Thursday, April 18, 2019

Democratic Tax Proposals That Will Seriously Hurt Everyone

Sorry for those of you uncomfortable with differing political (any any subject) ideas, but political ideas, especially bad ones, can hurt your finances. So this post belongs here, not on the "Politics" tab. Unless of course, you're in the 44 percent of who don't pay any taxes.  Remember, the top 3 percent pay the majority of taxes in the country, but they "don't pay their far share" whatever "fair" is...

Elizabeth Warren: 3 percent wealth tax. Problem is, most of those individuals would have to sell assets to pay for this. This is not an income tax, but an asset tax. For example, if my assets are tied into my farm, I'd be paying taxes. 

Democratic Senator Wyden of Oregon (who?): proposes to tax capital gains at 37% as the value of an individual’s assets grows rather than when they are sold. Modest problem: Same issues as above, only worse. Example: If I have $10,000 in unrealized gains, I'd have to pay a tax of $3,700, even if I didn't sell the stock(s). 

Alexandria Ocasio-Cortez proposes a 70% federal income tax. Modest Problem: With state taxes, that would put an individual tax rate at 83% for wealthy high-rate state taxpayers. All this would do is stop investment and therefore crush the stock market and employment. Ask her constituents about Amazon.

Democratic California State Senator Scott Wiener proposes that California enact an estate tax on estates for individuals with net assets of between $3.5 and $11.2 million. Modest problem: Dad will be moving to Nevada, so California will not only miss out on any estate tax, the income taxes between the move and death will also be lost.

This is just a beginning. There are and will be more ideas on how to take your money among the infinite field of candidates. 

Between these four or five Democratic lawmakers, there is virtually no business experience. There is no understanding of either the relationships of liquidity to wealth, economic causation, or in the case of Scott Wiener that millions of retirement age Californians would rather leave California than pay $1 million in California taxes for the privilege of dying in California. 

But hey, as long as they promise "free" stuff, why not? 


Full story at TownHall Finance.

Wednesday, April 17, 2019

Recession looming? Not yet. But it will happen

Today, from the American Institute of Economic Research (AIER): 

AIER's Leading Indicators index falls to the lowest level since the recession.
AIER's Leading Indicators index dropped 17 points to 25 in March, the lowest level since June 2009. The Roughly Coincident Indicators index and the Lagging Indicators index also fell, to 83 and 67,,, March is the third consecutive month with readings for the Leading Indicators index below the neutral 50 threshold. The duration and severity of the declines justify significant concern regarding the durability of the economic expansion.
However, while the majority of the leading indicators are trending down, the pace of decline is generally mild, suggesting the path of economic activity may be more similar to a slowdown than a recession. Disruptions to economic activity and ongoing delays in the timely publishing of some economic data used in the calculation of the AIER business cycle indicators, both caused by the government shutdown, further cloud the picture. It will likely take another month or two before a reliable assessment can be made regarding the likelihood of a recession.

Tuesday, April 16, 2019

Medicare for all: How would it disrupt the economy?

One take, from Barron's Daily Review (via email newsletter): 

Every three months, America's chief executives are forced to face investors and analysts, and sometimes their comments get more attention than they probably bargained for. Welcome to earnings season. The latest edition of talking-point-gone-wrong came this morning from UnitedHealth Group. The health insurer actually had strong earnings to discuss during its conference call, but that all took a backseat once CEO David Wichmann decided to address the brewing debate over Medicare for All: 
The wholesale disruption of American health care being discussed in some of these proposals would surely jeopardize the relationship people have with their doctors, destabilize the nation's health system, and limit the ability of clinicians to practice medicine at their best. And the inherent cost burden would surely have a severe impact on the economy and jobs, all without fundamentally increasing access to care. [emphasis mine].

Is this what everyone really wants?  

5G may be a game changer

With download speeds up to 100 times more than current wireless bandwidth, this may be a game changer for mobile devices, from cell phones to your home's connectivity to the internet in general. Like all new technologies, there will be winners and losers -- as it should be. Those that execute well, will prosper. Those that don't, may die a slow and painful death. (This is an economic principle called creative destruction).

Back in January, Investor's Business Daily put together a list of 15 companies they thought had a better than average chance of succeeding with this new technology. (Granted, as of this writing, there is only one cell phone capable of using this technology -- made by Motorola -- and the networks, like AT&T, TMobile and Verison, are just coming on line, sort of...)

I put together this basket of stocks and did a mock portfolio investing an equal amount in each company. How did they do? All were up. The total profit on a $100,000 investment was about $23,000. Not bad. But remember, from Jan through April, the markets in general were higher, from 12 percent to 19 percent, depending on which index you're tracking. But I'd say these stocks mostly out-performed the market. 

Next Step: Narrow down the list; 15 are too many stocks to manage at one time for most private inestors. I will reduce this to 5 to 7 stocks based on 1) ROE; 2) Profit Growth; 3) Debt; 4) Moat; and 6) Managment and other very important factors. Stay tuned. 

Note: Change and %Chg are daily figures for April 15 (Market was down slightly for the day)

Do your own due diligence. Learn to research companies on your own. Then wait for the company to be fairly or undervalued. 

Sunday, April 14, 2019

What would you do with a $5,000 bonus?

You really want to save. Why you don't may surprise you.

Good intentions abound: More than a third of respondents said they’d pay off debt. Many others claimed they’d save for short-term expenses (22%) or invest for long-term goals (15%).

A measly 2% said they’d buy something they couldn’t otherwise afford.

Admirable. But unlikely. 
Forty percent of people in the U.S. don’t have $400 set aside for an emergency, according to the Federal Reserve.
A $5,000 bonus can go far if used well. 
If you invested that amount at an annual return of 8%, you’d have $50,313 in 30 years, $108,623 in 40 years and $234,508 in 50 years 
If you directed that bonus toward debt, you could save years of bills. That’s because if you made only the minimum payments on a credit card with a $5,000 balance and an interest rate of nearly 18%, you’d be stuck in the red for more than 18 years and have forked over $6,400 in interest, according to Ted Rossman at

Full story at CNBC 

Saturday, April 13, 2019

Politics, economics and personal finance

It has been pointed out to me that a blog about personal finance should not include politics, or political "science." This proves to be an almost impossible task. It's quite difficult, if not impossible to separate economics and politics. 

Here's some general definitions of the disciplines:
Economics is the social science that studies the production, distribution, and consumption of goods and services (resources). Economics focuses on the behavior and interactions of economic agents and how economies work.
Political science is a social science which deals with systems of governance, and the analysis of political activities, political thoughts, and political behavior. It deals extensively with the theory and practice of politics which is commonly thought of as determining of the distribution of power and resources.

While "pure" economics and "pure" political science can be studied separately, neither are hard sciences in the way physics or biology are sciences. Notice that both definitions rely on resources and behavior. And the study of behavior is a difficult study, because 1+1 = 2 is never an axiom when dealing with human behavior.

Because both deal with human behavior, they influence each other.

Some of my readers may be offended by differing political thought, and even in some cases economic thought, so I've create a separate tab called Politics in place of my Photo Album tab. 

But politics, or public policy, do affect economics and personal finance.

The premise of a good education is to be exposed to and be able to discuss ideas that might make you uncomfortable. If you can't do that, you're not learning anything new. You're just reinforcing your beliefs. 

So those of you just interested in personal finance, go for it. If you want to brush up on politics, albeit from a more conservative or libertarian point of view, strap on a seat belt and have fun with the ride. 

Where is the market going? Only the market knows

If you think I have the answer, well I most certainly do. My answer is simple: who knows? From the charts I present below, there is no accurate way to predict the market, and if anyone tells you that, walk away as fast as you can. But from my experience in 2000 and 2007, my only advice (which I'm really not allowed to provide on a professional basis, but I only use for my own investing purposes) is pay close attention. 

If that seems like a cop out, it's really not. There is no magic crystal ball. For all the talking heads (experts) on TV and in financial columns, for all their predictions, they are really not better than you are. YOU CAN MANAGE YOUR OWN MONEY JUST AS WELL IF YOU HAVE THE BASIC KNOWLEDGE. 

Here's the latest chart on the SPY, the ETF which most closely tracks the 500 stocks in the S&P 500 and is the most highly traded.  

The blue line represents an all time high and represents late 2012 through Friday, April 10. 

Here's the SPY from about 2005 until 2012. 

Here's another interesting look. The SPY from 1880 until now, represented in 2017 real dollars.

Another study, follow by Warren Buffett, is called the Case- 
Shiller index (who won a Nobel prize for this study), which measures the value of the S&P 500 against inflation. See a detailed description here: FAQ.

The same index 2 months ago

The index is up about 1.7 points, which indicates the market  is even more over-valued than two months ago. 

My take from all this. Just pay attention. You don't want to get caught with your portfolio heavily weighted in stocks (or maybe even bonds for that matter) when the market turns. Markets fall faster than they go up. In a near-future post, I'll explain moving averages, which is a good tool for the average investor for measuring (note I didn't say predict) trends. And this you can do in 15 minutes a day or less (or even weekly, as weekly movement can be just as dandy.

You'll never pick the very highest highs, or the very lowest lows, but why ride out a 50 percent loss of your portfolio. Historically, it takes 6 or 7 years just to break even again. 

Friday, April 12, 2019

April is Personal Finance Education Month

Most surveys indicate that the majority of people don't understand the principles of their own finances, or have enough money saved to cover even the basic of emergencies. But the knowledge is there. 

One word of advice. You'll find a lot of blogs about personal finance. Most are OK. Some are not. Buyer beware. Many are opinions. Don't believe everything.

Even some textbooks are biased, but learn to read critically and think for yourself. If something seems odd, find another source to verify. 

However, there are a few sites that I use on a regular basis, which can be useful, and I just came across one that offers free textbooks on a number of subjects. Here's one on Economic Analysis. They also offer free courses, as well as many universities, such as MIT. How cool is that for party talk? "I just took a course at MIT, so I know what I'm talking about." Well, maybe. Don't get too cocky.

Udemy offers some excellent online courses, normally for less than $20. 

Both Schwab and CNBC offer great articles on personal finance. If you use another broker, I suggest you take a look. Also, most banks as well. My bank, Chase, is a good example. (And you don't have to be a customer). 

And Investopedia is quite complete. YouTube, for those of you who'd rather watch than read, is also loaded, but you have to filter out the "I want to sell you something" with "I want to teach you something." Start with these two: Phil Town, and Chris Houran, who also teaches at Udemy.

The information is there. Take advantage of it. Put down the TV clicker and get some.

A couple of items caught my attention

Chevron plans to buy Anadkaro Petroleum. I tend to follow the energy markets close than most, and my first reaction to this story is "wow." But the synergies might be of benefit. 
Chevron (NYSE:CVX) plans to acquire Anadarko Petroleum (NYSE:APC) in a stock and cash transaction valued at $33B, or $65 per share, enhancing its Upstream portfolio and strengthening its shale, deepwater and natural gas resource basins. Anadarko shareholders will receive 0.3869 shares of Chevron and $16.25 in cash for each APC share. The deal anticipates annual run-rate synergies of approximately $2B, and will be accretive to free cash flow and earnings one year after close. If approved, Chevron said it also plans to boost its annual share buyback program to $5B from $4B. CVX -2.4%; APC +33.7% premarket. - From Seeking Alpha

Also, my comments on Telsa. I don't generally get caught up in hype. Telsa doesn't make money, so it's not on my radar. And while I support electric vehicles and other alternative sources of energy, I'm not so short-sighted to see even these programs have unintended consequences. For example, lithium, which these batteries are made from, is a toxic material. How to you dispose of it in a environmentally save manner? 
Tesla (NASDAQ:TSLA) has begun leasing its Model 3 sedan in the U.S., in a financing option that would increase the EV maker's base. However, customers will not have the option to buy their cars at the end of the lease, as the company intends to use the vehicles for its long-planned Tesla Network ride sharing program. Tesla has also halted online sales of its $35,000 Model 3, meaning the lowest-priced version available on the net for order is now the $39,500 Standard Plus (which includes Autopilot). TSLA +1% premarket. - Seeking Alpha

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