talking about your goals. Indeed, more than two-thirds of people who have a written financial plan say they feel financially stable, whereas just 28% of those without a plan feel the same way, according to recent surveys.

2. Turn your goals into an action plan

With your SMART goals firmly established, now it’s time to look at your goals individually, ranking them in order of priority and assigning a price tag to each. This helps you see how much money you’ll need each month to achieve all your goals.

If, once you’ve tallied up your goals, any of them seem unattainable, take a step back and reassess. For example, maybe you should consider a less-expensive house or giving yourself more time to save for the down payment. Perhaps you should investigate other ways to help fund your child’s education, such as grants, loans, and scholarships. Or maybe you need to take a closer look at how to reduce your monthly expenses.

The key here is to have manageable goals that you can stick to. Even if they seem more modest than you might want, trust that having goals—and a written financial plan—will help you make more progress than you would otherwise.

Be sure to root your plan in realistic assumptions, as well. For example, how much can you expect to earn on your retirement portfolio each year? How much will a four-year college education cost, on average, by the time your child is ready to enroll? Historical rates are a good starting point for such projections, as are retirement and college savings calculators. In the case of stock market returns, however, past performance may not be indicative of what you can expect in the future.

It can also be useful to look at different scenarios when making your projections. If you can reach your retirement goal with your current contributions and a 7% annual return on your investment portfolio, for example, it might be good to look at how a 6% return would affect your situation. If even a slightly smaller annual return would leave you far short of your goal, you may want to consider upping your savings target to account for that possibility.

3. Make regular commitments to stay on top of your finances

Organizing your financial goals and clarifying your financial plan isn’t going to help you keep your New Year’s resolution unless you stick to your plan over time. One good way to do that is to create a detailed quarterly schedule of money-related tasks. Here are some of the things you might put on the checklist for each month or, at least, each quarter: Portfolio review, taxes, health care, credit reports, etc. 

For more information on financial planning, see Does Financial Planning Help?

Tuesday, November 19, 2019

Just for Fun: Most Popular Grocery Stores

There are some 36,000 grocery stores in the United States. (Thanks to free market capitalism). While some are smaller, independent stores or specialty outlets that focus on groceries from a certain area, Americans tend to buy the bulk of their food at large regional or national chains. Regional chains like Hy-Vee, Albertsons, or Publix may be a staple in some parts of the country, but they are completely unknown in others.

I live in Texas, so I wasn't surprised that H-E-B was listed by WallStreet 24/7 as the most popular. H-E-B started around the turn of the 20th century and is based out of San Antonio. I would probably vote for Albertsons, but they are a tad more expensive.

On my recent trip to Michigan, I did shop at a Meijers, which is supposedly the most popular grocer in that state. Meijers is like a WalMart supercenter. I found it interesting that when checking out, the person ringing up your groceries also had to bag them. I made the comment that she didn't have any help, since I would expect it based on my experience in Texas. At this particular store, they never have an extra person bag groceries, she said. As you would expect, it takes longer to get out of a Meijers than our local H-E-B, which normally has a checker.

You can view the most popular for all 50 states here.

New Retirement Legislation Stuck in the Senate

A sweeping new retirement bill is working its way through Congress that is aimed at helping the country overcome its retirement savings crisis. That’s what many lawmakers in Washington envision with the Setting Every Community Up for Retirement Enhancement Act of 2019 – better known as the “SECURE Act.” The far-reaching bill includes 29 provisions aimed at increasing access to tax-advantaged retirement accounts and preventing older Americans from outliving their assets.

The SECURE Act includes numerous new retirement account benefits including making it easier for small businesses to set up retirement plans such as 401(k)s that will be less expensive and easier to administer. Many part-time workers would be eligible to participate in employer retirement plans under the bill. And the SECURE Act would also push back the age at which retirement plan participants must take “required minimum distributions” (RMDs) from 70½ to 72. These are just a few of the new benefits included in the SECURE Act.

The sweeping new legislation passed overwhelmingly in the House of Representatives in May but has since been bogged down in the Senate for reasons I will share below. While most of the new retirement provisions in the SECURE Act are welcome additions, unfortunately not all of them are. One provision, for example, would require retirement account heirs to pay taxes on their inheritance in 10 years instead of over their remaining lifetimes as is the case now.

While the SECURE Act, if passed into law, would be the most sweeping retirement legislation in decades, most Americans apparently know little or nothing about it.

The Retirement Savings Crisis in America

The fact that there’s trouble brewing in the US retirement system, which requires most workers to supplement Social Security with personal savings, has been widely acknowledged. According to data from the US Bureau of Labor Statistics published in 2018, only 55% of the adult population participate in a workplace retirement plan of any kind. And even those who do are often woefully behind when it comes to investing part of their paychecks.

The wealth management giant Vanguard, for instance, revealed early in 2019 that the median 401(k) balance for those ages 65 and older is just $58,035. That is a fraction of the savings needed to fund a retirement which could last 20-30 years! The SECURE Act aims to encourage employers who have previously shied away from these company-sponsored retirement plans, which can be expensive and difficult to administer, to start offering them.

The SECURE Act would tweak a number of rules related to tax-advantaged retirement accounts. Here are the major provisions of the Act, assuming it is passed by the Senate:
  • Make it easier for small businesses to set up 401(k)s by increasing the cap under which they can automatically enroll workers in “safe harbor” retirement plans, from 10% of wages to 15%.
  • Provide a maximum tax credit of $500 per year to employers who create a 401(k) or SIMPLE IRA plan with automatic enrollment.
  • Enable businesses to sign up part-time employees who work either 1,000 hours throughout the year or have three consecutive years with 500 hours of service.
  • Encourage plan sponsors to include annuities as an option in workplace plans by reducing their liability if the insurer cannot meet its financial obligations.
  • Push back the age at which retirement plan participants must take “required minimum distributions” (RMDs), from 70½ to 72.
  • Allow the use of tax-advantaged 529 accounts for qualified student loan repayments (up to $10,000 annually).
“With passage of this bill, the House made significant progress in fixing our nation’s retirement crisis and helping workers of all ages save for their futures,” Rep. Richard Neal (D-MA) said in a statement after the bill sailed through the House in May.

Most financial planners support the SECURE Act and consider it a step in the right direction toward solving the nation’s retirement saving crisis. Most favor raising the age for taking required minimum distributions from 70½ to 72, thus giving people a little more time to save for retirement.

Likewise, most agree that reducing the number of hours that employees are required to work in order to sign up for 401(k)s, including part-time workers if they qualify, is a good idea. Most also favor adding flexibility to 529 accounts, which could be used to repay some student loans under the bill. That’s a good option for parents who may have funds remaining in an educational savings account and want to help a child who has already graduated.

One Potentially Serious Knock on the SECURE Act

Let’s say you have an IRA or a retirement plan that you want to leave to your children in a tax efficient manner after you are gone. If so, you need to be concerned about one new provision in the fine print of the SECURE Act that could cost them dearly.

Non-spouse beneficiaries of IRAs and retirement plans are required to eventually withdraw all the money from its tax-sheltered status, but the current law allows them to minimize the amount of their required minimum distributions by “stretching” them over their own lifetimes. This is called a “Stretch IRA.”

Distributions from a Traditional Inherited IRA are taxable, so the longer your beneficiaries can postpone or defer them (and hence the tax), the better off they will be. The bad news is that the government wants its tax money, and it wants it sooner rather than later.

The big change buried in the SECURE Act is a small provision that changes the rules that currently allow your beneficiaries to take distributions and pay the taxes on them over their lifetimes. Under the SECURE Act, your non-spouse beneficiaries must withdraw all of the assets and pay taxes on them within 10 years.

You might be thinking this is not a really big deal because you expect your heirs will withdraw the money within 10 years anyway – and in many cases that may be true. But let’s say your heirs don’t need or want to take the money so quickly, and instead want to delay the distributions – and the taxes – as long as possible.

In addition to delaying the taxes, keep in mind that this money is presumably invested wisely and is compounding annually – tax-deferred. Let’s say your kids inherit your IRA or other retirement plan when they are in their 50s, and they only take the required minimum distributions; the remainder of the money could increase significantly if they let it compound and don’t take it until they need it – under current law.

Note: the discussion above is purposely oversimplified, so be sure to discuss this with your retirement planner, CPA and/or legal counsel before acting upon it.

The SECURE Act is Currently Tangled Up in the Senate

Despite the SECURE Act’s overwhelming support in the House, it may take time before the Senate even gets to vote on the bill. In early July, PlanAdviser, a retirement benefits consultant, reported that two Republican Senators – including Ted Cruz (R-TX) – were holding it up. According to a Washington, DC source, Cruz was trying to tweak the section on 529 accounts so that parents can use them for home-schooling expenses as well.

In October, PLANSPONSOR, another benefits consultant, said the bill has been sitting "in something like legislative limbo." Along with Cruz, two other Senators – Mike Lee (R-UT) and Pat Toomey (R-PA) – had reservations about some technical points. Yet the consultant remains optimistic that the bill could still get unanimous consent in the Senate, or get through by being attached to a broader bill with bipartisan support.

Even with only a few Senators standing in the way, passage of the bill could take a lot longer. Without unanimous consent, the bill would have to go through the committee process, followed by floor debates and subsequent votes. And if Senators succeed in changing some of the bill’s language, the House would have to vote on the newer version as well. It remains unclear how long all that might take.

The question is whether the SECURE Act will get passed this year or next? Congress only has a couple of weeks left in the current session and according to Majority Leader McConnell, there is a long list of priorities that needs to be passed this session. A spokesman for McConnell reportedly said last week that the SECURE Act might well be delayed until next year.

The bottom line: While it’s still possible that the SECURE Act may go through some minor changes, the bipartisan support behind the legislation means it’s likely to end up passing in the Senate, too – either just ahead or in early 2020.

While the SECURE Act is not a panacea for our retirement saving crisis, it is widely agreed it’s a step in the right direction, with the one exception discussed earlier. While the SECURE Act may be a step in the right direction, it will not solve our retirement savings crisis. That will only be solved if Americans start saving more, period, with or without the new legislation.

Sunday, November 17, 2019

Economic Perspectives Update

Retail sales increase modestly

Retail sales increased 0.3% in October, nearly reversing a similar drop in the prior month, and above the consensus of 0.2%. Individual categories were mixed. Vehicle and gas station sales increased 0.5% and 1.1%, respectively. Excluding these two categories, sales were up a modest 0.1%. While online sales continued to advance, up 0.9%, apparel dropped 1.0% and restaurant sales fell 0.3%, down for the first time this year. The two home-related categories (building materials and furniture) also pulled back, suggesting some potential weakness in housing demand.

On a y/y trend basis, retail sales were up 3.8%, which is weaker than where they were in mid-2018, but better than earlier this year. Our measure of discretionary retail sales and its core increased 4.9% y/y and 5.5% y/y, respectively, also stronger than earlier this year. This suggests that the pullback in consumer comfort over the past several weeks has not impacted consumer demand. The trends in retail sales, which account for about 1/3 of consumer spending, support a continued moderate pace of economic growth.

GM strike weighs on industrial production

Industrial production dropped 0.8% in October, down in three of the past four months, and by the most since May 2018. This was worse than the consensus of -0.5%. Due to the GM strike, vehicles output sank 7.1%, the most since January. Industrial production ex-vehicles was down 0.5%, as output growth across most sub-sectors weakened. Manufacturing ex-vehicles was down 0.1%, led by durable goods. Utilities output fell 2.6%, while mining fell 0.7%. Core industrial production, which excludes vehicles, energy, and high-tech, fell 0.2%, led by materials.

On a y/y basis, industrial production fell 1.1%, the most since October 2016. Manufacturing output shrank 1.5% y/y, down for the fourth straight month and by the most since May 2016. Utilities contracted 4.2% y/y. Mining output eked out 2.7% y/y growth, a fraction of the double-digit pace in 2018 and early-2019.

With the GM strike idling capacity, the utilization rate fell 0.8 ppt, the most since March 2009, to 76.7%, its lowest level in more than two years, and worse than the consensus of 77.0%. It was 3.1 ppt below the 1972-2018 average, indicating excess capacity which tends to be disinflationary. Separately, our Inflation Timing Model picked up six points to -2 last month, a level that is historically consistent with moderate disinflation.

Import prices decline 

Import prices fell 0.5% in October, a steeper decline than the consensus of -0.2%. It was led by a 2.9% slide in fuel prices, mostly petroleum. But nonfuel import prices also fell, down 0.2%, led by nonfuel industrial supplies and materials (mostly unfinished metals). On a y/y basis, import prices sank 3.0%, the most since July 2016. Prices from most trading regions declined, reflecting the strength of the U.S. dollar.

Source: Ned Davis Research

Laughter Is the Best Medicine

Dan Mitchell, from his blog International Liberty, pointed me to Babylon Bee, a site for political satire.
Laying their cards on the table with the midterms approaching, the nation’s Democrats have united to send a clear message: socialism is America’s only hope of ending the current nightmare of economic prosperity. 
“We’re living in a hellscape—but there is an escape,” 2020 presidential hopeful Joe Biden said... "democratic socialism is what’s going to free us from our horrific, flourishing, present conditions. You do the math.” ...“Kill anyone who disagrees!” Maxine Waters bellowed from the background.
OK. That's funny. And the site spares no one, poking fun at Libertarians:
The U.S. government announced Monday it will be adopting more libertarian policies going forward, including lower taxes, greater support for civil liberties, and a drastically decentralized federal government, “if all the libertarians will agree to just shut up and stop complaining for like one freaking second.” 
The announcement was issued in the form of a joint statement by the executive, legislative, and judicial branches of the federal government, and is contingent upon libertarians “chilling out a bit” and immediately ceasing from posting memes stating “Taxation is Theft” and “End the Fed” every single second they’re on the internet. …At publishing time, libertarians from across the country had refused to dial down the rhetoric even a little bit, calling the compromise “the greatest travesty since the British raised taxes on tea.”
As well as the news media:
Airports around the world are reporting record revenues after introducing a long-awaited feature: the ability to turn off CNN on television sets in their terminals.
For just one quarter, you can turn off CNN for a full fifteen minutes while you're waiting for your flight, leaving you with the "far superior" experience of just staring at a blank screen. 
"At long last," said one man waiting for his flight at LaGuardia as he dropped a few dollars' worth of quarters into the "Turn CNN Off" slot. "Honestly, I might fly more now." He's not alone: airports expect a 426% uptick in traveling over the holidays as flyers no longer have to worry about having the droning words of CNN hosts pounded into their heads for hours on a layover.
We need some humor. Laughing at ourselves in this time of really stupid political rhetoric is just what the doctor ordered.

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