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.

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