Dow And Up And Dow Again

I don’t know what’s harder to read about right now:  political news, or the stock market.

dreamstime_xl_29871962-customSince I don’t want to lose any readers, we shan’t be talking about political news.  But checking out what’s been going on in the stock market recently is equally stomach-churning.  October has been one of the worst months in the stock market in a very long time, generating talk that we’re in the midst of a dreaded “correction.”  Even after springing back up by more than 400 points yesterday, the Dow Jones Industrial Average is still down almost 6 percent this month, making it the worst month since August 2015.  The news for the S&P 500 has been even worse:  in October its down almost 8 percent, its worst month since May 2010.

And for those of us who aren’t working on Wall Street, the movements of the markets seem random and inexplicable.  Stock are down, then up, then down again — sometimes, all on the same day.  On Monday, the Dow surged upward, then plummeted, and ended up covering more than 900 points in its abrupt mood swing.  You read the reports on the markets that try to make sense of the movements — on Monday, for example, the stated culprit for the downturn was concerns about new trade actions with China, and on other bad days it’s those nefarious “profit takers” — and you really wonder if anybody knows why the markets move as they do.  And this shouldn’t come as a surprise, either:  after all, the markets are the sum of the actions of millions of individual investors, mutual funds, trading bots, institutional investors, portfolio traders, brokerage firms, foreign investors, and countless other actors.  It would be an unusual day, indeed, when all of the disparate participants in the market are motivated by the same news to take the same actions on the same day.

So, what’s a small investor to do?  I think the key is to not overreact, and to realize that investing in the market is supposed to be a long-term thing.  The little guy is never going to have the information the big players do and can’t plausibly time the market or anticipate the abrupt movements.  If you’re in the market long-term, don’t get distracted by the sickening plunges or the big climbs, because you’re really focused on what’s happening over the course of years.  And if you can’t take a long-term view, maybe you shouldn’t be in the markets at all.

Ignoring that stock market app on your phone helps, too.

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Empty Malls

Sears announced this week that it is going into bankruptcy.  Once the largest retailer in the United States, Sears disclosed in August that it was closing 46 stores, and with its bankruptcy filing this week Sears identified another 142 stores that will be shuttered.

IMG_6692If you’ve been to one of the ubiquitous indoor malls in America recently, you didn’t need the bankruptcy filing to tell you that Sears has been having serious problems.  For years, Sears was one of the mainstay, “anchor” tenants in countless malls, usually located at the end of one of the concourses.  Sears and other department store tenants were key parts of the mall structure, giving shoppers a chance to check out their varied offerings, from women’s clothing to home furnishings to makeup and perfume, before the shoppers wandered out to hit The Gap or Foot Locker while sipping a drink they got from Orange Julius.  For generations of kids, the “mallrat” experience with their friends on a weekend day was a big part of growing up.

But if you’ve been to one of those malls recently, you’ve seen that some of those big storefronts for the anchor tenants at the end of the concourses are vacant.  Kish and I went to a mall in Bangor, Maine this summer, and it had the big void where one of the department stores used to be.  Many of the slots adjacent to the anchor location also were empty and closed up, leaving the whole section of the mall, where I took the picture for this post, feeling shuttered and empty.  And there’s nothing quite so desolate and deserted as a cavernous mall that is totally devoid of shoppers.

I’m old enough to have seen the whole arc of the American mall story.  I remember when the Summit Mall in Akron, Ohio opened to great fanfare, drawing throngs of shoppers away from the downtown stores to one convenient location.  In Columbus, the City Center mall in downtown Columbus opened in the ’80s as a key part of the downtown Columbus redevelopment plan — but then it failed within only a few years, to be torn down and replaced by a park.  The new approach to retail eschews the closed mall design in favor of open air developments like Easton in Columbus — which feels a lot like the downtown shopping areas that got elbowed to the curb by the malls.  Now we’re seeing many malls struggle, and in some extreme cases, city planners are left wondering what the heck to do with the huge, empty edifice that used to be a roaring hub of commercial activity and tax revenue.

And now Sears is going into bankruptcy.  The story linked above reports that liquidation sales at the 142 stores that are closing will begin in the next few weeks.

Our Ever-Ignored Deficit

The Trump Administration has announced that, in fiscal year 2018, the federal budget deficit was a staggering $779 billion.  That’s a 17 percent increase over fiscal year 2017, and the largest budget deficit in six years.

In short, we’re running enormous, historically disproportionate budget deficits — even though the economy is humming, jobs are being created, unemployment has reached the lowest levels in years, and the federal government is collecting record amounts of income tax revenue.  At a time when we should be balancing our budget, or even running a surplus, we’re farther underwater than ever.

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Nobody seems to really care about this — except a handful of old deficit hawks like me.  The Republicans who used to claim to be the party of fiscal discipline cut tax rates, but they just haven’t gotten around to making the necessary cuts to federal spending that are needed to bring the budget into balance.  No surprise there — cutting taxes and raising defense spending is the easy, champagne-cork-popping part of their agenda; actually digging into the details and deciding which federal programs to cut, and by how much, is the harder, painful part that every Republican running for reelection will happily defer.  And the Democrats, who have never cared too much about balanced budgets anyway, are too busy reacting with outrage to everything President Trump does or says to focus on the deficit.

Some people argue that times are good right now, so what’s the big deal?  Maybe the deficit really doesn’t make that much of a difference, they suggest.  But if the U.S. government can’t live within its means when the economy is strong and record tax revenues are rolling in to the federal treasury, what is the deficit going to look like when the economy turns sour, payrolls get cut, and tax revenues fall?  Just how big is this deficit going to get, anyway?

It all seems pretty ironic to me.  President Trump boasts of being tough with foreign governments on trade and international relations, and putting America’s interests first in all things — but the need to sell bonds to finance the growing deficit does exactly the opposite.  The Chinese, the Saudis, and everybody else who is buying the U.S. bonds we are selling are thereby acquiring enormous leverage, and if they start demanding higher interest payments before they make their purchases we’re in a world of hurt.

So pay no attention, folks!  It’s all boring numbers, anyway!  Let’s forget about the serious, long-term aspects of running a government, and go back to talking about the latest outrages that will dominate the news cycle for a day or two until some new and exciting outrage comes along.

Condemned To Repetition

George Santayana famously observed:  “Those who cannot remember the past are condemned to repeat it.”

I thought of old George when I read this article reporting that some banks, amazingly, have decided to once again offer zero down payment subprime mortgages.  Apparently it’s only taken ten years for banks to forget the lessons they purportedly learned during the last subprime mortgage lending bubble, when the collapse of countless numbers of bad loans brought the economy to the brink of total disaster.

tips-for-buying-foreclosed-homes-mstAccording to the article quoted above; “Borrowers can have low credit scores, but have to go through an education session about the program and submit all necessary documents, from income statements to phone bills. Then they go through counseling to understand their monthly budget and ensure they can afford the mortgage payment. The loans are 15- or 30-year fixed with interest rates below market, about 4.5 percent.”  In addition to the “education session” and documentation and counseling requirements, recipients of the loans have to live in the houses with the mortgages.

The lending agencies think that residency requirement will keep out the investors looking to flip houses, which is one of the conditions that contributed to the prior housing bubble and subprime mortgage debacle.  Another purported protection against disaster is that the housing market is strong, there’s a shortage of homes for sale at entry-level prices, and therefore homeowners who can’t make their payments supposedly will be able to sell their houses and repay their mortgage loans.  And proponents of the lending program say it helps poor people and working families to buy houses and build personal wealth.

I’m all for people becoming homeowners if that’s their dream, but if banks think that things like education sessions and counseling are going to allow them to avoid problems when the economy turns — as it inevitably will — they are dreaming.  It’s not hard to forecast that some aggressive loan officers will push the rules, some house-flippers will figure out a way to take advantage of the programs, some bad apples will take out the mortgages and then abandon the houses when times get tough, and then we may well be back in the same perilous situation that existed in 2007 and 2008.

I hope not everyone has forgotten what happened to bring on the Great Recession.  And I hope some political leader makes it clear that banks are welcome to follow whatever practices they think are appropriate for their businesses, but this time, if it all goes to hell, taxpayers won’t be bailing them out — again.

Calling For Seasonal Workers

Go to any seaside town — or for that matter, any resort, tourist destination, or other business that does seasonal work — and you’re likely to hear the same refrain:  the local shops and restaurants just can’t find enough employees to fill their needs.

summerhelp_crop380wOn one of our first nights in Stonington, we went to an event where we rubbed elbows with some of the locals, and one of the big topics of conversation was the labor shortage.  One restaurant that the residents particularly like didn’t open this summer because it just couldn’t find enough workers, and another had to cut back its meal service.  And as you walk around town, you see the same young people working at multiple places.  The young woman taking your order behind the lunch counter today is likely to be working at the local hardware store tomorrow.

There are two primary causes for this situation.  The first is the unemployment rate, which is at its lowest level in years.  In June, the unemployment rate was 4.0 percent.  Some economists think, practically speaking, that’s as close to “full employment” as America is likely to get.  That’s good news for workers, who have lots of bargaining power and who can command higher wages.  But it also means that some of the Americans who might otherwise gladly fill seasonal jobs waiting tables on the seashore or working at gift shops are already working full-time in other positions, leaving seasonal employers without the pool of labor they had drawn on in the past.

And the second cause is the H2-B program, which allows employers to obtain visas to bring in “guest workers” from overseas.  The problem, though, is that the program is capped at 66,000 visas each year — a number that hasn’t changed since 1992.  This year, more than 5,600 businesses applied for more than 142,000 such visas, and the Department of Labor had to allocate the visas by lottery.  If you weren’t one of the lucky winners — as was the case with some of the businesses here — you’re out of luck.

And it’s particularly tough for labor-intensive businesses like restaurants.  Owners can man the cash registers and restock the shelves at gift shops, but they can’t really serve as cook, waiter, busboy, and dishwasher all at the same time.  As one of the restaurants here realized, the only alternative is to not open for business.

A lot has changed in the American economy since 1992.  Maybe Congress should take a break from its constant fundraising and look at updating a program that provides a useful safety valve for small businesses who are dependent upon recruiting seasonal workers.

Cashless

Sweden is generally viewed as the most cashless country on the planet — so cashless, in fact, that authorities are getting a little worried about it.

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In that Scandinavian land to the north, fully 36 percent of the people never pay for anything with cash — in Sweden, the currency is called the kronor — or use it only once or twice a year.  In 2017, only 25 percent of Swedes pay with cash at least once a week, down from 63 percent in 2013.  The amount of cash in circulation, generally, has fallen precipitously.  Some restaurants and shops don’t accept cash under any circumstances and post “no cash” signs in their windows, and even some bank branches don’t carry cash.  (Bank branches without cash?  What do tellers do?)

So, what’s the concern?  It centers on the elderly, who are accustomed to paying with cash and who might not be comfortable with paying with plastic or their cell phones — or even have access to those payment methods.  The decline in cash acceptance and cash use generally is being examined by Swedish government and the Swedish central bank to determine whether steps should be taken.

Will America eventually reach a similar point?  I hope not.  I like the idea of having a little cash in my pocket, in case the technology breaks down.  Sometimes it’s just easier to pay with cash, too.  And if you are an advocate for personal privacy, cash is a nice option because of its anonymity and untraceability compared to, say, a credit card swipe.  And there are some things that are always done with cash, and presumably always will be:  how would people looking for a handout or bus fare get along in a cashless society?

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.