On The Roller-Coaster Ride

If you’ve got some of your retirement savings invested in the stock market, as many of us do, the last few days have been unnerving.  The market had an historic run up, and then it went down again.  Yesterday, where the Dow Jones Industrial Average at one point had dropped 1600 points, was an especially wild ride.

704254-001When the market behaves like this, what’s a normal investor, who’s not an insider or a financial kingpin, supposed to do?  You can get dizzy just reading all of the different views of what is “really” going on.  Some people say it’s just a predictable correction after years of historic gains.  Some say the Trump tax cuts have overheated the economy and the market is reacting to that.  Some say we’re long overdue for a bear market.  And some say the Federal Reserve Board hates President Trump and his focus on the stock market as a proxy for his presidency and just wants to bring him down low.

(The last theory, in which the Fed would be intentionally manipulating the market for overt political purposes, is especially troubling — and even in these conspiratorial times, seems pretty unbelievable.  To buy that theory, you’ve got to conclude that the Fed’s dislike for President Trump is so powerful that they are perfectly willing to take actions that torpedo the retirement portfolios of millions of individual investors just to give the President a black eye.  Could bureaucrats really be so disdainful of average Americans?  Call me naive, but I find that incredibly hard to believe.)

So what’s really happening here?  Beats me!  My guess is that the run-up has been so significant that there are lots of people out there who thought it was time to take their profits, and the downward movement caused by those sales then triggered some market-decline benchmarks that automatically produced further sales and caused the sharp fall — but that’s just a guess.  Maybe somewhere on Wall Street somebody knows the real answer for sure, but I doubt it.  The stock market is so complex, so huge, and so prone to human reaction that it’s difficult to explain these downward spikes.

So, to put the question again, what’s a little-guy investor to do?  If you think saving money for retirement is prudent — if you don’t, you probably wouldn’t read this post in the first place — and you need to find a place to put your money until the retirement day comes, there really aren’t many alternatives to the stock market that can produce a meaningful return.  Most of us aren’t offered opportunities to invest in real estate deals or development projects, and we probably wouldn’t be comfortable having a big chunk of our money invested in such illiquid things, anyway.  Bond yields are low, and banks pay next to nothing on CDs.  So where else are you going to put your money?  This reality suggests that basic, brute economic forces are going to continue to make the stock market a preferred investment option for people and businesses, not just in the U.S. but also abroad.

But you’ve got to recognize that the stock market is a long-term investment, and it’s going to be a roller coaster ride.  When you’re on the coaster, it’s pretty hard to get off on the highest hill, and you don’t want to exit the car and move onto the tracks at the bottom, either.  You just hold on, scream when the cars start that big downward move, and feel your pulse racing until the end.  Or, you can simply close your eyes, recognize you’re on the ride and there’s not much you can do about it, and focus on other things until your circumstances make you a short-term investor and there are true decisions to be made.

Who knows what this current jittery period will bring?  It’s time to hang on tight.

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Condemned To Repetition

George Santayana memorably observed:  “Those who do not remember the past are condemned to repeat it.”

Hey, does anybody here remember 2008?

isantay001p1A report released yesterday by the Federal Reserve discloses that Americans have just set a new record for accumulated credit card debt.  The grasshoppers among us had saddled themselves with a total of $1.021 trillion in outstanding revolving credit in June, just edging out the previous record of $1.02 trillion set in April 2008.  Total household debt in the U.S., which totes up housing, auto, student loan, and credit card debt, reached a new record of $12.72 trillion in March, which also passes its 2008 peak level.

Of course, those of us who do remember the past recall what happened in and around 2008 — banks failed, the subprime mortgage bubble burst, and the economy was thrown into the Great Recession.  For a while, Americans reacted by tightening their belts, paying down their credit card debt, and getting rid of some credit cards — but those days of responsible consumer behavior apparently are long over.  Recently, credit card debt has been growing at an annual rate of 4.9%, and more consumers are getting access to credit cards.  More than 171 million consumers had access to credit cards in the first quarter of 2017, which is the highest such number since 2005, when about 162.5 million people had access to credit cards.  And some banks have made the conscious decision to provide credit cards to people with subprime credit scores.

Gee, what could go wrong with this scenario?

It’s all not-so-vaguely and scarily familiar, but a lot of people apparently just don’t care.  They think times are good now, and therefore times will always be good — so why not use that credit card to buy another impulse purchase consumer good that they don’t really need?  The problem is that, in our interconnected economy, the irresponsibility of the grasshoppers can pull down the ants among us, too.  If the heavy credit card borrowers start defaulting on their debts en masse, and banks and businesses start feeling the pinch, we’ll feel the unfortunate results, too.

If Santayana were still with us, maybe he’d change his famous statement to read:  “Those of us who remember the past but are unfortunate enough to live with other people who do not remember the past are condemned to repeat it, whether we want to or not.”

The Latest (Sigh) Jobs Report

Yesterday the August jobs report came out.  It was another in a series of “disappointing” economic reports — to the point where journalists covering employment numbers must have had to hit their thesauruses to try to find new synonyms for “weak,” “soft,” and “discouraging.”

In August, the economy added 169,000 jobs.  It’s a mediocre number, following a series of mediocre jobs growth numbers.  The unemployment rate dropped, but only because we don’t take into account people who have just stopped looking for work.  As the New York Times story linked above reports, the number of people participating in the labor force — i.,e., either working or looking for work — fell to its lowest level since 1978, since the Jimmy Carter administration.  And, the job creation estimates for June and July were revised downward.

There are concerns about the quality of the jobs being created.  Many of the new jobs are part-time positions in the retail and food services where the pay per hour is lower than in salaried jobs.  More then 7.9 million Americans are looking for full-time jobs but are only able to find part-time work.

The analysts react to these reports by debating whether this latest glimpse at a lame economy will cause the Federal Reserve Board to modify its monetary policies, and how the stock market will be affected.  And who knows?  Perhaps President Obama will declare, for the umpteenth time in his presidency, that he is ready to focus with laser-like intensity on jobs, jobs, jobs — and hope that no one recalls that his previous pivots to the terrible employment situation did absolutely zilch to ease the angst of people who can’t find work.

As for me, I try to remember that behind each employment statistic there is a human story of suffering and embarrassment, of people who can’t provide for their families and have seen their dreams explode in a blizzard of unpaid bills and urgent notices from creditors.  Why isn’t their terrible predicament more of a priority for President Obama and Congress?  Isn’t it time that we tried a different approach that might actually help them to find a good-paying job?

The Stock Market, Like Pavlov’s Dog

Today the stock market has rebounded somewhat after a few tough days, although that result could turn on a dime.

What caused the stock market to plummet the last few days?  Poor sales by large companies?  Weak economic data?  Lingering concerns about an unemployment rate that remains too high and millions of Americans giving up on job searches?

Nah.  It’s because earlier this week Ben Bernanke may have hinted that the Federal Reserve is going to tighten its prolonged loose money policy and may actually reduce the amounts of cash it has been pumping into the economy.  Of course, whether the Fed actually is going to change its policy isn’t entirely clear.

It’s sad, really.  We’ve gotten to the point where the Wall Street titans and stock market wizards have become so addicted to the manipulations wrought by the Fed’s monetary policy that the market simply responds, like Pavlov’s dog, to the Fed’s opaque pronouncements.  Ben Bernanke sounds a bell, and the market starts slobbering like Fido expecting a wet can of Alpo to splat into his food bowl.

This should be a concern for all of us, especially those of us who are trying to save for retirement.  The stock market, where so many people keep their money, has become a one-note opera.  The overriding focus is on what the Fed will do.  Actual economic performance, actual company performance, and other “fundamentals” that used to be reflected in stock prices now are overridden by the aggressive actions of the Fed.

It’s not a good thing when the stock market is so easily manipulated, and when companies become so dependent on easy money.  The fact that it is an arm of the federal government that is doing the manipulating doesn’t make it any better.

Ron Gone

Texas Congressman and Republican presidential candidate Ron Paul has announced that he won’t be spending resources to contest Republican primaries in any states that haven’t yet voted.  It’s just another reason why Mitt Romney is now described as the “presumptive” Republican nominee.

Paul always seemed like somebody’s batty uncle.  Now that he’s called a kind of end to his campaign, he can go back to the House of Representatives, where he has served for years and accomplished virtually nothing.  (Of course, the people who support Paul probably think that is a good thing.  When you take a libertarian approach to the issues, you don’t want the federal government doing much of anything.)  Still, Paul was entertaining, and his views clearly resonated with a quirky core of voters.  Accordingly, he deserves a bit of farewell doggerel:

Bring all troops home, so Ron Paul said,

And while we’re at it, shut down the Fed

Time to get government off our backs

Which means we end the income tax

And there’s one other thing we hate

Yes, that would be the welfare state

We’ll also strongly protect our borders

While we all become gold hoarders

So anti-government Ron is done

Now he’ll head back to . . . Washington?

Financial Armageddon – Reader Discretion is Advised

In August of last year I read an interesting book called The Great Depression Ahead by Harry Dent and posted the following blog. Dent’s book summarized that demographic changes and technology cycles predict business and economic trends and that between now and 2014 the stock market will correct to around 3,500 (the market today is trading at around 12,900).

A patron told me about another book called Aftershock, written by three economists, David Wiedemer, Robert Wiedemer and Cindy Spitzer who had correctly predicted much of what happened during the financial downturn of 2008 in their first book, America’s Bubble Economy – Profit When it Pops.

In Aftershock, these economists estimate that the United States governments credit limit is between $15 to $20 trillion (currently we owe $15 trillion) and that once the we reach our credit limit foreign investors will stop or dramatically begin to reduce their lending to us causing failed treasury auctions.

The authors seem to think that this may happen sometime around 2013 or 2014 which tracks closely to what Mr. Dent is predicting. When this happens they expect a “triple double digit economy” with double digit unemployment (they mention it could be as high as 40%), double digit inflation and double digit interest rates. Gas prices will soar, government services will need to be cut, real estate will go much lower and the stock market will tank.

Is it just a coincidence that the Federal Reserve has announced that they will be keeping interest rates at almost zero until the end of 2014 ? I recall Ron Paul saying in one of the Republican debates that “the Federal Reserve must really be worried about something to be keeping rates this low for this long”.

The authors suggest that there is very little that can be done to avoid what’s about to happen because political leaders don’t have the willpower to do something until it is too late. They recommend lightening up significantly on stocks, buying gold and keeping a lot of cash on hand.

Of course no one can predict the future and hopefully what’s mentioned above doesn’t occur, but it might be worth taking some precautions just in case.

What in the Heck is Going On ?

Look  (both hands chopping in a downward motion) – I’ve recently retired and figure I have done everything right okay – never carried any debt except for an occasional credit card bill and my mortgage payment (considered good debt). Always lived well within my means – paid cash for all of my cars – sold my house for a good price and traded down to a small condo back in 2004 which I recently paid off.

A week or so ago the Federal Reserve released a statement saying that they are keeping interest rates at or near zero through at least mid – 2013. So basically what they’re saying is this is a great time to buy or re-finance a house – thanks Ben (Bernanke) but you see I don’t need a house right now, I have one that is paid off ! Keeping rates low means interest rates on credit cards will remain low – thanks again Ben but I don’t use my credit card except when I am taking a trip or in case of  an emergency and I always pay the one credit card I have off every month.

YOU SEE BEN WHAT I WOULD LIKE IS SOME KIND OF RETURN ON MY MONEY FOR CHOOSING TO SAVE AND IT LOOKS LIKE I AM NOT GOING TO GET A GOOD RETURN FOR AT LEAST THE NEXT COUPLE OF YEARS. BEN, I DON’T WANT TO INVEST TOO MUCH OF MY SAVINGS INTO A RISKIER INVESTMENT LIKE SAY THE STOCK MARKET BECAUSE I AM RETIRED AND I AM GOING TO NEED THE MONEY SOME TIME IN THE NEAR FUTURE – I MEAN A BIRD IN THE HAND IS WORTH TWO IN THE BUSH ISN’T IT ?

So yesterday I’m opening my mail and I come to an envelope that says – Important Information About Your Property Value 2011 Reappraisal. I’ve read numerous stories on the internet about home values dropping like rocks and of course Columbus Ohio is no different right, so I open the envelope and WHAT – my condo is now worth 25% less than what it was in 2005 the last time my property was appraised.

THIS REALLY SUCKS ! Ahhhhh – they say that blogging is therapeutic and you know what I think it is, I feel so much better now ! I wonder what tomorrow will have in store for me !!