A Pause in the Blow-Off

imageNow that we have the charade of the Fed decision out of the way for another month and some, we can get back to the serious endeavor of trying to figure out whether to be on the long-side or short-side of this market.

The reality of it is that it all depends on your perspective as an investor.  And that means “How long are you willing to wait in order to make some dough?”

Take the Great Depression, for example:  If you had invested when the market was around 380 on the Dow in the late summer of 1929, have you ever wondered if an investment then would have really made money in the long-term?

imageThe answer can be calculated from a quick visit to the Minneapolis Fed page where they have a handy inflation calculator on the right column.  Plugging in the number 1929 and 380, we find that the ultra long-term investor in the Dow would have done very well….But, hello Houston – we have a problem.

The problem is that you may not have been around in 1929.  With the Dow where it is today, you can see that you could have made about three times your money by waiting around for…(you won’t like this part)…86 years.  About half the people who tried this would be actuarial dust bunnies waiting that long.

On  the other hand, if you had purchased a gold coin when Nixon slammed the convertibility window closed at the Fed in 1971 – and bought an ounce of gold for say $50, that would have returned spending power at a much higher that.  That is because the inflation-adjusted price of $50 from 1971 is $293 and where the price of gold is this morning, you would still have 3.94 times your spending power and if would have taken place in just 44 years.

If’n you were an old geezer like me, you would have been able to do this.  But in fact, we didn’t buy our “lone gold round” until 2001 at $273 an ounce.

When we push out the numbers on that?  The present value would be around $365, and that means spending power up 3.17 times but the waiting in line for all this financial glory would be just 14 years,

Which gets me to the first – and most important part – of the column this morning.


The biggest tragedy of modern edjumacation (sic) is that people are not taught the importance of buying while young

The problem is that people are being hornswoggled into buying things – like education – that may  or may not be relevant in the future.

Not to rub salt here, but I know several university educated project managers who would love to build you a high rise tower.  Problem is, with 20 mb or better speeds on fiber at home, the “floating offices” on Skype, WebEx., GoToMeeting, and so on have proliferated to the point where some app builders I know maintain only a kind of “front” office and everyone works from home and just shows up at the brick and click joint for occasional meetings where things like algo’s get built and then everyone goes home to code.

Obviously, the problem is that the project managers trusted the government would not saddle them with mountains of student loan debt if there were not going to be the huge number of project manager jobs forecast in earlier editions of the Labor Department Occupational Outlook.

Honestly, people who bought into government forecasts that didn’t come true should be entitled to a student loan rebate or forgiveness program – which someone should really work on.

Back to point though, I have always held that if you want to make money – serious money and net worth in the long run – the smartest thing to do is buy assets when young that will creep up over time. 

They can be anything – real estate, land, gold, the Dow – the secret ingredient is TIME and we don’t focus enough on the proper use of time.  All of our kids are middle-aged now.  My son,l for example is 35 now.  Still hasn’t decided to buy a home…Yet by the time I was his age, real estate appreciation had already contributed a $25,000 increase to my then net worth.  Reason?  I had a rental and I had been in a new home for several years, already.

The reason we have a difficult market this morning is so few people are willing (or able) to make a time commitment to making money. 

Not the kid’s fault, either.  There is no job surety and that means buying real estate locks people in to a location.  I don’t know what the answer is, except I can tell you for sure there should be a lot more single family home exchanges going on than there are because with real estate and moving costs, an exchange of one location for another is an incredibly bad idea.  But an exchange?  We would move closer to the kids tomorrow.

– – –

So this is what the Post Fed Decision day looks like around here.  The long term problem of how to make – and keep – a buck is still on the table.

Everyone and their grandmother has a set of “reasons” the futures are down.  But the facts are simple:

We are living in a country with no commitment to the future.  We have explained shit to the kids in terms of making investments over time.  And we have evolved a benefits –free culture with no roots to location so moving may become necessary.  And our Real Estate system is too expensive.

In almost every industry you can mention, the cost of business has been coming down because of computer horsepower.  Exceptions?  Education and real estate.

We are locked in the “butt in chairs mode” for education and we are locked in the pay commissions and move all your possessions paradigm for the other.  The effects of computational horsepower in terms of delivery of value have been stuck.  Even raw land commissions are nailed in the 7-10% range.  Only the really smart people use a real estate attorney and save a lot on commissions that way.

I don’t mean to sound sour about the Fed.  But they have no choice.

The growth that has been hinted at is mostly an illusion.   The reason the markets are going up (and please, remember Ure’s Dow 25,000 call for the market next year or early 2017) has nothing to do with growth.  It’s all been about the declining returns from bonds and investors nibbling into stocks.  Which is why a huge stock market bubble approaches for the simple reason that bonds have been improving in value every year (on average) since 1981.  See chart here.

We don’t have much in the way of “real” news other than GDP and unbelievable takes by the highly biased media on how the GOP debate went last night, so the market is set to open lower.  Futures were saying 85 lower earlier when I looked, but blowing off all of the post-Fed relief rally and then some wouldn’t be a shocker.

Fundamentally, we have a country with no border, an administration not articulating a vision the whole country can support (like going back to the moon) and we are teetering on the brink of people downsizing and microhousing our way into poverty.

Funny thing is, people in backwards countries have already beaten us in small housing and the like – and while we may think deconsumption is a fine thing and good for the environment, and all, the process has to be somewhat moderated while economics comes around.  Otherwise, the risk of everyone sitting on their wallets and collapsing the whole shitteree will come.  At this point, 2017 or 2018 looks likely.

We now return control off your screen to more conventional sources of propaganda and normalcy biased inputs.

New GDP Data

Oh, boy.  Here’s a new wet spot of economic data to squirm around:

“Gross Domestic Product: Third Quarter 2015 (Advance Estimate)

      Real gross domestic product -- the value of the goods and services produced by the nation’s
economy less the value of the goods and services used up in production, adjusted for price
changes -- increased at an annual rate of 1.5 percent in the third quarter of 2015, according to the
"advance" estimate released by the Bureau of Economic Analysis.  In the second quarter, real GDP
increased 3.9 percent.

      The Bureau emphasized that the third-quarter advance estimate released today is based on source
data that are incomplete or subject to further revision by the source agency (see the box on page 2 and
"Comparisons of Revisions to GDP" on page 4).  The "second" estimate for the third quarter, based on
more complete data, will be released on November 24, 2015.

      The increase in real GDP in the third quarter primarily reflected positive contributions from
personal consumption expenditures (PCE), state and local government spending, nonresidential fixed
investment, exports, and residential fixed investment that were partly offset by negative contributions
from private inventory investment. Imports, which are a subtraction in the calculation of GDP,

      Real GDP increased 1.5 percent in the third quarter, after increasing 3.9 percent in the second.
The deceleration in real GDP in the third quarter primarily reflected a downturn in private inventory
investment and decelerations in exports, in nonresidential fixed investment, in PCE, in state and local
government spending, and in residential fixed investment that were partly offset by a deceleration in

Personal expenditures were down and personal saving was up.

That seems to be about in line with expectations since the futures market hasn’t sailed off the edge of the earth yet and it hasn’t made a moon shot, either.  Like the debate last night it was about what was expected…

Snoozing Through the Debate

I nodded off part way though the 10-ring circus last night (the debate) so I asked my wife Elaine’s take on it – she’s pretty good at sizing things up.

Four or five of them were pretty good.  They all seemed to agree on more points than before.  Too much government, Hillary is bad,  The major one was too much government, I mean that’s what I heard.

Fiorina came at it differently, but for the most part, they agreed.

Cruz was hot last night.

Elaine take seems to be what’s coming through in reports like this one.  The moderators were pretty lame

The story on RealClearPolitics sort of summed it up:  “This debate illustrates why we can not trust the media…”  I caught the applause on that one.

Shortly after that I got down to the important work of digesting my dinner and inspecting the back of my eyelids.  It’s a long ways to election time – a bit more than a year.  OMG…that long?  I’m NOT going to let it interfere with my after dinner naps.

Sound un-America and dis-involved?  Maybe, but the only thing I can do about it is try to become a delegate and (failing that) it will call come down to figuring which candidate will empty the least from our checking account and who might give something of value in return.  And I have 365 naps to snooze that one out.

Only the Financial Times seems to have grokked the Bigger Picture we’ve been screaming about for months:  the mainstream republicans ain’t mainstream and can we have our party back now, please?

Congressional Replacements!

A report this morning says 93% of school children in Detroit are not proficient at reading.

This is great news.  We can pack up all those kids and send them to Washington where they can replace Congress which does an even WORSE job of reading.

Exit, Stage Left

A report in the Washington Times about the number of people leaving the country is worth a read, especially if you have been adding up our national shortfalls as you’ve read this morning’s report.

Not exactly a flood though:  0.000010065625 or 0.0010065625 percent.  Not a game changer.  And not to the rate people were fleeing pre WW II Germany…


A Pause in the Blow-Off — 12 Comments

  1. The deficits of owning a house with the uncertainty in this country make waiting reasonable. So what do you do? Forget the tiny house and go mobile. GMC or Revcon the best deal. The Revcons may be better but harder to find parts. Lots of GMC motorhomes.



    For somewhere between 12 and 22 grand, depending on how much work you want to do, you can have a nice tiny house. Buy a small plot of land and you’re good to go. If you don’t like where you are just move.

  2. someone else here said you CAN renounce your citizenship and still collect SS-after all you paid into it. I have no idea if they were correct

  3. RF engineering is a great career , and certainly more was learned in the military than can be applied by any college or university ,’cept maybe University of Waterloo or MIT (awefully expensive). The best education I got from the military is that if you don’t know how to do something look it up and find the answer. You’ll save a lot of money that can be spent on other things like paying for a house and two cars. Problem solved.

  4. Leaving the country a real game changer for those who actually leave. For those who don’t, it’s just more and more terminal madness.

    Just like watching the debates, there was no candidate without a downside. America is a country where there are no good choices, just the best of several poor choices. Think about it. When was the last time you made a decision you feel really good about, that was not controlled by outside influences like government or political correctness? Americans had a glimpse of that when they were believing Obama’s campaign promises, in what turned out to be a most magnificent media psyop.

    Look back five years. Now look five years into the future. Are you seeing a trend here?

    Write when you discover something that has really truly improved.

  5. Regarding “A report in the Washington Times about the number of people leaving the country”…. I can tell you this.
    Americans that are currently living outside the U.S. have recently been advised by their stateside banks that their account is to be closed because they don’t have a U.S. address and their foreign bank won’t open a new account and/or is closing current accounts if “place of birth” is USA which means you are a U.S. citizen. Catch-22. Solution: Renounce citizenship.

      • No George, and I have explained this to you in the past, more than once I think, you do not lose social security by renouncing citizenship if you are living in a country that has a tax treaty with the U.S. such as England, Germany, Italy. Examples of some that don’t are N. Korea and Iran. You can look it up yourself if you don’t believe me!

    • Well…get a us address; be a roommate, keep your DL, then get a PO box, that should fix that.

    • Social Security is based on your earnings record, not on your citizenship. Theoretically, you should be able to draw retirement benefits while residing in any country, and regardless of your current citizenship status. The exceptions might be the few countries on the enemies list, like North Korea, Iran, etc.

  6. George, you keep talking about this college rebate for trusting government projections. Seriously, how do we tell who gets a rebate? Did X not get a job in his field because the numbers were off, or because he really sucks at his chosen career? Accountability, personal responsibility, when do those come into play? Are the govt numbers bad, yes, but no one is forcing these people into these degrees.

    • The only solution going forward is to cut off college loans guaranteed by the federal government. Let the banks lend privately and without a guarantee. The loans would only be made to credit-worthy people, and they could be erased in bankruptcy, like all other loans.

      Regarding the current guaranteed loan situation: The overhang of debt is causing the entire nation to worry about the present rather than dreaming of the future. It’s out of control, and something serious needs to be done. I’d suggest that ALL interest and penalties be eliminated and that the loans be payable over 10 years, or 20 years as in the IBR plan. All “defaulted” loans would be reset to current status so that people could pay according to either of the above plans.

      This would provide a new start and a reasonably responsible recovery from bad choices. The universities would have to get efficient or die, and the banks would have to use market criteria to issue loans.