Should Anything Stand In The Way of Making Money?

Last evening, I took issue with this tweet of a financial blogger whom I had followed for his investment insights (Cullen Roche):

The idea of a “sin stock” never made sense to me. Who is the arbiter of whether a company makes the world worse or not?

Cullen went on to say:

The point I am getting at is that if these companies were truly sinning then the economy would divest them. Their stocks would go to $0.

[I]f they operate legally & have customers they’re not sinners.

There you have it, Vera: the market is the arbiter of what’s right and wrong.

I’d feel a whole lot better if I thought Cullen was an outlier in this regard. But I’ve seen too much. And lived through too much. I know better. I know that, often, the market — more specifically, money — is the arbiter.

Who’s to say what makes the world worse? Or better?

Some people say, “Let the market decide!”

Others say, “There is such a thing as morality and ethics that should constrain the markets. And individual choices.”

Today, I am so thankful you have the parents you do.

The Boomers’ Last Hurrah

About 10,000 Baby Boomers (those born between 1945 and 1964) retire each and every day in the United States. And now a large number are reaching age 70 each and every day. Our last hurrah is about to unfold.

The aging of my generation will produce a couple of indisputable consequences. First, outside of health care, the massive wave of retirements will depress consumption — that is, spending — in a very significant way, which will limit growth and exert deflationary pressures.

Second, this retirement wave will exacerbate our pension mess by increasing pension and Social Security costs dramatically. This comes against a backdrop of underfunded plans.

Despite what the right-wing propaganda machine persistently spews forth, Social Security is a relatively easy fix. But the state and private pension fix isn’t.

State and corporate pension plans are grossly underfunded. Some have already failed. More failures are to come. In short, some will renege on their obligations and retirees will not be receiving the monthly checks they’re expecting. (The only “bright”spot for the pension plans is that Americans are now dying earlier, thereby reducing the plans’ payouts.)

Saving some of the public systems will require tax increases, which will further suppress consumption.

Third, equity prices and, therefore, investment portfolios, will take a hit. Take General Electric for example. GE’s underfunded pension hole is $31 billion. Yet the market has yet to fully price into the stock this huge deficit.

Many other companies have large unfunded pension commitments. This will not be good for asset values and, by extension, individuals’ and endowments’ portfolios. Less spending. Deflationary pressures.

There are 72 million Boomers in the U.S. My generation had a major impact on our economy and society as we moved through adulthood. Don’t expect the impact to be any less as we move through retirement. It’s just that the impact will be very, very different.

When Debts Are Fun, and When They Aren’t

“Some debts are fun when you are acquiring them. But none are fun when you set about retiring them.” – Ogden Nash

I don’t mean to beat a dead horse to death, Vera. But I know you’re going to be bombarded with people, banks, credit card companies, stores and others encouraging you to borrow. And making it really easy for you to borrow.

Why wait when you can have it now? And you can have it all!

That’s the message. What you’ll never hear, however, is anything about the pain of paying it back (retiring the debt). And of not having enough savings to become financially independent and enjoying the freedom that comes from that.

Borrowing has come to be the American way. I’m not really sure why. But I am sure that excessive debt — and, in particular, the incurrence of huge amounts of unproductive debt — have caused all kinds of problems for people, companies, and local and state governments.

Yet we seem never to tire of debt. In fact, we borrow even more.

Oh, well, I suppose you’ll figure out what’s best for you. Just try to remember Mr. Nash’s point when you’re considering whether to get into debt: there is nothing fun about repaying loans.

That’s not to say that all debt is bad. Indeed, debt for productive uses can be good. Debt that yields a robust debt-income stream can be good.

But much of the debt incurred doesn’t. Paying that back will hurt the most.

Generational Theft

In my lifetime, we have witnessed the greatest intergenerational transfer of wealth ever seen. Seniors have benefited. Our youth have taken it on the chin.

Oddly, even so-called conservatives don’t seem to mind this massive redistribution of wealth. It enjoys broad support. The reasons are obvious; 1) older people vote at a higher rate than young people and 2) people (both voters and their elected representatives) tend to vote their self interest.

Hence, at least thus far, the Boomers and their parents’ generation are doing just fine, the recipients of massive transfers; the youth are massively in debt and on the hook for trillions of obligations owed to what I call the dying generations.

I’m not going to get into the numbers here. If you want to catch a glimpse of them, you can watch this video of renowned investor Stanley Druckenmiller (a former Pittsburgher so he must know what he’s talking about!).

But you shouldn’t have to be convinced. Just think for a moment of the massive transfers that take place in the form of Social Security (people take out far more than they pay in), Medicare, special benefits extended to seniors by state and local governments (e.g., real estate tax breaks) and the less visible countless tax breaks and subsidies that inured mainly to the benefit of the Boomer and their parents’ generations, both in earlier times (education in particular) and now as they age and die.

The result? Continue reading

Investing and Financial Planning in an Era of Uncertainty, Risk and Illusion

For anyone who’s managing their own investments, or who’s planning for eventual retirement, Robert Shiller made some important points in an article published last Thursday:

The closest we can come to Trump among former US presidents might be Calvin Coolidge, an extremely pro-business tax cutter. “The chief business of the American people is business,” Coolidge famously declared, while his treasury secretary, Andrew Mellon – one of America’s wealthiest men – advocated tax cuts for the rich, which would “trickle down” in benefits to the less fortunate.

The US economy during the Coolidge administration was very successful, but the boom ended badly in 1929, just after Coolidge stepped down, with the stock-market crash and the beginning of the Great Depression. During the 1930s, the 1920s were looked upon wistfully, but also as a time of fakery and cheating.

Of course, history is never destiny, and Coolidge is only one observation – hardly a solid basis for a forecast. Moreover, unlike Trump, both Coolidge and Mellon were levelheaded and temperate in their manner.

But add to the Trump effect all the attention paid to Dow 20,000, and we have the makings of a powerful illusion.

Not a day goes by that I don’t ponder what’s around the next corner (economically and financially). Or how investments and assets should be deployed and managed.

It seems a few things are indisputable:

  1. There is above-average uncertainty today.
  2. Risk is greater than acknowledged or priced into the market.
  3. Illusions are dangerous underpinnings for decision-making.
  4. Assets can lose value (for a long time or permanently).
  5. Our bias is optimism.

That’s life, Vera. Uncertainty. Risk. Illusions. Unknowns. Biases.

Plan accordingly. And choose wisely.

The Price To Pay For Spending Tomorrow’s Income Today

When you borrow, you’ll pulling spending forward, that is, you’re spending tomorrow’s income today. Sometimes that’s smart; sometimes it isn’t. In fact, debt can be a killer.

It can kill your retirement. Your security and well-being. Your marriage. Your job. Your dreams. Even your life (suicide rates rise during recessions and periods of high unemployment).

Yet America is in love with debt. But perhaps it’s a toxic love affair. Perhaps, Vera, you’d do well not to fall in love with debt as so many of your fellow Americans have done.

Not all debt is bad though. Continue reading

Why I No Longer Contribute to Most Nonprofits

For most of my life, I thought of nonprofits as charitable institutions. I learned I was wrong. Later, I stopped writing checks to most of them.

My eyes were first opened to the nonprofit world when, as CEO of a large corporation in Philadelphia, I served on a United Way committee. United Way is the conduit through which corporations and individuals fund local nonprofits, which are usually billed as charitable organizations (whether or not they truly are). That was my first glimpse behind the nonprofit world’s curtain. Here is what I found: Continue reading

Invest in the Right Assets

Many Americans invest in assets like McMansions, fancy cars and tons of stuff around the house they really don’t need.

At least I assume they don’t need much of it or our countryside wouldn’t be peppered with storage facilities. We just completed a long trip to see you in Indy, Vera. It’s amazing how many storage facilities we saw along the way, even in communities that didn’t look particularly well off.

In any event, here’s my perspective on the subject of investments: buy assets that produce income. Continue reading