Jim Jordan: Democrat's Economic Plan is "Stupid"

Rep Jim Jordon: Biden's claim that government spending will bring down inflation is stupid. Democrat economic plan of increased lockdowns due to Covid-10, spend like crazy, pay people not to work, and increase taxes on those who do work, may be the four most stupid economic policies ever.  

Consumer Spending Spurs Growth, Inflation

From the American Institution for Economic Research

Real gross domestic product increased at a 6.5 percent annualized rate in the second quarter, up from a 6.3 percent pace in the first quarter. Over the past four quarters, real gross domestic product is up 12.2 percent, putting the level almost back on trend.

Growth in the second quarter was led by consumers. Real consumer spending overall rose at an 11.8 percent annualized rate, beating the strong 11.4 percent rate in the first quarter, and contributing a total of 7.8 percentage points to real GDP growth. The pattern of contributions to growth among the components of consumer spending in the second quarter was the mirror opposite of the first quarter, as the second quarter was led by consumer services, followed by nondurable goods and then durable goods.

Spending on services grew at a 12.0 percent rate, contributing 5.1 percentage points to real GDP growth, while nondurable-goods spending rose at a 12.6 percent pace, contributing 1.8 percentage points, and durable goods spending rose at a 9.9 percent pace, contributing 0.9 percentage points. Within consumer services, spending was particularly strong on food services (restaurants), travel, accommodations, and recreation services as consumers emerged from pandemic restrictions.

Consumer price measures also showed a rise in the second quarter. The personal consumption price index rose at a 6.0 percent annualized rate, up from a 4.3 percent pace in the first quarter. From a year ago, the index is up 3.8 percent. Excluding the volatile food and energy categories, the core PCE (personal consumption expenditures) index rose at a 6.1 percent pace versus a 2.7 percent increase in the first quarter. From a year ago, the core PCE index is up 3.4 percent.

While there is significant concern being expressed about the potential for a sustained surge in consumer price increases, there are still major distortions in prices and the financial system resulting from government policies, disruptions to supply chains, and changes to consumer spending habits. Since many of these distortions are likely to be temporary, a 1970s-style resurgence in persistent consumer price increases remains unlikely.

From OilPrice.com

Why We Can't Get Rid of the Internal Combustion Engine

Why are car manufacturers still improving and spending money on combustion engines in the year 2020? Should all development research be going into electric cars and electric vehicle technology? Unfortunate news if you think ICE transportation is going away in the near future to be solely replaced by electric vehicles (EVs). The internal combustion engine is still incredibly relevant today, and can still use further improvements in order to reduce global emissions. 

In this video we'll discuss scientific issues facing electric cars, environmental problems with ditching combustion engine research, how cost impacts customer decisions and manufacturer profits, and ultimately how consumer choice plays a large role in this industry. If you've ever wondered why combustion engines are still being developed, this video breaks down all the details.

Buy Now, Pay Later. Is This a Good Idea?

As you may have noticed, “buy now, pay later” (BNPL) options are exploding, with retailers ranging from department stores to airlines allowing customers to pay for goods and services in installments rather than all at once. In fact, in 2021 over half of consumers have used a BNPL service such as Klarna, Afterpay or Affirm to finance their purchases.

These plans been around for many years, however, mostly as "buy now, use our card or credit plan, pay no interest for a year", or more.

Pay no interest for 5 years! We've all seen them.

But that said, there are some significant potential gotchas to think about before you give it a try. Let’s take a look at how BNPL services work—so that you can understand their pros and cons—and make an informed decision about when they may (or may not) be a good choice.

BNPL plans work like an old-fashioned layaway plan in reverse. Instead of having the merchant hold on to the item until you complete all your installment payments, you receive your goods or services up front. There’s no credit check (you're accepted or rejected after providing only your name, address, phone number and birthdate), and you pay over time through your debit or credit card—typically in four installments separated by two weeks.

In effect, the merchant and BNPL company are giving you an interest-free mini-loan. The BNPL company charges the merchant a fee, and the merchant looks to compensate for that by increasing overall sales.

Everything works as planned if you pay on time. However, if you’re late or miss a scheduled payment, you can incur substantial late fees and possibly interest charges. In addition, late or missed payments can damage your credit.

When BNPL might make sense

Paying cash (even if over time) is cheaper than financing a purchase where you pay interest—whether that’s for a car, a refrigerator or even a pair of shoes. Given that, there are times when using a BNPL can make sense. For example, let’s say you need a new computer for work, but don’t currently have a spare $2,000 after exhausting your emergency fund. Or perhaps you unexpectedly have to purchase an expensive plane ticket to care for a family member. In these cases, making four interest-free payments every two weeks could be a godsend—and a definite plus over carrying a balance on a high-interest credit card.

It’s also true that it's easier to qualify for a BNPL service than for a credit card. That’s probably one of the reasons many younger people who haven’t had the time to build their credit history or buyers with poor credit are more likely to use BNPL (although usage continues to climb across all ages).

How BNPL can cause problems

So what’s the catch? Actually, there are several. First, BNPL services are not currently as highly regulated by the government as credit and debit cards. Depending on the service, you likely won't receive the same consumer protections you can get with a credit card company (for example, getting a refund for a defective product or service you never received).

Second, you may find it more difficult to stay on top of multiple purchases and payments, complicating your ability to track your spending and accurately budget. Plus, even if you make every payment on time, using BNPL services generally won't build your credit score, which can haunt you later if you’re trying to get a home mortgage, rent an apartment, or even get a job!

But to my mind, the most serious downside of BNPL is the temptation to overspend. As behavioral economists have shown us, we humans don’t always (or even often) make the soundest financial decisions. Our emotions and biases can easily take over our common sense. Therefore, a basic tenet of behavioral economics is to make the good things easy—and the bad things hard.

BNPL (and online shopping, for that matter) can do the opposite. In fact, one study found that 45 percent of BNPL users make purchases that don’t fit in their budget. In other words, by easing the way for impulse purchases, BNPL can make it very easy to live beyond your means—which can stand in your way of building a solid financial future.

The tried-and-true rules of money management still hold

Like credit cards or debit cards, a BNPL service is simply a financial tool. It's not universally good or bad in all situations, but just a way for you to manage your finances. The key is for you to remain in charge, and not let the tool rule you or cause you financial harm.

To keep impulse buying (and your budget) in check, keep your goals top of mind and consider the benefits of just paying cash. If you're disciplined about budgeting and saving, spreading out your payments over time can be helpful. But if you use BNPL to support an unsustainable lifestyle or it's impeding your ability to fund other important goals (an emergency fund, retirement, paying down existing debt), that's a problem. In those cases, it's best to take a deep breath and walk away from your shopping cart.

Peter Lynch's 8 Rules for Investing

In this video Peter Lynch offers 8 investing rules for all beginner investors to follow. They're simple but the hard thing is sticking to them!

Peter Lynch is an American investor, mutual fund manager, and philanthropist. As the manager of the Magellan Fund at Fidelity Investments between 1977 and 1990, Lynch averaged a 29.2% annual return, consistently more than double the S&P 500 stock market index and making it the best-performing mutual fund in the world.

1. Small investor's have a huge advantage

2. Know what you own

3. Don't invest purely on others opinions

4. Focus on the company behind the stock

5. Don't try to predict the market

6. Study history. Market crashes are great opportunities

7. You have plenty of time

8. You need an edge to make money

I highly recommend his book. 

From Amazon: One Up On Wall Street

Weekly Market Alert: New All-Time Highs

When I wrote on July 19 about the need to avoid a panic, little did I know that my expectation that the market would not plunge into a correct would come true. Stocks rose Friday for the fourth straight session after a rough start to the week, with most major groups moving higher. 

The Dow closed above 35,000 for the first time ever, bringing its 2021 gain to 14%, and rising 1% for the week despite dropping more than 700 points on Monday. The S&P 500 rose 2% for the week and the Nasdaq Composite added 2.8%. The 10-year Treasury yield rebounded to 1.29% on Friday, easing concerns about the economy that the bond market sparked on Monday when the 10-year yield fell to a five-month low 1.13%. Still, a 1.29% yield on the 10-year is not very good.

The different indexes surged at the bell and held onto the gains as investors looked ahead to what's expected to be blowout earnings from big tech giants next week. The July FOMC Meeting gets underway on Tuesday and market participants will be paying keen attention to hints that the Fed's bond purchasing will begin to taper sooner than later at the Fed's announcement on Wednesday. That could cause some volatility in the market. Finally, while big cap tech stocks have soared into earnings, don't be too surprised if traders sell the news. I'd wait for prices to settle down after earnings before buying at these levels.

You still need an exit plan. From my point of view, it should be a cautionary time for investors, as explained in this Seeking Alpha article, Investors' Risk Appetite Is At An All-Time High. That Could Be A Problem.

This chart shows the NASDAQ movements for the year 2021. Note the three "dips" in the market. As I wrote on July 19, these are normal actions. In a bear market, you'd see the opposite, with little surges during the downturn. Note that the highs keep getting higher (higher highs). This indicates market strength. 

Will There Be Another Housing Crash?

As you may know, the housing market seems to be booming with record-low mortgage rates even post-pandemic. But could this surge be faced with a bust in the near future? That’s what I’m going to be discussing in this video. - Phil Town

Some Future Price Predictions

Note: Predictions are more entertainment, in my opinion, than "intelligence" on how to invest your money. But based on these here, I'd be overweight in energy and underweight in financials, which is exactly how I'm invested.

Price Predictions
Product	July 23 Prices	Dec 31 Prices	Percent Up/Down
WTI	73.45	93.15	+26.8%
Natural Gas	4.03	3.58	-11.16%
30-Year Mortgage	2.78%	2.60%	-06.75%
Gold (ounce)	$1,802	$1,620	-10.11%
Silver (ounce)	$25.19	$20.29	-04.90%
U.S. Dollar Index	92.94	94.81	+02.01%
Australian Dollar (to USD)	.7373	.710	-03.02%
British Pound (to USD)	1.3761	1.354	-06.61%
S&P 500	4391	4853	+10.52%
DJIA	35004	37842	+07.50%

Source: The Economy Forecast Agency

Peter Lynch: 10 Investing Myths

1. It can't go any lower (it can go a lot lower)
2. How high can it go? (it can go a lot higher)
3. They Always Come Back (No they don't)
4. How much can I lose? If your neighbor invests $10,000 at $50 and you invest $25,000 at $3 and it goes to $0, who loses the most? Surprisingly, many investors can't answer this correctly, says Lynch. 
5. It's always darkest before the dawn. Don't think the business can't get worse.
6. I will sell after the rebound, after the stock gets back to what I paid for it. (Note: the stock doesn't know you own it.)
7. I own conservative stocks (I don't have to worry).
8. I lost money by not buying. (You actually didn't lose anything)
9. Stock is up, I must be right. Stock is down, I must be wrong.
10. Avoid long shots. They don't work.

Getting Out of Debt

This is a question I get asked a lot on Quora. "What are the best ways to get out of debt?"

Here's my most recent answer:

You really must to want to be debt-free. There is no other way. It’s a process, of both knowledge of personal finance, and modifying your financial behavior. But it is something you can achieve, if you create a plan and follow the steps of sound financial planning.

I’m going to tell you up front that it will take quit a bit of work and effort on your part, depending on how much debt you have, and what you are willing to do. We had a saying in the military about what needed to be done do accomplish our mission: “Whatever is necessary.” This will be the same kind of thing. So you have to develop the same mindset. Be hungry.

Personal finance is 20 percent knowledge, and 80 percent behavior.

When I started I had more than $50,000 in credit card debt, had two mortgages (one on a rental house that was actually costing me more than I made in rents), and a couple of car payments, along with a student loan. I had more debt than my annual income. But I’ll never forget the moment when I paid off my last car payment to become debt free (I still have one mortgage on the house I live in, but this kind of debt — and only this kind — is allowed.)

I’m retired now. I have more than enough money to do what I want. My last car was a 2-year-old slightly used Impala and I paid cash for it…that was a fun buying experience, I’ll tell you.

Use the following steps as a guideline. I also suggest you purchase a copy of Dave Ramsey’s Total Money Makeover. It is the book I used to get out of debt and stay debt free, with very few exceptions. Best $25 I ever spent. There are others you may find that work also, but this one has been used by millions of people to get out of debt.

1. Have a plan. Write it down. It should state your goals, when you’d like to reach that goal, and what you will do to reach that goal. Of course, in the beginning you don’t know everything, but it’s a good exercise to start. Writing everything down solidifies it in your mind. And keep updating it as you go. Review it monthly. If you have a partner, you both should agree on it. You’re going to run your household finances as if it were a business.
2. Start using a budget. This is so important that no matter what else you do, if you don’t consistently and faithfully use a budget, everything else you try to accomplish with either not work or be much more difficult. In the beginning it’s hard. But just make it a habit. There are many sources online and through books to teach you how to make a budget and how to follow it. I still do this. If someone where to ask me, I could tell them off the top of my head what my monthly income and expenses are, within $100. Some people don’t know how much money they have at any point in time — avoidance or denial sometimes seems easier — but that is not going to be you.
3. Learn how to create a Net Worth statement. Basically this is your liabilities (what you owe), minus your assets (what you own). It is a great way to track your progress. You may start out with a negative Net Worth, but that will change. One note: I never use my personal property, such as furniture and/or automobiles in my assets. These are depreciating assets (they lose their value over time). I only use my home value, my investments and my cash in my assets.
4. Have an emergency fund. Nothing can blow up a well-written plan than not having an emergency fund. So I repeat: Have an emergency fund. Having a credit card is NOT an emergency fund. You never know when an unexpected expense will appear, and having to use more debt goes against everything you’re working toward. Ramsey suggests starting with $1,000 before moving on to other steps. That may not be enough in today’s world. But you have to start somewhere, so if you don’t have one yet, shoot for $1,000 to start. But always be working on it. Your goal should be at least three months’ of living expenses. I keep six months of living expenses in my checking accounts. I know, I’m not earning much if any interest, but the funds are immediately available. I don’t worry about my air conditioner or water heater blowing up, my car breaking down, or anything else I guess.
5. Now we start on the debt, and most start with credit card (or consumer debt) because it is the most costly. Then move on to car payments or other debt, such as student loans. There are two different methods of attacking this debt: snow-ball method and the high-interest rate method.
1. I used the snow-ball method, because it has a psychological component to it. You make a list of your debts (I put mine on my refrigerator) and pay the smallest one first. Make minimum payments on all the others, using the most funds you have to pay off the first one. Then cross it off when it’s paid. That is success. Then attack the second one (using the money you paid on the first, also. You don’t get to celebrate yet). Keep going until they are all paid. You’ll be surprised how fast this can go if you don’t waiver.
2. The other method has you order your debts by the interest rate. Paying the highest interest rate debt first, then the second highest, and so on. This can work, but the reward can be delayed depending the amount of each debt. I think this method can require a little more patience and self-discipline, but if you have those, it can save you some money in overall interest payments. You have to decide which one is for you.
6. Invest wisely. While you’re paying down your debt, you should be learning how to invest. When your debts are paid, you’re going to have a lot more extra cash, and you’ll want to put that into some solid, long-term investments, with an eye on a nice retirement. I’m retired now, and I’m glad I did these steps before I retired. I have enough money to do what I want now. But complete that emergency fund and get those debts paid before you get too serious about this step.
7. Save at least 10 percent of what you earn, first. This should always be part of your plan. When you’re working on the first five steps here, this may be hard, but have it as a goal. After I became debt free, I was able to save 20 percent of my income, and my retirement fund just went crazy. A nice crazy.

I have a link to my blog, and the steps I’ve outlined, with some videos to get you started. Make it an adventure, and you’ll never look back.

https://www.personalecon101.com/p/my-rules.html

It Was Bound to Happen, Though Nothing Has Changed

Note: In the last 30 minutes of trading, the DJIA recovered somewhat, to close at 33,962, or 716 points down. 

A sort of panic has set in. As I write this (about 2:20 PM CDT), the DJIA has plunged 900 points. 

But that's not even 3 percent. So it's not as extreme as it sounds.

In my opinion, markets had gotten ahead of themselves. Prices were too high. But economic indicators have continued showing signs of growth. The Shiller PE ratio is at 37; not an all-time high, but still very high. 

While inflation is a concern, investors had that albatross for several months. 

Investor (retail) sentiment was at an all-time high. According to some theories, when retail investors get this giddy, it's a sign the market may reverse direction. (In fact, most retail investors are still buying at market highs, and selling at market lows, according to most studies).

The energy markets have been beaten down in the last few days. Oil (WTI) futures are down about $10 a barrel in the last five days. Over the weekend, OPEC announced production increases for next year. This added the fall in prices today, another $4 per barrel. Overall, the sector is down some 17% since its peak in mid-June.

Some in the media pinned the decline on Covid fears. Some in the media always try to find a reason, but the truth is simply there is more selling than buying.

But the overall market is only down about 3% from it's all-time highs last week. Some market "experts" are calling for a 10 to 20 percent correction, and while that may be true, it may also not be true. This is the second time that the market has dipped since April. I think it's part of the natural process. 

The chart above shows a daily graph of the DJIA since April. Note that while a 800+ dip in the average seems extreme, on the overall picture it's barely a small blip. 

More noteworthy for long-term investors is the weekly action of the markets. The chart below is the weekly average of the DJIA since the beginning of 2017. Long-term investors should not panic and stay invested. I assume you have a three to five year plan, with an exit plan built in. If so, there is no reason to change path. If you have some extra cash, look for buying opportunities. But if the trend reverses, have an exit plan. 

Dow 35,000!! Now What? Weekly Market Alert

Retirement Planners of America's Senior Retirement Planner Ken Moraif reviews the economy and market events for the market week ending July 16, 2021. Learn more or sign up for RPOA's weekly Market Alerts at https://RetirementPlannersofAmerica.com​. #retirementplanning​​​

Cuba: A Role Model of Equality

From International Liberty
By Dan Mitchell

Nikole Hannah-Jones has said that that Cuba is a role model of equality, largely due to socialism. But she sees the world through the lens of racism, which is like having blinders on.

Hannah-Jones is the creator of the academically shoddy 1619 project. Two years ago, the New York Times unveiled the “1619 Project,” which largely argues that slavery and racism are part of the nation’s DNA. The NYT states that the project “aims to reframe the country’s history by placing the consequences of slavery…at the very center of our national narrative.” The "history" is based on Marxist thinking and Critical Race Theory. 

But back to Cuba. It's a disaster. It that's the kind of equality that the left in this country is aiming for, I'll opt out. The two charts below tell the story. 

But even if she's right and Cuba genuinely has equality, it's only because socialism has impoverished everyone, including the ruling class.

Our friends on the left apparently think that's something to applaud, as Margaret Thatcher observed, but I'd rather be part of a society characterized by an "unequal sharing of the blessings."

P.S. Ms. Hannah-Jones may be even more wrong about Cuba than Bernie Sanders, Jeffrey Sachs, or Nicholas Kristof.

Show Me the Money! But There's a Catch to Checks for Kids

The latest round of stimulus checks began arriving yesterday, but you have to be a parent to get one. Your kids also have to be under 18, with $300 per month for a child below age 6 and $250 for those aged between 6 and 17. The expanded child tax credit is aimed at cutting the child poverty rate and was part of the coronavirus stimulus package passed in March.

How much will it cost? Uncle Sam is shelling out $105B for the program, which will be sent out monthly for half of this year's subsidy, with the rest to come as a tax refund in 2022. "It's the most transformative policy coming out of Washington since the days of FDR," said Senator Cory Booker (D-NJ). "America is dramatically behind its industrial peers in investing in our children. Even families that are not poor are struggling, as the cost of raising children goes higher and higher."

To qualify, a) One must have filed a 2019 or 2020 tax return and claimed the child tax credit on the return, b) Had a main home in the U.S. for more than half the year or file a joint return with a spouse who has a main home in the U.S. for more than half the year, c) Had a qualifying child who is under age 18 at the end of 2021 with a valid social security number, d) Made less than certain income limits (credits phase out after $150K for married taxpayers, $112.5K for heads of household and $75K for all other taxpayers).

Commenting on the new child tax credit, Treasury Secretary Janet Yellen noted that the funds would provide an additional spending boost for the economy. She also called for the monthly installments to be permanent, saying the program is "something that's very important to continue." "It certainly will add to spending, but most importantly, it provides support for families to take care of the needs of children."

Wait a minute...there's a catch

The tax credit, originally established in 1997, previously provided a $2,000 credit per child under age 17 for the majority of US households. The economic stimulus bill passed this March granted a one-year expansion during the 2021 tax year, allowing for up to $3,000 per child under 18 ($3,600 for children under six) for many households. Notably, the law allowed for monthly payments through December, instead of a one-time refund upon filing taxes.

There's at least one catch—the deposits are actually prepayments based on estimated 2021 taxes, meaning families may face smaller returns or unexpected tax bills next April 

The advance payments of the enhanced child tax credit are set to start in July, but a big question on many parents’ minds is whether they will end up owing on their taxes next year if they immediately spend the money.

For some parents, the answer is probably yes, they will end up owing money next tax season. Others will likely be fine. But all eligible parents should review their finances before spending the payments, financial experts say.

“This is not like the stimulus checks,” said a certified financial planner. If you get overpaid in child tax credits or your financial situation changes this year so that you have a higher tax bill on your 2021 taxes, the IRS may demand you repay the credit come tax time.

Eligible families will receive half of their credit in the form of monthly payments of up to $250 per school-age child and up to $300 per child under 6 from July through December 2021. The other half will be paid out when they file their 2021 taxes. The credit is income-based and starts to phase out for individuals earning more than $75,000 a year or $150,000 for those married filing jointly.

For example, if you have two children and would have received a $6,000 child tax credit next year (2021 tax year), and you receive $500 per month this year from July through December for a total of $3,000, you'll only be able to claim a $3,000 child credit on your tax return. That will increase your taxes by $3,000. 

There are further details, and options to opt-out, explained at CNBC.

You can also get details from the Internal Revenue Service. 

Market Snapshot from Schwab

https://youtu.be/MO8LaObgEjQ

The Case for Capitalism, Parts 1 through 5

These are written and published by Daniel Mitchell, is a libertarian economist and former senior fellow at the Cato Institute. He is a proponent of the flat tax and tax competition, financial privacy, and fiscal 

sovereignty. His blog is International Liberty.

Part 1

This video from Dan Hannan crams 10,000 years of human history into 5 minutes. We learn about the “stationary bandit” of government and find out how our ancestors endured pervasive oppression and misery.

But there’s a happy ending to the story. It’s called capitalism.

Part 2

Yesterday, in Part I of this series, we enjoyed a video from the U.K.-based Centre for Economic Education, about how capitalism lifted the world from deprivation and oppression (also see videos by Don Boudreaux and Deirdre McCloskey).

Today, in Part II of the Case for Capitalism, here’s a video from CEE that explains how markets provide you a cup of coffee.

Part 3

Part I of this series featured Dan Hannan explaining how the emergence of capitalism led to mass prosperity, while Part II featured Madeline Grant explaining how competition and cooperation make markets so successful.

Today, in Part III, Andy Puzder compares capitalism with socialism.

Part 4

Previous editions of the case for capitalism have focused on big-picture analyses of markets vs statism. Today, let’s look at a specific product that free enterprise has delivered. 

Part 5

There’s a recipe for growth and prosperity. It’s called capitalism.

As Dan Hannan explains in this video, it’s the way to help all groups in a society become richer.

https://youtu.be/J_Bzw8W1rS8

Inflation Is Still an Issue at 5.4% Annual Rate

By Kelly Evans
The Exchange

The CPI report out this morning wasn't pretty. Prices are up 5.4% from last June, the most since 2008 (the core yearly gain of 4.5% is the highest since 1991). Put differently, it means your dollar doesn't go as far. The same buck that got you three candy bars in the checkout line last year falls shy of being able to buy the same three bars this year.

Okay, but what if you have $1.10 to spend on candy this year because you got a raise? Now you can buy the same three candy bars and have extra change! You beat inflation, right? This is basically the argument playing out on a national level--are wage gains matching, exceeding, or trailing the increase in prices, and what does that tell us about whether these price pressures are "transitory," or not.

But lost in all this is the fact that your same dollar still doesn't go as far as it used to, whether you have more money in your pocket or not. Now think about this as it relates to the whole U.S. economy. The dollar has actually been pretty stable--even strong--against other major currencies. But its value has eroded internally. It certainly buys less U.S. real estate than it used to. It buys less of the U.S. stock market than it used to. It buys you fewer Bitcoin than it did a year ago.

And this didn't come out of nowhere--it came from massive deficit-fueled stimulus combined with massive balance sheet expansion by the Fed. There's a reason Lyn Alden has compared this period with the postwar 1940s, when the government engaged in massive public policy programs (like the GI bill) and the steadily rising price level (the CPI rose 90% from 1940 to 1952) helped inflate away the debt. The Fed held rates down back then, and is still buying more than half of new Treasury issuance today.

The point is that the way to think about this whole period today is (a) how to at the very least maintain your purchasing power, and (b) how to possibly even increase it. If home prices are up 13% year-on-year, did homeowners just become 13% more wealthy, or did the dollar just lose 13% of its value? Either way, you want to own the thing itself, not the dollars. That's why these are called "real assets." It's why billionaires love buying land.

But it actually works for stocks, too--their "real asset" is a future earnings stream, priced in future dollars. So while stocks are traditionally thought of as a bad inflation hedge, they're actually a good hedge against the loss of purchasing power. And that's why they're holding up today. The S&P 500, in fact, hit a fresh record high after the CPI report came out. Think about that. The market didn't collapse because of the report--it rose in price.

How else can you maintain purchasing power? By exchanging cash for things that will increase in value as the dollar declines. Commodities sort of work, but are a trickier play, because their supply isn't fixed and some of them spiked so much coming out of the pandemic (witness the reversal in lumber). Bitcoin, maybe, if you take the five- or ten-year view. The U.S. housing stock. Even gold, which just had a "lost decade," but is still up more than sixfold since 2001.

What you don't want is to be on the other side of the trade, where you are committing to paying things that will keep rising in price. Like rent. Gas. Streaming services. Or your Google Cloud bill (good thing it's still pretty cheap). There's a reason Apple has made a whole business model pivot from selling depreciating hardware to appreciating software and services--and seen its market value shoot up as a result.

My point is this whole debate over whether price inflation is "transitory" or not or for how long or how high is sort of missing the forest for the trees. The monetary base has exploded, the dollar doesn't buy what it used to, we have tons of public debt to deal with, and it seems like we're closer to the beginning than the end of this whole "erosionary" era. Position accordingly!

Notes for Investors: What Markets Indicated This Week

• The bond market created fear this week when interest rates on the 10-Year Treasury Bond unexpectedly dropped.
• The bond market has historically been a fairly accurate predictor of where the stock market is headed. When bond rates decrease, it’s often a sign of recessionary times ahead.
• I believe investors were frightened by the bond market’s activity, and this caused a sell-off in the market.
• But is the bond market telling us we're headed toward Bear Market conditions?
• No, I think this all boils down to the ongoing unemployment issue—specifically, the labor participation rate.
• Jobs are there, but they aren't being filled because many unemployed people don’t seem ready to go back to work yet.
• When companies don't have an adequate labor supply, they typically do not make as much profit. Lower profits translate to lower stock prices—hence the sell-off scare we saw this week.
• While the recovery is not happening as fast as investors would like, I still think it’s happening and that it could end up being a massive recovery.
• So, despite some unexpected events and things not going as quickly as we’d all like to see, I still think we'll see all-time highs going into the end of the year.
• But I do feel that there could be dark clouds ahead into next year with the debt we're incurring and inflation on the horizon. But for right now, I see no reason to change my investment portfolio, which is 50 percent energy and blue chip, 40 percent bonds and 10 percent real estate. 

Treasury Yields Drop; Markets on Hold

Markets were probably a little ahead of themselves anyway. While markets have pulled back from nearly all-time highs (and in some cases, all-time highs), there is no way to tell what will happen (despite some "experts" already speculating about a market "crash". 

As you see from this daily chart of the NASDAQ (as of 2:52 PM CDT on July 8), it has a ways to go before getting to correction territory. 

In other news, a prolonged drop in U.S. Treasury yields is catching bond and fixed income traders by surprise, as well as other investors in the broader financial markets. The 10-year U.S. Treasury yield dropped below 1.3% on Wednesday, and fell another 7 bps overnight to 1.25%, despite lingering concerns about rising inflation and a gradual removal of Fed stimulus. Treasury yields play an important role in the economy, affecting borrowing costs on everything from mortgages to corporate bonds.

While the move has mystified many traders, some are ascribing the reverse to changing narratives and new developments." The market is sort of taking a deep breath," said Subadra Rajappa, head of U.S. rates strategy at Société Générale. "Are those optimistic forecasts [for economic growth and inflation] actually achievable?"

"All that seems to be implying that perhaps not only was the inflation transitory, but maybe some of the growth has been transitory," added Kathy Jones, Schwab's chief fixed income strategist.

"The muscle memory of markets is that governments will lock down again [due to the Delta variant] if they see cases rise, which means slower growth and that we are caught in a loop," explained Charles Diebel, head of fixed income at Mediolanum International Funds.

"Tuesday's [weaker] ISM reading just added more motivation to extend the move in Treasury yields lower," declared Ian Lyngen, interest rate strategist at BMO Capital Markets.

"A reduction in the Treasury General Account, which the U.S. government uses to run most of its day-to-day business, is being wound down, shrinking the supply of bonds," proclaimed John Luke Tyner, fixed-income analyst at Aptus Capital Advisors.

"A big portion of what we are seeing is a capitulation of the higher rates thesis," J.P. Morgan wrote in a research note. "Some short covering has occurred, but the breadth of bearish duration positions remains on par with 2017-2018."

Most analysts had expected 10-year Treasury yields to hit around 2% by this point in the COVID economic recovery, or at least by the end of 2021. In the first quarter alone, the yield soared from 0.9% to nearly 1.75% as the reflation trade took hold of the markets, but it looks like the move lower is now staying firmly in the opposite direction. Longer-term yields are also a closely watched economic barometer, with the rates tending to fall on a weakening growth outlook.

No Income Tax? The Taxman Still Cometh

I live in Texas, a state proud to not have an income tax. But they make it up in property taxes. As a retired person, I'd be better off living in Oklahoma, with half the property tax and pensions not included in income taxes (which are pretty low anyway.)

Let's look at another example, and compare Arizona and Texas. Assume a taxable income of $75,000 filing joint, and a property value of $400,000. Your taxes in Arizona are approximately $2,687 for income tax and $2,400 for property tax, totaling $5,087 in total taxes. In Texas, there is no income tax, but your property tax on a $400,000 home would be approximately $6,400. 

So Texas brags too much, me thinks. 

Fedeal Spending Burden