Personal Economics 101

Texas manufacturing eases  The Texas Manufacturing General Business Activity Index slipped 2.3 points in December to 9.7. It was the second straight decline to a four-month low, as rising COVID cases and waning stimulus impacted the sector. Survey respondents also cited political uncertainty as a concern, both with respect to the incoming Biden Presidency, as well as actions with the current administration. The new COVID relief package, which was signed after the survey window, should placate some of these concerns. Despite the decline in the Business Activity Index, most other indexes posted solid gains in December, indicating that the recovery remains firmly intact. Production and new orders growth accelerated, while capacity utilization increased. Employment and wage growth also picked up from the prior month. All future activity indexes remained positive, but some key indexes, such as future new orders and business activity, declined. Price pressures mounted, as the raw materia...

My proposed 5G portfolio is up nearly 62 percent since January 2019, not including any dividends paid in the last two years.  The original portfolio called for an equal weight investment of $75,000 in 15 stocks, recommended as potential winners in the 5G race.  The portfolio is currently valued at $121,263, and increase of $46,263 or 61.7%. While this may seem like a great investment, investing in QQQ (the NASDAQ index ETF) would have returned about 100% over the last two years. However, you'd have to know that the NASDAQ would be on a tear, especially this year.  A investment into an equal weight portfolio of the four major indexes (Dow Jones Industrial Average, Russell 2000, NASDAQ and S&P 500) would have resulted in a return of 59%, if dividends are included.   This was an exercise in a portfolio of telecommunications and technical companies. I will not be following it any further. I would have never -- in reality -- invested in 15 stocks. I'm not interes...

The economic calendar for Dec. 21, 2020, is void of any major releases but is poised to deliver some key reports later this week that could command attention. We will get the final read (of three) on Q3 GDP, the Conference Board will post its Consumer Confidence report, preliminary November durable goods orders will hit the tape, November personal income and spending data will be released, and the University of Michigan will offer up its revised look at consumer sentiment for this month. Housing data will also continue, with the releases of existing and new home sales for last month, while a timely read on jobless claims for the week ended December 19 will be pulled forward to Wednesday due to the holiday. CFNAI shows recovery is slowing  The Chicago Fed National Activity Index (CFNAI) fell 0.74 points in November to 0.27, the smallest positive reading of the past seven months. The three-month average of the CFNAI decreased 0.29 points to 0.56, its lowest level since June. Both the...

One "rule of thumb" for portfolio composition is to have the bond part of your portfolio equal to your age. For example, if you're 70 years old, then 70 percent of your portfolio should be in bonds. I don't follow this "rule."  First, let's define portfolio for the purpose of this article. It is a collection of stocks, bonds, and other assets with the goal of sustaining a person in retirement. That is the goal of the portfolio: to supplement a retiree's income without running out of money. The amount of the portfolio depends on the needs and goals of the individual.  There are hundreds of "rules" for portfolios. They can be simple, or complicated. Very popular currently with financial managers is Modern Portfolio Theory, which is based on mean-variance analysis, a mathematical framework for assembling a portfolio of assets such that the expected return is maximized for a given level of risk. Wow. What a mouthful.  Ever since I studied fina...

Oil forecast for 2021 Following OPEC in cutting its forecast for oil demand growth in 2021, the IEA also expects a slower rebound than initially anticipated as the aviation sector takes longer to recover from the pandemic amid border closures and travel restrictions. "It is possible that, after the upcoming holiday season, a third wave of the virus will affect Europe and other parts of the world before vaccines have time to take effect. It will be several months before we reach a critical mass of vaccinated, economically active people and thus see an impact on oil demand." While the "market remains fragile," global consumption is expected to be 96.9M barrels per day next year, about 200K bpd below earlier forecasts. However, the IEA still expects that the crude glut left behind by the pandemic will clear by the end of next year as the global economy recovers and OPEC+ keeps a tight rein on supplies. A larger-than-expected U.S. inventory draw helped lift oil prices t...

Investors hear this: If the Senate falls to Democrat control, along with the House and the presidency, we could well see the END OF THE BULL MARKET in stocks and to a lesser extent in bonds. Higher taxes, especially on corporations, are bearish. Ditto for doubling the capital gains rate as Biden proposes. That’s a bold prediction, I admit. But let’s be clear, this bull market in stocks – which began in March 2009 – is very long in the tooth by historical standards. In fact, it has been the longest and strongest in history. And we all know it will end at some point. With literally EVERYTHING on the line in these two Georgia Senate races, we are about to see a political spectacle as never before. George Soros and other billionaire Democrat donors are basically writing blank checks to their Senate candidates. I just hope big GOP donors realize what they’re facing and will be ready to pony-up as well. The bottom line is, Senator Perdue should win his race, thus maintaining Republican contr...

Update for Dec 14: In a typical over-reaction, crude futures wiped out sold early gains on vaccine optimism after OPEC's latest Monthly Oil Market Report cut its forecast for 1Q 2021 demand by 1M bpd. WTI futures fell from a high of $47.37 to $476.25 as of 9:45 am CST. OPEC sees global oil demand at 93.97M bpd in the first three months of next year, down from 94.95M bpd. For all of 2021, OPEC cut its demand 360K bpd. That would be up 6.25M bpd from 2020, or nearly 7%.

From Morningstar Equity Research :  Investors had every reason to be hesitant in entering the third quarter of 2020, but economic conditions have proved more favorable than widely expected. In particular, housing markets proved exceptionally robust. Existing-home sales surged toward the end of the summer, giving builders confidence and supporting 11% growth in new-home starts during the third quarter.  We expect the momentum to continue through the fourth quarter and into 2021, but some dynamics will change. Affluent buyers have driven the surge in housing in 2020. Sales growth in housing categories from $500,000-$1 million-plus accounts for over half of incremental purchase volumes in the third quarter. For most buyers, those prices remain out of reach.  As more companies have approved indefinite remote-work policies, we suspect wealthier renters could be heading for the suburbs. However, we don't see this as a sustainable source of housing demand in the long run.  ...

Market close as of 4 pm EST Dec 11 Small business optimism slipped more than expected in November The National Federation of Independent Business (NFIB) Small Business Optimism Index for November fell to 101.4 from October's 104.0 level, compared to the Bloomberg estimate of a decrease to 102.5. Four of the ten index components improved during the month, while six declined. However, the index remained well above the 47-year historical average reading of 98. The NFIB noted that small business owners are still facing major uncertainties, including the COVID-19 crisis and the upcoming Georgia runoff election, which is shaping how they're viewing future business conditions. The report added that the, "Recovery will remain uneven as long as we see state and local mandates that target business conditions and disproportionately affect small businesses." Nonfarm productivity revised slightly lower Final Q3 nonfarm productivity was revised lower to a 4.6% gain on an annualized...

Using a basket of stocks that should benefit from the development of 5G wireless networks, I put together a portfolio in January 2019. The original investment was $75,000 and is currently worth $121,204. Adding in dividends of about $3,500, the total value would be nearly $125,000, or a gain of about $50,000, a 66.66% percent return (33.33% annualized). No active management was used, such as re-allocating funds from nonperformers into stronger performing stocks. This portfolio will be deleted while I put together a different one, based on growth ETFs. More on that in a future post.  

Note: Rather than wait until Friday, I'll try to update daily, as new reports and information becomes available.  Each of the major indices set all-time highs this week, powered higher by growth stocks and value stocks alike. The Nasdaq Composite claimed the winning spot with a 2.1% gain and was followed by the Russell 2000 (+2.0%), S&P 500 (+1.7%), and Dow Jones Industrial Average (+1.0%). Nine of the 11 S&P 500 sectors contributed to the advance. The energy sector rallied 4.5%, and the information technology sector rose 2.8%. The utilities sector (-2.2%) was the weakest link by a wide margin. Regional factory activity moderates  The Chicago Business Barometer fell 2.9 points in November to 58.2, below the consensus of 59.1, indicating some moderation in factory activity growth in the region. New orders and production both grew at slower rates, a sign of softer demand. Inventories eased to a three-month low. Employment remained in contraction territory for the 16th co...

Markets set new highs Each of the major indices rose more than 2.0% this shortened week and set new record highs, including the Dow Jones Industrial Average (+2.2%), which crossed above 30,000 for the first time ever. The Russell 2000 rose 3.9%, the Nasdaq Composite rose 3.0%, and the S&P 500 rose 2.3%. Value, cyclical, and small-cap stocks retained their leadership roles in this part of the bull market. The S&P 500 energy sector rose 8.5%, and the financials sector rose 4.6%. Every other sector, except real estate (-0.4%), ended the week with gains.   November business activity growth accelerates unexpectedly to begin the shortened week The preliminary Markit U.S. Manufacturing PMI Index for November surprisingly increased to 56.7 from October's unrevised 53.4 figure, unexpectedly moving further into expansion territory denoted by a reading above 50. The Bloomberg consensus estimate called for the index to dip to 53.0. The preliminary Markit U.S. Services PMI Index showed ...

There are numerous posts on this blog, and millions on other blogs and news sites, on the subject of what the rich do different, but it's worth repeating again, I guess. The principles are simple. Still, some two-thirds of Americans live paycheck to paycheck. For many, the act of using all of your monthly income to cover your monthly expenses — with no money left over and none for savings — is a fact of life. Look, I've been there. It can be a mindset, and a trap. Best to get out of it if you're in it, as fast as possible.  Depending on the survey, the percentage of people living paycheck to paycheck runs from half of workers making under $50,000 (according to Nielsen data ) to 74% of all employees (per recent reports from both the American Payroll Association and the National Endowment for Financial Education.) And almost three in 10 adults have no emergency savings at all, according to Bankrate’s latest Financial Security Index . Even many in the upper class are seeing t...