Wednesday, January 29, 2020

If a Socialist Becomes President, We All Become Poorer

President Warren? President Sanders? Even a President Bloomberg, who thinks California is the model for the rest of the country, would add risk to stock and bond markets.

Some of Wall Street’s biggest investors have already raised the alarm that stocks could see a big sell-off if markets start to believe that Sanders could prove a meaningful political threat to President Donald Trump.

Bond investor Gundlach said that the biggest risk to the market in 2020 was the possibility of Sanders becoming president.

Longtime hedge fund manager Stanley Druckenmiller said something similar last summer, warning that stocks could plummet if Sanders is elected president.

“If Bernie Sanders became president, I think stock prices should be 30% to 40% lower than they are now,” he said in June.

“The good news is we’d all be much more equal because everybody would be poorer but the rich would have lost a lot more wealth than the poor would have,” Druckenmiller said.

Similar forecasts of doom came in the second half of 2019, when Warren’s rise in the polls spurred dire predictions a major market pullback. Though Warren has said she’s a “capitalist to my bones,” billionaire investors such as Marc Lasry, Paul Tudor Jones and Leon Cooperman all predicted that the stock market would fall 20% or more if she became president.

As Warren's chances of becoming president decrease (red line), the markets have moved higher (blue line). 



Again, Bad Advice from the "Pros"

Quoted in CNBC:
“If you have 40 years left to invest, a bear market right now is just noise and should be ignored — in fact, often celebrated,” said Doug Bellfy, a certified financial planner at Synergy Financial Planning in South Glastonbury, Connecticut. On the other hand, Bellfy said, “a stock market crash that starts the day after you retire can cause a permanent lifestyle impact if all your money is invested there.”
Oh my! This is the buy and hold advice that most young (and old, in fact) investors are given. It's taught in financial schools. It's a common paradigm for long-term investing. There are whole theories in finance that revolve around this; for example, the Efficient Market Theory (EMT).

I don't buy it. Avoiding bear markets, no matter how many years you have left, can be a huge difference in the outcome of your retirement portfolio. The charts below show that just holding can mean holding for more than a decade to "break-even."

You don't have to do this. See some suggestions after the charts.



There are many reputable sources to learn how to avoid bear markets. Here's a few that I recommend.

Buy, Hold, and Sell!: The Investment Strategy That Could Save You From the Next Market Crash





 


Sunday, January 26, 2020

The 10-Year Challenge

This guy gets it. Climate change or global warming has become a political tool to change the economies of the world. Embrace environmentalism, but not global domination.



View it on YouTube.

Thursday, January 23, 2020

Avoiding Investment Fraud

Every year thousands of people lose millions of dollars to investment fraud. One conservative estimate is that one in 10 investors will be victimized at some point in their lives, and seniors are targeted more often than younger people. The number and sophistication of investment scams is ever-growing—but by maintaining a healthy dose of skepticism and training yourself to spot some common red flags, you may be able to protect yourself and your loved ones from becoming victims.

The come-ons
Be skeptical if investment opportunities come with any of the following features:
  • Guaranteed high returns
  • Low or no risks
  • Invitations to join exclusive investment organizations
  • The ability to “get in on the ground floor”
  • Claims of breakthrough technologies
  • Penny stocks
  • Seminars, free meals or travel offers
The tactics
Be particularly alert to these types of strategies:
  • Unsolicited approaches by phone, email or text or in person
  • A hard sell and lofty promises
  • No way to call back or follow up with the seller
  • Insistence on a quick decision
  • Sketchy details
  • Complicated explanations or use of highly complex terminology
  • Emails and newsletters with unclear sources
Sidestepping scams
Here are some ways to avoid the potential of financial exploitation, should you or a loved one be approached with an unsolicited investment opportunity:
  1. Verify credentials. Legitimate investment professionals are registered with the Financial Industry Regulatory Authority (FINRA), the Securities and Exchange Commission (SEC) or your state securities or insurance regulator. You can use BrokerCheck, a free online tool offered by FINRA, to review a broker’s qualifications, registration and employment history. BrokerCheck also contains a disclosure section with information about customer disputes, disciplinary events, and certain criminal and financial matters on the broker’s record.  
  2. Adopt a mindset that “there’s no such thing as easy money.” Guaranteed, assured profits with zero risk simply don’t exist; every investment involves some degree of risk.
  3. Don’t follow the crowd. So-called affinity frauds prey upon members of a common social circle, religious group or ethnic background. If someone tells you that “everyone” is in on the deal, they may be lying—or they may have victimized a number of your peers already.
  4. Refuse to rush to decision. Legitimate investment professionals will allow you time to conduct your due diligence. If you’re given a limited window in which to accept, walk away.
  5. Never feel obligated. Even if you’re offered something for free, such as a meal or a seminar, you don’t owe a salesperson anything. Don’t let guilt guide your investing decisions.
  6. Ask for documentation. Stocks, mutual funds and ETFs are typically required to have a prospectus, and bonds are required to have an offering circular. If there’s no documentation, the securities may not be registered with the SEC—which usually prevents them from being sold to the public.
Other ways to protect yourself
  • Never act on an unsolicited offer to buy any investment product.
  • Keep your financial information to yourself: Never share account numbers, user names, logins, passwords or personal identification numbers.
  • Keep your assets at a reputable firm.
  • Never invest in a product you don’t understand.
  • Ask questions about costs and risk, and ask for responses in writing.
  • Verify what you’re told with a trusted advisor or friend.
  • Ask, and consider, what’s in it for the seller.
Above all, remember the old axiom: If it sounds too good to be true, it probably is.

If you'd like to read an academic paper on the problem of investment fraud directed toward older Americans, you can access this publication from the Wharton School of Business: Understanding and Combating Investment Fraud,

Wednesday, January 22, 2020

Improve Your Trading with These 20 Rules

Improve your trading with these 20 Golden Rules. But treat these rules as guides; with markets, there is no sure thing. But these will enhance your odds.
  • Forget the news, remember the chart. You're not smart enough to know how news will affect price. The chart already knows the news is coming.
  • Buy the first pullback from a new high. Sell the first pullback from a new low. There's always a crowd that missed the first boat.
  • Buy at support, sell at resistance. Everyone sees the same thing and they're all just waiting to jump in the pool.
  • Short rallies not selloffs. When markets drop, shorts finally turn a profit and get ready to cover.
  • Don't buy up into a major moving average or sell down into one. See #3.
  • Don't chase momentum if you can't find the exit. Assume the market will reverse the minute you get in. If it's a long way to the door, you're in big trouble.
  • Exhaustion gaps get filled. Breakaway and continuation gaps don't. The old traders' wisdom is a lie. Trade in the direction of gap support whenever you can
  • Trends test the point of last support/resistance. Enter here even if it hurts.
  • Trade with the TICK not against it. Don't be a hero. Go with the money flow.
  • If you have to look, it isn't there. Forget your college degree and trust your instincts.
  • Sell the second high, buy the second low. After sharp pullbacks, the first test of any high or low always runs into resistance. Look for the break on the third or fourth try.

  • The trend is your friend in the last hour. As (if) volume cranks up at 2:00 pm don't expect anyone to change the channel
  • Avoid the open. They see YOU coming sucker. I like to wait 30 minutes.
  • 1-2-3-Drop-Up. Look for downtrends to reverse after a top, two lower highs and a double bottom.
  • Bulls live above the 200 day, bears live below. Sellers eat up rallies below this key moving average line and buyers to come to the rescue above it.
  • Price has memory. What did price do the last time it hit a certain level? Chances are it will do it again. But not forever
  • Big volume kills moves. Climax blow-offs take both buyers and sellers out of the market and lead to sideways action.
  • Trends never turn on a dime. Reversals build slowly. The first sharp dip always finds buyers and the first sharp rise always finds sellers.
  • Bottoms take longer to form than tops. Fear acts more quickly than greed and causes stocks to drop from their own weight
  • Beat the crowd in and out the door. You have to take their money before they take yours, period.

Monday, January 20, 2020

Lessons From a Trader

I learned about trading but I also learned a lot about myself and what I was good at, what I was horrible at, and what I was psychotic at — things that had nothing to do with day trading. Day trading is the best job in the world on the days you make money. You make a trade, then maybe 20 minutes later you are out of the trade with a profit, and for the rest of the day you think about how much money you made.
It’s the worst job in the world on a bad day. I would make a trade, it would go against me, and then I wanted my heart to stop so my blood would stop thumping so loudly. I am now unemployable in every other way.
Here’s what I learned. All of these lessons I will certainly use today, and many years after will stop trading.
You can’t predict the future.
Everyone thinks they can. But they can’t. This applies not just to trading but everything. You could be in relationship or married for 11 years and the next thing you know — you are splitting or divorced and you would not have predicted that.
You could be healthy all your life and drink your vegetables and exercise and reduce stress and a year later you could be dead from cancer. Trust me when I say- much less stress, if you let go of trying to predict the future. You can always seek to increase the odds in your favour — if I don’t jump off bridges, for instance, it’s more likely I’ll be alive a year from now — but certainly a path to unhappiness is thinking the future can be predicted and controlled.
Hope is not a strategy.
If you get to the point where you “hope” you don’t get ruined, then you did something wrong beforehand. For instance, if you plan a wedding outside and you don’t have a backup plan in case it rains, then you probably miss-planned you’re wedding, unless you are getting married in a desert. “Hoping” is not a bad thing.
I hope that every day my life goes perfectly. But if hoping is the only thing I’m relying on, then it means I didn’t really look at all the possible outcomes of something that was important to me.
Uncertainty is your best friend.
100% of opportunities in life are created because people are uncertain about almost everything in their lives. We are constantly trying to close the enormous gap between the things we are certain about and the things we are uncertain about and almost every invention, product, Internet service, book, whatever has been created to help us closes that gap. Sometimes this is hard.
If your girlfriend or wife betrays and leaves you, you often feel like crawling on the floor and burning all the self-help books. They all lied. It’s hard to feel “in the now” or to “positive think” when life feels like it’s over. I’ve tried. It’s really hard. But at the very very least you can say…”help me”. You can say it to your close friends. You can say it to something inside of yourself. “Help me” is the most powerful, and most forgotten, prayer.
Taking risks versus reducing risk.
Some people take too many risks and they go bankrupt. This happened to me. And sometimes people are too cautious and don’t take enough risks. When I first started day trading I was so afraid of risk that if I had a small profit, I’d end the trade.
But then I would take big losses and that would wipe out all my profits. The key is that you can take larger and larger risks if you work on better and better ways to deal with those risks. For instance, I might be able to risk marrying someone if I know she is not a hard-core drug addict who regularly betrays the people she is close to.
I can risk driving without a license if I always stay below the speed limit (I know this is a stupid risk, but still…). Once you have a method of reducing risks, it’s easier to make trades or decisions about anything.
Diversification.
Often I get emails, “I really want ONE job but they don’t seem to want me and now I’m miserable. How can I get that job?” Well… you can’t. And you’re going to be unhappy. You can’t wish yourself a job. When I wanted to get a girlfriend I went on lots of dates. My friend approach was even smarter — she wouldn’t waste time with dinners. She would only go to tea with guys. Within the first 20 seconds you know if you are attracted. So keep it to a tea.
Say no.
In trading, if something is not working out, even if your heart wants it to work out, you have to say “No” and cut your losses. If a business relationship is not working out, don’t put more energy and time into it. We think because we’ve already put time and energy (or money) into something that we have to stick with it.
But this is just a mental bullshit. Say no to it. You have to decide every moment if this is the situation you want to be in. Just because you were in the situation a moment ago, or yesterday, or for 10 years, doesn’t mean the situation is right for you anymore.
Health.
Trading pulls everything out of you. It sucks the soul out of your body, blends it up, and then explodes. It doesn’t turn into a nice smoothie. It explodes. So you have to take care of yourself. If you don’t sleep enough, if you don’t eat well, exercise, be around positive people, be grateful for what you have blah blah blah you will lose all of your money and go bankrupt. And obviously, this applies to everything else in life. Every day, what small thing can you do to become a slightly better you?
The reason we get so attracted to “safe” jobs is that the pain is more subtle and sneaks up on us. The only way to survive is to laugh. There’s that saying: “men make plans but god laughs.” Well, you might as well be on the same side as god.
“This is crazy” means you’re crazy.
I’ve seen it a million times. Guy makes a trade. The market goes against him. He says “this is crazy” and puts more money into the trade. And then he loses all his money and goes crazy. The market is never crazy. The world is never crazy.
It doesn’t matter if a trade (or a day, or a life) is good or bad.
Good and bad days happen. But life is about a billion little moments that add up to all the things around you. If you let one of those moments have too much control then you are bound to be mostly miserable.
It’s never about the money, game maybe
I get emails like, “can you show me how to day trade?” “NO!” I know 100 day traders and only two that won’t go bankrupt. So what makes anyone think they will have an edge? How many people listen to me? About 0.
How come? Because people are sick of their lives, their relationships, their jobs, and all the lies that have been told to them ever since they learned how to walk.
They want freedom from the BS. I get it. Trading is the dream. You can make enough money to not care. To do it from anywhere. To be happy. It won’t work. But people don’t want to believe it. Most people think they have that one special something that will make it work for them. And it’s true — they do have that one special something.
But you can’t get there by day trading first. You can skip right to the being happy part. You can skip right to being free. But we never learned that. OK, go do it. Then cry about it. Then get scared. Then curse. Then cry more. None of that will make you happy. Then read this part again. Work… you have to put relentless everyday work into this craft.
And trust me when I say, lots and lots of it…
Remember, edges are found in the places between the battleground among buyers and sellers. Your task as a trader is to find those places and wait to see who wins and who loses.
Mature understanding of and respect of risk is the hallmark of the best traders. They know if you don’t keep an eye of risk, it will set its eye on you.
Ruin is the risk you should be concerned with the most. It can come like a thief in the night and steal everything if you’re not watching carefully.
Don’t spend all your time admiring the fancy tools and fools in the magazines or scam websites. First learn how to use the basic ones well. It’s not the size of your tools that counts but how you use them.
Keep it simple. Simple time-tested methods that are well executed will beat fancy complicated method every time.
Trading with poor methods is like learning to juggle while standing in a rowboat during the storm. Sure, it can be done, but it is much easier to juggle when one is standing on a solid ground.
Trading is not a sprint; it is boxing. The market will beat you up, screw with your head, and do anything it can to defeat you. But when the bell sounds at the end of the twelfth round, you must be standing in the ring in order to win.
Your job as a trader is to wait for the best opportunities. Money is made stalking and sitting not being active & forcing a new trade each day.
Just like a Rocky! Trading Rocky Balboa!
In order to make serious money in the markets, you must be able to "financially survive".
In other words, in order to “live to trade again”, you must learn to cut losses short. Losses are part of the trading equation.
This can be very difficult because admitting that the wrong trade was executed (or the right trade, but at the wrong time) is admitting that you were wrong.
It is human nature to not like being wrong.
You enter a trade, three factors must be crystal clear in your mind:
  • where to get in
  • where to take profits
  • where to bail out
Daydreaming about profits will not make you rich. You must decide in advance where you’ll take your winnings off the table or cut and run if the market turns against you. It’s human nature when you lose money quickly you want to make it back twice as quick. Slow down, keep focused, and stick to your strategy.
If you’re a trader who has a hard time taking a loss, or waiting for the right entry point, or prematurely exiting winning trades at the first sign of heat, or putting on too much size, or too little…..then those are the issues that need to be addressed. If you don’t address the right issues you’ll never make it in trading. Period.
I get messages asking my opinion on various indicators, software, chat rooms, etc. Over and over I see traders continue to add stuff to their charts but not trade any better. It’s natural to think that more information will lead to better trading decisions. I’m not against more information per se, but if you’re someone who struggles taking a loss, waiting for the right entry point, prematurely exiting a trade, or something else, you have to ask yourself why is it that more information has not helped?
Even with more information you’ll still experience uncertainty. I’m not suggesting stopping your search for more information, I am suggesting that you need something beyond ‘more information’. What you need is a type of confidence that I refer to as real confidence.
I define real confidence as resilience in the face of discomfort. This is different than how most traders describe ‘confidence. Most traders will feel good when things are going well and feel down when things go badly. A situation where confidence is closely tied to P&L.
Everyone knows that trading involves various forms of discomfort – losses, waiting, etc. And it’s the ability to tolerate discomfort – resilience – that separates successful traders from the rest.
If you believe you have an edge but are unable to execute on that edge, you have two viable options.
You can decide to give up trading, or you can address the issue directly. Getting new software, indicators, joining another chat room is not going to do it for you. You’re welcome to try….but the trading road is littered with people like this. Although you may not want to admit it to yourself, you know I’m right.
A trader needs to be very honest with him or herself. Believe it or not, once you have an edge, self-honesty is the first step to making money in the market.
And one more thing… DO NOT listen to total BS that is coming from so called pro-lunatics-retail-traders. Under no circumstances!
One example:
The guide to understanding bullshit part 1:
  • What they say: “I’ve made 30% today”
What they mean: “I funded an account with £100. Bet it all on a trade and made £30 profit.”
The guide to understanding bullshit part 2:
  • What they say: “The level I called worked to the pip”
What they mean: “The other 6 levels I mentioned didn’t work but, if anyone mentions that, I can come up with a good reason I wouldn’t have traded at any of them”.
The Ten ‘DS’ Rules:
  1. Learn to function in a tense, unstructured, and unpredictable environment.
  2. Be an independent thinker versus a conventional thinker.
  3. Work out a way to handle your emotions and maintain objectivity.
  4. Don’t rely on hope and fear in the conventional sense.
  5. Work continuously to improve yourself, giving importance to self-examination and recognizing that your personality and way of responding to events are a critical part of the game. This requires continuous coaching.
  6. Modify your normal responses to certain events.
  7. Be willing to face problems, understand them, and recognize that they are in some way related to your behavior.
  8. Know when problems can be resolved and then apply methods to solve them. That may mean giving up some control in order to gain a different control. It may mean changes in your personality, learning self-reliance, or giving up independence and ego to become part of a trading team.
  9. Understand the larger framework in which trading occurs—how the complexity of the marketplace and your personality both must be taken into account in order to develop the mastery of trading.
  10. Develop the right mindset for trading—a willingness to commit to the kinds of changes in personal habits and beliefs that will drastically alter your life. To do this requires a willingness to surrender to the forces of the game. In order to be able to play at a maximum level, you have to let go of your ego and your need to have things your way.
Always respect the marketplace. Never take anything for granted. Do your homework. Recap the day. Figure out what you did right and what you did wrong. That is one part of the homework; the other part is projective. What do I want to happen tomorrow? What happens if the opposite occurs? What happens if nothing happens? Think through all the ‘what-ifs.’ Anticipate, plan and react.
Trading psychology is much easier when we have a genuine "why" underlying our actions. Too many people are pursuing trading because they can't figure out another way to work independently and make enough money to support themselves. This is understandable, but invariably ends badly. People setting themselves up as gurus are all too willing to exploit the desire to make a living from trading. A great question to ask about any idea advanced by a guru is, "Why?" If you--and they--can't truly explain why an idea works, how do you know you actually have an edge and not just another pattern fit to market data?
I’ve said it before, and I’m going to say it again, because it cannot be overemphasized: the most important change in my trading career occurred when I learned to divorce my ego from the trade. Trading is a psychological game. Most people think that they’re playing against the market, but the market doesn’t care. You’re really playing against yourself. You have to stop trying to will things to happen in order to prove that you’re right. Listen only to what the market is telling you now. Forget what you thought it was telling you five minutes ago. The sole objective of trading is not to prove you’re right, but to hear the cash register ring.
Every 3-4 months I get people who get so excited about trading by reading all these materials I post and they start thinking they wants to be next big trader but after few months they becomes silent and after year or two when I see their profile they are doing something else.
Market is the King, you should not come to market with the idea to beat it mentally, instead you should come to market go with flow mentality. It is tough. It can play with your life, mind and whatever you believes in and I bet, if you do not have a financial stability, you will gonna abuse yourself, your family and who knows even your God. When you read about all these successful traders and their rules etc. It feels really good and you start thinking you can be that guy too but you can't avoid that fact 95% of those people who come to market will fail. These are not Tom, dick and harry kind of people they are Doctors, engineers, Business people, Lawyers… so obviously they are intelligent there is no doubt about it, but they fail in market. Reading is important but getting experience in market is a whole new thing, every trader who has some success will tell you they went bankrupt or blown few accounts before seeing some success. At the end they started getting their own pattern as why they were losing money. They corrected it and now they are successful in market so you have to get that part of correcting your mistakes by yourself. I don't think any amount of material you read has anything to do with it.
Many traders take risks when they shouldn’t. They take on too much risk too easily by over sizing, risky bets, etc. They not only lose money but also tie up their time and money managing these trades, and the psychological price they pay is huge.
When the time comes to enter a trade – when the big opportunity shows up, they hesitate. They’ve been so frustrated with the poor performance of the previous trades they’re not able to pull the trigger when they really should.
The market is an opportunity-generating machine; we just have to wait for the right opportunity. Trading is as much a waiting game as it is anything else. Waiting for the opportunity and then waiting for the trade to work.
Price Charts are a reflection of Human Nature / Mass Psychology.The same market patterns will continue to be valid as long as Human Nature remains the same -in other words - FOREVER!
Technical structure with fundamental conviction is the name of the game…
Chase The Greatness!
Dominik Stone

Sunday, January 19, 2020

The Art of War, The Art of Trading

 ‘The Art of War / The Art of Trading’ by Dominik Stone

Rule Number 1:
Always wait for the setup: No Setup-No Trade
Easy, follow strictly designed plan of rules for entering any markets
Rule Number 2:
THE BEST trades work almost right away
Best placed trades, at correct prices, will simply accelerate in right direction
Rule Number 3:
Never take a big loss. If it doesn’t ‘feel’ right. Remove it!
Never allow losses to grow, cut them short if trade goes against you
Rule Number 4:
Always perfect your craft and sharpen your skills
Study, learn, search, practice — always
Rule Number 5:
Be patient with winning trades: Impatient with sketchy trades
Run winners and cut losers quick
Rule Number 6:
DISCIPLINE to follow your plan is the key to winning in trading
Follow your plan, always, never deviate
Rule Number 7:
Never get emotionally attached to trades
Emotions are in every trade, plan sizes correctly and stay detached
Rule Number 8:
Always trade with the size that makes you unemotional
If you can’t sleep at night your trade size is too large
Rule Number 9:
Keeps things very simple and don’t over-think your trading methods
Simplicity is the key, don’t overcomplicate your trading rules
Rule Number 10:
Stay humble at all times
Always… Psychology is everything.

An Investment Nudge

From Barron's:

Richard Thaler is a prolific academic, a successful author, and a principal at an investment firm with billions of dollars in assets under management. He has also appeared on the silver screen and has a Nobel Prize for his contributions to behavioral economics.

Thaler, a professor at the University of Chicago Booth School of Business, recently sat down with several of us at Barron's to explain how investors can be overconfident, nudged, and where they commonly go wrong.

Leslie Norton has some of the highlights:

It’s the new year. What behavioral errors should people watch out for?

Most people are under-saving. I blame the plan sponsors, because it means they haven’t employed my favorite intervention called “Save More Tomorrow,” where you automatically increase the saving rate over time.

We know that the best way to reduce biases is just to make decisions automatic. Investors are less stupid if they’re in a target date fund that prevents them from panicking when the market goes down, and they do better in 401(k)s if we automatically enroll them, and then automatically escalate them up to some sensible saving rate.

What are some other errors investors make?

The biggest mistake people make in life is overconfidence. In investing—unless people are explicitly investing to manage for taxes, which we know they typically get wrong—it’s not clear they have any business buying and selling individual securities. Most active managers underperform, at least by their fees, or more. So if professionals with their Bloomberg terminals and access to all kinds of information can’t do better than throwing darts, why should individual investors think they can?

My own personal conjecture is that the rise of individual investing in the 1990s, which contributed to the tech bubble, was caused by the illusion of information. Everybody had Yahoo! Finance or whatever, and people felt that they were better at figuring things out than other people, and that the information was private to them. When the market was going up 30% a year, it was very easy to convince yourself that you’re a good investor.

What’s an investor to do? Put everything in the bank?

I put my money in the stock market. I was on a morning show once, and someone asked what my advice would be the next time there’s market turmoil. I said, well, it would be to switch off this network and leave things alone. I was not invited back.

In my retirement accounts, I have mostly index funds from Vanguard or TIAA-CREF. The only actively managed funds that I own are ours. I try to be globally diversified, and I try not to do things that I don’t know how to do.

Find the rest of Leslie's Q&A with Richard Thaler here.

Saturday, January 18, 2020

Stocks Overvalued: Three Indicators at Record Levels

The SPY ETF, which tracks the S&P 500 reached new highs. This is a weekly chart, beginning in 2011.

PEG Ratio

The price-earnings to growth ratio, commonly called the PEG ratio, sits at its highest level since Bank of America started tracking the data in 1986. What investors are willing to pay for stocks relative to their long-term earnings growth expectations is at an all-time high, according to Bank of America.

The price-earnings to growth ratio, commonly called the PEG ratio, sits at 1.8, its highest level since the firm started tracking in 1986.

“We have pulled forward some of the gains from later this year, and could see some multiple compression,” the firm’s equity and quant strategist Savita Subramanian said in a note to clients Thursday.

The current simple price-to-earnings ratio is at 18.4 times, hitting a level the ratio hasn’t seen since 2002.

Shiller PE ratio for the S&P 500.

This is the price earnings ratio is based on average inflation-adjusted earnings from the previous 10 years, known as the Cyclically Adjusted PE Ratio (CAPE Ratio), or Shiller PE Ratio.

It's currently at 31.84. It's only been higher twice since 1880.

The Buffet Indicator

As of Jan 17, 2020, the Total Market Index is at $33,534.2 billion, which is about 155.7% of the last reported GDP. The US stock market is positioned for an average annualized return of -3.1%, estimated from the historical valuations of the stock market. This includes the returns from the dividends, currently yielding at 1.71%.

As pointed by Warren Buffett, the percentage of total market cap (TMC) relative to the US GNP is “probably the best single measure of where valuations stand at any given moment.”










Is There Too Much Government (or Private) Debt?

This is a complicated subject, with opinions all over the map. Debt in most countries today is unsustainable. At some point, a nation runs into trouble; for example, Greece. Some borrowing is good, which provides more flexibility in funding government programs.

But if there’s too much borrowing, particularly when encouraged by misguided government policies, then households and businesses are very vulnerable if there’s some sort of economic disruption and they no longer have enough income to finance debt payments. This is when debt becomes excessive.

Yet this is what the crowd in Washington is encouraging. More debt to finance more government programs, as if there is no limit and no tomorrow.

Global debt of all types grew by $57 trillion from 2007 to 2014 to a total of $199 trillion, the McKinsey Global Institute reported in February 2015. That’s 286% of global GDP compared with 269% in 2007. The current ratio is above 300%.

See: Debt, Bubbles, and Reckless Government

The world's debt rose by $3 trillion in the first quarter of 2019 — an almost unprecedented borrowing binge that brought total global debt to $246.5 trillion. Total U.S. debt (private and public) rose to a new all-time high of more than $69 trillion — led by federal government debt, which is now over 101% of GDP.

See: The world's debt rose by an unprecedented $3 trillion in the first quarter of 2019

High levels of debt put countries in a vulnerable position in the event of a downturn and could endanger the world's economic recovery, said economists from the Institute of International Finance, which released the study today.

Artificially low interest rates are distorting economic decisions by making something (debt) seem cheaper than it really is. The bottom line is that government spending programs directly cause debt, but we should be just as worried about the private debt that is being encouraged and subsidized by other misguided government policies.

The consequences of such high and rising debt could be significant. High and rising debt will:
  • Slow income growth;
  • Increase interest payments, crowding out other priorities;
  • Push up interest rates;
  • Dampen our ability to respond to the next recession or emergency;
  • Place more burden on future generations; and
  • Increase the risk of a fiscal crisis.
See: Why Should We Worry About the National Debt?

Personal Economics 101

Friday, January 17, 2020

Random Thoughts

If it doesn't exist yet, politicians will create a new tax. For example, Maryland legislators want to tax online advertising. Can you think of anything that is not taxed?

The Atlantic Monthly says 2019 was the hottest year on record and the last decade was the hottest ever measured. But the Heartland Institute, which studies such data impartially, claims this data is cherry picked. For one thing, the term measured "means about 125 years." Climate changes are normally measured in much longer periods. And I'm pretty tired of the fear-mongers out there. If the climate is changing, let's take steps to adapt to it. The prospect of changing it to what we want are limited at best. I enjoy our current standard of living. I don't wish to go back to the middle ages, which is what the Green New Deal would do. Sorry Bernie.

Glacier National Park used to be adorned with signs warning tourists its precious natural treasures would be "gone by 2020." The new decade is here — and it turns out that some of the park's glaciers have actually increased in size, and 29 remain stubbornly unmelted.

Mike Bloomberg recently said that California should be the model for the rest of the country. It seems though, more people leave California than move there, so what happens if Mike gets elected President? He'd probably be less destructive than Sanders or Warren, but I'd be happy to let Trump have another term.

But so many people now base their decisions on who to vote for on personality. Otherwise very intelligent people are basing their decisions on this criteria alone. Sad. But we're in the age of electronic and social media. I heard this thread recently about a Dem candidate. Doesn't matter who. "He's so compassionate." Really? You don't know shit. And who gives a crap. I want someone in office who will get things done (the right things) and put our interests first.

The Democrats new hero, Lev Panas, a White House attorney, who says he has damaging information on Trump, was born in the USSR, and is facing criminal charges over illegal campaign contributions and other charges. It doesn't matter that his credibility sucks. Lefties such as Rachel Maddow are sucking up to him. Pathetic. After nearly 4 years, the Democrats still have nothing on Trump other than he beat them at their own game. 

I get too much email. I try to keep it to a minimum by unsubscribing to stuff, but it keeps coming. But I have subscriptions which keeps me informed on current news and investing information. So I have to drudge through it every day. What did we do before email?

I buy computers like I buy cars: Used. Or in computer terms, refurbished. I look for what they call Grade A refurbs. They are about 50% cheaper than a new one, and come with a 12-month warrenty. I currently have four refurbs in my house, and all are still working great. The only issue I had with one is a bad hard drive when I first started it up, and the company I bought it from replaced the drive for free. I get them from Joy Systems, via TigerDirect.com


Wednesday, January 15, 2020

What's Easy is Really Not

By Dominik Stone, former JPMorgan trader

I will give you one simple rule: When a stock doesn’t do what you expect it to do, sell it.

Here's some more:

1. Trade to trade well; not to make money. The money will follow if you trade well.
2. Fiercely protect capital. Keep losses small. Remember Buffet's rule: Don't lose money.
3. Act immediately without hesitation on qualified setups.
4. The only thing worse than being wrong is staying wrong.
5. If confused, see step #2.

No hesitating, no questions or doubts raised, no conjectures of the way it should have turned out, or might still turn out, no dreams of how it will do, what it was supposed to do‚ tomorrow.

The pro never says, "I’ll watch it one more day." He doesn’t phone an analyst who’s been following the company and ask, "What’s happening? Is there any news?"

All too often, the delay in searching for the "bullshit why?" is costly! The desire to be perfect is one of the prime bugaboos of the stock market, but it’s a compulsion that belongs on the psychiatrist’s couch, not on the exchange floor. And that means no berating yourself for having bought it, should it then go down, and no remorse for having sold should the stock turn around after you’ve gotten out and finally do what was expected.

A lot of people seem to be unaware of the fact that they are trading with a mindset that is inhibiting them from making money in the markets. Instead, they think that if they just find the right indicator or system they will magically start printing money from their computer.

Trading success is the end result of developing the proper trading habits, and habits are the end result of having the proper trading psychology.

Trading requires skill at reading the markets and at managing your own anxieties.

Easy, right? Nope…You see, what’s easy is really not.

Tuesday, January 14, 2020

Avoid Advice That Will Waste Your Time and Money

Personally, I have read hundreds, if not thousands, of articles and books, and watched countless hours of video (besides sitting in classrooms) about personal finance, investing and economics. There are certain principles that remain timeless; I'll focus on personal finance here, but there are certain principles for investing and economics that can be consolidated in just a few ideas.

But first let's mention some things to avoid, in my opinion. In most cases, the message will be the same, and your time is valuable, so I've already wasted my time for you; no need to waste yours.

You'll see headlines and memes like this:

   1. How to Retire with $2.6 million When You Only Have $1,000 to Start
   2. Turn $535 into a Million
   3. 9 Simple Steps to Become A Millionaire by Investing Just $200 a Month
   4. How to Turn $100 into $500,000 in the Stock Market

And then they get really inventive:

   5. $300 - $500 Everyday with Just 5 Minutes of Work
   6. Make $600 a Month Dropshiping [sic]
   7. How to Make Money in Just Minutes a Day
   8. $80,000 Every Single Month

Number 1 wants you to start when you're a teenager. And maybe not quite $2.6 million. How about $1 million? Talk about misleading headlines. The object here is to get you to the blog site so you can buy things. Really, that's how you're going to be a millionaire?

Number 2 above requires you to save $535 per month for 30 years with an average return of 9.1% a year. Your savings and/or investment will be worth $1,007,667. The challenge here is to have the $535 per month for 30 years.

Number 3 has a 40-year time span with a 10 percent annual rate of return. The only problem with these assumed rates of return is they are not historically realistic. Over the last 30 years, the average investor had a return of 3.66% a year and the SP500 returned 6.7%.  According to Vanguard, the expected return over the next 10 years is 6.6%.

So let's take #4 above, and see if we can turn $100 a month into $500,000, using a different rates of return. If we use the expected return rate of 6.6%, then you'll end up with $113, 412 after 30 years. To get to $500,000, we need to earn 13.6% a year over 30 years. Not impossible, but probably unlikely for most investors.

However, Schwab's ETF portfolio wizard claims to be able to build a moderate portfolio with an annual rate of return of 9% (also over 40 years). So that may not be impossible. This type of portfolio considers growth, with relative stability. It consists of 35% large cap, 10% small cap, 15% international, 35% fixed income and 5% cash investments (money market). So let's use this to see how you could become a millionaire by the time you reach 65. (You can use the savings calculator at NerdWallet to compute your own scenarios very easily.)

Here's the plan. You're 30, and you have no savings. But decide you can do $100 per month right now. You have 35 years until you retire. So you open an IRA so your interest and earnings will grow tax free.  You save $100 a month for the first five years, $200 for the next five years, $300 for the next five, and so forth, until you're saving $700 a month for the last five years.

Year 5: $7,756
Year 10: $27,343
Year 15: $65,611
Year 20: $133,128
Year 25: $246,443
Year 30: $431,466
Year 35: $728,766

Better than what you started with, but you see the challenge. You have to save your ass off and make the best return on investment you can. Notice how compound interest accelerates during the later years.

The better plan -- and the best I can find -- is to structure your budget to save 10% of your earnings. It should be the top line of your budget, not the bottom. Pay yourself first, then spend the rest. Based on figures from CNBC and the U.S. Bureau of Labor Statistics, here's average monthly earnings for different age groups:

25 to 34: $3,627
35 to 44: $4,428
45 to 54: $4,442
55 to 64: $4,762

So we begin with monthly savings of $363 and increase that to $443, then $444 and finally $476. This will be in 10-year increments, instead of the 5-year in our first example.

Year 10: $71,022
Year 20: $258,543
Year 30: $720,413
Year 35: $1,164,165

So we've reached a million dollars plus. What's noticeable about this example is we started with a higher savings rate early on, but our savings rate in later years was not as high as required in our first example. This is why the 10 percent rule works best for most people. If you start later than when you're 30, you'll have to increase the rate to 15% or higher.

You can use the compound interest calculator to explore different scenarios on your own.

Going back to our list above, I won't waste your time on 5 through 8. They're about the same. You're not going to be a millionaire by wasting time on these types of web sites. You can't realistically make $500 a day (every single freaking day) with 5 minutes of work. But hey! Buy my program for just $39.95 and I'll give you the secret to my success. That's how this guy gets rich. But not you.

Besides, if your goal is to be just a millionaire, ask yourself why? In my opinion, your goal should be financial security, by not living paycheck to paycheck, being out of debt, with the freedom to have flexibility in your career and life. If that's a million bucks for you, fine; but it doesn't have to be. You decide. Honestly, I don't have a million in assets, yet I feel free to do anything I want, except maybe lease a Gulfstream 550 when I want to travel. But I can afford first class on American, so who cares. Road trips are fun anyway. And I'm retired.

I've found that most successful people are willing to share their "secrets" for free.  There is one thing everyone will tell you: Get serious about a budget. After you've managed that: Get out of debt. The third leg is have an emergency fund. This last will kill your finances more than any other problem you might run into. Do not use credit as an emergency fund.

These are all possible, but you have to change your behavior. As Dave Ramsey says, and I believe him to be correct, is that financial security is 20 percent knowledge and 80 percent behavior.

But don't take my word for it. Start with studying successful people. Here's some to get you started.

Jim Rohn was invaluable to me. I especially like his statement that you need a personal philosophy.
Your personal philosophy is the greatest determining factor in how your life works out. Success is neither magical nor mysterious. Success is the natural consequence of consistently applying basic fundamentals.
Dave Ramsey, of course, has a solid program for getting out of debt. I used it and it worked. No short cuts though;  you have to do the work.

Phil Town has a solid approach to investing in individual companies, based on the work of Phil Graham and Warren Buffett. Most of his information is free, either from his web site,  or his YouTube videos.

Reading is fundamental. If you want to succeed at anything, develop a habit of reading. You can get started with the suggesting on this blog: Must Reads and Advanced Reads.

Finally, make this journey of discovery that will last your lifetime. I believe firmly that the more you do it and apply it, the more fun you'll have with it.

Thursday, January 9, 2020

A Mickey Mouse Plan to Save America

Reprinted from Jeff Clark's Market Minute. This essay, originally published in 2012, brilliantly explains the problem with the U.S. government's tax and deficit problem. Reprinted with permission.

by Jeff Clark, editor, Market Minute

The United States of America could be the happiest place on Earth.

We just need to change our income-tax structure.

After filing and paying my 2011 taxes, there was still a little money left in my checking account. So I decided to splurge a bit and take the wife and kids on a mini-vacation to Disneyland.

As I stood in the ticket line outside "the happiest place on Earth," I noticed the wide variety of people standing in line with me. There were tall people… short people… fat people… skinny people… people of every ethnic background imaginable. There were kids, teenagers, young adults, mid-lifers, and senior citizens. Every genetic and chromosomal background possible was represented, as was – I think – every income class.

Certainly, the gentleman in front of me – with the tapered slacks, the Fa├žonnable pullover shirt, and the Cole Haan walking shoes – earned a decent living. In front of him, though, was a man wearing oversized denim shorts, a "Battle of the Bands 2009" t-shirt, and a stained baseball cap. He probably wasn't doing as well financially.

But here's the thing… we all paid the same price for our admission tickets.

It doesn't matter how young or old you are. It doesn't matter where you come from or what nationality your ancestors were. And it doesn't matter how much or how little money you make. Everyone pays the same price to gain access to all the rides and attractions at Disneyland.

And Disney is a hugely profitable corporation. Just look at the stock over the past 10 years…

[Note: The chart below is through 2013. Today, Disney sells for nearly $150 a share, another 300%.]


It's up 175%.
Still, I had to wonder… If the best country on Earth operates with a progressive tax policy – where higher-income earners pay more for the privilege of living within its borders – why doesn't Disney charge higher-income earners more to enjoy its theme parks?
I called Disney's shareholder services department to get an answer. After being transferred about five times, I was finally able to convince the lady on the other end of the line that this wasn't a joke… and I was a serious financial analyst.
She agreed to answer my questions on the condition of anonymity. So, let's just call her "Snow White."
Here's how the interview went…
Me: Why doesn't Disney charge different admission prices based on the income level of the people visiting its theme parks?
Snow White: Um… because that's a stupid idea.
Me: Are you saying the tax policy of the United States of America is stupid?
Snow White: Alright… if you're asking this as a serious question, maybe "stupid" is too strong a word.
At Disney, we charge everyone the same admission rate because once inside the park, everyone has equal access to all the rides and attractions. We do have discount tickets for young children, since they may not be permitted on some of the rides because of safety concerns. And we do offer a small discount to organizations that purchase a large number of tickets all at once. For the most part, though, everyone pays the same price to enjoy our parks.
Me: OK. Everyone pays the same because everyone has the same opportunity. But let's say someone has an unfair advantage to the rides, would he have to pay more?
Snow White: There are no unfair advantages at Disney.
Me: Oh, sure there are. For example, my favorite ride is the Indiana Jones Adventure – which is located all the way over at the north side of the park. If I enter the park from the south side, I don't have the same opportunity to ride the ride as someone who enters from the north. He should have to pay more.
Snow White: Well… no… You can always just enjoy the rides that are closer to where you enter the park. Or you can walk over to the north side to ride Indiana Jones Adventure.
Me: But he's closer… And that's an advantage.
Snow White: Walk faster.
Me: Never mind… Can you tell me how you decide what to charge for admission?
Snow White: Yes. Admission prices are set to ensure a good value for the consumer, enable us to keep the park in excellent condition, allow us to pay our employees a competitive rate, and provide a reasonable return to our shareholders.
Me: But what if I can't afford your admission price? Can you just charge some rich guy in line in front of me for two tickets and then just give one to me?
Snow White: That's not really a serious question, is it? Of course we couldn't do that.
Me: But what if I'm out of work? Or if I just spent my extra money on a new set of headphones? Or if there are just other things I need to pay for first, and I don't have the money for a ticket to Disneyland? What am I supposed to do then?
Snow White: Well… I guess like anything else you might want out of life, you're going to have to work hard and save for it.
Me: Thank you for your time, Snow White.
Snow White: You're welcome… I think.
As I hung up on Snow White, it occurred to me that I shouldn't be asking Disney why it doesn't have an admissions rate similar to the United States progressive tax policy. The company is doing great. Go back and take another look at the DIS chart.
Instead… we should be asking the U.S. government why it doesn't have a tax policy similar to Disney's admissions rate.
Think about it… Just take a look at the "stock" of the United States of America over the past 10 years…

[Note: Since 2013, the dollar has recovered somewhat, to about 96 on the chart, but nowhere near its high in the early 2000s.]


The U.S. dollar has lost one-third of its value in the last 10 years. Our debt level is exploding. We can't balance our budget. And we're about to tumble over the fiscal cliff.

Maybe we should take a page out of the Disney playbook… and see if we can adjust our tax policy to turn America into the "happiest place on Earth"…

Forty years ago, Disneyland had a "progressive" ticket structure. Different rides cost different amounts of money depending on the "thrill" of the attraction.

I remember fighting with my brothers over who would get the rare and valuable "E" tickets that allowed us to ride the Matterhorn... and who would get stuck with the cheap "A" tickets and have to hang out on King Arthur's Carousel.

Disney doesn't operate that way anymore. It ditched the progressive ticket policy in favor of a flat-rate plan.

Everybody pays the same price to get into Disneyland. It doesn't matter if you spend the entire day riding Space Mountain… or park yourself on a bench in the shade and wait all day for the character parade. Everyone pays the same amount to spend time in the happiest place on Earth.

The United States should adopt a similar policy.

Forget about taxing people on a percentage of their income. The rich guy shouldn't have to pay more for an admission ticket than the poor guy. Instead, everybody should pay the same price for the chance to enjoy all the rides, attractions, and opportunities available in the United States of America.

The tax amount should be based on the same principles Disney uses to set its admission prices. As "Snow White" told me when I called up Disney's shareholder services department, those principles are: "To ensure a good value for the consumer, enable us to keep the park in excellent condition, allow us to pay our employees a competitive rate, and provide a reasonable return to our shareholders."

For example, the U.S. government plans to spend a total of $3.8 trillion in 2013. Since we have roughly 315 million people who call America "home," each person would be required to pay $12,060 to stay here. That means a family of four would pay taxes of just over $48,000.

That's an obscene amount. But it reflects the current spending habits of the U.S. government. So that's the ticket price. That's what you need to pay if you want to take advantage of any or all of the opportunities available in America.

If it's too expensive, remember what Snow White told me yesterday: "Well… I guess like anything else you might want out of life, you're going to have to work hard and save for it."

If you're unwilling or unable to do that, leave. Nobody is required to stay at Disneyland.

If enough people leave because they can't afford the admission ticket, the government will have to adjust the price – which means it'll have to adjust its spending plans.

Maybe it scraps the plans to build Mr. Obama's Wild Health Care Ride. Maybe it stops subsidizing Solar-Powered Fantasyland. Maybe – like any well-run corporation or household – the government starts paying better attention to where it wastes its money.

Then it can lower the price of admission and everyone can enjoy the happiest place on Earth.

It sure worked well for Disney.

[You can view all of Jeff Clark's articles here.]

Retail Sales Strong, Jobless Claims Fall

From Kelly Evans @ CNBC The retail sales report came out this morning. How's a 10% surge in spending sound? Because that's what just...