In Search of the Perfect Investment

Allocation. You don’t control your investments. You’re not their CEO. Hence, where you allocate your money is how well you sleep.

I’m asking friends for their allocation. Friend A:

Real estate (at cost) 31%
Cash 8%
Bonds and fixed interest loans 14%
Stocks and stock funds 37%
Hedge funds 11%

Harry’s:

Real estate (at cost) 24.7%
Cash 14.2%
Bonds 7.5%
Stocks and stock funds 15.5%
Private equity — startups etc. 8.0%
Leveraged buyout fund 2.1%
Personal real estate 28.0%

 Friend A feels more positive about the markets. Friend A has been longer in real estate syndications than I have. That affects his allocation.

Allocation is not the “stocks/bonds, do your age” rule it used to be. Bonds are dead. Once I had many more bonds, but many have been called in recent years. (Sadly.)

Run your allocation this weekend. See how you stand.

Meanwhile, today:

+ Goldman Sachs thinks oil could fall to $20 a barrel. “The oil market is even more oversupplied than we had expected and we now forecast this surplus to persist in 2016 on further OPEC production growth, resilient non-OPEC supply and slowing demand growth, with risks skewed to even weaker demand given China’s slowdown and its negative EM feedback loop.”

+ Bill Ackman likes his recent big stake in Mondelez (MDLZ). He talked about it on CNBC this morning.

+ Futures are weak this morning. Stocks around the world are down. Maybe a good buying opportunity late in the day.

 Who would have thought? From this morning’s CNBC:

Useful advice.  Just four weeks ago, the Wall  Street Journal’s Jason Zweig wrote a piece he called “5 Things Investors should not do.” At that time, the market was slumping badly. It has continued to slump. Here’s the four weeks since.

Zweig began his piece:

Stocks slumped world-wide this week, with U.S. and European markets off more than 5% and the Shanghai Composite Index losing more than 11%. Oil prices also skidded, dropping more than 6%. Traders feared that slowing growth in China, the devaluation of the Chinese currency and the overhang of too much debt could stifle global economic recovery.

Here are five things you should know about how not to react.

1 Don’t fixate on the news.

The more often you update yourself on the market’s fluctuations, the more volatile and risky it will appear to you – even though short, sharp declines of 5% to 25% are common. The U.S. stock market has, in the past few years, been extraordinarily placid by historical standards. Even the sudden drops of the past few days are well within the long-term norm. Fixating on fluctuations in the short term will make it harder for you to remain focused on your long-term investing goals.

2 Don’t panic.

While stocks are certainly not cheap, they aren’t wildly overpriced, given today’s levels of interest rates and inflation. U.S. stocks are trading at 24.9 times the average of their long-term, inflation-adjusted earnings, according to data from Yale University economist Robert Shiller  – down from 27 in February. Over the full sweep of bull and bear markets in the past 30 years, they’ve traded at an average of 23.8 times adjusted earning

3 Don’t be complacent.

You should use the latest turbulence as a pretext to ask yourself honestly whether you are prepared to withstand a much worse decline. Did you make it through the epic bear market of 2007-09 without selling all your stocks? Are you extremely well diversified, with plenty of cash, some bonds, and with large and small stocks from markets around the world? Then you can probably weather a further decline.  But if you sold in earlier bear markets or you are heavily concentrated in a few stocks or sectors, you should consider raising some cash or diversifying more broadly to protect against the risk that you will take even more drastic action at the worst time.

4 Don’t get hung up on the talk of a “correction.”

A correction is typically defined as a decline in price of 10% on a widely followed index like the S&P 500 or Dow Jones Industrial Average. The term doesn’t have official status, however; until fairly recently, declines of 5% and even 15% or 20% were often called “corrections.” A market decline of 10% has no real significance in and of itself. What matters is the outlook for the future; that doesn’t depend on whether the market is down 10.2% rather than 9.8%.

5 Don’t think you — or anyone else — knows what will happen next.

Media obsession with The Donald thrives. The New Yorker has written the best piece on the Trump phenomenon. It’s called “The Fearful and the Frustrated.” The piece is illustrated with this great drawing by Christopher Niemann.

Capition under the drawing reads: Plumbing Trump’s psyche is as productive as asking American Pharoah why he runs. The point is what happens when he does.

Excerpts from the article:

+ Trump’s signature lines—“The American dream is dead” and “We don’t have victories anymore”—constitute a bitter mantra in tune with a moment when the share of Americans who tell Gallup pollsters that there is “plenty of opportunity” has dropped to an unprecedented fifty-two per cent; when trust in government has reached its lowest level on record, and Americans’ approval of both major parties has sunk, for the first time, below forty per cent. Matthew Heimbach, who is twenty-four, and a prominent white-nationalist activist in Cincinnati, told me that Trump has energized disaffected young men like him. “He is bringing people back out of their slumber,” he said.

+ It must be stated clearly that (to the delight of the far-right extremists I spoke with) a great many Republicans are mortified by Trump—horrified by his campaign of fear, embarrassed that others in the Party are not, and desperate to move on. But Trump’s strategy has its logic. Gary Johnson, who as a Republican served two terms as the governor of New Mexico, before becoming the 2012 Libertarian Party Presidential candidate, told me that anyone who runs for office discovers that some portion of the electorate is available to be enraged and manipulated, if a candidate is willing to do it. “I ran across this constantly,” he said. “This eight per cent out there that bangs their fist on the table and says, ‘The biggest problem we’re facing is immigration!’ And I’m going, ‘No! No! This is not the case!’ ” Johnson cited a poll that at that point put Trump’s support among Republicans at eighteen per cent, and told me, “I don’t think there’s an eighteen-per-cent element of this country that is just outright racist. But there is a segment out there that is, and he has definitely appealed to that.”

+ Trump has always weaved in and out of racially charged controversies. In 2000, he secretly ran ads opposing a Catskills casino backed by the St. Regis Mohawk Tribe, because it would rival his businesses in Atlantic City. Beneath a picture of drug paraphernalia, the ad asked, “Are these the new neighbors we want?” Tribal leaders denounced the message as “racist and inflammatory,” and Trump and his associates were fined by New York State for concealing the true source of the ads. In March, 2011, Trump, who was considering a Presidential run, resurrected the crackpot theory that Barack Obama is not an American citizen, declaring, “I want him to show his birth certificate.” (It had already been publicly available for more than three years.) Trump’s declaration gave the issue new prominence. At the time, Trump’s on-again, off-again political adviser, the former Nixon aide Roger Stone, said that the decision to become a birther was “a brilliant base-building move.”

+ “Even if you play the game, even if you do everything right, then the future, when it comes to your income, when it comes to benefits, when it comes to everything, we are going to be the first generation in American history to be living worse than our parents.” He went on, “My own parents tell me, ‘Well, you should just shut up, you should go get a normal job, and get a two-car garage, and then you’ll be happy.’ ”

On the economics, Heimbach’s narrative is not wrong. During a half-century of change in the American labor market—the rise of technology and trade, the decline of manual labor—nobody has been hit harder than low-skilled, poorly educated men. Between 1979 and 2013, pay for men without a college degree fell by twenty-one per cent in real terms; for women with similar credentials, pay rose by three per cent, thanks partly to job opportunities in health care and education. Like many ultraconservatives, Heimbach had largely given up on the Republican Party. He said, “We need to get the white community to actually start speaking for the white community, instead of letting a bunch of Republicans that hate us anyway, and don’t speak for our values, be the unofficial spokespeople.”

+ As the debate wound down, Trump, in his final statement, recited his mantra of despair. “Our country is in serious trouble. We don’t win anymore,” he said. “We can’t do anything right.” Matthew Parrott, a Web developer who was sipping coffee from a cup adorned with a swastika, said, “He was sassy without being comical. He struck exactly the tone he needed to give the people supporting him exactly what they want more of.” He went on, “The political system hasn’t been providing an outlet for social-conservative populism. You had this Ron Paul revolution, and all the stuff about cutting taxes, small government, and that’s just not the electrifying issue that they were expecting it to be. Simple folks, they want the border secure. They want what Donald Trump is mirroring at them. I think he’s an intelligent businessman who identified what the people want to hear. He’s made a living finding these sorts of opportunities.”

 + When Trump leaped to the head of the Republican field, he delivered the appearance of legitimacy to a moral vision once confined to the fevered fringe, elevating fantasies from the message boards and campgrounds to the center stage of American life. In doing so, he pulled America into a current that is coursing through other Western democracies—Britain, France, Spain, Greece,

Scandinavia—where xenophobic, nationalist parties have emerged since the 2008 economic crisis to besiege middle-ground politicians. In country after country, voters beset by inequality and scarcity have reached past the sober promises of the center-left and the center-right to the spectre of a transcendent solution, no matter how cruel. “The more complicated the problem, the simpler the demands become,” Samuel Popkin, a political scientist at the University of California in San Diego, told me. “When people get frustrated and irritated, they want to cut the Gordian knot.”

Trump has succeeded in unleashing an old gene in American politics—the crude tribalism that Richard Hofstadter named “the paranoid style”—and, over the summer, it replicated like a runaway mutation. Whenever Americans have confronted the reshuffling of status and influence—the Great Migration, the end of Jim Crow, the end of a white majority—we succumb to the anti-democratic politics of absolutism, of a “conflict between absolute good and absolute evil,” in which, Hofstadter wrote, “the quality needed is not a willingness to compromise but the will to fight things out to a finish. Nothing but complete victory will do.” Trump was born to the part. “I’ll do nearly anything within legal bounds to win,” he wrote, in “The Art of the Deal.” “Sometimes, part of making a deal is denigrating your competition.” Trump, who long ago mastered the behavioral nudges that could herd the public into his casinos and onto his golf courses, looked so playful when he gave out Lindsey Graham’s cell-phone number that it was easy to miss just how malicious a gesture it truly was. It expressed the knowledge that, with a single utterance, he could subject an enemy to that most savage weapon of all: us.

Trump’s candidacy has already left a durable mark, expanding the discourse of hate such that, in the midst of his feuds and provocations, we barely even registered that Senator Ted Cruz had called the sitting President “the world’s leading financier of radical Islamic terrorism,” or that Senator Marco Rubio had redoubled his opposition to abortion in cases of rape, incest, or a mortal threat to the mother. Trump has bequeathed a concoction of celebrity, wealth, and alienation that is more potent than any we’ve seen before. If, as the Republican establishment hopes, the stargazers eventually defect, Trump will be left with the hardest core—the portion of the electorate that is drifting deeper into unreality, with no reconciliation in sight. ♦

I’ve sent the New Yorker piece to many of my friends. They all say it’s the best they’ve read on Trump. You can read the full New Yorker article, written by Evan Osnos, here.

This picture has always haunted me. It’s people walking amid the rubble of buildings in Douma, Syria. It’s reflects how the country is being destroyed as the war drags  on.

Abd Doumany/Agence France-Presse — Getty Images

  Hard to know what we should be doing. This piece  by Nicholas Kristof  in yesterday’s New York Times points in a direction I agree:

Compassion for Refugees Isn’t Enough

Bravo to Pope Francis, Angela Merkel and so many ordinary Germans and Austrians who have welcomed refugees into their lands. Kudos to those American politicians acknowledging that we should accept more Syrian refugees – the U.S. has admitted only 1,500 since the war started four years ago, which is pathetic.

If you have a heart, you’re moved by the refugees. But if you have a head, you also know that welcoming them in Germany won’t resolve the crisis.

There are 60 million people displaced worldwide, and more will now be willing to board flimsy boats to cross the sea.

“The trickle of refugees is only going to get bigger,” says Joshua Landis, a Syria expert at the University of Oklahoma. “Once people see that refugees are going to be taken in by the West, they’re going to stampede. This problem is going to metastasize.”

Unless we’re careful, the upshot could be more drowned toddlers.

As we inadvertently boost this tide of refugees, beneficiaries will include human smugglers and skinheads, neo-Nazis and far-right xenophobic politicians. An anti-immigrant party now leads the polls in Sweden, and Germany has reported 340 attacks on asylum seekers, including an apparent arson this week at a home sheltering them.

So by all means let’s respond with compassion to the refugees (not as jerks, as Hungarian officials have). But above all, let’s address the crisis at its roots, particularly in the Middle East.

One essential step is to improve conditions for the 3.7 million Syrian refugees in Lebanon, Turkey and Jordan. The World Food Program was just forced to cut 229,000 refugees in Jordan off food rations because it ran out of money, and if the world won’t pay for refugees to eat in Jordan, it will have to feed them in the West.

Then there’s the far more difficult task of trying to make Syria habitable again.

This may be impossible, but let’s be clear: As things stand, we’re on a trajectory for Syria to become even more horrific than it is now. Many experts expect the war to drag on for years, kill hundreds of thousands more people, and lead to an exodus of millions more refugees. We’re likely to see street-to-street fighting soon in Damascus, lifting the suffering and emigration to a new level.

I’m shaken by pleas I’ve seen from women in the besieged Syrian city of Zabadani, which for months has been surrounded by forces supporting the government. They fear that if the government forces take Zabadani, there will be massacres.

So hundreds of women in Zabadani have signed a statement calling for a cease-fire, international protection and evacuation of the wounded. They bravely use their names, despite the risk that they will be murdered or raped if the city falls.

“I’ve never been so depressed,” said Emile Hokayem, a Middle East analyst and author of a book on Syria. “There were options early on. But the options today are all costlier, riskier and come with lower returns.”

Yet as long as we’re talking about Syrian dysfunction, let’s also note European and American dysfunction. The Obama administration has repeatedly miscalculated on Syria and underestimated the problem, even as the crisis has steadily worsened. And some leading Republicans want to send in troops to confront the Islamic State (think Iraq redux).

The least bad option today is to create a no-fly zone in the south of Syria. This could be done on a shoestring, enforced by U.S. Navy ships in the Mediterranean firing missiles, without ground troops.

That would end barrel bombings. Just as important, the no-fly zone would create leverage to pressure the Syrian regime – and its Russian and Iranian backers – to negotiate.

“If they can’t use their aircraft, the day after they will know they can’t survive, and that will bring them to the table,” said Reza Afshar, a former British diplomat who now advises the Syrian opposition through his group, Independent Diplomat.

The aim of the talks, with no preconditions on either side, would be a cease-fire with a tweaking of boundary lines.

Look, this would be ugly. It would amount to a de facto partition of Syria and the partial survival of the regime, perhaps with a new Alawite general replacing President Bashar al-Assad. Yet otherwise we may be standing by as the slaughter spirals toward genocide.

Robert Ford, a former American ambassador to Syria who resigned because he found the Obama administration’s Syria policy indefensible, says a negotiation, even if successful, might drag on for two years as the carnage continued. Still, that’s better than the alternatives.

“It’s irresponsible to throw up our hands and say there’s nothing that can be done,” he added. “Then, almost certainly things will get worse.”

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Sometimes you need to clip an article and send it to a friend.

If you copy and paste, you’ll accumulate a lot of junk — like ads and reader comments. And you’ll send eons, cleaning it.

Easier: Subscribe to InstaPaper. Cleans out all the junk. Also works much better, faster and cleaner than Evernote, which a lot of people use. Click here.

The U.S. is over-retailed. Far too many stores. Far too few customers.

Upshot: nobody pays retail any longer. All the majors will have discount coupons, discount codes and 15% to 20% price drops if you use their credit card.

Only in America can you walk into a store, choose an item, say “it’s on sale,” sign up for the store’s credit credit and walk out with nice men’s pants at a 40% discount — without paying a nickel. They put everything on your new credit card. Thank you Banana Republic (whose stuff I actually like.)

The most miserable country in the world. Remember BusinessInsider’s list. Here’s the worst one: It’s even worse than Djibouti, Yemen and Syria. The list is way out of date. Today Syria and Yemen would vie for being the worst. You can see the list here.

US Open Tennis should be really good this evening: Here’s tonight’s schedule:

Continuing the wonderful quotes. One last one.

“I spent half my fortune on booze and broads, the other half I wasted.” WC Fields

Harry Newton. Today is the 14th anniversary of the September 11 terror attacks. Events are scheduled today across New York City to pay tribute to those who died and to honor the emergency workers. There will be a moment of silence at 8:46 a.m., the moment the first plane hit the towers. This weekend, huddle with your family. Give thanks that we’ve had 14 quiet years.