Portfolio Return as of 12/05/22:
2020: 25.65%
2021: 29.15%
YTD: +2.49% (SP500 -16.3%)

Wednesday, November 30, 2022

National Debt at $31 Trillion: Does Anyone Care?

Our national debt has soared to a record $31.3 trillion. Yet our federal budget deficit fell sharply in fiscal year 2022. The national debt continued to rise in FY2022 because the government spent more money than it received in revenues.

The budget deficit for FY2022 fell sharply because federal spending to fight the COVID-19 pandemic declined significantly, but it was still a large deficit. The budget shortfall declined to $1.375 trillion, compared to the 2021 deficit of $2.776 trillion.

President Biden has been trying to take credit for the huge decline in the budget deficit, but in fact his policies prevented the budget deficit from falling even further. America's growing national debt is the result of simple math — each year, there is a mismatch between spending and revenues. When the federal government spends more than it takes in, we have to borrow money to cover that annual deficit. And each year’s deficit adds to our growing national debt.

Historically, our largest budget deficits were caused by increased spending around national emergencies like major wars or the Great Depression.

Today, our deficits are caused mainly by predictable structural factors: our aging baby-boom generation, rising healthcare costs and a tax system that does not bring in enough money to pay for what the government has promised its citizens.



Inverted Yield Curve: Largest Gap Since 1981

An inverted yield curve is often seen as a warning that a recession is looming. Longer-term yields are usually higher than shorter-term yields because investors want to guard against the risk of unexpected inflation and rate increases.

The yield on the 10-year Treasury note dropped to 0.78 percentage points below the two-year yield, the largest negative gap since 1981, before easing slightly. The inversion reflects both surprising positive news on inflation as well as the view that the Federal Reserve will continue to raise interest rates and keep them at elevated levels.



Monday, November 28, 2022

Credit Card Debt is on the Rise

You do not want to get caught in the debt trap. Credit Card Debt is the most damaging to your financial freedom and welfare. See Getting Out of Debt or I'm In Debt. How Do I Get Myself Out of This Mess.


Total household debt balances continued their upward climb in the third quarter of 2022 with an increase of $351 billion, the largest nominal quarterly increase since 2007. This rise was driven by a $282 billion increase in mortgage balances, according to the latest Quarterly Report on Household Debt & Credit from the New York Fed’s Center for Microeconomic Data. Mortgages, historically the largest form of household debt, now comprise 71 percent of outstanding household debt balances, up from 69 percent in the fourth quarter of 2019. 

An increase in credit card balances was also a boost to the total debt balances, with credit card balances up $38 billion from the previous quarter. On a year-over-year basis, this marked a 15 percent increase, the largest in more than twenty years. Here, we take a closer look at the variation in credit card trends for different demographics of borrowers using our Consumer Credit Panel (CCP), which is based on credit reports from Equifax.

Read full article here.

Friday, November 25, 2022

What Behavioral Finance Can Teach Us About Investing

By J.P. Morgan Wealth Management

Birds and bees are great – but so are brains. In the last few decades, behavioral finance has emerged as a field of study that merges psychology and finance. It’s a subset within the field of behavioral economics, which was developed by, we assume, super smart dudes named Daniel Kahneman and Amos Tversky.

In 1979, they proposed the idea of prospect theory, which argues that people make decisions based on the potential value of gains and losses rather than the utility of a decision itself. Their empirical findings challenged the assumption that human rationality prevailed in modern economic theory – and in 2002, Kahneman even won the Nobel Memorial Prize in Economic Sciences. (See, we were right, they are super smart.)

To put it simply: investors are humans. We feel greed, fear, hope, excitement – all sorts of emotions impact our behavior on the micro and macro levels. It is precisely because we are human that we often make irrational decisions.

Behavioral finance is what happens when emotions, self-awareness and investing come together. It can help us understand these cognitive biases, as well as strategies for managing them. Here are four of those biases investors may feel:
  • Overconfidence bias: The tendency to see ourselves as more knowledgeable than we actually are. This is common in investing. Overconfidence leads to rash and irrational behavior – like trying to time the market (or eating a really spicy pepper), even though markets are categorically unpredictable, and this has consistently proven to be a losing strategy in the long term.
  • Herd behavior bias: When investors follow others rather than make their own decisions based on financial data (e.g. the Dutch tulip market, or stockpiling a meme stock because all your friends are doing it). People follow herds because it feels safer, or because of the FOMO (fear of missing out) they get from being on the sidelines.
  • Anchoring bias: When an arbitrary benchmark – such as a stock’s purchase price – anchor’s one's decision-making process (“I won’t sell at $X because I bought at $Y!”). With anchoring bias, people tend to hold investments that have lost value because they’re anchoring its value to the price they bought it at, not market fundamentals.
  • Loss aversion: When making decisions, people are more sensitive to losses than they are to gains. Robert Johnson, a professor of finance at Creighton University, argues that loss aversion can cost us money. "The biggest financial mistake people make is taking too little risk, not too much risk," he says. Loss aversion helps explain why: Losses hurt more than gains are enjoyed.
The good news? With just a little bit of strategy and discipline, these biases are easy to overcome. One of the best ways to do this is to put your investing on auto-pilot. In a strategy known as dollar-cost averaging (DCA), an investor puts the same amount of money into the market, at regular intervals, no matter what. For example: $100 on the 15th of every month for a year, automatically, no matter what.

Since DCA is a fixed investment strategy, it neutralizes market performance as a decision factor. This can help you breathe easy instead of constantly making decisions based on anxiety, hunches or best-guesses. Sure, sometimes you might buy a little high. Other times a little low (party time!). But consistency is exactly what diversifies your purchase price – leveling out both losses and your anxiety. For this reason, DCA is an incredibly useful psychological tool for putting investments on auto-pilot.

Often finance and investing is thought of as a pure “numbers play,” but we humans just can’t do anything without putting our heart into things. So understanding why you make decisions, and how to rethink them when necessary, is one of the most important money skills you can learn.

Tuesday, November 22, 2022

Climate: Just Who Owes Who?


I've written about the business and purpose behind climate change before. The climate change movement is really just a climate change shake down. This crusade isn’t about changing the temperature of the earth. Even the most well-meaning environmental activist can’t really believe that building windmills and driving Teslas is going to cool the planet.

This all about money. Hundreds of billions of dollars of government handouts.

The one resolution of agreement among the politicians from 100 nations at the “Cop 27” climate conference in Egypt was that rich nations owe poor nations “climate reparations.” This is the looney concept that America is responsible for the supposed man-made warming of the planet by burning fossil fuels over the last hundred or so years. Joe Biden and his goof ball sidekick John Kerry were all to eager to buy into this “blame America first” narrative and write a 10-figure check to atone for our sins.

The conference in Egypt erupted into wild applause in the final hours when the multi-billion wealth transfer from American taxpayers to corrupt foreign governments like Venezuela was announced.

Wait!!! Biden thinks WE owe the rest of the world money for burning fossil fuels? Really? What have poor nations ever done for us? These supposed satanic fossil fuels have been the power source that liberated the world from human misery. They turned the lights on. They powered our factories, our transportation system, our technology industry, our homes, our hospitals our schools. This was a crime against humanity?

Fossil fuels made America rich and made the U.S. the bread-basket of the world helping end hunger and famine while developing drugs and vaccines that eradicated deadly diseases across the planet. They were the fuels used to help America win three world wars (counting the Cold War) on foreign soil against murderous fascist/communist regimes. To paraphrase Jack Nicholson in A Few Good Men: “A simple THANK YOU [from the rest of the world] would suffice.”

Over the last fifty years the United States has donated more than half a trillion dollars (more than the rest of the world combined) for disaster and foreign aid to seemingly every area of the rest of the world. Who owes whom money?

Oh, and was it mentioned that China and India skipped out of the conference this year. These are by far the two largest polluting nations (see chart). And they want no part of this war on fossil fuels. A climate change deal without China and India signing on would be like a peace agreement during the middle of World War 2 - except the bad news is that Germany and Japan aren’t on board.


Inflation is a Monetary issue


Two recent articles I've come across explain the phenomenon of inflation very well. Or pick up a book if you want more depth. Money Mischief would be a place to start. 

Milton Friedman’s priceless lessons on inflation

Inflation – it’s on everyone’s mind. Everyone is talking about how inflation is the highest it has been in forty years. With the slowing economy, what was said to be a “transitory” phase has turned into “stagflation.”

Some are blaming the government. The government is blaming the war. Republicans are blaming the Democrats, and the left is blaming greedy corporations. As the blame game and alarm rage, it remains a fact that most of us don’t know what inflation is. Few know what causes it. Fewer know how it can be curbed.

Under the circumstances, it pays to listen to the respected American economist Milton Friedman as he deconstructs this “alarming” phenomenon. The Nobel Laureate, speaking at the University of San Diego and the San Diego Chamber of Commerce in 1978, busted some well-established myths and shed light on the causes and cures. 


Central Bankers Dodging Blame

The great Milton Friedman repeatedly explained that rising prices are an inevitable consequence of easy-money policies by central banks.

That’s a lesson everyone should have learned about 50 years ago when the Federal Reserve unleashed the inflation in the 1960s and 1970s (also blame Lyndon Johnson and Richard Nixon for appointing the wrong people).

Friday, November 11, 2022

Stock and Bonds Down for Year, Even with Recent Rally

I guess my portfolio (13% Bond, 70% Stock and 17% Cash) isn't doing to badly, with a YTD return (including dividends) of 3%. About 25% of my stocks are either in, or were, in energy. I sold about half my holdings a few months ago and invested in income producing ETFs.




Real Wages Down

Employed full time: Median usual weekly real earnings: Wage and salary workers: 16 years and over



Thursday, November 10, 2022

Inflation Eases to 7.7%. But Still High

 


As Milton Friedman said: Inflation is a monetary issue. Think the money supply had anything to do with that? And what caused this? Spending by Congress and Quantitative Easing by the Fed.



Freddie Mac Mortgage Report

Interactive Chart here .