Chart of the Week

This week, Sean provides a chart on US household spending that shows an uptrend in investment in stocks. The WSJ says it’s because it’s easier than ever to buy stocks. But Sean has a different and more alarming take… 

According to the Federal Reserve’s survey of consumer finances, more US households own stocks than ever before.

58% of Americans own stocks in their retirement accounts, while over 20% directly own them in taxable brokerage accounts.

According to The Wall Street Journal, this surge of stock ownership comes from “the elimination of commission fees,” which makes investing cheaper and easier than ever. Many brokerages now allow fractional trading as well, permitting individual investors to purchase a sliver of stocks like BRK.A with only a $1.

These theories are all fine and good. But I can actually read a chart.

When did previous spikes in stock ownership occur?

1998-2001, at the beginning of the dotcom collapse. 2007, right before the Great Recession. 2016, right before the Fed tightening cycle that led to a precipitous drop in 2018.

We’re just witnessing a tale as old as time: people chasing past returns. Plus a dash of asset inflation.

Another thing: Most of these assets are in retirement accounts. Retirement accounts, notoriously, do not offer many easy options to invest in besides stocks. This asset class, for the majority of Americans, is the only game in town.

But in late 2022, conditions looked right to begin investing in gold. Between that and my big tech recommendations, it paid off for my family and my readers.

Now I have my eyes set on a new non-stock asset class that I’ve been pouring money into for 2024. – Sean MacIntyre

Click here to find out the asset class that Sean says is moving “into the limelight.”

What Is the Future for Stocks Over the Next Five Years? 

Just before publication, I asked Sean MacIntyre, who, along with my broker Dominick, has been managing the stock portfolio I set up ten years ago, if he could tell us what he foresees for stock investing in the near future. This is what he had to say… 

For one of my recent video posts, I wanted to answer a simple question: “What does the economic data suggest the S&P 500 will do over the next five years?”

I did a regression analysis of the five econometrics most highly correlated with future returns. Here’s how they’re suggest the S&P 500 will perform in the next five years based on past trends:

* US Housing Starts: 8.5% per year
* Fed Interest Rates: 8.9% per year
* Delinquent Auto Loans: 14.1% per year
* 10-year Treasury Yields: 6.7% per year
* Shiller Excess CAPE Yields: 8% per year

Average it all up and you get what the market has just about always done: 9.2% per year.

Honestly, this finding was a little frustrating. I wanted something more definitive so I could declare that we “BUY NOW” or “CRASH INCOMING.”

But all these data suggest things will be as they have always been. And “average returns” has always been a mixed bag.

The market could climb from here and then fall, as it did for folks who bought in 1998 or 2020.

The market could go all over the place, as it did in the 70s.

Or the market can drop for years before climbing again, which seems most likely at the moment.

Each of these scenarios ends with people achieving “average returns.” They are mathematically the same.

But they are psychologically very different. After all, how excited will you be about buying more stocks if they fall for the next two years?

The point is, we can’t know what the future holds. Given enough time, things tend to average out to what they’ve done historically.

It’s just a matter of investing with the right mindset, patience, and an understanding of everything that might happen along the way so that you don’t make emotional decisions that destroy your wealth.

If you want some more investing tips, economic insights, and findings both exciting and disappointing, check out my YouTube channel here.

Clip of the Week: Not a Great Time to Buy a New Home 

Home sales fell to a 13-year low in October – presumably because interest rates are still pretty high and home prices haven’t come down hard enough to meet demand. According to the National Association of Realtors, existing-home sales (which make up most of the housing market) decreased 4.1% in October for a seasonally adjusted annual rate of 3.79%. That’s the lowest since August 2010.

It’s still a question as to what the Fed is going to do with the Fed rate, but I’m betting that home prices will be coming down significantly in the next 6 to 12 months. If I needed to sell my home any time soon, I’d think about upping the ask considerably.

Chart of the Week: How Likely Is Another Recession?

“There is a 95% probability a recession will occur before January 2025,” says my friend and colleague Sean McIntyre in his most recent newsletter. You can read his argument here.

Economic Craziness of the Week: The Only Good News About the Bad News 

Janet Yellen and the Biden administration are telling us that, thanks to “Bidenomics,” the US economy is stable and getting stronger, with inflation rates descending and employment moving up. Yet, according to some poll I read somewhere last week, Americans are more stressed about their finances now than they have been in years.

There are good reasons for that.

According to the Social Security Administration, the median wage earner brought home just $40,847.18, or about $3,400 a month, in 2022. Of course, that’s before federal income taxes are withheld, about $500 a month, and another $300 for Social Security and Medicare. The net take home is $2,600. About $2,000 of that will cover the cost of renting a house. Which leaves what? $600 to pay for food, gas, utilities, etc.

And to cope with that, millions of Americans are borrowing and going into debt fast. Balances on non-housing loans have more than doubled since 2003, totaling roughly $4.8 trillion, according to data from the New York Federal Reserve. More than $500 billion of that debt accumulated just in the past two years – a bigger jump than any other two-year period since 2003, the earliest data available. And credit card balances are growing the fastest of all – up roughly 34% from the fall of 2021.

It doesn’t sound like things are improving, but what do I know? In any case, there is a sliver of silver lining to the cloud of bad news. The crazy cost of housing is encouraging divorced and separated couples to move back into one house and try to work things out.

Click here.

Clip of the Week: Loans from Uncle Warren 

From Garrett Baldwin, writing in Postcards from the Florida Republic:

“Let’s talk about the Warren Buffett Closed-End Fund. A lot of people avoid closed-end funds because of their misunderstanding of risk. But let’s do a quick recap.

“Let’s say a money manager opens a new fund portfolio comprising stocks, bonds, or other investments. The manager sells a fixed number of shares on an exchange like the NYSE. Because it’s fixed, there will never be more shares issued. Investors buy the shares, which trade on a stock market like any other equity.

“But here’s the important part. Closed-end funds don’t trade like mutual funds and mirror their net asset value (NAV) at the end of the trading day. Instead, they are disconnected from their NAV. They trade irrationally. Sometimes, closed-end funds trade at a premium to the total fund’s net asset value.

“However, sometimes, they will trade at a discount. Imagine there’s a closed-end fund that trades at $18 per share. But the NAV may sit at $20. In this case, the fund trades at a 10% discount to its NAV…”

That could represent a very interesting opportunity… Continue reading here.

Chart of the Week: Office Rentals Are Getting Weaker 

The office sector’s credit crunch is intensifying. By one measure, it’s now worse than during the 2008-09 global financial crisis. Only one out of every three securitized office mortgages that expired during the first nine months of 2023 was paid off by the end of September, according to

Moody’s Analytics. That is the smallest share for the first nine months of any year since at least 2008. The reason: Many office owners can’t pay back their old loans because they can’t get new mortgages. Click here.

Economic Craziness of the Week: Biden Administration Encourages Money Managers to Push ESG Investing 

President Joe Biden’s Labor Department recently announced a new rule that will encourage money managers to put their clients’ money in what they call “environmental, social, and governance investing” (ESG). It allows them to ignore their fiduciary duties to provide their clients with the highest possible returns on their investments, based purely on financial and economic projections, in favor of funds that may be considerably weaker on the books, but have the “virtue” of being invested in companies that have high ratings in terms of social and environmental issues.

“Socially conscious investing has been around for decades,” says Stephen Moore, writing in a recent issue of Taki’s Magazine. “I have no problem with individual shareholders choosing to invest in such stocks. But it’s an entirely different matter when trillion-dollar investment and retirement funds such as BlackRock inject their own biases into the way they invest people’s savings without their knowledge or consent.

“To make matters worse, researchers at Columbia University and the London School of Economics found ESG funds may not even be achieving their goals. The study compared the ESG records of American companies in 147 ESG fund portfolios to ones in over 2,000 non-ESG portfolios and found that the ESG companies were often worse when it came to labor and environmental law compliance.”

Note: In response to numerous requests, I’m going to be touching on wealth building and investing every week, something I wrote about for years. I’m going to keep it short and simple. Two or three observations or ideas that (a) are not difficult to understand, (b) have obvious wealth-building implications, and (c) might help you avoid unnecessary financial losses and build your net worth carefully and steadily like I did for 40 years.

Clip of the Week: Buffett Is Hoarding Cash

Warren Buffett, generally considered the best stock investor of all time, is cashing in his stock in some of America’s biggest companies and moving into cash. According to Porter Stansberry, writing in The Big Secret on Wall Street, the total cash hoard is approaching $160 billion.

Buffett’s company, Berkshire Hathaway (BRKA), hit this record cash balance after selling off shares of three major American businesses, Proctor & Gamble (PG), Johnson & Johnson (JNJ), and General Motors (GM).

“Buffett purchased GM in 2012 shortly after it emerged from a government-engineered pseudo-bankruptcy. The unions were paid out about $0.90 of what they were owed, received a slew of preferred shares, and got board seats. The company’s creditors got robbed. They received about $0.10 on the dollar in newly issued equity that sat below the union’s preferred stock in the capital structure.

“Thus, today’s GM is a company born out of a crime. It’s since become a real-time litmus test of modern management theory – the idea that ‘diversity’ is an attribute in corporate boards.

“Today a majority of GM’s board members are women. I’d be willing to bet $100,000 that none of them can change the oil in their cars. Meanwhile, every member of GM’s board (according to the proxy statement) has expertise in ESG issues – the popular acronym for environmental, social, and governance. But only one board member (out of 13) has any automotive-industry experience – and that’s Jonathan McNeill.”

Continue reading Stansberry’s analysis here.

Chart of the Week: Will 2024 Be a Good Year for Stocks? 

I’ve heard it said that the stock market does well during election years. I shy away from generalized observations like that because every time I have researched them in the past, the data doesn’t support the claim.

Yet, there is something about such very simple ideas that is attractive.

I found this chart from Wells Fargo. It shows that since 1928 the average return of the stock market has been 10%, while the average return in election years is 11.6%. That’s something. But now look at the range of returns for election years over time: from +43.6% to -37%!

Economic Craziness of the Week: Taxing Plastic Bags?

“Baltimore County, MD, is the first county in the state to implement a plastic bag tax at grocery and retail stores,” notes Garrett Baldwin in a recent installment of Postcards from the Florida Republic. “It’s not going over well. The radio hosts are complaining. The cashiers are apologizing.” (And Baldwin reminds us that Baltimore County is the same jurisdiction that enacted a “flush” tax not long ago to save Chesapeake Bay, with a $5 per month fee on sewer bills and a $60 a year fee for septic tank owners.)

The idea of a tax on plastic bags is to reduce the use of fossil fuels by forcing consumers to switch to reusable bags. (It’s estimated that about 12 million barrels of petroleum a year are used in the manufacture of plastic bags in the US.) But if it’s going to have any effect at all, it’s going to be minimal, experts say, because the petroleum used to make a half-ounce plastic bag is only a fraction of the petroleum used to produce the three to five pounds of purchased products those reusable bags usually contain.

In the same article, Baldwin mentioned a fact about oil and gas taxes that I’d never heard before. It helped me understand why federal, state, and even local governments like them so much. According to him, Maryland has a gas tax of 47 cents per gallon, 100% of which flows into the state coffers, while the oil industry, after locating, extracting, refining, and delivering that gas to Maryland, nets about 10 cents.

Why Housing Inflation Can Be the Worst Kind

It seems like every other casual conversation I have these days drifts into the subject of the rising cost of living. In particular, the crazy cost of housing.

In this essay published recently by the WSJ, Greg Ip explains how unaffordable homes are undercutting the American dream even more than high gasoline and food prices.

The Politics of Crime 

No doubt about it. The increase in retail theft and the growth of other forms of crime in the last few years has had a devastating effect on local businesses in every major city in the US. How bad is it? Click here and here for a few studies that take a look at the issue.

ADUs Are Hot

If you don’t know what an ADU is, you are in need of some emergency investment education.

ADUs (accessory dwelling units) are miniature houses the size of a large tool shed that are outfitted as complete residences. They are sometimes converted attics, basements, or garages. But they can also be freestanding.

They are a fast-growing trend across the US, and that makes sense. In an economy with high house prices, rising interest rates, and dollar-damaging inflation, having an extra dwelling on your property that can bring in extra cash each month is nothing but a good idea.

ADUs are also good for municipalities that are looking to increase real estate tax revenues. And they’re a boon to young couples and other new homebuyers that can’t afford $300,000 for a “start-up” home.

When a new business or economic trend benefits every constituent in the market, it’s a pretty safe bet that the trend will accelerate. That’s how I see the emerging ADU industry.

(By the way, I’m not talking about “tiny homes” here, which are very different than ADUs and IMHO a passing trend that I would not invest in.)

Click here.

Will Boomers Save the Economy?

Rates Rising = Less Spending = Looming Recession. Right?

That’s what I expected. I’ve been puzzled by how the Fed’s rate increases haven’t significantly reduced consumer spending. I mean I was not surprised at the level of spending that was going on after the COVID Cash Boondoggle. But by the beginning of this year, I figured (and had read) that most of that cash was back in circulation. Not to mention that job growth has been slowing and student-debt loan repayments have begun again.

A recent piece by Gwynn Guilford in the WSJ shed light on the conundrum. It’s about the spending habits of my generation. Baby Boomers, 65 and older.

In August, 17.7% of the population was 65 or older, according to the US Census Bureau. That was, Guilford noted, “the highest on record going back to 1920 and up sharply from 13% in 2010.”

“The elderly aren’t just more numerous,” she wrote. “Their finances are relatively healthy, and they have less need to borrow (such as to buy a house) and are less at risk of layoffs than other consumers.”

Added to that, they have less debt than their children and fewer big purchases in their futures – like new homes or college funds – to spend money on.

And listen to this: As a group, they are sitting on $771 trillion in wealth!

Read more here.