Sniffed Links - Self-Made

No post next week so enjoy this week’s links. I hope to have the time over the next week to read Bad Blood: Secrets and Lies in a Silicon Valley Startup. The insanity and story behind Theranos still seems underrated. I don’t know why it didn’t catch on as an even bigger story. I’m sure a documentary or movie is in the works.

The New Tax Form Is Postcard-Size, but More Complicated Than Ever

Jamie Dimon Is Not Messing Around

Kylie Jenner, 20, may soon be the world's youngest self-made billionaire

Here's Why The Outrage Over Kylie's "Self-Made" Forbes Cover Matters

Sniffed Links - It Begins

We have addressed the “trade war” enough in other posts so we are taking a much needed break from it. I guess you could call today the “start” of the trade war in a way. It isn’t going away anytime soon so we will have plenty of time in the weeks ahead.

Nonetheless, here are some good reads…

Some Considerations For Investing Globally

What's killing Big American Beer?

What does it mean to be a NASA astronaut in the celebrity space age of Elon Musk and Richard Branson?

Market Commentary - July 2018

As expected, trade war talks have equity and bond markets on edge, especially European and Emerging Markets. Tensions continue to escalate as do the retaliatory threats coming from all sides, specifically between U.S. and China. Last month President Trump asked his administration to compose a list of $200 billion in China goods for levies and would add another $200 billion if China retaliates. This is in addition to the $50 billion already imposed. While these numbers are large, no one knows how much of this is posturing and how much will actually take effect. China has begun to retaliate and President Xi said the country will not back down from engaging in a trade war. The headlines sound frightening and all the dooms-dayers were definitely all over this latest fodder. 

Many of the every day goods we use (cell phones, computers, TV's, clothes etc.) are imported from China and certain tariffs would increase prices which would be passed on to the U.S. consumer and in turn could lead to an economic slow down. Now the good news is as of this writing the updated list does not include cell phones or televisions, but if things continue to escalate, they could be added. Considering current deficit levels and rising rates, an unexpected economic slow down would be less than ideal. Unfortunately this "trade war" situation doesn't have a set timetable, so we may experience more anguish before obtaining any type of resolution. The markets hate uncertainty but even worse it hates uncertainty with no time table. 

As an industry, manufacturing makes up 11.6% of U.S. GDP and has become a smaller segment as other industries have picked up the slack. While this limits the number of new manufacturing jobs being created in the U.S., it leads to cheaper goods and leaves consumers with more money in their pockets to spend on other things. It should not be a shock that the U.S. runs trade deficits with most countries as labor costs and standards of living in the U.S. tend to be higher than most, so an influx of manufacturing jobs to the U.S. seems highly unlikely and corporations would look to outsource manufacturing labor to another country with cheap labor costs as opposed to bringing those jobs here. It is important to remember that publicly traded companies are focused on protecting profits, growing the bottom line and answering to shareholders. So unless the U.S. is ready to embark in a trade war with every country, they don't appear to have much leverage here. Also, who will take the jobs even if they were moved to the US? Limiting immigration won't help fill the jobs and at 4% unemployment people are already working. The only way to lure them away would be higher pay which brings us back full circle to either higher costs or sending the jobs to another country. 

The reality is much of this could just be "tough talk" and amount to little, but it's important to remember that threats to global markets always exist. They just feel worse when it is politically driven because it adds emotions to the mix and the one thing that doesn't mix well with investing is emotion.

Sniffed Links - 110 Years

General Electric stock was removed from the Dow Jones Industrial Average (“the DOW”) this week. This marks the first time in 110 years the ticker symbol GE will not be included in the index. This comes after losing 50% of its value last year and another 25% this year. How did this happen. Basically while other companies were increasing their cash reserves GE was building up massive debt. This is an example of why buying individual stocks doesn’t work out well for the average investor. As diversified a company as GE is one would think it would be a “safe” bet compared to other stocks. Not the case.

Just a couple links this week…

Why to Keep Your Inflation Anxiety in Check

GE Kicked Out Of The Dow

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