Personal Economics 101

The Fed lowered the Fed rate by 25 basis points. The market immediately turned down. The rate cut had been priced in for months. This, among other things, is one of the reasons that over the last couple of months I've lowered my exposure to stocks from 50 percent to 25 percent, holding mostly boring stuff like an MLP (oil and gas pipelines), REIT, an ETF that holds preferred stocks (PFF) and some inverse EFTs as a hedge). The rest of my retirement portfolio is in boring money markets paying 2.13%. That interest rate is a travesty for retired people who need safety yet income in retirement to cover at least a 4% draw down and to keep up with inflation. The Fed has been screwing us over for a decade. Whenever the government creates artificial prices in anything, markets get skewed and the outcome is usually a shortage of something, somewhere and lots of people get hurt (because they're usually not paying attention). I have to invest quite aggressively in retirement. I spend mor...

The housing trend is visibly fading at the half-way point, opening the year on a solid rise before flattening out and slowing in May and June. This is true of existing home sales which were reported yesterday and is especially true with today's report on new home sales which came in at a lower-than-expected 646,000 annual rate. The 3-month average is at 636,000 which compares unfavorably against a 673,000 peak in April. The median price firmed in June to $310,400 but is no better than dead flat versus June last year. Supply edged higher to 338,000 new homes on the market and on a sales basis is at an ample 6.3 months. Sales jumped in the West, edged higher in the South, and slipped in the South and Northeast. Market fundamentals should be pointing to better results for new home sales: there's plenty of homes on the market, prices are soft, employment is strong, and mortgage rates have come down sharply. Yet today's report is consistent with anecdotal reports that foreign bu...

Here are seven things not to do when planning for your retirement. 1. Not saving enough — or anything.  Yes, it’s the most obvious but it’s worth repeating. According to the Insured Retirement Institute survey, an astonishing 23% of baby boomers have no retirement savings… and never did. 2. Draining your retirement savings.  Another 17% did save for their retirement once… but then spent the money, either in desperation, or carelessness, or maybe both. 3. Not calculating a retirement savings goal.  It’s a lot harder to save enough for retirement if you haven’t first at least tried to work out how much that’s supposed to be. Astonishingly, just 25% of boomers who do not have a financial adviser have tried to run the numbers. And even 25% of those who do have a financial adviser still haven’t set a target. Um… what? 4. Underestimating health costs.  Here’s a sobering item: A 2018 analysis estimated that a healthy couple in their mid-60s may need to budget betwe...

After working for decades to save for retirement, one of the last things you want to do is make mistakes that put you on the wrong path right out of the gate. Here are three costly mistakes to avoid in your first year of retirement, according to Motley Fool. 1. Not following a budget Just like you need to follow a budget while you’re working, you should also plan on having one during retirement—especially if you will be living off your savings and Social Security alone. The secret here is to get a handle on your spending early on so that when you see certain expenses are more than you anticipated, you can compensate by cutting back in other areas. 2. Withdrawing too aggressively from your nest egg Your savings may need to last you 30 years on average, according to Motley Fool. If you withdraw too much money from your nest egg early on, you'll risk running out of money later in retirement. You won’t only lose those extra dollars; you’ll also lose any potential investment income fr...

To quote Dr. Thomas Sowell, economist at Stanford University: "One of the simplest and most fundamental economic principles is that people tend to buy more when the price is lower and less when the price is higher. Yet advocates of minimum wage laws seem to think that the government can raise the price of labor without reducing the amount of labor that will be hired." More here: Lessons from the Past

Besides using budgets, goal setting is absolutely vital to financial freedom. From Chris Haroun, one of my favorite sources of financial information. 

Of course, the question "Where's it going?" is rhetorical. I cannot answer that, nor can anyone else, if they're honest (though many pundits and talking heads will try to convince you that they know: they do not).  However, there are some indicators that can try to show trends. A market trend is very important, because a strong trend either up or down can bring most stocks with it. Not all; there will always be stocks that do not follow along. When deciding whether I'm in or out -- and these are for long-term investing (weeks and months) for my retirement account, not swing or day trading -- I look at these indicators (and I provide a brief synopsis of what I see using the SP500 (SPY) as an market index): 1. What's called a curve chart. This will give me an idea whether prices tend to be expensive, or cheap.  Based on a weekly chart, stocks are expensive. They can still go higher, but may hit some resistance.  2.  The overall trend. Is it up, sideway...

The index published in Economic Freedom of the World measures the degree to which the policies and institutions of countries are supportive of economic freedom. The cornerstones of economic freedom are personal choice, voluntary exchange, freedom to enter markets and compete, and security of the person and privately owned property. Forty-two data points are used to construct a summary index and to measure the degree of economic freedom in five broad areas. Area 1: Size of Government As government spending, taxation, and the size of government-controlled enterprises increase, government decision-making is substituted for individual choice and economic freedom is reduced.  Area 2: Legal System and Property Rights   Protection of persons and their rightfully acquired property is a central element of both economic freedom and civil society. Indeed, it is the most important function of government.  Area 3: Sound Money Inflation erodes the value of rightfully earned w...

Narrated by Abir Doumit, this mini-documentary from the Center for Freedom and Prosperity Foundation outlines the public policy framework that is necessary for a poor nation to become a rich nation and includes several real-world examples. It also highlights how international bureaucracies hinder development by advocating onerous destructive fiscal policies, which is especially disturbing since today's rich nations all made their big jumps to prosperity when government was very small and taxes were very low.

Investing can be confusing, especially for beginners. To help clear up some of the confusion, we'll take a look at some of the most common misguided expectations about investing and how they compare to reality. - Phil Town

From Mohamed El-Erian : It’s hard to justify a rate cut using traditional metrics. The unemployment rate is at a five-decade low, inflation is not that far below the Fed’s target, financial conditions are the loosest in almost two decades, stock indices are at record highs, and interest rates are already at low levels. Yet the Fed is under tremendous market and political pressure to cut. And it will do so citing the concept of an “insurance cut” – that is, increasing monetary stimulus now in order to reduce the risk of future damage. But like most insurance you and I get, the one the Fed will embrace is not free for four main reasons: The more the central bank does now, the less room it will have to cut later if domestic economic momentum wanes. (Remember, the current US economic expansion is already an unusually long one, having also set a new record less month.) The greater the policy easing, the stronger the signal to investors and traders to expand their risk appetite eve...

Climate change activists are not just interested in reducing carbon emissions in order to "save the planet." Their underlying desire is to overturn capitalism and replace it with socialist governments worldwide.  Our story starts with the IPCC, or the Intergovernmental Panel on Climate Change, a U.N. organization. "And any settlement of the Global Warming issue by the UN would entail massive transfers of wealth from the citizens of wealthy countries to the politicians and bureaucrats of the poorer countries." (1) In 1992, at the first U.N. Earth Climate Summit in Rio de Janeiro, Brazil, Program Executive Director Maurice Strong stated, very candidly:  " We may get to the point where the only way of saving the world will be for industrialized civilization to collapse. Isn’t it our responsibility to bring this about?" (2) Former U.S. Senator Timothy Wirth (D-CO), then representing the Clinton Administration as U.S. undersecretary of state for global ...

Motley Fool recently identified three spending mistakes that are common in retirement. Many retirees have a trend for falling into financial traps that could reduce their retirement income significantly, according to Motley Fool. These traps include buying things just because they’re on sale, not paying attention to the little things, and spending extra money just because they have it. Find out more below. 1. Buying things just because they're on sale S-A-L-E! Who doesn’t love that word? The psychology of the sale makes it easy to get caught up in it. According to Psychology Today, sales shift our focus toward what we’re saving rather than what we’re spending. If the item is something you really need and will use, of course it’s logical to take advantage of the discount. But if you’re purchasing it with the hope of using it later, then you’re spending extra money that could add up quickly. According to a survey by Slickdeals, the average American spends around $450 per month on i...

Good tutorial on calculating different ROI using five key measures: 1) Holding Period Return, 2) Compounded Annual Growth Rate (CAGR), 3) Real Return, 4) Tax-Adjusted Return, and 5) Risk-Adjusted Return. 

If you really want to understand how the world works today, you need to rethink almost everything you’ve been told about inequality. Prof. Antony Davies explains. If you wish to dig deeper into this subject, I recommend Thomas Sowell's Economic Facts and Fallacies, 2nd Edition .

The American Dream is alive and well.

Elizabeth Warren claims the middle class is under attack. " The  middle class  is under attack. Fight for an economy that works for all of us. Save Our Democracy. Join Our Fight. Rebuild the  Middle Class ."  Bernie Sanders has said:  “The middle class of this country, over the last forty years, has been disappearing.”  In fact, most Democratic candidates are using this fallacy as part of the campaign platforms.  All are wrong.  The following chart shows the truth. In fact, while the middle class has been declining, so has the lower income classes. However, the upper middle and upper classes have been increasing in size. Over the last 40 years, the U.S. economy has created more prosperity. (All income figures have been adjusted for inflation and are quoted in today's dollars.)

Personal finance is 20 percent knowledge and 80 percent behavior.