Doom, Gloom, and Dogs

January 13, 2021
The Guardian: Top scientists warn of 'ghastly future of mass extinction' and climate disruption

Dealing with the enormity of the problem requires far-reaching changes to global capitalism, education and equality, the paper says. These include abolishing the idea of perpetual economic growth...

Reading all of this doom and gloom during a pandemic is a bit much, even for an Illusion of Prosperity blogger. I therefore attempt an escape from reality to the relative safety of my German Shepherd puppy memories.

Wow! That actually worked? I feel so much better now. In fact, I'm barely even thinking about how our very own loser of a president recently incited violence, death, and looting at our very own U.S. Capitol.

Dog therapy for the win! Let the healing begin!!

Fate Is a Cruel Mistress

January 8, 2021
CNBC: Bill Miller says bitcoin becomes less risky the higher the price goes

Three days later:

January 11, 2021
CNN: Bitcoin plunges more than 20% in three days. It's now in a bear market

The Sarcasm Report v.280

January 8, 2021
CBS News: Object that whizzed by Earth probably came from alien world, Harvard professor asserts

Loeb argues in his book that the object was probably debris from advanced alien technology – space junk from many light years away. It may have been a type of "light sail" propelled by sunlight, a technology that humans are currently developing for space exploration.

Yeah, out of the nearly infinite number of ways an object like that could have potentially been created, debris from advanced alien technology does seem to be the most probable reason for its existence. I mean, really. The object looks weird. What more evidence do we need? In fact, weird objects are almost always debris from alien technology, advanced or otherwise.

He said his ideas aren't popular in the scientific community right now – talking about potential extraterrestrial intelligence is "out of the mainstream, and it should not be."

Who would have predicted that his ideas aren't popular in the scientific community right now? That's the truly shocking part! ;)

(Possible? Yes. Probable? Bat**** crazy.)

Worst President in American History

Lost the House.

Lost the Senate.

Lost the Presidency.

Lost his sanity.

(Not necessarily in that order.)

My Asset Allocation

 

My IRA may have recently filled with the Vanguard Utilities ETF (VPU), but it is not the majority of my nest egg. Want to make that clear. I also want to repeat that I am definitely not offering investment advice on this blog. I’m just showing what I am doing. As you can see, not much of a risk taker in retirement. Things might look different if I had a job to fall back on.

These are ballpark numbers. I’m valuing the long-term TIPS based on their inflationary gains from when I bought them many years ago, and not on their current market value (which is considerably higher). One small bond matures this month (1.17% real yield), a large bond matures in 8 years (1.75% real yield), and the rest mature in about 20 years (2.13% real yield).

The savings bonds are mostly I-Bonds also earning an average weighted real yield of about 2%. There are some EE-Bonds as well, which are guaranteed to double if held 20 years. The earliest purchases in 2010 are halfway there.

The savings account is earning 0.3%, thanks to the pandemic and the relentless long-term decline in interest rates.

I’m basing the value of my home on current Zillow estimates. Subject to change during the next earthquake. I do live in the Seattle area. This downside risk to my nest egg is not trivial.

Yardeni Research

Today, I wished to see an historical chart of the S&P 500’s earning yields vs. the 10-year treasury yields. I found that chart at Yardeni Reasearch. Dr. Edward Yardeni has a blog (Dr. Ed’s Blog) and I have added it to my blog list.

It’s like reading the optimist version of John Hussman. Both are clearly very intelligent individuals, but only one has offered consistently better investment advice.

Hussman’s Strategic Growth Fund has an average annual total return of just 0.5% since its inception on July 24, 2000 to October 31, 2020. Investors would have been much better off just passively buying I-Bonds purchased that year. Not only would they have locked in 3.4% in interest each year (like I did), but the bonds would have also received inflationary gains (and interest on those inflationary gains). And further, that will continue for another 10 years until they mature in 2030.

It is not my intent to bash Hussman. I do read what he writes and he does offer much to think about, even if I don’t always agree with his conclusions.

I do intend to read all of Dr. Ed’s older posts in the coming weeks. I think there’s a lot of good information to be found there. Here’s a teaser to help get you interested. Dr. Yardeni continues to believe, as I do, that interest rates will remain low for a very long time. Welcome to Japan. There’s so much more to read though, and it’s all very thought provoking.

This brings “the glass is more than half full” blogs in my blog list to 2. Calculated Risk is no longer alone.

Of course, I’m still very concerned about our country’s long-term future. That’s not going to change. However, Rome did not fall in a day. I can’t preserve my standard of living betting on things that may happen long after I’m dead. I have to plan for what is most likely while I’m still alive. Can’t say for sure if my plan to load up on utility stocks in my retirement account is a good one. Hopefully, hindsight will be kind to me. I can say that I’m sleeping better since I did it though, which is a pleasant surprise.

Charting VPU

 

This chart shows the adjusted close (adjusted for dividends and stock splits) of VPU since the depths of the Great Recession. It is plotted on a log scale so that constant exponential growth will appear as a straight line. I have added a trend channel in red for your consideration.

I offer no predictions on where this fund goes from here. I’m simply offering a glimpse of history. As they say, past performance is not necessarily indicative of future results. I think that would be especially true in this case.

My expectations remain low. I do not expect VPU to permanently stay in the channel. However, it is my hope that this fund will outperform the 1.64% 30-year treasury bond if held the full 30 years, and I intend to personally test the theory to its ultimate conclusion.

The ability to easily and safely make money off of money continues to become both more difficult and less safe. Unfortunately, this is a trend that I do not see improving within my lifetime.

The source data for this chart can be found at Yahoo Finance.

Thoughts on VPU

 From MarketEdge:

“Until VPU can find a price level that supports the stock, further price depreciation is probable. Momentum is negative. Wait for accumulation indicators to turn positive as a sign that demand for the stock is improving.The stock has underperformed the market when compared to the S&P 500 over the last 50 trading days.”

They rate VPU as avoid, for the same reasons I rate it as attractive. I’m not a momentum trader. I seek value. Heaven help us all if utility stocks outperform the market over the long-term.

I do expect VPU to outperform the 30-year treasury over the next 30 years though. VPU’s dividend yield is about 3%. The 30-year treasury now yields just 1.64%. My expectations are set very low. Not feeling any exuberance.

I had similar expectations for the one long-term TIPS bond filling my retirement account. For years, it poked along exactly meeting my low expectations of 2% per year plus inflation. Was happy holding to maturity. This year, money flooded into bonds though. The market made me an offer I couldn’t refuse. In theory, the same thing could happen to utilities. All it would take is more safety seeking low expectation “savers” to someday make the same decision I have recently made. And if they never do, that’s fine too. As one who is reinvesting the dividends, I’m not going to complain much about cheaper share prices to keep buying.

Setting expectations below what is likely means life is often filled with pleasant surprises. It is ultimately more rewarding to me to invest in something mundane that turns exciting than something exciting that turns mundane.

Note that I chose to buy mundane utility stocks over shares in a very exciting $669 billion car company. Perhaps too exciting. That’s roughly equivalent to a $2000 stimulus check for every man, woman, and child in the United States. How many more times do Tesla investors realistically think it can double from here? Dare I ask?