Portfolio Return as of 08/12/22:
2020: 25.65%
2021: 29.15%
YTD: 6.2%

Saturday, January 29, 2022

The Ever Increasing Cost of Public Education

Teachers unions are angry about school choice. Of course they are, because they know they can't compete with private schools, and private schools are generally unionized, and don't generate funds for the unions. More money equals more power. It's not about the kids. It's about self-interest and power. 

We are continually told that public schools are underfunded. We must pay more in taxes. This is hogwash. School funding is at an all-time high. More money goes to administration and reporting than education. This all began when the Federal government got involved, and the Department of Education was formed. 

Don't buy into the left's mantra of more control of education. Parents are starting to fight back by insisting that they are heard and have input into their children's education, though the left believes the state should raise the children (like in Germany in the 1930s). 

Just between 2002 and 2019, inflation-adjusted revenues grew by nearly 24%. Yet the results are dismal. Enough is enough. 



NY Can’t Teach Kids to Read on $30,000 a Year



The Ever-Stronger Case for School Choice

Wednesday, January 26, 2022

Fed keeps policy steady, but hints at first rate hike 'soon'

The Federal Open Market Committee (FOMC) concluded its two-day monetary policy meeting, making no change to the Fed funds rate, as was widely expected. However, it hinted at the possibility of its first rate hike since 2018 being around the corner, saying, "With inflation well above 2% and a strong labor market, the committee expects it will soon be appropriate to raise the target range for the federal funds." 

As well, in its statement of "Decisions Regarding Monetary Policy Implementation," the Committee said it expects its balance sheet reduction "will commence after the process of increasing the target range for the federal funds rate has begun." Schwab's Chief Fixed Income Strategist, Kathy Jones notes in her latest article, The Fed's Policy Tightening Plan: A One-Two Punch, how beginning quantitative tightening soon after rate hikes is a big departure from the Federal Reserve's past policy.

The FOMC also said it will continue to taper its asset purchases at a rate of $30 billion per month—$20 billion in Treasuries and $10 billion in mortgage-backed securities. Regarding the economy, the Fed stated that activity and employment have continued to strengthen, and that while the sectors most adversely affected by the pandemic have improved in recent months, they continue to be affected by the recent sharp rise in COVID-19 cases. 

Additionally, it said job gains have been solid and the unemployment rate has declined substantially, while the "supply and demand imbalances related to the pandemic and the reopening of the economy have continued to contribute to elevated levels of inflation." No updated economic projections were given at this meeting.

Shortly after the announcement in his customary press conference, Chairman Jerome Powell noted that while he expects inflation to decrease during the year, the risks remain to the upside and that he sees "progress" in the supply-chain issues in the second half of 2022. Additionally, Powell indicated that asset purchases are likely to end in March. 

Thursday, January 20, 2022

Income Tax Myths Are Wrong

Two common mantras of the Democratic party are 1) The "rich" don't pay their fair share of income taxes, and 2) the last tax cut signed into law by Trump was a tax cut for the rich. 

Both are wrong, facts backed up by actual data from the IRS. While these Democratic party talking points keep getting repeated every year, the Democrats insist on perpetuating their lies in a type of class warfare. 

1. The top 1 percent of wage earners pay 20 percent of income tax. The top 5 percent pay 35.9 percent and the top 10 percent pay 47.3%. 

In 2019, the bottom 50 percent of taxpayers (taxpayers with AGI below $44,269) earned 11.5 percent of total AGI and paid 3.1 percent of all federal individual income taxes.

The top 1 percent (taxpayers with AGI of $546,434 and above) earned 20.1 percent of total AGI in 2019 and paid 38.8 percent of all federal income taxes. 

The share of income taxes paid by the top 1 percent increased from 33.2 percent in 2001 to 38.8 percent in 2019, down about 1.3 percentage points from a high of 40.1 percent in 2018. Over the same period, the share paid by the bottom 50 percent of taxpayers fell from 4.9 percent to just over 3 percent in 2019, up about a tenth of a percentage point from 2018.

I'm not sure what else could constitute "fair share."

2. The Tax Cuts and Jobs Act (TCJA) reduced the average tax rate across all income groups. 


Wednesday, January 19, 2022

Market in Correction!

 A 10 percent drop in any market means that market is in a correction. A drop of 20 percent is normally defined as a bear market. 

The Dow Jones Industrial Average (DJIA) is down 5.25% from its high in early January.

IWM, which tracks the Russell 2000, is down 16.5% since it's high in 2021.

The NASDAQ 100 is down 15% since its high in November 2021.

The S&P 500 index is down 5.87%.

The drop in prices have been strongest in tech and small caps, with larger cap stocks not reaching correction status quite yet. 

S&P 500 from Jan 2021



Wednesday, January 12, 2022

U.S. Consumer Prices Soar 7%, Biggest Spike Since 1982

The Consumer Price Index (CPI) rose 0.5% month-over-month (m/m) in December, above the Bloomberg consensus estimate of a 0.4% increase, and following November's unrevised 0.8% gain. The core rate, which strips out food and energy, increased 0.6% m/m, topping forecasts to match November's unadjusted 0.5% rise. Y/Y, prices were 7.0% higher for the headline rate—the fastest pace since June 1982—matching estimates and following the prior month's 6.8% increase. The core rate was up 5.5% y/y, above projections of a 5.4% increase, and following November's unrevised 4.9% rise.

An interesting dynamic played out in the market yesterday as Powell delivered his testimony to the Senate Banking Committee. Many of the expensive tech names recharged, with the Nasdaq closing the day up 1.4%, as investors heard comments that inflation would probably ease by the middle of this year. Others discounted the outlook, citing Powell's infamous "transitory" call from 2021, and said traders were rushing in to buy the dip despite the Fed taking away the punch bowl. 

"The pullback in risk assets in reaction to the Fed minutes is arguably overdone," J.P. Morgan's Marko Kolanovic wrote in a note to clients. "Policy tightening is likely to be gradual and at a pace that risk assets should be able to handle, and is occurring in an environment of strong cyclical recovery."

Also sticking to the gradual stance was Ian Lyngen of BMO Capital Markets. "Powell noted that the balance sheet runoff will occur later in 2022 and that 'it's a long road back to normal.' On net, the Chair’s comments are consistent with a willingness to deliver the liftoff hike in March assuming there isn't a dramatic reversal in the pace of consumer price gains."

Those that are more gloomy on risk assets are calling the comeback a dead cat bounce, or that outsized leverage can produce strange reactions (little jumps can be magnified by the covering of short positions, etc.). Those subscribing to the most dire of bubble forecasts also point out that the burst happens in stages, like the dotcom bubble, which saw many session rallies as the Nasdaq dropped from 5,000 to below 1,000 between 2000-02. "The things that performed the best since March of 2020 are going to probably perform the worst in this tightening cycle," declared billionaire hedge fund manager Paul Tudor Jones.

Monday, January 10, 2022

The Week Ahead, Jan 10 2022

Reports on CPI and PPI (Consumer and Producer Prices Indices) and Industrial Production will be out this week. 

Payroll employment grew by much less than expected in December as employers only added 199,000 to payrolls. However, we continue to see signs of labor market tightness, with unemployment dropping to 3.9% and wages rising by a robust 0.6% m/m and 4.7% y/y. The durable rise in wages, as demand for workers far exceeds supply, has added a significant boost to the “sticky” inflation narrative as this week’s upcoming CPI report could show a whopping 7% y/y gain. Moreover, there may yet be room to run on wages. 

Entering the new year, 21 states increased their minimum wage by an average of 41 cents, with many states approving incremental minimum wage increases for multiple years ahead. While only a small percentage of all workers earn the minimum wage, these increases have the effect of raising the wage floor for all low-wage employees. 

Apart from these minimum wage increases, workers are also set to get some of the largest cost-of-living adjustments seen in decades. Just as Social Security payments are adjusted annually for cost-of-living changes, many private employers build similar adjustments into their compensation structures. Further, it seems most employers implement these changes in January, as reflected by the non-seasonally-adjusted distribution of monthly wage increases from 2010 to 2019. 

As we turn to next month’s Jobs report, we may see a larger spike in wages as the increase in minimum wages and cost-of-living adjustments look set to far exceed the historical seasonal patterns.



Friday, January 7, 2022

Comparison of Certain ETFs That Use Covered Calls

Certain ETFs used covered calls to generate extra income, which are returned to shareholders as dividends. With most of these ETFs, income is the priority; capital gains are secondary. One example of this type of ETF is QYLD, Nasdaq 100 Covered Call ETF. Some, such as QYLG and XYLG, only sell calls on about 50 percent of their holdings in order to increase the possibility of gains. One EFT, NUSI, also write puts, as a hedge against a bear market. (Note: The possibility of gains also increases the risk of losses, so judge accordingly.)

If you're looking for income, you should consider one or more of these ETFs. Note that QQQ and SPY, which as pure equity plays, had great returns, but the markets were up last year. This would be different in a down year. Also note that these covered call ETFs are new enough that they have not been tested during a bear market. 

Consider that the volume on some ETFs, such as XYLG, has a daily average volume of less than 10,000 shares. This will cause the spread (difference between asking price and selling price) to be higher than other ETFs with higher volumes. 

Another difference between these types of ETFs and a regular ETF is how taxes are treated (and why they may be more appropriate for tax-deferred or tax free accounts). Because options are considered 1256 contracts by the IRS, taxes are different. You can get more details by either going to the ETF's web site, or watch this video as an introduction to ETF taxes:  QYLD AND TAXES: A Comprehensive Review of QYLD, XYLD, RYLD. Here's another that discusses how distributions are paid and taxed:  QYLD Taxes: What You May be Missing

Symbol

Price 1/4/21

Price 12/31/21

Shares

Cap Gain

Dividends

Total Gain

% Gain

NUSI

27.54

27.92

3,647

$1,823

$7,907

$9,730

9.7%

QYLD

22.69

22.19

4,407

-$2,201

$12,565

$10,361

10.3%

XYLD

46.40

50.54

2,155

$8,922

$9,881

$18,803

18.8%

QYLG

29.44

31.87

3,397

$8,254

$10,995

$19,249

19.2%

RYLD

22.37

24.41

4,470

$9,119

$13,475

$22,594

22.6%

JEPI

55.14

63.19

1,813

$14,599

$8,011

$22,609

22.6%

XYLG

27.22

31.61

3,674

$16,127

$8,570

$24,698

24.7%

QQQ

309.31

397.84

323

$28,625

$548

$29,173

29.2%

SPY

368.79

476.37

271

$29,114

$1,535

$30,649

30.6%

Why the Left Can't Let Go of Jan. 6

I rarely comment on politics, but some issues should be commented on, as it affects the state of the Union. 

Jan 6 is worse than 9/11. Vaccines stop the virus cold. CRT is a hoax. What CNN and MSNBC in 2021 wanted to believe. 

The Biden presidency has produced an uninterrupted string of disasters: the Afghanistan withdrawal debacle, the Texas border crisis, inflation, an explosion of gun violence and murders setting records in Democrat-run cities, failure to produce an adequate federal response to the delta and omicron waves of COVID-19.

Again, Jan. 6 was a riot, involving assaults on Washington and Capitol cops and the disruption of a formal congressional procedure to validate the electoral vote victory of Joe Biden.

But was Jan. 6 really the planned coup, the terrorism, the sedition, the armed insurrection, the attempt to overthrow the U.S. government?

Was Jan. 6 really comparable to Pearl Harbor and 9/11, during each of which 3,000 Americans went to their deaths in an hour's time and major wars followed — as Vice President Kamala Harris said yesterday?

If so, why, a year after Jan. 6, 2021, has no one been charged with inciting a rebellion, sedition, treason, armed insurrection, plotting a coup, or a takeover of the government of the United States?

Thus far, all the charges prosecuted and punished are consistent with a riot, which is what Jan. 6 was. Comparisons of this three-hour mob action to Pearl Harbor and 9/11 are almost sacrilegious.

Question: If the left is so terrified of Trump it feels it must prevent him from even running again, by imposing a criminal conviction, what does that say about the left's belief in American democracy?

What does that tell us about the left's trust in the people?

Another reason for the left to paint up the horror of that day is that the perpetrators of Jan. 6 were not the radical left who battled cops and burned and looted Seattle, Portland, Milwaukee and scores of other cities in the aftermath of George Floyd's killing.

They were the "deplorables" of Trump, the populists of the American right, against whom any slander is justified.




Victor Davis Hanson blasts Left's 'Let's go Brandon' hypocrisy


Thursday, January 6, 2022

When the Musical Chairs Music Stops

From "The Truths We Dare Not Speak" by Victor David Hanson, Phd. 

Everyone knows the government cannot keep running up astronomical annual deficits. It is piling up a near $30 trillion national debt, printing trillions of dollars—and hoping to keep inflation down to 7 percent per year. Everyone knows that, and no one wishes to talk, much less do anything, about it.

Instead, we simply will go on redistributing money, inflating the economy, and hoping that the middle classes are naïve enough to believe that their inflated paychecks outpace their greater inflationary costs that, in truth, have more than wiped out all their wage gains.

When the interest rate hikes invariably come—the longer we wait, the worse will be the reckoning—we will again know the stagflation of the 1970s and 1980s.

The only calculus the Democrats weigh is whether they can print their way to a semblance of normality through 2022, in hopes the helium-over-inflated economy blows up only after the elections.

Who knows, maybe then they can blame Joe Biden in 2023 for empowering them to wreck the economy and losing the Congress, as a way of arguing his clear cognitive decline suddenly warrants resignation.
Prof. Antony Davies: 10 Myths About Government Debt

The following video is an excellent primer on government debt, spending and taxation, produced in 2017. Other than the debt is higher today, the video is factual. 

Wednesday, January 5, 2022

U.S. May Consume More, But Also Produces More

This chart shows that Americans not only consume more, but we also produce more. The bottom line is that it's good to be part of western civilization. But it's especially good to be in the United States.


David Harsanyl of National Review

More than anything, it is the ingrained American entrepreneurial spirit and work ethic that separates us from Europe and the rest of the world.

...Europe, despite its wealth, its relatively stable institutions, its giant marketplace, and its intellectual firepower, is home to only one of the top 30 global Internet companies in the world (Spotify), while the United States is home to 18 of the top 30.

...One of the most underrated traits we hold, for instance, is our relative comfort with risk — a behavior embedded in the American character. ...Americans, self-selected risk-takers, created an individual and communal independence that engendered creativity. 

...Because of a preoccupation with “inequality” — one shared by the modern American Left — European rules and taxation for stock-option remuneration make it difficult for start-up employees to enjoy the benefits of innovation — and make it harder for new companies to attract talent. 

...But the deeper problem is that European culture values stability over success, security over invention...in Europe, hard work is less likely to guarantee results because policies that allow people to keep the fruits of their labor and compete matter far less.

Tuesday, January 4, 2022

American Citizenship and Its Decline

Learn from Victor Davis Hanson how the rights of the American citizen are under attack by a ruling class that seeks to make our government unaccountable to the people. You can enroll in this FREE online course, “American Citizenship and Its Decline,” today at: https://hillsdale.edu/citizen




Monday, January 3, 2022

Stupid Government Policies Will Not Help Inflation

Following months of rumors and wrangling in the press, the White House has laid out its first concrete plans to reduce consumer prices - financing independent meat processing ventures.

The plan goes against everything taught in Ecnomics 101. Government regulation, price controls, and/or subsidies can only make the problem worse, not better. This plan will probably have very little affect on the overall food industry. It seems more political optics, if anything. The funds will come from the American Rescue Plan, a billed signed into law earlier this year. 

The Action Plan cites increased market share - four processors control 85%, 54% and 70% of the beef, poultry and pork markets, respectively - leading to fatter margins for middlemen, lower prices for ranchers and higher costs for consumers.

The White House has directed $375M to grants for new projects at independently owned processors; $275M will go towards direct loans; $100M towards loan guarantees; $100m towards workforce training, in partnership with labor unions; $100m for USDA fee reductions.

Additionally, the Plan calls for the Fair Trade Commission to work with the USDA to protect new market entrants, changes to the "Product of USA" labeling standard, a portal for reporting unfair competitive practices to the DOJ, and increased transparency in the cattle market.

In recent tweets, Clinton Treasury Secretary Larry Summers suggested the Administrative stop trying to break up meatpackers and de-emphasize 'made in USA' policies, suggesting these practices would discourage investment in the industry; by providing taxpayer dollars directly to the sector, while emphasizing made in the USA, the White House has perhaps adhered to some of Mr. Summer's suggestions.

Importantly, Tyson Foods (NYSE:TSN) just posted its best annual operating margin in a decade, while Brazilian meat business JBS (JBS) posted EBITDA margins doubling in its US beef segment, rising 20% in it's US pork segment, but falling in its US Chicken segment (formerly Pilgrims Pride) in Q3, when compared to a year ago.

Conagra (NYSE:CAG) also posted a banner trailing twelve months, as Hormel (NYSE:HRL) actually saw margins fall in the past year.

Interestingly, much of the Plan is aimed at supporting grocery margins, even as Kroger (NYSE:KR), Albertsons (NYSE:ACI), and Costco (NASDAQ:COST) shares are up 50%+ in the past year.

The scale of capital support (~$1B) isn't likely to be hugely impactful, Tyson Foods has $36b in assets for example; however, the message that four companies controlling as little as 54% of an industry can draw an Action Plan from the White House, is likely to turn heads.


Saturday, January 1, 2022

Best Investment Strategy for the New Year

In early 2020, I answered the following question posed on QuoraWhat will be the best investment strategies for late 2019 going into 2020? Here is the answer I wrote, along with comments today as an update for 2022. 

I used this strategy in 2021 and my portfolio returned 16.09% for the year. While not as much as the S&P 500 (about 30%), it did yield 5.9% in income, which was my objective, since I'm retired and looking for income). 

I don’t really change my strategy, which is long-term. I may change the allocation of my portfolio, based on current events.

While you could be in cash 100 percent right now, you would not have any earnings on your investments. In fact, you’d be losing about 2 percent annually due to inflation. So that’s not a very good strategy. (For 2022, this would be closer to 6 percent inflation).

While it is probable that there will not be a recession in the next few months, if we created a strategy that assumed the worse, we might miss the opportunities for some great earnings in the meantime. (There was a recession in March 2020, caused by an economic shutdown from Covid. It was short-lived and not the type of recession I had in mind).

So this is what I recommend as an overall strategy:

  1. Have a written investment plan that outlines your risk tolerance and how you will allocate your resources. For example, if preservation of capital is the overriding goal, go heavy on money markets and bonds. Or if your risk tolerance (or you are young), go for high-growth investments, or at least those that have the potential, such as small caps, or something along those lines.
  2. Most stock broker’s web sites will let you design your portfolio based on these factors. Schwab offers customized wizards to design a portfolio based on your age and risk tolerance. Even if you are not a client, you can access a lot of information on Schwab’s website. Start with 3 ways to build an all ETF portfolio.
  3. Always have an exit strategy, because you never know when the market will turn. Normally, the stock market will begin a downward leg into a correction or bear market before a recession actually is formally announced. Use stop orders to automatically exit your positions and sweep the funds into money market funds.
  4. Learn how to hedge your portfolio, if you think this is right for you. Again, Schwab has some advice on this: How to hedge your portfolio.
  5. Part of your investment plan should be continuing education that covers different investment topics. The more you know, the better investor you will become. I try to read at least five or six books a year on investing, economics and history. And I subscribe to different newsletters for different perspectives.

I only cite Schwab because I happen to be a client. Other brokerage firms such as Vanguard and Fidelity offer the same type of information and services.

For example, I ran their wizard for ETFs, based on “I want income stability and preservation of capital,” which is a conservative strategy. The recommendation was:

  • Large cap ETF (15%), International (5%), Fixed Income (50%) and Cash Investments (30%).

For “I am concerned about a growth and value, and have good tolerance for risk (aggressive):

  • Large cap ETF (50%), small cap (20%), International (25%), Fixed Income (0%), and Cash (5%).

Of course, there are three more strategies between those two extremes.

You would re-balance every three or six months.

However, a buy and hold forever strategy that you hear about is not what I recommend. Read Ken Moraif’s book Buy, Hold, and Sell, to get you started with this philosophy. Why would you hold during a bear market and lose 50 percent of your portfolio’s value?

Learn about trend investing, to supplement your investment knowledge.

One of the key things to remember is that most of the “prophets” and talking heads of the media are just noise. Learn enough to make your own decisions.


(For 2020, the above advice stands the test of time.)

Inflation Reduction Act: Will Never Reduce Inflation

Joe Biden signed into law the horrific Inflation Acceleration Act – which, as you know, increases government taxes and spending by roughly A...