Earth Day Reflections

I know.

This is an investment blog.  For people saving for retirement.

Except.

Except when it isn’t.  When developments in the social, economic, political, or environmental policy worlds interfere unnecessarily, ineffectively, or dangerously with the well being of real human beings.  And for me – even if not for you – I increasing see many environmentalists as, strangely, deeply religious people viewing much productive human activity as as unnecessary and dangerous to the earth.

This weekend is the 48th anniversary of the original Earth Day.  I remember it well.  I was a senior in college. The Vietnam War and protests of it were at the heart of our 1970 graduation – arm bands and mock caskets accompanied the commencement procession.  Today, our earth is in much better health – greater than ever before.  But environmentalists want it still better. They want earth respected more, too. And protected, as well, like so many college students today who want nothing to do any who do not share their narrow views.

I respect and care about the environment.  But I also care about human growth and development.  Climate change and global warming, which are being depicted with horror this weekend, are not Islamic terrorism.  And fixations on climate change hurt poor people, especially in developing nations.  Moreover, despite the supposed “scientific consensus” that “97% of scientists” acknowledge “the truth” of man-made global warming,  I don’t.  And thousands of scientists don’t accept the consensus either – as to the extent of humankind’s contribution to global warming through the use of fossil fuels nor what can be done to stop warming’s influence. But make no mistake about it, if earlier Earth Days were driven by concerns about the degradation of land and streams that would cause crop failures – and so many scientists back then agreed – today, Earth Day is driven by fears of climate change and the hope to kill fossil fuels.

But it just ain’t so.

Thanks for reading this far.

I’d like to end this break from investment commentary (though this one is indirectly about investments) with some thoughts on what early Earth Day true-believing environmentalists predicted and got horribly wrong.

So, here go some thoughts, particularly from Paul Ehrlich, probably the granddaddy of the early environmentalist movement.  The following is from a 2000 article by Ronald Bailey that appeared in Reason Magazine to commemorate the 30th anniversary of the first Earth Day:

Imminent global famine caused by the explosion of the “population bomb” was the big issue on Earth Day 1970. Then–and now–the most prominent prophet of population doom was Stanford University biologist Paul Ehrlich. Dubbed “ecology’s angry lobbyist” by Life magazine, the gloomy Ehrlich was quoted everywhere. “Population will inevitably and completely outstrip whatever small increases in food supplies we make,” he confidently declared in an interview with then-radical journalist Peter Collier in the April 1970 Mademoiselle. “The death rate will increase until at least 100-200 million people per year will be starving to death during the next ten years.”

“Most of the people who are going to die in the greatest cataclysm in the history of man have already been born,” wrote Ehrlich in an essay titled “Eco-Catastrophe!,” which ran in the special Earth Day issue of the radical magazine Ramparts. “By…[1975] some experts feel that food shortages will have escalated the present level of world hunger and starvation into famines of unbelievable proportions. Other experts, more optimistic, think the ultimate food-population collision will not occur until the decade of the 1980s.” Ehrlich sketched out his most alarmist scenario for the Earth Day issue of The Progressive, assuring readers that between 1980 and 1989, some 4 billion people, including 65 million Americans, would perish in the “Great Die-Off.”

Time has not been gentle with these prophecies.

It’s absolutely true that far too many people remain poor and hungry in the world–800 million people are still malnourished and nearly 1.2 billion live on less than a dollar a day–but we have not seen mass starvation around the world in the past three decades. Where we have seen famines, such as in Somalia and Ethiopia, they are invariably the result of war and political instability. Indeed, far from turning brown, the Green Revolution has never been so verdant. Food production has handily outpaced population growth and food today is cheaper and more abundant than ever before. Since 1970, the amount of food per person globally has increased by 26 percent, and as the International Food Policy Research Institute reported in October 1999, “World market prices for wheat, maize, and rice, adjusted for inflation, are the lowest they have been in the last century.”

I am conscious of and caring for our precious environment.  But I am increasingly disturbed by the lies and hysteria surrounding its protection that, to me, seem like grabs for more government control, more taxation, and less freedom for mankind.

Let me close with one of the great lies that the “scientific consensus” promulgated in the first decade after original Earth Day. The great lie that we would soon all freeze to death due to “Global Cooling.” If you don’t remember this moment, or you were born after its arrival, then check out these covers from Science News (1975) and Time Magazine from 1977 and 2006.

Looking at this stuff, does it heighten your suspicion about the so-called “scientific consensus?”  About “Global Warming?” Does it make you more ready to give up fossil fuels as the chief source of energy in the world today?  Can you run your car on wind?  Or heat your house at night, in the winter, with solar?

Policies favoring this kind of madness will do more than destroy your retirement portfolio; it will drive you crazy and make you very sick.

Posted in environmentalism, fear, investment wisdom, retirement investing, Uncategorized | Leave a comment

Low-cost index investing wins again

Check out this chart from this morning’s Wall St. Journal.  It tells us the percentage of stock managers OUTPERFORMED by the S&P 500 index over the last 25 years.

I keep stressing the role of low-cost, index-based investment for our broadly-diversified retirement portfolios. These charts, below, offer more proof than even I would have expected.  The dotted, red line is where one might think, if chance prevailed – as with a coin flip – half the active managers would have done better than the index and half worse.  But that’s far from the case.

Just to make sure you understand what you’re seeing below, consider the latest year, 2016.  The four charts below all show that about 90% of active managers of stocks in America UNDERperformed the S&P 500 index.  Not only is this discouraging to those investors in such actively-managed funds, those funds cost more to be in.

Chart based on rolling 3-year returns

Posted in fees, investment myths, investment wisdom, market volatility, Personal Finance, retirement investing, Successful living | 6 Comments

Gasoline Prices, revisited

I visit this chart from the folks at chartoftheday once in a while. It timely to do so with the spring/summer driving season once again upon us.

As you probably know, our country mandates different blends of gasoline in different parts of the country at different times of the year.  The “summer blends” are the most disruptive and expensive. So, cyclically, gasoline prices tend to rise in the spring, crest in the summer, and begin falling in September.

Our chart, below, goes back to 1980 using inflation-adjusted prices.

There are a couple of points of interest in the chart I want to direct your attention to. For one, geopolitical crises are often associated with major swings in the price of gasoline. As is unfortunately and abundantly clear, we have plenty of geopolitical turmoil afoot right now, with an untested, maybe impetuous President facing tests in Syria, Russia, and No. Korea.  We hope – and pray – the President’s testing goes well for all of us who cherish liberty and freedom from oppressive governments.

Second, it is also worth noting that, the price of gasoline has been trending up as of late resulting in the price of a gallon breaking through resistance of its three-year downtrend channel (see red line).  Whether this continues or not, we’ll just have to see. It may be a sign – note: “may” – that OPEC’s supply cuts are working or that the worldwide economy is improving a little bit.  It may also be due to some of both factors.

Chart of the Day

Posted in economic recovery, fear, gas prices, investment wisdom, oil prices, political considerations, Successful living | Leave a comment

Is heath care reform’s death the end of this bull market?

Well, so much for health care reform.  At least for now.  And, as well, for the first chance in decades to make a dent in the ever-growing entitlement state.

If you think I’m heartless to write that, I’m not.  I’m just disappointed in the state’s ability to do almost anything well, efficiently, or at modest cost. Whether it’s the post office, veterans’ affairs, social security, medicare, medicaid, roads, public transit, overnight delivery, programs that should be devolved to state and local governments, programs that could be better performed by the private sector, mis-targeted programs whose recipients should not be entitled to government benefits, outdated and unnecessary programs, duplicative programs, mismanagement, or fraud.

How’s that for a start?

What has taken 80 years to develop in America – a growing, voracious benefit-providing government that does so much so poorly for so many, yet, when it came time to begin – just begin – to roll back to the states and to private markets some of the these benefits that may well bankrupt individuals and states, our legislators’ bickering over the shape of the perfect bill killed a better bill.

For my investors/readers saving for retirement, you might now wonder, is the Trump rally over?  Is Trump dead as a president now?

Well, he certainly didn’t show that he is the super-deal maker that he promised; and maybe, too, he will now learn that he needs to build coalitions.  It’s not all about him. For without coalitions, he may accomplish very little.

But is the Trump rally over?

I don’t think so.

I’m not so sure the rise in the stock market since Trump’s election was all about Trump.  He gives investors and business people, true enough, an optimism that encourages investing and economic activity in a way that the prior administration did not.  However, our economy, and other economies around the world, have been showing signs of healing and growing, too, of recovering from the worst recession since the Great Depression.  Theses signs continue. Look at the chart below from Scott Grannis.

Whether the U.S. gets more stable sounder, more customer-centered healthcare does not change that.  I still hope we get better, more market-based health care. But if economies keep improving, then market gains are likely to continue.  Whoever thought, by the way, that a new president – or an old one, for that matter – gets all their wishes? If the underlying economy is humming, the markets should hold and get better.

Now, on a different but very important aspect of markets and their possible reaction this coming week to Trump’s disappointment, again, I remind you: be very careful NOT to become too emotional or negative based on the news.  There is no recession coming that I can see.  There is no bubble, except in bonds, that I can see.

Have you heard of the SKEW index?  It’s getting a lot of press – as most negative news does.  Right now, SKEW is screaming that a market crash is coming!!!!!!!

Stay away from windows and brick walls.  Everything could collapse on us.  Or, so says SKEW. I think SKEW is getting negative attention because VIX – the volatility index – remains low.  Market skeptics used VIX at the fall of 2008, when it was very high to show that panic was raging in the investment markets.  Panic accompanies – and can preceed – big falls.  But the VIX is not predicting a big fall now.  But the SKEW is.  So, the cynics and skeptics and the mischief makers want us to be scared witless by the SKEW.

Yet, interestingly, the SKEW Index actually has been a horrible predictor of inception of actual, future returns – the very thing it was invented to predict.

To show you, graphically, what I’m telling you, let’s compare the worst, actual stock market declines since 1990 that followed the highest SKEW levels (high SKEW numbers, about 131, are the most dangerous) to the lowest SKEW levels (supposedly, the safest time to get back into the market).

As you can see in the table below, in every period, from 1 day ahead through 12 months forward, the worst market declines coming after high SKEW levels are actually much more benign than the worst market declines following low (think: supposedly safer!) SKEW levels.

This work on SKEW is from Charlie Bilello, as posted on Pension Partners.

Don’t miss the point.  Look at the chart as I walk you through an example of SKEW’s inexpressibly keen powers to get things badly wrong. SKEW is a breathtaking indicator in its power to get things wrong.  It might be seen more properly as a very accurate contrarian indicator; that is, of an indicator of the opposite to what it predicts will happen.  If we look over the entire 27-year history of SKEW predictions – remember, SKEW levels of 131 and over tell us, “Uh-0h! Look out below!”  And levels of 110 and lower signal, “it’s safe now to get in the market.”  YET!!! incredibly, looking at actual results, above, in the chart above, showing all SKEW history, pick, say, a time 6 months after the index hit a high SKEW level of 131 level or above, the market fell only 15.5%. However, the market fell an average of 42.4% from SKEW’s supposedly safer, lower readings of 110 and below.

Yikes! What kind of an index tells people to run from events that are relatively benign but tells them to run towards future events that have proved disastrous?  Again, this shows us that financial news is not your friend but rather a dangerous entertainment form that tries over and over again to scare you witless and hurt you at the same time.

So, be careful, my friends.  The Trump Rally may not have been all it was cracked up to be because Trump was not the sole factor working at a time of growing, widening economic recovery and optimism. And try to be careful in whom you listen to for financial insight. I don’t have all the answers, and I know it.  I admit it. But if I were on television, I’d have to have all the answers to keep getting invited back, and I would also have to know that bad news like blood in the streets sells and grips people more than good news.

God bless us all amid the madness, hucksters, and lies that surround our lives everyday.

 

Posted in economic recovery, fear, health insurance, investment myths, investment wisdom, market corrections, market volatility, news biases, political considerations, retirement investing, saving, stock rallies, Successful living, The Great Recession | Leave a comment

This afternoon, the FED will very likely lift interest rates .25%. Is that a big deal?

Today, is FED day.  It is also, probably, the first of four times this year that the FED will attempt to lift interest rates here in the US.  For those curious, this is a very difficult and imprecise process.  In some ways, the process is like putting the world on a lift in a garage and trying to jack it up.  That’s probably a poor analogy, but it may serve to show how hard the work is to lift interest rates across an entire economy just a little bit.

The mechanism the FED uses is the “federal funds rate.”  This is the rate that US banks charge each other to lend money to each other, overnight, to cover balances each must leave at the FED each day. (whew! what a mouthful!)  The FED controls the Fed Funds rate.

Got that?

The theory is that if the FED ups it Fed funds rate a tad, then, all other interest rates that are keyed off that rate will rise a little with it.  It’s like the old song, “Dem Bones:”

“Toe bone connected to the foot bone. Foot bone connected to the heel bone. Heel bone connected to the ankle bone. Ankle bone connected to the shin bone.  Shin bone connected to the knee bone…..” And so on.

If the FED raises the first connection they control – the fed funds rate – then car loans, mortgages, and all else will, soon, rise a little bit, too – because banks’ cost of funds has gone up.

So what does this mean for those of us saving for retirement or managing money in retirement?

Well, the federal funds rates had been dropped to zero as a result of the collapse of the financial system in 2008.  We’re now just beginning to recover from that.  The FED’s not raising interest rates to choke off a hyper-charged economy; they’re just trying to get rates back to some sense of normal.  That’s good.  It should help, in time, too, those many people trying to put money in a bank account to get some interest on their savings.  It should help stocks, too, because they will like an economy becoming more normal and healthy again.

But, hey, we ain’t never lifted rates from as low as they went.  There could be some hiccups.

Take a look at the chart below. It’s from the “chart-of-the-day” folks and it gives us a nice, long 117 year perspective on interest rates.  It is worth noting that the yield on the 10-year Treasury bond has been declining since the early 1980s. More recently, the 10-year yield has spiked to 2.6% and is now testing support (the green line) of its 20-year downtrend channel.

One point of interest… a bit worrisome, too. Spikes in long-term yields tend to be a relative negative for the stock market as they tend to discourage investment while increasing the burden of existing debt. For example, the last two times the 10-year yield hit (early 2000 and 2007) support (green line), the stock market soon followed with major declines.

Yikes!

But those upward movements in rates came at moments when rates were higher than they are now and were judgment errors made by the FED to reduce what was thought to be an overheating economy.  In fact, the economy, in both cases – first because of tech excesses then real estate and sub-prime loans – was about to plunge over a waterfall.

This time, we’re exiting – at least I hope we are – a time when the economy was suppressed by government policy more about income redistribution and bigger government than growth and jobs.  It will take time to see if I’m correct on this, but that’s how I’m investing.

I hope I’m right. For if I am, we should do alright. But again, it will take time.

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