The stock market is in a sugar high so expect another sell off

The Thinker by Rodin

Retirement leaves me with a lot of surplus time, time I manage to fill reasonably well with consulting and other activities. But there is still plenty of time for leisure. Instead of watching Netflix, I tend to watch YouTube.

Since the pandemic, recession and the election are in, I watch a lot of videos with these themes. But I’ve been mostly concentrating on watching videos on the stock market. Against all odds it has made a spectacular recovery in just a couple of months. I’ve delved into some of the reasons in previous posts, but it mostly amounts to the Fed not letting the economy fail. It is injecting trillions of dollars into the economy into what are arguably junk bonds to push up stock prices. No major publicly traded company in the USA has become too big to fail, in the Fed’s eyes.

In doing so though the Fed is walking into a trap. It’s the trap that the Japanese government walked into in the 1990s and still hasn’t gotten out of. The basic issue is that by not letting businesses fail, you generate a lot of zombie companies that hang around and provide some benefits like keeping people employed but no real value. Their survival is predicated on an endless supply of cash bailouts, right now indirectly provided through the Fed. In other words, they would have failed without these payments, and arguably should have failed. The Fed is essentially not allowing capitalism to work. This means that trillions of dollars are going toward companies that deserve to die so something that useful and productive that meets our new economy can grow in its place.

There are some companies that are very cash rich where this isn’t a problem: Apple, Google and Walmart to name a few. They are thriving and have the resources to emerge more profitably in our new age, mainly because they offer goods and services for these challenging new times that are likely to persist and thrive. Many of the rest though acted stupidly over the last decade, facilitated by the Fed. The Fed kept interest rates artificially low, making it inexpensive to acquire debt. These companies used cheap debt mostly to back their own stock, which further overvalued these companies. Now the Fed is doing essentially the same thing.

As I noted in my last post, new investors are doing a lot to pump up prices too, doing arguably insane investments like buying stock in bankrupt companies. You know this can’t last. At some point, reality will catch up with stocks again. We got a taste of it on June 11 when the DJIA nose-dived 1800 points. Calm and rising share prices quickly returned when Big Daddy Fed came to the market’s financial rescue again.

Some analysts have noticed a pattern of false market rallies that occurred after similar past financial crises. This has happened in every recession since at least 1992. Stocks drop dramatically, but within a few months there is a rally, only until investors realize they were buying based on hope, not reality. So it’s not hard to see that we’re in for another of these soon. Another correction is going to happen. The Fed can delay it for a while, but it’s coming.

Since like February’s crash I can see this one coming, you might want to do what I am doing: selling when it is high again and husbanding the cash, not necessarily to get by, but to await a time when stocks are fairly valued again. Right now the market is on a sugar high, propped up by the Fed throwing trillions at the market. The market has the unwarranted belief that a vaccine for COVID-19 is nigh, and things will magically go back to normal.

An effective vaccine later this year is possible, but unlikely. There are a few reasons for this. First, typically it takes at least a year to find and field an effective vaccine. It’s generally more like four years. Second, any vaccine for COVID-19 is likely to take longer than one year to develop, because it is more complex than typical new viral diseases. Third, even if one is found, you can’t manufacture 300 million doses instantly; it will take months at best. Fourth, the USA is shooting itself in the foot, by not properly mitigating the spread of the disease. To the surprise of no one paying attention to the issue, it’s spreading in the USA and gaining strength. Moreover, it’s likely to generate a second wave of the disease later this year, which will need to be managed along with the seasonal flu. It’s not hard to infer that we’ll be wearing masks for years. From that inference you can figure out in 2021 and 2022 things will look a lot like they do today. You still probably won’t be taking vacations, going to movies or eating out. Which means the real economy is going to keep sucking.

An unemployment rate of 14.6% that is unlikely to get below ten percent by the end of the year, and with both businesses plus state and local governments running out of money, means that a V-shaped recovery amounts to a Hail Mary, which means it’s unlikely to happen. At some point Wall Street is going to figure out its exuberance is irrational and that predictable bear market is going to return.

Even if the Fed continues its strategy of printing money, eventually investors are going to realize that since assets are valued in dollars, and there are so many new dollars in circulation, that effectively their stocks are overvalued because the dollar is overvalued.

To me, it makes sense to sell while the market is irrationally high again and husband the cash. I’m not suggesting dumping all stocks for bonds or cash, but to change the balance of your portfolio to be much more weighted toward bonds and cash. If you selectively hold onto stocks, hold onto those with big cash balance sheets and who are optimized to thrive in this changed economy.

The 2008 recession was largely due to people buying homes for little or nothing down on adjustable rate mortgages. This house of cards came tumbling down predictably when it was placed under stress. The Fed is shimmying up our new house of cards as best it can, but that doesn’t change the underlying dynamic that our current financial system is yet another house of cards, is fundamentally unstable, and needs reengineering so money can go toward more productive uses.

The Fed’s actions are keeping this from happening. In the long run, this could make us the next Japan as we fruitlessly try to keep companies we think are too big to fail from the failure they so richly deserve.

Note: you way want to watch these two videos, two of the more convincing ones of the ones I’ve watched on YouTube.

I’m betting on a recession

The Thinker by Rodin

In a recent post, I suggested leading a logical life. It’s logically the logical thing to do.

Of course, it’s hard to say what is logical, as there is a lot of murkiness in the world. To deal with the murkiness, sometime toward my late forties I hired a financial adviser who gave me all sorts of logical advice about how to manage our finances. It was good advice. He must practice his own advice because after he retired I found another financial adviser so the good times could keep coming.

His advice costs me a few thousand bucks a year, but I figure it’s worth it. I likely wouldn’t be as successful financially on my own, as the ins and outs of markets leave me bewildered. Markets really don’t make a whole lot of sense. One sensible piece of advice that investors will hear from reputable advisers is not to time the market. Find a sound financial strategy and stick to it. Ride the ups and downs in the market. Always think long term.

It’s been good advice. As I noted in previous posts, our wealth is a result of investing regularly, but it was greatly assisted by the collapse of markets in the Great Recession. By accident instead of design, I ended up buying lots of funds when they were grossly undervalued and watched them steadily appreciate over the last decade.

Buy low, sell high is great advice too, but you never really know when a stock or a fund is a good value. Currently the cost of buying into the market is quite high, by historical measures. I don’t trade in individual stocks. Like most Americans, I trade in funds: mutual funds and ETFs for the most part, along with various commercial and government bonds. It makes sense: any individual stock can have huge fluctuations. I find safety in market baskets of similar funds instead.

Every year when I think stock prices can’t get higher, I seem to be proven wrong. 2018 turned out to be a no-growth year because of a selloff in December 2018, but 2019 was phenomenal, with funds up more than twenty percent. It’s crazy but looking at our investments, since we retired in 2014 we’ve nearly doubled the value of our portfolio mostly by doing nothing but periodic rebalancing.

Given all this, it would seem foolish to start cashing in our chips. And yet today, that’s exactly what I did. I didn’t do it with our entire portfolio, just with the part I control. Our financial adviser oversees our assets in TD Ameritrade, but I oversee the funds in my Thrift Saving Plan (TSP), the federal government’s 401K system for its employees when I was one of them. Until now I’ve been mirroring in that fund the plan our adviser has been recommending in our TD Ameritrade account: 60% stocks, 40% bonds. Today I issued an order to the TSP to rebalance these funds to 40% stocks and 60% bonds.

Crazy? It might be. While no one can time the market, for a long time I’ve been queasy about being so highly invested in stocks. Our financial adviser said not to worry because my pension means that we can assume more risk, and thus reap greater rewards. And he’s been right. I keep waiting for this house of financial cards to collapse, but it doesn’t seem to be doing that.

While not an active investor, I do watch a fair amount of financial news and look at trends. Certain mega-trends that have me worried. What I keep seeing is that we’re doing the same stupid stuff that led to the Great Recession. It really looks like we have a credit bubble underway. If this bubble pops pretty soon, I’m going to look smart. If it doesn’t, I’ll look kind of silly. But consider these statistics:

  • Corporate debt is now higher than it was before the Great Recession: 46.5% of GDP in 2019
  • Credit card debt is at an all time high of $930B, which is $60B more than at its peak before the Great Recession
  • Auto loan delinquencies are at an all time high too, past the Great Recession rate. Some 7 million Americans are 90-days or more behind on their payments
  • Overall household debt is at a new high of $14.15T, as of the end of 2019
  • Student loan debt is at $1.4T at the end of 2019, and no one realistically expects most of these loans will be fully repaid
  • Wage growth has been mediocre. One percent real wage growth per year is certainly better than no wage growth, but it’s hardly a shot in the arm to the economy, which is probably why debt is up so much. The real cost of living is much higher than this mediocre wage growth which means most Americans are treading water financially. To the extent lower wage workers are doing better, it’s largely due to raising the minimum wage in more progressive states and localities.

The Fed is keeping the economy primed by injecting cheap money into the economy, which is encouraging the record high debt statistics. Because Trump’s tax cuts benefited largely only the rich, who can’t spend much of this new wealth, the Fed has to prime the economy instead.

On the plus side, mortgage default rates are half what they were before the Great Recession, which is probably because it’s still harder to get a mortgage than it was before the Great Recession, when pretty much anyone could get one with no money down.

All of this strikes me as showing that our economy is fragile and built on large amounts of unsustainable cheap credit. Certain sectors of our economy are in recession. Many nations are already in recession. Then there is the fallout from trade wars and now a coronavirus to worry about. Given all these risks and the huge credit bubble, my gut tells me that things are overdue to fall, perhaps spectacularly again. And when they do, the Fed will have few tools to use.

In general, stock prices strike me as crazily overvalued, pumped up by cheap credit and stock buybacks financed by cheap credit. All this cheap credit is encouraging unhealthy levels of debt by all sectors.

Obviously, I could be wrong on all of this, but reallocating about $100K in our portfolio from stocks and toward bonds lets us reap these inflated stock prices before most catch on that these assets are wildly overvalued. Also, when stocks return to more reasonable prices, we could buy them cheap again.

We’ll see what happens but I’m betting I made a smart move today.

Some surprisingly simple ways to actually grow the economy

The Thinker by Rodin

In my last post, I discussed why the soaring stock market doesn’t mean a lot to most people. Roughly half of us don’t have the money to buy into the stock market, and most of us that do can only afford to do so through a retirement vehicle like a 401-K or an IRA. The principle value of a rise in stock prices is to inflate the wealth of those who bought stocks.

So the rich get richer while those who can’t afford them have to hope that their wage increases will exceed inflation. And so far, that hasn’t happened. Real wages, accounting for inflation, dropped .1% drop November through December 2019. Another sign it doesn’t mean much: the USA’s growth rate is 1.9%, at least as of the last quarter of 2019. This should suggest to most of us that markets are overvalued, and are due for a correction.

If Donald Trump is going to run on his greatest ever economy claim, then two percent growth must be outstanding. It’s not a recession but it suggests our real economy is anemic, just growing a bit while most of the rest of the world’s economy is starting to falter or is faltering. During his first campaign, Trump made it sound like 4% growth would be the absolute minimum that voters could expect. He’s failing at his own benchmark.

He’s been trying to juice up the economy with tax cuts. But as with the stock market, these tax cuts hardly affected the bulk of us and in some cases raised our taxes, such as the caps on state and local taxes that you can deduct from your federal taxes. The tax cuts definitely cut taxes on the rich and gave them a whole lot more money to do things like buy more stocks. One thing the rich aren’t doing is juicing the economy with all this new money by actually buying stuff. The trickle-down economy was never more than this: just a trickle of prosperity coming down to the rest of us from our betters.

Still, if 4% growth were a true goal, I can think of pretty easy ways to do it. So can Bernie Sanders and Elizabeth Warren. To start, we could take those tax cuts we gave to the rich and redirect them to the poor and middle class instead, who will almost certainly go out and spend it. This will cause the economy to grow, certainly by more than it has in our trickle-down economy, because the money will be used to actually buy goods and services.

Even better, we could redirect those trillions for the rich into service for the public good. Republicans clearly don’t want to address climate change, and certainly not with our tax dollars. It won’t stop climate change from happening anyhow. Trump’s trying to jumpstart the economy by stripping environmental protections clearly isn’t working either, but it is shortening our lifespans.

But it’s a sure bet that if that money were redirected to improving the environment, it would both cause the growth we want and put it to good use. We could use it to build the clean, green infrastructure we need to survive. That sounds like an excellent use of money. It will stimulate all sorts of jobs. The obvious ones will be in industries like the solar industry, but to go carbon neutral will require investment and ingenuity across our entire economy.

Moreover, if we tax carbon polluters, we can use that money to also build a green economy. I am already a beneficiary of a carbon credit. By putting solar panels on my roof in 2016, I allowed carbon polluters to claim credit for my clean and green energy. Being green paid me $1830 last year. This is real money in my pocket.

Such investments just compound. It stimulates industries like electric car manufacturing, wind energy, geothermal energy, green computing and the manufacture of more energy efficient products. By cleaning the air and water, we improve health. By removing carbon from our environment, we help address climate change.

All this growth in turn helps makes these industries profitable, so dollars start to follow them. Just as the space program brought us microelectronics and the Defense Advanced Research Projects Agency funded the beginning of the Internet, these investments make a better future possible. And if we can do it sooner than other countries, we stand to gain a disproportionate economic advantage.

But even if you don’t think government should be spending money to do these things, you could still advocate for increases in the minimum wage. This will certainly put money in people’s pockets that can use it the most. As they earn a living wage, there is less need for them to use government services like Food Stamps. That saves the government money, grows the economy and also saves lives. If we were a nation that truly was pro-life, it would be an obvious thing to do.

In short, if Trump were a progressive and had worked for our interests instead of against it, he’d likely not be facing a trial in front of the Senate, wouldn’t need the help of Russia to get reelected and would probably have his election in the bag. Even Democrats like me might have voted for him. Instead, we get an egregious use of tax dollars for counterproductive purposes and the most corrupt president ever.

Let’s hope on November 3, voters act more enlightened.

A soaring stock market means little

The Thinker by Rodin

Donald Trump is hoping to win reelection based on the soaring stock market.

Good luck with that. A soaring stock market doesn’t hurt, but these days a soaring stock market amounts to more evidence that more income is being redistributed toward the wealthy. Why is that? It’s because you have to be relatively wealthy to own stocks in the first place.

To the extent most of us own stocks, it’s probably through mutual funds we own as part of a 401-K and/or IRA. We do this because these investments are typically tax-advantaged. Unless you choose a Roth IRA, you defer taxes on the gains of these funds until retirement, plus these investments are typically pre-tax dollars, meaning you subtract the cost of buying these funds from your adjusted gross income, which means you pay less tax.

The bottom line, according to a 2016 study by NYU economist Edward N. Wolff is that the richest 10% of households control 84% of the total value of stocks. About half of U.S household own some stocks, generally through retirement funds. The other half doesn’t own any stocks.

When markets rise, wealth rises proportionately toward those who own them. Since about half of households don’t own any stocks, there is no stock appreciation to reap, so the rich simply get richer, increasing income inequality.

Our household is definitely not in the top 10% but we do hold onto a lot of retirement assets, principally in bonds and mutual funds. Markets are up about twenty percent this year, but the rise is not as big as it looks. As you may recall, in December 2018 markets gave up their gains for the year, effectively making 2018 a wash on the stock market. Over two years then stocks have gained about ten percent annually, which is definitely good but by no means amazing. Stock market gains during Trump’s tenure so far do not equal Obama’s. Of course, in Obama’s case there was no way for them to go but up, as stocks were severely underpriced after the Great Recession.

People who don’t own stocks mostly don’t own them because they can’t afford to own them. Their money is going toward more important priorities: keeping a roof over their head and food, most likely. Rental costs generally exceed inflation, and food usually does as well. So they are being stretched more. Lower income people aren’t stupid. If they could afford life’s basic necessities, they probably would be investing in the stock markets. It’s simply not an option for them.

As we learned, investing takes perseverance. If you want to fully reap the market’s gains, you have to keep at it persistently, relentlessly, in good times and bad. As a federal employee, I rarely missed a paycheck. When I did, it was because the government was shut down. I never lost money when the government was shut down. Plus, I earned enough money to allow us to invest.

And that’s pretty much how we built wealth: through steady paychecks and doggedness. As I noted, we profited from the Great Recession. In retrospect, this was the biggest factor between retiring okay and retiring comfortably. We bought a lot of mutual funds when they were priced artificially low and kept them while market values increased. I’ve done the math. Were it not for the Great Recession, I expect that our investment portfolio would now be worth about 25% less than it is.

While many of my friends have and continue to struggle with this economy, today’s economy feels to me like an unearned gift. While hardly in the top 1%, I sometimes feel like we should pay a wealth tax too. A lot of our gains seem unnatural and surreal.

This increase in wealth is having me rethink how I want to use it. It still doesn’t mean I will buy a bigger house, a fancier car or a second home somewhere. It’s not quite that large. But as someone nearly age 63 with hopefully twenty-five more good years ahead of him, it does expand the possibilities.

For example, a year ago we were visiting Ecuador and the Galapagos. It was not a cheap vacation. The two weeks cost us at least $15,000, probably closer to $20,000 when you add in all the airfare and extras. It was amazing and incredible but we probably wouldn’t have done it without all this unexpected extra wealth. And it didn’t impact our bottom line at all. It seemed surreal.

Consequently, we are setting our sites further. We could have afforded two Hawaiian vacations for what we spent in Ecuador and the Galapagos. Now we are thinking: why not sail the South Seas? I hesitate to be away from home for too long, as we have two cats. But when they are gone, why not take a round-the-world cruise? Why not a month long train tour around Australia?

But if I were one of those in the fifty percent of households without any stocks, I’d feel resentful. They might want to visit the Galapagos too, or at least Hawaii, but it’s probably not an option. I would feel, rightly, like my pocket had been picked. That’s because it has. Their productivity has been swept up and placed in my pocket instead, but much more disproportionately into the pockets of the very wealthy who can’t begin to spend all of this new wealth. The difference is that I think I can use it to make the rest of my life much more meaningful. Rest assured a fair amount of it is going to help others too, roughly $400 a month or so.

To change this, we need that political revolution that Bernie Sanders keeps talking about. This comfortable retiree will be voting to bring it about.

Invest in innovation, not exploitation

The Thinker by Rodin

America is a supposedly country that rewards innovation. The trouble is, a lot of this innovation is really exploitation. I looked into this briefly a few posts back when I looked at Lyft and Uber’s “innovation”. The only really innovative part about these ride services is their app. They’re both cheaper and generally faster than taking a taxi. So much for the innovation part. The rest of it is pure exploitation, mostly of its drivers who get cash up front that doesn’t begin to pay a living wage, particularly if you consider the wear and tear on their cars.

These days much of what passes for innovation in our economy is finding newer and cleverer ways to exploit people, who are generally among the most vulnerable among us. Granted, this may be as American as apple pie. We bought Manhattan from the Indians for the price of some trinkets. These days, the exploitation is less overt. But even if you don’t use Lyft or Uber, you don’t have to look far to see examples.

At the macro level, large companies that pollute exploit us all. Their cost of business is discounted by using our air and rivers as a sewer, and we pay the price. Tens of thousands of Americans die from air pollution every year, and the Trump administration is doing its best to make sure more of us will die. Generally though it’s the poor and vulnerable that get exploited. This is our innovation economy at work.

Perhaps you saw John Oliver’s recent show on mobile home investing. This is exactly the sort of “innovation” that I wish we could outlaw. By definition, if you live in a mobile home you don’t make a whole lot of money. You might own your mobile home but in most cases these homes are not truly mobile. And if you wanted to pack up your mobile home and move it elsewhere, you probably can’t afford to do so. In most cases your mobile home sits on a lot that you rent. There are plenty of investor groups buying these properties and regularly jacking up rents, knowing they have a captive audience. Some say this is a great way to earn “passive income”. What you are really doing of course is exploiting the least among us. In many cases these people are skipping medications or food to pay these rent increases. Some abandon their property, which is repossessed and resold to the next exploited victim.

I’m not prone to anger but these sorts of schemes make me positively irate. They should be outlawed. There are all sorts of ways we pick the pockets of the poor among us: pay day loans with incredibly usurious interest rates, lotteries that take their money but rarely pay off, casinos with a similar idea, higher prices for substandard food because supermarkets won’t serve their communities and of course the traditional: substandard public schools that are grossly underfunded because wealthier school districts won’t share their wealth. If that’s not enough, we shame them for taking food stamps or trying to compete for the vanishingly small market of affordable housing.

Most of us though don’t distinguish between companies that make money via exploitation versus innovation. That’s because it requires research, thinking and our capitalist system sees nothing wrong with exploitation. Look at some of the recent IPOs. How many of these are really driving innovation? Lyft went IPO, but Uber was first to this market. Lyft’s app is not noticeably better than Uber’s. Both depend on exploiting drivers and frequently change their payment terms to drivers to increase their revenues at drivers’ expense. Both are working hard on autonomous car technology. They can’t wait to boot their drivers altogether because they’ve run the numbers and maintaining a fleet of autonomous cars is way cheaper than even exploiting their drivers.

Some companies are both exploitative and innovative. How should I feel about owning Amazon stock, which I probably do somewhere in a mutual fund or ETF in my portfolio? Most of Amazon’s model has been exploitative: they’ve undercut competitors by sustaining losses funded by investors until competitors are out of business. I can see the problem locally with so many vacant storefronts. These customers are using Amazon instead.

Amazon was shamed enough by Bernie Sanders so that they raised their wages to $15/hour, which is good, but it’s barely a floor for a survivable wage. Meanwhile, they are finding other ways to “innovate”, most recently by creating their own air fleet that innovates by screwing their pilots. But other parts of Amazon are truly innovative. Amazon Web Services was a completely new idea that Amazon figured out and which fundamentally changed computing, dramatically lowering computing costs, increasing uptime for connected systems and spurring all sorts of innovation in information technology. Its web services are now the most profitable part of Amazon’s business. It’s proven extremely profitable for Google and Microsoft too, who have pockets deep enough to compete in this market.

Ideally I would not own any stock in companies that are exploitative. But like most of you I suspect, I don’t own any stock directly. Instead, I own mutual funds, ETFs and bonds. Mutual funds and EFTs are collections of ownership in lots of stocks. I could own a commercial bond for a specific company, but even here most of these are amalgamations of lots of bonds funds. There’s no easy way to invest in pure innovation, and hard to avoid investing in exploitative companies.

It’s not entirely impossible, however. You can invest in “green” funds and there are some socially active funds that avoid investments in arguably “evil” countries, which include Israel, which is effectively an apartheid state. Kiplinger has some suggestions for this kind of investing. But it’s not easy and in some cases impossible.

For example, if your company does not allow you to invest your 401K in funds like these, you have no options and may pay a penalty for doing investing outside of your 401K, particularly if your employer makes matching contributions to your 401K.

Which is why in the end what you can do is limited, unless we had a progressive Congress that changed investment laws. At a minimum they could require companies offering 401Ks to provide options for employees who want to invest in funds that are innovative but not exploitative.

I am overdue for a talk about this with my financial adviser. Frankly, I wasn’t thinking much about this until my recent trip on Lyft. Much of our portfolio has moved with retirement from 401Ks to IRAs. These could be shifted toward funds that reward innovation and socially progressive. Fortunately, I have a call with him tomorrow.

Republicans continue to make the rich richer and the poor poorer

The Thinker by Rodin

It’s pretty hard to keep up with the inanities coming out of the mouth our “president”. As a Democrat he sure embarrasses me, but I often wonder why Republicans are not. If retiring Senator Bob Corker (R-TN) is correct, most Republicans in Congress are embarrassed by Trump, but can’t summon the political will to say so.

Trumps tweets and remarks get weirder and weirder. This is probably due to 50% ignorance and 50% cognitive decline. Still, it’s quite embarrassing. Yesterday, a day after his Secretary of Energy Rick Perry declared that Puerto Rico was a country, Trump told a convention of evangelicals that he has spoken with the “president” of the Virgin Islands. So two top administration officials including our “president” don’t understand that both Puerto Rico and the Virgin Islands are American territories. What’s next? Sending in the marines to take over these “countries”?

Yet on such capable shoulders we are entrusting our nation. The only thing seeming to restrain Trump from his worst impulses seems to be a few officials, principally Chief of Staff John Kelly, Defense Secretary Maddis and Secretary of State Tillerson. They are our firewall of sorts, although there is no guarantee they can restrain Trump. Reportedly they have a suicide pact: if one gets fired they all resign. In any event depending on one unflagging Chief of Staff to babysit Trump 24/7/365 doesn’t seem like a great plan. Trump might launch nuclear weapons against North Korea while Kelly is in the bathroom.

So what does all this have to do with the rich getting rich and the poor getting poorer? Nothing really. I am just venting. But in the boatload of stupid that has come out of Trump’s mouth and Twitter feed recently, there was this from his interview with Sean Hannity on Tuesday:

The country — we took it over and owed over 20 trillion. As you know the last eight years, they borrowed more than it did in the whole history of our country. So they borrowed more than $10 trillion, right? And yet, we picked up 5.2 trillion just in the stock market.

Possibly picked up the whole thing in terms of the first nine months, in terms of value. So you could say, in one sense, we’re really increasing values. And maybe in a sense we’re reducing debt. But we’re very honored by it. And we’re very, very happy with what’s happening on Wall Street.

Aside from the numbers themselves that are off, there is the amazing conclusion from Trump, a graduate of Wharton. Remember, Trump recently bragged that he could beat Rex Tillerson in any IQ test. Trump apparently thinks that gains in the stock market cancel out federal debt. This is surprising in itself, but apparently it only works if he is in office. It doesn’t apply to the Obama administration, which saw the longest sustained growth of the stock market in history. There is no doubt that the stock market is doing very well since he took office, but it’s not doing appreciably better than it did under Obama. Those of us with lots of stocks are just seeing our pile of wealth get larger and larger.

I certainly see it in our portfolio. We take $1900 a month out of it to supplement our retirement. Just our investments (almost all of it in retirement accounts) amounted to $795K on February 1, and is now valued at $857K. Add in our house and other assets are we are millionaires, if a net worth of about $1.41M means that much these days. Gains in the stock market though create wealth only for those who own stocks. Guess what? Many of those who voted for Trump don’t have much if anything invested in the stock market. That’s due in part because there is little money left over to invest in stocks. According to one study, in 2013 the top 1% alone owned 38% of the stock market. The top 10% owned 81.4% of stocks. That leaves 19% for the rest of us. I may be technically a millionaire but rest assured my assets are part of that 19%. In reality I am not even close to being rich, at least not by the standards of the top 10%. I sure don’t plan to buy a Tesla or fly on a private jet to Monaco.

To make money in the stock market though you need to invest regularly over many decades and hold onto the assets. And that’s only possible if you have money left over to invest in the first place. It also means that you also need a relatively secure job, so that you are not raiding your nest egg in lean times. You also need it just to get through recessions and downturns with your investments able to wait out the hard times. If you don’t have all these factors in your favor you probably won’t be investing much in stocks and if you do it will be periodic retirement investments during relatively flush times.

So the surging stock market is really creating wealth principally for the rich who already have plenty of it, exacerbating income inequality. At best its effect for the rest of us is indirect, perhaps by keeping unemployment low thus maybe pushing up wages a bit, or by stimulating investment in the economy. Nothing about the stock market’s rise though fundamentally changes things for the middle class, poor and working class.

Indeed, Republicans seem intent to make things worse. Just yesterday Trump ordered an end to Obamacare subsidies for the working class. This will have the effect of pricing almost all of them out of the health insurance market. This will make healthcare more expensive, increase the probability of bankruptcy due to medical debt and make their financial situation more precarious. In short, they are likely to be pushed down the ladder again. The major reason these classes saw any gains recently was from having affordable health care, which helped protect their assets.

Having tasted real health insurance, these voters are likely to be furious when they vote next November, particularly as the rich will keep getting richer. While the stock market may continue to surge until then, these changes will directly affect the financial stability of the middle and lower classes. It’s likely that when these voters realize they have been shafted once again that Republicans will pay a huge political price.

Ted Cruz is worried about a blowout if Republicans don’t deliver on tax cuts and repealing Obamacare. As he will discover next November these are the factors likely to cause the blowout.

Stuck in Merrill Lynch beneficiary hell

The Thinker by Rodin

It sure is nice to inherit some money. Good luck in collecting it, at least at Merrill Lynch.

My father passed away on February 1. Some weeks afterward our stepmother told us we were beneficiaries to some of his accounts. It turned out to be a fair amount of money, considering there are eight of us, roughly $80,000 each. My sister spent a few weeks on the phone with M/L going in circles. Frustrated, she asked me to be the family’s liaison. She still has a job. I am retired.

Sure. Whatever. I’m used to playing the good brother role and I did have the time. And boy it sure takes time if you mean going around in pointless circles. They are clearly loath to let go of Dad’s accounts. In fact, it’s hard to imagine how they could make it any harder to claim money that is rightfully ours.

Over more than thirty years my father had a relationship with “Lee” at M/L, who apparently owns a brokerage under the M/L umbrella. Over the decades a lot of things have happened in this industry. For M/L, already a huge and impersonal company, it meant being acquired by the world’s largest and most uncaring bank: Bank of America. This is something I learned later on. Had I known, I would have taken it as an omen of what was to come.

It sounded pretty straightforward. Dad had about 28% of the funds he wanted to bequeath us in a simple account, a “Cash Management Account” to use the M/L term. The rest were in Roth accounts, which were tax advantaged. So you would think it would be pretty simple: sell any mutual funds in these accounts, divide the totals by eight and cut each of us a check for that amount.

Ha ha! Of course not! The first set of excuses I got when I made my initial queries was, “It’s tax season, we’ll talk to you after April 15.” They were so busy in the M/L office that they can’t be bothered to help us with this, at least not while they have clients that want to give them money rather than take it away. To say the least Molly, the lady I spoke with, was curt. Feeling a bit ticked off a few days later I dialed Lee.

Lee was all sunshine and light, expressed condolences and said this wasn’t that big of a deal. He’d have Molly send me the forms we needed. One ripple was that since the Roth funds were tax advantaged, we might want to set up inherited Roth IRA accounts. Or we could take the money as cash. In any event it’s an inheritance. No taxes to worry about.

So many of us dutifully decided to set up inherited Roth IRAs, a puzzling process to learn about and hard to set up as you need a death certificate. As for that Cash Management Account of Dad’s, my sister sent me the forms she had. They required notarization. It took some time since there are eight of us but we all found notaries. They sent the forms to me. I double checked them and mailed them in as a batch. Given their importance I sent them certified mail so they couldn’t claim they got lost in the mailroom.

A couple of weeks later after hearing nothing I inquired about them. Molly looked at the forms and said, oh, these aren’t the right ones! I pointed her to emails we had gotten saying they were the right ones. Oh, but that’s a Merrill Edge form (a subsidiary of BankAmerica.) They don’t accept that form because they are Merrill Lynch, not Merrill Edge. Somehow I managed to not raise my voice because it was no small matter of time and expense by eight of us to get all these forms signed, notarized and sent in. Okay, I said, what form do we send in then?

Well, there is no form, Molly replied. You write a letter listing the shares you are entitled to, get it notarized and send it in. Do you have a sample? Oh no, we don’t do that. You have to do it. How do we know it will be correct when we send it in? Well, underwriting will tell us if it’s okay. Oh boy, eight of us, all doing individual letters, with numerous back and forth letters, no guidance, until maybe we crank out one they would accept. And no one will get anything until all eight of us do it correctly. So this isn’t going to work. Well, it’s how we do things. After another chat with Lee he agreed as a “special exception” to give us a sample letter with an attached spreadsheet that listed shares and cash we were each entitled to. I guess they expect their clients to hire CPAs to do these things.

Some weeks passed during which Molly went on vacation. Eventually after dodging calls for a few days I got her on the phone. I learned they could not cash out the funds in the Cash Management Account. My father had requested an “equal division”. In their minds it meant we all had to get proportional shares of the mutual funds in the account. They couldn’t just mail us a check. We needed each to have a broker that would take these funds.

After much back and forth I learned that dividing these shares by eight of us meant there were fractional shares left over. Fractional shares could not be passed to us and would have to be sold. We all had to get whole shares. I figured they would want us to send notarized letters saying it was okay to do sell these fractional shares. Surprisingly they let me as my family’s spokesman authorize it. Of course, they could have volunteered this information weeks earlier, but did not. You have to persistently dig for it and if you ask the right question they will give you the right answer. They won’t volunteer anything. God forbid they give you a document that explains the whole process with a simple checklist to follow.

They suggested we all set up Merrill Edge Cash Management Accounts to make it easier to get the money. Of course this also has the advantage of keeping the money inside the Bank of America Empire. So I tasked my siblings to set these up. By this time of course they were spitting nails. The last thing they wanted was some sort of Merrill anything account. But it looked like it could save months or years of runaround, so I requested they each set one up anyhow. They had a contact in their office that was sometimes available who could set these up. Some siblings gave up in frustration when calls to this lady were not returned and called their local office or set one up online.

Molly said that their system wouldn’t show them our Merrill Edge account numbers unless their office set them up. I assumed she was going to complete the draft letters and put in the exact numbers of shares and our account numbers. When I asked, she said I was supposed to do it. Naturally this was news to me. I now have all these forms done and will mail them out to my siblings, who must get this second set notarized. Except only the letter must be notarized. The attached spreadsheet just has to be signed and dated.

I’m betting that when these all arrive at M/L they’ll find a reason to kick them back and we’ll have to start all over.

Then there are my Dad’s two Roth funds. Here to speed things up we were encouraged to cash them all in. My siblings were fine with this. I had researched the funds in these accounts and they were underperforming funds. Granted my father was chasing stability instead of market trends, but of the five funds I looked at three were real laggards compared with the S&P 500 index and all came with more than 1% annual management fees. Jeebus! Well, at least if we cashed them in we could hardly do worse than how they managed these funds!

But they wouldn’t sell the Roth funds until each of us called them personally and okayed it. That took some time. To “speed up” the process I was told to send drafts of the Roth withdrawal forms I got from my siblings so they could flag errors. I sent them electronically on May 20. There they sit, still waiting to be reviewed. Molly says their staff of four is down to 2 and she is so busy but she hopes to do it next week. Doubtless they will find errors that will have to be tediously corrected. But if I get them all corrected then I can send in this batch of forms and in theory there should be no issues so they can disburse the funds. I’m fully expecting I’ll send them in and they’ll find a reason to kick them back, something they haven’t explained before. We’ll see but it depends on poor overworked Molly actually deigning to review our forms.

In short, it’s a messed up and confusing process. In fact, it’s not a process at all. It seems they make it up as they go along. It seems likely that they are paid based on the assets in their accounts and they don’t want to lose them. Only with persistence, firmness and summoning your inner Donald Trump can you collect and I suspect we are nowhere close to getting our shares. They won’t volunteer anything. Meanwhile siblings who could use the money so it can grow for their retirement can’t get it. Not that M/L cares at all.

I have no idea if this sort of hassle is typical in the industry, but I can say to avoid M/L at all costs. If you have beneficiaries for accounts, ask to see their process for distributing funds and make it known to the beneficiaries. Make sure the process is straightforward. My Dad didn’t do this. The inheritance was a complete surprise. But being a beneficiary doesn’t mean much if you can’t actually get the money.

I am expecting before this is over we’ll be filing a lawsuit. It will probably go into the bottom of a long queue of similar lawsuits all from angry people like me simply trying to collect money intended for them.

Why to drive on the wrong side of the road, or the power of rebalancing

The Thinker by Rodin

Whew! It’s been a long week, which makes it hard to find time to blog. When I slow down the frequency of my posts, traffic to my site sinks as well. Well, sorry, I’ve been busy. It’s not that I have run out of ideas. I generally blog about whatever is on my mind on a particular day. It does help though to know your market.

This blog attempts to be part education, part inspiration and part entertainment. The education part of it is because I probably spend too much time reading disparate stuff and when I find some wheat in the chaff I feel an obligation to get it out. Inspiration happens less frequently as most of my really good ideas and insights came out years ago. (Fortunately, a lot of those posts still receive regular hits.) The entertainment part is to give visitors a reason to come back. Sex sells, even on my obscure blog, as evidenced by a disproportionate number of hits on my posts on stuff like Craigslist Casual Encounters. Apparently I am vain enough to care about these hits, hence I am more than happy to do a monthly post on Craigslist casual encounter weirdness, or harpoon a recently uncovered philandering politician. I just can’t write about it everyday.

Today money, not sex, is on my mind, mainly because my financial adviser and I have been buying and selling mutual funds. So this post can be classified as education. I keep learning stuff from him and I thought I’d share what I’ve learned about the power of rebalancing.

When I speak of rebalancing, I mean shuffling funds you own around. In the case of my wife and I, these are mostly retirement funds. You may have an IRA or a 401-K and you may have the power to move funds around from one kind to another, say from stocks to bonds. This may not apply to many of you because you don’t have any funds. But you may someday, in which case keep reading. And if you do have some funds, you may learn some new stuff.

So let me ask you. Suppose you had a hundred shares of Google, purchased for an average of $500 a share, and are now worth about $1000 a share. You’ve been watching it trend up regularly with few bumps down. Would you sell it?

Most investors would say, “Hell no!” It’s the human tendency to be greedy, of course. After all, it could go to $1500 a share. 200% return sounds a lot better than 100% return.

Rebalancing a portfolio though is all about selling funds that are making money and putting it into funds that are not. Is that crazy or what? It is crazy, but crazy like a fox, and it is the secret to acquiring wealth for us ordinary mortals not fortunate enough to be Warren Buffet. Of course, most ordinary people aren’t buying stocks. We are buying mostly mutual funds, which are combinations of stocks, bonds and securities, and it is being done somewhat abstractly, probably through our 401-K or IRA plans. We buy mutual funds to minimize risk. Yet the principle remains the same. If you have money invested in a hot mutual fund returning 30% a year, it sounds crazy to take profit from it and invest it in some underperforming fund category, say a CD fund. Why would any sane person do this?

It’s because the only thing that is certain in the world of finance is that nothing stays static. In reality, investing is like playing a game of whack a mole. One fund class/mole gets hit and another one will pop up to replace it. It’s as given a phenomenon as the seasons except when it will happen is unknown. It’s well known that over time that certain kinds of funds pay better than others. Stock funds, for example, generally return more money than bonds over thirty years, although their value may swing up and down a lot. Investors chase profit and they chase wealth retention. Moreover, there is a lot of a herd mentality, at least among professional investors. Many take their cues from channels like CNBC. For the most part these investors aren’t looking ten or thirty years out. They are looking tomorrow, next week or next month. They want to grab some profit now. Investors like you and me though are more likely to want to gain wealth in the long term. We can’t time the market. In truth, financial gurus can’t time the market either. They like to think they can. Anyhow, since we can’t time the market all we can really do to acquire wealth is to intelligently ride the dynamics of the market.

And since the only constant in investing is change, we have to ride change to acquire wealth. So if we have a fund that invests heavily in sexy tech stocks like Google, Microsoft and Apple that has had a good and steady return then we need to sell it when it is profitable. We probably don’t want to sell all of it. There are two parts to this wealth business: gathering more wealth and hanging on to the wealth we have. So typically we own a lot of various fund classes, accepting more risky investments when we are younger and less of these investments as we age. So we can and probably should hold on to that sexy mutual fund, just bleed off some of its profits and put it into something that is not so profitable. We obviously don’t want to invest the money in a class of funds known to be a loser, such as a junk bond fund, but one that is currently undervalued and should become profitable once market conditions change fundamentally. Recessions are not events that might happen, they will happen. When they will happen really cannot be predicted, but when they happen a whole lot of panicked investors will quickly sell their new unsexy assets and buy U.S. Treasury securities and various bonds. We saw this during the Great Recession.

Reinvesting is all about buying low and selling high. If you don’t sell those sexy funds when they are high and buy something undervalued with it, you won’t lock in your profit. And if you don’t lock in your profit, you defeat the whole purpose of investing. The purpose of investing for the average person is not to get rich quickly, it’s to be rich in the future and retain your wealth in the future so you can spend it the way you like.

So that’s what my financial adviser and I have been doing: carefully looking at the value of our portfolio, seeing where we made money and to the extent its value exceeds the percentage we want to be vested in it, putting the profits into well managed funds that haven’t done as well instead. Because when market fundamentals change, as they will, we will have bought those funds when they were undervalued and will be prepared to sell them at a profit, probably for those stock funds that will then be undervalued.

In principle this is quite simple, with the hard parts being picking well-managed, low-fee funds in each asset class. The other part requires patience and discipline: ignoring day-to-day fluctuations and rebalancing regularly.

So it turns out that being a financial wizard is not that hard. You just have to have patience and be a methodical, slow and steady type of investor. You also have to adopt a counterintuitive financial strategy. It’s like driving on the wrong side of the road. Except by not following the crowd, you will actually be on the right side of the road.



The Thinker by Rodin

I won’t claim to be an economist or financial wizard. I don’t bother to try to time the stock market. I buy in mutual funds in good times and bad times, hoping that general growth in mostly proven funds will mean I won’t eat dog food in retirement. So I was buying in March 2009 when stock indices reached their Great Recession bottom and I am still buying funds today, albeit steadily and incrementally.

That’s one way to make money in the stock market: keep buying in good times and bad and count on general growth for appreciation. That’s the boring and safe way to make money from the market, as long as you do it in the long term and keep plugging away. Hopefully you are not buying crappy stocks, funds and bonds, but ones with decent track records for beating the market.

The other way to make money is to follow the maxim: buy low and sell high. The smart people with capital were doing just this in March 2009. They were fearlessly investing while others were willing to part with their stocks for just about any screwy lowball price others were willing to bid. Oh my God, the world is going to hell. Gotta turn this stock into cash right now and maybe survive the next Great Depression. That was the wisdom of those times, just four years ago. People were chasing their fears and their fears told them to horde cash. As I noted in June 2009, stock in the bluest of blue chips, General Electric, briefly fell below $6 a share that month. GE, like many stocks, was crazily undervalued. Those with cash and nerve should have been telling their brokers to buy GE in bulk. If they had, and I wish I had enough spare cash to buy it, they would be sitting pretty right now. On March 5, 2009 you could buy GE common stock for $5.88 a share. Today four years later it closed at $23.67 a share. That’s an appreciation of 403% in just four years, or 100% appreciation per year, on average. It was, as I said then, a crazily great investment. Granted this is not as high as GE stock has ever gotten. On June 22, 2001 right before the tech sector collapsed GE traded at $51.86 a share. It was crazily overvalued then.

Most likely GE stock and the market in general are suffering now from irrational exuberance as well. Stock prices are inflated, largely because the Federal Reserve is keeping interest rates artificially low. While the Fed has no immediate plans to change this policy, you know it cannot last forever. In fact, some are speculating that even if the Fed continues to keep interest rates low, the market will correct this artificial imbalance through inflation. Inflation happens when too many dollars are chasing too few tangible assets. With nowhere else to put money in hopes that it will grow, people are buying stocks. This tells me that stock prices are inflated. But also I can sense they are inflated. I can tell from the anemic growth in our GDP, the 7.7 percent unemployment rate and median wages that continue to fall. While increasing stock and home prices will help stimulate growth, if it comes it will come much later, and it is likely to only help stocks reach their current valuation, not actually meet their current valuation.

March 2009 was, in retrospect, the time to buy and hold. Arguably, March 2013 is the time to sell and profit. Convert that valuation into cash, while other irrationally exuberant buyers are willing to buy your stock at inflated prices.

Of course if you followed the crowd and sold stocks and funds in 2009 and are buying them now again in 2013, you are guilty of two things. First, you are guilty of being like most everyone else: following the herd. There is some comfort perhaps in that you were not alone because your neighbors were doing the same thing, which is one reason their net worth (and likely yours too) fell. Second, you are being stupid a second time. You are the bottom fish that the bigger fish are about to consume. They are picking your pocket, not the one you have now, but the one you think you will retire on. You are buying what is likely to be overvalued stock in the long term. Why are you doing this? You are probably doing this because you cannot make a decent return for your cash by having them in savings and money market accounts. You are frustrated and you see the stock market surging up 26% in one year and you are thinking, “I deserve a piece of that action”.

And you do, but you are probably chasing an illusion. There is a stock market correction coming. I cannot tell you if it will be this month, this year or five years from now. But it’s not too hard to see that it is coming. Economic growth is anemic and profit depends on growth. Growth also depends on people having more money to spend. While the rich do, they are a tiny part of the populace. People like you and me are probably watching expenses like a hawk.

What do you do if you have been following the herd? My suggestion is to stop buying stock, most of which is dramatically overvalued at the moment, and put that money in a cash account for future investing. You are unlikely to get much appreciation for your investment, but you are likely to lose money buying stocks. Wait for the next market correction, when the stock indexes have lost a third or more of its value. Then steel your nerves and buy, probably in blue chip stocks. Then hold and sell many years later when the signs are clear the market is overvalued again. That’s when you lock in the profit.

If you did buy GE stock in bulk in March 2009, you are probably smart enough to do what you are already doing: selling it and converting it into cash for future buying opportunities. In general, if you have genuine appreciation for your stocks and bonds as a result of buying them low, now is the time to lock in your profit. Profit may also be found in selling your house. In most markets it is a seller’s market and prices have fully recovered from the Great Recession. If this is true in your area, your house is mostly equity, and you want to lock in that wealth, selling your house may make sense. (Of course there may be capital gains and other tax implications from doing this. Consult a financial adviser before doing this.)

Will I be doing any of this? No. As I mentioned, I don’t time the market. I invest regularly and I invest long term. If you are not this kind of investor though, look at your portfolio carefully and note those funds that now are valued significantly more than what you paid for them. Unless there are some special circumstances for these particular stocks and funds for future growth, now is the time to sell them and convert them to cash. Most likely you will find this to be a very profitable experience.

Wall Street’s puppet masters

The Thinker by Rodin

Last month I wrote how the oligarchy stays in charge. At the time, the Occupy Wall Street movement was nascent, so nascent that not even I was blogging about it. Since then it, everything has changed. It used to be that the headlines were full of stories about how we need to cut the deficit and lower taxes. Thanks to OWS, the story is now about the chronic lack of jobs, sinking standards of living that seem unstoppable, and a generation of mostly twenty somethings with no real job prospects on even their most distant horizons. They are joined by other large groups of unemployed people who happen to be over fifty, and thus become something like untouchables. Unemployment is a problem at all levels of the workforce. The OWS movement is finally giving it the focus it deserves, and rightly raises the question: why did we bail out Wall Street when none of it trickled down to the unemployed who needed it most?

The OWS movement has at least made me do more pondering about how the wealthy stay wealthy and how the rest of us take it on the chin. There are the obvious strategies that I mentioned in the previous post: the moneyed and Wall Street buy the influence they want. Then there are less obvious strategies: such as using inheritances to pass unearned income to the next generation, wealth that is arguably put to unproductive uses. Then there are the strategies that most people don’t think about.

For example, there is snuffing out potential competition. The oil companies, in spite of their profits, are running scared of the clean energy industry. Oh sure, they are spending lots of money with newspaper advertisements touting how they are going green by doing solar energy projects and the like. This is ninety percent setting expectations and one percent doing something tangible. It’s a try to set up a meme with the public that, “Well, they really aren’t entirely evil just because they want to rip up Alberta’s tar sands.” Those with the money, at least if they are savvy, will continue to spend significant capital to make sure competitive markets don’t emerge.

It’s not coincidence that the oil industry contributes disproportionately to Republican candidates, for instance. This behavior is not seen as anticompetitive; it is seen as pro-business. It’s easy to win the competition when you can use money to set an uneven playing field from the start. Thus money buys not just political power, but the ability to have your message drown out the competition’s. In many cases, you can buy out these threats with your ready capital, often ostensibly to build market share in an emerging industry, but more typically to quietly kill them so business as usual can continue.

This happens all the time here in American but we rarely notice it. Why are there only three major ratings firms on Wall Street? It is in part because the big three have the capital to squash any competition. The government rarely breaks up companies anymore, even after the Great Recession. In fact, despite the lessons of the Great Recession, the trend is just the opposite. Thus, as one example, Bank of America swallows up Countrywide Mortgage and everyone yawns. Money gives you this sort of power. Unless you have an administration and congress full of trustbusters, abuse simply leads to more abuse.

Perhaps the most insidious way to stay in charge is through financial obfuscation. A good example is derivative stocks. The more complex you make a financial instrument, the harder it is to figure out what is really going on. Only experts can really understand how these instruments work, and then only dimly. In all likelihood the only ones who really understand them are those who create and manage them.

That leaves us poor individual investors pretty much baffled. We know we need to invest money for the future but unless the financial entity is incredibly simple, like simple shares of a blue chip stock or an index fund, we are baffled by how it works or how to fairly value them. Instead we turn to so-called experts to give us advice on what represents good investments, for which usually they have a vested interest that disproportionately lines their pockets. To really understand our financial world, you need a PhD in finance plus you have to keep up on the minutia of markets. If you can do this, you can be bought off. Wall Street will hire you for seven or eight figure incomes to manage a fund. Unless you have missionary zeal, you won’t be an Elizabeth Warren trying to simplify things for the average consumer. And if you are Elizabeth Warren, you will find out that politicians have been bought off specifically to keep you out of a position of power.

Yes, obfuscation is profitable, at least for those already in charge, and it effectively drains wealth from the rest of us. We think that to make money we must do it through specially trained intercessors on Wall Street. What we really need are simplified rules and financial instruments that the average person can understand, which implies that many “innovative” financial instruments should probably be outlawed. As we have seen, many were engineered without real failsafes and have cascading effects when they fail that drain wealth principally from those who never directly invested in these instruments.

No wonder Republicans are dead set against a consumer protection agency. They realize that if such an agency were effective, it might level the playing field. And what that really means is that wealth generated through third parties and financial obfuscation might return to where it rightly belongs: to individual investors.