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Stock Market Plunges – Shall We Panic?

February 5, 2018February 5, 2018 by Finance Gourmet

The Dow Jones Industrial Average fell almost 1,200 points. The headlines scream “Largest 1-Day Point Drop in History.” — They say “point drop,” because as a percentage, this declines isn’t even close to the worst. As the Dow increases in value, the percentage of a point becomes a smaller number. This 1,200 points is equal to 4.6%. That’s nothing to sneeze at, but it is not anywhere near as bad on a percentage basis as the 508 point Black Monday crash, which at the time was a drop of 22%. (Could a Black Monday type crash happen again?) Perspective is fun! The 2018 Crash Before we decide to panic, let’s look into our crystal ball and see what will happen in the next few days. First, don’t expect any of the politicians who were taking credit for the stock market rising to come out and accept any blame for the market falling, even though, if one is true, the other must be true as well. The reality is that politicians are never responsible for short-term market moves, no matter how much they try and take the credit. So, this crash isn’t their fault, but the runup wasn’t to their credit …

Disney Buys Fox Assets With Stock

December 14, 2017 by Finance Gourmet

Well, this is a big deal on the merger front. Disney is buying a bunch of 21st Century Fox’s media assets. Now, before you start in with your political conspiracies, the deal is to buy the movie and TV studio businesses, not stuff like Fox News. All Stock Deal What makes this deal a little crazy is that according to reports it is for $52.4 billion, but it is an all stock offering. It also comes with Disney assuming $13.7 billion in debt. That makes the cost to Disney for this takeover astronomical, but again, it’s all on paper. The purpose of the deal seems to be let 86-year old Rupert Murdoch sort of retire. He’s built up this empire over the years, but running a big company takes a lot of commitment, and these days, Murdoch seems to care less about movies and entertainment than he does about politics. More specifically, by selling, Murdoch is cashing in his empire for billions of stock in a major U.S. company. This no doubt more about estate planning for Murdoch, than any expectation for the future of the companies. Leaving a giant company to an heir is always a bit risky, and …

December Rate Hike (Again)

December 11, 2017 by Finance Gourmet

The Fed has now completely given up the pretense that it’s interest rate increases have anything to do with its 2% inflation target. Now, it is about tightening up the financial conditions, and in particular trying to put the breaks on the stock market. As noted over at Market Watch Reinhart said current policy is not dissimilar to the steady quarter-point rate hikes seen from 2004-2006. The only thing missing is the phrase “measured pace,” he said. Beginning in the summer of 2004, the Fed raised its short-term rate target from 1.25% to 5.25% in 17 straight quarter-point moves. But the policy failed to trigger tighter financial conditions, Harris noted. And, this is what should be terrifying. From 2004 to 2006, the Fed insisted on raising rates right into what would become the Great Recession. By raising rates when there is no inflation, the Fed becomes a really powerful group of market timers who have decided the stock market (this time, the real estate market last time) is “too high.” Ironically, this all becomes a self-fulfilling prophecy. When the Fed’s interest rate hikes finally do get the attention of Wall Street, it comes in the form of a knife slashing …

Yellen Admits 2% Target Is Phony

September 27, 2017 by Finance Gourmet

Janet Yellen admitted that the Fed’s two percent inflation target is largely phony. She didn’t say that in as many words of course. What she actually said was It would be imprudent to keep monetary policy on hold until inflation is back to 2 percent On the one hand, that makes sense. The levers that steer the economy do so more like those that control a supertanker, and less like the steering wheel of a Tesla. So, the Fed Chairwoman is right that you can’t simply wait for inflation to hit 2% and then start raising interest rates. That could lead to a hard landing, or worse, not work at all. Stealth Inflation But, that isn’t what she meant. What she meant was that there is no data indicating that inflation will be 2% anytime soon, but that doesn’t square with what she thinks is/maybe/will be happening in the economy. You see, she is convinced that inflation is hiding somewhere, cloaked in stealth mode, undetectable by economic statistics, like some sort of cloaked Klingon finance battleship. That seems to be a popular theory because of two factors. One, the stock market keeps going higher, and people are starting to worry …

Fix RMD Tax Problems With QCD

September 26, 2017 by Finance Gourmet

You’ve spent a lifetime saving for retirement, and you did a really great job. So great, in fact, that you don’t need to take money out of your IRAs. But, you’ve turned 70 1/2, and now the IRS is forcing you to withdraw money from your IRA every year in the form of a Required Minimum Distribution, or RMD. Is there any way to get around having to take an RMD? Mitigating Your RMD’s Affect On Your Taxes The IRS gave you years of tax relief on the funds in your IRA. They only did that to encourage you to save for retirement. Now, that you’re retired (or at least retirement aged) they want their money now in the form of taxes on your IRA withdrawals, but if you played your cards right, you might not ever need to withdraw, and the IRS would have to wait longer for that money. The IRS hates waiting. The RMD keeps this from being the case. Once you turn 70 1/2 years old, you have to take some money out every year, and the government is there, waiting to tax it. Unfortunately, there is no way to get out of having to take …

Is Slack a Good Investment

September 18, 2017 by Finance Gourmet

Got some questions about the (semi) big news about Slack getting a new investment. The catchy headlines say that Slack is “now worth over $5 billion”. Of course, with snazzy numbers like that, more than a few readers are wondering if investing in a Slack IPO is a good move. How Much Is Slack Really Worth? First off, let’s back up and do a reality check. Slack is not “worth” $5 billion now. It’s latest funding gives it a valuation of $5 billion, but that isn’t the same thing. Example time! Let’s say I have a company. We’ll use my freelance writing business of ArcticLlama. Now, I don’t have any funding, but if I did, it would work something like this. An investor offers me $1 million for 10% of ArcticLlama. I say yes. So, if the 10% of the company is worth $1 million, then mathematically, the whole company is worth $10 million. That is what a valuation is. This does not mean anyone would actually give me $10 million for the company, just like there isn’t likely anyone out there willing to pay $5 billion for Slack right now either. This is kind of a game, and it’s …

What the Equifax Hack Really Means For You

September 13, 2017 by Finance Gourmet

There is a lot of misinformation out there about the Equifax security breach, or hack. I wrote up a quick blurb the night I heard about it to try and help, but now it’s been a few days and it’s clearer what is happening, and what people are thinking. What Can I Really Do About the Equifax Hack? About the only thing that might punish Equifax is if tons of Americans put a freeze on their Equifax credit reports and then refused to take them off when lenders ask. Unfortunately, the answer is really that there is nothing you can do about the Equifax security breach. Unlike your usual credit card number theft, or username and password theft, the information the hackers got from Equifax isn’t able to be cancelled and replaced. This is your life, your addresses, employers, banks, cable company, cell phone company. It’s a master key for identity theft, and it exists out there forever, now. There is nothing you can do but watch and wait. Let’s start with what won’t help you stay safe from the Equifax data breach. Changing usernames and passwords – The hackers didn’t get usernames and passwords. Assuming your usernames and passwords …

Return of High Risk Mortgages

September 5, 2017 by Finance Gourmet

There was a recent article over at CNBC about high-risk mortgages and their resurgence, sometimes at the hands of the very same players who offered them before the big banking crisis and subsequent recession of 07-08. Of course, it’s easy to wring your hands and worry, “Here we go again,” but before you do that, take a closer look. High-Risk Mortgages Are Not “Bad” There is nothing wrong with a high-risk mortgage. Just like a no credit credit card, a high-risk mortgage has a greater chance of defaulting than one given to lower risk borrowers. However, that isn’t inherently a bad thing. On a macro level, the credit markets work a lot like the insurance markets. Take life insurance, for example. Some people are going to die, and you are going to pay out on those policies. However, as long as the premiums you take in from everyone exceed the amounts you pay out, the company profits. Everybody wins. Similarly, with high-risk home mortgages, you know some people are going to default. Again, as long as your portfolio of mortgages collects more payments than you lose through defaults, you win. This is how the entire bond market works. Risk is fine, …

Stock Market and the Eclipse

August 21, 2017 by Finance Gourmet

With all the scare mongering these days, I’m surprised to not have seen an article about the negative effects a solar eclipse has on the stock market. Has anyone even done the research? What if stock traders get spooked from inside their windowless room on the floor of the New York Stock Exchange? What if little old ladies and their dividend paying stocks worry eclipses erase dividends? What if everyone ruins their iPhone cameras taking pictures of the eclipse? (Actually, that might boost Apple stock when they get a big boost in iPhones sales and repair revenues.) Actually, a story like that is the worst kind of stock market prediction story, because it has a fixed event date. After today, you would have to take your lumps if you were wrong instead of just waiting to slowly, eventually become right, like all of the current, market top doomsday projectors are doing. Of course, an actual prediction with an actual date, would be infinitely more valuable. So, why doesn’t anyone do it? The same reason as always. It actually is impossible to time the markets. Trends come, and trends go, but knowing what will happen today, tomorrow, next week, next month, …

Inflation Disappears (Again)

August 11, 2017August 11, 2017 by Finance Gourmet

Update: Yea! It looks like I was right, and everyone has come around. It’s August now, and it looks like those low inflation numbers were neither an aberration, nor temporary. There simply is no inflation, the job market, while full, is not hot, and there is no need to raise rates the rest of 2017, so say we all 🙂 The Fed has been working to raise interest rates because of the specter of inflation. However, with the exception of energy prices, there really hasn’t been much in the way of inflation. As a result, the Fed keeps explaining that they think that all those reports of low inflation were temporary. That all took a bit of knock today as the U.S. Government reported that inflation in June was zero. That’s right, zero, as in no inflation (again). And that comes after the actual 0.1% drop in inflation in May. This is of course, a far cry from the Fed’s so-called target of 2.0% inflation, and calling two months in a row of data temporary starts to look like ignoring data, so the tone has changed. A lot hinges on the July report. Check out my Credit Sesame review. Fed …