Personal Economics 101

Year-end is rapidly approaching, which means it's time to review your investing or trading rules. Below, I have some time-honored advice that may help. Both Dennis Gartman and Bob Farrell are legendary traders, and they kindly shared the rules they’ve found most helpful. Both these guys are traders, rather than investors, but a lot of the advice is helpful regardless of the long-term strategy you use. NEVER, EVER, EVER ADD TO A LOSING POSITION: Adding to a losing position eventually leads to ruin, remembering Enron, Long Term Capital Management, Nick Leeson and myriad others. TRADE LIKE A MERCENARY SOLDIER: As traders/investors we are to fight on the winning side of the trade, not on the side of the trade we may believe to be economically correct. We are pragmatists first, foremost and always. MENTAL CAPITAL TRUMPS REAL CAPITAL: Capital comes in two forms... mental and real... and defending losing positions diminishes one’s finite and measurable real capital and one’s in...

I don't always do a week in review, but I thought it would be helpful to take a look at what's going on. (It's easy for individual investors to create their own week in review. Use the Economic Calendar , sign up for market reviews with your broker, and visit web sites such as CNBC , Yahoo Finance , Forbes , Seeking Alpha , Market Watch , etc.) Markets Finish Session Higher, Fail to Post Weekly Advance The U.S. equity markets finished the last trading session of the week modestly higher, but failed to post gains for the week, as the omnipresent uncertainty swirling around a U.S.-China "phase one" trade deal that has hampered conviction all week tempered some upbeat news on the manufacturing front and some mixed retail sector earnings reports. Markit's manufacturing and services sector reports came in stronger than expected, and the University of Michigan's Consumer Sentiment Index was unexpectedly revised higher. Jobless Claims Indicate Slower Growt...

Putting money in the market and hoping for the best. Most advisors will tell you that. I have actually been told that by a financial advisor, that I should always be fully invested. I did not hire him. I actually don't need a financial advisor. Neither do you if you learn the principles. Phil Town presents the following video on facts and myths about investing. He asks the following questions, and provides some insight. Well worth the 12 minutes. 1. True or False? The stock market always goes up in the long run. 2. True or False? Those few people who beat the market in the long run only do so because they have either studied hard or have above-average IQs. 3. True or False? Real estate does not need to be part of everyone's portfolio. 4. True or False? Risk and reward in the stock market are related. If you want a higher return, then you must be willing to take more risks. 5. True or False? The best way to offset the risk of investing in the stock market is to div...

Jim Geraghty, writing for National Review : Marco Rubio’s “Common Good Conservatism” and other conservatives expressing more skepticism of the free market are all fascinating, but I remain unconvinced that you’ll have a lot of success trying to fix cultural problems with federal government policy solutions. We’ve got serious and worsening troubles: addiction, suicide, cycles of despair, forgotten communities, isolation, and alienation. But if your plan is to turn to government to fix it, you’re ultimately trusting the same institution we trusted to provide medical care to veterans. The federal government has a lot of good people working for it, but they’re mostly stuck in structures and cultures that incentivize the status quo, punish risk-takers, minimize accountability and disregard efficiency. Could we change that? Maybe, but it won’t be easy, and it won’t happen quickly. The problems we face weren’t created in a small office in a federal building Washington, and they won’t be fix...

From my point of view -- or as they say, IMHO -- none of the above "reasons" -- I'd like to call them "excuses" -- are valid for not having retirement savings. All of them can be overcome by following basic financial principles. The following are time-tested principles, which have been repeated over and over again. What most people lack is the willingness to actually do them, rather than just think about them.  1. Set SMART financial goals The first step toward achieving your financial goals is to set parameters against which you can measure your progress. That means ensuring your goals are Specific, Measurable, Achievable, Relevant and Time-bound, or SMART. Using the SMART approach will force you to be more precise about what you want to achieve and give you less room to make excuses should you fall short. Here’s an example to get you started: Vague goal: Contribute to my 401(k) each month. SMART goal: Contribute 5% of my salary to my 401(k) e...

There are some 36,000 grocery stores in the United States. (Thanks to free market capitalism). While some are smaller, independent stores or specialty outlets that focus on groceries from a certain area, Americans tend to buy the bulk of their food at large regional or national chains. Regional chains like Hy-Vee, Albertsons, or Publix may be a staple in some parts of the country, but they are completely unknown in others. I live in Texas, so I wasn't surprised that H-E-B was listed by WallStreet 24/7 as the most popular. H-E-B started around the turn of the 20th century and is based out of San Antonio. I would probably vote for Albertsons, but they are a tad more expensive. On my recent trip to Michigan, I did shop at a Meijers, which is supposedly the most popular grocer in that state. Meijers is like a WalMart supercenter. I found it interesting that when checking out, the person ringing up your groceries also had to bag them. I made the comment that she didn't have any...

From Gary Halbert : A sweeping new retirement bill is working its way through Congress that is aimed at helping the country overcome its retirement savings crisis. That’s what many lawmakers in Washington envision with the Setting Every Community Up for Retirement Enhancement Act of 2019 – better known as the “SECURE Act.” The far-reaching bill includes 29 provisions aimed at increasing access to tax-advantaged retirement accounts and preventing older Americans from outliving their assets. The SECURE Act includes numerous new retirement account benefits including making it easier for small businesses to set up retirement plans such as 401(k)s that will be less expensive and easier to administer. Many part-time workers would be eligible to participate in employer retirement plans under the bill. And the SECURE Act would also push back the age at which retirement plan participants must take “required minimum distributions” (RMDs) from 70½ to 72. These are just a few of the new bene...

Retail sales increase modestly Retail sales increased 0.3% in October, nearly reversing a similar drop in the prior month, and above the consensus of 0.2%. Individual categories were mixed. Vehicle and gas station sales increased 0.5% and 1.1%, respectively. Excluding these two categories, sales were up a modest 0.1%. While online sales continued to advance, up 0.9%, apparel dropped 1.0% and restaurant sales fell 0.3%, down for the first time this year. The two home-related categories (building materials and furniture) also pulled back, suggesting some potential weakness in housing demand. On a y/y trend basis, retail sales were up 3.8%, which is weaker than where they were in mid-2018, but better than earlier this year. Our measure of discretionary retail sales and its core increased 4.9% y/y and 5.5% y/y, respectively, also stronger than earlier this year. This suggests that the pullback in consumer comfort over the past several weeks has not impacted consumer demand. The trends ...

Dan Mitchell, from his blog International Liberty , pointed me to Babylon Bee , a site for political satire. Laying their cards on the table with the midterms approaching, the nation’s Democrats have united to send a clear message: socialism is America’s only hope of ending the current nightmare of economic prosperity.  “We’re living in a hellscape—but there is an escape,” 2020 presidential hopeful Joe Biden said... "democratic socialism is what’s going to free us from our horrific, flourishing, present conditions. You do the math.” ...“Kill anyone who disagrees!” Maxine Waters bellowed from the background. OK. That's funny. And the site spares no one, poking fun at Libertarians: The U.S. government announced Monday it will be adopting more libertarian policies going forward, including lower taxes, greater support for civil liberties, and a drastically decentralized federal government, “if all the libertarians will agree to just shut up and stop complaining for like one...

PPI annual inflation continues to moderate  The Producer Price Index (PPI) for final demand rebounded 0.4% in October, the most in six months, and above the consensus of 0.3%. It was led by a 0.7% rise in goods PPI, the most since March, as energy prices spiked 2.8%, while food prices advanced 1.3%. Services PPI rose a more modest 0.3%, led by trade margins. PPI for final demand ex-food and energy increased 0.3%, also above the consensus of 0.2%. Despite the notable monthly increase, annual inflation pressures weakened. On a y/y basis, the PPI for final demand slipped to 1.1%, the slowest pace in more than three years, while PPI ex-food and energy eased to 1.5%, the least since February 2017. Both peaked in 2H 2018 and have been on a downward trend since then. Moreover, intermediate producer prices were lower than a year ago across most stages of the production flow. Falling pipeline pressures suggest continued low PPI inflation in the near-term. Jobless claims up, consumer c...

A typical American household with four wireless phones paying $100 per month for taxable wireless service can expect to pay about $260 per year in taxes, fees, and surcharges–up from $229 in 2018. Nationally, these impositions make up about 21.7 percent of the average customer’s bill–the highest rate ever. Illinois has the highest wireless taxes in the country at 31.2 percent, followed by Washington at 28.8 percent, Nebraska at 28.1 percent, New York at 27.7 percent, and Utah at 25.6 percent. Since 2008, average monthly wireless service bills per subscriber have dropped from just under $50 per line per month to $37.85 per month–a 24 percent reduction. However, wireless taxes have increased from 15.1 percent to 21.7 percent of the average bill–a 44 percent increase. Taxes, fees, and government surcharges on wireless consumers increased from 19.1 percent to 21.7  percent between 2018 and 2019–a 14 percent increase in the tax rate. The disparity between taxes on wireless vo...

Wall Street 24/7 concluded its most recent study on which states are the best and worst run, from a fiscal perspective. You can view the entire list here . I will highlight Texas and California, because those two states get compared quite frequently, as well as having amusing stories appear, such as California Governor Newsom Gavin's claim that most of California's homeless came from Texas. As you'll see, there isn't that much difference between the two largest states (in population): Texas at 29.2 million and California at 39.8 million. 9. Texas > 2018 unemployment:  3.9% (25th highest) > Pension funded ratio:  76.1% (22nd highest) > 1 yr. GDP growth:  4.0% (5th highest) > Poverty rate:  14.9% (11th highest) > Moody’s credit rating and outlook:  Aaa/Stable Texas has one of the fastest growing economies in the United States. In the last year, the GDP of Texas expanded by 4.0%, well above the comparable 2.9% national growth. Texas...

Gary Halbert reports: With the major stock indexes hitting new record highs last week, most analysts agree that stocks are overvalued. Stock prices are, after all, driven in large part by corporate profits, and after-tax corporate profits have been mostly sideways since 2015 as you can see below. This raises the question of whether the current record stock prices are justified. As you can see above, the last time this metric got so out or whack was in 1999-2000, and we all know how that ended. The S&P 500 lost 49% in the 2000-2002 bear market. Most bullish analysts who are aware of the current disparity between prices and after-tax profits argue that this time is different because interest rates are near historical lows. Others point to significant changes in corporate accounting rules and unprecedented share buybacks in recent years to justify the current disparity. I would caution, however, that both the accounting changes and the share buybacks are artificial and ...

Small Business Optimism Edges Up  The NFIB Small Business Optimism Index edged up 0.6 points in October to 102.4. While the index peaked at 108.8 in August 2018, it remains elevated by historical standards and suggests that business conditions are still favorable.  Eight of the ten NFIB components advanced last month, led by plans to increase capex and inventories. Small firms also plan to increase hiring in the next three months, but current job openings eased, touching their lowest level in nearly a year. Part of it was due to the tight labor market conditions, as a near-record high 53% of respondents reported difficulty finding qualified applicants. As a result, worker compensation plans picked up. But firms likely plan to pass that cost increase onto consumers, as price plans also advanced. The earnings trend weakened slightly, but the near-term outlook for real sales growth edged up.  Labor quality topped the list on small businesses’ most important proble...

Better (or higher) than expected: ISM Services Index for Oct: 54.7 vs. 53.5 est Unit Labor Costs for Q3: +3.6% vs. +2.0% est Initial (weekly) Jobless Claims: 211k vs. 216k est On Target: None Worse (or lower) than expected: Factory Orders for Sep: -0.6% vs. -0.4% est Trade Balance for Sep: -$52.5B vs. -$52.4B est Markit Services PMI: 50.6 vs. 51.0 est Job Openings and Labor Turnover Survey (JOLTS) for Sep: 7.024M vs. 7.062M est Nonfarm Productivity for Q3: -0.3% vs. +0.9% est Consumer Credit for Sep: $9.5B vs. $15.6B est University of Michigan Consumer Sentiment for Nov: 95.7 vs. 96.1 est Wholesale Inventories for Sep: -0.4% vs. -0.1% est Trade data released this week showed that the US/China trade war resulted in a decline of 4.9% in US imports from China, while US exports to China declined 10%; probably a key factor in why both sides seem to be more willing to try to get a deal signed. While optimism has grown about the phase-one trade deal, President Trump said...

Pelosi cautions 2020 Dems over liberal proposals: 'You must win the Electoral College' Speaker Nancy Pelosi (D-Calif.) issued a stern warning to the 2020 Democratic primary field that progressive policies that might fire up the party’s liberal wing could prove damaging in the general election. Sanders' immigration plan: Halt deportations, abolish ICE, welcome 50K 'climate migrants,' give welfare to all Sen. Bernie Sanders, I-Vt., on Thursday released a sweeping immigration plan that would impose a moratorium on deportations, "break up" existing immigration enforcement agencies, grant full welfare access to illegal immigrants and welcome a minimum of 50,000 “climate migrants” in the first year of a Sanders administration. Britain's Free Health Care: Waiting List Grows to 4.4 Million The NHS waiting list has hit another record high with almost 4.4million people now waiting for routine treatment. For a third month running the figure has...

Wholesale Inventories Decline  Wholesale inventories dropped 0.4% in September, the most in nearly two years, and worse than the consensus of -0.3%. It was led by a 0.9% decline in nondurable good inventories, mostly in farm products, drugs, and petroleum, partly reflecting lower prices of those goods. Wholesale sales were unchanged. The inventory-to-sales ratio held at 1.36 for the fifth straight month, its highest level since May 2016. It had spiked since mid-2018, as the U.S./China trade war intensified and businesses accumulated inventories ahead of expected tariffs. With some talk of tariff rollback as part of the phase-one trade deal between the U.S. and China, we could see some reversal in the wholesale inventory build-up. If this is indeed the case, it would lead to better alignment between demand and supply, but could be a short-term drag on GDP growth (through a negative contribution from the inventory component). While still very early in Q4, the GDPNow Model is trackin...

A Worrisome Drop in Consumer Comfort  The Bloomberg Consumer Comfort Index fell 1.9 points last week, its third decline in a row, to 59.1, its lowest level since April. All three index components fell, extending the sizeable drops in the previous week. The three-week cumulative decline in comfort was the biggest since May 2012. Comfort deteriorated across all regions, all demographic groups, and most income categories. The decline is disturbing, as it may translate into weaker consumer spending growth ahead of the holiday shopping season. This is important because consumer spending has been one of the strong pillars of this expansion, in contrast to outright declines in capex this year. For now, however, the longer-term trend of comfort, as well as other measures of consumer attitudes, support an ongoing economic expansion. Jobless Claims Decline  Initial claims for unemployment insurance fell 8,000 last week to 211,000, below the consensus of 215,000. The four-week averag...

Presidential campaigns are filled with policy proposals. Go to any candidate’s website and you can see a raft of proposals on all sorts of topics. Some get lots of attention—think “Medicare for All” or the “Green New Deal.” What all of the big ideas in this campaign have in common is that they will cost money. Lots of money. 1. Medicare for All. $34 to $52 Trillion over 10 years. This is $3.4 to $5.2 Trillion per year. 2. Green New Deal: Some estimates are $93 Trillion or $9.3 Trillion per year. 3. Student Loan Forgiveness: $1.6 Trillion 4. Free College: $2.2 Trillion 5. Expanding Social Security: $1.1 Trillion 6. Upgrading Infrastructure: $1 Trillion Total cost per year: $12 to $15 Trillion.  That's on top the current annual deficit which runs about $1 Trillion per year. To pay for their proposals, most of the Democratic candidates have plans to increase taxes. It’s how they go about it that differs. Most want to repeal the Trump tax cuts, in...

When Ken speaks, I listen. He changed my entire investment philosophy many years ago (2009) and my portfolio has doubled in size. Below is his weekly video update . You can sign up for his market alerts, which are free on his website: Retirement Planners of America . He also has a weekly podcast , which is basically his radio show that airs in select markets (Dallas, Austin, Phoenix). I also highly recommend his book: Buy, Hold, and Sell . Note: I have visited both his Dallas office (for a comprehensive portfolio review) and his Austin office, now that I've moved from the frigid warrens of DFW for the tropical climate of Austin. I found their approach to managing clients to be a relaxed, non-pressured environment with ethical-driven concerns for their clients. I am not currently a client, because I was told by an advisor that he couldn't do anymore for me than was doing for myself. That's honesty. I'm sure at some point in the future I will become a client.  ...

From Phil Town at Rule #1 Investing Link to Video:  Recession Proof Your 401(k)

High-yield bonds are sending the stock market a warning sign. This is not a prediction, but a leading indicator. Just because it's happened in the past, doesn't mean it will happen in the future. Yes, the S&P 500 made a new all-time highs on Wednesday and Friday. Yes, the Fed’s easy money policy is helping to boost stock prices. Yes, President Trump wants a higher stock market. And yes, we are entering a seasonally bullish period for stocks. And, if high-yield bonds were making new highs along with stocks this week, then I’d have to wipe the bearish egg off my face and concede that the stock market isn’t in as much trouble as I thought. The action in high-yield bonds tends to precede the action in the stock market by anywhere from two days to two weeks. So, it’s notable that while the S&P was posting a new all-time high on Wednesday, junk bonds were falling (see down arrow on chart below). And, by the look of the following chart of the iShares iBoxx High Yield C...