March 23rd, 2022
Mindful Money Blog –Explaining the mind behind investor behavior
I love the movie Raising Arizona. The movie is a nonstop bunch of absurd happenings. After one of those absurdities, the Nicolas Cage character is told it’s a crazy world. Cage says, “Yeah, someone ought to sell tickets.” I have used that a lot in the last year.
Insights on Inflation and the market
We know we have inflation when we see inflation. I have had various people tell me over the last few years that inflation was bad. I never noticed it, and it wasn’t bad. Many people just lost track of time. At the country club the old members want to know why the Prime Rib isn’t $19.95 anymore. But this is for real now and could get worse. Beef prices are out of control and just about everything is way up in price. We covered energy costs last time. This is also translating into higher electricity costs.
I haven’t seen much reporting on a major cause of inflation. Some of it is fueled by home prices doubling over the last five to six years. Someone living in a $300,000 house since 2016 has gained an additional $300,000 in some cases. Meanwhile the mortgage is down to $278,000, leaving $322,000 in equity.
Could people be splurging on new cars, vacations and other high end goods? I think so. It is a simple matter to take out $100,000 of the above example. The new payment is about $430 more, but the excitement of blowing 100k today is just too tempting for some. You have heard the commercials: Get your home re-financed today to pay for college education, that new car, vacation or swimming pool you promised the kids!!
For people doing the math, you owe an additional $5,160 per year. If you pay that off over 30 years, your house will gain way more than the $100,000 you took out. I know people who have refinanced themselves into a very low financial position at retirement. They have no equity left, and a higher payment. They have lost the ability to downsize, since they have no equity. About 65 billion dollars flows back to the economy (more money to chase fewer goods) from cash out mortgages. For those that don’t cash out, they have more money to spend from a lower payment. Once again, we are using our homes as an ATM.
The market has surprised me the last 5 or so days. We have had quite a bounce. I may try to figure out what is behind it. That is counterproductive and you can’t really know. Lots of activity and growth among many sectors, especially oil and gas. Tech has been a good buy IMO for the last few weeks. What do I expect over the next month and until year end? You know, I would not venture a guess. What I think, or an article says, or even worse an analyst says, is not very helpful. My job is to predict long term outcomes. If you need proof of how bad analysts predictions are, get a recommended list of stocks from a brokerage firm from 2015, and see how those panned out.
The market will continue to follow growth of earnings, dividends, and the sometimes overlooked stock buybacks many companies are doing. Amazon announced it’s first buyback of stock ever. Apple has been doing it in a huge way for years. By them buying their own shares it reduces the amount of shares outstanding. So, when earnings per share (EPS) come in, there are less shares to spread it over, which makes EPS better. These buybacks, if consistent and growing can be as favorable as rising dividends.
The market is not as attached to the fortunes of our current circumstances as we think. Corporations can do well during political turmoil. If we total up all the issues going on it can seem daunting. We are in a political season where trees and dirt are deemed more precious than people. When the government is focused on such pressing issues as making sure a 6’5” intact male compete against women in swimming, we can know we are adrift. Oh, and he is also in the same locker room. The team complains, no one is listening. Academia, as usual, leads to young adults adopting policies that you couldn’t have guessed 10 years ago.
Lots of people ask how we got here in the first place. The main thing is that we are subject to human nature. The idea that a successful life includes fighting our own nature may seem odd, but it is a key to success.
I leave you with a video, which for me, was an outstanding explanation of how these changes we see came about. Please take a look at it, It is well worth your time! I would love to hear your thoughts on it. https://www.youtube.com/watch?v=09maaUaRT4M. It may also answer the question many people have about WWII: “Why did the German people go along with it?”
The video explains how a country can get stuck in horrible beliefs, such as chasing people down and burning them at the stake because they truly believed they were moral and needed to rid society of witches. In the 20’s and 30’s our country was all in on eugenics. That was the belief that we could create better outcomes by eliminating those we thought were not worthy of reproducing, including black people, retarded people, deformed people, the insane, etc. We forcibly sterilized more than 70,000 thousand of our own citizens. Another movement of death by the Democrats. Republicans too, but more democrats. Today Democrats love taxpayer funded abortions. A great way for them to cull out undesirables since abortion hits communities such as the ones listed above much more often. We can call it “soft eugenics.”
We are NOT more sophisticated and civilized now. This has been going on for 1,000’s of years. The Old Testament describes atrocities as well as historical documents from throughout history. A great old book to own is Extraordinary Popular Delusions and the Madness of Crowds -Charles Mackay 1859. A great conversation piece that catalogues many delusions that overcame people in the previous centuries.
Like all of these whacked out eras, this too shall pass.
Nothing is new under the sun, the feeling that people are buying into things they couldn’t possibly buy into, is a common feeling. It’s crazy down here on the planet! Someone should sell tickets.
Please forward to a friend!
See you soon,
Craig