KOMMONSENTSJANE – ROSS RANT – 09/12/2020

Here is some data that will provide a better picture of the economy: The household survey, which is a much more complete picture of employment, rose by 3.8 million jobs. This survey is reasonably accurate over time, but takes in all people who find work, and not just those on official payrolls. It covers 60,000 households monthly. You hear the payroll number announced when they say how many jobs were created, but that is only official payroll jobs. So if someone goes to work in the parent’s store or farm, and gets paid off the books, or if they run a business out of the garage on Amazon, they get counted in the household survey if they said they were employed, but not in the payroll data. The household number is a more complete picture. Productivity rose 10.5% in Q2, and that data is critical to the economic growth. The more productive, the better the margins, the more wages can rise. The virus forced companies to do more with less, and to implement more technology to gain efficiency, and cut costs. This will be a big help to the economy growing. Now the number of unfilled jobs is 6.6 million compared to a little over 7 million before the virus. There are parts of the country where jobs are going unfilled. That suggests September numbers may be better than expected. Employment agencies report the end of the $600 did make a difference. Layoffs are just 1.2%, a reduction from 1.45% the prior month. If the governors would fully reopen more cities, then the job growth would accelerate, but they don’t really want to do that and help Trump. Mortgage refis are up 200% over 2019, which is great news for consumers who now can get a 3% +- rate, and see savings of several hundred dollars per month in some cases. There were $1.1 Trillion of new mortgages closed in the April to June period vs $2.5 trillion in all of 2019. The housing market is booming, debt service expense is being lowered materially, and that is all very helpful for the economy. There is now a good chance the Q3 GDP will be above 30% and maybe as high as 35%. The market is starting to believe that level of growth is possible. The momentum is happening now in the economy.

Since 1926, the S&P, or its predecessor index, has had an average annual return of 10.2% according to Schwab. From 1982 on, 38 years, it was up in all but 6 years. Over the same 38 year period since 1982 it has been up more than 10.2% in 23 years. It has been negative 3 years in a row only once –(2000-2002) since 1932. My point is the same one I frequently make- if you invest in very good, well managed companies, with solid balance sheets, then over time you will far exceed returns on bonds, or on a 60-40 portfolio, and with limited risk. Even if you are old, you will come out better being heavy in equities, unless Biden wins, then everything changes. . From here, due to ultra- low rates now, it will be very hard for bonds to show the sort of returns they showed before 2008. Annuities by comparison are stupid investments as they lock in your money, are generally illiquid and have limited returns below the long term S&P Index, and high fees, plus tax issues. But to be successful, you have to be a long term investor, and not a trader, and you have to make careful selections of the stocks, and be prepared to sell one if it looks like it is going into a period of permanent decline-i.e. Macy at $70 to $5, or GE at $32 to $6. It is OK to be a trader if you really know what you are doing, but if not, then trading is not the way to make long term gains. Day trading is a fools game for the average investor. Invest, stay cool, and never panic. If you have a lot of money invested, you need to pay attention every day to what is going on in the world, and the market. It is your money, so like your health, you are responsible, even if you have a very good money manager. Just as in medicine, you need to be your own advocate, and be aware of what is happening. If you feel strongly about a stock, or overall market issue, good or bad, call and talk to your investment advisor. You might be right. Example, in May, 2007 when I decided to get fully out of the market, my advisor thought I was nuts to suggest the crash was coming. Sometimes you may really know something about a specific company, or the economy, or the capital markets he does not know about. I now do all investing myself through Schwab. I have been essentially all equity since March 2009 for those of you who are new subscribers, and have not heard this before. Keep in mind not all bonds are the same, and chasing yield with a low rated bond is far more risky than the common stock of a solid, well capitalized company. My approach is not for most people, as they do not have the risk tolerance and long view I take. But I have been investing this way for around twenty years, and I have the results to show it works. At least for me. I am objective and very unemotional about investments and market moves, and that is not easy for most people. I look beyond the short term event. I don’t chase the latest hot stock. A Schwab analysis shows that over 40 years an all equity portfolio out performs a 60-40 portfolio by 30% in the aggregate, and if you stuck with solid stocks you had no more risk than with bonds. That is a lot of money difference even if you began with a small portfolio. If you are in equities long term, you managed well, and you manage your expenses when you retire to fit your portfolio, you should be able to earn more each year than you withdraw to live on, so your portfolio continues to stabilize or grow in case you need sudden emergency money, or just want to expand your bucket list.

The next 45 days is the real test. For now, I still believe Trump will win, but I assess that every day. The economy will surprise on the upside, and a vaccine will be announced as safe by November 1, and the Fed will remain ultra-accommodative, and that will make the difference.

Keep in mind, risk is a function of time. If you will need a substantial portion of your portfolio to meet expenses in the next few years, and you do not have any excess invested cash, then risk is not for you. If you are middle aged and have a long horizon, then go for the long term risk. If you are old, but have sufficient capital of one sort or another that can be liquid immediately when needed, then taking all equity risk is OK because over time it will outperform, unless Biden wins, of course. A lot of talking heads these days say the markets do not concern themselves with politics, so they do not care if Biden wins. I don’t buy that, and this year it is more so than ever that politics matters a lot.

Apartment rents are down an average of 15%, plus concessions, but it all depends on the market. In some suburban areas rents are up, while in NYC and San Fran they are down, and going lower. In Manhattan asking rents are down 4%-9%, but that is before two months of free rent and other concessions. There are15,000 empty apartments in Manhattan and increasing. That is 3 times what it normally is. It also depends on who the demographic is. Higher priced buildings are doing better, but rents are still too high in many parts of the country. The south and west are doing better than the northeast or west coast. Collections are still around 90% on average, but that is because much lower rents, forbearance, and concessions make paying much easier. The no eviction rules are not making it fun for many landlords, but some lower income tenants still pay as they don’t want to have to accrue the back rent, and they still have a job. With the $300 unemployment supplement, student loan deferrals, low rates, and other steps to ease things, more will be able to pay rent. One area that is taking a hit is student housing on campuses where there is only online class, or no class. This will likely improve in the spring quarter as the virus is more under control. Lower rents means more savings and spending for consumers.

Around one million small businesses, like local shops, are using Shopify to sell online now. This has saved many from going out of business. Amazon also fulfills, and has helped many small vendors stay alive and thrive. It is hard to know yet where all this sorts out, and who will survive when things are more normal next summer. It may not be so bad as we think outside of places like NYC, Portland, Seattle, and San Fran where crime and violence is damaging small shops and businesses. NYC says restaurants can do 25% indoor after Oct 1. That does nothing for the ability to remain in business, and NY is now below a 1% positive rate on tests. It will be a lot more clear by spring how many restaurants do survive in NYC. Probably 30% -50% will disappear. Thousands of workers will be permanently out of a job thanks to Cuomo and DeBozzo. Some businesses are thriving, like U Haul and movers in urban locations, makers of computers and printers, and lumber companies, homebuilders, among many others. The recovery is very uneven depending on industry and location. In NYC 150 of the top companies just wrote a public letter to the mayor to stop the crime, get rid of the homeless off the streets, and clean up the piles of garbage, and reopen, before the city collapses. DeBozzo is so stupid it is now a city in extremis. Office occupancy is just 10% in midtown, the heart of the city and economy. He will do nothing different because he is so stupid. It will take years for NYC to recover from him.

In the current world, where intellectual property has far greater value and importance than brick and mortar buildings and machines, the concept of book value misses the real value of many companies like Apple or Google. It is the intellectual assets and culture of Apple that makes it the most valuable company, not its office building which is recognized on the balance sheet. All of the work of the computer scientists at Apple is expensed currently as wages and related research expenses, and none is added to book value when they come out with a new phone, or ear buds or whatever. They have patents, but these do not recognize the inherent potential earnings value of that patent, and therefore its true value. How do you value the combined intellect of the programmers and design engineers. How do you really value the training time that got expensed to increase the intellectual value inherent at these tech companies. In summary, it is one thing to use book as a metric to value stocks as has been done for decades, but when dealing with technology, software applications, and systems where almost all of the cost and value is brainpower, and was expensed, and not capitalized, book becomes somewhat irrelevant.

The rioters are screaming for police reform and claiming that the cops are racist. You may not have noticed, but almost every police chief of a major city is black. The mayors of these cities are almost all black, or make believe black like DeBlasio or the mayor of Portland. The police chiefs who are resigning are all black. In many major cities like NY, Seattle, Detroit and DC there are now many black cops. There are DA’s and judges who refuse to punish lawbreakers, and just encourage them by sending them back to the street with no penalty. In NYC there is no bail, so they just go back out without even posting bail even for some violent crimes. In the Floyd case, and in Rochester, the perp was very high on dangerous drugs which contributed to their deaths. Several of the police departments are already operating under reform agreements they made under Obama. Many of the city councils like NYC, Portland, Seattle and DC are all or almost all black, or very left. So given these facts, do you think maybe it is not racism that is the real issue? Maybe it is drugs and violent perps who disobey police commands and fight the cops. Maybe it is a culture problem. As I have mentioned before, I have been directly involved on three occasions in assisting cops take down a violent perp, and until you have done that, you don’t really appreciate how dangerous and fast moving these situations are. You don’t know if the guy has a gun or knife, and he may be big, or on drugs. It is easy for the press and the radicals to say the cop should not have done this or that, but in these encounters, there is only a split second to think how to react, and you have to fear your life is at risk. Cops get shot often, and many die in the line of duty. Far more than innocent blacks. More young blacks die from being shot in two weekends in Chicago, than all of the nine unarmed blacks shot by cops last year in the entire country. And all of the Chicago victims were shot by other blacks. You do not ever hear a politician express any outrage at that. You do not see sports teams or corporations do anything to honor dead cops. Remember when 5 cops died in Dallas and the NFL team was not allowed to honor them. You never see a university teach that it is a bad thing to attack a cop. You never see Pelosi and her colleagues kneel for a dead cop or soldier. Where was she when the 5 cops died in Dallas. It is time to recognize that blue lives matter, and it is only the cops who stand between us and utter mayhem and destruction. She was also not in Shanksville on Friday

I am totally disgusted with the NFL, NBA, Osaka at tennis, and now the Oscars. Sports is not for political rhetoric. I don’t want to have to look at BLM signs all over the arena. I don’t want to listen to something called the black anthem, nor to listen to the announcers talk about BLM. Sports are supposed to be escape from all of that. I don’t want to be lectured by some grossly overpaid guy who can block, or run fast or dunk, but who has no real background in anything else, and often blows all that money on girlfriends, Momma and bling. The NFL has totally rolled over, and is off my list of things to watch. They are going to play something called the black national anthem, but players do not have to stand or even be on the field for the nation’s anthem. Osaka, the women’s tennis player, appeared at an interview at the US Open with Travon’s mother. What the hell does that have to do with tennis championships. And she falsely claims to be Japanese. Hollywood now has a set of quota rules on who can star and work on a movie. Acting talent and writing talent are secondary. Years ago such quotas were ruled illegal. It is discrimination, just as it is supposed to be but isn’t in universities now. Despite that legal issue, a large group of students and professors at Cornell is demanding quotas of blacks and minorities in hiring and admissions, and an end to SAT testing. And they think this is going to get me to be sympathetic. Instead it gets me angry. How do they think it is going to make a middle class white guy at a mid or low level job feel when he busts his butt only to see a minority get promoted instead of him, because that guy is not white. Or when his kid is denied admission so the college can meet a racial quota. Do you think maybe this will create more anger and racism. What is an actor or athlete supposed to feel when they get passed over for the position they earned just because they are white. This whole thing is the exact reverse of whatever discrimination blacks suffered, so now we will make all sides angry, instead of doing what is needed to really solve the problems. We will just convince blacks who did not get the promotion due to lack of skills, that it was discrimination, and not lack of education or ability. It will make the whole problem worse. All this pandering is going to be counter-productive.

American Airlines is also off my list of airlines now that they are allowing BLM buttons to be worn by flight attendants, but not any other political item. When locked into my seat I don’t want to have to see BLM paraphernalia. When I wrote to AA to complain, I got back a ridiculous response saying they were all for inclusion and supporting blacks so they let the attendants show their support for BLM. I asked if there was all out support for cops and soldiers, and could the attendants wear Blue Lives Matter pins. I do not expect a response to that. Now there is an all-out push to hire, promote and have board seats for blacks in corporations using quotas again, just because they are black. What ever happened to merit. Trump ended what was a very biased anti-white set of courses called critical race theory that many government agencies were being subjected to, with many using a very anti-white book as a text. The answer is not to jam all of this down our throats, but to put the effort and money into changing the schools, getting rid of teachers unions, and changing the culture in many black communities to focus on family and education, and adding cops to end the murders and violence and gangs. Instead we have cities where there is no bail, felons are let out of prison, and cops are told to stand down. All the things opposite of what is really required. Instead of trying to stop charter schools as they are doing in NYC and other places, we need school choice, and we need all schools to reopen now, the same as in the rest of the world. Until they stop the crime, change the union rules in schools, and push family and education, it is all going to get worse. Unfortunately, it is going the other way. BLM is against the nuclear family. The exact opposite of what is needed. If there was such systemic racism all these years, where were Obama and Biden for 8 years? When Holder went to Ferguson and tried to blame the cop, that changed the entire narrative and race relations for the worse. It was the inflection point. By pandering the way companies, politicians and sports teams are doing, it just encourages much more disruption and new demands. So you know where I am coming from, I have had black partners in one business, I had a company that was focused on assisting black churches and had black pastors fully involved, and plenty of black employees, and a black guy who I promoted to be a manger of a plant because he deserved it. So don’t anyone start to try to accuse me of being racist. I am a realist who believes you are responsible make your own success or failures. As a Jew in the fifties and sixties, I faced plenty of blatant discrimination including admission quotas in the Ivy league, and blatant anti-Semitism in the Navy, and subsequent job searches, but I just moved past it, and took responsibility for my own success with no help from anyone, nor did I expect any.

We are back to Russia collusion and Schiff on TV. Now he is claiming Trump is suppressing the Russia election interference, and China and Iran are not really problems. And right on que comes a whistleblower. Here we go again with lies and a compliant press pushing this story. If Trump wins, you can expect no end to new collusion investigations, and more press attacks claiming Russia helped him win.

Trump downplayed the virus to avoid panic. Biden and many Dems attacked him for closing the borders in January. Now Biden tries to claim Trump did nothing. Pelosi pushed to go out to Chinatown in February. Other Dems said Trump was panicking for closing the borders. Fauci now says nothing was held back, or could have been changed in any way despite Trump saying let’s not panic. But the press is now claiming he caused loss of life, but none ask Biden how many tens of thousands more would have died under Biden if he had left the China border open, and then the EU border as he said should have been done at the time.

kommonsentsjane

About kommonsentsjane

Enjoys sports and all kinds of music, especially dance music. Playing the keyboard and piano are favorites. Family and friends are very important.
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