In Search of the Perfect Investment

Yesterday: Dow. Nasdaq. S&P 500.

Talking head explanations:

+ The market is tanking because the 10-year Treasuries yield hit 3% today for the first time since 2014 and is expected to go even higher.

+ Investors fear that growth in company profits will slow down.

+ For the first time since the 2016 US election, more Americans expect stocks to fall over the next 12 months than rise, according to Conference Board’s Consumer Confidence.

+ Dow drops 500 points after Caterpillar forecast higher steel and aluminum prices would hurt its profits later in the year.

+ Upcoming regulations will maul tech companies, especially Facebook and maybe Google.

+ The whole market looks like it’s ready for a rollover.

+ Commodities prices — oil and metals — are high and rising.

In short, nobody knows. They make this stuff up to fill talk time on BubbleVision.

I like the latest Ross Rant from Joel Ross:

The ten year is finally at 3%. They had hit 3% in January 2014. Part of cause- flood of Treasury issuance of $114 billion this week. In addition, retail sales rebounded in March up .6% vs down .1% in February. Auto sales were up 2.0% It is a purely psychological issue for the kiddies in Wall St. The ten year historically trades well over 5% on average over decades. At 3% most investments still make a lot of sense as to returns, and real estate deals still work given the low spreads. Banks do well the higher rates are. If your deal or investment worked at 2.8%, but not 3%, then the deal made no sense in the first place. If it is not viable at 3% then it was a bad deal anyway. For decades we made deals make sense at a ten year at 6% and loan rates at 8%. Rates will rise further, but they have a very long way to go, likely over the next two years before they are at a level to really inhibit good investments. This is not going to stop or slow growing capital investment by companies, nor by governments.

The problem is so many youngsters in Wall St and banks think 2% on the ten year is the norm, that they do not understand history. One day the ten year is likely to be at or above 5% again, but that is at least a few years away if not more. One reason is the US government will be broke if rates go that high given the massive added $10 trillion debt Obama and the Dems loaded us with. Summary, the ten year at, or a little above 3%, is not going to inhibit the economic growth we are experiencing. The other issue is the kiddies have not seen a real growing economy for over 11 years. So now they do not think earnings will rise much more. They are wrong.

The other illogic today is the market collapsed just as Trump sends Mnuchin is going to China to work out a deal, China said they want to make a deal, Macron has moved the ball ahead on EU-US trade and backing Trump with China, it seems N Korea talks are still moving positively for the moment, earnings are coming in well and will continue to do so as the year progresses. So steel prices are up a bit. Not the end of the world. Oil is back down. Inflation is not taking off. The jitters over inflation because commodity prices are up is now what the nervous nellies are overly fretting about. Despite the press claiming Macron did not think much of Trump with the handshake at NATO, but we see ourselves Macron and Trump get along great. Ignore the media claims about such things.

To me the real issue is there is so much in play at the moment that most people cannot understand what is really going on. However if you listen carefully trade with China is likely to get resolved well, NAFTA will get agreed, N Korea and Trump will find a way to get real negotiations moving ahead, Trump now has a superb national security team, the EU and Trump will reach some deal on Iran, and the economy worldwide is growing nicely. All good news, but too much for the media and many people who get their politics and emotions in the way of clear thinking. Two months from now we may see a new NAFTA, real progress on trade, real negotiations with Kim, continued strong economic growth, rates settling around 3% and inflation around 2%. 2Q GDP is likely to be around 3%+. Things could go off track, but in my view, we may be on the serge of some really historic very good things. If Trump does pull these off, and the news of the Democratic conspiracy to stop Trump unfold, the Republicans win in November.

Apartments are still providing good returns, although not at the level they had been. The growth of the economy, combined with the high prices and low inventory of houses, has kept demand at a good level in many, but not all markets. In addition, the construction of new units in many markets is going to slow in the next year, keeping inventory in line. Multifamily starts in March were up 14.4% but all single family was down 3.7% which is part of the reason home prices are rising so much- no inventory. New home sales were up nicely in March.

All my friends (and me) are standing pat. Not buying — too early. Not selling — too late.

We Don’t Need No Education

This is Paul Krugman’s latest piece on why teachers are striking in several states. Paul Krugman won the Nobel Prize for economics in 2008. His bio is here.  This article explains state and federal taxes and how they’re spent:

Matt Bevin, the conservative Republican governor of Kentucky, lost it a few days ago. Thousands of his state’s teachers had walked off their jobs, forcing many schools to close for a day, to protest his opposition to increased education funding. And Bevin lashed out with a bizarre accusation: “I guarantee you somewhere in Kentucky today a child was sexually assaulted that was left at home because there was nobody there to watch them.”

He later apologized. But his hysterical outburst had deep roots: At the state and local levels, the conservative obsession with tax cuts has forced the G.O.P. into what amounts to a war on education, and in particular a war on schoolteachers. That war is the reason we’ve been seeing teacher strikes in multiple states. And people like Bevin are having a hard time coming to grips with the reality they’ve created.

To understand how they got to this point, you need to know what government in America does with your tax dollars.

The federal government, as an old line puts it, is basically an insurance company with an army: nondefense spending is dominated by Social Security, Medicare and Medicaid. State and local governments, however, are basically school districts with police departments. Education accounts for more than half the state and local work force; protective services like police and fire departments account for much of the rest.

So what happens when hard-line conservatives take over a state, as they did in much of the country after the 2010 Tea Party wave? They almost invariably push through big tax cuts. Usually these tax cuts are sold with the promise that lower taxes will provide a huge boost to the state economy.

This promise is, however, never – and I mean never – fulfilled; the right’s continuing belief in the magical payoff from tax cuts represents the triumph of ideology over overwhelming negative evidence.

What tax cuts do, instead, is sharply reduce revenue, wreaking havoc with state finances. For a great majority of states are required by law to balance their budgets. This means that when tax receipts plunge, the conservatives running many states can’t do what Trump and his allies in Congress are doing at the federal level – simply let the budget deficit balloon. Instead, they have to cut spending.

And given the centrality of education to state and local budgets, that puts schoolteachers in the cross hairs.

How, after all, can governments save money on education? They can reduce the number of teachers, but that means larger class sizes, which will outrage parents. They can and have cut programs for students with special needs, but cruelty aside, that can only save a bit of money at the margin. The same is true of cost-saving measures like neglecting school maintenance and scrimping on school supplies to the point that many teachers end up supplementing inadequate school budgets out of their own pockets.

So what conservative state governments have mainly done is squeeze teachers themselves.

Now, teaching kids was never a way to get rich. However, being a schoolteacher used to put you solidly in the middle class, with a decent income and benefits. In much of the country, however, that is no longer true.

At the national level, earnings of public-school teachers have fallen behind inflation since the mid-1990s, and have fallen even more behind the earnings of comparable workers. At this point, teachers earn 23 percent less than other college graduates. But this national average is a bit deceptive: Teacher pay is actually up in some big states like New York and California, but it’s way down in a number of right-leaning states.

Meanwhile, teachers’ benefits are also getting worse. In particular, teachers are having to pay a rising share of their health insurance premiums, a severe burden when their real earnings are declining at the same time.

So we’re left with a nation in which teachers, the people we count on to prepare our children for the future, are starting to feel like members of the working poor, unable to make ends meet unless they take second jobs. And they can’t take it anymore.

Which brings us back to Bevin’s unhinged outburst.

One way to think about what’s currently happening in a number of states is that the anti-Obama backlash, combined with the growing tribalism of American politics, delivered a number of state governments into the hands of extreme right-wing ideologues. These ideologues really believed that they could usher in a low-tax, small-government, libertarian utopia.

Predictably, they couldn’t. For a while they were able to evade some of the consequences of their failure by pushing the costs off onto public sector employees, especially schoolteachers. But that strategy has reached its limits. Now what?

Well, some Republicans have actually proved willing to learn from experience, reverse tax cuts and restore education funding. But all too many are responding the way Bevin did: Instead of admitting, even implicitly, that they were wrong, they’re lashing out, in increasingly unhinged ways, at the victims of their policies.

Dr. Yu Tok Kak alias Dr.Trevor

Q: Doctor, I’ve heard that cardiovascular exercise can prolong life. Is this true?
A: Heart only good for so many beats, and that it… Don’t waste on exercise. Everything wears out eventually. Speeding up heart not make you live longer; it like saying you extend life of car by driving faster. Want to live longer? Take nap.

Q: Should I reduce my alcohol intake?
A: Oh no. Wine made from fruit. Fruit very good. Brandy distilled wine that means they take water out of fruity bit so you get even more of goodness that way. Beer also made of grain. Grain good too. Bottom up!

Q: How can I calculate my body/fat ratio?
A: Well, if you have body and you have fat, your ratio one to one. If you have two body, your ratio two to one.

Q: What are some of the advantages of participating in a regular exercise program?
A: Can’t think of one, sorry. My philosophy: No pain…good!

Q: Aren’t fried foods bad for you?
A: YOU NOT LISTENING! Food fried in vegetable oil. How getting more vegetable be bad?

Q: Will sit-ups help prevent me from getting a little soft around the middle?
A: Oh no! When you exercise muscle, it gets bigger. You should only be doing sit-up if you want bigger stomach.

Q: Is chocolate bad for me?
A: You crazy? HEL-LO-O!! Cocoa bean! Another vegetable! It best feel-good food around!

Q: Is swimming good for your figure?
A: If swimming good for figure, explain whale to me.

Q: Is getting in shape important for my lifestyle?
A: Hey! ‘Round’ is shape!

CONCLUSION: Eat and drink what you like.
Speaking English is apparently what kills you.

Harry Newton, who wonders why he came back from the California desert. Its raining and cold in New York. I got drenched going to Brightwood Capital Advisers annual meeting at the Time Warner Building. Nice walk normally. Not in drenching rain.