Sniffed Links - Alternate Universe

The Trump meeting with Kim Jong Un was something my mind could not quite grasp. Is it a good thing? Bad thing? It was certainly odd, weird, confusing and even a bit surreal. Throw in Dennis Rodman and the whole thing makes me wonder if we are living in a computer simulation. It’s too strange.

The optimist in me thinks maybe Trump played this well. Kim Jong Un just wants to be acknowledged and “respected” on the world wide stage so maybe Trump played to that desire. The pessimist in me thinks there is no way these two can maintain a healthy relationship.

Social Security Is Still Pretty Secure

Amazon Considers Offering Home Insurance

Is the U.S. Due For a Recession?

Sniffed Links - Go Caps

Congrats to the Washington Capitals and congrats to all their hardcore fans. You deserve this. Let’s hope their win also opens the door for the other DC teams to finally break through.

Short list of links this week but two links that provide some evidence to two trends we have noticed. At first glance it may not seem like these two things are connected. There is a long way to go in getting women equally paid as their male counterparts. But for many households the wage gap between husband and wife has been declining for some time.

Birth rates keep falling for U.S. women

Married Millennials Are Keeping Separate Bank Accounts

Sniffed Links - Service

I think it is safe to say we are well past the economic recovery phase at this point. Wages are up and there is no shortage of jobs. Lately, I have been wondering if the economy is at a point where it is “over recovered”. I have been reading stories of small businesses and franchises struggling with finding quality employees. The problem stems from their inability to fire underperforming employees because of the lack of prospective new employees. Some small business are even reporting employee pay increases despite low quality employee work. They are having to increase pay just to retain “bad” employees!

This information is somewhat anecdotal but is interesting nonetheless. For one thing it has created an environment similar to the UK where it is very hard to be terminated. Is this a good thing or a bad thing? I guess it depends on your perspective.

Have you noticed a decline in customer service at small businesses?

Getting a Flood of G.D.P.R.-Related Privacy Policy Updates?

When Early Retirement Turns Into a Total Bore - The New York Times

Buying Into the Electric Vehicle Future? Maybe Try Leasing It - Bloomberg

How Your Daily Routine Can Turn Into Your Biggest Enemy

Market Commentary - June 2018

Much has been written about the negative impacts of rising rates on the markets. Let’s look at some positives...

Currently, global pensions assets total about $41.3 Trillion and many of the largest pensions hold 25% to 50% in bonds and cash. With interest rates at record low levels for the last decade, pension plans felt the pain as a large portion of their portfolios were yielding minimal returns. On average, pension funds may benefit as every 1% increase in interest rates equates to 12% to 14% decrease in plan liabilities. While it's true they have benefited from equity market gains over the past decade, returns on a diversified portfolio have been weighed down by the low returns on bonds/cash and the underperformance of commodities, European and Emerging market equities vs. a pure U.S. equity portfolio.

Retirees also benefit as rates on savings accounts, money markets & CD's increase. It seems like forever ago, but CD's were yielding approximately 4% in 2008. This is significantly higher than what we saw from 2010 to 2017. Retirees will earn more interest which in turn aids cash flow and helps to provide some protection against future inflation.

In addition, a decade of low interest rates forced long term care insurers to significantly increase premiums. It is estimated that every 1% decline in rates lead to a 10-15% increase in premiums. With rates increasing, long term care premiums will hopefully remain steady and that helps retirees who are a majority of long term care insurance policy holders.

Real estate could also see a benefit as the prospect of higher sustained rates may compel some to make a home purchase sooner rather than later which in turn could increase demand and prices.

Lastly, while this may sound counter intuitive, rising interest rates can be beneficial in preventing an economy from over heating. Higher interest rates tend to reduce speculation as the cost of borrowing dampens the potential gain.

Many argue, myself included, that the federal reserve waited too long to increase rates. Now it seems they are set for 3-4 annual hikes over the coming years. While there will be bumps in the road, the path to normalization is long overdue. If earnings and economic growth continue to chug along, things might not be as bad as many thought. The truth is, no one knows how this will all play out and it's important to remember that volatility is normal, and the lack of volatility in 2017 was abnormal. While volatility isn't necessarily fun, it is normal and part of what makes markets what they are.

YTD 2018 Highlights

I highlight a lot of notes while reading. I try to make the time to actually review them each quarter. Here are a few of the hand picked ones I thought you may find useful from the last two quarters. Included is the link to the full article

Why You Should Be Working Less

If you’re constantly working you never have time to think and reflect. In a knowledge-based economy we need that time to collect our thoughts and work through difficult decisions.


Buffett’s Annual Letter – Some Key Takeaways

It is a terrible mistake for investors with long-term horizons – among them, pension funds, college endowments and savings-minded individuals – to measure their investment “risk” by their portfolio’s ratio of bonds to stocks. Often, high-grade bonds in an investment portfolio increase its risk.”


For Two Months, I Got My News From Print Newspapers. Here’s What I Learned.

Just about every problem we battle in understanding the news today — and every one we will battle tomorrow — is exacerbated by plugging into the social-media herd. The built-in incentives on Twitter and Facebook reward speed over depth, hot takes over facts and seasoned propagandists over well-meaning analyzers of news.

You don’t have to read a print newspaper to get a better relationship with the news. But, for goodness’ sake, please stop getting your news mainly from Twitter and Facebook. In the long run, you and everyone else will be better off.


‘Blockchain’ is a meaningless term

There are countless blockchain explainers in text, audio, and video around the web. Almost all of them are wrong because they start from a false premise. There is no universal definition of a blockchain, and there is widespread disagreement over which qualities are essential in order to call something a blockchain.


Sniffed Links - Gas

Oil prices are spiking a bit this week. If prices at the pump increase into the travel season it will be interesting to see if consumers change their travel plans. Oil prices are still no where near what they were several years ago. I think the savings at the pump over the last few years has been an afterthought when evaluating the continued economic strength. Remember the $600 “tax stimulus” from President Bush? That was pocket change compared to what drivers have saved since 2015. I also think states missed an opportunity on fuel taxation. They could have really helped themselves out by levying a little more in fuel taxes. I will be traveling next week so no links.

SEC Launches Additional Investor Protection Search Tool

Two Seasonal Cycles Colliding Suggest A Possibly Volatile Period Ahead

No, Higher Rates Won’t Kill 2018 Home Buying

Real Estate Stocks Are on Sale but No One Is Buying

Sniffed Links - Steady

The Federal Reserve kept rates unchanged this week. It wasn’t a surprise. It will be a surprise if they don’t raise them in June and at least one more time this year. June’s Fed meeting may be met with some volatility in the markets. This week’s links are all over the place. Sometimes you may wonder what some things we share have to do with the markets. Reading broadly is important if we want to think deeply and thinking deeply is important to understanding trends and correlations.

Does Sell in May Really Work? Crossing Wall Street

How Lyme disease became the first epidemic of climate change | Aeon Essays

Subprime Carmageddon: Specialized Lenders Begin to Collapse | Wolf Street

A Fast-Food Problem: Where Have All the Teenagers Gone? - The New York Times

Market Commentary - May 2018

The 10 year U.S. Treasury is a debt obligation issued by the United States Government and is important because it's the benchmark that guides other rates, mainly auto and mortgage. The last time the 10 year treasury crossed 3% was during the "taper tantrum" of 2013 when yields spiked from 1.8% to 3% in about a six month period. Both bond and equity markets experienced extreme volatility which led the Federal Reserve to shift course and keep rates lower leading yields to drop sharply and remain relatively low until this year. 

Historically the yield on the 10 year U.S. Treasury has been well north of 4% but has experienced 3% or lower since mid 2011 leaving investors nervous of how things will play out. There are legitimate reasons to be concerned.  The total debt to total equity ratio is at its highest level since 1999 and corporate debt is at its highest level relative to U.S. GDP since the financial crisis. Also, the amount of debt that needs to be refinanced in the next five years hit a record level of $2 trillion ($734 billion of this comes due in 2020 & 2021). In addition, the pace of stock buybacks could slow in the face of higher rates and consumers typically have less disposable cash in the face of higher mortgage, auto and credit card rates. If cash alternatives (i.e. CDs and Government Bonds) start earning attractive yields, investors could sell a portion of their bonds and equities to reduce risk. You can see why some are starting to sound alarm bells.

It is important to remember that markets are not shaped by one or two data points, it is a culmination of many and while the 10 year treasury does deserve attention, so do others. Corporate earnings have been very strong as we are in the midst of one of the most impressive earnings seasons since 2008. Of the companies that have reported earnings in 2018, ~80% have exceeded analyst expectations, which is above the long-term average of 64%. In addition, corporate profits are expected to be the highest since 2011 and cash on U.S. corporate balance sheets are at their highest level. Despite high amounts of debt, corporations seem to be in better financial shape today. Also, the U.S. unemployment rate is currently at 4.1%, which is 50% lower than where it was in 2012 and wage growth has steadily increased the last 6 months. 

In my opinion the most important aspect with rates is the pace at which they increase. If rates spike faster than anticipated along with som other economic event (i.e. political unrest, trade war), then it is anyones guess as to how things will shake out. 


Sniffed Links - 3 Percent

Only two links this week so I am going to just blab a little here. The 10 year treasury hit 3% for the first time in a long time this week. And as of this writing the market hasn’t totally collapsed. Maybe rate normalization may actually happen and we all will survive it. There have been many questions and predictions about what will happen as rates go up and we addressed some of them back in February. There is a lot no one knows. What we do know is bond rates, mortgage rates and your savings account rates will go up. What we don’t know is how the markets will react long term. Below are just a few and my guesses at the answers. Run from anyone telling you they know the answers.

If cash is more attractive, will investors put less in the market? Some will but not enough to significantly impact the stock market.

Will real estate suffer because of higher rates? No. I have said before, nothing really keeps people from buying homes if they qualify. If the bank will lend it, people will take it. The interest rate is just a part of the deal.

Will the economy suffer? Not because of rates. This is VERY debatable but I am very much a believer in cycles. You can’t isolate one thing in the economy. Rates are part of the “economy”. We could see a slow down in the coming years but I don’t think we will be able to definitively point to rising rates for it. Instead, maybe the cycle is causing rates to go up.

The Rise Of 10-Year Treasury Yield To 3% Raises New Questions | The Capital Spectator

Bitcoin is the greatest scam in history - Recode

Sniffed Links - Sure Things

Sometimes a stock or investment can seem like a “sure thing”. Maybe it was Facebook. Maybe it is Amazon. It could have even been GE at one point. Whenever you think something seems like a sure thing that is the time when you should realize it may be near a tipping point. I believe Facebook and Amazon will eventually be fined, regulated and possibly broken. I share a couple of posts below sharing an issue Amazon faces (or rather ignores) regarding money laundering. Ara and I have gone through money laundering training every year for the past 15 years as required to stay in business. Why is it that Amazon knowingly and out in the open allows money laundering? A lot of the rhetoric out of the White House regarding Amazon is too focused on how the company is “destroying jobs”. This is debatable. But they are openly allowing fraud.

With all this said I am part of the problem. I still have a Facebook account (although I don’t use it except to post to our business site) and I love Amazon Prime. Like many investors, either directly or through index funds, I also own these companies. I know, however, there is no sure thing.

Teach Kids Money Management Skills With These 9 Awesome Tools

Why All My Books Are Now Free (aka A Lesson in Money Laundering)

Money Laundering Via Author Impersonation on Amazon?

25 Things You Might Not Know About the Birds in Your Backyard

Changes Coming to Several TSP Funds

Sniffed Links - Normal

Continuing to discuss volatility is getting really old. Maybe it is time we reframe what volatility really means in the markets. 200-400 point daily swings in the Dow is now normal. 1-2% daily swings in the S&P 500 is now normal. Will this last forever? Not likely but for now it is what everyone should just get used to. It is a further example of why looking at the market on a daily or weekly (or even quarterly) basis is fairly pointless. Let us do it for you. You probably have enough things on your mind daily. The last thing you need is to fret over these big back and forth movements.

When Cash Is King

How to Create a my Social Security Account

Don’t Like Amazon’s USPS Deal? Blame Congress

Sniffed Links - Threats

On Tuesday my Weather Underground app said we could see 9” of snow on Saturday. Luckily the threat has decreased to potentially nothing. We need Spring to arrive on the East Coast if nothing else to make people feel better. The recent convergence of politics and the markets is exhausting. With Amazon and China in the President’s crosshairs we continue to see the market give back gains. Even this week after a couple of great days, more tariff threats have led to another sell-off to close the week.

Where You Go to College Doesn’t Matter in Your Career | Time

Opinion | Trade Wars, Stranded Assets, and the Stock Market (Wonkish) - The New York Times

Market Commentary - April 2018

Though we have experienced extreme volatility in 2018, every sell off has been short lived. In fact, the past five years has been this way. The S&P 500 has experienced only two negative quarters since 2013. One constant throughout has been the elevated levels of stock buybacks. While buybacks play a role in markets, the question is how much is too much and what are the risks associated?

Prior to 1982, stock buybacks were a rare occurrence as corporations ran the risk of being prosecuted by the SEC. After a few regulatory tweaks, stock buybacks became the norm. Corporations turn to buybacks when they feel their stock is undervalued and attempt to put a floor on the price. They can use cash on their balance sheet or borrow money (debt) to do so. Leading up to the financial crisis, buybacks were steadily increasing year over year. All that changed in 2008 when the global economy came to a screeching halt. After the Federal Reserve stepped in and reduced interest rates and began quantitative easing, corporations took advantage of low interest rate and once again began to ramp up buybacks.  Just recently, as part of President Trump's tax overhaul, corporate taxes were reduced from 35% to 21%, which lead to a new surge in buybacks. Through February 15th, corporations had announced over $170 Billion of buybacks. This surpasses the $147.2 billion in the first six weeks of 2015 and nearly double the first six weeks of each year since 2011 (minus 2016). Over the past decade, the corporations that comprise the S&P 500 have spent 54% of their profit on stock buybacks. This is a jaw-dropping amount and makes one wonder how sustainable it is.

The question is, are stock buybacks healthy or more a temporary solution? Proponents argue that too much is harmful as it mainly enriches shareholders and corporate executives and does not focus on capital investment, spending or boosting wages, which help all, not just the few. History has shown that achieving sustainable economic growth is extremely difficult without a growing lower and middle class. Also, oftentimes struggling corporations issue buybacks in an attempt to stop the bleeding while ignoring their fundamental problems which leads to a poor use of resources. While buybacks may help boost corporations' earnings per share, it has no material impact on bottom line growth. This is important to remember as many stocks experienced phenomenal gains leading up the financial crisis when in reality their growth was already slowing but buybacks were helping cover up the root of the corporations problems. Stock buybacks are rarely subject to shareholder approval which means the board of directors has the final decision. To be clear, buybacks serve a purpose (similar to dividends) and make sense when implemented properly but just like most thing, too much of it could be detrimental the same way too much lending or debt can be harmful. 

On one extreme we now have lawmakers proposing bills to ban buybacks completely. While this seems extreme it is something we may start hearing more about. A majority of voters don't have investments and in some ways love the idea of "hurting Wall Street" in whatever way possible.

Sniffed Links - FANG

Facebook, Amazon, Netflix and Google (now Alphabet) are so large that the can affect the market, especially over the short term. This week tech stocks took a beating, recovered some and could be up or down for the week by the time you read this. As I am writing this the NASDAQ jumped up over 1.5% in about 30 minutes since I last checked. Its the nature of tech stocks and the market at large these days. Make no mistake, however, these four stocks are always in the crosshairs both positively and negatively. It seems Trump has an ax to grind with Amazon but seeing how there are more Amazon Prime subscribers than the number of people who voted in the last presidential election it isn’t a big concern in our opinion.

Enjoy this week’s links.

How a $500 monthly allowance saved our marriage

Is cash no longer trash?

Student loan forgiveness gets one-shot, $350M boost

Congress Would Make a Mistake by Banning Share Buybacks

Sniffed Links - Stormy Weather

I hope everyone in the Mid-Atlantic and Northeast are digging out of this late season snow storm. Warmer times are ahead. For Facebook, however, their ongoing storm has only worsened. And a new storm is now brewing in global markets as fears of a Trade War with China has led to sell-offs this week. “Trade War” will continue to be the buzzword of choice in the financial media so try not to get to bogged down in it.

New Fed Chair Powell presided over his first rate hike this week but what may be a more interesting thing to watch moving forward is it appears he will diverge from the philosophy of using models and forecasts and instead react to the current state of the economy.

Why So Many Men Die at 62

New Medicare Cards Are Coming. Here’s Everything You Should Know About Them

“This Is a Slow Roll”: Silicon Valley Insiders Think That Facebook Will Never Be the Same After the Cambridge Analytica Scandal

Sniffed Links - Walking

Kudos to all the kids who walked out of school this week. Regardless of your opinion on guns the fact these kids peacefully protested across the nation (with many facing detention for doing so) is a testament to their generation.

I’ve heard this generation of kids called Generation Z but who knows if that name will stick. One thing is for sure, they are deciding to do things differently from their elder Millennials. These are the kids born to the “forgotten generation” termed Generation X who grew up in the 80s. Though they are sandwiched between the larger Boomer and Millennial generations they are raising what may end up being the most important generation since WWII.

For Two Months, I Got My News From Print Newspapers. Here’s What I Learned. - The New York Times

The Times tech columnist ‘unplugged’ from the internet. Except he didn’t. - Columbia Journalism Review

Who Decided 20% Makes a Bull or Bear Market?

‘Blockchain’ is meaningless

I Got a Story to Tell | By Steve Francis

Ichiro Suzuki's return to the Seattle Mariners won't resolve his internal battle

Sniffed Links - Movies

Oscar ratings were their worst ever on Sunday. There seems to be a great debate as to why. Personally, I saw very few of the movies nominated. This wasn’t without trying. We went to binge them iTunes only to find they either weren’t out yet or you could only buy them. If your movies aren’t accessible leading up to the Oscars then don’t be surprised when no one watches. And don’t be surprised when no one remembers your movies a week later when we all get back to whatever TV show we are currently binging.

The (Long) List of Financial Documents You Should Keep

BlackRock says it's time to take action on guns, may use voting power to influence

Rational Irrational Exuberance?

Sniffed Links - Sharks

You may have seen the $1B acquisition of Ring by Amazon. You may have also seen the story of how in 2013 Ring was on Shark Tank and failed to acquire a deal. Most of the “Sharks” would likely tell you this isn’t their only miss. They would also likely tell you they don’t beat themselves up about missing out on companies or investments. They made the best decision for them at the time. With the rise (and subsequent fall) of Bitcoin and other crypto currencies the feeling of “missing out” popped into many peoples minds. Worse, the fear of missing out drove many to invest at the top and subsequently see their money cut in half.

Warren Buffet’s annual letter is a must read in our industry and I linked it below but the last link is a very quick summation also.

Unless something changes, Beijing will be the only city that wants to host Olympics

Warren Buffet’s Annual Letter

Buffett’s Annual Letter - Some Key Takeaways

Market Commentary - March 2018

In our January Market Commentary we mentioned that the low levels of volatility experienced in 2017 were not likely to continue. Sure enough, volatility spiked from late January into February with the S&P 500 experiencing several 3-4% single day declines and as much as 5-6% intraday moves! February is going to end up as one of the most volatile months in the last decade while 2017 was one of the lowest in the last 60 years.

Rising interest rates is one of the reasons given by many as the culprit of the recent sell off. Historically, however, stocks tend to increase during periods of rising interest rates. Of course it is important to point out this time could be different since we are experiencing rising rates coming out of a period of unprecedented levels of quantitive easing and low rates. But, it is also possible higher rates may simply reflect the rising pace of economic activity. Economic expansion is typcially identified as a catalyst of long-term stock returns. 

I feel interest rates are not the place to look for blame right now.

The area that should be receiving more attention is inflation. Inflation is currently a little over 2% which is still relatively low (at at the targeted number for the Federal Reserve) but has been on the rise since 2015. With the U.S. economy being near full employment along with increased wages (all seemingly "good" things) the added tax "stimulus" could overheat the economy leading to a large spike in inflation which would provide markets a major reason to pull back. Rising inflation tends to lead to an increase in wages and production costs, which typically has a negative impact on corporate earnings and economic output. Too much inflation (hyper inflation) can cripple an economy. The U.S. experienced 14% inflation in the 80's, although I'm not suggesting the U.S. faces nearly the same threat today, I am merely pointing out that rising inflation poses a bigger threat to stocks than rising rates, although admittedly often these things do go hand in hand.

There have been inflation worries in the past that never came to fruition. This could be another one of those cases or it could just be the next thing to deal with. Central banks will once again be playing a crucial role.

Sniffed Links - Futile

One of the problems with market volatility is I never know what may happen with the market between the time I write this little blurb and the time it posts. I usually write it on Thursday and it posts on Friday. Lately I have been waiting until Friday just in case the markets provide something I should address. Timing the writing is as futile as timing the markets. In both cases we have to be right twice. When writing the markets could change before posting. When posting the markets could change before the close on Friday. Same for investing. For market timers they have to get lucky on the timing of getting out of the market and then luck again on the timing of getting back in. We still don’t know if this market is headed back toward its previous upward trend or if we could be seeing the seeds of a bear market. Run from anyone who says they do know.

Tulip mania: the classic story of a Dutch financial bubble is mostly wrong

'Wait and see' before using 529s for private school tuition

Budget Proposes Trimming G Fund Rate