Sunday, August 20, 2017

Any Questions About Crowd Size, Mr. President?

On August 19, 2017, a small group of white nationalist/supremacists and neo-Nazis held a rally on the Boston Commons.  It was a very small group, around a few dozen.   A vastly larger group of counterprotestors showed up--tens of thousands.  A picture is worth a thousand words.  Take a look:  http://www.cnn.com/2017/08/19/us/boston-counterprotest-crowd-video-trnd/index.html.  

Contrary to what President Trump suggested a few days ago, there is no moral equivalence between advocating open-mindedness and equal rights for all, on the one hand, and bigotry, hate, and facism on the other.  The former is part of the bedrock of American democracy and the American Dream.  The latter is what millions of Americans fought against in World War II.  Got that, Mr. President? A lot of other people understand the point.

Monday, July 31, 2017

Why You Should Worry About the Rising Stock Market

The stock market keeps rising, setting new records just about every week.  The S&P 500 has risen over 15% since Election Day 2016, and shows no signs of slowing down.  That's an annualized rate of over 20% a year, which is exceptionally good for an aged bull market as we have.

The election of Donald Trump as President was seen as a major reason for the rally.  He promised infrastructure spending, tax reform and other measures that should stimulate the economy.  But his Presidency has sunk into a quagmire of chaos, incoherence and unpredictability. These, coupled with the legal risks emanating from special counsel Robert Mueller's investigation, should have triggered market retrenchment.  But stocks have hardly blinked before levitating some more.  Whatever is driving the market, it doesn't have much to do with the Trump Presidency.

Accommodative monetary policy in Europe and Japan is also said to be a reason for the market's buoyancy.  Foreign central banks have been printing money, and some of it supposedly has found its way into the U.S. markets.  But the dollar has been falling recently, indicating liquidity is flowing out of our markets, not in. That's not a formula for a rally.

Corporate earnings, although pretty decent, aren't dramatically better than last fall.  They don't explain the lighter-than-air quality of stocks today.

So what's going on?  Let's consider that over half of all stock market transactions consist of computerized trading.  Machines are trading with machines, using algorithms known to very few.  These algorithms verge on alchemy.  They rely on statistical correlations that may or may not hold true in the future.  These correlations can be disrupted by unexpected government policy, political upheaval or conflict, economic change (such as the effective collapse of OPEC as a functional cartel), and technological change (such as the fracking that just blew up OPEC).  They also utilize artificial intelligence, seeking to learn from their ongoing experiences in the market and modifying their algorithms as a result of what they learn.  Thus, the humans may have difficulty anticipating what the programs will do tomorrow.  And the programs may produce a positive or negative synergy or other interaction that humans have not foreseen.

Computerized trading is opaque.  That is, in real time, no one knows for sure if a trade or a series of trades involved a machine or two machines or none.  One should avoid anthropomorphism in today's stock markets.  In other words, one should not ascribe human motives, intentions or characteristics to market activity.  There may be no reason comprehensible to humans for today's stock prices.  When computers use artificial intelligence to trade stocks, the valuation of financial assets may be fundamentally changed, and changed beyond human comprehension.  You may think that stock prices are whacked out--and you could be correct from the human perspective.

Homilies like stocks are excellent long term investments and will protect against inflation were derived at a time when people dominated the financial markets and established the asset valuations on which these notions were based.  If machines that function opaquely suddenly become dominant, how can humans understand the valuations determined by the machines?  More succinctly, how can you tell what's a good price and what's a bad price anymore?

There are many more questions than answers in a machine-dominated market.  When the market keeps setting new record highs in machine-dominated trading, be careful.  We are bravely, or not, going where no investors have gone before.  And no one really knows what's going to happen.

Monday, July 3, 2017

Buy Your Retirement


If you're having trouble saving for retirement, think of it this way:  your retirement is a purchase, and the more you spend, the more luxurious it will be.  Retirement is a purchase--you're buying rest, relaxation, entertainment and time to do whatever you want.  You may have to buy a fair amount of health care and other services such as lawn care, housekeeping and so on.  But whatever the case may be, the more money you have for retirement, the nicer it will be.  No need to think of saving as a sacrifice.  You aren't giving up things up.  You're simply spending for a better retirement instead of a bigger TV. 

So, if you can't save for retirement, then spend on your retirement. It will be one of the smartest purchases of your life.  For more, see

http://blogger.uncleleosden.com/2009/11/techniques-for-retirement-saving.html, 

http://blogger.uncleleosden.com/2010/11/how-much-do-you-need-for-retirement.html, 

http://blogger.uncleleosden.com/2009/07/simplest-financial-plan-of-all.html,

and http://blogger.uncleleosden.com/2010/11/stress-test-your-retirement.html.


Saturday, June 24, 2017

The Only Health Insurance Option Left

Less than two days after being released publicly, it appears that Senate Majority Leader Mitch McConnell's health insurance bill, the Better Care Reconciliation Act, is d.o.a.  Five senators have already announced their opposition to the bill as presently drafted.  A half-dozen or more have expressed concerns.  Since the doubters include both Tea Party types and moderates,  McConnell is in a bind.  If he offers compromises to win over the Tea Partiers, he will likely lose some moderates.  If he offers compromises to satisfy the moderates, he will likely lose some Tea Partiers.  It looks virtually impossible for him to get at least 50 votes. 

The Senate will vote soon on this bill--which is basically tax legislation that cuts taxes for the rich and funds those cuts by taking away health insurance coverage for a lot of mostly poor people--and it will either pass (unlikely) or fail (likely).  If it fails, what then?  Obamacare is struggling, with insurers pulling out of exchanges and premiums rising sometimes dramatically.  The Trump Administration and the Republican Congress have created so much uncertainty that health insurers apparently feel compelled to raise rates sharply.  Whether or not any replacement for Obamacare is passed, this uncertainty will remain, and rising premiums may force many people to drop insurance coverage. Thus, the number of people losing health insurance will rise under the Trump Administration even if Obamacare survives.

Forcing people to go uninsured is political anathema in America today.  Whether or not the Republicans like it, Obamacare established the baseline principle that all Americans are entitled to comprehensive health insurance coverage at an affordable cost.  Both Republican and Democratic voters subscribe to this principle, and legislators who violate the principle do so at the peril of their re-election.  But with Republican machinations making Obamacare increasingly unworkable, a replacement will have to be found.

Realistically, the only option left is a single payer system, with private insurance available as an optional supplement.  Private health insurance doesn't work well, especially when it comes to covering the poor, the sick (i.e., those with prior medical conditions) and the elderly.  That's why Obamacare is unwieldy and the Republican alternatives are worse.  We've already figured out that single payer is needed for the elderly, and established Medicare.  It works well.  Medicare can be supplemented by private insurance coverage and often is.  Sure, Medicare has long term funding issues.  But have you noticed how premiums demanded by private health insurers are going through the roof?   It's hard to believe that a government funded program would be more expensive.

Essentially all other advanced industrialized nations have single payer health insurance systems (or national health care, like the UK system), with per capita costs that are far lower than America's and better health outcomes overall.  No other advanced industrial nation has the extremely expensive and increasingly dysfunctional mish-mash of private coverage that America has.  Single payer systems are imperfect, and the availability of optional private supplements can ameliorate many of the imperfections.  The current Republican White House and Congress won't adopt a single payer system.  But their failure to do anything intelligent with health insurance coverage will push America toward the only realistic health insurance option remaining. 

Monday, June 12, 2017

How Comey is Winning the Credibility Battle With Trump

At first glance, you might think that President Trump and former FBI Director James Comey are at a standoff over who said what during their one-on-one meetings.  It looks like a he said/he said situation.  But Comey wrote memos about the conversations right afterwards.  These tilt the balance in favor of Comey.  While his critics might say his memos were self-serving, it's implausible to think he wove them from whole cloth.  The President doesn't appear to have any memos.

But the crucial factor would appear to be the issue of tape recordings.  The President alluded to recordings, saying "James Comey better hope there are no 'tapes' of our conversations before he starts leaking to the press!"  Comey called Trump's hand by saying he hoped there were recordings.  The Secret Service has now said it doesn't have any recordings--and the Secret Service would be the organization that would handle the recordation of conversations in the White House.  See http://nypost.com/2017/06/12/secret-service-says-they-have-no-comey-tapes/.  If there are no recordings, that would mean that Trump tried to bluff Comey into silence by hinting untruthfully about recordings that don't exist.  Trump's bluff would only undermine his own credibility.  

Of course, it's possible Trump recorded the conversation on a personal device, such as a smart phone. But if he has a recording that contradicts Comey, he surely would have released it by now.  But he hasn't revealed any recording.  Thus, Trump can only have a recording that supports Comey, or he's erased that recording (which would indicate the recording hurt Trump), or he doesn't have a personal recording (which means he lied about there being one).  Whatever is the case, Comey's winning the credibility battle with Trump.

Friday, June 9, 2017

The Big Question For Donald Trump and the Russia Investigation

After James Comey's testimony before the Senate yesterday about President Trump wanting Comey to shut down the FBI's Russia investigation, the most important question is whether the President recorded his conversations with Comey.  If he did record one or more of those conversations, and the conversations tend to confirm Comey's testimony, the President will be in serious trouble.  It is possible to conclude from Comey's testimony that the President wanted to quash the FBI's Russia investigation, something that could amount to obstruction of justice.  Confirmation in recorded conversations could strengthen that conclusion, perhaps by a lot.

One thing's for dang sure:  Special Counsel Robert Mueller will seek any recordings of those and other relevant conversations.  We will find out sooner or later if the recordings exist.  We may also find out whether they once existed but were deleted or destroyed. If the recordings exist and support Comey's testimony, the President will have a big problem.  If the recordings once existed but have been erased or destroyed, the President will have a big problem.  If recordings never existed in the first place, the President would appear to be a liar for having suggested that they did exist, perhaps a liar trying to bluff Comey into silence.

The only good scenario is if the recordings exist and contradict Comey.  But if that were the case, President Trump would surely have released them already.

Thursday, May 4, 2017

The Truth About Housing Prices

Ten years ago, this blog predicted that housing prices, which had fallen sharply in the mortgage crisis of the mid-2000s, would not recover until 2024.  http://blogger.uncleleosden.com/2007/09/when-will-housing-prices-recover.html.  That prediction may have seemed preposterously negative to many.  But real estate prices have meandered and stagnated since then.  Although some markets have recently enjoyed brisk gains, many others remain sluggish and below their earlier peaks.  Trulia, the real estate website, yesterday released a study that predicted real estate prices nationwide would not recover until 2025.  https://www.trulia.com/blog/trends/home-value-recovery-2017/.  Looks like my prediction of ten years ago was pretty accurate.  While my analysis and Trulia's aren't directly comparable (I focused on nationwide average prices adjusted for inflation and Trulia used nominal prices unadjusted for inflation while measuring recovery in all housing markets nationwide), the basic conclusion is similar.  It will take a shipload of time for housing prices to fully recover, and the mid-2020's may be when the housing market as a whole could once again start to accentuate the positive. 

Housing historically has increased in value about 1% faster than inflation.  Stocks have tended to average around 3% above inflation.  Buy a house if you need shelter and can afford it.  But pay off the mortgage, don't borrow against the equity, and save and invest in retirement and other accounts for your golden years.  Some people who can't save money end up relying on their homes to finance retirement.  But that's a much poorer choice (pun intended) than taking advantage of the greater potential of stocks and other financial investments.  Your house is your castle.  But it's not your best option for financing retirement.

Thursday, April 27, 2017

The Truth About Getting Rich

Wealth is relative.  That is, people tend to consider themselves wealthy by comparing themselves to those around them.  The fact that most people today live healthier, longer and more comfortable lives than King Henry the Eighth is irrelevant to them.  They care more about where they stand compared to the people next door or the colleague across the hall or the persons featured in today's news.

This means you can feel rich only if you have more wealth than others around you.  That, in turn, means you have to be different from most people.  You can't be just like everyone else and yet be wealthier than everyone else.  But if you see yourself as just an ordinary, middle class person, does that mean you haven't got a chance to be wealthy?

No.  You can be wealthy.  While some wealthy people inherit their riches, most millionaires get there on their own by saving more.  It helps if you earn more.  You'll have more money to work with.  But earning more helps only if you save more.   If you spend all your above average earnings, expect to dine on dog food in your retirement.

You have to resist temptation to spend.  An 856 inch big-screen TV and a 4,300 horsepower SUV won't make you wealthy.  The same goes for $700 shoes and $1,200 handbags.  You have to be comfortable with fewer European vacations and plenty of home cooking.  When people laugh at your frugal ways, you have to focus on getting the last laugh.

Most people won't make it.  They won't become wealthy.  That's inherent in the definition of wealth as a relative concept, and it's also a result of the human tendency toward conformity and group think.  But plenty of middle class people end up having comfortable retirements or better.  In part, that's because of social welfare programs like Social Security and Medicare.  But these programs alone don't provide a good retirement.  You must be responsible and save.

What to do?  It's not complicated.  The main thing is save early, often and in significant amounts, like 15% to 20% of your income.  Invest in a diversified portfolio to increase your chances for good long term returns.  (See http://blogger.uncleleosden.com/2009/07/simplest-financial-plan-of-all.html.)   There are a variety of ways to build up your wealth:  http://blogger.uncleleosden.com/2009/11/techniques-for-retirement-saving.html.  Look at each dollar you receive as a saving opportunity.  Remember that no matter how much money you make,  in the end you will have a finite income (we all do), and what you spend can't be retrieved.  It's gone. So don't waste that opportunity to save (see http://blogger.uncleleosden.com/2010/07/how-to-think-about-saving.html).  Avoid debt as much as possible (see http://blogger.uncleleosden.com/2010/07/why-you-should-avoid-debt.html).  Don't give up, even if you have financial setbacks.  Like so many other things in life, quitters aren't winners when it comes to building wealth.

You can have a somewhat decent retirement even if you don't save much, by building up your benefits and eliminating debt. (See http://blogger.uncleleosden.com/2011/01/hope-for-financially-lost.html).  But if you want to climb into the ranks of the wealthy, be different.

Tuesday, April 11, 2017

Fly the "Friendly" Skies of United? Maybe If You Feel Like a Cow.

As the entire world with Internet access knows, yesterday a passenger on a United Airlines flight from Chicago to Louisville was grabbed by security personnel and dragged down the aisle of a plane when he refused to get off in order to allow some United crew members fly to Louisville where they had to staff a flight the next day.  http://wjla.com/news/nation-world/new-video-shows-bloodied-visibly-shaken-united-airlines-passenger.  He ended up bleeding from a cut on his lip, and the plane had to be emptied of all passengers and his blood cleaned up before it could leave.  So everyone departed late.

United evidently believes that some fine print on its tickets allows them to kick passengers off after being boarded, even when the passenger presents no threat to security or safety.  There are reports that some sort of algorithm chose the passengers who were kicked off, although many people have noted that the dragged man was Asian.  Would United have dragged a white female out of the plane like this?  Why couldn't United have done the simple thing and rented a car (there are car rental agencies at airports, you know) and had the employees drive to Louisville?  They'd have gotten there anyway in time to work the next day.  But no.  United needs to put its convenience ahead of its paying customers' convenience.

It hardly needs to be said that United's conduct was outrageous.  A man who wanted nothing more than to be United's paying customer wound up being a poster child for the widespread discontent with airlines.  Airlines are among the most intensely disliked industries and we now have yet another reason why.  One wonders why United allowed the passengers to board before trying to bump them.  And if United is so disorganized it has to board and then bump, perhaps it should think about the fact that it's in a service industry, and service should be provided promptly, courteously and with a smile.  But, wait, we're talking about an airline--and that's different.  It would seem that with airlines today, there's no distinction between people and cattle, and all should be treated like cattle.

United's CEO, Oscar Munoz, proved himself inept and tone deaf,  initially criticizing the passenger for not acquiescing in being treated like a cow.  In a second statement, he began to sound little less strident.  After figuring out that he was the object of widespread international scorn and ridicule, he finally decided to apologize the day after the incident.  But with his three varying statements, it hard not to wonder whether the third one was sincere or a business decision.

This gets to the larger point.  This incident went viral and circumnavigated the globe in two nanoseconds.  Probably tens of millions and maybe hundreds of millions of people worldwide have seen the video.  The commentary on social media can be scored as zillions mad at United, zero pleased with United.    United's reputation has gotten ugly fast and its stock price dropped today.  Why was there such an international uproar over this incident?

Because it perfectly illustrates how people--at least ordinary people--don't matter any more.  The airlines will take your money. But they'll treat you like a commodity and seat you or not, at their convenience.  And if they seat you, they'll unseat you at their convenience.  They'll claim that the fine print in their tickets allows them to treat you like a cow, even if that involves conduct amounting to a physical assault on you.

Legal processes are now underway to investigate this incident, and the passenger will no doubt retain legal counsel to press claims against United.  If United were to play it smart, they'd settle this one fast with the customer, even if it means paying him a pretty penny, because they need to get this story out of the headlines.   If this story stays in the news, the video of the passenger being dragged down the aisle will be played again and again and again, many millions of times over.   But, given Mr. Munoz's initial defensiveness and seemingly slow apology, it's unclear that United will make the smart move here.  Maybe United thinks passengers won't stay away over this incident.  But some probably will, or at least demand the lowest fare on the route.  Either way, it could cost United, and with the airlines being a low margin industry, losing just a modest amount of business could noticeably affect United's bottom line. ( This is why the airlines try so hard to fly full by overbooking and applying bootprints to paying customer's asses if they overdo the overbooking--because just a small change in revenue levels matters to them.)

The overarching lesson, especially for those in the 1% or in positions of authority, is that ordinary folks are well aware that they are viewed as being nothing more than cattle--and not just by airlines.  In way too many contexts, way too many people are being told they are inconsequential.  They don't like it and are fighting back.  The people who elected Donald Trump were fighting back.  The people who almost elevated Bernie Sanders over Hillary Clinton were fighting back.  The vast majority of people don't want to be disputatious or quarrelsome.  But if often enough you knock them down and kick them while they're down, they'll react with the speed of the Internet.

Friday, March 24, 2017

Can the Republicans Govern?

With the postponement of the House of Representatives' vote on repealing Obamacare twice in two days, one must ask whether the Republicans can govern.  They control Congress and the White House, but they weren't able to fulfill one of their signature promises from last year's elections.  Dissidents on the far right and in the moderate middle couldn't, for different reasons, sign up for the repeal measure.  President Trump, drawing on his dealmaking experience in business, gave them a take it or leave it compromise--and they left it.  In business, if you pass on a good deal and go for a great deal, you can blow the deal.  But in politics, as Trump may be learning, you can often score points with your constituents by going for a great deal and losing the deal instead of compromising.  Politicians get ahead by telling voters what they want to hear--indeed, that's how Donald Trump got himself elected President.  But doing things that leave voters with mixed feelings--like compromising--places politicians at risk in the next round of primaries.  It's better to look and sound good than doing anything that could leave you open to criticism.

Obamacare will now become a permanent part of the American landscape.  Its essential features--universal access to coverage, subsidies or Medicaid for those unable to pay, no exclusion of pre-existing conditions, and substantial coverage of health problems--will form the foundation of American health insurance for the future.  Surely, Obamacare will be modified over time.  But Barack Obama's greatest legacy will live on.

For the Republicans, the Party of No, a more important question is whether they even understand what it takes to govern.  It's necessary to compromise, and to take the heat from compromising.  The Republican Party, like the Democratic Party, is a coalition.  If coalition members don't work together, governance does not happen.  The next great challenge for the Republicans will probably be the budget bill and tax reform, which will have to go hand-in-hand if the Republicans hope to accomplish everything they've promise.  Their problem is they've made too many promises for the amount of tax revenues the federal government will collect.  They can't boost defenses spending by $54 billion, build the Wall at the border with Mexico, cut corporate taxes, cut taxes for the wealthy (which is an unstated but obvious goal of theirs, given that the proposed repeal of Obamacare was more a bill to cut taxes on the wealthy than improve the health insurance system), and rebuild America's infrastructure, all at the same time.  Something has to give.  Either taxes are raised, federal deficit spending increases, and/or the Republicans give up on some of their goals.  The Republicans will have to compromise to accomplish anything.  But their failure to work out a compromise to repeal Obamacare does not portend well for their future.

Although virtually powerless right now, the Democrats must have gotten a lift today.  Their fortunes have started to turn around.  As devastating as their defeat in 2016 was, it's not the end of the world, or of their party.