Friday, October 30, 2015

Where Are The Lions?

Why did Romans spend good Roman money to attend contests between lions and Christians?  Wasn't the victor pretty obvious?  What was the contest anyway?

Why do I spend good American money to attend football games between the Dallas Cowboys and anybody else?  The participants are always changing.  I don't know and have never met any of the players, and I have no loyalty to any individual team member.  Does the contest even matter?

Jerry Seinfeld likens professional sports to "cheering for laundry," as the players wearing the uniforms are always changing.  Only the laundry remains.  It is not like cheering for your high school football team, where you probably knew some of the players.

Psychology-types suggest it is a collective "Walter Mitty" wish to somehow live vicariously through the "heroic" players, experiencing both emotional highs and emotional lows.  Sociology-types suggest it reflects a longing for more heroes in a disappointingly complex society.  Maybe, it is just an excuse for guys/dudes to get together, drink beer, eat chicken wings and act stupid?  Maybe, sports allows us to feel like we are part of something bigger than ourselves?  Maybe, sports satisfies some primeval male-bonding need?  I remember reading somewhere that women talk face-to-face, while men talk shoulder-to-shoulder.  Between cheers, I guess?  A more existential view is that, as long as we are experiencing emotional highs and lows, we must still be alive.

An economist might look at professional sports as just one part of the vast entertainment industry.  It is no more noble than a soap opera.  But, it does contribute to GDP, employing thousands of non-players, and paying billions in salaries.  Maybe, it even lessens negative social costs, such as juvenile delinquency, by keeping kids off the street.

Of course, the only thing that really matters is whether the Cowboys win or lose!

Tuesday, October 27, 2015

Rolling Crisis?

When I moved from the barely-growing mid-Atlantic to rapidly-growing Texas in the late 1970's, I was grateful that at least some part of the country was growing.  A few years later, Texas experienced an oil crash.  I remember seeing bumper stickers that read:  Please God, let there be one more oil boom, and I promise not to waste it next time.

As Texas slipped into recession, the northeast started booming. A few years later, Texas enjoyed a housing boom caused by the Garn-St Germain bill, that allowed Savings and Loan Associations to do almost anything.  Of course, that caused lending excesses, which then caused a real estate recession scandal  in Texas, while California began enjoying a boom in technology.  Economists reasoned that the United States is so huge that some sort of recession is always "rolling around" the country and called them rolling recessions.

Some pundits humorously suggested there is only one recession, and it just keeps rolling around the country.

In 1997, Asia entered into a serious recession.  However, their recession became a financial crisis and pulled most of the developed world into a recession.  In 2008/9, the United States endured a financial crisis that pulled the global economy into a recession.  In 2010/11, Europe endured a financial crisis and almost pulled the global economy back into recession.  (While we didn't go back into recession, our stock markets certainly suffered.)

Today, there is concern that Asia is slipping back into recession and possibly another financial crisis.  The Shanghai Stock Market collapse sure smells like a financial crisis, at least to the nose of a financial economist.

I wonder if those now-older pundits would humorously suggest there is only one financial crisis, and it just keeps rolling around the world.

Thank You, John !

Almost every family has some goofy, old aunt or uncle who always complains "the end is near, and we're all going to die."  Wall Street is like that, especially about all things political.  When the sky is not falling, it is like Sherlock Holmes' dog that didn't bark.  The lack of an expected response can be very telling.

Did you know the Federal debt ceiling has to be raised next week?  Did you know that the Federal budget expires December 11th?  Did you know the Federal Highway spending ends in two days?   Now, what could possibly go wrong?

Yet, Wall Street is not over-reacting.  Uncertainty increases bearishness, but Wall Street is not particularly bearish.  (In fact, October has been kind to the bulls.)

The Fix is in!  Wall Street is not over-reacting to this uncertainty, because it is not uncertain.

My expectation is that John Boehner is now free of his radical Republicans and can cut a deal with Democrats.  What a refreshing change!  His expected response would be to delay, blaming it on the Democrats, instead of his own right-wing extremists.  He is above partisan dictates and can now be a statesman!  He can even c-o-m-p-r-o-m-i-s-e . . .


All this tells me the market has already factored in a deal.  Therefore, I don't expect a bullish response when the deal is announced.

Friday, October 23, 2015

Obama Is A Failure

But, so was Ronald Reagan, George H.W. Bush, Bill Clinton, and George W. Bush.  All promised to "do something" about the loudness of TV commercials.  That has been the most common complaint to the Federal Communications Commission since 1980, averaging over twenty thousand complaints each year.

At least Obama "did something" and got Congress to pass the Commercial Advertisement Loudness Mitigation Act (CALM).  In 2013, commercials were supposed to become less loud.  Did you even notice?  I didn't think so.

The burden of compliance is on TV broadcasters and cable providers.  They have purchased equipment to insure that average commercial loudness is no greater than the programming.  Quickly, the advertisers found a way around this by introducing a few seconds of silence at the beginning and end of commercials, keeping the average acceptable but changing peak loudness even more abruptly, still making viewers look for the remote.  Now, there are arguments about excluding the increased bass during the commercials.  The battle has temporarily shifted from the legislators, who are claiming they "did something," to regulators, who are being over-whelmed with technicians and lawyers.  The battle will eventually have to return to the legislators.

If the President of the United States is the most powerful man on the planet, why are they impotent against the advertising business?  Because the advertising business is the most powerful business on the planet!  That business is powerful enough to convince people they should eat unhealthy food.  It is powerful enough to convince people that credit card debt is good.  It is even powerful enough to make people vote against their own best interest.  It has no moral compass.

And, it is more powerful than five different Presidents of the United States of America!

Wednesday, October 21, 2015

Shelter In A Storm ?

For those of us who worry about a global economic slowdown, there is one sector of our U.S. economy that should remain largely immune, and that is homebuilding.  First, relatively small amounts of inventory have been added since the Great Recession, while population has increased.  With demand for housing rising faster than the supply of housing, it is not surprising that rents are rising faster than the rate of inflation, especially among Millennials.  This has made builders quite optimistic, with the Builders Sentiment Index reaching it's highest level in ten years, since October of 2005.  With that confidence, they have been building and building, especially multifamily.  The third quarter of 2015 was 13.1% higher than Q3 of last year.

The faster inflation of rent for Millennials and the record-low mortgage rates should continue to pull them into home-buying.  Of course, having watched their parents or friends' parents lose their homes in foreclosure, a great many Millennials have been slower than past generations to "put down roots" and buy homes.  Interest rates are not going to get lower, and houses are not going to get cheaper.  The Millennials have some catching-up to do, and that will be good for the country, regardless of the rest of the world!

Monday, October 19, 2015

Quarterly Column

My latest column for Inside Business lives at: 

Friday, October 16, 2015

My Thoughts Exactly

A One-Handed Clap

Psychologists say constant negative feedback creates a certain numbness to feedback, so we should offer some positive feedback whenever possible.

How many times have I asked readers to take a cold shower at ?  That website shows the spiraling problem of increasing debt.  It is frustrating, frightening and maddening!

But wait!  The budget deficit for the Federal government's fiscal year that just ended was "only" $439 billion -- the smallest deficit  since 2007!  That is great progress!  There's your positive feedback . . .

But, once you look into the details, it is not so positive.  The deficit is decreasing for the wrong reasons.  It is decreasing because the economy is growing, not because of governmental spending restraint.  While it is certainly not unimportant that the economy is growing, that smokescreen does make it easier to avoid dealing with the obvious spending inefficiencies.  It is not just the total number of dollars spent but also what those dollars are spent on!

No matter what the problem is, the answer is always the same . . . more revenue!

Medicare premiums are about to jump.  It is easier to increase premiums than, for example, to stop spending 40% of all lifetime medical costs during the last ninety days of life.  Saying yes to more revenue is easier than saying no to spending.

As a financial planner, clients always scream when I tell them to spend less.  After all, everything we buy is a necessity, isn't it?  Unfortunately, that is true for both individuals and nations.  Can we really expect our government leaders to eliminate spending when we cannot do it ourselves?

Tuesday, October 13, 2015

Still 98.6 Degrees

Is the stock market over-heated?  The shorthand answer on Wall Street deals with the Price-Earnings (PE) Ratio or how many times the stock market values each dollar of earnings per share.  In other words, if a stock earns $1.00 per share and sells for $20 per share, then the PE ratio for that stock is 20 times.  If the earnings per share for the whole stock market is $100 per share and the S&P 500 index is 2,000, then the PE ratio is also 20 times.  Since the long term average over the last sixty years is 16.5 times, we would call 20 times over-heated.

The trick is figuring out what are earnings per share (EPS) for the entire market.  Currently estimated at about $112 per share, that makes the current PE ratio about 18 times, which would be only slightly over-heated.  However, investing legend at Wharton, Dr. Jeremy Siegel, has dug into the numbers and thinks the $112 estimate is too low.  One reason is the dramatic fall in energy prices has triggered huge balance sheet write-downs that are ending as oil prices stabilize.  That adds about $8 per share.  In addition, the strong U.S. dollar has depressed earnings about $5 per share, which also seems to have stabilized.  Adding that $13 to the current estimate of $112 means real EPS is about $125, which drops the PE ratio to 16 times or about average.

So, is the stock market over-heated?  No, not by the normal measure of PE ratio.

Now, go back to sleep . . . with one eye open!

Sunday, October 11, 2015

Bold Predictions ?

I would never hire anybody who worked at investment banking giant Goldman Sachs, UNLESS they worked in the research department, which I do respect.  Here are some of their latest forecasts:

1.  GDP growth in the U.S. remains essentially unchanged at 2.4% last year, 2.5% this year, and 2.4% next year.
2.  GDP growth in Europe increases from 0.9% last year, 1.6% this year, and 1.8% next year.
3.  GDP growth in China continues to slow from 7.4% last year, 6.8% this year, and 6.4% next year.
4.  U.S. stocks should increase 6.2% over the next twelve months.
5.  European stocks should increase 18.8% over the next twelve months.
6.  Japanese stocks should increase 20.4% over the next twelve months.
7.  Interest rates on the benchmark 10-year Treasury bond should increase a whopping 73 basis points or about three-quarters of one percent over the next twelve months.
8.  The dollar will appreciate 15% against the euro and 3.8% against the pound but depreciate 7.6% against the yen.
9.  Oil will remain essentially unchanged,while natural gas will cost 23.6% more.
10.  Gold and cooper continue to lose value, with a loss of 8.4% for gold and 5.8% for cooper.

Notable in its absence, there is no discussion of any potential recession or bear market!

Saturday, October 10, 2015

One Joy of Education

We've all heard about the increasing concentration of income among the top 5%.  You might even think the 95% are treated unfairly.  Or, maybe the 5% are just better protected.

If you are having trouble convincing your kid that he should stay in high school and then go to college, consider the latest research from the National Center for Health Statistics:  In 1995, a high school dropout was 2.5 times more likely to be killed in a car wreck than a college graduate.  By 2010, they were 4.3 times more likely to be killed.  Who knows what it will be like in another five years?

Is it as simple as the rich get richer, while the uneducated get killed.  Or, is it because dropouts are less responsible than college grads?  Or, is it the company they keep?  Or, is it an secret government plan to kill off Americans with less education than the President?  Or, is it because the newer cars are too expensive for the dropouts but protect the educated who can afford the newer cars -- an unintended consequence of government regulation?

Regardless, the message is clear . . . stay in school!!

Friday, October 9, 2015

Majority vs Minority

Q.  What is the difference between Republican congressmen and Tea Party congressmen?

A.  Republicans believe in majority rule, not minority rule.

Thursday, October 8, 2015

Senatorial Sense

Democrats are right:  The seeds of the next financial crisis are sown in the ashes of the last one.

Former Senator Hillary Clinton is right:  She wants to tax high-frequency trading and "dark pools', making them more transparent and less profitable.  High-frequency trading poses a systemic risk to our financial system by overwhelming it with vast numbers of cancelled trades.  Dark pools are ways for investors buy and sell large quantities of stock in secret.  Think about that!

Senator Elizabeth Warren is right:  She wants more criminal prosecutions of white-collar professionals on Wall Street, who knowingly sell overly-risky investments to unsophisticated investors.  All I can say is . . . ditto!

There will be another financial crisis, I promise.  If you assume the 78 years between the Crashes of 1929 and 2007 means anything, we should not expect another in our lifetimes.  However, if we learned nothing else from Alvin Toffler's classic Future Shock, we learned that the rate of change keeps increasing at an increasing rate, suggesting the 78 year interval means little if anything.

There is no reason to believe another financial crisis is in the near-future, but these senatorial reforms will help keep another financial crisis in the future.

Wednesday, October 7, 2015

According to the Good Doctor(s)

Republicans are right:  When your corporate income tax rates are the highest in the developed world, they are too high.  That is the reason that American corporations have maintained $2 TRILLION overseas, where it doesn't have to pay 25-40% (depending) income taxes on it.

Dr. Ben Carson is right:  He has proposed a six-month window to repatriate the entire amount tax-free, as long as 10% is spent on some social good to be determined, such as Red Cross or Headstart or whatever.  Would such a huge cash injection help the United States?  Absolutely!  Would it help us a great deal?  Probably not.

Dr. Gabriel Zucman is also right:  He is a professor at the University of California and just wrote a book entitled The Hidden Wealth of Nations, in which he deduces there is now about $7.6 TRILLION (about 8% of the world's total wealth) hidden in such tax/secrecy havens as Panama, Channel Islands, etc. (Even though it has been illegal since 2009, the amount of foreign money in Switzerland has increased 18% since then.)  Of course, not all of that hidden money is from Americans, but wouldn't the world benefit if 8% of its wealth was returned to it?

Does that mean Dr. Carson should be elected President of the United Countries of Earth?

Tuesday, October 6, 2015

Symmetrical Response ?

The Dow rose 304 points yesterday.  Were you elated?  Were you open and communicative with your family?  Did you go out to dinner?

If the Dow had fallen 304 points instead, would you have been depressed?  Would you have sat with a sullen face in front of a television without watching it?  Would you have called your financial advisor, as if they were responsible?

There is a great deal of emotional distance between elation and depression.  Most people think they handle market swings pretty well, but their spouses often disagree.  Go ahead, be brave -ask your spouse how well you handle market swings!

When I had my first job as a trust officer decades ago, my boss taught me that "the pain of losing money far exceeds the joy of making it."  I've learned that is absolutely true.  The difference is how well you handle . . . pain & joy . . . or elation & depression.

But, don't blame your financial advisor for the emotions you cannot handle.

Monday, October 5, 2015

Amen, Ben !

Readers know I have long argued that punishing individuals is more appropriate than punishing non-individuals, like corporations.  (See blog on September 25th for the most recent.)

It is satisfying when a major player agrees with you.  Ben Bernanke was Chairman of the Federal Reserve System during the global financial crisis of 2008/9.  In his new book, he says:  "it would have been my preference to have more investigation of individual action, since obviously everything what went wrong or was illegal was done by some individual, not by an abstract firm."

He points out that bringing criminal actions is not the Fed's job.  That job belongs to the Department of Justice.  In fairness, I recall reading former Attorney General Eric Holder say that it was much harder to find individuals guilty than corporations.  Going after corporations was the low-hanging fruit.  Assuming that is correct, why are the laws designed to excuse bad individual behavior?

Some will argue that prosecuting individuals in corporations without also prosecuting individuals in government is not fair.  I argue that you don't prosecute individuals simply for doing the wrong thing.   It is not illegal to do something stupid.  You prosecute individuals who knowingly did the wrong thing for personal greed, like salesmen who tell you certain bonds are safe, because they have subprime mortgages as collateral, when they already know the truth . . . oh, the sweet smell of personal greed!

Sunday, October 4, 2015

Curse of the Y Chromosome

I confess - I have a male ego.  I want to win!  More than I love winning, I hate losing.  It's a guy-thing, I guess.  Sometimes however, if you cannot win, it can be enjoyable to watch your opponent lose.

For years, I've wondered how the United States got caught in the crossfire from a tribal duel between Sunni Muslims and Shiite Muslims.  They've only hated each other for 800 years, yet we seem to think there is something to win?

Remember the long gas lines and short tempers during the Arab oil embargo 1972?  Back then, the Middle East mattered, because they had the oil.  In the long 53 years since then, a few things have changed.  One is that the Middle East is not nearly as important - not unimportant but certainly less important.  That is one big advantage to fracking.  (Besides, with Venezuela collapsing, we may get access to even more oil.)  We just don't need the Middle East now as much as we needed them in 1972

What would you like to do in Syria?  Take your choice between supporting the murderous Assad or watching another hundred thousand civilians die.  Maybe, we don't have to make that decision.  Maybe, egocentric Putin would like to take our place.  Are we that lucky?

From his standpoint, it would give the Russian people a bright shiny object to focus their attention somewhere besides their lousy economy and election fraud.  Assad would remain in power, but Putin would have to deal with him, not us.

From Iran's standpoint, they get the "American Satan" out of the Middle East.  In the long run, they will alienate the Russians as bad as they do everybody else.  Don't think the Islamic government of Iran will ever get too cozy with the Russian infidels from the north.

Together, to destroy ISIS, they will have to destroy the majority of Sunni Muslims in Iraq.  Once done, the Shiites of Iran and the infidels of Russia will have to deal with the rest of the Arab world, which is almost entirely Sunni, including Saudi Arabia.  Good luck with that!  (85% of all Muslims are Sunni.)

From our standpoint, we have to deal with the male ego of withdrawing from the Middle East, after losing thousands of lives, wounding tens of thousands of good Americans, and spending over THREE TRILLION DOLLARS.  The rest of the world will say we retreated, with our tail between our legs.  Darn it, there's that male ego thing again!

In ten years, the broke Russians will be both bankrupt and hated.  Iran will be isolated in the Arab world, controlling their own oil plus Iraqi oil, in a world less oil dependent than ever before.  (10% of Texas electricity already comes from wind power, as an example.)

Try telling a man that you'll respect him at some point in the future -- he wants respect NOW.  Unfortunately, so do nations.  Or, is that just male national leaders?  Is our Y-chromosome keeping us from making the best strategic decision for the long-term?

Saturday, October 3, 2015

The Only Guarantee

Friends often struggle to understand why I normally get up by 5AM each day.  The primary reason is that my "body clock" is genetically set for it.  The professional reason is that I want to check the foreign markets before U.S. stock markets open.

I can save my clients a little money by using "market orders" which execute when they hit the market, regardless of price.  The only time I have a really solid grasp of the buy or sell price is when the market first opens.  (During the day, anything can happen, and I might have to use other types of more expensive orders.)  To predict opening prices, I rely on the futures market.

One rule-of-thumb is don't rely on futures until 9:29AM, just before the market opens, especially if there has been any breaking news.  Yesterday, early futures indicated the Dow would gain 109 points when it opened.  At 8:30AM, the disappointing jobs report was released.  Futures promptly dropped to a loss of 100 points at the open, a 200 point reversal.  When the market did open, it actually dropped 258 points.  However, when the market closed at 4:00PM, the Dow had GAINED 200 points, a 450 point reversal.  It was wildly volatile, the biggest upside reversal in four years.

It was a typical example of the stock market doing the only thing it is guaranteed to do -- it over-reacted!  

Friday, October 2, 2015

Fill In The Blanks

ASSOCIATED NEWS (AN) - Yesterday, some psychotic nutcase in [insert city and state here] named [insert name of loser here] used a [insert type of guns] to kill [insert number] innocent people and to wound an additional [insert number] innocent people, between the ages of [insert number] and [insert number].  The senseless slaughter took place in the [name of institution] at [insert time of day].  The wounded were taken to [insert name of hospital here].

The National Gun Lobby (NGL) expressed their condolences to the loved ones and reminded the public of NGL's school educational program, known as the "3-Rs of Safety" -- Reading, wRiting, & Rifles -- which is offered free-of-cost to all first grade students, if the school will simply provide loaded handguns and concealed weapon permits to the students, so they may protect themselves from psychotic losers.

How Utterly Absurd!!

Thursday, October 1, 2015

The Passing Storm

The third quarter is finally over .. . GOOD!
It was the worst quarter on Wall Street in four years.
Most stock averages were down about 7%.
Most hedge funds were down 15-20%.

The bad news is that there will be more bad news in this quarter.

Historically, stock prices suffer during the month of October.
Historically, stock prices rally in late December into January.

By then, Congress will have passed a fiscal budget & raised the debt ceiling.
But, there will be lots of anguish and hand-wringing before it happens.
Buy some Rolaids!

Also, be patient - corporate earnings are not as bad as they appear.
Stripping out the collapsing energy profits, corporate profits are up 5%, which is good.

Just like Joaquin, the storm on Wall Street will pass . . .