The Long Term Investor

Well thank you IndependentCandy......and welcome to the thread. This thread is a joint effort. So if you wish, continue to post about your investing experiences.

The lessons on here are extremely simple......pick the best companies or funds and let time do the rest.

 

Here is.....no doubt.....part of the issue today with the DISMAL open. It seems like the FED intentionally is trying to tank the markets. I dont know if they think that will help with inflation or if they are intentionally trying to slow down the economy. Or.....the other alternative......there is a split among FED members and they are using the media to push their positions. Perhaps all of the above. Regardless they are screwing with the markets and they now it. this gives me NO confidence that they will do the right thing moving forward. I give them a 50/50 chance at the least of causing a nasty recession followed by a long deflationary depressive time period.

Fed’s Harker Expects Series of ‘Deliberate, Methodical’ Rate Hikes

https://finance.yahoo.com/news/fed-harker-expects-series-deliberate-133000507.html

(BOLD is my opinion OR what I consider important content)

"(Bloomberg) -- Philadelphia Federal Reserve Bank President Patrick Harker said inflation is “far too high” and steady interest-rate increases and balance sheet reduction should help reduce price pressures over the next few years.

“Inflation is running far too high, and I am acutely concerned about this,” Harker said Wednesday in prepared remarks to the Delaware State Chamber of Commerce. “Russia’s invasion of Ukraine will add to inflation pressure, not only hiking oil and gas prices but other commodities, like wheat and fertilizer, as well.”

U.S. central bankers began to remove emergency levels of stimulus last month, raising the benchmark lending rate a quarter point to a range of 0.25% to 0.5% and penciled in seven increases for all of 2022. Chair Jerome Powell has also said that the central bank could begin to start allowing its asset holdings to run off as early as May.

“I expect a series of deliberate, methodical hikes as the year continues and the data evolve,” Harker said. “I also anticipate that we will begin to reduce our holdings of Treasury securities, agency debt, and mortgage-backed securities soon.”

Minutes of the March 15-16 meeting released later on Wednesday are likely to provide more details on the pace of balance-sheet reduction, which could tighten financial conditions further. The balance sheet has ballooned in size to $8.9 trillion after the central bank aggressively bought bonds during the pandemic to ease financing costs and shelter the U.S. economy from Covid-19.

Fed officials banked on an untangling of snarled supply chains easing inflation pressures last year, but rolling waves of the coronavirus and now Russia’s invasion of Ukraine have kept price pressures firm.

The Fed’s preferred inflation gauge rose 6.4% in the 12 months through February, more than three times its 2% target.

Harker is currently voting on monetary policy as an alternative member of the Federal Open Market Committee, in place of the Boston Fed, which is currently without a president. Its new leader, University of Michigan economist Susan Collins, will take up the post on July 1."

MY COMMENT

As with MOST elites....these people are totally out of touch with the small business and regular people. They are part of the INSIDER Washington DC clique that cuts across all political parties. Out of touch with the reality of the normal American. SAD and dangerous.

 

Here is the uphill struggle that the markets are facing for today.

Stock market news live updates: Stocks dip as investors digest hawkish Fed remarks, eye more sanctions

https://finance.yahoo.com/news/stock-market-news-live-updates-april-6-2022-221250807.html

(BOLD is my opinion OR what I consider important content)

"U.S. stocks fell Wednesday as investors eyed more Western sanctions against Russia and digested hawkish remarks from key monetary policymakers. These suggested that more members of the Federal Reserve were open to moving aggressively to raise interest rates and bring down demand and persistently elevated levels of inflation.

The S&P 500 dropped, adding to losses after the blue-chip index ended Tuesday's session lower by 1.3%. The Dow Jones Industrial Average and Nasdaq also extended declines. In the bond market, the benchmark 10-year Treasury yield rose to top 2.6%, marking its highest level since May 2019.

Developments on Russia's war in Ukraine and the Western response remained in focus Wednesday as the U.S., European Union and Group of Seven readied another round of sanctions on the Kremlin. The U.S. is expected to add penalties to more Russian government officials and family members, and Russian-owned enterprises and financial institutions.

Meanwhile, hawkish commentary from Federal Reserve officials also knocked U.S. equities from their latest march higher and send Treasury yields spiking.

Namely, Federal Reserve Governor Lael Brainard said Tuesday that the Federal Open Market Committee (FOMC) was "prepared to take stronger action" should already elevated indicators of inflation rates and expectations warrant such moves.

Speaking in a webcast, Brainard suggested this could include aggressive interest rate hikes and a much quicker drawdown of the Federal Reserve's balance sheet — which has thus far ballooned to nearly $9 trillion — than in previous periods.

"Given that the recovery has been considerably stronger and faster than in the previous cycle, I expect the balance sheet to shrink considerably more rapidly than in the previous recovery, with significantly larger caps and a much shorter period to phase in the maximum caps compared with 2017–19," Brainard said. She noted the process of reducing the Fed's balance sheet holdings, or beginning quantitative tightening, could begin as soon as the Fed's next meeting in May.

Other Fed members also suggested they were on board with more policy tightening in the near-term. San Francisco Fed President Mary Daly told the Financial Times on Tuesday that the case for a 50 basis-point interest rate hike — or a hike double the size of the central bank's typical per-meeting increase — "has grown."

“The fact is, the Fed has made it very clear ... it’s paramount that they go after inflation and do whatever it takes to staunch the rise in inflation," Quincy Krosby, chief equity strategist for LPL Financial, told Yahoo Finance Live. "They’re going to do it, and I think the market is getting the sense that this is going to be a choppy path."

"The Fed may go until it breaks something ... but it’s clear that this is their mission, and they are going to go ahead with it, full steam – more than 2017, more than 2018," she added, referring to the last time the Federal Reserve underwent quantitative tightening several years ago.

With inflation rates in the U.S. still holding at around 40-year highs and forcing the Fed's hand in aggressively tightening financial conditions, some on Wall Street have downgraded their expectations for U.S. and global growth. Deutsche Bank economists said Tuesday they expected the U.S. to tip into a recession at the end of next year as the Fed rapidly hikes rates to address high prices.

"We now expect the U.S. economy to be in outright recession by late next year, and the [Euro area] in a growth recession in 2024 with unemployment edging up," Deutsche Bank economists David Folkerts-Landau and Peter Hooper said. "Our baseline view is that these developments will spill over to damp growth in much of the rest of the world and at the same time help to bring inflation back toward mandated levels, diminishing the risk of greater disruptions further down the road."

Still, the economists noted their call for a recession next year "is currently way out of consensus" — and indeed, many on Wall Street still see a slowdown, but not necessarily a period of negative growth in the near-term domestically.

"We're not thinking that the Fed is going to push the economy into recession," Veronica Willis, Wells Fargo Investment Institute investment strategy analyst, told Yahoo Finance Live on Tuesday. "I think most are not expecting that. But we are expecting kind of a slowdown in economic growth from what we had expected previously, but still around average economic growth here in the U.S."

9:45 a.m. ET: Bitcoin prices dip below $45,000, pulling down crypto-linked stocks

Bitcoin (BTC-USD) prices fell below $45,000 for the first time since last week on Wednesday, bringing shares of cryptocurrency-linked stocks including Coinbase (COIN), Bakkt Holdings (BKKT) and Riot Blockchain (RIOT) lower as well.

Bitcoin prices have been on a roller-coaster ride this year, tracking the volatility across other risk assets as geopolitical and monetary policy concerns increased. Prices began the year around $48,000 for the largest cryptocurrency by market cap, but dipped as low as below $35,000 so far this year.

Other major cryptocurrencies including Ethereum (ETH-USD), XRP (XRP-USD) and Solana (SOL-USD) also dipped Wednesday morning.

9:39 a.m. ET: JetBlue shares drop after airline makes competing bid for Spirit

JetBlue (JBLU) shares dropped Wednesday morning after the carrier made an offer to purchase Spirit Airlines (SAVE) — less than two months after the budget airline agreed to merge with Frontier Group (ULCC).

JetBlue stepped in with $3.6 billion offer to buy Spirit Airlines, with the all-cash deal coming out to $33 per outstanding Spirit share. The combined company would have a fleet of 450 aircraft with another 312 Airbus aircraft to be delivered over the next six years, and would bring more flights to hubs including New York and Florida, where both airlines already operate.

However, in February, Frontier Group made its own bid to buy Spirit for $2.9 billion, in a deal the companies said at the time would save customers about $1 billion per year. JetBlue said in its press release this morning that its offer was a “superior proposal” and that it would be “more effective than Ultra-Low-Cost Carriers in Introducing Competition and Bringing Down Legacy Carrier Fares."

Wall Street, however, has expressed skepticism over a JetBlue-Spirit tie-up.

"The merits of a potential JetBlue-Spirit merger are not as abundantly clear to us as are those that could stem from other combinations among remaining, non-Big 3 airlines," JPMorgan airline analyst Jamie Baker wrote in a note this morning.

8:00 a.m. ET: Mortgage applications fall for fourth straight week as rates rise further

U.S. mortgage applications dropped for a fourth consecutive week into the beginning of April, with fast-rising mortgage rates deterring homeowners from refinancing and new buyers from coming into the market.

The Mortgage Bankers Associations' weekly index showed mortgage applications fell 6.3% week-on-week during the period ending April 1. This came following a 6.8% drop during the prior week.

Refinances fell 10% from the previous week and by 62% from the same week last year, bringing overall applications for refinances down to the lowest level since spring 2019. Purchases fell 3% week-over-week on a seasonally unadjusted basis, and declined 9% from the comparable period last year.

“Mortgage application volume continues to decline due to rapidly rising mortgage rates, as financial markets expect significantly tighter monetary policy in the coming months. The 30-year fixed mortgage rate increased for the fourth consecutive week to 4.90% and is now more than 1.5 percentage points higher than a year ago," Joel Kan, MBA associate vice president of economic and industry forecasting, said in a press statement Wednesday."

“The hot job market and rapid wage growth continue to support housing demand, despite the surge in rates and swift home-price appreciation," Kan added. "However, insufficient for-sale inventory is restraining purchase activity.""

MY COMMENT

The last thing first......mortgage rates are now pushing 5% and are probably above that level in some areas of the country. With an aggressive FED on the prowl.......for the next two years.......rates may get as high as the 6.5% to 8% range. A BIG negative for the housing markets and non-cash buyers.

All us long term.......regular people investors.......can do is simply wait out this MANIA to push the rates higher and the economy be damned. In my opinion there is now a......."probability".......that we will end up in a recession and they.....the FED......will smother the economy. Of course as an investor.......I know that recessions are just part of the normal economic bell curve. They happen. So as usual.......when or if it happens.......I will simply ride it out as usual.

Unfortunately between the FED meetings, their speeches, the release of their minutes, etc, etc, etc,......there is hardly a week that does not have the FED front and center.

 

Of course the people that love to work from home will not agree with this.....but as a business person.....I do.

Ex-Google CEO Eric Schmidt on why in-office work is better: ‘I don’t know how you build great management’ virtually

https://www.cnbc.com/2022/04/05/ex-...n-why-people-should-return-to-the-office.html

(BOLD is my opinion OR what I consider important content)

"After more than two years of remote work and multiple return-to-office delays, most Google employees are heading back to the office at least part-time — and ex-Google CEO and chairman Eric Schmidt couldn’t be happier about it.

″It’s important that these people be at the office, in my view,” Schmidt, 66, tells CNBC Make It, arguing that for decades, the in-office style has been proven effective. “I’m a traditionalist.”

Starting Monday, Google’s hybrid work arrangement kicked off, with most employees expected to be in the office at least three days per week. Schmidt, who served as Google’s CEO from 2001 to 2011, helped transform the then-young Silicon Valley start-up into today’s $1.9 trillion global tech behemoth — and credits in-office work for much of that growth.

“We spent decades having these conversations about people being close together ... the discussion at the coffee table and going to coffee,” Schmidt says. “Remember all of that? Was that all wrong?”

Schmidt says it’s not just a matter of nostalgia: There are practicalities to working together in person. For example, he says that conversations about professionalism — which might be particularly necessary at companies full of young employees — are much harder to have virtually.

When Schmidt started at Google, for example, the company had “an awful lot of college students who were behaving as though the workplace was like college,” he says. “And I used to say to them, ‘This is not college. This is a professional thing, you can’t do that. And, or, it might be illegal. So please stop, now.’”

Younger employees, particularly those between the ages of 25 and 35, can also use in-office settings to more effectively develop their management styles, Schmidt says. For him, that includes learning about meeting etiquette, presentation skills, workplace politics and dealing with competitors, both internally and externally."

“In terms of their age, that’s when they learn,” he says. “If you miss out [on that] because you are sitting at home on the sofa while you’re working, I don’t know how you build great management. I honestly don’t.”

There are exceptions, Schmidt notes: Some workers might have specialized roles that don’t require a lot of in-person communication, others might deeply dislike the office’s social nature and many probably aren’t looking forward to reintegrating lengthy commutes into their schedules.

Still, Schmidt says, a largescale movement to permanently work remotely would deny at least 30 to 40 years of workplace experience.

“I think there is a lot of evidence that humans are social,” he says. “And that the current virtual tools are not the same as the informal networks that occur within a corporation.”"

MY COMMENT

If for no other reason......if I was still in business......I would want employees in the office to develop social, people, and psychological skills. I dont believe it is a good thing for society or work to have employees isolated at home. Dont even get me started on productivity and if people.......actually......put in much real time focusing on work when "working" from home with all the distractions.

 

This to me is THE BIG REASON that Crypto will not become mainstream. Unless they change the tax laws I dont want to have to account for and be taxes every time I cash in some of my holdings to buy something. It is a TAX NIGHTMARE. Not to mention all the short term gains that become regular income.

Majority of crypto investors still aren’t ready to file their taxes, survey finds

https://www.cnbc.com/2022/04/06/mos...rs-still-arent-ready-to-file-their-taxes.html

(BOLD is my opinion OR what I consider important content)

"Key Points

• As the tax deadline approaches, most cryptocurrency investors still aren’t prepared to file, according to a survey from CoinTracker.
• One of the reasons may be a widespread lack of knowledge about digital currency taxes.
• “My advice would be to take your time and get it right,” said Matt Metras, an enrolled agent and cryptocurrency tax specialist at MDM Financial Services.

As of March 27, some 96% of digital currency investors hadn’t submitted their returns, the findings show, and 75% aren’t ready to.

One of the issues is a widespread crypto tax knowledge gap, with confusion about which activity is taxable, said Shehan Chandrasekera, a CPA and head of tax strategy at CoinTracker.

Indeed, most survey respondents couldn’t successfully identify the tax consequences of several common transactions.

“We are continually seeing the misconception that if you didn’t cash out to [U.S.] dollars, you don’t have to report anything,” said Matt Metras, an enrolled agent and cryptocurrency tax specialist at MDM Financial Services in Rochester, New York.

Cryptocurrency may trigger capital gains or losses when sold or exchanged for another coin. The profit or loss is the difference between your purchase price, known as basis, and the value upon sale or exchange.

You may qualify for long-term capital gains rates of 0%, 15% or 20%, if you held the currency for more than one year. However, exchanging assets after less than one year creates short-term capital gains, with regular income tax rates, up to 37% for top earners.

This tax season, filers must respond to a yes-or-no question about “virtual currency” on the front page of their tax return. You may answer no if you bought and held cryptocurrency with U.S. dollars or transferred coins between your wallets.

However, you’ll have to say yes if you sold cryptocurrency, exchanged one virtual coin for another, used it to make a purchase, received it as payment, acquired it through mining or staking and more.

With cryptocurrency exchanges still not required to send Form 1099-B, covering profits and losses from yearly transactions, it may be challenging to calculate your tax bill, particularly with a large volume of activity.

“My advice would be to take your time and get it right,” Metras said. If you need help, you won’t likely find a crypto tax professional before the deadline. However, filing an extension “buys you more time,” he added, to gather information and schedule an appointment.

Crypto tax software may help reconcile transactions, but it may not be 100% accurate, Metras warned. “Make sure you’re reviewing the stuff that’s coming out of it.”

If your capital losses exceed capital gains, there’s an opportunity to write off up to $3,000 per year to offset regular income, Chandrasekera said, and if losses exceed $3,000, you can carry it forward into future years."

MY COMMENT

What a nightmare. This is worse than day-trading......when it comes to doing your taxes. I am sure a lot of people are simply ignoring this on their taxes since there is no reporting to the government.....yet. That is the reason for the yes/no question on the first page of your return. There is going to be some big tax fraud cases in the future.

No doubt we will soon see requirements for Crypto exchanges to send the government data through the 1099 system.

 

As you can see I am simply IGNORING the markets today......as I look around for business and investing content that interests me. Today is a wasted and worthless day till the FED minutes are released. Thank God......we will soon be into EARNINGS to give us some distraction from the constant FED blather and obsession with the FED and inflation by the day to day financial media.

 

A nasty repeat of yesterday today. Nine positions in the red and.......one......in the green....Costco. The only good thing about today was the nice gain in Costco of 1.65%. I got beat by the SP500 today by 1.20%.

 

So looks like there will be some changes coming to the 401K system.

Big changes are coming to your 401(k). Here's what you need to know

https://www.cnn.com/2022/04/06/investing/retirement-savings-401k-investing-roth-ira/index.html

(BOLD is my opinion OR what I consider important content)

"New York (CNN Business) The United States is on the brink of a retirement crisis. The primary savings tool for Americans -- your 401(k) -- isn't helping.

By the end of the decade, about 21% of the country's population will be 65 or older, up from 15% in 2016, according to forecasts by the Census Bureau. Most non-retired adults have some type of retirement savings, but only 36% think their savings are on track.

Now, Congress is looking to help Americans save by bolstering 401(k) programs -- the tax-deferred, company-sponsored retirement accounts to which employees can contribute income, and employers can match their contributions.
A new bill, expected to reach President Joe Biden's desk by the end of the year, could require most employer-sponsored retirement plans to enroll their workers automatically, making it easier for student-loan borrowers to save, and for older workers to make catch-up contributions. It will also lower costs for smaller businesses.

Retirement savings in the United States were long thought of as a three-legged stool. Americans had pension plans, Social Security benefits, and defined contribution plans like the 401(k). Not any more.

Pension plans are nearly extinct. About half of private sector workers were covered by those so-called defined-benefit plans in the mid-1980s, but by 2021 only 15% of private sector workers had them.

Social Security payments still provide about 90% of income for a quarter of older adults, according to Social Security Agency surveys. But the Social Security trust fund is facing a 75-year deficit, and without intervention it will be depleted by the mid-2030s. Lawmakers have faced a decades long political stalemate on how to fix it.

What's left is the 401(k), which 68% of private industry workers have access to, but only 50% use.

"I don't think it was ever anticipated that this would be the primary leg of the stool," said Jonathan Barber, head of compensation and benefits policy research at Ayco, a unit ofGoldman Sachs that provides investment services to hundreds of US companies and more than a million corporate employees.

Indeed, the 401(k) was never designed to be the primary retirement tool for Americans when it was introduced into the US tax code in 1978. "When it works, it works really well," said Sri Reddy, senior vice president of retirement and income solutions for Principal Financial Group.

The 401(k) naturally appeals as a savings vehicle to Americans who bring in more money, say critics. Under the current plan, an employee in the highest tax bracket saves 37%. But an employee in the lowest tax bracket would gain a pre-tax advantage of saving only 10% on deferred income.

The tax breaks for these retirement savings are expected to cost the government nearly $200 billion this year, with most of those benefits going to the top 20% of earners, according to the Center on Budget and Policy Priorities.

Less than 40% of lower-paid workers have retirement accounts, compared with 80% of middle- and upper-income families, according to Vanguard. Making a 401(k) plan more accessible doesn't help Americans who don't have money to save in the first place.

Still, Congress thinks there's a solution.

In late 2019, one of the most significant pieces of retirement legislation in the past 15 years, was signed into law by President Donald Trump: the bipartisan Setting Every Community Up for Retirement Enhancement, or SECURE Act. The bill removed maximum age limits on retirement contributions, provided tax credits for small businesses to offer their employees 401(k) plans, and extended retirement benefits to some long-term but part-time employees.

Last week Congress almost unanimously passed another bill, SECURE 2.0, that has even broader changes. The Senate is expected to pass its version in the coming weeks.

Here's a look at how the primary retirement savings plan in the US may soon change.

Automatic enrollment

In what would be the largest change to the 401(k) program, SECURE 2.0 would require employers to automatically enroll all eligible workers into their 401(k) plans at a savings rate of 3% of salary. (Many employees currently have to opt in and then choose their contribution level.) The new rule also applies to the 403(b), a similar program for employees of certain public and tax-exempt organizations.

Enrolled workers' contribution rates would be automatically increased each year by 1% until their contribution reaches 10% annually.

While workers have the option to opt out of the plan or change their contribution level after they enroll, automatically enrolling workers into these plans would make a huge change in younger and low-waged employees' participation in the program.

A 2012 study cited in the SECURE 2.0 bill found that, "[t]he most dramatic increases in enrollment rates are among younger, low-paid employees, and the racial gap in participation rates is nearly eliminated among employees subject to auto-enrollment."

About one in six of employers already offer automatic enrollment, and about 90% of new hires who use them participate in retirement plans, compared with just 28% under voluntary enrollment, according to a recent study by Vanguard, the largest provider of mutual funds in the United States.

Pre-retirees save more

Older workers who are between the ages of 62 and 64 can increase their catch-up contributions to $10,000 a year, up from $6,500 now. Beginning in 2023, these catch-up contributions would be taxed as Roth contributions, meaning they'd be taxed before being invested for retirement, though earnings would be indexed to inflation.

People generally earn more as they age, said Reddy, and people in their 60s are typically earning more than they spend. Giving them the ability to increase their contributions makes a huge difference in retirement savings. "If you have people who are motivated and have incremental means, it's a wonderful way of helping them get caught up for retirement," he said.
Barber, who heads up benefits research at Goldman Sachs' financial advisory Ayco, worries that this change may be overly complex.

Currently, most 401(k) contributions come from employees' paychecks pre-tax, so investors don't really feel the bite until they're ready to withdraw their savings. Under the new plan, the catch-up contribution will be raised, but employees must pay taxes before they contribute.

For investors, "that might be a shock to some people who don't understand the financial impact of that, especially if they've never had a Roth account," said Barber.

Pay off student loan debt while saving

About 43.4 million borrowers in the United States have federal student loan debt, totaling a whopping $1.7 trillion, and many employees tend to forgo saving for retirement until they pay their loans in full.

Losing out on those early years of potential savings puts them at a significant disadvantage. The plan has a solution to that.
Employers could treat student loan repayments as elective retirement account deferrals, and provide a matching contribution to their 401(k). So if you pay off $1,000 in student loan debt, it would be the same as putting $1,000 into a retirement plan, as far as matching goes. If a company matches by 6%, that's an extra $60 in savings.

"The earlier you do [invest], the more those investment gains can multiply," said T. Lake Moore V, an employee benefits attorney at McAfee & Taft.

Delay mandatory withdrawals and limit tax penalties

Americans are retiring later and living longer. Secure 2.0 lifts the minimum age at which enrollees must begin withdrawing money from their accounts each year to 75 from 72. That allows for three additional years of tax-free growth on their retirement investments.

(The penalty for those who fail to withdraw the required minimum from their account after 75 would be halved, to 25% from 50%.

Part-time workers can contribute

Under the proposed act, companies that offer a 401(k) plan would be required to allow part-time employees who work at least 500 hours a year for two years, (the equivalent of just under 10 hours a week) to contribute to a retirement account. That would include part-time workers, gig employees, freelancers, caregivers and independent contractors.

Additional provisions

The plan would also extend tax credits to small businesses for providing greater access to retirement plans for their workers, and create an online database for Americans to locate lost retirement funds."

MY COMMENT

It is amazing how the 401K has WIPED OUT traditional pensions in private business. NOW......the only people with a pension are GOVERNMENT WORKERS.

It sounds like these changes might do some good....but in the end.....people have to be responsible for and take care of their own retirement. At least people that dont work for the government.

 

I see this coming FAD as a way to severely under-perform the unmanaged indexes.

Direct Indexing Is Coming Your Way

Is the latest investment fashion worthwhile?

https://www.morningstar.com/articles/1087454/direct-indexing-is-coming-your-way

(BOLD is my opinion OR what I consider important content)

The Next Thing

Ten years ago, "liquid alts" were the rage. Investment organizations were hastily hiring staff to support their new creations: mutual funds that emulated hedge funds. Five years later, those same companies were buying or developing robo-advice platforms, which place their users into (allegedly) individualized portfolios. Today’s trend is direct indexing. Seemingly every major company is on board.

In 2020, Morgan Stanley (MS) bought a direct-indexing provider. One month later, BlackRock (BLK) trumpeted a similar deal, followed the next summer by Vanguard. This February, Fidelity launched its internally developed service, Fidelity Managed FidFolios (fire that naming consultant!). Then came Schwab (SCHW), introducing Schwab Personalized Investing. Great minds think alike. Then again, so do sheep.

(Morningstar (MORN) also announced a direct-indexing deal, acquiring a small European company named Moorgate Benchmarks. I know no more about that deal than what I learned from the press release, meaning just this side of nothing.)

Nuts and Bolts

To define the term: With direct indexing, investors own a benchmark’s underlying shares. That is, while index-fund owners possess one investment, those who index directly typically hold dozens or even hundreds of securities, depending upon whether they fully replicate an index, or only sample it. The economic exposure is the same either way: If the benchmark rises by 1% on a given day, so will the portfolios of both the fund investor and the direct indexer.

Holding the stocks directly, as opposed to through a fund, permits personalization. Following either the investor’s specific orders, such as “sell this security” or “buy more of that one,” or general requirements, such as “avoid companies that sell alcohol,” direct indexers will adjust the portfolio in response to individual needs. (The level of customization that is allowed varies by the direct-indexing vendor.)

Of course, in these days of fractional shares, investors can assemble huge portfolios on their own. For example, Schwab permits its clients to buy $5 stock “slices,” and Robinhood (HOOD) permits a lower minimum yet. But establishing and maintaining such accounts is tedious. Direct-indexing services greatly simplify the process. Send the money to a single place, along with one’s instructions, and let the professionals do the work.

At least for now, that effort doesn’t come for free. (If direct indexing succeeds, that could change. After all, Fidelity did not expect when opening its first index fund that eventually it would manage a series of such funds, at no charge.) As with many investment services, direct indexing started atop the wealth ladder, offered to private-banking clients at a cost of about 0.30% per year. The newly launched services for Schwab and Fidelity, which require minimum investments of $100,000 and $5,000, respectively, each charge a slightly higher 0.40%.

The Second Wave

Effectively, direct indexing is the updated version of separately managed accounts. One generation ago, SMAs were that era’s hot commodity. As with direct indexing, SMAs were modified versions of mutual funds, except the funds were active rather than passive with SMAs. The pitch to investors was that they should not board the mutual fund bus, which was a common ride, but instead relax in a town car that would be all their own.

By and large, separately managed accounts disappointed. SMAs came to market charging a small fortune--an average of 2.05% per year in the early 2000s, according to industry consultant Financial Research. In addition, because technology sharply lagged current standards, the companies that operated SMAs had difficulty processing client requests. In practice, therefore, they discouraged adjustments. Most of an SMA manager’s portfolios looked suspiciously similar.

Direct indexing avoids both problems. For do-it-yourself investors, direct indexing is much cheaper than the early SMAs. Direct indexing through financial advisors is of course pricier because of the second layer of fees, but total annual expenses will still be well below 2%. And the technology has been fixed. Although direct-indexing providers will surely limit their phone conversations--welcome to 2022 product support!--they won’t struggle to execute electronic instructions.

Potential Benefits

The question then becomes: Is this additional freedom truly helpful, or is it merely marketing spin?

Using direct indexing for customized investment management is thoroughly and completely spin. Preferring one stock to another is fine, although--as active mutual fund managers have amply demonstrated--such decisions are not profitable on average. But there’s no point in doing so through direct indexing. Instead, buy an index fund to anchor the portfolio, then trade individual equities on the side. Using two investment buckets rather than one is both cheaper and cleaner.

In fairness, while SMAs touted their investment-management possibilities, direct-indexing services are more circumspect. They advertise instead their ability to incorporate user preferences, such as favoring companies with high environmental, social, and governance scores. That is a far easier task. Whereas investors cannot know in advance which stocks will prosper, they can determine which corporate policies they support. That direct-indexing services can implement such choices is an advantage.

So, however, can index funds, which are increasingly tailored for individual tastes. For example, there are now 124 exchange-traded and mutual funds that index while using ESG criteria, 71 of which cost less than Fidelity’s and Schwab’s direct-indexing services. As most investors will accept the ESG selections made by investment professionals rather than conduct their own research, it’s not clear that direct indexing will capture much of the ESG marketplace. Nor will direct indexing necessarily attract those who possess other investment preferences.

Ironically, direct indexing’s strongest opportunity lies with where it started: managing taxes. The technique began in large part as a method by which wealthy investors could lower their tax penalties. Unlike with index funds, directly indexed portfolios can deviate from their benchmarks by selling their losers. Thirty-one days later, by the terms of the wash-sale rule, they may repurchase those same shares. The index position is restored, with a capital loss booked.

Through such a strategy, direct-indexing services can control a portfolio’s tax bill in a fashion that funds cannot. The approach can also be used when divesting from a large and successful stake in company stock. With each capital loss that is harvested, the investor can realize a company stock capital gain of equal amount. Over time, the company stock position will dwindle, making for a better diversified portfolio without generating ongoing tax bills.

In summary, the primary appeal of direct indexing appears to be its relief for taxable accounts, the amount of which will vary according to the investor’s wealth and capital gains status. In a future column, I will estimate the size of that benefit."

MY COMMENT

I dont see much benefit to this approach.....at least for me. I have ZERO interest in investing based on ESG type stuff. I have ONLY one concern when I invest.....the ability of the company to be a successful and profitable business. In fact......I prefer NOT to see any management focus on all the various ESG FADS of the moment.

I prefer my approach which is mentioned in the article:

"......there’s no point in doing so through direct indexing. Instead, buy an index fund to anchor the portfolio, then trade individual equities on the side. Using two investment buckets rather than one is both cheaper and cleaner."

I do this with half of each of my portfolios starting out in the SP500 Index and the Fidelity Contra fund. The other half I manage myself and determine how much I want to double or triple up with some of the holdings of the two funds. Of course I do not......"trade Equities on the side".....I hold them for the long term.

I do see the benefit of the tax approaches you can do with this sort of fund. But I have no interest in that much time and effort to micro-manage my taxes.....so I doubt I would ever use it.

 

Off to a show....good luck to us all tomorrow.

 

Looks like a mixed market today for the open. The DOW is getting hit hard but the NASDAQ and the SP500 are mildly red or mildly positive. There is no clear direction at the moment. I have not looked at my account but seeing some of the individual stock prices today i suspect that I am green so far.

 

Here is another little article that I like.

Unemployment Won’t Push Prices Higher
Among many inflationary pressures, rising wages isn’t one.

https://www.fisherinvestments.com/en-us/marketminder/unemployment-wont-push-prices-higher

"The US March jobs report came out last Friday, and it was chock full of goodies. Nonfarm payrolls rose 431,000—the 11th straight month of job gains over 400,000—while the unemployment rate dipped 0.2 percentage point to 3.6%. Many say March’s figures confirm a full recovery is underway, but some still worry rising wages in a tight job market may keep inflation high. However, unemployment and inflation aren’t linked—worth keeping in mind given myriad worries about today’s elevated prices.

The purported connection between unemployment and inflation originates from the Phillips Curve. According to this theory, low unemployment leads to higher wage growth due to higher competition for workers. That forces employers to pass on higher labor costs to consumers, driving broadly rising prices, which drives wages higher, which drives prices higher, lather, rinse, repeat. Economists refer to this phenomenon as a wage-price spiral, and some think one may be forming based on the latest data. Everyone is aware of high inflation rates both here and abroad, and wage growth has been accelerating since April 2021, rising 5.6% y/y in March. (Exhibit 1)

Exhibit 1: Accelerating Wage Growth


Source: FactSet, as of 4/4/2022. Average hourly earnings, year-over-year change, December 2019 – March 2022.

However, we think much of 2021 acceleration reflects the calculation quirk known as the base effect. In April 2020, average hourly earnings jumped 8.0% y/y (4.2% m/m), as lockdown-driven furloughs and layoffs resulted in large numbers of lower-earning workers falling out of the government’s earnings data.[ii] Without those lower numbers in the calculation, the average popped in April. In May and June, though, average hourly earnings fell on a month-over-month basis as people returned to work, which put downward pressure on the average. The rebound since then reflects the slow return to normal, in our view. However, some still worry rising worker pay suggests a wage-price spiral is forming and will keep inflation elevated.

But there is nothing inherently special or forward-looking about wages. They represent the price of labor—determined by supply and demand. Headlines today worry the former can’t keep up with the latter, with a heightened focus on supply constraints (e.g., workers remaining on the sidelines due to other obligations, including caregiving). But labor supply isn’t fixed, and it has been improving. The civilian labor force participation rate (the percentage of the population that is either working or actively looking for work) was 62.4% in March.[iii] While still below its pre-pandemic level of 63.4% in January 2020, the rate has climbed steadily since April 2020’s low of 60.2%.[iv] That suggests workers are returning to the labor force, in part responding to the signal of rising wages.

Moreover, higher worker pay doesn’t automatically fall onto consumers. Sometimes businesses will pass higher wages on, if they think the market can bear it. Other times, they will keep prices low in hopes of gaining market share. Plenty of variables can play into this. Perhaps companies make offsetting cost cuts elsewhere to keep prices low (e.g., removing a less-profitable product line). They could also use their gross margins to absorb labor costs temporarily, on the expectation that future growth will replenish their buffers. Or, they could decide a long-term investment in productivity could yield fruit over time and keep costs down. Firms big and small have been investing in robots to automate certain tedious tasks, including packing products or taking food orders, spurring a nascent “robots as a service” industry.[v]

History also debunks the purported ties between unemployment and inflation. See the 1970s: High unemployment coincided with double-digit inflation, which is the opposite of what the Phillips Curve says should happen.

Exhibit 2: The 1970s Weren’t Nice to the Phillips Curve


Source: St. Louis Federal Reserve, as of 12/7/2021. US Personal Consumption Expenditures (PCE) Price Index, year-over-year change, and headline unemployment rate, monthly, January 1968 – January 1982.

In our view, the 1970s’ high inflation stemmed from President Nixon’s wage and price controls, the oil price shock due to OPEC’s embargo and years of the Fed’s increase of money supply. Nixon’s controls distorted normal price signals. Fixed prices incentivize companies to produce the minimum, as there is no profit reward for producing more. That causes rationing and shortages, which can contribute to higher prices across the economy once the price ceiling resets. For a more recent example, see the UK’s energy price caps, which have contributed to higher energy costs for households and put many smaller energy suppliers out of business. Furthermore, if companies’ prices are capped, they may fear losses in the future, so they boost prices to the cap near immediately, which turns it into less of a ceiling and more of a target.

The 2009 – 2020 expansion also punched a hole in Phillips Curve thinking. Since 1970, the unemployment rate has averaged 6.2%.[vi] It fell below that threshold in mid-2014 and trended lower for the rest of the expansion. Over that stretch, the annual inflation rate averaged 1.4%, which is below the Fed’s 2% target.[vii] Note, too, that after an uptick in inflation at 2018’s start, prices decelerated mid-year—even as unemployment fell below 4%. Low unemployment didn’t yield faster inflation, debunking the Phillips Curve again.

As we wrote last week, inflation may stay elevated for longer than we initially anticipated. While logistical pressures appeared to be easing, the Russia-Ukraine war drove a fresh batch of supply-side spikes, which will likely keep prices elevated for a while longer. That isn’t great, and we don’t dismiss economic hardships for many households. But as experts discuss why inflation will be high, we think it is worth keeping in mind that labor market developments aren’t the reason why."

MY COMMENT

I do personally.....based on my memory of the inflation of the 1920's and 1980's........believe that that time period was partly the result of a wage/price spiral. BUT....as mentioned above there were many causes of what happened back than. I do not believe we are seeing the same things now. And.....as a result.....I do not believe that the FED going on a tear of raising rates.........is going to have much impact on anything......other then the economy.

We have way too much money sloshing around in the economy and way too many supply and demand disruptions as a direct result of the Covid shut down. The country and the world have NEVER gone through this sort of economic shut down in the past. The economic disruptions and distortions caused by this event......are going to take time to work through. There is NOT going to be some MAGIC BULLET that solves all the issues that were caused as a result of the economic shut down.

 

The FED is still the big.....short term......market overhang. Here is their roadmap for the future........but I am sure they will flail around and be all over the place since they dont seem to have any discipline in what they are doing or saying.

Fed Lays Out Plan to Prune Balance Sheet by $1.1 Trillion a Year

https://finance.yahoo.com/news/fed-lays-plan-prune-balance-211347654.html

(BOLD is my opinion OR what I consider important content)

"(Bloomberg) -- Federal Reserve officials laid out a long-awaited plan to shrink their balance sheet by more than $1 trillion a year while raising interest rates “expeditiously” to counter the hottest inflation in four decades.

The roadmap for reducing the assets they bought during the pandemic was spelled out on Wednesday in minutes of their March meeting, when officials raised rates by a quarter point. They debated going bigger but chose caution in light of the uncertainty caused by Russia’s invasion of Ukraine, the record of their discussion showed.

In addition, “many” who attended the March 15-16 Federal Open Market Committee meeting viewed one or more half-point increases as possibly appropriate going forward if price pressures fail to moderate.

Analysts saw this as evidence that officials now fear that they should have acted sooner against inflation and are now in a hurry to get their main rate -- currently in a target range of 0.25% to 0.5% -- up to neutral, the theoretical level that neither speeds up the economy or slows it down.

“The FOMC stayed far too easy for far too long and has belatedly realized their mistake,” said Stephen Stanley, chief economist at Amherst Pierpont Securities LLC. “They are now scrambling to get policy back to neutral as quickly as they can. Once they arrive at something close to neutral, they will have to ascertain over time how far into restrictive territory they have to move to get inflation back under control.”

The effort to reduce the balance sheet will extend a sharp pivot toward fighting inflation, as the Fed was buying bonds as recently as last month as it attempted a smooth wind-down of pandemic support. The FOMC is expected to approve the balance-sheet reduction at its next gathering on May 3-4. The plan for shrinking the balance sheet came via a staff presentation to officials.

Officials proposed shrinking the Fed’s balance sheet at a maximum monthly pace of $60 billion in Treasuries and $35 billion in mortgage-backed securities -- in line with market expectations and nearly double the peak rate of $50 billion a month the last time the Fed trimmed its balance sheet from 2017 to 2019.

They backed phasing those caps in over three months “or modestly longer if market conditions warrant.”

The record of the closed-door meeting showed a lot of support among the 16 officials who took part for raising rates by 50 basis points.

“Many participants noted that one or more 50 basis point increases in the target range could be appropriate at future meetings, particularly if inflation pressures remained elevated or intensified,” the minutes said. “Participants judged that it would be appropriate to move the stance of monetary policy toward a neutral posture expeditiously.”

The neutral rate is estimated to lie around 2.4%, according to the median estimate of officials released at the meeting. Officials “also noted that, depending on economic and financial developments, a move to a tighter policy stance could be warranted,” the minutes said.

What Bloomberg Economics says

The minutes provide “a potential explanation for Powell’s sharply hawkish tone at the March meeting: It appears that Fed staff -- who over the past year have had a more benign inflation outlook than FOMC participants -- have become noticeably more alarmed about inflation developments.”

U.S. central bankers since then have said they could move more rapidly on policy, after Russia’s invasion sent food and energy prices soaring, with Powell declaring on March 21 that a half-point increase was on the table if needed in May.

With getting to neutral the clear policy goal now, investors will position around how fast the Fed intends to get there. Near-term data on inflation progress will play a large role in those decisions. Powell said last month that as “the outlook evolves, we will adjust policy as needed.”

Futures markets are pricing in high probability of a half-point hike at the May meeting. The impact on balance sheet reduction on financial conditions, though, will likely be observed carefully in the second half of the year.

“I think 50 basis points is going to be an option that we will have to consider, along with other things,” Kansas City Fed President Esther George said in a Bloomberg News on Tuesday. “We have to be very deliberate and intentional as we remove this accommodation. I am very focused on thinking about how the balance sheet moves in conjunction with policy-rate increases.”

A bigger risk and policy challenge will come if Russia’s invasion of Ukraine sustains high food and energy prices for enough time to set off another round of wage and price hikes. That would likely have to be met with even more aggressive policy by the Fed if it starts to unseat expectations about the central bank’s ability to anchor prices.

“Against a highly uncertain and rapidly shifting economic backdrop, the Fed has shifted from talk to action,” said Guy LeBas, chief fixed income strategist for Janney Montgomery Scott in Philadelphia. “Financial conditions are going to remain volatile for much of the next six months as a result.”"

MY COMMENT

VOLATILITY....is going to be the name of the game for investors this year. I suspect that it is going to take at least a year for investors to reach some sort of comfort zone with the FED. OBVIOUSLY the FED does not care about investors or the markets. the key for the markets.....as I have said many times.....is CERTAINTY. This is something that I dont think the FED has any chance of providing.

 

Super nice turn around today. the underlying strength in the markets at work and the anticipation of EARNINGS. Although.....many of the ''experts" have come out to say earnings will not do as well. I call BS.

I am going to barely make the close today. I have to leave for a show. A little 100 mile drive. I drive so much that I consider anything within 250 miles as......LOCAL.

 

As usual it is good news, bad news, for....HOUSE HUNTERS.

Rising mortgage rates are causing more home sellers to lower their asking prices

https://www.cnbc.com/2022/04/07/ris...more-home-sellers-to-lower-asking-prices.html

(BOLD is my opinion OR what I consider important content)

"Key Points

• About 12% of homes for sale had a price drop during the four weeks ending April 3. That’s up from 9% a year ago, according to Redfin.
• The number of new listings last week jumped 8% from a year ago, according to Realtor.com. This follows four straight weeks of annual declines in new listings.
• Buyers are sweating because the average rate on the 30-year fixed mortgage really took off in the past few weeks, surpassing 5%, according to Mortgage News Daily.

Several new reports from real estate companies suggest buyers may be starting to get a break in this red-hot housing market. More listings are coming up for sale, and some sellers are lowering their asking prices.

The number of new listings last week jumped 8% from a year ago, according to Realtor.com. This follows four straight weeks of annual declines in new listings. The total amount of active inventory for sale is still down 13% from a year ago, but it may be on track, given the rise in new listings, to surpass year-ago levels by this summer. New listings tend to peak in May.

Prices, however, are still well above year-ago levels. Higher mortgage rates are also making houses less affordable. The average borrower is now paying about 38% more than they would have for the same home a year ago on a monthly payment, according to Realtor.com.

For some buyers, general inflation and related mortgage rate hikes mean less budget flexibility to pursue freshly listed homes. For those who can afford to persist, a silver lining could be relatively less competition for more for sale home options, which could lead to some relief from relentless home price momentum.

As more supply comes on the market and mortgage rates rise sharply, sellers appear to be coming back to Earth, at least a little. About 12% of homes for sale had a price drop during the four weeks ending April 3. That’s up from 9% a year ago, according to Redfin. The rate of sellers dropping their asking prices is now growing faster each month than it has since August.

“Price drops are still rare, but the fact that they are becoming more frequent is one clear sign that the housing market is cooling,” said Daryl Fairweather, Redfin’s chief economist. “It goes to show that there’s a limit to sellers’ power. There is still way more demand than supply, and buyers are still sweating, but sellers can no longer overprice their home and still expect buyers to clamor at their door.”

Buyers are sweating because the average rate on the 30-year fixed mortgage, which has been rising since January, really took off in the past few weeks. It surpassed 5% earlier this week, according to Mortgage News Daily. Consumers are more pessimistic about the housing market, according to a monthly survey from Fannie Mae, and especially about mortgage rates.

The share of consumers who expect mortgage rates to rise further increased to 69% from 67% in March. More consumers also said they believe home prices will continue to rise.

“If consumer pessimism toward homebuying conditions continues, and the recent mortgage rate increases are sustained, then we expect to see an even greater cooling of the housing market than previously forecast,” wrote Mark Palim, vice president and deputy chief economist at Fannie Mae."

MY COMMENT

the rates increases are bad news for buyers.......but....the little bit of cooling....even though very slight......is good news. Here in my local market it is STILL.....RED HOT. We get up to about 15 active listings......than the weekend happens.......and we drop back to 8-10 active listings as properties go pending. I dont see any slowdown around here at all.