Portfolio Return as of 05/06/22:
2020: 25.65%
2021: 29.15%
YTD: 5.79%

Wednesday, October 20, 2021

Right-to-Work; Energy Crisis; Caving to Unions; Weaponizing the IRS

Buried in the Budget Reconciliation Is the End of Right-to-Work, Independent Contractors; Climate Change

Among the various major provisions of the PRO Act is effective nationalization of California's AB5 law that passed in 2019. This law makes hiring independent contractors much more difficult and specifies that contractors must be reclassified by businesses that hire them as employees, unless they meet specific and rigorous standards allowing them to stay independent. Read full article...

Biden on Energy Crisis: Begging Others to Save Him From Himself

It is on the costs of energy where Biden’s failures are most starkly visible.

On his very first day in office, Biden scrapped the Keystone XL pipeline, killing 11,000 jobs in the process and making good on his campaign promise to be hostile to the fossil fuel industry.

Continuing his assault on natural resource development, Biden suspended oil and natural gas leases in Alaska.

Former President Donald Trump had propelled America to energy independence, but Biden has purposely squandered it. His policies are designed to reduce domestic production of petroleum, meaning we have become necessarily more reliant on foreign sources.

Biden’s approach has been an economic disaster.

According to The Wall Street Journal, the price of crude oil has jumped by 64% to a seven-year high. The cost of natural gas has doubled in just six months. Heating oil is more expensive by 68%, just in time for winter. And gasoline is over $3 per gallon on the national average, up by almost a dollar over the past year. Read full article...

Biden Caves To Unions Again, Sabotaging Consumers

Here's the biggest lie, straight from Transportation Secretary Pete Buttigieg. He went on parental leave in August, ignoring the worsening supply crisis. But he emerged from diaper duty long enough on Sunday to shovel some grown-up manure. Buttigieg said dysfunctional ports are "one more example of why we need to pass the infrastructure bill."

In truth, the $17 billion for ports in the infrastructure bill is mostly for emissions reductions, repairs and dredging. Nothing is allocated for labor-saving automation. In fact, section 30102 of Biden's Build Back Better Bill expressly prohibits the use of funds provided there to be used for automation. Read full article.

What’s Inside Democrats’ 2,465-Page $3.5 Trillion Spending Bill?

Democrats’ $3.5 trillion spending package gives the IRS permission, and funding, to snoop on nearly every American’s bank account, Jessica Anderson, executive director of Heritage Action for America, says.

The “Biden administration is asking Congress to go … weaponize the IRS to spy on Americans,” Anderson says.

The future of the bill is unclear after Sen. Joe Manchin, D-W.Va., said he could not support a spending bill over $1.5 trillion. Anderson joins “The Daily Signal Podcast” to discuss how likely it is for the bill to move forward in Congress and what we know about the provisions in the package. Read full article.

Global Warming on Pause? 





Monday, October 18, 2021

Democrat's destructive spending spree would turn America into European Social Welfare State

One of the current issues facing the U.S. economy is more demand than supply can keep up with. Part of the issue has been government programs that have incentivized workers to stay home, and the result is a labor shortage and a record number of job openings, while the workforce participation rate drops to the lowest in decades. 

In the meantime, Democrats on Capitol Hill have been busily working on a new spending package. 

The cradle-to-grave subsidies in the 2,448-page, $3.5 trillion spending bill that Democrats in Congress are crafting will create a welfare trap for millions more Americans, send inflation soaring, and drive our nation much deeper into debt.

Economic policy professor Chuck Blahous of the Mercatus Center at George Mason University analyzed the health benefit proposals in the spending bill. He wrote that expanding Medicare, Medicaid, and “so-called Obamacare” will “represent a major escalation of the fiscal irresponsibility lawmakers have practiced for the past several years.”

Former White House chief economist Casey Mulligan, now a professor at the University of Chicago, wrote that the spending bill would “implement the single largest permanent increase in work disincentives since the income tax came into its own during World War II.”

“The implicit employment and income taxes in [this legislation] would increase marginal tax rates on work by about 7 percentage points,” he wrote. “I expect that such a change in the disincentive would reduce full-time equivalent employment by about 4.5%, or about 7 million jobs.”

University of Chicago professor Charles Lipson wrote in “It’s Not the Top-Line Number—It’s the Bottom-Line Goal” that the spending bill would fundamentally transform the United States into a European social welfare state.

“Progressives know—and the whole country should understand—that piling on these vast new programs would be a major step in turning the United States into a European-style social democracy, along the lines of France, Germany, Spain, or Italy,” Lipson wrote. “Voters never elected [Joe] Biden to do that.”
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…the House reconciliation bill would let the Internal Revenue Service peer into the bank account of virtually every American. …Here’s the proposition: You permanently sacrifice your financial privacy, and the Democrats get a small step closer to funding their agenda. …Treasury secretary Janet Yellen claims the IRS will overcome perennial bureaucratic incompetence and track down “opaque income streams that disproportionately accrue to the top.” …If it’s high earners we’re worried about, why spy on everyone? …The administration is seriously arguing for a new oversight regime that would gather data on nearly every American on the off chance that a billionaire opens several thousand bank accounts. …this move on bank accounts would represent a new, jaw-dropping level of federal intrusiveness and is a power no government should have. Biden officials from Yellen on down have had trouble defending it — because it is literally indefensible. -- National Review
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The legislation is so huge and complex that even the Congressional Budget Office says “it is unclear” when it will be able to estimate the cost of the full spending bill, which is itself a moving target.

Congressional Budget Office Director Phillip Swagel wrote in a letter to Senate Minority Leader Mitch McConnell, R-Ky., last week, “The agency has not estimated how the entire package would affect direct spending, revenues, deficits, or spending that would be subject to appropriation. [The Congressional Budget Office] also has not completed its analysis of all of the mandates that the bill might impose on intergovernmental or private-sector entities.”

He says that instead of doing their primary job of estimating costs, Congressional Budget Office experts are spending time with congressional staff drafting the complex bill.

John Goodman, president of the Goodman Institute for Public Policy Research, wrote that the proposed bill is “throwing good money after bad” instead of focusing “on rational reform of existing programs.”

Because entitlements comprise so much of the new spending, Goodman wrote, “The Committee for a Responsible Federal Budget estimates that the full cost is not the $3.5 trillion that has been widely advertised, but at least $5 trillion and possibly as much as $5.5 trillion.”

Apart from direct federal spending, there are other huge costs to the private economy. It would cost about $171 billion in the first year just to provide the salaries and facility spaces to meet the demand for increased subsidized child care, according to an analysis by Tara O’Neill Hayes of American Action Forum.

Blahous’ “A Pictorial Guide to Congress’ Irresponsible Health and Budget Proposals,” shows that the Democrats’ proposed legislation “adds substantially to runaway federal spending that is already outpacing U.S. economic output.”

In a dozen or so charts, Blahous shows how the spending blowout will influence the vast number of affected programs. “In practical terms, the current trend must stop,” he wrote. “No population will tolerate its discretionary income perpetually shrinking to support lawmakers’ addiction to promising bigger health benefits.”

Halloween is the new target date for passage. We should all be scared. When even the Congressional Budget Office is daunted in figuring out how much the monstrous bill would cost, it is way past time to press “pause,” as Sen. Joe Manchin, D-W.Va., pleads.


Sunday, October 17, 2021

The problem hasn't been demand, but supply

As the months drag on, it's increasingly clear that Covid is more of a supply shock than a demand shock to the U.S. economy. Do you remember the endless stories about supply chain problems after the 2007-08 financial crisis? Nope. Neither do I. Because they didn't exist. Did we have soaring prices after 9/11? Nope. Container ship shortages after the dotcom collapse? Of course not.

All the recent crises we've dealt with have been negative demand shocks to the U.S. economy. And that has empowered the Keynesian approach of filling demand drops with government stimulus--or consumer spending, as in the case of 9/11, when President Bush famously told families to go about their lives ("fly on airplanes...travel...Get down to Disney World") in order to keep the economy from worsening. 

So naturally, when Covid hit, and people worried about a second Great Depression, policy makers threw more stimulus at the problem than ever before. But Covid is more and more a supply shock, and one that is actually being worsened by the continual massive efforts to stimulate demand.

Some warned about this: "Demand-side stimulus...would give consumers more cash, but the economy will shrink nonetheless...much stimulus money would end up as personal savings or bid up prices for the products still available in a smaller economy," wrote the Cato Institute's Chris Edwards for The Hill last March. And sure enough, third-quarter GDP looks weak as consumer prices have surged 6% from a year ago, even with households still sitting on over $2 trillion of excess savings.

More stimulus could worsen this situation to the point of crisis, if we haven't reached it already. The supply chain is so fragile that products are routinely, if unpredictably, out of stock, or delayed for so long as to be effectively unavailable. Now the energy supply is being caught up in it. What's more, the stimulus and liquidity-fueled asset price gains have helped to shrink the labor force, already under pressure because of the pandemic, by causing early retirements or removing the incentive to work.
The Port of Los Angeles, one of the busiest ports in the country, will begin operating 24 hours a day and 7 days a week to ease cargo bottlenecks that have led to shortages and higher consumer costs. While the neighboring Port of Long Beach, Calif., also started doing a 24/7 schedule last month, major ports in Europe and Asia have operated around the clock for years. 

The latest change was announced by the White House as it seeks to alleviate supply chain issues ahead of the holidays, though the increase in capacity will require cooperation from major U.S. companies like Walmart (WMT), FedEx (FDX) and UPS (UPS).

The root of the problem goes back to the beginning of the pandemic in spring 2020, when consumer demand slumped and shipping lines canceled sailings between Asia and North America. When demand came back in the summer, there were thousands of empty containers stuck in the U.S., and by the fall of 2020, the West Coast freight networks were bursting at the seams to handle the surge in imports. A wave of COVID-19 cases in Southern California over the winter exacerbated the issue by causing a labor crunch, with docks, warehouses and truckers that handled the cargo unable to find enough workers.

Companies like Amazon (NASDAQ:AMZN), Target (NYSE:TGT), Pottery Barn (NYSE:WSM), Ulta Beauty (NASDAQ:ULTA) and Gap (NYSE:GPS) are even offering discounts - or starting holiday advertising - six weeks before Black Friday. The goal here is to stretch out the year-end shopping season, as supply chain challenges could leave them with empty shelves closer to the holidays. The firms also have a load of goods that they brought in early, but with limited warehouse space available, they need consumers to buy the stuff to top off their cash balances.

According to a RetailMeNot survey of almost 1,100 consumers, 37% of shoppers began their holiday shopping between August and September (if not earlier). Another 22% said they would start shopping in October, while 24% planned to begin in November ahead of Thanksgiving. Americans are expected to spend about $1.3T this holiday season, per the latest forecast from Deloitte, marking a 7% to 9% increase over last year.

Perhaps the way to think about it--and pitch it to the public--now is to promote those policies that will increase or fix the supply side of the economy. Incentivizing people to work (expand the labor force). Helping to keep businesses afloat (grow the "supply"). Lowering the cost of labor. You want an infrastructure bill? How a "war effort" to get the glut of goods through the Port of Los Angeles right now? That would seem to have broad appeal. Tax breaks for truckers? You get the idea.

On the flip side, policies that aren't targeted this way risk worsening the problem and could boomerang as a double-dip downturn, like the U.S. experienced in the early 1980s. Never forget that the point of high prices is to destroy demand, because supply can't keep up. So we face a choice: either increase the supply-side of the U.S. economy, or the demand-side will shrink to meet it.


Thursday, October 14, 2021

Producer price inflation not as hot as expected, jobless claims fall below 300,000 mark

The Producer Price Index (PPI) showed prices at the wholesale level in September rose 0.5% month-over-month (m/m), below the Bloomberg consensus estimate calling for a 0.6% gain, and south of August's 0.7% increase. 

The core rate, which excludes food and energy, gained 0.2% m/m, below estimates of a 0.5% rise and the prior month's 0.6% gain. Y/Y, the headline rate was 8.6% higher, just shy of projections of an 8.7% increase and compared to August's 8.3% gain. The core PPI increased 6.8% y/y last month, south of estimates calling for a 7.1% rise, and following August's 6.7% increase.

Weekly initial jobless claims came in at a level of 293,000 for the week ended October 9, versus estimates of 320,000 and compared to the prior week's upwardly-revised 329,000 level. The four-week moving average fell by 10,500 to 334,250, and continuing claims for the week ended October 2 dropped by 134,000 to 2,593,000, below estimates of 2,670,000. 

The four-week moving average of continuing claims fell by 30,500 to 2,737,750.

The yield on the 2-year note is declining 2 basis points (bps) to 0.35% and the yield on the 10-year note is dipping 1 bp to 1.54%, while the 30-year bond rate is ticking 1 bp higher to 2.05%.

Sunday, October 10, 2021

A Weak Jobs Report: The Devil Is In The Details

Stocks and U.S. Treasurys fell Friday after a weak jobs report added to speculation about the Federal Reserve's plan to taper its bond-buying program. September was the slowest month for job growth this year, with just 194,000 jobs added compared to consensus estimates for a half-million, signaling a slowing of the labor market recovery and perhaps complicating the Fed's decision on when to begin scaling back monetary support. Inflation concerns pushed long-term interest rates higher, with the benchmark 10-year yield rising to 1.61% after adding 15 basis points on the week. But the three major stock market indexes finished modestly higher for the week, recovering from steep early losses after the U.S. Senate agreed to raise the debt ceiling for at least a few more weeks.

The unemployment rate fell, but so did the important labor force participation rate, which has remained within a narrow range of 61.4 percent to 61.7 percent since June 2020. And the number of people who are not in the labor force -- have no job and are not looking for one -- is the highest it's been since March.

The underemployment rate—including total unemployed and those employed part time for economic reasons, along with people who are marginally attached to the labor force—decreased to 8.5% from the prior month's 8.8% rate. Average hourly earnings rose 0.6% m/m, north of projections for a 0.4% increase, and versus August's downwardly-revised 0.4% rise. Y/Y, wages were 4.6% higher, in line with forecasts, or $30.85 per hours.  Finally, average weekly hours rose to 34.8 from August's downwardly-revised 34.6, and versus expectations to come in at 34.7 hours.

Now that most children are back in school and pandemic-related unemployment benefits have ended, more Americans returned to work last month.

The number of employed Americans increased by 526,000 to 153,680,000 in September, the fourth straight monthly increase. At the same time, the number of unemployed Americans fell sharply to 7,674,000 in September, a drop of 710,000 from August.

This produced a 4.8 percent unemployment rate, well below the 5.2 percent in August and the lowest since the pandemic began.

People are classified as unemployed if they do not have a job, have actively looked for work in the prior four weeks, and are currently available for work.

In September, the civilian non-institutional population in the United States was 261,766,000. That included all people 16 and older who did not live in an institution, such as a prison, nursing home or long-term care facility.

Of that civilian non-institutional population, 161,354,000 were participating in the labor force, meaning they either had a job or were actively seeking one during the last month. This resulted in a labor force participation rate of 61.6 percent in September -- down a tenth of a point from the 61.7 percent in the prior two months, and only 0.2 points higher than the 61.4 percent when Biden took office.

The labor force participation rate reached a Trump-era high of 63.4 percent in January 2020, just before the onset of COVID.

The number of Americans counted as not in the labor force -- meaning they didn't have a job and were not looking for one -- rose sharply in September to 100,412,000, up 338,000 from August.

BLS noted that notable job gains occurred in leisure and hospitality, in professional and business services, in retail trade, and in transportation and warehousing. Employment in public education declined over the month.

Among the major worker groups, the unemployment rates for adult men (4.7 percent), adult women (4.2 percent), Whites (4.2 percent), and Blacks (7.9 percent) declined in September.

The jobless rates for teenagers (11.5 percent), Asians (4.2 percent), and Hispanics (6.3 percent) showed little change over the month.

Clearly, the problem with employment has not fully resolved itself, causing shortages in labor, which in turn causes disruption to eh supply chain, which in turn results in inflation. 

Thursday, October 7, 2021

I'm in Debt. How Do I Get Myself Out of This Mess?

 I got this question on Quora today. It's a common question. The answer I provided is below. 

I got into debt young as I didn’t realize how important it was to have a good credit score. How can I get myself out of this mess? I’m worried it’s going to affect future relationships.

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.

Six Steps to Financial Freedom


Tuesday, October 5, 2021

Global Energy Crisis; Good for My Portfolio

About 18 months ago, I overloaded (30 percent) my portfolio in energy, with ETFs FENY, VDE, and IEZ, along with pipeline and delivery plays AMLP and MPLX. These are increasing in value as energy prices are on the increase and are paying decent dividends along the way. This was a contrarian play; because traditional energy was going out of favor, I felt that over the next few years, it would increase in value. I was right, and Biden's anti-oil policies have only helped me. 

Energy prices continue to surge to fresh records as renewed fears stoke panic of the worst shortage in decades. India has warned it has only four days of coal reserves left, German power plants are running out of fuel and China just unloaded an Australian coal shipment despite an import ban and icy relations. Supply is just not there as economies rebound from a pandemic-induced lull, while problems like logistical logjams and transport bottlenecks are adding to the pressure.

OPEC+ didn't come to the rescue yesterday as the group decided to continue its original plan of gradually releasing 400,000 additional barrels of oil per month. That's despite calls from world leaders, including the White House, to bring more crude on to the market and keep a lid on prices. According to the EIA, average daily crude production in the U.S. has been 6.7% lower than last year, while commercial stockpiles of crude, excluding the Strategic Petroleum Reserve, are off by 15% compared to 2020.

That's helping send oil prices to their highest levels in three years, with Brent (CO1:COM) and WTI crude (CL1:COM) touching $82 and $78 a barrel, respectively. High natural gas prices (NG1:COM) are also prompting American utilities to switch to coal this year, but their supply is constrained by miners that have cut capacity by 40% over the last six years. This past week, coal from the central Appalachia region rose $2.20 to $73.25, up 35% YTD and the highest level since May 2019.

"Investors are underappreciating the structural changes that have taken place in the North American energy landscape that could lead to these higher prices persisting for some time," wrote Lucas Pipes, an analyst with B. Riley Securities. Some are even calling the current situation the first major energy crisis of the clean power transition, with President Biden setting a goal to decarbonize the economy by 2050 (power demand is expected to increase 60% by then). "It is a cautionary message about how complex the energy transition is going to be," added Daniel Yergin, author of The New Map: Energy, Climate and the Clash of Nations.

US Producer Prices Surge 11 Percent on Higher Food Costs

Wholesale prices in the U.S. soared 11% in April from a year earlier, a hefty gain that indicates high inflation will remain a burden for co...