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 | Leave a 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

August, 2018. Where are we?

Markets around the world continue to struggle this year – unlike last year – with American markets struggling the least, by the way.  We seemed to be making a run at challenging the January high for the S&P 500 last week, but Turkey’s problems took care of that.  By the way, the ETF for Turkey, is now down about 61% this year.  That smells like an opportunity, but the point of this blog is not to day trade; it is to help people grow capital over a long period of time in a sensible risk-adjusted way.

Speaking of “long term” results, pundits on cable television are overwhelmingly lined up to see our markets collapse soon for no better reason than, well….they’ve been rising since 2009. Which is true.  But what is not true is that markets that rise for nine years have to die soon.  For sure, they will roll over at some point. And recessions are inevitable.  But is nine years the life expectancy of all bull markets?

Goldman Sachs, a major player and thinker in the financial markets – you have probably heard of them – has done some work on the question of how long markets can rise?

Spoiler alert: a long time!

They studied countries where growth cycles lasted more than 10 years and found:

  • Australia, from 1992 to the present(26 years and running)
  • The United Kingdom, from 1992-2008 (16 years)
  • Canada, from 1992-2008 (also 16 years)
  • and Japan, from 1975-1992. (17 years)

Goldman Sachs also found some similar advantageous factors that had contributed to the run of good fortune these countries shared and further found that these same factors are also present in U.S. financial markets today. These factors contribute to the likelihood (with no guarantee, of course) of a continuation of our own current bull market beyond ten years:

  • a relatively flat Phillips curve (the relationship between inflation and unemployment)
  • strengthened financial regulation
  • and a lack of financial imbalances.

In the past three U.S. expansions, which takes the US economy back into the ’90s, the late-cycle phase of our economic expansions has lasted 2-4 years, suggesting the next recession could be as far out as 2021. Again, no guarantees on that, either.

So, yes, trouble will come, an adjustment will take place; how severe, no one knows. Though it’s coming.  But for those who find Trump intolerable, and believe he will crash civilization and the economy with it, try to look passed his personal demeanor to his policies.  It is those, after all, that are buoying our rising economy.  Try not – I’ve said this before – to let your politics intrude on your investment judgment.  For now, and likely for some while longer, the winds are at investors backs. The NASDAQ has already hit new highs, so has the Russell 2000 index of small companies.  But the DOW and S&P, not yet.

In closing, please take a moment and ponder the words of one of the greatest investors of all time, Peter Lynch, of Fidelity’s Magellan Fund: “Far more money has been lost by investors preparing for corrections, or trying to anticipate corrections, than has been lost in corrections themselves.”

God bless you all.

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

4.1%!

Wow!

The US economy grew at 4.1% in the second quarter of this year. That’s the June quarter just ended, of course. And it’s the first report on that quarter’s growth, subject to revisions. 2018’s first quarter growth was upped a little bit, too, this morning. To put today’s economic growth number into perspective, a quarter’s growth that powerful hasn’t visited the USA since 2014, and that one was a fluke, amid national governmental policy that largely demonized corporate success. Back then, our government betters advising us assured us, many times, that 2% was both good and likely the most we were going to get going forward in the “new normal” US economy. Redistribution, please remember, is very, very costly.

Well, surprise! For all his profound faults, his raging ego, his brittle personality, his history of serial philandering, and his bizarre comments and tweets, Donald Trump has proved to be a genius in much of his policy setting.

So where do we go from here?

Well before I even speculate, the market’s reaction today to this news seems to yearn for the good old days of 2% growth, along with promises for more and bigger redistribution, more regulation, and higher taxes.

Markets, you must understand, are very astute in the long run, can be very stupid in the short run.

It is also worth reminding all of us, from time to time, that almost any description and every prediction about the future of the U.S. Economy and its stock market involves a gross oversimplification of an extraordinarily complex system.

Pundits, commentators and portfolio managers – people like me, in other words – often write a “market outlook,” implying they can forecast how stocks are likely to do over the next few months or so, or until it is time for the next market outlook.

Yet, no one knows what the market is going to do over any time period that would be of interest and value to the typical investor.  The operate word in that last sentence is “knows:” no one knows.

Still, the most common question I get from many friends as well as readers of this blog is “what’s your outlook for the market?” I then dutifully provide one, not because I know or even have a strong opinion, but because I am asked.

This reminds me of an economist named Ken Arrow who was asked during World War II to provide a long range weather forecast for an upcoming military campaign, which would involve land, sea, and air operations. I’m not sure why an economist was asked about weather, but Ken said a forecast of the requested length was worthless because no one knew how to forecast the weather for a week out, let alone the length of time his superiors wanted. He was told to provide it anyway; and when he asked why, the answer was “for planning purposes.” So, I suppose, that also goes for market forecasts. That is not to say there are not some useful things that can be said about the market at any point in time, but they are mostly observations about what is going on NOW, not meaningful predictions about what the future holds, which is what’s most important – yet unknowable – to any investor.

However, peeking under the covers, what is going on now is that the bull market that began in March 2009 continues. Yippee! The S&P 500 Index was up a modest 2.6% in the first six months of 2018. The market had a 10% correction after its peak on January 26, but then resumed its advance. The path of least resistance since 2009 persists, if irregularly, higher and remains so.

For sure, there have been issues over the last nine-and-a-half years that looked ready to kill the market – there always will be, please know – the most serious of which was the euro crisis of 2011, which many feared would lead to a repeat of the crisis of 2008, but which was averted. Then, too, we all may remember the first six weeks of 2016 which saw the worst start for the S&P in its history  – in its HISTORY! – as big worries about China and Russia, coupled with collapsing oil prices and worries about the pace of the Federal Reserve’s tightening and the upcoming presidential election tanked stocks to the tune of some 10.3%. But the market recovered as it became clear those fears were just that. Today, the market is up some 50% from the swoon it took at the start of 2016.

I hope you and your long-term retirement account caught that lovely ride up.

Now, following the least volatile, smoothest ride up in US markets ever in 2017, 2018 is more normal. That is, it is more volatile, but the direction has been, as is usually the case – 2/3rds of the time – most years, higher. And as usual, there is no shortage of issues to threaten the market’s continuing advance. Trump’s wall between the U.S. and Mexico is small potatoes compared to the towering wall of worry the market has been climbing since March 2009, which has kept investors – amazingly, to me – selling their stocks to pour money into…(drum roll, please) … bonds. Yes, BONDS!  This year so far, investors have pulled $40 billion out of stocks and put $80 billion into bonds.

What on earth are these poor people thinking!?  Come to think of it, I don’t think they are thinking.

As one set of worries prove unfounded, as the media pound away at Trump and predict impeachment for treason or terminal depravity or idiocy, another set of world problems arises to be confronted. And so far, the problems seem to be getting handled. If there were few or no “what abouts?” –  such as, what about the tariffs and the possible trade war, what about the flattening yield curve, what about high valuations, what about earnings growth peaking, what about the Fed tightening, what about oil and gasoline prices going up, what about the dollar’s strength and emerging markets’ weakness, what about North Korea, or Russia, or China – to name only a few, then stocks would be so expensive they would have nowhere to go but down once some new “what abouts” arose. This bull market will end one day for sure, and it will end the way all bull markets end: when the economy rolls over and earnings decline and unemployment rises, or when stocks get too expensive relative to their earnings (up 20% this quarter alone) or the returns available in other assets.

But that ain’t yet.

And no one knows when any of these bull-market-ending events will occur, although, again, they assuredly will occur again (and again) at some point.

What is the case now is that the economy and US companies’ earnings growth are both strong, as is dividend growth (8% year over year), returns on capital and margins, and inflation is low (but ticking higher). Stocks are not yet expensive relative to bonds, the latter of which are very expensive relative to stocks. Yet people still jump from stocks perceiving that bonds and CDs and other interest-oriented “safer” investments are the place to be before the world and America go to hell in a hand basket.

You can do that, too. Sell your stocks to buy, say, a CD.  But I’m not traveling on that train. At least not yet.

For now, the path of least resistance for U.S. stocks remains higher.

God bless you all.

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