Opinion of the Day: Modern Portfolio Theory Is Junk Science

Modern Portfolio Theory

Modern portfolio theory (MPT) is a theory of finance that attempts to maximize portfolio expected return for a given amount of portfolio risk, or equivalently minimize risk for a given level of expected return, by carefully choosing the proportions of various assets.

So why am I calling it junk science?

For example, to the extent prices in the stock market move differently from prices in the bond market, a collection of both types of assets can in theory face lower overall risk than either individually.

While it is true that stocks and bonds often move differently over shorter time frames, stocks and long-term bonds have been moving together since the early 1980s. Rates fell. Both bond prices and stock prices went up. For long-term investors, only the long-term should matter. Anyone who thinks that stocks will do okay if the widely assumed "bond bubble" pops needs to have their head examined. Junk science.

MPT also assumes that investors are rational and markets are efficient.

Hilarious! Junk science.

The framework of MPT makes many assumptions about investors and markets.

Many assumptions? Junk science.

During times of financial crisis all assets tend to become positively correlated, because they all move (down) together. In other words, MPT breaks down precisely when investors are most in need of protection from risk.

Theory prone to failure? Junk science.

The risk, return, and correlation measures used by MPT are based on expected values, which means that they are mathematical statements about the future...

Using the distant past to predict the distant future? Junk science.

Essentially, the mathematics of MPT view the markets as a collection of dice. By examining past market data we can develop hypotheses about how the dice are weighted, but this isn't helpful if the markets are actually dependent upon a much bigger and more complicated chaotic system—the world.

Basing investment decisions on a collection of dice? Junk science.

Following MPT means portfolio managers can invest in assets without analyzing their fundamentals...

Using a gambling strategy instead of fundamentals? Junk science.

I'm saving the best reason for last. In 1966, Alan Greenspan stated:

The financial policy of the welfare state requires that there be no way for the owners of wealth to protect themselves.

I am a believer. If you are a believer as well, then surely you must realize that modern portfolio theory offers a false sense of security. The herd cannot possibly protect itself by all doing the same thing at the same time. That's a pretty darned big target for the welfare state.

For the Love of All That's Holy, Please Buy 100 Pounds of Coal on April Fool's Day!

March 31, 2015
Appalachia Miners Wiped Out by Coal Glut They Can't Reverse

Companies will dig up at least 17 million tons more coal than power plants need this year, Morgan Stanley estimates.

We can temporarily solve this problem together if every man, woman, and child in the USA buys one hundred pounds of coal tomorrow! That's what the math says. And then, next year, we can do it again! Woohoo!

And if that doesn't work, perhaps we can convince Yellen to lower interest rates to create some more coal price inflation? Zero percent interest rates? Is she nuts? Seems way too high!

Uh, oh. Just got a call from my attorney. Seems I have exceeded the legal limit for quarterly sarcasm. Damn! Should have waited until tomorrow to post this. Live and learn.

Checking Out That Rising Interest Rate Environment (Musical Tribute)

The following chart shows total checkable deposits.


Click to enlarge.

Based on the chart, which is the better question:

1. When will banks need to raise interest rates to attract checking deposits?

2. When will banks require you to give them a toaster if you wish to open a new checking account?

Those anxiously awaiting higher interest rates on their checking accounts may be sorely disappointed. Mine pays 0.04%. I am earning roughly 3 cents per month per thousand dollars. I try not to spend it all in the same place, but I admit that it does tend to burn a hole in my pocket.



Source Data:
St. Louis Fed: Total Checkable Deposits

The Crock of @#$% Report v.003

March 30, 2015
7 Utilities Stocks With High Dividends That You Should Buy Now

NEW YORK ( TheStreet) -- Looking for a safe stock to put your money in that also can generate income?

Absolutely!

Utilities stocks are generally considered safer investments, especially in times of market volatility.

Fantastic!

The debt-to-equity ratio is very high at 2.13 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company. Along with this, the company manages to maintain a quick ratio of 0.48, which clearly demonstrates the inability to cover short-term cash needs.

I know that you said I should buy all seven of these stocks, you know, for the safety. Is there something bad that will happen if I opt to pass?

Quote of the Day

March 30, 2015
Why are interest rates so low? - Ben Bernanke

Interest rates around the world, both short-term and long-term, are exceptionally low these days.

Is that the quote of the day? No. You'd have to just now be coming out of a decade long coma to think that is it.

Low interest rates are not a short-term aberration, but part of a long-term trend.

Getting warmer! But it is still not the quote of the day. High standards must be met.

The state of the economy, not the Fed, is the ultimate determinant of the sustainable level of real returns.

Bingo! That's the quote of the day! Well done Ben Bernanke. Had no idea you had it in you!! When it comes to real interest rates, the Fed is impotent compared to the state of the economy!!

It would therefore stand to reason that if the sustainable level of real returns was falling over the long-term, then the state of the economy must be deteriorating over the long-term. Right?

August 15, 2013
The Long-Term Death of Real Yields


Click to enlarge.

Have I mentioned lately that it is getting harder and harder to make money off of money?

When there is a glut of anything, it is difficult to make money off of it. It should therefore not surprise us that it is difficult to make money off of a money glut.

Immortal Investor Idiot Only Earned 8.7% Annual Return!

March 27, 2015
First U.S. penny sold for $1.2 million

The first U.S. penny is 223 years old, and is also worth a lot more than one cent.

That's only an 8.7% average annual return.

($1,200,000 / $0.01)^(1 / 223) = 1.087

What a f#%^ing idiot! As we all know, the stock market generates 10% returns for all eternity. Always has, always will. Should have made $17 million off that penny!

$0.01 x 1.1^223 = $17.0 million

Don't make the same mistake. Invest your penny in the stock market today and lock in your guaranteed path to long-term prosperity!*

* Past performance not necessarily indicative of future results. Your penny's performance may vary. Risk of substantial loss. Contact your financial penny advisor for penny wealth management ideas and options.

In all seriousness, ever get the feeling that some things are just too good to be true? Over an eternity, that's how I feel about 10% stock market returns. Go figure.

This is not investment advice.

Advice for Retirees

1. Crystal Meth. Although I have never tried it nor have any desire to try it, some people seem to love it. I've heard that it can mess you up for life, but let's face reality here. As a retiree, there probably isn't all that much life left to get messed up. No better time than the present to take a few risks.

2. Downsizing. Many advisors might suggest that moving to a smaller house will save you money. While true, there's absolutely no need to do this. Instead, find a house of roughly the same size in a much higher crime area. Think of the money you'll save on property taxes and upkeep! A fully neglected house will deteriorate at a slower pace from here. Look for one of those! As an added bonus, you'll be located much closer to the crystal meth. That will save on transportation costs.

3. Fire insurance. Drop it. If you are like me, you've never seen your house burn. Only the houses of others burn (especially those manufacturing crystal meth). So why pay insurance for an event that probably won't happen? Take a few risks I say.

4. Dream vacation. Use the money saved so far to live a little. Take that dream vacation to Vegas you've always wanted. Don't worry about your house while you are gone. Just ask your local meth dealer to keep an eye on it. He's just out there standing around anyway. I'm sure he'd appreciate a few extra dollars of tip income. Hey, maybe you can even cut him and his buddies in on some of your winnings when you get back.

5. Margin debt. It can really enhance your returns in retirement. You'd be foolish not to do it. I mean really, you've already started taking crystal meth, moved to a high crime area, dropped the fire insurance, and are taking dream vacations in Vegas. Why stop the risk taking now? I am not alone in my thinking.

March 27, 2015
Forbes: Should Retirees Seeking Income Go Into Debt?

What’s controversial is Anderson’s notion that the couple should not strive to pay off that mortgage. He’d be happy to see them leave behind an unpaid balance (and appreciated real estate) to their heirs. Still more contentious is his suggestion that they should finance their retirement in part by running up margin debt on their stocks and bonds.

This is not investment advice. It is actually heavy sarcasm. I know that sometimes it is difficult to tell the difference.

In-Sure Things!

Everyone always needs proper protection in this uncertain world! Now that interest rates are so low, insuring things is a sure thing! Common knowledge! Can't lose!

March 27, 2015
Analysts Say Low Interest Rates to Drag on Insurer Profits, Dividends Long-Term

Credit rating agency Moody’s said it expected interest rates to remain at a low level, cutting the return that insurers earn from investing in new bonds as they replace their stock of maturing, higher-yielding debt.

Fortunately, this is no doubt already priced into Jeremy Siegel's wise and all-knowing forward looking stock market (using several hundred years of backward looking historical returns and extrapolating them into the distant future).

And since it is fully priced in, what's the worst that could happen?

Investors have been piling into insurance stocks on the expectation of higher dividends and share buybacks from insurers that are not able to put that cash to work in the business, where premiums are pressured by stiff competition.

If you wish to sleep well at night, I will hope for your sake that you do not have a vivid and/or active imagination. Further, being color blind when it comes to seething red might also help.

Oh, man. Did I just say seething red? Freudian slip. I meant seeing red! You know, like "needing" big fat investment returns in the black and then finding out there aren't any. The seething actually comes moments later. Sorry about that.

Quote of the Day

March 27, 2015
Fed's Yellen sees gradual rate hikes starting this year

Yellen said that if economic conditions evolve how the Fed's policy setting committee anticipates, "I would expect the level of the federal funds rate to be normalized only gradually, reflecting the gradual diminution of headwinds from the financial crisis and the balance of risks I have enumerated of moving either too slowly or too quickly."

1. If ifs and buts are candy and nuts then savers will all have a Merry Christmas!

2. If 35 years of falling interest rates can be considered normal, then by God she will be doing all that she can to normalize interest rates. In Yellen we trust! Says so right on the currency!

In God We Trust

The change from "E Pluribus Unum" to "In God We Trust" was generally considered uncontroversial at the time, given the rising influence of organized religion and pressures of the Cold War era in the 1950s. The 1956 law was one of several legislative actions Congress took to differentiate the United States from atheistic Communism.

Our currency is not backed by a god. It's backed by taxpayers. Heaven help us all over the long-term.

Operation Dessert Storm

March 18, 2015
General Mills Tops Earnings. Misses Sales, Cutting 800 Jobs

1. As part of Project Catalyst restructuring plan, General Mills announced its plans to cut 800 jobs...

Catalyst is to fire, what Project Catalyst is to fired. The irony should not be lost on us.

2. In addition, the company is undertaking another restructuring plan - Project Century...

Let me guess. This is the kind of bold and innovative new restructuring plan that only comes around every hundred years or so. Invest now or forever be priced out!

3. The Holistic Margin Management (HMM) program is also in place...

It was smart not to call it the Holistic Margin System in honor of the HMS Hood, because the German Bismarck sank that battleship in WW2 with just a couple of shells. And I'm not talking pasta shells either.

Damn, the Food General sure has been busy. Expect shock and awe, baby. Shock and awe. Yes, sir. Ramping up nicely for Operation Dessert Storm. I hope the first wave is led by a processed cheesecake battalion. Get in my belly!!

$39.82

That's roughly how much the average American spent at Starbucks in 2014. Of course, averages can be deceiving. Seems unlikely that babies and toddlers felt the need for a caffeine fix.

March 21, 2015
Starbucks passes Subway in U.S. sales

With almost $12.7 billion in U.S. sales in 2014, Starbucks pulled away from Subway and claimed the No. 2 slot for the first time, according to the report.

Have no fear investors. It is only a matter of time before a Starbucks opens in each new home constructed, perhaps even more than one. The stairs can be tricky to negotiate without a fix before descending. I'm therefore optimistic that the U.S. growth opportunities for Starbucks will exceed expectations by a wide margin for many, many years to come.

This is not investment advice.

Disclosure: I never acquired a taste for coffee. No desire to start now.

Quote of the Day

March 25, 2015
Munger Says Prepare for Harder World as Buying Power Slides

(Bloomberg) -- Charles Munger, who became a billionaire while helping Warren Buffett build Berkshire Hathaway Inc., predicted it’s going to get tougher for consumers to maintain their standard of living in coming decades.

This would probably be a depressingly bad time to point out that real median household income is at 1989 levels after peaking in 1999.

The Illusion of Prosperity Special Hyperinflation Report for 2015

Let's see. Where to start?

March 25, 2015
The 20 Million Barrels of Pure Profit Sitting in U.S. Oil Tanks

Traders’ attempts to use every cubic inch of storage underscores how desperate the market has become to stow oil.

Oh, crap. This is not at all how I wanted to start my first ever special hyperinflation report. That's okay though. I'll just have to make the best of it with smoke, mirrors, dogs, ponies, and just a smidge of Peter Schiff style alarmist propaganda.

1. All hyperinflations start with an oil supply glut. There's no reason to link to studies backing this claim. It's a self evident truth. Don't believe me? Let's say there was 5' of standing oil on all of our highways. Traffic would cease. Goods would not be delivered. This would lead to a shortage of goods and a hoarding of goods. That's right. Hyperinflation. Prices of goods would skyrocket.

2. Traders are desperate to store oil. Why would they do this if the currency wasn't about to collapse completely and utterly? Short term profits you say? A dangerous game if storage runs out? That's just crazy talk. Traders are in it for the long haul. The term trader is actually just a euphemism for long-term buy and hold hoarder. Everyone knows this. Once a trader buys something, you can bet your life savings that it will be off the market permanently.

3. Oil is predicted to go to $200 within two years. Oh, wait. That's from 2008, which was during the Great Recession. Let me find you a better prediction from this year.

January 26, 2015
OPEC’s El-Badri: $200 Oil Possible If No One Invests

Prices as high as $200 probably won’t happen because “a move back above $100 will bring the shale oil drillers out in force as they can relatively quickly react to rising prices.”

You heard it here first folks. $200 oil is possible if nobody invests! And that's just a drop in the bucket if nobody invests when it hits $200. $500? $1000? $5000? There's no telling how high oil could go if nobody invests! Just like there was no telling how high oil could go during the Great Recession!

The key to hyperinflation going forward will be to drive the price of oil up without anyone actually realizing that we're already in a recession. You know, like last time, only without people ever figuring it out. And how do we do this? As jobs are lost as the price of oil rises, we convince the unemployed to keep driving to work anyway. You know, to keep the oil demand high.

This concludes the first ever Special Hyperinflation report on this blog. Invest accordingly! And as you do that I'll be watching the 30 year treasury yield meander around the 2.5% level, just for kicks and giggles.

How to Protect Your Portfolio Against Fleece

March 25, 2015
CNBC: How to protect your portfolio against Greece

Buying put spreads on the S&P 500 allows one to make a defined-risk bet that stocks will drop, protecting against a fall of a given magnitude within a given time.

Got it. Bought those downside puts. Feelin' good about my chances to outsmart my financial gambling counterparts over at Goldman Sachs using this sure thing "As Seen on TV" time-tested trading strategy.

March 25, 2015
CNBC: This could be the best way to bet on stocks now

The bottom line, however, is simple. Given current pricing dynamics, if one wants to increase one's exposure to the market, buying slightly out-of-the-money upside calls is not a bad way to do it.

Got it. Bought those upside calls. Feelin' good about my chances to outsmart my financial gambling counterparts over at Goldman Sachs using this sure thing "As Seen on TV" time-tested trading strategy.

Now that I have protected myself with zero-sum game gambling puts and am swinging for the fences with zero-sum game gambling calls, what do I do next? Is it safe to store them both in the same online account? I only ask because mixing matter and antimatter tends to create a rather impressive explosion.

Derivatives are financial weapons of mass destruction. - Warren Buffett

Keep in mind that there must be one loser for every winner in the derivatives market. Based on the impressive trading revenue of Goldman Sachs, I think one can pretty much assume who the loser will be.

The sixth sick sheik's sixth sheep's sick. Couldn't even afford "crude" medication after dabbling in the $691 trillion derivatives market.

Quote of the Day

March 24, 2015
What funds the next leg up in equities

We’re not sounding an alarm but it takes increasing money flows to push equities higher and its not immediately clear from where the next huge source of additional demand for equities will come.

Rest easy. I will be the additional demand. I know that I have stated on this blog on more than a few occassions that they can pry the long-term TIPS and I-bonds from my cold dead fingers, as I was fully intending to hold to maturity. I have had a change of heart though.

The majority has convinced me. There is no risk in investing in stocks after they have tripled off the lows of the Great Recession. I'm loving this whole buy high and sell even higher momentum vibe. Nothing bad will ever happen again. I get that now. I'm totally on board.

There are just two things I need to do before taking the plunge.

1. I need to wash my hair. Now I realize that many men have been told this by many women over the years, and it has often led to disappointment when dating. Believe me when I say this though. I'm not looking to postpone the buying of stocks here. I am super excited to have this once in a lifetime opportunity. There is nothing I look forward to more.

2. I need to capture one of the monkeys that will be flying out of my bottom. I'll be in the shower anyway washing my hair. There's no better time to look for them. Shouldn't take me much additional time at all.

In summary, there's no reason to panic. I will be selling my long-term bonds and buying stocks after I wash my hair and capture a monkey flying out of my bottom. You can take that to the bank. I will single-handedly support this market. Trust in me!

Now we just need to find someone else to follow my lead once I have fully loaded up on stocks. Otherwise, this will start to look like a failed ponzi scheme again, and we certainly don't want that! Again!

The stock market must generate 10% returns for all eternity or an eternity's worth of hope is lost!

19% Guaranteed Real Return!

That's how much today's 0.59% 30-year inflation protected treasury will get you if held the full 30 years, assuming you can wisely reinvest the interest generated at that same great 0.59% rate!

Hey, you didn't think I meant an annual real return of 19% did you? In this environment? Seriously? What kind of blog do you think I'm running here?

Save that kind of delusional and optimistic thinking for the blogs reminiscing about the good times of the past or the ones attempting to extrapolate it forward like nothing has changed. Yes, yes. We all loved the 80s and 90s. Good times. We can't live there forever though. At some point we need to wake up and smell the dying flowers!

Of course, your guaranteed real return will likely fall short of 19% if taxes are considered, especially if you are in the 19% tax bracket.

Have you given any thought to hoarding socks? May or may not do better than that. Hard to say. I certainly have mine stashed away though. No complaints!

Yes, sir. Really looking forward to the prosperity of the future in this land of unlimited opportunity! 30 years of exceptional returns are headed our way!!

Don't forget. Long-term interest rates are rising over the long-term! If everyone keeps chanting it then it must be true. In fact, the louder and more desperate the chanting the higher the rates will go. No proof is necessary! You just need to have faith and believe!!

The stock market you say? Guaranteed to do better over the long-term? That's the spirit! You really do have faith! What's it like to be a true believer?

Have you borrowed cheap money on margin to invest? If so, why do you suppose "they" lent it to you instead of investing in the "sure thing" themselves? I'm not prone to conspiracy theories, so this is actually quite puzzling.

But hey, no worries. Everyone knows the stock market can only go up, just like long-term interest rates can only go up. Some common knowledge facts are universal.

Who to Believe? Math or Hearsay from Someone's Dad?

March 23, 2015
5 Things My Dad Taught Me About Investing

Despite its treacherous pitfalls, the market is one of the few time-tested routes to financial security.

Time-tested means proven reliable or tried and true. I'm therefore going to assume that he did not grow up in Japan after their housing bust in the early 1990s or in one of the many other countries on this planet where the stock market did not necessarily lead to financial security.

You want to know what else was once tried and true? The earth is flat. It was true for even longer, until it wasn't true. To this day, some still refuse to accept it though. That's how powerful time-tested rear view mirror looking beliefs can be.

And in the other corner we have math, straight from the American Association of Individual Investors.

For Long-Term Investors, the Focus Should Be on Risk

For the mathematically inclined, proof positive of how stocks are risky even in the long run is that if you try to insure a portfolio against a shortfall, you will find that the premium rises as the time horizon lengthens, exactly as would the price for a put option on the termination value of the portfolio.

It's almost like the longer the time horizon, the greater the risk something can go horribly wrong. Yeah, it's almost exactly like that.

How long has the United States been time-tested? Just over 200 years. Didn't stop 19 suicidal individuals from flying our own planes into our own skyscrapers though. What did that cost us, per crazed fanatic, over the long-term, if one factors in the cost of wars? @#$% happens.

Here's a fun thought experiment. Want real safety in the stock market? Invest all of your money in stocks then call Lloyds of London. Ask for a price quote on an insurance policy to protect against any and all possible losses on those stocks until the day of your passing, in real inflation adjusted terms. The insurance quote may give you a ballpark estimate on how much risk you are taking.

Well, maybe not entirely. You still have to hope Lloyds of London will remain solvent if your insurance policy actually does pay off. I mean, something must have gone horribly wrong in the global economy for that to happen. Right? Further, what if Lloyds of London was investing your premiums in the U.S. stock market? You know, because it only goes up over the long-term? Wouldn't that be ironically tragic for you?

This is not investment advice.

$18,433

March 23, 2015
Time to call it: For millions, 401(k) is a failure

That's the median amount in a 401(k) savings account, according to a recent report by the Employee Benefit Research Institute.

Prosperity, baby. That's what I'm talking about.

The Crock of @#$% Report v.002

March 23, 2015
Here’s proof that the rising dollar is good for stocks

The soaring U.S. dollar may well sound the death knell for commodities, but it's actually a bullish sign for stocks. At least, that's what the chart work of Oppenheimer head of technical analysis Ari Wald suggests.

Since when did technical analysis, signs, and suggestions constitute a proof? And how did such a feeble "proof" make it onto CNBC in the first place? No math majors in the building? It's not even stated as beyond a reasonable doubt. No, sir. It's proof! Pure and simple! No point even debating it.

Crock of @#$% reports, for when sarcasm reports can't quite convey the full intent properly.

The Crock of @#$% Report v.001

March 13, 2015
China’s New Normal Means More Jobs in U.S., Good News for Yellen

The bottom line for the U.S. and global economies, according to Roach: China is shifting from a country propelled by demand from the rest of the world to one with a more balanced economy and greater appetite for imports.

“They’re going to be a source of growth for us,” Zandi said. “They’re not going to be an impediment.”

The following chart shows the annual percentage growth in the exports of goods from the U.S. to mainland China.


Click to enlarge.

1. Greater appetite for U.S. imports?
2. A source of growth for us?
3. It's all a crock of @#$%?

You make the call.

Source Data:
St. Louis Fed: Custom Chart

The Sarcasm Report v.210

March 20, 2015
Peter Schiff won't back down: 'The dollar is going to crash, buy gold'

“There’s a new mantra: ‘price stability is bad. If we don't force consumers to pay more for things they need and want, all hell's going to break loose,’” he quips.

A new mantra? Seriously? I was under the impression that Fed induced inflation has been going on for twice my lifetime, and I'm 50 years old.

Federal Reserve System

Established December 23, 1913 (101 years ago)

Might just as well sound the alarm bell on other "new" things coming our way.

January 26, 2010
Radio Activity: The 100th Anniversary of Public Broadcasting

Not everyone embraced the radio or understood how it functioned. The resulting mystery left some Americans wary. Were electromagnetic waves responsible for droughts? Skeptics blamed radios for the vibrations of bed springs, the creaking of floorboards, even a vomiting child.

There's another new mantra: 'Hell hath no fury like a woman's corn... projectile vomiting from the mouths of her children.'

The Corporate Sector Is Flush with Debt

March 2, 2015
CNBC Exclusive: CNBC Transcript: Duquesne Capital Management Founder Stan Druckenmiller Speaks with CNBC's Kelly Evans on "Closing Bell" Today

Well, we have-- we do have too much debt. And we particularly have a lot of debt in the corporate sector. And that's why some great minds don't want to raise rates here, because the debt is so large. But when I look at the healing that's taken place, again on a risk/reward basis, if you don't raise rates now, the debt's just going to continue to accelerate at the pace its gone the last two years, and it would be much greater. But of course whenever you raise rates-- with this much debt around, there's a concern. I frankly think the market can handle it, but that's why there are markets. I might be right, I might be wrong. - Stan Druckenmiller

No worries. All our debt problems are behind us. And to put us in the right frame of mind, let's all hold hands and sing Kumbaya.

Quote of the Day

Yesterday, my tax preparer asked me if I was bored. This is a common question for retirees.

"He who is not contented with what he has, would not be contented with what he would like to have." - Socrates

Free time is and always has been, at least to me, a blessing. Every second of it is precious. There is nothing more I wish to have. No worldly possession is its equal. So, in answer to the question, I honestly cannot remember the last time I was bored. Further, I feel very sorry for those who cannot find contentment when given the extraordinary gift of free time.

That said, these are very dangerous words for our consumption based economy. The government finds it extremely difficult to tax what is free and corporations find it equally difficult to profit off of what is free. Perhaps it is therefore best that I share this philosophy sparingly, just in case the government and/or corporations can eventually figure out a way. ;)

Our Problems Are Patently Obvious

Click to enlarge.

But nothin' that a little extra lawyerin' can't fix!

Source Data:
U.S. Patent Statistics Summary

The Sarcasm Report v.209

March 18, 2015
5 Things You Need to Retire Early and Comfortably

Most early retirees need the help of growing equities to sustain their lifestyle for decades.

The stock market has tripled off the lows of the Great Recession. If early retirees "need" more than that, then it should be no problem at all over the long-term. The stock market is like an infinite well of prosperity that can never run dry. Count on 10% annual returns for all of eternity, or perhaps 9% for those looking for a tiny bit of safety buffer.

You need to get over the nervousness of trying something new, and drive to the places you want to visit.

As an early retiree, I knew I was doing something wrong. I "need" to drive my car more! It's the only way I can be happy! It's just that I am always so nervous trying new things. That's why I sit in the front yard on the grass and play with the dogs in the summer. It's an unhealthy habit I really "need" to break. I'm in a rut though, and am having difficulty escaping it.

Why do I do that when I could just as easily be buying tickets to France? Flying there? Interacting with Homeland Security? Renting a car? Driving around? Trying to find parking? Living the better life? Dreaming of what could have been? All while our dogs cry at home wondering why they've been abandoned. I'm such a fool!

Those who sit around all day quickly find that the days get boring, and a lack of social interaction and exercise can also start to impact your health.

Agreed. I am always so bored! I found that out within the first few minutes of quiting my job. Waves of depression rolled over me. And don't even get me started on how bored I was the first time I was ever laid off years earlier. The only way to alleviate it was to buy a kite and take my dog, at the time, to a local park. The sun was out. Beautiful day. Still have that kite, as a reminder to me of the great boredom that can appear if I don't keep my guard up.

Much better to sit around all day at an office job than sit around all day in a hammock at home, reading a good book. And the social interaction I had at work just couldn't be beat. In the final days of my last job, we'd all talk and talk about each new round of layoffs and the legendary corporate fraud that helped cause it. Good times. Was never more relaxed or stress free. I miss those days.

Workin' for the man kept me healthy too. If I don't have someone constantly telling me what to do and how fast to do it, then I tend to lose all reason to live. It's a tragedy of epic proportions, let me tell you. The lost productivity fills me with guilt and anxiety. I am not contributing to the coffers of Corporate America nearly as much as I once was! The shame is nearly unbearable!! Hopefully the government will continue to step in and subsidize corporations where I have failed.

ZIRPrising Interest Rate Environment

There's a 2.51% yield on the 30-year treasury bond as I type this.

This must be SURPrising for those who thought long-term interest rates must rise when the Fed shifted its stance to impatience.

As I've said many times before, they can pry the long-term inflation protected treasury bonds and I-bonds from my cold dead fingers. I bought with intent to hold to maturity and the plan continues.

Those sitting at the short end of the curve salivating over higher interest rates could use an extra pitcher of Kool-Aid right about now. Might just as well be waiting for unicorns too while they are at it. Seriously.

Need I really link to the plethora of mainstream media advice telling investors to avoid long-term bonds like the plague? Well, it's a market. For every seller there must be a buyer. I certainly wasn't the only one buying.

All we know for sure is that the mainstream media generally wasn't buying. And if they weren't buying all these years then they can't really be selling either. You can't sell what you don't have. So if they can't sell and I won't, then who is? The answer might be close to a big fat nobody. Just something to think about.

This is not investment advice.

The Winter 'Pocalypse (Musical Tribute)

The following chart shows the number of new private single family housing units authorized by building permits.


Click to enlarge.

March 17, 2015
Housing Starts Plunge by the Most in Four Years

“It was just the weather, basically,” said Richard Moody, chief economist at Regions Financial Corp. in Birmingham, Alabama. Still, “my view of the recovery in single-family housing is that it’s coming more gradually than others think.”



Source Data:
St. Louis Fed: Custom Chart

Wall Street's Battle of Stall 'N' Grab

March 10, 2015
If Trees Don't Grow to the Sky: The Next 6 Years

The 45% spread between bulls and bears today stands in stark contrast to the -20% spread six years ago. The strongest gains in equity markets are built on a wall of worry and there is no such wall to speak of anymore.

Battle of Stalingrad

Marked by constant close quarters combat and direct assaults on civilians by air raids, it is often regarded as the single largest and bloodiest battle in the history of warfare.

...

The German public was not officially told of the impending disaster until the end of January 1943, though positive media reports had stopped in the weeks before the announcement.

A Trilogy of "Rising Interest Rate" Environments

The following chart shows the annual average of the 20-year treasury bond yield.


Click to enlarge.

Go ahead Yellen. Crank up those short-term interest rates this year and let's see what happens to long-term interest rates. Nearly every financial pundit in the USA seems to think up is the only direction. Don't let it concern you that we're currently well below 2014 levels.

And why might that be? Oil was ZIRP'd out behind the woodshed. Even 0% wasn't enough to save it. Let's see what some bonus rate hikes can do to other parts of our overleveraged economy! Go for it I say! The time for patience is over! The time to act is now! In the spirit of the housing bubble, raise rates now or forever be priced out!

What's the worst that could happen? This time I'm feeling lucky! You should too!



This is not investment advice. As a long-term holder of long-term bonds, I'm just sounding the clown horn. That's all. Don't read too much into it. I love that horn. It is the perfect theme sound of the long-term global economy.

If sarcastic and you know it honk the horn
If sarcastic and you know it honk the horn
If sarcastic and you know it
And you really want to show it
If sarcastic and you know it honk the horn

Source Data:
St. Louis Fed: Custom Chart

The 2nd Best Bet of the 21st Century

March 13, 2015
Bond Funds That Will Lose Big With Rising Interest Rates

In other words, get ready for falling prices for bond funds, especially those that are most sensitive to interest rates. So let’s be sure we don’t have any bond fund types that are almost certain to lose big money when the Fed starts raising rates.

Oh, we can do better than simply avoid them. Let's short the bejesus out of them, mortgaging the house if necessary! And is it necessary? Of course it is! Leaving "sure thing" investment returns on the table is foolish! If big money will most certainly be lost by owning these funds then big money will most certainly be gained by shorting them! Genius!

And do you want to know the best part? That which should fill us with the most optimism? Everyone already seems to believe in this theory! Long-term rates can only go up from here! Common knowledge! It will take so little effort on our part now that we're running with the herd! Big money! Can't lose!

Why hasn't anyone else ever thought of this? They should make some sort of anti-bond fund that goes up when bonds go down. Perhaps something easy to remember, like TBT. Think how rich people would be if a fund like that was ever introduced!

Herd prosperity, baby. That's what I'm talking about.

Let's ignore the part that assumes that rising short-term interest rates will all but guarantee that long-term rates must also rise. No point spoiling the "sure thing" party.

So, there you have it. In my opinion, it's the second best bet of the 21st century.

You didn't come here for that though. You undoubtedly want to know the best bet. My psychic advisor told me about a certain roulette table in Las Vegas. I shall be placing a very large bet at noon on April 1st. It is all but guaranteed to change my life forever! That's what she said! Can I trust her? Well, would I be paying her $3.99 per minute if I didn't? My mother didn't raise no fool! There's free advice and then there's premium advice. You get what you pay for!

Best Place to Park Your Money

If capital depreciation appeals to you, then France might be the perfect fit! Bump those investment returns! Make a serious dent in your long-term savings goals!

March 14, 2015
Currency wars threaten Lehman-style crisis

The head of the Dutch central bank, having not previously complained publicly, last week admitted that euro-QE, by propping up spendthrift governments, would shield the likes of France and Italy from “market discipline”, postponing vital reforms. A senior Goldman Sachs banker added that negative interest rates are “freaking him out”.

And no wonder. For the longer profligate eurozone governments are able to ramp up borrowing, the more likely monetary union is dramatically to implode. And the further share prices are pumped up by QE and other monetary mutations, the more vulnerable global stock markets are to crash.

Hold on now. No need to freak out. As long as we keep the global economic speed down to the bare minimum, implosions and crashes seem highly unlikely. I doubt the airbags will even deploy!

The Economic Stimulus Vehicle of Choice!

December 8, 2014
'Calgary's Worst Driver': Woman gets ticket after video of botched backing up goes viral

Police have tracked down and issued a traffic ticket to a woman after a video dubbed “Calgary's worst driver” went viral over the weekend.

December 11, 2014
We’ve all been there: In defence of Calgary’s Worst Driver

It’s one thing to be a bozo on your own time, but as soon as you drag someone else into your incompetence, you should do the right thing and leave a note on your victim’s windshield.

I suggest, "We just stimulated the global economy! Congratulations!"

Defense? Who needs a defense? This is an economic miracle! We've all been there and we need to keep doing it. You know, smashing into stationary vehicles and then fleeing the scene. It can really add to GDP if we all do our part!

Repair labor bills? Cha-ching!
Repair shop employment? Cha-ching!
Repair part bills? Cha-ching!
Part manufacturer employment? Cha-ching!
Traffic ticket government revenue? Cha-ching!
Traffic enforcement employment? Cha-ching!
Reporter employment? Cha-ching!
Google (YouTube) shareholder profits? Cha-ching!

Real prosperity, baby. That's what I'm talking about. Or not. Your call.

How Much Money Do You Need to Retire?

March 12, 2015
Retirement's magic number? $2.5M a good start

According to a new Legg Mason survey, the new magic number is $2.5 million.

That's right. 48 years worth of real median household income is a good start but you'll probably "need" a full century to be safe. And greedy. Must not forget the greedy.

There's nothing more pathetic, demeaning, and outright embarrassing than being forced to eat dehydrated caviar out of a Ziplock bag. What would the neighbors say? Don't let it happen to you.

Interest Rates Fall Sharply on Fears the Fed May Soon Raise Interest Rates

March 10, 2015
US stocks fall sharply on fears the Fed may soon raise rates

The prospect of the Fed raising interest rates for the first time in nine years is unnerving investors.

In fact, the prospect of higher interest rates unnerved investors so much today that they piled into long-term bonds, sending today's long-term yields down as a sign of complete confidence in rising interest rate theories. That's right, long-term bonds had a very good day as stocks sold off. I kid you not.

So what does this mean? My headline is every bit as accurate as this one's.

Forehead. Desk. Whack. Whack. Whack.

The Sarcasm Report v.208

March 8, 2015
The perfect market storm: brace yourself for two bull markets to slide at once

Of course, a handful of modest interest rate increases – Federal Reserve Chair Janet Yellen has gone to great pains to demonstrate that policymakers have no intention of putting the economy at risk by sending interest rates soaring – aren’t going to wreak havoc. But they do mark a big paradigm change: the end to the bond bull market that dates all the way back to 1981.

If all it took was a handful of modest interest rate hikes to end the bond bull market that dates all the way back to 1981, then it would have ended heading into the early 1990s recession, the dotcom bubble popping recession, and the most recent real estate bubble popping recession. For those who may not have noticed, this is not exactly the first interest rate hike rodeo.

But I'm game. Tell me how I should prepare for this supposed paradigm shift.

Plan in advance for how you’ll respond to various market scenarios – talk it through with your adviser, your partner, or your investment club members.

Oh crap. My adviser? My investment club members? Seriously? How about my taxi cab driver too while I am at it? I seem to be lacking in that department. How about I just bounce my concerns off this blog's readers and call it good.

Blah blah blah paradigm shift blah blah blah rising interest rate environment blah blah blah perfect storm blah blah blah crushing stocks blah blah blah Wall Street panic blah blah blah more QE blah blah blah emergency rate cuts blah blah blah unemployment disaster blah blah blah bomb shelter blah blah blah deflation scare blah blah blah Japan blah blah blah more ZIRP blah blah blah one trick pony blah blah blah more of the same blah blah blah short-term savers shafted yet again blah blah blah.

Oh, yes. That was very helpful. Thanks for the advice. I feel much better now.

Quote of the Day

March 8, 2015
Bonds: How firm a foundation?

Companies issued $1.43tn of corporate bonds in the US last year, 27 per cent more than was sold in 2007 at the height of the credit bubble.

Building prosperity castles in the sand, baby. That's what I'm talking about.

Rising Interest Rate Pressure Stymied by Falling Interest Rate Pressure

March 8, 2015
Bond Market Tells Savers: Higher U.S. Rates to Disappoint

Now, savers counting on higher rates to lift returns are being stymied by regulations designed to make the financial system safer. The rules are pushing firms to park more excess cash into Treasury bills that yield next to nothing, squeezing money-market funds that buy the short-term debt. JPMorgan Chase & Co. says demand will jump as much as $900 billion in the next 18 months, equal to about 60 percent of the total outstanding.

$0.9 trillion here. $0.9 trillion there. At some point we're talking serious money.

So much cash. So few places to put it. Have I mentioned my long-standing theory about how it is getting harder and harder to make money off of money lately? Once again, investors can pry the long-term TIPS and I-Bonds from my cold dead fingers. I continue to have every intention of holding to maturity. Treasury bond bubble my @$$.

As a side note, what would happen to all that excess cash if firms were not being forced to buy Treasury bills with it? Is there some sort of firm couch where the money would otherwise be stored? You know, some sort of firm couch of last resort? Everyone loves safety cushions! That's especially true if the cushions are packed with cash! And how about safety cushions filled with cash that also double as flotation devices? Nirvana!

Or does all that excess cash just magically vanish? Inquiring minds want to know!

In all seriousness, too much cash chasing too few Treasury bills does not a rising interest environment make in my opinion, contrary to the popular belief that long-term rates must rise due to all this money printing. Or better still, long-term rates must rise just because everyone seems to believe they should. Talk about a crowded belief trade. Perhaps the magic only works if everyone truly believes. I hate to disappoint you, but this saver remains extremely skeptical, especially concerning inflation protected long-term bonds over the long-term.

Call me silly if you will, but the idea of locking in acceptable real yields has always appealed to me. If there is one lesson to be learned from falling off the gold standard, it is that things can always get worse for savers. There is no limit when it comes to financial pain and economic oppression.

This is not investment advice.

1.8% Missing Prosperity

May 12, 2014
TV networks load up on commercials

In 2009, the broadcast networks averaged 13 minutes and 25 seconds of commercial time per hour. In 2013, that figure grew to 14 minutes and 15 seconds.

(14 x 60 + 15) / (13 x 60 + 25) = 1.062

(45 x 60 + 45) / (46 x 60 + 35) = 0.982

That's 6.2% real growth for the broadcast networks, their executives, and shareholders. Hurray! That's also 1.8% less prosperity for each and every one of the rest of us (potentially excluding those who claim they never watch TV of course).

No idea why prosperity inequality is rising. I'm sure this is just a fluke, an anomaly, an errant data point. I wouldn't read too much into it (unless you are barraged by popup ads while making the attempt, that is).

Work harder! Work smarter! Enjoy the prosperous recovery! And if, by chance, you get a moment of euphoria lasting more than 4 hours then please contact the U.S. Department of Corporate Propaganda. They are always on the lookout for heartfelt testimonials.

See Also:
How cable networks speed up shows to squeeze in more ads

How You Too Can Become Flush with Cash!!

Simply swamp your credit card company with cash advances! If borrowing works for Corporate America then surely it can work for you too!

March 3, 2015
Treasuries Drop as Corporate-Bond Issuance Swamps Debt Markets

“Treasuries will be sold to make room for new issuance,” said Michael Lorizio, senior trader at Manulife Asset Management in Boston. “It provides a Treasury alternative if it’s very highly rated.”

Very highly rated by the same very highly rated ratings agencies that brought us the very highly rated mortgage backed securities and very highly rated structured investment vehicles no doubt! I mean, that pretty much goes without saying.

What's the worst that could possibly happen again? So what if Treasuries are backed by a printing press and corporate bonds are not? If you can't trust a senior trader at Manulife then who can you trust? Risk off, baby. We've finally reached a new permanent plateau of prosperity! Woohoo!

This is not investment advice.

The Swiss Cheese Higher Interest Rate Theory

March 8, 2015
SNB considering higher negative interest rates: Schweiz am Sonntag

Citing sources close to the SNB, Schweiz am Sonntag said "a rate of minus 1.5 percent is being considered".

As far as Switzerland is concerned, there are definitely holes in the higher interest rate theory.

It would seem that once rates go negative, higher rates means they go even more negative. Who knew? No wonder economists are so worried about the zero lower bound. It's an event horizon for interest rate black holes. Reality shifts as the boundary is crossed.

Perhaps savers should start thinking about the -100% "higher" bound. That's a level that should never be breached, at least in theory. In practice though, perhaps a properly determined government could actually tax your losses, lol. Sigh.

"Says here that you lost 100% of your money. Can you afford the taxes on that or would you like to take out a loan at one of our prestigious private commercial banks? Just doin' our part to stimulate the strong and robust global credit economy! Thanks for participating!"

Illusion of Prosperity Infects Virtual Prosperity World

I've been playing quite a bit of Real Racing 3 on my iPhone. It's a free to play game and last night I received the following exclusive offer.


Click to enlarge.

$250,000 in virtual currency not enough? Try $250,000!
66 in virtual gold not enough? Try 66 gold!

Yes! 0% more value! It's an exclusive offer just for me! Hahaha!

In the game's defense, the offer actually bumped up to 50% more when I went looking for it. So this screen shot is simply a bug. The virtual currency and gold would set me back $14.99 plus tax. Not interested. The currency is easy to earn while enjoying the game and I have built up 914 virtual gold right now. Don't need more any time soon.

I'm loving these free to play games that simply require a bit of patience.

To summarize, I earn virtual currency and virtual gold virtually gaming and just received a virtual exclusive offer that I chose to refuse. Can't you just feel the long-term virtual prosperity rolling in?

I've spent $4.99 plus tax in total for about 90 hours of game play. That works out to about 6 cents per hour so far. I don't see myself paying any more than that. The cents per hour should therefore fall from here.

Special thanks to those subsidizing my gaming in this new and improved virtually prosperous world!

And don't even get me started on The Sims FreePlay. Fun game. Haven't spent any real money on it yet. I have earned virtual currency willingly watching daily advertisements for other free to play games, so that's something I guess.

How many developers are making even more free to play games right now? Can't wait to almost pay for them when they come out! Strong job market! Best ever!!

This Is Not the 1950s

Just thought I'd mention it for those who are confused.

March 4, 2015
A Blueprint for a Bond Bear Market?

A much better comparison, if you want to make one, would be the 1950s. At the start of 1950 the 10 year yielded 2.3%. It rose throughout the decade and finished at 4.7%.

We know this isn't the 1950s because, as seen in the following link, we aren't coming out of World War 2.

February 12, 2015
CHECK IN TO JAPAN’S CREEPY ROBOT HOTEL

The robot will check you in, take your bags, and escort you to your room in a new Japanese hotel that hopes to free itself of human employees.

When one starts with the premise that a bond bear market will soon unfold then one can can find all sorts of interesting rationalizations to support one's theory.

Might just as well rule out another theory while I am here. As much as many might wish to see a 1950s Elvis reappear, I'm sorry to say that we're more than likely stuck with Bieber.

Billionaire Predicts 100+ Years of Robotic Stagnation

February 11, 2015
Robots won't pose a threat to middle class jobs for at least 100 years, maybe never, says PayPal founder Peter Thiel

Robots may well replace factory workers over the next decade, but they don’t pose a threat to middle class jobs for at least one hundred years, claims billionaire venture capitalist Peter Thiel

And if you believe that one then I've got another one for you.

"There is no reason for any individual to have a computer in his home." - Ken Olsen, Founder and Former CEO of Digital Equipment Corporation, 1977

As a side note, I was under the impression that factory workers are part of the middle class and that these middle class workers do feel a bit threatened by tasks robots can already do and how fast they can do them. My bad. I stand corrected. Special thanks to billionaire Peter Thiel for setting me straight on all of this.

Forehead. Desk. Whack. Whack. Whack.

Sarcastic Monday is getting off to a fantastic start! This bodes well for the week ahead! Woohoo!