The Investment Thread

[nate82]

5 hours ago, igor67 said:

I've been struggling for a good medical metaphor, but couldn't find one that didn't sound overly ridiculous. Trying to fight inflation with primarily interest rates is not ridiculous but it is incredibly imprecise at best when most of the causes are well removed from immediate lending. On the positive side a lot of fake pure inflation inducing value has gone out the window with the crypto collapse, so that a helpful little deflationary piece. Now wouldn't be the ideal time, but speculation tied to excessive stock market valuations is a perpetual inducer of end of cycle inflation spikes and looking at increasing taxes or fees on high income or capital gains would be helpful in the future. Ultimately though the lesson of the last couple of years is that the free market isn't particularly adept at adapting on the fly. Which is on some level a fair reflection that change is challenging regardless. I do look forward to some different types of calculus going forward that think more about robustness both on the business side and on the policy side.

We don't have a free market and one of the key contributors to inflation is government spending.  Increasing taxes would not be a good idea at this time or any time in the future.  There are only two countries that follow a free market and that is Switzerland and Singapore.  Switzerland currently has an inflation rate of 2.9 and Singapore has an inflation rate of 5.4.  So free markets do tend to regulate inflation fairly well. 

Studies have found that lowering taxes actually increases revenue for the government while increasing taxes lowers revenue.  There are less people who pay the higher taxes and normally just avoid them through loopholes.  The only way you can increase revenue on taxes is by taxing the middle and lower class more.  This has been proven in every European state.  The majority of the taxes that the European countries get their revenue from are the lower and middle class.  While the European countries have higher upper class taxes the revenue from those is lower than that of what the lower and middle class provide even at a 90% tax rate.  The higher the tax rate goes the less and less people you will have to tax thus the lower and middle class also see an increase in their taxes to replace those loses in revenue.  

The best option to lower inflation would be to lower government spending.  By that I mean slashing the budget by nearly 75% of what it is now would be a good start.  If you are serious about getting inflation under control you have to make cuts in the current government spending.  This is not going to happen so we are going to be stuck with 6-8% inflation until our government wakes up and actually does the right thing.  

[homer]

Inflation is a global thing right now. The US inflation rate is not that out of line with other countries. UK just announced 9% inflation rate. 

[nate82]

4 minutes ago, homer said:

Inflation is a global thing right now. The US inflation rate is not that out of line with other countries. UK just announced 9% inflation rate. 

That doesn't matter if it is in the same area as other countries it is still way to high.  The US needs to get inflation back down to the 4-6% marks.  Preferably 4 or below is the perfect spot to be sitting at.  The rate of inflation needs to drop by about 3-5% otherwise it is going to be a huge problem that no one wants to see or experience.   

[Fear The Chorizo]

2 hours ago, homer said:

Inflation is a global thing right now. The US inflation rate is not that out of line with other countries. UK just announced 9% inflation rate. 

The US still drives the global economy, so when it sucks here it more or less is going to suck everywhere else with a few exceptions that for one reason or another can isolate themselves, and probably sucks even more in countries that don't produce their own energy...I believe California itself has a much higher GDP than the UK.

 

 

[homer]

4 hours ago, nate82 said:

That doesn't matter if it is in the same area as other countries it is still way to high.  The US needs to get inflation back down to the 4-6% marks.  Preferably 4 or below is the perfect spot to be sitting at.  The rate of inflation needs to drop by about 3-5% otherwise it is going to be a huge problem that no one wants to see or experience.   

Yes, we should hope inflation goes down but I don't think gov't spending has much to do with it. Given that it's global there are other factors, global factors, impacting it that aren't in the control of the US. Namely we can't stop China from shutting down entire cities and ports for weeks at a time. I think there are some things the Fed can do, but oftentimes that has to happen well in advance of when inflation hits.

[wallus]

8 hours ago, nate82 said:

Studies have found that lowering taxes actually increases revenue for the government while increasing taxes lowers revenue. 

Citation needed on this one. 

[wallus]

23 hours ago, Fear The Chorizo said:

The US labor force still isn't close to where it was pre COVID in terms of the number of people actually working - despite that really low unemployment rate...it's because a smaller percentage of the country is actually in the workforce.

 

Baby Boomers retiring is why the numbers are lower. The rate is only about 1% different now compared to then. https://www.bls.gov/charts/employment-situation/civilian-labor-force-participation-rate.htm Look at that chart, it has continually gone down as the US has aged.

[igor67]

Raising taxes without raising spending is inherently deflationary, in the same way that raising spending without raising taxes is inflationary. It's basic macroeconomic theory, the reality is that the magnitude of both of those effects can depend on a great deal of real world factors, my Door County tour guide today was saying that despite growing up in Door county and enjoying it he was moving because he had saved enough for a down payment on a $250K house but had still been priced out of the market locally. That is a lot of inflation driven by high end consumption (aka the people who can afford multiple houses). Very different then the types of things that money would tend to get spent on in other configurations. So even at a macro level there is some nuance that can be achieved in setting policy, just not a lot. And certainly very little if interest rates are the only thing you focus on. 

[nate82]

30 minutes ago, wallus said:

Citation needed on this one. 

Thomas Sowell proved this in one of his books.  

https://www.aei.org/carpe-diem/thomas-sowell-on-the-relationship-between-tax-rates-and-tax-revenues/

[wallus]

5 minutes ago, nate82 said:

Thomas Sowell proved this in one of his books.  

https://www.aei.org/carpe-diem/thomas-sowell-on-the-relationship-between-tax-rates-and-tax-revenues/

The latest tax cuts certainly have not done that:

https://www.politico.com/story/2018/02/28/tax-cuts-trump-gop-analysis-430781

"The Tax Foundation analysis stated that the tax cuts would cost $1.47 trillion in decreased revenue while adding only $600 billion in growth and savings. " https://www.thebalance.com/cost-of-trump-tax-cuts-4586645

[nate82]

2 minutes ago, wallus said:

The latest tax cuts certainly have not done that:

https://www.politico.com/story/2018/02/28/tax-cuts-trump-gop-analysis-430781

"The Tax Foundation analysis stated that the tax cuts would cost $1.47 trillion in decreased revenue while adding only $600 billion in growth and savings. " https://www.thebalance.com/cost-of-trump-tax-cuts-4586645

Neither of those links prove it to be wrong.  They are just talking about the estimates and are talking about the deficit.  You actually have to decrease spending in order to decrease the deficit which apparently our government officials don't understand.  

The basis behind cutting tax rates is to discourage people from investing in tax havens.  If you lower the rate enough to where the tax havens are not as profitable there is more revenue coming in as people will tend to pay the taxes because the other investment opportunities pay more.  When you get more people paying taxes you will get a higher revenue stream.  

Please read "Trickle Down" Theory and "Tax Cuts for the Rich" by Thomas Sowell.  

https://www.hoover.org/sites/default/files/uploads/documents/Sowell_TrickleDown_FINAL.pdf

[wallus]

1 minute ago, nate82 said:

You actually have to decrease spending in order to decrease the deficit which apparently our government officials don't understand.  

The basis behind cutting tax rates is to discourage people from investing in tax havens.  If you lower the rate enough to where the tax havens are not as profitable there is more revenue coming in as people will tend to pay the taxes because the other investment opportunities pay more.  When you get more people paying taxes you will get a higher revenue stream.  

Please read "Trickle Down" Theory and "Tax Cuts for the Rich" by Thomas Sowell.  

https://www.hoover.org/sites/default/files/uploads/documents/Sowell_TrickleDown_FINAL.pdf

Well no. With how much of a deficit/debt we have, they will need to decrease spending AND increase revenue.

 

Trickle down theory is universally proven as false. One author is not enough to disprove the countless ones that say it doesn't work. It has been tried many times and failed every single one.

[nate82]

11 minutes ago, wallus said:

Well no. With how much of a deficit/debt we have, they will need to decrease spending AND increase revenue.

 

Trickle down theory is universally proven as false. One author is not enough to disprove the countless ones that say it doesn't work. It has been tried many times and failed every single one.

You haven't read what the author is talking about.  He is not talking about trickle down theory in fact it doesn't even exist.  

From Thomas Sowell's book Basic Economics: “’Trickle down’ has been a characterization and rejection of what somebody else supposedly believed.” But “no recognized economist of any school of thought has ever had any such theory or made any such proposal. It is a straw man. It cannot be found in even the most voluminous and learned histories of economic theories.”

[Fear The Chorizo]

11 hours ago, wallus said:

Baby Boomers retiring is why the numbers are lower. The rate is only about 1% different now compared to then. https://www.bls.gov/charts/employment-situation/civilian-labor-force-participation-rate.htm Look at that chart, it has continually gone down as the US has aged.

Exactly, and because of that a smaller percentage of the US is actually in the workforce and we've been skirting around a tipping point due to prolonged economic expansion for the past 10ish years - small decreases in the labor rate percentage are significant on a macro scale when the programs supported by payroll wage garnishments are already running at a loss.  There needs to be a marked increase in labor participation of working-age adults in order to offset the group of baby boomers entering into retirement, otherwise the gov't programs (social security, medicaid/medicare, etc) don't have enough wage earners to sustain them and the whole thing implodes on itself.  That and substantial reform of these programs that likely push back the age when people can start collecting from them and limiting the amount they receive.  People on fixed incomes are getting crushed right now and it won't get better for them for a substantial amount of time.

COVID forced alot of two parent working households back to 1 parent working households because the extended school shutdowns and forced restriction on activities, and to their credit many families realized the benefits of having one parent at home running the show outweighed the benefits of two wage earners chasing their tails running errands and shuttling kids between day cares/schools/after school activities.  It's going to take awhile to unwind things economically to reach a new and sustaintable economic normal, and inflationary pressures are just amplifying the pain while we and the rest of the world start working through it.

This turmoil is all happening as jobs are still plentiful and there are still a good number of working age people who aren't choosing to fill those jobs - whether that be due to a population wide skills gap or unwillingness to perform various tasks is beside the point.  When the economy does start contracting jobs and people who are currently employed find themselves out of work, there's going to be much more economic desperation than their already is - even in the richest country on earth.

 

[Fear The Chorizo]

10 hours ago, wallus said:

Well no. With how much of a deficit/debt we have, they will need to decrease spending AND increase revenue.

 

Trickle down theory is universally proven as false. One author is not enough to disprove the countless ones that say it doesn't work. It has been tried many times and failed every single one.

"trickle down" is a phrase opponents of lower taxes came up with to villify policies that promote capital investment as a way of creating more economic opportunities for people who instead want increased government spending as a way of propping up the ground floor.  

And no, there isn't a need to increase both taxes and slash spending due to the size of the national debt - they key is to rein in the deficit to stop adding to the debt by freezing or finding ways to decrease spending for an extended period of time so revenue from existing tax policy starts making that debt look smaller in the long run.  The last round of tax cuts enacted by orange man bad were having a positive impact on increasing government revenues because the economy was thriving and expanding in 2019....then revenues actually spiked significantly in 2021 in large part to corporate tax revenues following that 2017 tax cut.  However, we unfortunately didn't see the deficit/debt benefit from those increasing revenues because government COVID policies from both political parties blew it up by cratering business growth that was driving the increased tax revenue and also printing out trillions more in debt with no way to pay for it.

[homer]

Yes, we should rein in the deficit. Looks like we are doing better in that regard this year:

[wallus]

On 6/23/2022 at 8:52 AM, Fear The Chorizo said:

 

And no, there isn't a need to increase both taxes and slash spending due to the size of the national debt - they key is to rein in the deficit to stop adding to the debt by freezing or finding ways to decrease spending for an extended period of time so revenue from existing tax policy starts making that debt look smaller in the long run.  The last round of tax cuts enacted by orange man bad were having a positive impact on increasing government revenues because the economy was thriving and expanding in 2019....then revenues actually spiked significantly in 2021 in large part to corporate tax revenues following that 2017 tax cut.  However, we unfortunately didn't see the deficit/debt benefit from those increasing revenues because government COVID policies from both political parties blew it up by cratering business growth that was driving the increased tax revenue and also printing out trillions more in debt with no way to pay for it.

Except the CBO said it would add nearly 2 trillion dollars to the debt.

"Treasury Secretary Steven Mnuchin claimed that the tax law would not only pay for itself through higher growth, but would reduce the deficit by a trillion dollars.  When asked whether these claims were true, Director Hall was unambiguous:  No.  As his testimony makes clear,  “the economy isn’t likely to grow quickly enough to shrink the budget deficit.”

CBO projected that the tax cut will add $1.9 trillion to deficits over 10 years, even after accounting for any growth effects.  We are already seeing this play out.  The deficit grew 17 percent last year and is projected to grow another 15 percent this year even as the economy grew faster.  The idea that tax cuts for the wealthy and corporations would allow us to grow our way out of debt – one of Republicans’ favorite myths – has proven incorrect once again. 

https://budget.house.gov/publications/report/cbo-confirms-gop-tax-law-contributes-darkening-fiscal-future

So no, not "orange man bad". It's things that have been tried before and didn't work then and won't work now.

Neither side really gives a crap about reducing the debt/deficit. 

[wallus]

On 6/23/2022 at 8:38 AM, Fear The Chorizo said:

 There needs to be a marked increase in labor participation of working-age adults in order to offset the group of baby boomers entering into retirement, otherwise the gov't programs (social security, medicaid/medicare, etc) don't have enough wage earners to sustain them and the whole thing implodes on itself.  That and substantial reform of these programs that likely push back the age when people can start collecting from them and limiting the amount they receive.  People on fixed incomes are getting crushed right now and it won't get better for them for a substantial amount of time.

COVID forced alot of two parent working households back to 1 parent working households because the extended school shutdowns and forced restriction on activities, and to their credit many families realized the benefits of having one parent at home running the show outweighed the benefits of two wage earners chasing their tails running errands and shuttling kids between day cares/schools/after school activities.  It's going to take awhile to unwind things economically to reach a new and sustaintable economic normal, and inflationary pressures are just amplifying the pain while we and the rest of the world start working through it.

This turmoil is all happening as jobs are still plentiful and there are still a good number of working age people who aren't choosing to fill those jobs - whether that be due to a population wide skills gap or unwillingness to perform various tasks is beside the point.  When the economy does start contracting jobs and people who are currently employed find themselves out of work, there's going to be much more economic desperation than their already is - even in the richest country on earth.

 

Lots of good points on this post. We do need a higher participation rate. We have way too many people receiving disability for things that really shouldn't prevent them from getting a job. Back in the early 1900's when nearly every job was physical? Sure. Now there are plenty of non physical jobs.

The people on fixed incomes things is a sore spot for me. If you are on a fixed income, you very likely did not do any kind of retirement saving or you didn't do enough. Social security was never meant to provide all you needed for retirement. It was supposed to keep people out of extreme poverty and for the most part it has done that. I can't get upset if someone that is retired needs to pick up a part time job. Where I work, we used to have lots of retired people work part time to get out of the house and make a few bucks. Now we have very few and I have been told "I don't need the money" more in the last year than ever before.

You are right about Covid forcing a lot of parents to stay home. Some of that is by choice and others is because they couldn't get daycare. I don't see this changing for a while because Daycares pay terribly and there are still tons of higher paying jobs available. Perhaps there will be a tipping point when those jobs become desirable again but I don't see that happening for a while. 

Getting back to a little bit more on the "investment thread", my ETFs paid me record (for them) quarterly dividends so that was nice. 

Do we see the Fed raising interest rates by .5 or .75 next month? My guess is .5. 

[owbc]

There is no unemployment problem, only a wage and benefits problem. Much of the 'quitting' has been people getting better jobs. Employers have shown almost no loyalty to employees and they only way to get a decent raise these days is to change jobs. 

I don't see any of these trends reversing. There are plenty of $15/hour jobs out there, so nobody is going to want to work retail or food service. The excess jobs will be automated or be eliminated. 

I would say my biggest concern is that many jobs that previously paid a middle class income are starting to fall into the low wage category. Teachers, government jobs, nursing in some cases. 

Anyway...for investment purposes the excess cash that was around during COVID is clearly gone. Speculative investments like tech and especially crypto have already corrected. If it wasn't for the Ukraine mess I bet inflation would already be cooling off. I do worry about crypto fully collapsing, which would reverberate into the broader economy. Otherwise I'm guessing that we'll have our mini-recession and things will at least stabilize. I'm curious to see Q2 earnings but generally I'm guessing it will be a good time to invest again by the end of the year. 

[homer]

On 6/24/2022 at 9:58 AM, wallus said:

Lots of good points on this post. We do need a higher participation rate. We have way too many people receiving disability for things that really shouldn't prevent them from getting a job. Back in the early 1900's when nearly every job was physical? Sure. Now there are plenty of non physical jobs.

 

This piqued my interest. I did a little digging and yes the number of people claiming Soc Sec disability is up a lot. In 1970 it was like 1.7 million. As of 2018 it was just under 10 million (that doesn't include disabled adult children or disabled widow(er)s). The people claiming this benefit aren't usually college educated and thus can't get desk jobs associated with higher degrees. NPR did a pretty lengthy series on this back in 2013:

https://www.npr.org/2013/03/27/175502085/moving-people-from-welfare-to-disability-rolls-is-a-profitable-full-time-job

Kind of the key takeaway, IMO:

Quote

Disability is a federal program paid for by the federal government. There are some exceptions, but most states don't have to pay any of that cost. Meaning, if the states can get people on to disability...

So moving people from welfare to disability is a huge cost savings for the states since they pay a share of welfare but not disability. In that article I linked to, there are businesses that states hire to comb through welfare roles and find people to move to disability.

[Fear The Chorizo]

On 6/27/2022 at 9:35 PM, homer said:

This piqued my interest. I did a little digging and yes the number of people claiming Soc Sec disability is up a lot. In 1970 it was like 1.7 million. As of 2018 it was just under 10 million (that doesn't include disabled adult children or disabled widow(er)s). The people claiming this benefit aren't usually college educated and thus can't get desk jobs associated with higher degrees. NPR did a pretty lengthy series on this back in 2013:

https://www.npr.org/2013/03/27/175502085/moving-people-from-welfare-to-disability-rolls-is-a-profitable-full-time-job

Kind of the key takeaway, IMO:

So moving people from welfare to disability is a huge cost savings for the states since they pay a share of welfare but not disability. In that article I linked to, there are businesses that states hire to comb through welfare roles and find people to move to disability.

The key takeaway for me in that article is its headline...I get why states value shifting people from welfare rolls they have a bigger part in funding to federal disability - but the fact there are jobs whose role is strictly to move people from one unit of government's dole to another just to achieve some cost savings on their own books speaks to how additional layers of bureaucracy across government lead to programs costing more tax dollars $ to deliver the same services, and that bureaucracy just fails to see the forest through the trees.  Money could actually be saved and tax revenues for these programs at both the state and federal levels could increase if there was more emphasis/funding for programs whose goal is to get people who can work back to work by providing necessary training/offering relocation assistance/etc.

[Fear The Chorizo]

On 6/24/2022 at 9:50 AM, wallus said:

Except the CBO said it would add nearly 2 trillion dollars to the debt.

"Treasury Secretary Steven Mnuchin claimed that the tax law would not only pay for itself through higher growth, but would reduce the deficit by a trillion dollars.  When asked whether these claims were true, Director Hall was unambiguous:  No.  As his testimony makes clear,  “the economy isn’t likely to grow quickly enough to shrink the budget deficit.”

CBO projected that the tax cut will add $1.9 trillion to deficits over 10 years, even after accounting for any growth effects.  We are already seeing this play out.  The deficit grew 17 percent last year and is projected to grow another 15 percent this year even as the economy grew faster.  The idea that tax cuts for the wealthy and corporations would allow us to grow our way out of debt – one of Republicans’ favorite myths – has proven incorrect once again. 

https://budget.house.gov/publications/report/cbo-confirms-gop-tax-law-contributes-darkening-fiscal-future

So no, not "orange man bad". It's things that have been tried before and didn't work then and won't work now.

Neither side really gives a crap about reducing the debt/deficit. 

When was that CBO estimate made and what were the actual revenue streams?  The article you linked is dated in early February 2019, before increased revenue streams from the economic growth the tax cuts created were actually realized.  Throw the intentional recession COVID lockdown policies created and really the first year's revenue that can be looked at to see what impact those tax cuts had on the broader economy was 2021....and thus far in 2022 the reduced deficit in large part is due to those cuts enacted as well whether people will admit to it or not.  Those cuts haven't been removed, right?  So they are still impacting government revenue streams.  Deficits in 2020 and 2021 were incredibly influenced by the trillions of dollars printed out in COVID relief - take those huge amounts off the government's books for 2020 and 2021 and those years' deficits would likely resemble what we are seeing so far in 2022.

 

The problem with CBO scoring is that it is forced to use current economic conditions extrapolated over 10 years or however long they project and don't have a good way to adjust that scoring for either improved or diminished economic growth that makes those projections worthless after a few years.  

[homer]

6 hours ago, Fear The Chorizo said:

The key takeaway for me in that article is its headline...I get why states value shifting people from welfare rolls they have a bigger part in funding to federal disability - but the fact there are jobs whose role is strictly to move people from one unit of government's dole to another just to achieve some cost savings on their own books speaks to how additional layers of bureaucracy across government lead to programs costing more tax dollars $ to deliver the same services, and that bureaucracy just fails to see the forest through the trees.  Money could actually be saved and tax revenues for these programs at both the state and federal levels could increase if there was more emphasis/funding for programs whose goal is to get people who can work back to work by providing necessary training/offering relocation assistance/etc.

I think that was actually the intent of the law signed in the 90s to get people off of welfare. States saw an easier path.

[LouisEly]

In the last month, natural gas is down over 20%.  Copper is down over 12% in the last month, down 30% from March highs.  Wheat is down 15% in the last month, over 30% from May highs.  Corn is down almost 15% in the last month.  Lumber is almost 1/3rd of what it was early March.

[nate82]

This is the fourth-straight month that inflation has gone higher than the estimates.  Inflation is currently sitting at 9.1%.

Inflation increased by 1.3% compared to an estimated 1.1%.  It looks like inflation should reach 10%.  But the real question here is how high will it go?

We are also starting to get into the danger area with inflation.  The FED and the current administration didn’t act quickly enough and ignored the warning signs.