Culturalism · investing · Personal Finance

The Federal PRESERVE of Wall Street

Some people ask me how I’m able to stay sane as an investor during times like these. The answer is quite simple: just pay attention to the federal government.

As most already know, the Congress approved a $2 trillion monstrosity by voice vote yesterday, with the only visible opposition coming in the form of representatives AOC and Thomas Massie. Beyond its inclusion of various stimulus programs, the legislation creates a fat bailout fund for larger companies, and allows the Federal Reserve to leverage up to $4 trillion in support of the economy (Read: Wall Street ).

In the words of Powell the Owl:

“Effectively one dollar of loss absorption of backstop from Treasury is enough to support $10 worth of loans. When it comes to this lending we’re not going to run out of ammunition.”

Some Democrats openly demanded oversight for $500 billion in assistance that corporations will have partial access to through the bill, and succeeded in establishing an inspector general to monitor disbursement of the money. In response, Republicans began to weep miserably.

Just kidding. In reality, El Orangelo was several steps ahead of them, placing his ink on the bill accompanied by a fancy signing statement, which effectively allows him to ignore parts he doesn’t like. According to the man himself:

“I do not understand, and my Administration will not treat, this provision as permitting the [inspector general] to issue reports to the Congress without the presidential supervision required.”

In relation to congressional oversight requirements for specific funds he added:

“These provisions are impermissible forms of congressional aggrandizement with respect to the execution of the laws.”

In other words, the money is already compromised. If that wasn’t enough, the legislation also shrouds Federal Reserve meetings in deeper secrecy, establishing an effective wall against FOIA requests.

So Wall Street will be fine, although your currency is another question. But don’t worry, you can forget all that and just rage against Thomas Massie.

Culturalism · investing · Personal Finance

Goldman Takes Third Blood

In my last video, I warned folks about Wall Street’s likely attempt to weaponize the Coronavirus panic in service of their financial interests. I also noted that Goldman Sachs has cultivated such a close relationship with the federal government that it managed to completely destroy a competitor (Lehman Brothers) during the bailout negotiations of 2008.

But there is more. As markets reel from the virus’ impact, our lovely friends have released an updated report on U.S. GDP for the second quarter, suggesting an upcoming 24 percent drop.

How convenient. Sounds like a great way to further tank the economy, allowing the Goldmanites freedom to make a killing on shorting strategies, plus accumulate dirt cheap shares.

Now hold on, the skeptic might say, what happens if the market declines so Goldman Sachs is also in trouble?

It’s quite simple. They just give a ring to the Treasury Department, led by none other than Steven Mnuchin, the retired Chief Information Officer for Goldman.

If you watch your 401k undergo further decline in the following weeks, just remember who is walking in “Fields of Gold.”

investing · Personal Finance

The Best Books On Economics

A lot of folks complain to me about the dense nature of economics and government policy, something that deters them from getting involved with the market or reading the subject matter. As a result, I decided to drop the following list here, with the intent of providing a shortcut to the volumes that help simplify issues for the average American goober.

On Stock Market Investing

The Intelligent investor by Benjamin Graham

Stocks for the Long Run by Jeremy Siegel

A Random Walk Down Wall Street by Burton Malkiel

The Little Book of Common Sense Investing  by John C. Bogle

How a Second Grader Beats Wall Street  by Allan Roth

On Real Estate Investing

How To Be a Capitalist Without Any Capital by Nathan Latka

On Economic History

Socialism and Human Action by Ludwig von Mises

The Global Minotaur by Yanis Varoufakis

Capitalism and Freedom by Milton Friedman

Capitalism In America by Alan Greenspan

An Empire of Wealth by John Steele Gordon

On Economic Policy

Who Stole the American Dream? by Hedrick Smith

Retirement Heist  by Ellen Schultz

Temp by Louis Hyman

Maxed Out  by James Scurlock

investing

Don’t Be The “I Should Have” Guy

Humans are not as adaptive as one might think. Right now, the economic herd is stampeding out of investments, many at a loss, because that’s what everyone else appears to be doing. Because Coronavirus is scary.

You can do the same (or not start investing to begin with), and the outcome will almost certainly be a loss, or missed opportunities.

Look at the market right now. We are on a roughly 11 percent decline in the S&P 500 since the end of February, with today’s 7 percent drop overall and the crush of oil bringing it home. At bare minimum, the market is much cheaper than it was a few weeks past.

If you break into individual  funds, the story is more stark. QQQ shares are down by $43.00 since February 19th, or 18 percent. SPLG is off about 7 bucks, or 17 percent.

What about loner stocks? Well, we have AMD down $15.00, or almost 26 percent. CCL, cursed by its exposure to virus-impacted cruises, lost 22 bucks, or 48 percent since February 19th.

And this is just a small sample size. Stocks are on sale. If you have free money, or a retirement plan through work, give strong consideration to buying in now, and certainly if there is a further decline. Drops of this nature don’t come frequently, but once they do, money will be made by the patient and unemotional .

Or, you could be the guy saying, “I should have invested back then.”

investing · Personal Finance

Siegel: The 60/40 Split Is Outdated

The 60/40 portfolio divide between stocks and fixed income is old news.

That’s the word from Jeremy Siegel, the Wharton professor and renowned author of Stocks For The Long Run. He made the point on CNBC that our enduring low interest rate environment means you need a higher concentration of equities in an investment portfolio. What’s the new ratio? It swings in at 75/25 percent, stocks to fixed income.

Here’s the video:

As a side note, the author of How a Second Grader Beats Wall Street uses the 60/40 split for his son’s portfolio, but the 40 percent is actually made to include an international equity fund. He puts 60 percent in VTSMX, 30 percent in VGTSX, and 10 percent in VBMFX. While the regular stock fund (VTSMX) performed well for the period discussed in the book, the VGTSX lagged dramatically.

The ultimate decision on allocation should relate to the investor’s age and specific time frame. Unfortunately, ultra-low rates will make it harder for older folks to adjust because their fixed income returns stand to get decimated by the inflation figures.

But that’s ok, as long as we have good GDP.

Culturalism · investing

How The Spanish Flu Hit Stocks

There’s been a gross deal of speculation about an (even bigger) Coronavirus outbreak, one that could cost countless lives and send the world economy into tailspin. It makes jolly good fodder for the internet activists of our time, but how accurate is the claim?

That depends. The folks over at Global Financial Data put together some nice info looking at the 1918 Spanish Flu pandemic, which killed tens of millions of people. The first graph shows the various peaks of the outbreak those years ago:

Credit: GFD

Next we have a trace of the stock market:

Credit: GFD

As you can see, the market was not visibly impaired by the rise of the flu, although the period also encompassed part of World War I.  After the nominal end of the flu wave, which was relatively close to the finish of the First World War, the market experienced a period of handsome growth.

The applicability of the 1918 situation to today, or vice a versa, remains dubious, and yet it suggests that hysteria may not be the proper answer.

investing · Personal Finance

We Can’t Take Rate Cuts Back

Josh Brown said something on CNBC today that I’ve believed for a long time under the Trump Economy: it’s now impossible to walk-back rate cuts.

We all remember the debacle of December 2018, when the Federal Reserve raised rates by a quarter point, from 2.25 percent to 2.5 percent. The result was a devastating market drop of 20 percent.

After the last seven days of Coronavirus fear and loathing, the Fed made an emergency rate CUT to stave off concerns, and the Dow fell by almost 3 percent. I guess it wasn’t enough, but just imagine if they had attempted to RAISE rates.

Much as Religious Investor thinking may help quench queasy market appetites by feeding the “There’s no limit!” mentality of millennial dreamers, fueled by the likes of Tesla and Virgin Galactic, at a certain point the ties which bind may horribly snap.

In that moment, will rates be cut or raised? Will it even begin to matter?