Thursday, September 30, 2021

60% of millennials earning over $100,000 say they're living paycheck to paycheck

I always suspected that living paycheck to paycheck did not involve your income, but was influenced by bad behavior and outright ignorance of how to handle your personal finances. And throw in some vanity, and you've got a recipe for eating cat food in retirement. Or maybe you'd prefer dog food. 

Been there, done that, so I'll include myself in this category, until I shook off the insanity and put things right. I'm on a ribeye diet, nicely retired, thank you. Here are some facts, as reported by Business Insider.

In a survey this June, 60% of millennials earning over $100,000 said they live paycheck to paycheck.
Some of these millennials - known as HENRYs - prefer a comfortable, expensive lifestyle.
In today's economy, $100,000 is considered middle class in the US.

High-earning millennials feel broke.

Sixty percent of millennials raking in over $100,000 a year said they're living paycheck to paycheck, found a survey this June by PYMNTS and LendingClub, which analyzed economic data and census-balanced surveys of over 28,000 Americans.

It found that about 54% of Americans live paycheck to paycheck. And nearly 40% of high earners - those making more than $100,000 annually - said they live that way.

That means high-earning millennials aren't the only ones feeling stretched thin, but they feel that way more than their six-figure-making peers. Living on constrained budgets may therefore have less to do with income and more to do with expenses, the report said.

That's partly because of lifestyle choices. Many of these millennials are likely HENRYs - short for high earner, not rich yet. The acronym was invented in 2003, but it has come to characterize a certain group of 30-something six-figure earners who struggle to balance their spending and savings habits.

HENRYs typically fall victim to lifestyle creep, when one increases one's standard of living to match a rise in discretionary income. They prefer a comfortable and often expensive lifestyle that leaves them living paycheck to paycheck.

They don't have to, but changing your behavior can be harder than it looks. But it can be done. 

So pay off your debt, live by a budget, have goals and a plan, save for retirement. 

Friday, September 24, 2021

Biden's Tax-And-Spend Agenda Accelerates America's Fiscal Decline

In a study just published by the Club for Growth Foundation, co-authored with Robert O'Quinn (former Chief Economist at the Department of Labor), they estimated the likely economic impact of President Biden's so-called Build Back Better plan to expand the welfare state.

Here are the main findings:
  • A loss of $3 trillion of economic output over the next 10 years
  • A loss of $1.6 trillion of worker compensation over the next 10 years
  • A loss of more than $10,000, on average, in compensation for workers over the next 10 years
  • A lifetime drop in living standards of almost four percent for young workers
What's especially noteworthy about the study is that they based their analysis on research published earlier this year by the Congressional Budget Office. In other words, a very establishment source.

Biden's fiscal agenda would made the United States more like Europe and the economic data unambiguously demonstrate that Europeans suffer from significantly lower living standards.

Tuesday, September 21, 2021

Housing Market Remains Hot

Below are some interesting charts that show how hot the housing market has been. While I'm reading lots of articles about this abating, the market hasn't slowed yet. 

Housing starts for August rose 3.9% month-over-month (m/m) to an annual pace of 1,615,000 units, above the Bloomberg consensus forecast of 1,550,000 units, and compared to July's upwardly-revised pace of 1,554,000 units. Building permits, one of the leading indicators tracked by the Conference Board as it is a gauge of future construction, gained 6.0% m/m at an annual rate of 1,728,000, north of expectations calling for 1,600,000 units, and compared to the downwardly-revised 1,630,000 unit pace in July. These numbers may help with the supply shortage, but that affect is several months away. 

Sunday, September 19, 2021

Inflation: More Transitory than Expected

We are experiencing inflation for the first time in a long time: at least four decades as a matter of fact. We are also experiencing scarcity in some goods and services. I am 69 years old—the only time in my life that I recall experiencing this level of scarcity was with gasoline in the 1970s because of the oil embargo. 

From what I recall of the 70s, people were plenty grumpy about having to do even/odd days at gas stations and sit in hour-long lines. And the interest rate on my mortgage was north of 10 percent.

Americans are generally great people. But we are not good at rationing scarce resources. It is every man for himself. If I think we are going to run out of cat food, I am not going to leave some in the store for my neighbor. My cats are more important.

It’s simply supply and demand. Supply is shrinking for a variety of reasons, but a big reason is the shrinking labor supply—there simply aren’t enough people to transport it and stock it and put it on the shelves. People are staying home because the government has financially incentivized them to stay home. Even after the extra financial incentives were removed, people decided they liked staying home better.

The generally rising prices that add up to broad inflation don’t come out of nowhere. Supply and demand factors cause them. As the COVID era drags on, adapting to the various changes it generated is increasingly difficult, and therefore increasingly expensive.

These changes aren’t crazy or complicated. Compared to 2019, Americans are eating more at home, buying more goods via e-commerce instead of in stores, fixing up their backyards instead of going on vacations, etc. Yet they add up to giant changes in the industrial supply chains in a relatively short time. This is causing problems.

A free-market economy is generally antifragile—if there is a fire in a meatpacking plant, other meatpacking plants will surge to meet demand. But if there are chronic shortages of raw materials and labor throughout the economy, things break down. And if things really do break down—where the scenario I described comes to pass, and grocery stores are ransacked—the government will respond by rationing scarce resources, which will make it worse.

The economy can adapt to all this, but not instantly. And it’s starting to look like the process will take longer than we thought a few months ago. That means inflation may be less “transitory” than we thought, too.

We are starting to see price increases on some goods—like meat—that have risen to the point where they are starting to equilibrate supply and demand. I saw $22 for a pound of prime ribeye on my trip to the grocery store. I like steak as much as the next guy, but those types of prices make me think twice -- in fact, I haven't bought a ribeye in more than six months. If this keeps up, the political pressure to do something about high food prices will increase, and the government will act in such a way that makes the shortages even worse.

I was taught in the 1970s -- our last real inflationary period -- that is was OK to spend as much as you could, even on credit, because  you'd be paying back in cheaper dollars. This was fine if inflation is running at 10 percent or higher; but fails miserably most of the time when inflation is below what you can reasonably earn on your investments, such as 1980 through 2020. So around 2000, I switched to a debt-free standard, and my personal financial health soared. 

If Biden and Company get their way, the increased spending (of money we don't have) will increase or prolong inflationary tendencies. If you couple this with higher taxes, economic growth with slow. This will probably cause investors -- especially if the Fed has to raise interest rates -- to begin selling for safer assets. A bear market could result. It's a real possibility. 

So have a plan to protect yourself. Mine is simple: If one or more of the major indexes falls below it's 50 day moving average, and the 20-day moving average also falls below the 50-day, it's time to start selling. Remember the adage: the trend is your friend. Another indicator of a changing trend is to look at the highs and lows of each leg. Higher highs and higher lows is an uptrend. Lower highs and lower lows is the opposite. 

Until then, I'm going to keep buying, but never on credit or margin.

Monday, September 13, 2021

Democrats to Increase Taxes and Spending, Setting New Records

Higher taxes and increased government spending will generally slow economic growth. This correlation has been supported throughout history many times, but it's something not generally discussed by Democrats or the mainstream media. 

Here's some examples to get started on the subject. Not everyone is in agreement, but I generally take the position that higher taxes and/or higher government spending takes resources from the private sector, which has a moderating affect on growth:

Regardless of where you'll end up deciding what is the "truth," the fact remains that the U.S. taxpayer spends too much money on taxes. According to a recent study by the Bureau of Labor Statistics (BLS), Americans spent more on taxes than on food, clothing, healthcare and entertainment, combined. 

An yet, the Democrats are finalizing the "Biggest Tax Increase in History." Democrats on the House Ways and Means Committee are trying to wrap up their proposal for $2.9 trillion in tax hikes, which would mean the largest tax increase in decades, in order to help pay for higher spending in their 'reconciliation' package, Politico reported on Monday.

The Wall Street Journal reported that the proposal is expected to include raising the corporate tax rate to 26.5% from 21% and enacting a 3-percentage-point surtax on individual income above $5 million.

House Democrats are also thinking about boosting the minimum tax on the foreign income of U.S. companies to 16.5% from 10.5%, as well as raising the top capital-gains tax rate to 28.8% from 23.8%.

The significance of the proposals is that House Democrats have until now been vague about their plans to boost taxes as they try not to anger either moderates in the party concerned about the economic impact of increasing taxes or progressives who seek to raise taxes on the rich in order to expand the social safety net.

All this in conjunction with plans to spend $3.5 Trillion of money we don't have. It will all be borrowed, which will have an even worse affect on inflation, another hidden "tax." 

Do Democrats really care about the average American? It would appear they do not.

Energy Prices Rise: Caps on Supply Affect Markets

By Kelly Evans

The Exchange, CNBC

The price of fossil fuels keeps surging. The situation in Europe is getting worse. Natural gas prices are spiking through the roof--even worse than they were last week. Even oil is higher today as Goldman says $80 for U.S. crude could be next, up from about $70 where it's trading today. Why? Because there is "growing scarcity across physical markets," with demand for all energy except oil back at pre-pandemic levels  while "the system is becoming increasingly constrained in its ability to supply goods." 


The crucial difference between the energy spike today and any prior one over the past couple decades is that this one comes as policymakers (and "ESG" investors) have chosen to cap supply. Europe, as I've mentioned, has basically, depending on how you run the numbers to get to "net zero" emissions by 2050, about 600 gigatons of carbon left to produce. Even traders are taking the goal seriously this time. It's why the price of carbon in the EU spiked above 60 euros for the first time a couple weeks ago. And if it costs more to emit carbon, then it costs more for natural gas and coal plants to provide electricity (if they can even stay in business), and unless renewables step up "bigly," the supply chain gets fragile and the cost for consumers goes up. 


And to be clear, renewables are going to fill the gap in the long run, because policymakers have already made that choice, and fortunately, the cost of solar and wind has dropped precipitously. But it's still painful to watch how much this has all botched the energy supply in the meantime. California was just granted emergency approval to run dirtier energy plants to keep its power going. The U.K. has had to fire up old coal plants. Across the U.S., households are scrambling for natural gas or gasoline/propane-powered home generators (witness $GNRC up 93% this year), which are obviously worse for the environment. I was looking at our own electricity bill the other day, asking my husband why our natural gas usage dropped 80% from last August. "Because last August, we lost power for five days," he replied--meaning our generator ran the entire time. 


The demand-supply imbalance for energy is so bad, that, as Goldman puts it, "demand destruction" is the only way to resolve it. So if the price goes up, obviously those who can least afford it have to stop using it first. And remember, lower-income workers are already the ones most affected by high energy bills, and most reliant on gasoline-powered cars, especially post-pandemic. So it more or less sends them into a recession, and if it gets bad enough, it can send the whole economy into recession in order to "destroy demand."  


Why do I say they "bitcoined carbon"? Because the whole point of Bitcoin's attractiveness, on top of its intricate code and entrenched network effects, is that the supply is capped at 21 million. (Remember the argument from bulls like Bill Miller--that there aren't even enough for every millionaire on the planet to buy one.) By "capping" the carbon supply, policymakers have effectively done the same thing with carbon prices--especially because demand today is still so high. 


And yes, they want carbon demand to subside (i.e. be destroyed) over time. That's how high prices work--they encourage people to substitute to other energy sources like wind and solar. They make EVs (if the grid gets cleaner and thus cheaper) more attractive than "ICE" vehicles. You pair that with the eye-watering subsidies in the Democrats' spending bill--more than $12,000 if you basically buy an EV from the "big three"--and suddenly the EV is the obvious choice. I joked to my husband the other day that we should sell our ICE cars while they're still hot, because the way this is going Cathie Wood might be under-estimating how much EV demand is about to skyrocket. 


But if this whole mushy transition means the price of fossil fuels really does remain structurally high, lower-income households are going to need a lot more relief than  just EV subsidies--especially when the economics of EV charging stations still discourage their proliferation. 

Thursday, September 9, 2021

What No One Is Saying About the Jobs Report

Last week, a disappointing jobs report came out: only 235,000 jobs were added when closer to 720,000 were expected. President Biden blamed the Delta variant, but that is not the whole explanation.

While the Delta variant is a contributor, it is likely companies are also unsure of what the future holds for them as the Biden administration’s international tax plan and the Wyden proposal are debated in Congress, so they’re putting hiring, expansion, and investments on hold.

Vice President of Global Projects Daniel Bunn says, “The tax reform in 2017 was helpful in reversing the pressure that U.S. companies felt to shield profits from U.S. taxes. However, if the tax code changes in line with what President Biden has proposed, those incentives for investing in the U.S. would go away, and companies would again feel the pressure to offshore profits and potentially jobs and investment.

“You can combat profit shifting by making your country’s tax code more attractive for business investment or you can combat it by tightening the screws on multinationals so much that they become less able to reach foreign customers. The Wyden approach is the latter.”

Here’s what all of this means for everyday Americans: research (ours and others) shows 50-70 percent of the corporate tax burden falls on workers.

Tax Foundation’s Competitiveness and Growth Program was launched to change the narrative from shortsighted “tax fairness” arguments towards future-focused policies that will grow the economy, raise living standards, and make the U.S. more competitive in the long term.

Our concern was coming out of the pandemic, the U.S. would adopt harmful policies (like the Biden and Wyden proposals)—and look where we are now: debating harmful policies that threaten American jobs and stability.

Also, the latest Job Openings and Labor Turnover Survey from the BLS shows the total number of job openings in the economy rose to 10.934 million in July, up from 10.185 million in June, and another new record high.

Wednesday, September 8, 2021

Biden Plan: Highest Corporate Taxes in the OECD

President Biden’s proposal to raise the federal corporate tax rate to 28 percent as part of his plan to fund infrastructure spending would increase the combined average top tax rate on corporate income to 32.4 percent, highest among industrialized countries in the OECD.

Friday, September 3, 2021

It's All About Jobs: August Employment Report Misses

The Bureau of Labor Statistics jobs report for August came out today, and it was way below expectations. The economy added 235,000 jobs, about 500,000 fewer than expected. This year, monthly job growth has averaged 586,000 jobs, according to the report.

This is probably due to the issue with the Covid-19 Delta variant. 

Nonfarm payrolls rose by 235,000 jobs month-over-month (m/m) in August, well below the Bloomberg consensus estimate of a 733,000 rise, though July's figure was upwardly-adjusted to an increase of 1,053,000. Excluding government hiring and firing, private sector payrolls increased by 243,000, versus the forecasted rise of 610,000, after increasing by an upwardly-revised 798,000 in July. 

The labor force participation rate remained at July's 61.7% rate, compared to forecasts of an increase to 61.8%. The Department of Labor said job gains occurred in professional and business services, transportation and warehousing, private education, manufacturing, and other services, while employment in retail trade declined over the month and leisure and hospitality job growth was unchanged after increasing by an average of 350,000 per month over the prior six months.

The unemployment rate decreased to 5.2% from July's 5.4% rate, in line with expectations. 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—fell to 8.8% from the prior month's 9.2% rate. Long-term unemployed—those jobless for 27 weeks or more—fell by 246,000 but is 2.1 million higher than in February 2020, and permanent job losers dropped by 443,000 but is 1.2 million higher than in February 2020.

Average hourly earnings jumped 0.6% m/m, north of projections for a 0.3% increase, and versus July's unadjusted 0.4% rise. Y/Y, wages were 4.3% higher, north of the 3.9% forecast. Finally, average weekly hours remained at July's downwardly-revised 34.7, versus expectations of a modest increase to 34.8.Weekly initial jobless claims came in at a level of 340,000 for the week ended August 28, versus the Bloomberg consensus estimate calling for 345,000 and compared to the prior week's upwardly-revised 354,000 level. The four-week moving average declined by 11,750 to 355,000, and continuing claims for the week ended August 21 dropped by 160,000 to 2,748,000, south of estimates of 2,808,000. The four-week moving average of continuing claims fell by 58,000 to 2,855,000.

The trade balance showed that the July deficit shrank more than anticipated, declining to $70.1 billion, from June's downwardly-revised deficit of $73.2 billion, and compared to forecasts of $70.9 billion. Exports rose 1.3% month-over-month (m/m), and imports dipped 0.2%.

Final Q2 nonfarm productivity was revised lower to a 2.1% gain on an annualized quarter-over-quarter (q/q) basis, and versus estimates of an adjustment to a 2.5% increase, from the preliminary report of a 2.3% increase. Q1 productivity was unadjusted at a 4.3% gain. Labor productivity, or output per hour, is calculated by dividing real output by hours worked by all persons, including employees, proprietors, and unpaid family workers, and is a major contributor to the economy's long-term health and prosperity. Unit labor costs were adjusted to a 1.3% q/q increase, from the preliminary rise of 1.0%, versus forecasts of a revised 0.9% gain. Unit labor costs were unrevised at a decrease of 2.8% in Q1.

Factory orders rose 0.4% m/m in July, versus estimates of a 0.3% gain, and compared to June's unrevised 1.5% increase. Durable goods orders—preliminarily reported last week—were unrevised at a 0.1% dip for July, and excluding transportation, orders were upwardly-adjusted to a 0.8% advance. Finally, nondefense capital goods orders excluding aircraft—considered a proxy for capital spending—were revised higher from a flat reading to a 0.1% gain.

Treasuries are dipping, with the yield on the 2-year note little changed at 0.21%, while the yields on the 10-year note and the 30-year bond are ticking 1 basis point (bp) higher to 1.30% and 1.92%, respectively.

Wednesday, September 1, 2021

Americans Still Stranded; Labor Day

 Americans still stranded, including high school students.

Larry Kudlow shreds Biden's 'anti-work' policies.

Top Five Consumer Cyber Security FAQs

By Equifax Business, technology, environmental and economic changes are a part of life, and they are coming faster all the time. All of thes...