Ten Things For 2025

 

Coming up with a “Ten Things For 2025” list has admittedly been quite difficult. This stems from the fact that 2024 ended up being a year marked by civil unrest, dramatically shifting voting patterns in the election, and a big shift in how people access their news and how they perceive those who deliver the news. The financial markets displayed a great deal of confusion, but in the end, stocks were way up and the rally appeared more broad-based. Going into 2025, things are smooth on the surface, but there is a lot going on underneath that will eventually come to the surface.

Every December, Byron Wien who was the former US Investment Strategist at Morgan Stanley would issue his “10 Surprises” column for the upcoming year. He defined surprises as events that were outside the consensus thinking, but which he thought had a better than 50% probability of happening. I imagine that Mr. Wien would have a field day with the current conditions. This is my inspiration for what I call my “10 Things,” for the upcoming year. Mr. Wien’s focus for his “10 Surprises” list focused on the economy and markets. And I do have some predictions in this area.  Some of my Things are in line with consensus thinking and some will be way outside of the consensus. Last year, two of my predictions for 2024 came through. I had said then that Joe Biden would not be the Democrat’s nominee for President and that the Federal Reserve would only cut interest rates twice (consensus was for 6 cuts). The Fed cut rates for the third time this year just yesterday.

This past year has been one of civil unrest, most notably shown in the two assassination attempts on Presidential candidate Donald Trump. United Healthcare CEO Brian Thompson was assassinated and CashApp co-founder Bob Lee were also murdered, both in targeted hits. San Francisco 49ers first-round draft pick Ricky Pearsall was shot during an attempted robbery. Fortunately, he recovered and played for the 49ers this season. Unfortunately, I think we will see a lot of continued civil unrest in 2025.

Stock market is way overvalued. Stocks do not go into bear markets simply because they are overvauled. They keep going up until they don't. There is usually some sort of financial event that creates a bear market, and the conditions seem to be getting more and more ripe for some sort of credit event to occur.

Economy built on a mountain of debt. Personal debt, government debt is off the charts. Interest on federal government debt is at a record high. This is going to get worse as 5-year and 10-year Treasury notes mature and are rolled over into higher interest rate notes. Initial projections for FY 2025 budget deficit ran $2.3 billion. That budget deficit is now projected to run over $3 trillion. Household debt is manageable as long as employment stays strong. But cracks are developing there. Over the past 16 months, full-time employment (the highest quality jobs) has declined by 1.4 million. The entire creation of jobs over that time has come from contract jobs, gig economy jobs, part-time and seasonal jobs. Further cracks in employment could spell big trouble for household debt, and we may already be seeing this in credit card debt.

Now, onto my “Ten Things For 2025”:

1.      The Federal Reserve’s first interest rate action in 2025 will be to raise interest rates. We have seen 3 rate cuts in 2024, and this has been followed by higher inflation readings and higher long-term rates. The combination of lower short-term rates and higher long-term rates is called the steepening of the yield curve. A steepening yield curve is generally interpreted as a positive event for the economy, and I do expect to see some strong economic numbers coming in the first half of 2025. The Fed has indicated that they are in no hurry to cut rates further. There may not be any rate actions in 2025, but if we do see signs of an over-heating economy, the Fed will be raising rates. They do not want to repeat the mistake of 2021 in which they called inflation “transitory” and that no increases were needed. Inflation only became transitory because the Fed raised rates.

2.      The stock market will return 10% in 2025. I see all the gains coming in the first half of the year and then we will see a flattening out of returns in the second half.

3.      There will be a credit event in 2025. Debt is basically funding all of the strength in the US economy. Debt is one of those areas that show on the surface that things are manageable, the trends appear to be going in the wrong direction. Overall household debt is at a record $17.94 trillion dollars. Credit card debt, which is at a record high $1.17 trillion is particularly concerning. Delinquency rates are still manageable, but that rate has more than doubled since Q3 2021 (1.5% to 3.2%) and it is quickly heading toward problem areas (4%-5%). The current rate is higher than pre-pandemic levels and the highest rate since 2012. The recent stock market rally has also been funded with debt. Margin debt was $890 billion at the end of November, representing a 35% year-over-year increase. Any drop in stock prices could trigger margin calls, which will make that problem even worse. While I am not foreseeing a major credit event in 2025, it will be big enough to be noticed.

4.      Online sports gambling will become a mini-epidemic. The lure of easy money – a tale as old as time. I have a friend who once made the observation that all those fancy casinos in Las Vegas were not built on the backs of gamblers who won. And yet many will try and very, very few will succeed. My guess is that many of those gambling accounts are being funded with credit card debt, which creates a bigger problem with overall debt. Many men get into sports betting because they think they know sports. They have no idea that sports and sports betting are two different things (largely because of odds and point spreads). This problem could also be a manifestation of a bigger societal problem of young men “opting out” of society.

5.      MSNBC will cease to exist as a political commentary channel. Comcast, which owns both NBC News and MSNBC, has announced that they will split up their company next year and NBC News will be split from MSNBC. This is the tell for me as a political commentary channel really needs the strength of a news organization to back it up. Having the backing of a news channel typically adds credibility to the commentary. With MSNBC, the ratings have dropped throughout the year and that drop has accelerated since the election. Being an obvious shill for a political party that is deeply out of favor does not help their cause. Already, we have seen headlines about the on-air talent being offered pay cuts. It is too little, too late. I see the spin-off company wanting to do something like sports or entertainment with this channel.

6.      X (formerly Twitter) will gain momentum as a news source. X owner Elon Musk has been a big proponent of free speech with X, generating mixed results. The 2024 election was, in part, a referendum on the mainstream media, and the MSM did not fare well (which helps explain point #5 above). X was the big winner, with more people turning away from the MSM and towards X. While X is a bit of a Wild West show, with all its messiness, chaos and misinformation, it does need to be noted that the single biggest piece of misinformation during the 2024 election came from the mainstream media and that was the idea that Joe Biden was fit to run for re-election. The messiness of X was on that right away (with a mountain of video evidence), questioning the President’s fitness for office while the MSM swallowed the White House propaganda without question. When President Biden has his disastrous debate vs Donald Trump in June, no one on X was surprised while the MSM felt betrayed.

7.      President Trump will see virtually of his legislatively packages pass in both houses of Congress. The surprise here is that I think we will see at least a small degree of bipartisanship in all of it.

8.      Georgia wins the CFP in January, the Philadelphia Eagles win the Super Bowl in February, and the Florida Gators win the NCAA Basketball Championship in April. Let's face it, if I get one of these three right, it will be a minor miracle.

9.      The Kansas City Royals will win the AL Central, and the Baylor Bears will win the 2025 Big 12 football championship. I am so excited about these two teams next year that they deserve their own line. Plus, I am a deep-seated fan of both, and this is my list and I need this to get me to 10! 

10.  All my best wishes to each of you that 2025 will be better than 2024. For me personally, 2024 has been a very difficult year, and I know that it has been difficult for many others as well. Yet I always look to the future with hope, and I always rest in a God that gives me peace through the most difficult of times. Happy 2025 everyone!

For The Love Of A Ball

I love this baseball. I still remember the day we got it.  June 18, 2004. The first time that I took my boys to Omaha, NE for a College World Series (CWS) game. I was going through some stuff here at home the other day and I came across it. Seeing this ball took me back to that day. To appreciate my love for this ball, a little background is necessary. If you remember, about a month ago, I wrote about that most awful day in my life – June 18, 1999. In 2004, I was coming upon the 5^th anniversary of that day and I knew I needed to do something to get my mind off it. As part of my efforts to find the thing to get my mind off it, I pulled out an atlas, thinking that getting out of town would help. I started circling Kansas City with my index finger, making bigger circles until I hit Omaha. That’s it! I knew the CWS was coming up, so I checked the schedule, and sure enough there was a game at 1:30pm that day (it was a Saturday). I asked the boys if they wanted to go, and they were all for it!

Saturday the 18^th came and it was a beautiful day and we made the drive up. What I found outside the stadium was just a really neat atmosphere, as there were a bunch of houses set up as party central for the duration of the series. Unfortunately, the NCAA considered this “riff raff” and getting rid of it was part of the inspiration to build the new stadium. But I digress. It was just really cool outside of Rosenblatt Stadium. Rosenblatt itself was a cool stadium. And I was able to score second row seats just past third base. We had settled into our seats to watch the California State-Fullerton Titans take on the South Carolina Gamecocks. The pitchers had warmed up in the bullpen and were heading towards the dugout. As he made his way towards the dugout to get ready to start the game, South Carolina catcher Landon Powell tossed this ball to 7-year-old Brent. The game had not even started and our day was already made!

What a day! Sunny, not a cloud in the sky. No humidity and a high temperature of about 80 degrees. The perfect Chamber of Commerce day! Cal State-Fullerton would go on to win the game 2-0. I found out later that this was the first shutout at the CWS in over 10 years. I hit a home run that day with this trip. Fullerton would go on the win that series. The next year, my alma mater, Baylor, made the CWS so the boys and I had to go see them play. And a tradition was born. I ended up taking the boys to Omaha 8 times for CWS games. These were some of my most favorite and treasured memories of their childhood. I am so glad I got to see 7 games in Johnny Rosenblatt Stadium. Rosenblatt is a quirky, yet charming ballpark. I made one game in the new stadium. It is a beautiful stadium, but it lacks the charm of the old ballpark. For one absolutely perfect afternoon, I got to forget about life for awhile and I loved it.

This game also helped restore some of my lost love for the game of baseball. I had soured on the game after the strike in 1994 and the subsequent decline of my beloved Royals. But watching the way these kids played the game was a joy. All out hustle. They all ran out those ground balls. They sprinted to and from the dugout at the start and end of every inning. Just a lot of spirit in those young men that day. That reminded me of why I had loved this game from the time I was a kid of about 3 or 4 years old. Thank you all for reading.

A Long Strange Trip - Twenty-Five Years

 

June 18, 1999. Worst day of my life. Twenty-five years ago today, my wife Angie, the love of my life, died in an automobile accident. I was told the day after her funeral that I would grieve her death the rest of my life. History has proven that to be true. The twenty-five years since have been one long, strange trip. I do not write this to elicit sympathy. Please do not express any to me. Twenty-five years on, the words will not be comforting, but will only wear on me. Thank you. I do not write this to remember a damn death. I have made my peace with it all. I write this to remember her, and to remember the extraordinary acts of kindness shown to me by so many. I hope that you, as my reader, will maybe gain some perspective. Finally, I write this to recall some of the ways that grief really messed with me. There is no way to prepare for grief. It overwhelms you, it robs you, and it replaces a lost innocence with a sinister journey that takes way too much time to complete.

I want to start off by giving thanks. I am so grateful to have spent 11 years with Angie, the last 8 as her husband. She understood me, she “got” me. Yes, I was probably difficult at times, a tortured soul of sorts. She loved me anyway. I received more love from Angie during our 11 years together than many people receive in a lifetime. For that, I am eternally grateful. I hope the love I gave back to her was sufficient. She also birthed two of the best sons any man could hope for, and I am so proud of them both. For that, I am also eternally grateful. Do I wish I could have her back? More than you could ever know. I know that will not happen and I am at peace with that.

The afternoon of the accident, I experienced one of the greatest acts of kindness I have ever known. One of the local churches had a ministry that would send people to hospitals to comfort families like ours. Imagine getting a call about 3:00pm on a Friday afternoon asking you to go to the hospital in Jasper, Tennessee to comfort a family from Kansas that had two small kids and whose mother had just died in an accident out on I-24. They came, they played with my kids and kept them distracted and kept them away from the other patients in the hospital. The pastor’s wife came to the hospital, sized up the situation and could see that we would need an overnight change of clothes (the wrecked car with our suitcases had been towed to a salvage yard that was closed for the night). She went to Wal-Mart and got some stuff for the boys and let me take some of her husband’s clothes since he and I were about the same size. I still have the shorts she gave me as a reminder of all the people there and the tremendous kindness and generosity they showed me.

I look back at the early days of my grief and wonder how I have made it this far. Many acts of kindness helped. People from my Sunday School class brought dinner over for the boys and me. I remember a childhood next-door neighbor of mine and one of her best friends brought me dinner one evening. I was so absorbed in my own grief and so numb that I was undoubtedly lousy company. They stayed with me anyway and ate dinner with me that evening. Another time, I remember a long-time friend took me to a Royals game. Nothing better in the summertime than a ballgame. Again I was numb and absorbed in my own grief and was terrible company. Today, I can look back on those times and realize just how bad I was and just how tremendous the kindness and generosity of friends really was in those days. There were so many other instances of kindness displayed towards me and I will forever appreciate it. Thank you to all who showed kindness and grace to me in those days.

Grief will mess with your mind in ways that you cannot even fathom. There is simply no way to overstate this. There is no way to prepare for grief because it is overwhelming. Some of your thoughts during these times are appalling. I consider myself to be a man of Christian faith, and that was really messed with. There were times when my “prayers” consisted of me yelling at God. I was pissed. I had been handed a life that I wanted no part of, and for which I felt wholly unqualified. I never wanted to be widowed. I never wanted to be a single parent. Yet there I was in that life that I never wanted. In Genesis 2:18, “The Lord God said, ‘It is not good for the man to be alone. I will make a helper suitable for him.’” Boy, did I let God hear about that! In the midst of all this, I had a friend tell me, “If you keep yelling, God will keep listening.” Such comforting words that I will never forget. Who am I to tell God these kinds of things? I am sure that I had many other inappropriate thoughts during this time that leave me appalled at myself today. These days, I am sure grateful to worship a forgiving God.

I need to back up a bit here. I mentioned above that I never wanted to be a single parent. I meant that. There were many times where I looked at my sons as objects that trapped me in some hopeless rut. I would never wish single parenthood on anyone. But, I love my two sons more than anything. They were cheated so early on. To their credit, they never used their Mother’s death as a crutch. Throughout their childhood, I could see times where Angie’s absence stole a piece from my boys. And that pissed me off. I cannot imagine my life without them. I love them more deeply today than I ever thought possible.

I have mentioned anger, and I felt plenty. I learned all about the five stages of grief. Denial, Anger, Bargaining, Depression, Acceptance. After the tragic death of a loved one, you immediately go into denial. It is a wonderful coping mechanism that helps protect you from harm and keeps you from feeling. You need that in the immediate aftermath. I found that the next three stages are fluid. I never went chronologically from one to the next. I might find myself saying I’d give it all back in a heartbeat to have her back. The next day I might find myself angry. Even as you are going through all these stages, you want your life to be “normal.” Your life will never be normal again. As you seek out your new normal, you will find that life does start to feel normal again. But only in pieces. Life will be going well, then bam! Something will hit you out of the blue and it will knock you back. One step forward, two steps back. Gradually, this will transition to two steps forward, one step back.

Grief left me feeling incomplete, unlovable and with the feeling of sticking out in a crowd for all the wrong reasons. I felt like a damn freak show at times. For me, the biggest part of me had been ripped away, never to come back. I had invested many of my hopes and dreams for the future in her. Just like that, it was all gone. I didn’t give a damn about anything in those days. It was impossible. Quite honestly, those two boys of mine, those who made me feel trapped at times, kept me going. I knew that regardless of what happened, they deserved a future. And their best future was going to be with their Dad around to be a part of their lives. That kept me going.

I have a cousin who once gave me some wonderful advice about dealing with grief. She said that “it will find its place” in your life. This cousin experienced the tragic death of her 6-year-old son, so she spoke to me from a place of wisdom and experience. I have not forgotten those words. This is where I come to acceptance. It took me years to come to that acceptance. It meant coming to terms with and accepting a life that I never wanted, a life that I hated. That was the first step in true acceptance, and that was hard. When you are deep in grief, you do not think in terms of “this gives me the opportunity to build a new life, this give me a do-over.” You are so focused on what you lost. In my case, what I lost was tremendous, and I still had (hopefully) a long life ahead of me. I have come to accept this life I have now. It is not anywhere close to where I want it to be, and it never will be. But I can go forward from here, everyday, and hopefully make a life that will bring me happiness and joy.

As I remember these last 25 years, I am reminded of the words of one of my favorite hymns:

When peace like a river attendeth my way

When sorrows like sea billows roll

Whatever my lot, Thou hast taught me to say

It is well, it is well with my soul

I hope that you, the reader, found some blessing in all this. This was tough to write, but also a labor of love. I knew I had to write this. Angie deserves a tribute.  Plenty of memories come back on a day like this. That is what makes this tough. I am so fortunate that I was married to someone who was so unforgettable to me. And I wish she was still here with me. Blessings to all.

President's Day - Who Are These Guys?

 

As we celebrate President’s Day, I will take this opportunity to make some of my observations of these men, and their humanity and how it has played a vital role in their performance in office. I am no historian, I am just a guy who has had a lifelong fascination with the office and the men who have occupied it. There is no perfect President. Every one of these guys was corrupt in some manner or another. Some much more so than others. But what makes a good President to me is one who gets the big things right. The number on big thing is the economy, the second is foreign policy and advancing American interests worldwide. Regarding the economy, I do not want a President that seeks to micromanage the economy, but one that creates favorable conditions for economic prosperity for now and after he leaves office.

I will keep my observations to the Presidents who have occupied the office during my lifetime. I was born during the Lyndon Johnson Presidency. We have seen the whole gamut of humanity from happy and optimistic to paranoid and prickly. I do not attempt to rank these men from best to worst. Just to comment on their humanity, their strengths and weaknesses and how that affected the mindset that they brought to the office.  Without further ado, let’s get started.

The Paranoid President – Richard Nixon Nixon is quite possibly the most intellectually gifted man to occupy the Presidency during my lifetime. I will watch YouTube interviews that he did back in the 1980s and be mesmerized by his thoughtfulness and his overall intelligence. Yet he thought the world was out to get him. He was not altogether wrong, as it is well known that the Washington press hated him. But it led him to do things like put together an enemies list, raid journalists offices, and ultimately try to bug the phones at the Democratic National Headquarters at the Watergate office complex. It was that last act that ultimately brought down his Presidency. I know it is hard to believe but some historians have speculated that Nixon might have gone down as a great President if it were not for Watergate. I do not completely agree with this analysis. While he was the best at foreign policy, his domestic policies leave a lot of room for doubt.  His appointment of Arthur Burns as Federal Reserve chairman – and Burns’s easy money policies – led to the record high inflation that we would see in the late 1970’s.

The “Do Nothing” President – Bill Clinton Obviously, those of us who remember the 1990’s would see the “do nothing” label as a misnomer. We all remember that there was a lot of “doing” going on the White House during those days, mostly between the President and any female not named his wife. And this cost him a lot of political capital with the American people. Clinton came to Washington with an ambitious agenda, but when the Republicans took both houses of Congress in 1994, that put it all on hold. The overall lack of legislative accomplishment actually helped his Presidency. He inherited a strong economy, and it remained strong all throughout his Presidency. Clinton deserves credit here because – and this is saying a mouthful – he did not screw it up. Clinton was a great politician. He knew how to read a room. He was great at both speaking to a large audience and one-on-one. He was the master at finding a long line and getting in front of it. Because he didn’t screw it up, I ultimately rate him as an above average President.

The Underrated President – Jimmy Carter  Jimmy Carter is widely viewed as having a failed Presidency. Most notably, Carter took the blame for the inflation of the late 1970’s, which topped out at about 12.5% in 1980. However, Carter took the single most significant step to beating back that inflation by appointing Paul Volcker as Federal Reserve Chairman in 1979. Carter was clearly the most good and decent man to occupy the office during my lifetime and perhaps of all time. He did some remarkably good things as President. First on the list was the peace agreement that he brokered between Egypt and Israel. A peace agreement that undoubtedly went a long way towards costing Egyptian President Anwar Sadat his life. The Carter Administration was also responsible for deregulating the airline, trucking and brewery industries. Funny that Carter’s successor, Ronald Reagan, was seen the Great Deregulator, yet that title belongs to Carter. I view all these moves as being positive overall. Carter had his downside, as he was prickly and difficult to deal with, even with his fellow Democrats in Congress. He also made some notable mistakes at the beginning of the Iranian Hostage Crisis that prolonged that crisis far beyond what was needed (although he deserves credit for getting the hostages home alive). Finally, his overall leadership skills left something to be desired.

The Happy President – Ronald Reagan A few years ago my Dad took a trip to California to visit my sisters living out there and a trip to the Reagan Presidential Library was part of that trip. The overwhelming observation that my Dad had of Reagan after visiting the library was that Reagan was a genuinely happy man. That was not the type of observation that came naturally to my Dad, so this struck me. We do remember Reagan being endlessly optimistic. This upbeat, optimistic outlook undoubtedly served him and this country well during the early days of his Presidency as the country went through a horrifying recession in 1980-82. Actually, a double dip recession as a result of Federal Reserve Chairman Paul Volcker’s fight against inflation. The recession would have happened whether Reagan won in 1980 or Carter was re-elected. I do not think that Jimmy Carter could have effectively led the US through that recession. Reagan did. By 1982, inflation was down to 4%, which is about where it would remain throughout the 1980’s. Of course, we really saw Reagan’s good humor in the immediate aftermath of a failed assassination attempt in 1981, an attempt that left 4 wounded including the President. His relentless belief in America, and in the American free enterprise system bordered on complete idealism. It was this idealism that led to the United States winning the Cold War against the Soviet Union, and led to the INF treaty in 1987 that would eliminate an entire class of nuclear weapons. Reagan deservingly gets a lot of credit for winning the Cold War, but not nearly enough. He saw to it that it was won relatively peacefully, as we never engaged the Soviet Union in a direct confrontation, and the regional spats never spread into a large global conflict. Finally, Reagan was never seen as an intellectual of any kind, but he had the best leadership skills of any President of my lifetime. What I will most remember about Reagan was that in 1980 and throughout his Presidency he told us that America’s best days were ahead of it, not behind it. In 1980 that was a very difficult thing to say. From 1973-1980, America lost a war in Southeast Asia, saw a Presidency brought down in utter disgrace, endured record breaking inflation (and loss of tons of purchasing power in spite of record income gains), an embarrassing hostage situation in Iran and so-called “intellectual elites” saying that our children and all future generations of Americans would have to get used to lower living standards, and that Communism was a competing, but equal, economic system to American free enterprise. History has been kind to Reagan, not so kind to the so-called “smart people” Obviously, I rate Reagan an above average President.

The Childish President – Donald Trump  No matter what you may think of a President’s policies or his overall demeanor, the very minimal expectation that we should have of any officeholder is that they act like an adult. Instead, we elected this man who disrespected the military service of John McCain, who spent 5 ½  years as a POW in the Hanoi Hilton, one of the world’s most horrifying POW camps. He mocked the disability of a handicapped reporter, in an utterly gross display. Trump has no governing center. He is a narcissistic authoritarian. He is not a conservative, not a liberal, not really an anything. He will do what is best for Trump. He will sell his supporters down the river in a heartbeat if he has to. And they think he’s the greatest thing since sliced bread? He said we would get sick of all the winning? I am still wondering where it all is. A great leader brings out the best in all of us. He brings out the worst in all of us, both his supporters and his opponents. I never admired him as a businessman, he has zero leadership skills. Quite honestly, his Administration probably did some good things, but it all got lost in his inflammatory and damaging rhetoric. Needless to say, I rate him a below average President.

Ten Things For 2024

 

Ten Things For 2024

 

As some of you may know, I like to do a “Ten Things…” for the upcoming year. I draw this inspiration from a man named Byron Wien would compile a list of “Ten Surprises” for the upcoming year. I first ran across his work when he was a big shot at Morgan Stanley in the 1990’s. Unfortunately, Mr. Wien passed away in October at the age of 90. So now you, my dear reader, are just simply stuck with me. In the same vein as Mr. Wien, I will concentrate on the financial markets, although with 2024 being a presidential election year, I will have a few comments about that. With all that in mind, here are my ten things:

1.      Inflation Is Not Dead Yet Over the past 18 months, inflation has really dropped, going from a high of 9.1% in June 2022 to a current level of 3.1%, per the latest report from the Bureau of Labor Statistics. Fed Chairman Jerome Powell is being hailed as a hero for bringing down inflation without creating a recession. I am predicting that inflation will be higher at the end of 2024 than it is today. Why? Why am I seeing that respected stock market investors, strategists and commentators are recommending stock market sectors like metals, commodities, real estate and energy? These sectors scream inflation to me. When the greatest stock market investor of all time is making significant purchases of an oil stock, that is going to get my attention.

2.      We might get one or two interest rate cuts in early 2024, but by the end of the year, speculation will center on when the fed will raise rates. If inflation indeed does rear its ugly head again 2024, can talk of interest rate hikes be far behind? Right now, the talk is of interest rate cuts, as the fed put in its latest minutes. I have never bought into a rate cut at this time. I still think the money supply is too high.

3.      The one word to describe the economy: uncertain. Right now, everything is humming nicely. There is a scary underside to all this. The consumer is holding record levels of credit card debt, record levels of mortgage debt and record levels of car debt. Notice a pattern? Credit card debt is the scariest to me. A couple of years ago, I wrote that I thought the economy would be in a recession by now. I am clearly wrong on that, but why? Employment has held up better than I thought it would. But this economy is literally a house of (credit) cards. If employment cracks, it will fall fast and it will fall hard. It is hard for me to say that the good times will keep on rolling. However, if employment holds up, things will continue for awhile. I am not sure which way to lean on this.

4.      The AI bubble will burst. The stock market has been all about The Magnificent Seven this year. These stocks are some of the leaders at the cutting edge of the latest technology craze, Artificial Intelligence. Alphabet (Google), Amazon, Apple, Meta Platforms (Facebook), Microsoft, Nvidia and Tesla have combined to account for about 70% of the S&P 500 index return this year. The index is up nearly 26% this year. Without the Magnificent Seven, the return would be about 6 – 7%. If inflation comes back (see #1 above), these seven stocks will be in for a big ride down. Usually such extremely narrow leadership is quite bearish for stocks in general, and especially for the leaders.

5.      The world will be relatively quiet. This is coming from a purely American centric point of view. War continues in Ukraine and in the Middle East.  None of the parties involved seemed interested in any sort of peace. So, the tragedies and atrocities of war go on. But I do not see anything headline grabbing occurring in these places.

6.      President Biden will not be the Democrat’s nominee for President. The Presidential election next year will be the biggest news event of the year in this country. Right now, the President’s poll numbers are in the high 30’s. And that is with a relatively strong economy and very low unemployment. Polls starting to show the President losing the election next year are deeply concerning to Democrats. Vice-President Harris will not ascend to the nomination. It will be someone else, with the name I hear a lot being Gavin Newsom.

7.      Travis Kelce will get engaged to Taylor Swift if you care about that sort of thing which I do not.

8.      The San Francisco 49ers will win the Super Bowl if you care about that sort of thing, which I do. Not sure who they will beat, but the one team I know they will not beat is the Kansas City Chiefs. Too many distractions, too many issues for the Chiefs this year.

9.      The Kansas City Royals will win the American League Central in 2024. The Royals have made some interesting additions to their pitching staff this offseason, while nobody else in the division has done anything significant. Going from 56 wins to division championship is a tall task, but not impossible in this case.

10.  2024 can be a great year for all of us! And with that I close this out. May 2024 bring you peace, health and prosperity. Not just for you, but for your family and your friends. Merry Christmas and Happy New Year everyone!

Perspectives On Long-Term Investing

 

“Predictions are tough, especially about the future.” Yogi Berra

On April 22, I took to these pages to reassure people about their investments after a big drop in Dow Jones Industrial Average (DJIA) that day left the index at 33,811. Today, the DJIA closed at 33,761. The obvious conclusion from this is that the index has not done much in the last 3 ½ months. If you have followed the markets, you know they have been anything but calm and stagnant.  The DJIA proceeded to go from 33,811 to below 30,000 and now has rallied back up to its current level, all in 3 ½ months! Normally, the stock market is calmer than this.

Which brings me to my question in all this: What does a long-term investor do in such volatile times? When I think of a long-term investor, I think of Warren Buffett and his company, Berkshire Hathaway. Berkshire Hathaway owns large holdings of various stocks. Berkshire’s well-known holdings include Apple, Coca-Cola, Bank of America and American Express. Some of these holdings have been in the company’s portfolio for approximately 30 years. Mr. Buffett will tell you that when he buys a stock, his preferred holding period is forever. Berkshire’s notable recent purchases include stakes in Occidental Petroleum and Chevron. The company is required to file a Form 13-F every quarter with the Securities and Exchange Commission (SEC). The 13-F’s are widely anticipated, followed and analyzed. What we saw from Berkshire during the first half of the year while the market was dropping was a firm that was doing plenty of buying and not any selling.

That is one of the lessons here. The big drop in the indexes offered up a chance to buy some high-quality companies at reasonable prices. A sharp investor will take advantage of such opportunities. Otherwise, it is just noise to the long-term investor. But it is the noise that gets investors into trouble. Their emotions will guide them to buy stocks when prices are high and sell when prices are low. This is the exact opposite of what smart investors like Mr. Buffett do. Mr. Buffett will tell you to be greedy when others are fearful and fearful when others are greedy. Most will be greedy when prices are high, and fearful when prices are low. While others rush to sell, he picks through the pile to find those gems that are cheap. When you are presented with that type of market scenario, one that offers you the chance to buy a great company for a reasonable price, you take it. These are the types of situations that could yield a return of 5x-10x-15x your money over time.

Unfortunately, those types of opportunities are not so obvious at the time. They do require an observant eye, nerves of steel and a faith that knows these great companies will bounce back. This is not for most people. However, many people invest regularly through a 401(k) or some kind of investment program. The long-term investor stays the course through the drops. If you have stayed the course through the market drop this past spring, you would have seen your investment rally to the point where it had regained all its lost value. A short-term price chart of stock prices can be all over the map. After all, what has the market done in the last 3 ½ months, right? But the long-term price chart only goes one way-up. I cannot predict future stock prices. As Yogi Berra told us, predictions are tough, especially when they are about the future. He also told us that the future is not what it used to be. Future stock prices are not guaranteed to go up, but I am willing to bet that they do.

Perspectives on Inflation - 2022

Today, the government reported the Consumer Price Index (CPI), the popularly reported number for inflation, at 8.3%. What does this mean? What we as average people know is that we are paying more for the stuff we buy, especially gasoline and food. This paper will share some of the root causes for inflation. I do not have the solution. What I do know is that much of the commentary I read on inflation is appalling. This includes commentary from so-called “experts.” My hope is to educate the reader on inflation. 

We have to start at the beginning. What is inflation? The dictionary defines inflation as, “a general increase in prices and fall in the purchasing power of money.” While technically correct, the definition does not get to any cause. A better definition, one I read many years ago, holds that “inflation is too many dollars chasing too few goods.” It gets to the causes of inflation: 1. Too many dollars; 2. Too few goods. Too many dollars is the key component. The great economist, Milton Friedman, once said that “inflation is always a monetary phenomenon.” When I refer to too many dollars, I am speaking of the money supply. “Too many dollars” refers to excess money supply floating around in the economy.

There are 3 basic definitions of money used by economists, called M1, M2 and M3. M1 is the narrowest and most liquid definition of money, M3 is the broadest and least liquid. The Federal Reserve no longer reports M3. The components of the money supply are as follows:

                M1: Currency plus checkable deposits. Travelers checks fall here but are seldom used.

                M2: M1 + short-term time deposits (such as CD’s), and money market deposits.

                M3: M2 + long-term time deposits

When economists speak of the “money supply” they usually refer to M2. When I speak of the money supply throughout this article, I will be referring to M2.

As you might have guessed, when I think about inflation, I focus like a laser on the money supply. Normally, the money supply growth should be in line with economic growth. If the economy grows 3% per year, and the Fed targets a 2% inflation rate, the money supply should grow by 5% per year. Now, if the money supply grows by 7-8% per year while the economy grows by 3%, this imbalance likely will not affect the overall economy, but the imbalance will need to be corrected in a reasonable amount of time. If done successfully, the Fed will engineer what is known as a “soft landing,” where they can slow down the economy a bit without sending it into a recession.

When more money is added to the system, each dollar becomes worth less than before. Policy makers will sometimes lower interest rates as an incentive to put more money in the system. Interest rates are the price of money. As rates drop, more money gets put into the system and each dollar’s value drops. With more money in the system, and with the value of money dropping, it takes more dollars to buy the same basket of goods as before. Hence, inflation is created.

What we have going on today is a great imbalance between economic growth and money supply growth (too many dollars). It started in 2020 with the great stimulus actions put in place by the federal government in response to the COVID-19 pandemic that swept the globe. During 2020, the money supply grew by 24.8% while GDP contracted by 3.4%. The gap was further increased in 2021 as the money supply grew 12.3% and GDP grew by 5.7%. While the overall inflation was just 1.4% in 2020, it is no wonder that the CPI jumped to 7.0% in 2021, and now stands at a 40-year high through the first 1/3 of 2022.

It is not just the money supply that creates inflation. Like the inflation of the 1970’s, there are supply shocks that spike prices (too few goods). In the 70’s, it was energy. Today it is semiconductors that go into a broad swath of products that we use. We see this described today as “supply chain” issues, but these are shocks to the system. In this case, I do not believe that the supply-chain issues will work themselves out quickly. It will take time to bring on board additional capacity to relieve supply shocks. Many of the semiconductor companies that are experiencing supply chain issues have cautioned that they expect these issues to last another 12-24 months.

It is not just the semiconductors. Prices will creep up all across the economy due to the increased availability of money. The next waves of inflation that hit the broad economy will likely be rents (shelter) and wage inflation.

How do we break this inflation? The model for this was served up by Federal Reserve Chairman Paul Volcker in the 1979-1982 timeframe. Unfortunately, this will involve a lot of economic pain. Economists are starting to call for a recession beginning in the late 2023, early 2024 timeframe. I fall into the camp of those who believe that we will see such a recession. Given the large disparity between money supply growth and economic growth the past couple of years, the recession could be severe. Volcker broke the back of inflation by raising interest rates. In 1980, inflation ran at 12% for the year. By 1982, inflation was at 4%, which is where is largely remained throughout the decade. However, in between 1980 and 1982 was the worst recession that we had experienced since the Great Depression (the 2007-2009 Great Recession eclipsed it). I consider Mr. Volcker the greatest Fed Chairman of all time because of his relentless action to break inflation. Current Fed Chairman Jerome Powell has indicated that he will likely follow the path that Mr. Volcker charted, though not near to the same degree. As I see it, Mr. Powell has no other choice.

A few final thoughts on this inflation. It will likely be the number one issue in the mid-term elections this fall. Unfortunately, what the politicians have to say about it will likely amount to a bunch of half-truths at best and outright lies at worst. Sad as this is to say, they will say a lot about this issue from a position of either ignorance, or just sheer stupidity or both. With that in mind, here are three observations to keep in mind to filter out the noise:

1.       It is not all Joe Biden’s fault. Yes, he has done some things to fuel this inflation, but the significant portion of the blame falls elsewhere. Sorry Republicans and Conservatives.

2.       Corporate greed has nothing to do with inflation. Sorry Democrats and Progressives.

3.       Oil is a special case. Oil is a global commodity. When a 13-nation cartel (OPEC) controls 75-80% of the world’s supply, and all international transactions are consummated in US Dollars (which have declined due to the large growth in the money supply), you have a very special situation. OPEC and the strength/weakness of the US Dollar largely determine oil prices.  War between Russia and Ukraine does not help either. The declining dollar plus geo-political instability in Eastern Europe have come together to send oil prices soaring.

This inflation will be with us for awhile. The actions needed to relieve the inflation will take time, likely several years. We will get through this. I do believe in people’s abilities to work their way through these kinds of troubles.