The Long Term Investor

This is not good for Spring house buyers......but....in some areas they might see lower prices.

Mortgage rates surge closer to 7%

https://finance.yahoo.com/news/mortgage-rates-surge-closer-to-7-170055036.html

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

"Mortgage rates continued their steep climb this week, surging closer to 7%, and forcing more would-be buyers back to the sidelines.

The rate on the average 30-year fixed mortgage increased to 6.50% from 6.32% the week prior, according to Freddie Mac. Rates have increased 41 basis points this month, after government data showed inflation had risen slightly last month, reversing most of the decline witnessed since mid-November.

The sharp uptick in rates has squeezed homebuyer demand, driving inflation-weary homebuyers to lower their budgets or abandon their purchasing plans. Meanwhile, the handful of buyers still in the market are negotiating sales before rates further erode their buying power.

“Still-high home prices and elevated rates have crushed affordability,” Keith Gumbinger, vice president of HSH.com told Yahoo Finance. “That said, there is reasonable demand and ability by potential homebuyers to engage in the market, but there are still too few homes for sale from which to hope to find something suitable at a price a prospective buyer can actually afford. All combined, these things are dampening the market.”

Homebuyer demand shrinks further

As mortgage rates climb higher, a growing share of homebuyers have decided to walk away from their purchase plans.

The volume of mortgage applications for a purchase fell 18% compared with the previous week, the Mortgage Bankers Association (MBA) survey of applications for the week ending Feb. 17 found. Overall, purchase application volume was down 41% from a year ago, with the purchase index at its lowest point since 1995.

“This time of the year is typically when purchase activity ramps up, but over the past two weeks, rates have increased significantly,” Joel Kan, MBA’s vice president and deputy chief economist said in a statement. “The increase in mortgage rates has put many homebuyers back on the sidelines once again, especially first-time homebuyers who are most sensitive to affordability challenges and the impact of higher rates.”

The pullback in demand doesn’t come as a surprise. According to Jeff Reynolds, broker at Compass and founder of UrbanCondoSpaces.com, homebuyers have lost roughly 10% of their purchasing power in the last two weeks alone due to the sharp uptick in rates.

“That creates a lot of rate shock for buyers,” Reynolds said.

Softer home prices aren’t much help for some price-struck buyers, either. According to Realtor.com, home prices have decreased 11% over the past 7 months to an average of $400,000 in January. Still, at last week’s rate of 6.32%, the buyer of a median-priced home was looking at a $1,985 monthly mortgage payment – that’s 42% higher than last year, though 6% lower than it would have been in June 2022.

“It was inevitable that demand would slow,” Reynolds told Yahoo Finance. “We had our worst seasonally adjusted mortgage purchase application reading in recent history. We’ll find out in the next 30 days if buyers are getting used to higher rates of it they will stay on the sidelines waiting for rates to come back to earth.”

The time to negotiate is now

The window of opportunity for some homebuyers to snatch a good deal could be ending soon, as sellers continue to pull back their generous incentives ahead of the spring selling season.

At least 31% of builders reduced home prices in February, according to the National Association of Home Builders (NAHB), down from 35% in December and 36% in November. The average price drop also grew more conservative, falling just 6% in February, down from 8% in December.

Buyer incentives – such as mortgage rate buydowns, paying toward closing costs or repairs – were also limited as mortgage rates had appeared to stabilize earlier this month. Only 57% of builders offered incentives in February, NAHB cited, down from 62% in December and 59% in November.

“The opportunity to negotiate incentives may not last long,” Reynolds noted, especially if buyer activity picks up toward the spring and housing inventory remains low.

Still, that’s not to say you won’t be able to negotiate now. According to Reynolds, one of his clients in Seattle recently got a 17% home price reduction, and additional contingencies paid for by the seller – deals that were hard to attain a year ago.

“I have client that just bought a house that was on the market for over 7 months and it didn't sell. Right when it came off the market, we jumped on it and negotiated $500,000 off the previously listed price,” Reynolds said. “This was an incredible negotiation. On top of the price drop, we were able to add an inspection and other contingencies you don't usually have access to in the market. It's been a seller's market for nearly a decade.”"

MY COMMENT

Yep....these rates are a shock to young buyers that have no understanding of history. But....in reality.....these are "normal" rates. People got severely spoiled by the 2-3 years we had of extreme low rates. We are now looking at more normal rates in the 5-7% range.....I would say for the foreseeable future. NO......I dont think there is any chance that mortgage rates will go below about 4.5% to 5%.

I hear some people saying they are going to wait for the rates to go back down.......well it is not going to happen......other than what I said above.

In my area.....Central Texas.....homes over $1MILLION are siting for a while and slowly selling. Below $1MILLION.....they are selling very well. We have the most extreme low inventory i have ever seen and little is available to buy. this will probably lead to escalating home prices again in a month or two.

 

And good news......looks like the averages are ALL back nicely in the green....as we wait for the close in a little over an hour. We just need to avoid the......DREADED.......late day face.

My view of the markets over the past four weeks is that they have been consolidating all the massive gains we saw for the first 4-5 weeks of the year. A normal market reaction.

 

A nice gain for me today to end well into the GREEN. Plus a good beat on the SP500 today by 1.01%. A stellar day.

I had only three stocks down today....COST, HON, and GOOGL.

The last two trades I mentioned in this thread are killing it. BUT.....these are short term numbers so basically meaningless.

TSLA 1-09-23 +79%

NVDA 9-20-22 +66%

BUT....better than a poke in the eye, with a sharp stick. Looking forward to the end of....WEEK EIGHT....of the 2023 investing year.

 

It was nice in the old days.......the old days being 10-15 years ago and on back......when investors and the media were NOT focused on every little bit of economic data. The OBSESSIVE focus on economic data is a relatively new thing. It is really nothing more than the markets and the financial media performing.....self-flagellation.

It is the markets and media......in EPIC FOOLISHNESS....believing and fostering the belief that some......microscopic change in a data point is really relevant to the economy or investors. It is nothing more than a belief that the economy can be guided and controlled down to the most minute level of data. Do you really think that some economic data point moving 0.6% versus expectations of 0.5%......is reliable or even measurable?

AND....in reality.....is that .01% data point.....REALLY IMPORTANT? Ultimately that data point will..... later....end up being revised up or down because these sorts of measurement are NEVER accurate.

HERE is the perfect example of the INSANITY that has infected the financial media and investors. Of course....it is really not the fault of investors....they dont know any different. If they see screaming headlines every day about some critical economic report.....they believe that it is actually important.

BOTTOM LINE....in the end do you really think that some.......MICRO MANAGING...... economic report today is going to matter in the least in a week, a month, or a year. It will be forgotten and meaningless.

Key Fed inflation measure rose 0.6% in January, more than expected

https://www.cnbc.com/2023/02/24/key...nt6percent-in-january-more-than-expected.html

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

"A measure the Federal Reserve watches closely to gauge inflation rose more than expected in January, indicating the central bank has more work to do to bring down prices.

The personal consumption expenditures price index excluding food and energy increased 0.6% for the month, and was up 4.7% from a year ago, the Commerce Department reported Friday. Wall Street had been expecting respective readings of 0.5% and 4.4%.

Including the volatile food and energy components, headline inflation increased 0.6% and 5.4% respectively.

Markets fell following the report, with futures tied to the Dow Jones Industrial Average off more than 300 points.

Consumer spending also rose more than expected as prices increased, jumping 1.8% for the month vs. the estimate for 1.4%. Personal income rose 1.4%, higher than the 1.2% estimate. The personal saving rate increased, rising to 4.7%.

All of the numbers suggest inflation accelerated to start the new year, putting the Fed in a position where it likely will continue to raise interest rates. The central bank has pushed benchmark rates up by 4.5% since March 2022 as inflation hit its highest level in some 41 years.

The Fed follows the PCE measures closer than it does some of the other inflation metrics because the index adjusts for consumer spending habits, such as substituting lower-priced goods for more expensive ones. That provides a more accurate view of the cost of living.

Policymakers tend to focus more on core inflation as it they believe it provides a better long-run view of inflation, though the Fed officially tracks headline PCE.

Much of January’s inflation surge came from a 2% rise in energy prices, according to Friday’s report. Food prices increased 0.4%. Goods and services both rose 0.6%.

On an annual basis, food prices rose 11.1%, while energy was up 9.6%."

MY COMMENT

It is funny to watch this stuff happen in real time in the media and with investors that love to be jerked around. There are so many new and inexperienced investors out there that simply.....ACCEPT......that this is how you invest and what is important.

In REALITY.....this stuff is meaningless. Do you think a committee....the FED......is really capable of controlling or running the economy? Is this really their job?

More importantly......is this even news? Do you think the FED is going to change anything in terms of their future behavior. They have been very clear that there will be 2-3 more rate hikes.....and....in the end rates will be between 5.5% and 6%. THAT IS REALITY.

 

The....BIG QUESTION.....for any stock investor is.....are you investing in economic indicators? OR.....are you investing in a business?

If you are in love with economic indicators.......how do you like the FED trying to trash the markets with interest rate increases......while at the same time....government stimulates the hell out of the economy for years.....with no end to the continued massive spending and stimulus in sight?

Human behavior at its best....it makes me laugh.

 

Look at it this way......if you can......considering all the constant NOISE that is all around the markets in the form of the financial media:

We have now gone through 7-8 rate hikes by the FED. We are now within about 4-6 months of the end of the rate hikes. We.....OBVIOUSLY....only have another 0.75% to 1% of hikes ahead of us. There is no sign of a recession. The WORST is behind us......yet.....the constant and incessant fear mongering NEVER ends.

I find it amazing that NO ONE ever discusses or mentions the shut down of the economy for two years.......just a year ago. How did that go? Was it a good thing?

YEP....the more we focus on trying to micro-manage the economy and the markets.....the WORSE we are doomed to do. AND.....the ridiculous economic shut down......that was not micro-managing....that was taking a sledge hammer to the economy.

Much of this "stuff".......is obviously a HUGE function of the internet. Information is good.....but.....extreme focus on every micro event and micro data is paralyzing. It is like all the medical stuff that is on the internet. Doctors are being driven crazy by patients coming in after researching their symptoms on the internet and being convinced that they have some horrible disease.

We have become a nation and world of information HYPOCHONDRIACS. The investing world has become captive to......INVESTING and ECONOMIC HYPOCHONDRIA.

 

To continue the above little theme.

Seasonal adjustments can mislead economy momentum numbers

https://www.axios.com/2023/02/23/retail-sales-seasonal-data-weird

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

"You may recall the news last week of a blockbuster 3% surge in January's retail sales, which rippled across global markets. But that report actually showed retailers had $121 billion less in January sales than they did in December — a 16% drop.

• The difference is a result of the seasonal adjustment process that is applied to most major data — and right now, it may be sending misleading signals about how the economy is doing at the start of 2023.

Why it matters: A series of hot reads on growth and inflation have sent markets reeling this month. But at least part of that heat appears to come from shifts in seasonal patterns, making this winter's numbers look gaudier than they are.

• There's little doubt that the economy has gained momentum so far this year, but it's less clear how much of that is real.

How it works: If statistical agencies didn't undertake seasonal adjustments, the numbers they produced would be highly misleading.

• For example, there would be an apparent boom in consumer spending and hiring every November and December, tied to the holiday season — and then a depression each January as sales fall back to earth and seasonal help is dismissed.
• But those adjustments are based on past results, meaning they are slow to catch on if seasonal patterns change.

So, for example, if 2020-21's pandemic supply shortages caused people to start their holiday shopping earlier than usual, the seasonal adjustment would exaggerate the strength of October's retail sales number and depress November and December.

• It would also make January's figures look much stronger than the reality, because the falloff in spending from December to January would be less pronounced than seasonal models predict.
• That looks to be exactly what happened in last week's retail data, which after seasonal adjustments was negative in November and December, and then sharply positive in January.

• Overall retail sales in January were 0.7% higher than in October and, after seasonal adjustment, more consistent with steady gains than a January boom.

Between the lines: Weather can compound seasonal distortions. In a normal January, frigid temperatures and snowstorms disrupt economic activity in large parts of the country. Seasonal adjustments account for that.

• But this has been an uncommonly warm winter, which means seasonal adjustments increase reported activity above and beyond the true underlying trend.
• A San Francisco Fed model that adjusts reported jobs numbers for weather effects found the nation would have added around 390,000 jobs in January — not the 517,000 the Labor Department reported — had it not been a warm winter.

The bottom line: "Right now, it's difficult to ascertain whether COVID-induced consumer behavior changes and business practices are altering seasonal data adjustments, or if the real underlying economic activity is as strong as some recent economic indicators suggest," said Doug Duncan, chief economist at Fannie Mae."

MY COMMENT

In the best of times the economic community has ZERO ability to predict and/or control the economy. After the past three years of INSANITY........with all the economic distortions that are now cranked into the economy.......it is simply impossible that any of the data or predictions of the economic community are accurate or mean anything.

The BOTTOM LINE......the constant economic data is.....MEANINGLESS. Want to know what the REAL economic data is....it is the actual, specific fundamental results of each individual company or fund that you are invested in.....over the longer term.

 

HERE is the day today....so far.

Stock market news today: Stocks slide after hotter-than-expected key inflation print
Here's what's moving markets on Friday, February 24, 2023.

https://finance.yahoo.com/news/stock-market-news-today-february-24-2023-104349492.html

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

"U.S. stocks tumbled Friday as the Federal Reserve's most closely watched inflation measure came in stronger than expected, in another sign that price pressures have become sticky into 2023.

The S&P 500 (^GSPC) sank 1.3%, while the Dow Jones Industrial Average (^DJI) plopped nearly 400 points, or 1.2%. The technology-heavy Nasdaq Composite (^IXIC) tanked 1.6%.

U.S. Treasury yields scrambled higher following the reading. The 2-year note surged 10 basis points to 4.8% while the 10-year note gained 7 basis points to 4.86%.

The Personal Consumption Expenditures (PCE) price index — the Fed's preferred assessment of how quickly prices are rising across the economy — rose 0.6% in January and 5.4% from last year. On a "core" basis, which strips out volatile food and energy components, prices rose 0.6% for the month and 4.7% from last year.

The report from the Commerce Department also showed that consumer spending rose 1.8% last month from December after falling the previous month.

The numbers support recent indications inflation is not falling at the pace and extent investors have been hoping for, even as prices have stabilized from the peaks of the current inflation cycle.

“First December CPI was revised higher, and now each reading for January surprised to the upside. Inflation’s like an old boyfriend or girlfriend that keeps showing up when you don’t want to see them," David Russell, Vice President of Market Intelligence at TradeStation said in a note.

In individual stock moves, Block (SQ) rose 3% after the payments processor reported fourth-quarter financial results that saw profit and revenue top expectations.

Warner Bros. Discovery (WBD) shares rose more than 2%, even as the media giant posted a big revenue loss for the final three months of the year.

Boeing (BA) shares were down 3.5% after the airline manufacturer said it paused deliveries of its 787 Dreamliner jets because of a documentation issue.

Beyond Meat's (BYND) stock rallied nearly 15% after better-than-expected earnings and CEO Ethan Brown said the company is seeing progress in its efforts to cut costs and manufacturing hurdles.

Beleaguered used car retailer (CVNA) was in a downswing, plunging 12% after reporting a net loss that was nine times wider in the fourth quarter.

The bumpier-than-anticipated road to restoring price stability and strong economic data to start the year — nonfarm payrolls rose by 517,000 in January while retail sales surged 3% — have prompted investors to readjust expectations around the path forward for interest rates, putting a dent in the market's recent momentum.

The S&P 500 snapped a four-day losing streak on Thursday as stocks closed higher. But earlier this week on Tuesday, stocks had their worst day of the year.

"Equity bulls and even Chair Powell have bragged about anchored expectations for inflation and how consumers and investors believe it is moving in the right direction," Morgan Stanley Chief Investment Officer Lisa Shalett said in a note earlier this week, noting that January's Consumer Price Index (CPI) and Producer Price Index (PPI) raised questions about whether inflation progress is stalling.

"Given data crosscurrents, the central bank needs to tread carefully. Investors still wagering on a 'Fed put; or quick return to financial repression are apt to be wrong this time," Shalett said. "Fed credibility is on the line, and it is likely to risk overshooting rather than quitting the inflation fight too early.""

MY COMMENT

First....the Ten Year Treasury yield in this article has GOT to be WRONG. What I am seeing at this moment is a ten year yield of.....3.941%.

Second......I have better things to do with my time today......compared to obsessing over meaningless data.......including......how many angels can dance on the head of a pin? So I will move on and not waste time on economic IDIOCY.

I I will check in at the close.....and move on from there.

 

SLAP........there you go Smokie.

The day turned out to be an "ok" DOWN day today.........considering the horrible open. I was in the RED today right in line with everyone else. I got beat by the SP500 today by 0.63%.

We move on to a new beginning and a new week......and....actually a new month. YEA.

 

I am STILL seeing a nice bull market so far this year.

The SP500 is +6.48% for the year to date. My account is +7.48% year to date. Many of my stocks have had epic runs over the last 2-6 months.

For example.....the TESLA trade I did on 1-9-23......up by +61.40% since that date. This means that anyone that owned Tesla stock since 1-9-23 or before has made a gain of +61.40% since January 9th of this year. That is a HUGE gain for TSLA owners.

The other trade I posted the other day.....NVDA on 9-20-22 has gained 76.42% since that time. Same thing....anyone on this board that held NVDA shares on September 20 of 2022 has gained 76.42% on those shares up to today.

I cherry-picked a few others.....randomly....... from my holdings. YEAR TO DATE.......AMZN +8.95%.....COST +7.79%.....MSFT + 4.40%.....HD (-6.09%). The others I did not bother to look up since I know that the year to date gain for the entire portfolio....stocks and funds.....is +7.48%

As to my two funds....SP500 Index Fund +6.28%....Fidelity Contra fund +7.3%.

These are GREAT returns for an eight week time span. ESPECIALLY....considering that they have been reduced by the past 4 weeks of negative markets. In any normal market we will always see much volatility and swings from week to week and month to month. I am very happy to see how things are going this year compared to last year where investors were sunk from the very start of the year. Although.....even last year after June the returns of many stocks and funds were positive.

 

SO....I start the weekend in good spirits.

I will be leaving for a....relatively local..... show in about an hour. I will also be doing a show about 150 miles away tomorrow in the evening.

We spent a lot of time recording over the past 3-4 weeks. We even went into the studio for 5 hours before going to our show last Saturday. It is nice to get back out in front of an audience and to be playing entire songs and entire shows....after focusing on individual tracks and songs in the studio. We worked hard and got a lot done and gained from the process....but it is nice to be back playing a very active live schedule.

 

Time to load the car. HAVE A GREAT WEEKEND EVERYONE.......carry on.....and....to hell with the mule just load the wagon.

 

I hate to see the....politics......of Social Security invading the financial media. But....I do like this little article.

Don’t Lose Sleep Over Social Security

https://www.fisherinvestments.com/e...mmentary/dont-lose-sleep-over-social-security

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


"Major change doesn’t seem likely in the immediate future—and the need isn’t as bleeding as often portrayed.

Editors’ note: MarketMinder is strictly nonpartisan—never for or against any party, politician or policy. Our analysis of political developments seeks only to ascertain their potential economic, market and personal finance implications, if any.

With political rancor over Social Security running high, the two parties’ wrestling about its direction continues hogging headlines. Meanwhile, 70% of workers reportedly don’t believe it will be around when they retire. But we don’t think worrying over its solvency—or proposed solutions to “fix” it—is warranted. The program’s state could be improved by relatively minor shifts, and there is little reason to think those must—or are likely to—come soon.

Although Social Security’s situation could be improved, it isn’t in the dire straits so many pundits claim. Political sparring about it during—and after—the State of the Union has prompted the current concern, but the general alarm stems from the projections in Social Security’s annual Trustees’ report. Its forecasts routinely suggest the Social Security trust fund risks being depleted by a certain year, with only partial benefits paid out thereafter. In 2021, the Trustees’ report estimated that would happen in 2033. Last year’s report pushed it one year later, to 2034. The 2023 report isn’t out yet—and won’t be until the summer—so discussion now is more about “fixing” than new data.

On the projections, rather than fret over them, we think they show how much of a moving target they are. Inherent uncertainty around the assumptions they use make straight-line math unreliable. For instance, 2021’s report assumed pandemic recovery would be a long slog. 2022’s found that wasn’t the case. The takeaway: These long-term forecasts aren’t anything to go by. They are very sensitive to what goes on in the near term—and sentiment surrounding the near-term outlook. But a lot can happen in just a few years, a lesson the last three years have taught time and time again.

Even taking Trustees’ reports at face value, though, they show it likely doesn’t take much to extend Social Security’s solvency. If Congress just does nothing, about 80% of benefits would remain intact if funds start to run out as projected after 2034.[ii] But that is a big IF, and there is a lot Congress could do to ensure future retirees receive full benefits. There is also incentive to do so, given older cohorts are among the most reliable voting blocs.

Social Security is widely considered the third rail for this reason. So it is sort of unusual that both parties are proposing changes aimed at shoring it up—especially the rather big changes hitting headlines now. To oversimplify matters, Democrats propose raising taxes on some workers, and Republicans propose cutting benefits for some recipients. More specifically, the Biden administration has proposed adding a new tier of payroll taxes on annual income above $400,000, which would reportedly extend Social Security’s solvency by 5 years, while also boosting benefits by 2% among other support measures. More progressive Democrats in the Senate would go further. They aim to apply payroll taxes to incomes above $250,000 (currently capped at $160,200) alongside new investment income taxes and claim this would extend solvency by 75 years and give beneficiaries a $200 per month boost.

Republican proposals aim to raise Social Security eligibility’s full retirement age (FRA) to 70—and then link the FRA to future changes in life expectancy. FRA was last bumped up in 1983 to age 67. They would also adjust the benefit formula, making it less generous to those making over 150% of the average income—approximately $90,900—and phase out auxiliary benefits for high-income beneficiaries.

Those are some current legislative ideas, and all of them lack a lot of needed detail now. And that detail may never come—because it isn’t certain these proposals will go anywhere. While we can’t say how or if the debate resolves in the current Congress, we would note that even within each party there isn’t a consensus for any of them—much less bipartisan accord. So inter- and intra-party squabbling may escalate, especially as 2024 electioneering starts.[iii] But that is all it is—talk.

Given gridlock, big taxes or cuts likely aren’t imminent. Notably, it isn’t even clear Congress needs to act now, given how far out the alleged insolvency date is. In the absence of anything pressing that would impact constituents immediately, we doubt politicians do anything to resolve an attention-getting (and money-raising) campaign issue.[iv] It would be very, very unusual for them to get their homework done this early.

Look at last time parties touched the proverbial third rail: 1983. As 1982’s Trustees’ report helpfully highlighted at the time: “Without corrective legislation in the very near future, the Old-Age and Survivors Insurance Trust Fund will be unable to make benefit payments on time beginning no later than July 1983.”[v] Congress didn’t act until that April, when they agreed to marginally raise combined employee and employer tax rates from 13.4% to 15.3% and, as mentioned earlier, gradually notch FRA a couple years higher to 67 for those born in 1960 onward. This wasn’t a big shock to the system. It was incremental by design. Yet it kicked the can down the road by several decades.

As this early-1980s’ episode suggests, Congress will act when they have to. Maybe it will wait until the last minute, maybe not. Regardless, it may not take huge changes. It could be as simple as a marginal tax hike (or increase to the payroll tax cap) and delaying the retirement age or benefits formula for people scheduled to retire years afterward, giving people time to adjust. Again, the incentive of not roiling the electorate will matter a lot. So while worth watching, in our view, Social Security and potential reforms to it aren’t anything to worry over."

MY COMMENT

Well who cares......there is no trust fund with any value anyway.....the money is all stolen each year and spent by the government.

HERE.....is my fix for Social Security.....BAN the government from using ANY funds collected under the Social Security tax.......and......establish an ACTUAL TRUST FUND that is untouchable.....and..... contains actual investments with market value and the potential to compound and grow over time.

Funny....how no one ever proposes this.

 

And to continue.

The Two Great Myths of Social Security Reform
How the debate about Social Security misses the mark.

https://www.morningstar.com/articles/1139948/the-two-great-myths-of-social-security-reform

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

"Misled

The two big myths of Social Security reform are 1) balancing Social Security’s books is necessary; and 2) if attempted, such a task would be difficult.

I realize that this statement seems scarcely credible. Please bear with me.

To address the first issue, Social Security is, to use the parlance, a “pay as you go” system. Mutual funds hold investments. So, too, do pension and endowment funds. The Social Security program does not.

That assertion may confuse you, because the Social Security Administration insists otherwise. It purports to run two “trust funds,” one for its retirement payments and the other for reimbursing disability claims. These funds are said to contain the Social Security system’s “accumulated asset reserves.” In truth, however, those “asset reserves” (this column is stuffed with air quotes) are not marketable investments. They are instead Treasury Department IOUs—promises that the federal government will fulfill its future obligations.

Consequently, forecasts of the “Social Security Trust Fund’s” solvency are moot. We might as well monitor the health of Thor, Godzilla, or the Stay Puft Marshmallow Man. No pool of marketable securities increased when Social Security’s tax revenue surpassed its costs, and no pool of marketable securities is shrinking today, when the program’s expenditures exceed its specified income.

In other words, this oft-printed graph, which represents the assets/annual cost ratio of the two “Social Security Trust Funds” (combined to form a single entity), is an accounting creation:



An accurate illustration of Social Security’s finances would not show the rise and fall of a fictional fund, but instead the administration’s annual surplus/deficit. That picture looks like this, below.



The Multiverse

Wait now, you might wonder. (I would.) The conventional view of Social Security shows its balance expiring during the mid-2030s, while by my account the system is already bleeding assets. How is that an improvement?

To answer, let’s conduct a thought experiment. Imagine that when the Social Security program was launched, it was financed through general revenue. In that alternative universe, President Franklin Roosevelt created a new payroll tax not to defray Social Security’s costs, but instead to expand the U.S. military, in response to Japan’s imperialist ambitions. To convince a skeptical American public that he wouldn’t break the federal budget, Roosevelt pledged to cover all current and future defense spending through his new tax. The military would be self-funding.

The political discussion in that alternative nation would be very different from ours. Social Security’s costs would be taken for granted. The benefit would exist, payments would be made, and the country would quietly pay those bills—as we currently do with military costs. However, the “Defense Budget Trust Fund” would be heavily discussed and criticized, with debates raging about how best to “reform” military spending—as we currently do with the Social Security system.

In short, today’s Social Security discussions are the product of arbitrary decisions that have no effect on the nation’s financial health. Whether the payroll tax is alleged to cover Social Security’s costs, or is alleged to cover the military’s costs, matters not. The distinctions are immaterial.

Up for Discussion

This does not mean that Social Security’s finances should be taken for granted. Quite the contrary. The payroll tax is a major method by which the federal government generates revenue, and Social Security benefits are among its two largest costs, along with Medicare/Medicaid. If Congress and the White House decide that reducing the national debt is a task worth pursuing, then the Social Security program is a logical starting point. It deserves hard scrutiny.

But so do other aspects of the federal government’s budget. It little avails the nation’s financial health to “fix” Social Security, yet run a ruinous aggregate deficit. (What level of deficit qualifies as “ruinous” is a topic for another time; ask 20 leading economists and you will get 20 different answers.) The problem must be resolved holistically rather than piecemeal.

Let’s consider the subject from another perspective. For a quarter-century, payroll tax receipts eclipsed Social Security payments, meaning that the plan generated a surplus that was used for other purposes. During that time, did anybody say, “The United States should rationalize its infrastructure spending, because not only are highways failing to pay for themselves, but they are also taking from Social Security”? Not to my knowledge. Implicitly, people accept that when running a surplus Social Security can help to pay for other programs, but when running a deficit, it should not receive similar support.

In short, the Social Security “crisis” is an unhelpful construction. Today’s debate relies upon a financial misperception stemming from historic accident. It distracts us from the matter at hand, which is to determine the appropriate overall level of government spending and revenue, while also helping to advance—or at least not obstruct—the nation’s economic growth. (More than 20 years ago, the director of the Congressional Budget Office advanced this same argument. It continues to hold today.)

Looking Forward

Which brings us to the second myth mentioned at the beginning of this article: that if one were to attempt to balance Social Security’s books, the task would be difficult. Not so. Several reasonable levers exist for matching Social Security’s revenue with its costs. In fact, they could even be used to put the Social Security system in the black. If so, Social Security could once more become part of the federal budget’s solutions, rather than among its problems."

MY COMMENT

See comment above. I will not waste more time on this political issue.

 

The week to come.

Stocks under pressure, retail earnings continue: What to know this week
Retail bellwether Target will report quarterly results, while a rush of data out of the manufacturing and housing sectors is also set for release.

https://finance.yahoo.com/news/stoc...ontinue-what-to-know-this-week-142308388.html

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

The 2023 stock market rally is under pressure.

Inflation data last week that topped expectations — as well as a continued drop in optimism the Federal Reserve's rate hikes will end sooner rather than later — pressured the major indexes with the Dow logging a fourth-straight losing week and the S&P 500 and Nasdaq suffering their worst weeks of the year, losing 2.7% and 3.4%, respectively. The Dow endured its worst weekly performance since Sept. 2022.

In the week ahead, investors will remain keyed in on the retail sector, with results from Target (TGT) in focus after rival Walmart (WMT) issued a warning on the state of U.S. consumers last week.

On the economic data side, a crowded calendar of reports from the housing and manufacturing sectors — two areas of the economy which have most reflected the impact of policy tightening — is on tap along with a key measure of consumer confidence.

On Friday, the Personal Consumption Expenditures (PCE) price index — the Fed's preferred assessment of how quickly prices are rising across the economy — showed prices rose 0.6% during the month of January and 5.4% over last year. On a "core" basis, which strips out volatile food and energy components, prices rose 0.6% for the month and at an annual clip of 4.7%.

The week marked a turning point in sentiment around inflation expectations and the path forward for interest rates.

The hotter-than-expected PCE index followed upside surprises to inflation this year from the Consumer Price Index (CPI) and producer prices, which showed the largest increases in several months to start the year.

"The bear market rally that began in October from reasonable prices and low expectations has morphed into a speculative frenzy based on a Fed pause/pivot that isn't coming," Morgan Stanley's top strategist Mike Wilson said in a note to clients last week.

Wilson's forecast sees the S&P 500 bottoming out at 3,000 this year. On Friday, the benchmark U.S. equity index closed at 3,970.

"Investor optimism had already been hit by a slow puncture this week but it's deflating more rapidly as the latest data indicates that the work in taming inflation is far from over," Susannah Streeter, head of money and markets at Hargreaves Lansdown, said in a note.

Standout economic data releases in the week ahead include the S&P CoreLogic Case-Shiller Home Price Index, ISM's manufacturing PMI, and The Conference Board's consumer confidence reading for February.

On the corporate side, Target will release its fourth-quarter earnings results before market open on Tuesday with results from Costco (COST), Macy's (M), Dollar Tree (DLTR), and Kohl's (KSS) also featuring on the retail side.

Last week, Walmart's CFO John David Rainey said the "consumer is still very pressured, and if you look at economic indicators, balance sheets are running thinner and savings rates are declining relative to previous periods."

"We expect Target's results will look similar to Walmart's, with better-than-expected sales, more gross margin pressure than predicted, and solid opex leverage in the store," Jefferies analyst Corey Tarlowe said in a note. Tarlowe warned, however, Target is not "immune to consumer spending trends shifting to the more needs-based items and away from higher-priced and higher-margin discretionary categories."

Elsewhere on the earnings calendar, notable reports include Occidental Petroleum (OXY), Zoom Video (ZM), AMC Entertainment (AMC), Rivian Automotive (RIVN), and Dell (DELL) among others."

"Earnings Calendar
Monday: Groupon (GRPN), LendingTree (TREE), Li Auto (LI), Lordstown Motors (RIDE), Oak Street Health (OSH), Occidental Petroleum (OXY), Workday (WDAY), Zoom Video (ZM)

Tuesday: AMC Entertainment (AMC), AutoZone (AZO), Cracker Barrel (CBRL), Compass (COMP), Duolingo (DUOL), GoodRx (GDRX), HP (HP), J.M. Smucker (SJM), Manchester United (MANU), Monster Beverage (MNST), Norwegian Cruise Line (NCLH), Rivian Automotive (RIVN), Ross Stores (ROST), SeaWorld Entertainment (SEAS), Urban Outfitters (URBN), Virgin Galactic (SPCE), Warby Parker (WRBY)

Wednesday: Abercrombie & Fitch (ANF), Dollar Tree (DLTR), Jack In The Box (JACK), Kohl's (KSS), Lowe's (LOW), Nio (NIO), Okta (OKTA), Royal Bank of Canada (RY), Salesforce (CRM), Snowflake (SNOW), Tupperware (TUP), Wendy's (WEN)

Thursday: Best Buy (BBY), Big Lots (BIG), Costco Wholesale (COST), Dell (DELL), Hewlett Packard Enterprise (HPE), Hormel Foods (HRL), Kroger (KR), Macy's (M), Marvell Technology (MRVL), Nordstrom (JWN), Six Flags (SIX), Utz Brands (UTZ), Victoria's Secret (VSCO), VMware (VMW)

Friday: Hibbett (HIBB)"

MY COMMENT

Lots of earnings this next week....many of them retail. Also....a bunch of meaningless economic reports......worthless stuff actually for most investors.

NOW.....as to this:

"The bear market rally that began in October from reasonable prices and low expectations has morphed into a speculative frenzy based on a Fed pause/pivot that isn't coming,"

Unless I am totally out of touch......I dont see any evidence of a speculative frenzy.......or.....some wave of people expecting a FED pause. Yes.....that is the current media line.....but I dont see it actually happening at all. Someone is spinning a line of BULL SH*T. Does anyone else see this speculative frenzy based on a FED pause?

 

I am looking forward to my COSTCO earnings on Thursday......March 2nd.