Current Events
Mike discusses current events and how they could be affecting your investments - or more likely, your perception.
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A Shocking New Trend
Last fall, CNN opened an article with the story of Jeff Regan, who received a phone call informing him that his 94-year-old aunt was being evicted from her home in an assisted living facility. The next day, he received legal notice of the eviction.[1] If the number one fear of most people is outliving their money, this is validation. Studies are showing evictions top the list of assisted living grievances. If you google “assisted living evictions” you will find lists of “How to Evict a Resident” and “How to Write the Letter of Eviction – including templates” and “How to Take the Legal Steps to Evict Residents”. It is becoming…
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Recession Indicator Flashing Red – Is it time to head to the exits?
“Dow falls 460 as US Recession Indicator Flashing Red” reads a CNN Headline from last Friday. Is it time to head for the exits? Are we tumbling into a recession? The “bond vigilantes” are out in force waving the caution flags. But could there be another explanation? What is the red flag? The yield on 3-month treasuries is now higher than the yield on the 10 year treasury bond, a condition known as “inverted yield curve”. The yield curve is a graph of interest rates on the vertical axis and the length of time on the horizontal. In the past and inverted yield curve has correctly predicted 9 of the…
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How Long Will This Secular Bull Last?
John Templeton, one of the great investors, said of secular bull markets, “Bull markets are born in pessimism, grow on skepticism, mature on optimism and die on euphoria.” Secular bull markets continue for decades: 1941 to 1966 and 1978 to 2000, for example. I believe it is important to know the “mile high” view and not to get lost in the short term swings. There is no shortage of pundits who predict coming crashes. Andrew Roberts of the Royal Bank of Scotland stated, “Think the unthinkable – the market is going off a cliff”. That was in 2010. That is not unlike James Dale Davidson, who predicted there would…
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Impeachment and Investing
What happens to the markets if President Trump is impeached? It isn’t my intention to give a prediction on if he will or will not be impeached. I am writing this to analyze what would happen if he is impeached, so that you, and your investments, will be prepared in the event. I was an Eagle Scout and the motto is “Be Prepared” – Be prepared for the worst and hope for the best. That is not the purpose of this eletter; this is about the markets, not the merits (or lack-thereof) of impeachment. I do not believe history repeats but that it rhymes. There is no way to know…
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What do WWII Planes and Investment Strategy have in Common?
What do missing bullet holes in World War II aircraft and investing in today’s market have in common? Let’s begin by explaining the importance of the “missing” bullet holes. When telling stories of war like World War II it is only natural to think of the action, but there were silent thinkers who also contributed. The Statistical Research Group (SRG) was charged with determining how to armor the aircraft to reduce the number of planes shot down by the enemy. With too much armor, the planes were slower and could more easily be shot down, and with too little, the planes could not survive the bullet hits. The SRG began…
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2019 Predictions
One of my favorite quotes is from Yogi Berra: “Predictions are difficult, especially about the future.” Most years I believe that applies. I believe 2019 may be the exception. 2018 started strongly and continued until the end of August, and then not only did the S&P 500 wipe out all the gains but ended down 4.39%. In my opinion nothing characterized that what happened more than December 24 and December 26. On December 24, the DOW Jones 30 plunged 653 points and the next trading day on December 26, the DOW charged upward 1,024 points. What changed in the 36 hours from December 24 to December 26? Nothing. Computer algorithms…
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The Impact of Fracking
The stock market selloff Thanksgiving week 2018 was the worst Thanksgiving week since the 1930s, during Franklin D. Roosevelt’s administration. Why this sudden drop in a year of highs? And what impact will we see? In my opinion, the selloff stems from changes in the largest industry in the world. And few people recognize it. The Bush-era tax cuts, the largest ever passed, saved the average family $315 a year. The changes that are taking place now will save the average family $1,750 a year and will probably increase. Oil prices dropped from $76 a barrel to $51, and I expect oil will gradually drop even further. The energy industry…
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The Truth About China: How Did We Get Here?
There is growing concern that the US will find its way into a trade war with China. The US government announced tariffs on steel, aluminum, and possibly on other products as well. China has announced their “Made in China 2025” a plan by which Chinese leaders intend China to be the leading nation in robotics, biotechnology, etc. China was an agricultural society less than 50 years ago. Today they are the second-largest economy, behind only the United States. They are on a path that could make them the largest economy in the world, and surpassing the United States. How did that happen in such a short time? If you have…
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The Secrets of the Bond Vigilante
The Economist recently compared watching the market in 2018 to watching a horror movie. There is the character that walks out into the dark, the floor boards creaking and the swell of haunting music to build the tension. Is it Freddy Krueger or only the wind? In response to the drama of the market, the so-called “bond vigilantes” have reappeared. I have not heard mention of the bond vigilantes in over a decade, maybe two. My family sometimes questions my taste in novels, specifically when I started The History of Interest Rates by Sidney Homer. It goes back to 1988-89, when I was first in the business; I moved out…
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How Can Tulips Help Us Understand Bitcoin?
It is tulip season in Mt. Vernon, and for me that brings to mind a book. One of the classic investment books is Extraordinary Popular Delusions and Other Madness of the Crowd by Charles Mackay. Despite being first published in 1841, it is one of those books that I think has not only withstood the test of time, but is also, and unfortunately, relevant to modern investing every few years. The book begins in the 1600s and works its way through famous bubbles, such as the South Sea Bubble from 1719, John Law’s French Mississippi Scheme, and, perhaps most famously, Tulip Mania. Tulip Mania swept through Europe in the 1630s.…