Well, Well, Well, What Do We Have Here?

Investment markets had a bad day today.  They did come back a bit into the close, but still it was ugly.

Why?  And should we be worried?

First, some thoughts on why.

As you regular readers of my irregular blog know, I tend to comment more at times of market turmoil than I do when all is going seemingly well.  Having come through the historically worst month of the market’s year – September – relatively unscathed this year, October is not starting out so well.  Usually, with occasional, noteworthy exceptions, October is a better month for investors. And the six months that follow – November through April – are, historically, the better half of the year by far.  So what’s up this year?

Don’t know. But I doubt it’s much.  I suspect it is a reaction to higher interest rates because the economy is doing so well.  (You might want to read that last sentence again.) Yes, markets can have hissy-fits over economic news that is too good. Why? Because the Fed will keep raising interest rates and also become more attentive to inflation.

Yet, this is all part of a healthy, growing economy. And be assured, we are not yet at “interest-rate neutral.” Our short-term interest rates fell to zero, remember, for many years after 2008.  As our economy has convalesced, gotten out of bed, started to walk again, and now is beginning to jog, what I see is very normal.

Next week starts earnings season. It promises to be very good. It will show that the economy is starting to run now that it has two quarters of lower tax rates, less regulation, and higher consumer and investor confidence under its belt.

Please don’t lose heart or be scared out of the market. That’s why I’m writing now.

If we look back on historic market data over the last 70 years, we have had 5% drops in the stock market about three times every years, 10% drops about once a year, 15% drops about once every three years, and 20% or greater drops every six years or so. That’s the data. Trust me, it does not make sense to try to foresee and exit the market to avoid 5% or 10 % drops, if that’s what we’re in the midst of. On the other hand, if we’re facing a large drop of 20% or more – and I doubt that very much, given economic realities on the ground – there are warning signs that might help us see if a train is about to run us over.

The predictor I trust the most is The Conference Board’s Leading Economic Indicators (“LEI”) and its Coincident Economic Indicators (“CEI”), and they’re not telling us anything bad is yet on its way.  (Of course, if we were about to be invaded by martians, the data would not pick that up.) Here’s the most recent LEI and CEI data, from August:

 

 

 

 

 

 

 

Look carefully at this August graph.  Vertical grey lines are recessions. Note what happens to the LEI and CEI lines as a recession is approaching: both lines begin to fall, months or even a year or more before a recession starts. Do you see the lines declining in 2018?  No, both are still rising.  Will they keep rising? Of course not.  But the data is not telling me that today’s, or this week’s, falling markets are likely signaling the start of something very bad or long term.  And yes, I realize the LEI and CEI data cover only activity through August, 2018, now more than a month ago.  But don’t miss it: a downtrend in or a peaking of economic activity had not, for sure, started by late August.

So, for now, at least, don’t lose heart.  Stay invested.  Trust. And have patience.

God bless you.

Posted in economic recovery, fear, investment myths, investment wisdom, market corrections, Market falls, market volatility, Personal Finance, retirement investing, saving, stock rallies, Successful living, Uncategorized | Leave a comment

Timely Advice

Words for my retirement investment friends to ponder this week.

 

Undervalued Financial Advice

There’s a lot of overvalued financial advice out there these days.Don’t drink lattes or you’ll never be able to save for retirement.

You should make your own toothpaste to save more money.

Just follow my simple system to get the highest interest rate on your savings account.

There’s nothing wrong with cutting back, being frugal with your money, or maximizing interest earned on your savings. But these are all tactics that will, at best, offer small financial payoffs. Most people will see larger gains focusing on the big picture.

With the big picture in mind, here are four pieces of undervalued financial advice:

1. Avoid the allure of more. On this week’s Armchair Expert, Ted Danson told Dax Shepard about his relationship with money following his huge payday from the success of Cheers (which remains a top 5 sitcom of all-time):

You start getting chunks of money you’ve never gotten before. And you were quite happy without it  — I was. I was quite content with whatever and then lots of money came my way and I was like, “Oh I don’t want to lose this and I wonder if I could get more.”

Most of us will never have Sam Malone money but it’s a good lesson that no matter how much money you make there will always be the temptation to want more of it. This can be an unhealthy obsession when it leads to out of control lifestyle inflation.

2. Envy is more expensive than gratitude. A recent survey asked people from around the globe, “All things considered, do you think the world is getting better or worse, or neither getting better nor worse?”. Just 6% of U.S. respondents and 4% of Germans thought things are getting better.

Oxford’s Max Roser published a piece in response to these results that show no generation has ever had higher living standards — education, health, literacy, freedom, education, etc. — than we do today.

Nonfiction released a report this week called The Secret Financial Lives of Americans. More than half of their respondents admit to having cried because they didn’t have enough money. This might make sense for the poor and lower middle class but that number was 41% for people who earn $200,000 or more.

Maybe the entire 41% live in Silicon Valley or New York City but I’m guessing this has more to do with our financial envy of the dreaded Jones down the block than anything. Envy has a stronger hold on our relationship with money than most people realize and these feelings often trump our ability to be grateful for what we already have.

We don’t compare ourselves to our ancestors, we compare ourselves to our neighbors1

3. Time and health matter more than wealth. Cornelius Vanderbilt’s son William was far and away the richest person in the world after doubling the inheritance given to him by his late father in just 6 years. But the burden of wealth brought him nothing but anxiety. He spent all of his time managing his substantial wealth through the family’s businesses, which meant he had no time to enjoy his money or take care of his body.

He once said of a neighbor who didn’t have as much money, “He isn’t worth a hundredth part as much as I am, but he has more of the real pleasures of life than I have. His house is as comfortable as mine, even if it didn’t cost so much; his team is about as good as mine; his opera box is next to mine; his health is better than mine, and he will probably outlive me. And he can trust his friends.”

William also told his nephew, “What’s the use, Sam, of having all this money if you cannot enjoy it? My wealth is no comfort to me if I have not good health behind it.”

All the money in the world doesn’t matter if you don’t have the time or the health to enjoy it.

4. Stay married. It makes sense intuitively, but research shows people who get married and stay married tend to build more wealth than people who don’t get married or end up divorced.

A study by National Bureau of Economic Research found the median married household of retirement age had 10 times the savings as the typical single household. Based on his work from studying thousands of millionaires, Thomas Stanley, author of The Millionaire Next Door, found that millionaire couples have less than one-third the divorce rate of non-millionaire couples.

And researchers from Ohio University found that people who get divorced experience an average drop in wealth of 77%. They found wealth started to decline four years before a divorce so staying in a toxic marriage to avoid financial ruin is probably not sustainable either because you stop planning ahead for the future.

No one goes into a marriage with the assumption it’s not going to work out. But there is something to be said for your levels of happiness, stress, and wealth by finding a financially compatible spouse.

Further Reading:
The 3 Levels of Wealth

1Or even worse — celebrities and social media personalities.

 

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Posted in fear, investment myths, investment wisdom, market volatility, news biases, Personal Finance, retirement investing, Successful living | Leave a comment

Now Here’s Some Serious, Monday Morning Research

Check this chart out.

I love it, especially look at the line at its bottom, disclaiming its seriousness.  But cable and online news sources feed investors this kind of coincidental factoid without such honest disclaimers. The news outlets know this is attractive click bait, as they endlessly search out more business and online shares.  People fall for it.

Be careful!

Posted in fear, investment myths, investment wisdom, Market falls, market volatility, retirement investing, stock rallies, Successful living | 1 Comment

Labor Day Thoughts on Stewarding Your Capital

Take a look at this chart:

It’s been another hard year for prophets of doom. The chart above covers doomsday market predictions from 2012 to 2018, overlayed about the movement of the S&P 500 during those same years. The list below below takes you, should you want to go there, into articles on some of these predictions from 2015 to 2018. It fascinates me why doom is so much more gripping to the human mind than predictions of good times or even calm ahead.  Horror movies sell; the Waltons not so much. Our brains are wired for fear more than they are for joy, peace or calm.

Even though some markets have suffered minor corrections (and there are still four months to go!), in most cases broad-market indices in first-world nations are either up or not far from their levels in January. Here are some recent doomsday predictions (note that the author of the blog or article is not always the one making the prediction):

2015

2016

2017

2018

In general, the record of market forecasters is rather dismal, to say the least. A recent study of 68 forecasters found that their average accuracy, according to some very specific criteria and weights, was only 48%; in other words, slightly less than flipping a coin. And they charge for their advice, too.

Please understand, my friends, this post is not a promise, a prediction, or even a suggestion that markets will keep going up. Not at all.  Corrects are coming, and bear markets will return one day.  But, I don’t see them yet and, as I say, our brains seem to be drawn more to the fearful outcome than to the hopeful.  We can’t keep the bad case from ultimately coming, but we can prepare for the inevitable downdraft by investing our retirement money sensibly: in other words, in low-cost index funds, in a wide array of asset classes, and by avoiding trying to time the market’s ups and downs.

Posted in economic recovery, fear, investment myths, investment wisdom, market corrections, Market falls, market volatility, Personal Finance, retirement investing, saving, Successful living | 1 Comment

Lies and Fake News

As my readers know, my blog focuses on investments and retirement. But I sometimes wander afield when non-investment issues put at risk investing and wealth creation. Politics is one of those things. And politics, for me, is like technology: I fundamentally dislike the subject but find that I must know enough about it to survive and flourish in our modern world. Moreover, politics leads many to make painful investment mistakes. Some think, erroneously, that if their candidate’s position does not prevail or some social issue we support does not get enacted, then our portfolio will be harmed. So, we may sell out fearing the worst. This is an error often committed by the inexperienced investor. In reality, most times, markets don’t care about our politics.

But sometimes, they do.

Our politics today are about as partisan – even toxic – as they can be. I don’t think in my 70 years that I have ever lived through such an angry time, with the exception of 1968, perhaps. We don’t disagree agreeably, as we raise our children to do; we hate one another. And we lie, too, to make our case more convincing. And sometimes, our lies influence policy; and that policy can hurt our nation, our portfolios, and us.

Many pundits, for instance, think Trump’s such a terrible human being that the ordinary rules of journalistic or conversational integrity don’t hold. He’s just too frightening to treat honestly. No matter how good the economy might be, how low the unemployment rate may go, or how remarkable black and Hispanic employment is – to hit on just a few outstanding accomplishment of this President – there’s always the awful tweet or the overreaction of the volatile man. I wish that Trump didn’t have the failings he has. I wish he were not so thin-skinned, so coarse, so vindictive, for starters. But I still recognize in him, despite these deplorable personal failings, that there is a courageous leader fighting for millions and millions of ordinary Americans who have not had a voice, let alone a champion, in years. This is evidence, too, of a guy who is trying to make a large swath of Americans (may I say it?) greater again.

But, overwhelming, the press ignores his accomplishments and resists and reject him because his priorities, not just his manners, are not synchronized with the priorities of the more progressive administration that preceded him. And while I remind you that you should keep your politics out of your investment decisions, occasionally politics do affect economics and investing. Just look at the U.S. growth rate under Obama – just about 2% a year. Why? Priorities differed in the prior administration on what and who should be supported. But consequences for America followed – consequences for large numbers of the population, too. Policy differences may be real and honestly felt, but are they based on truth? That’s an important question. And here the bulk of the press is brazenly dishonest. Let me end post with just one recent example, one on global warming.

For reasons I do not understand, the Obama administration and many other progressives believe that terrorism or illegal immigration or unemployment, for instance, are all lesser issues for the citizens of the United States than is global warming and climate change. Obama went so far as to say climate change was the most important issue of our time. Progressives add that “the science is settled” on the question, as if science is ever – or should ever be – settled. Science, by its very nature, is, or should always be, open to new data, be it on smoking, sugar, needed sleep, or global warming.

This summer, our western United States have faced some of the worst forest fires in memory, or so we’re told. Here are a few words I extracted from a July 28th, 2018, NBC evening news report:

“Heat waves are setting all-time temperature records across the globe, again.
Europe suffered its deadliest fire in more than a century, and one of nearly 90 large fires in the U.S. West burned dozens of homes and forced the evacuation of at least 37,000 people near Redding, California. Flood-inducing downpours have pounded the U.S. East this week. It’s all part of summer — but it’s all being made worse by human-caused climate change, scientists say.

The press largely concludes – and evidently unnamed scientists support this conclusion – that this is further proof of man-induced global warming – exacerbated, perhaps, but not mentioned here, by a President who is accused of dismantling the EPA’s protections so rightly put in place over the prior eight years to save us from climate doom. At least, that’s the claim.

But is it true? Or, is this just more partisan bit of nonsense that aims to steer policy in self-servicing directions that favor wealthy and powerful elites, who would love to put a strangle hold on America’s ability to produce, safely and inexpensively, the energy we need for all Americans to prosper.

Take a look at this chart from a recent posting of the U.S. government agency that tracks forest fires:

Study its data.

It’s U.S. data from a U.S. agency based in Boise Idaho.

 

 

What is it truthfully saying? It’s saying three things that the press is ignoring or suppressing in pursuit of an agenda to undermine confidence in human economic activity and to raise foolish confidence in the sufficiency of alternative fuels to economically sustain, in the future, our citizens’ standard of living.

First, the chart tells us that in the late 1920s and all the way up to about 1950, there were far more acres of U.S. land destroyed by fire each year than there are today. Second, the chart tells us that there were far more fires each year, a different metric than numbers of acres destroyed – up to about 1980 – when the number of fires fell precipitously. Acreage destroyed had been falling since about 1932. And third, more recently, we have fewer fires and less burned acreage than in the distance past, though we are not as low in damaged acreage as we were in the 1990s. The dotted line shows the long-term trend of both fires and acreage burned. The current state of affairs is not perfect, as this world is not, either, but it’s moving in the right direction.

This data is incontrovertible. It is true, yet ignored; ignored like so much news that differs from an agenda of those who are looking for a different outcome.

This data does not specifically deal with Trump, of course. But as one who has tried to reign in environmental regulations that crush economic activity, he and his message get caught up in the gears of opponents who seek a different outcome. His lurid life and his habitual tweeting do not help his truth to compete.

May God help us all amid the lies and distortions.

Posted in fear, investment myths, news biases, political considerations, retirement investing | Leave a comment