Boeing (BA) earlier this week (as I write this) announced their 2017 airplane deliveries and results, and they are outstanding.  Boeing in 2017 delivered and industry-record 762 airplanes and took orders for 912.  Their backlog is 5,864, which is over 7 1/2 years worth of backlog, based on 2017 deliveries.  Today (Friday, January 12) their stock closed at $336/share, which makes their market capitalization over $200 Billion.  My source for all of this is their outstanding website, http://boeing.com.  

I own BA – it is one of my only individual stock holdings.  As you can tell, I am very bullish on BA and its future prospects.  The following are several reasons for my bullishness:

• Backlog:  Any company with a 7 1/2 year backlog has great future prospects.  Orders, of course, can be canceled, but probably not that many.
• Barriers to Entry:  When I was in Business School 30 years ago, we used the famous Boeing vs. Airbus Case Study.  Guess which two companies are still the dominant players in the commercial jet market?  There have been no new (consequential) entrants into the commercial jet business since then, and I dare say there won’t be over the next 30 years.  True, there are Embraer, Bombardier, and other smaller commercial jet companies.  China’s Comac is getting started, and they may be the most likely to compete with Boeing and Airbus, but their story shows how high the barriers to entry are in this market:  Comac was started in 2008, and they are still in the test flight stage 10 years later.  Their prospects are good, but if it takes 10 years and all of the financial and technical might of the Chinese Government to get this far, it is unlikely there will be another company to build commercial jets.
• No Threat of Substitutes:  Many industries are disrupted from below, meaning that cheaper substitute technology or products render existing industries obsolete.  Think of Eastman Kodak and photographic film, and how it was made obsolete by digital cameras.  Can you imagine a scenario whereby people will cease to fly in commercial jets?  What would that be?  Individual planes?  Teleporting?  Hyperloop?  Something else Elon Musk concocts?  FaceTime and Skype are nice but are no substitute for face-to-face interaction – ask any grandparent.  My point is that I don’t envision any technology disrupting the worldwide market for commercial air travel.
• Boeing’s People:  Boeing has the world’s best aeronautical engineers already working for them.  Where else are they going to go and do what they already do?  Maybe some few will leave for smaller ventures here and there, but the likelihood of Boeing’s employee retention is very high.
• Product Innovation:  Boeing is innovating with things like carbon planes (777 Dreamliner) and other cockpit technologies, always improving their products.  Boeing has not at all become complacent and looking to milk their product stable for cash.
• Air Freight:  One of the macroeconomic trends going on right now is the emergence of online retailing and the demise of traditional stores.  Now you buy something online and it is shipped to your front door.  By what means is it shipped?  By truck, true, but also by airplane.  Who makes the airplanes, especially big cargo planes?  Boeing, of course.  The growth of air freight has also led to growth in the used airplane market.  If a commercial airline wants to sell an old plane, they increasingly sell it to an air freight company, which will convert it to carry freight instead of people.  Guess who sells the parts to convert these planes and keep them flying?  Boeing, among others.

The above I believe are long-term factors that support Boeing’s continued prosperity.  The following are some other short-term factors that Boeing currently has going for it that could change with political or economic conditions here in the US and worldwide:

• Weaker Dollar:  Boeing is truly a worldwide company.  Its website shows each airline and each airline and each company worldwide that buys from Boeing.  The US Dollar has weakened somewhat during the past year, which makes Boeing products less expensive for overseas customers.
• US Trade Balance:  Boeing is hugely important to the US Trade, as its products account for a very high percentage of US Exports.
• Defense Buildup:  With the current political administration, there is likely to be a buildup of US military capabilities.  Boeing doesn’t just make commercial airplanes; they also are a huge player in defense contracts.  Boeing also sells its defense/military products to other countries.

IMO

I am bullish on BA because I really don’t see any downside to their business.  Think about this:  Apple is the largest US company with a market capitalization that is approaching $1 Trillion.  Apple’s largest product is the iPhone.  Can you imagine in the future that there will be a product that will replace the iPhone?  I can, for sure.  The iPhone is a great product but it has only been around for a little over 10 years.  Some company somewhere may very well come up with a product or technology that will replace the iPhone.  I don’t see any scenario whereby there will be a product that will disrupt and replace Boeing’s airplanes.  If Apple is worth nearly $1 Trillion, then I believe Boeing is significantly undervalued, even at a $200 Billion market cap.  This is not a knock on Apple – it is just a way of illustrating how I think about Boeing.  Lastly, I really do recommend you look at Boeing’s website – you will be amazed!

As I write this during the first week of 2018, the stock market is continuing its upward trend and making new highs.  (Maybe by the time this is actually posted we will have a correction, but bear with me.)  Many are touting the recently-passed tax package as the reason for the continued upward trend.  The Man Himself, President DJT, credits himself.  Would you expect anything else?  He had better watch out – there will be a correction at some point in the next 3 years.

While the tax package and Republican/Trump policies likely play a part in the explanation of the market uptrend, they are not the only reason.  When it comes to the US and global economic ecosystems, cause and effect are very complicated.  Imagine the biggest supertanker in the world, many times larger than one that already exists.  That is the economy.  That super supertanker cannot be maneuvered easily.  Once it starts on a path, that’s where it is going to go.  Tweaks such as the US corporate tax cut, significant though it is, must work in concert with additional tweaks in order to have a real effect.

Symphony

What other factors out there are working in concert with the corporate tax cut, such that they are starting to make music together?  I have outlined some in previous posts, but let’s review:

• Low Interest Rates:  Although the US Fed has been raising rates over the past 2 years – up about 1% during that time – the European Central Bank (ECB) has not, and there are still negative interest rates in Europe.  Worldwide rates remain low.  Low rates allow companies (and governments) to borrow at lower costs.  Good for the economy.
• Low Inflation:  Rates are low because inflation is low.  Economics 101 says that inflation is caused by too much money chasing too few goods.  Demand outstrips supply.  Well, inflation is low because there are not “too few goods”.  There is a surfeit, not a shortage.
• Emerging Economies:  There is a surfeit because of emerging economies and global trade.  Products are made in Asian and African countries using minuscule labor rates and shipped to larger markets like the US and Europe.  There seems to be no shortage of people worldwide willing to work for little pay.
• Low Oil Prices:  While oil has recently moved up to $60 or more per barrel, it is still lower than the $100 or more we had to deal with a couple of years ago.  Oil (and energy prices in general) remain relatively low because of our old friends, Supply, and Demand.   Supply is high because of technological advances such as fracking, and demand, while not low, has not increased as it has during previous economic upturns because technology-fueled upturn is not as energy-dependent as other upturns, such as the Industrial Revolution and war-related upturns.
• TINA:  There is no alternative.  Investors remain invested in stocks because they want the level of returns that stocks have provided in the past and they are willing to go farther out on the risk spectrum to get that return.

Obama Policies

I am a Republican, but I believe President Obama’s and Democratic policies have also contributed to the current upturn in stocks, although I don’t believe they were intending to stoke the markets.  President Obama’s two terms were marked by increased regulation and government oversight.  The Dodd-Frank bill which was meant to “fix” problems which caused the Economic Crisis of 2008 is the hallmark of these regulations.  This increased regulation has been a disincentive for companies to go public, and for the smaller public companies to merge with larger public companies or even to go private again.  Current “unicorns” such as Uber and Airbnb are not public yet (though they may become public in the relatively near future) because they haven’t yet wanted to deal with the hassle of being public.  According to an article published by Harvard Law School, US public companies peaked during the dot-com bubble (early 2000’s) at over 8,000, and are now at about 4,200.  Moreover, the companies that remain public are much larger.  The larger scale is needed because of the higher cost of doing business through higher regulation and compliance requirements.  As I stated above, TINA is a factor, and so what you have is investors have more and more money that they are putting into fewer companies.  The stock prices of these remaining public companies are going up as a result.  Here is the link to the Harvard Law School article:

Looking Behind the Declining Number of Public Companies

IMO

All of these and many more factors are currently working together and the stock market has been going up as a result.  There may be a catalyst out there that will cause the macro uptrend to reverse, and there certainly will be bumps along the road.  However, it would have to be a really big negative catalyst.  I’m not going to speculate on what that might be.  For the near future, I remain long the stock market and I think you should be as well.

Facebook’s initial Mission Statement was “Making the world more open and connected”.  Last year, they tweaked it to be “Bring the world closer together”.  Based purely on my own Facebook experience, while they may think they are working toward their mission, I think instead that their real mission is to become an advertising machine.  Can’t fault them for it, nor can I fault the companies that advertise on Facebook – it is not news that companies are in business to make a profit.  Also based on my admittedly anecdotal experience, I think the engagement level of Facebook users has dropped considerably.  I will explain below.

2007

I was a relatively early Facebook user.  My Timeline says I started using Facebook in 2007, so I have been on it for about 10 years.  During the first few years, it was great to “Friend” so many friends, relatives, and acquaintances from the past years of my life that I hadn’t heard from in a very long time.  I really enjoyed (and still enjoy) reading about what people have done or are doing, what they are thinking or feeling, and especially photos of their experiences and their children and families.  At that time, most users actually posted stuff – I’m guessing well over 50% of users were actively involved in keeping the rest of us updated with the goings-on in their lives.  It was very nice!

As the years have gone on, however, I have seen this level of what I call “active engagement” drop significantly.  It seems that Facebook is now following the 80/20 rule that many other enterprises face:  20% of the users are making 80% of the postings.  It may even be more like 10% and 90%.  At the same time, posted advertising has grown significantly, as has, in my case, articles posted from publications that I am “following”.  Whereas it used to be that 80% of what I saw on Facebook was postings by user “Friends” and 20% by advertisers or other of my “followings”, now that seems to have flipped to 80/20 the other way.  So, the 20% of my Friends who actually post comprise only 20% of what I actually see on Facebook.  At least that’s how it seems to me, in my unscientific, anecdotal observations.  Are you observing the same phenomenon?  Or am I out to lunch?

Mathematics

I also question some of Facebook’s mathematics.  As of 3rd Quarter 2017 (the latest data available), Facebook claimed to have just over 2 Billion registered users, of which over 1 Billion, or 50%, is “active” as defined by logging in to Facebook at least once per month.  The World’s Population is about 7 Billion – maybe a little more, but let’s use that.  That means Facebook claims that 29% of the World’s population is a Facebook user, and 14% of the World logs into Facebook at least once per month.  Does that make sense to you?  Think about every person you know – that includes friends and family, neighbors and their children, everyone you went to high school and college with, and everyone you have worked with over the years.  If you are on Facebook, does it make sense that almost 30% of Everybody You Know is a Facebook user?  That includes people in Africa and India that still don’t have running water or electricity, not to mention Internet access so they can even access Facebook.  Something to me doesn’t add up.

IMO

I am not posting this as a warning that you should sell Facebook stock.  In fact, I own it, albeit indirectly, through my ownership of various ETF’s.  I am simply questioning whether Facebook is really following its own Mission Statement and if its true level of engagement might be a bit overstated.  I am not doubting Facebook’s internal metrics as to how they calculate registered users, and I am certainly not dissing the level of revenues and profits they are generating.  I do believe the breadth and the depth of engagement in Facebook is overestimated.  I don’t know what that means for Facebook’s future but it is still a growth story.  How deeply it sticks with and how much difference it makes in greater society remains to be seen.

Yahoo! the company has imploded and has been passed by, beset by data leaks, associated bad press, and poor management.  Perhaps it will turn around and become relevant again; perhaps not.  Despite the parent company’s issues, one service, Yahoo! Finance, remains an outstanding free resource for investors doing company research.  Here is the link to the Finance home page:

https://finance.yahoo.com/

Company Research

Once on the Finance home page, there are a lot of options for you.  If you want to research a particular company, type in the name of the company or the ticker symbol if you already know it in the top search box.  The stock quote you get is 20 minutes delayed, which is fine for research purposes.  The Chart feature has been enhanced.  In addition to the standard length-of-time charts (1 day, 5 days, 1 month, etc.), you can now choose a specific date range of any length.  Very nice feature on a free site!  You can also add various standard technical Indicators – moving average, relative strength, and Bollinger bands, for instance.

Historical Data

I have used Yahoo! Finance a lot for historical price data research.  Type in the time period and voila!  What I find very useful is that you can download the historical price data into an Excel spreadsheet and work with it – graph it, compare it with other stocks or etf’s, overlay indicators to see how they work.  It is very helpful for backtesting.  If you are working on a major quantitative investing program, you can use Yahoo! Finance as your source of data.  Again, very nice for a free resource.

Other Information

If you are looking at a particular company, you can click the other links under the company’s name and current price to learn more about that company.  Conversations:  If you want to add your two cents about something related to the company, you can here.  Statistics will take you to a lot of data.  In Profile, in addition to a description of what the company does, you can see who is running the place.  Financials will take you to the company’s balance sheet, income statement, and cash flow statement for past few annual and quarterly reporting periods.  If you are an options trader, you can view recent options trade in the Options link.  In the Holders section, you can view major individual and institutional stockholders, including mutual funds that own the stock.  All of this information can be otherwise found on the company’s website, but you have to dig for it:  First, find the company’s website, then find the Investor Relations section, then dig further.  In Yahoo! Finance, all of this information is readily available without much digging.  It is very handy.

Market News

Back to the Yahoo! Finance homepage, if you are looking for general market information rather than company-specific information, you have come to the right place.  The homepage acts as a news amalgamator – it links to content from other news outlets.  There are also Sponsored stories:  these are stories that someone or some company has paid to place there, so take them with a grain of salt.  It is a very handy way to keep on top of the general market news.

My Portfolio

If you have a list of individual stocks or ETF’s that you want to follow, you can keep track of them in one place through Yahoo! Finance, and thereby stay fully up-to-date (at least on a 20 minute delayed basis).  Of course, you could do the same if you have a brokerage account and you use your broker’s platform, but Yahoo! Finance offers a free alternative.

IMO

The word I have used several times is handy.  You can find most of everything you want to find out (superficially, anyhow) without working too hard by using Yahoo! Finance.  It has been used for years as a resource for those looking into stocks, and it remains as such.  There are other free charting sites out there, but their emphasis is on the charting, whereas Yahoo! Finance’s emphasis is on overall company research.  For those of you who like to backtest and maneuver data, the Historical Data feature is especially useful.  Check it out – why not?  It’s free.

New Year’s Day, as I write this, is always a day of optimism and hope.  Think of it this way:  Who goes into a new year thinking the next 12 months will be bad?  Probably some people, but not most people.  I am very optimistic for 2018.  It probably helps that I live in the sunshine and relative warmth of Southern California.  If I still lived where I grew up and went to college, in Upstate New York, it is probably more difficult this year to be optimistic because it is so bloody cold – highs barely above zero.  Tough to be optimistic when your tuchus is freezing.  Today is when people watch the Rose Parade and decide to move to Southern California.

Here are some reasons why I am (financially) optimistic for 2018:

• The new 21% tax rate for businesses will be very stimulative.  Businesses who currently hold money overseas will face a one-time repatriation tax it, but thereafter will be free to put the remaining money to work in their businesses.  Goldman Sachs just announced a $5 billion tax hit – other companies will follow suit.  But Goldman Sachs and the others will be winners in the long run as their tax rates will be much lower.  I believe either that companies will use the tax savings to expand and hire new workers (to the extent possible given our already low unemployment rates) or to enhance their per share profitability by increasing dividends or buying back shares or by increasing research and development for future growth.  All of these are bullish for shareholders.
• We have not tried stimulative fiscal policy 9 years into a market upturn, and I am very curious to see what happens.  After the Financial Crisis of 2008, the market bottomed in March 2009 and we have basically been in an upturn since then, with a couple of bumps along the way.  Classical economics teaches that governments should use fiscal stimulus at the bottom of a cycle, not at the top, as we are now.  Classical economics further would teach that any further fiscal stimulus at the top of a cycle will be inflationary.  However, inflation seems to be well under control, probably due to the globalization of the world economy.  When you think of an entire world market, the “too few goods” part of the equation doesn’t come into play.  Yes, the Federal Reserve is tapping the brakes with some quarter-point interest rate hikes, but I don’t think they see a rapid rise in inflation in the offing.
• US stock markets had a good 2017, but they weren’t alone.  The Emerging Markets Index was actually the best 2017 performer, up about 32% vs. 25% for the Dow Jones Industrial Average.  Even the Japan Nikkei Index showed signs of life by posting a gain of about 20%.  European markets were also up, although not as strongly as US and Emerging markets.  Could it be that emerging markets are finally getting their act together?  Could some prosperity be coming to some previous economic basket cases in Africa, South America and Asia?  That would not only be good economic news; it would be great humanitarian news.
• India in particular was a hot market in 2017, with its index rising 27%.  Remember that India has been an independent country for about 70 years, during which time they flirted with socialism and alliances with the Soviet Union.  Now perhaps this nation of over a Billion people is moving forward toward greater economic prosperity for all.  I’m no India expert, but India’s continued domestic growth could be outstanding news for companies throughout the world and could also affect world inflation in both positive and negative ways.  I will continue to watch how India performs and emerges this year – they are truly an emerging market.
• As I have stated in previous blog posts, while I recognize geopolitical threats such as North Korea and Iran, I do not believe they will result in armed conflicts.  I believe there is a whole lot of bluster by all parties.  ISIS has proven to be overrated as a governing force.  Terrorism will remain with us but will be played out through lone wolf strikes that tend not to roil markets for lengthy stretches.
• Despite the Fed’s increases, interest rates remain low.  Even though there are lower limits on how much mortgage interest you can write off, housing will remain strong particularly in areas that are growing because there is insufficient supply to meet demand.  We don’t build nearly enough housing for lower and middle-income Americans.

These are just my opinions and they are worth to you what you are paying for them.  If you are new to my blogging, Welcome!  Please go back and read some of my earlier posts.  I have been blogging for the better part of 2017, 2 posts per week, and plan to continue.  If you want me to blog about something you are interested in, please send me a reply.

The purpose of my blog is to show you how I think and to get you to think that you might want me to help you with your finances and/or your financial planning.  My financial planning business is fee only, and I can customize my services and my fees to address your particular concerns or issues.  My firm is Hutchison Road Partners, LLC, and you can check out its website at hutchisonroad.com.  Thank you for reading and I hope you will continue to do so.

Once again, Happy New Year and all the best to you in 2018!

This post is my take on Cryptocurrencies – Bitcoin, Ethereum, Litecoin, and the like.  I am not invested in any of them but I have read a lot about them.

According to Coinbase (an exchange where one can purchase cryptocurrencies), Bitcoin is up 2,191% this year (as I write this in late December), and Ethereum is up 10, 744% this year (although Ethereum started at $8, hence the bit percentage move).

Get it?  I think it’s clever.

My Takes:

• Cryptocurrency is not acting like currency at all.  Currency is ideally supposed to be a safe storage of value.  Its value is supposed to be relatively stable.  Cryptocurrency has been anything but.  The value of a currency is not supposed to change in the thousands of percent in a year.
• Currency is also supposed to be an exchange of value.  You go to the store and buy a book priced at $10 and you give the cashier a $10.  Case closed.  What if you had used bitcoin to purchase something, say an automobile, on January 1, 2017?  You would have paid at the equivalent of $800 per bitcoin.  Say the car cost $30,000 at the time.  At $800 per bitcoin, you would have paid 37.5 bitcoin for the car.  That 37.5 bitcoin then would be worth about $687,375 today as I write this.  You would feel pretty foolish had you bought that $30,000 car with bitcoin a year ago.  Better yet, what if you had used your bitcoin to purchase your illegal drugs through the Dark Web?  They would have turned out to be extremely expensive drugs.  The benefits better have been worth it.
• Bitcoin is not easy to use to pay for things.  It is not instantaneous, like the exchange of US currency, or even using a credit card.  Transactions using bitcoin are proposed, reviewed and approved by the bitcoin community.  This process can take a fair amount of time.  There are rumors out there that Amazon and other online retailers will accept bitcoin.  I don’t see this happening anytime soon because it takes too long to authenticate a bitcoin transaction.
• The blockchain technology behind bitcoin may prove more useful than the actual bitcoin.  The purpose of blockchain is to identify an item using a unique, verifiable string of code.  Blockchain can ultimately be used to identify anything.  Simply embed blockchain code into a t-shirt and you can identify it.
• The rise in the value of cryptocurrencies reveals a high level of distrust in governments, central banks, and their currencies, throughout the world.  Most currencies worldwide are backed by the full faith and credit of the governments that issue them.  Let’s just say that cryptocurrency investors are skeptical of that stated full faith and credit.
• One attractive feature of bitcoin is that there will be only 21 million of them.  Unlike central banks that can just print more and more currency, the number of bitcoin is capped by the blockchain code.
• There is fewer than 21 million bitcoin today.  New bitcoin is being “mined” constantly by mega-large computer systems that use a lot of electricity.  “Mining” means these computer systems crunch quintillions of blockchain equations in order to authenticate new bitcoin.  Once authenticated, the new bitcoin is offered for sale to investors through initial coin offerings, or ICO’s.  Bitcoin mining is supposed to end in 2040 when 21 million bitcoin will have been mined.
• Ethereum, having been introduced later than bitcoin, is more sophisticated than bitcoin and likely will have more practical applications.  Ethereum is also based on blockchain technology but has a more modern programming language than does bitcoin.  Ethereum transactions are confirmed more quickly than are bitcoin transactions, which could mean ethereum may be more useful as a retain currency in the long run.
• There are a lot of other cryptocurrencies out there trying to gain traction.  It is highly unlikely that any of them will make it.  Be very skeptical if you see a new cryptocurrency out there being touted as the “next bitcoin.”  Don’t drop your ten-foot pole.
• I don’t have a basis upon which to invest in them now, other than just pure speculation, which I don’t do.  Bitcoin futures are being introduced on the CME and the CBOE, so as they become in play perhaps I can develop some rationale to invest in them.  I certainly would not short them now unless you are prepared for a lot of pain.
• Cryptocurrencies have been in the headlines lately, and that won’t change.  Let’s all keep an eye on this new asset class and see how it plays itself out.

Hope you are all having a wonderful Holiday season!  One of the holidays is New Year’s Day, meaning that 2018 is nearly upon us.  What do I think is on tap for 2018?  Please read on, and remember that this advice is worth what you are paying for it.  Warning:  These are only my opinions.  I don’t know what will actually happen in 2018, but I see some actions that I think will be factors.

Central Banks

One could reasonably argue that the upturn in stock prices since the market bottomed in March 2009 has been fueled by Central Bank actions through low interest rates and bond purchasing.  The US Federal Reserve has stated that they are ending their bond-buying program that has ballooned its balance sheet to $4.5 Trillion with a T.  They are putting the bond-buying program into reverse, but very slowly.  The Fed’s balance sheet will remain above $4 Trillion for 2018.  The halt in the bond buying, at least, will remove some of the fuel that has propelled the stock market.

While the US Fed has at least halted its bond buying, the European Central Bank has not halted its similar program, and won’t be doing so for at least the next 2 years, although it will slow down.  This will mean that international interest rates will remain low (negative, in some places in Europe and Asia).  The US Fed has stated they intend to raise rates by maybe 0.75% in 2018.  The Fed’s rate-raising initiative will be hindered by low European rates due to ECB bond buying.

The current spread (difference) between 3 month and 10 year US Treasury securities is about 100 basis points, or 1.0% (Source: Bloomberg).  If the US Fed actually does raise short-term rates (they can’t do anything about long-term rates) by 75 basis points in 2018, and 10-year rates remain the same as they are now, that will narrow the 3-month to 10-year spread to 25 basis points, which is really small.  You can lend money to the government for one rate for 3 months, or you can lend money to the government for 10 years and receive 25 basis points more return.  Which would you choose?  I believe it is likely that 10-year rates will rise as the Fed increases rates, but not by 75 basis points.  That means that the Yield Curve will continue to flatten, as it has flattened during the past year.  A really flat yield curve is not a good sign because an inverted yield curve usually portends a recession.

US Stocks

Since the Central Banks worldwide are still providing fuel, stocks will continue to rise.  There may be corrections, but the basic trend will be upward.  There are many algorithmic traders out there today that are programmed to “buy the dips” that any mini-correction over the past year has bounced back quickly.  The rubber band trade has worked, and I believe it will continue to work.  The test will be to see what will happen when there is a “flash crash” or another event that causes an immediate, deep correction that undercuts the Buy signals from the algorithmic traders.  This sort of happened in August 2015 due to an issue with China, and again in early 2016.  Markets have obviously recovered from these China-related issues.  Hedgie Kyle Bass has bet big that there will be another, deeper China crisis.  It hasn’t happened yet but it might.  Barring this type of external issue, look for stocks to increase.

International Stocks

India has been strong and other emerging markets have followed in the past year.  As with US stocks, the fuel is there to keep buying.  Interest rates will remain low.  The threat of geopolitical confrontation remains high.  Isis as a government has been beaten back but of course, terrorism remains a threat.  However, the stock market has shaken off terror issues in the past.  Unless there is a huge 9/11-scale attack, terrorism will not become a huge factor in the stock market.  I like the Emerging Markets ETF (NYSE:  EEM).

Oil

Expect to pay more at the pump.  All producers benefit from higher prices.  Saudi Arabia’s ARAMCO wants to go public in 2018 and its offering will benefit from higher prices.  Look also for higher gas taxes as states and locals try to raise money for roads and for general budget shortfalls.  We here in California just got hit with another gas tax hike.  Electric cars make only a small dent.  Tesla is beset by production issues – not to say you should short Tesla stock, but that I believe Tesla’s unit sales will fall well short of projections because they can’t bang out their cars fast enough.

Geopolitical

I believe there will be no action regarding North Korea.  I believe that issue will get solved with South Korea and Japan nuking up, which won’t make China happy.  Unfortunately, we will have to live with North Korea’s nukes.  I believe the bigger threat is in the Mideast.  Iran and Saudi Arabia are increasingly at odds (Shia vs. Sunni), and it may not end well.  This is the greatest geopolitical risk area, in my opinion.  I don’t think they are capable of being diplomatic toward one another.  We will see how much the US and Russia get drawn in.

Summary

If you are long now in stocks, stay long.  If you are long in bonds, don’t get longer, but don’t sell.  Although I don’t see a major increase in inflation because the forces that have kept inflation low to date remain in place, I think global growth will continue and this will cause commodity prices to increase, including oil.  Keep an eye on Iran and Saudi Arabia.

Happy 2018!!

Superannuation means that you live a really long time.  You become really old.  Too old.  So old that you outlive your money.  If you were born during the Hoover, Coolidge or even the Wilson administration and you are still alive, you are superannuated.  If you are a World War II veteran, you are superannuated.

Running out of money when you are really old is a real problem.  Try as best as you can to plan for it.  There are tools out there to help you, and a good Financial Planner can also be helpful.  My Business School economics professor used to tell us that our objective should be to die owing nobody and with our last remaining dollar in the bank.  While that may be taking it to an extreme, the point is that you should enjoy your life and spend what you have but no more.

Social Security Website

If you do nothing else, you should check out the Social Security Association’s website on Life Expectancy.  It’s free and it only takes a little time.  Here is a link to the website:

https://www.ssa.gov/planners/lifeexpectancy.html

Here is a quote from the website:

When you are considering when to collect retirement benefits, one important factor to take into account is how long you might live.

According to data we compiled:

• A man reaching age 65 today can expect to live, on average, until age 84.3.
• A woman turning age 65 today can expect to live, on average, until age 86.6.

And those are just averages. About one out of every four 65-year-olds today will live past age 90, and one out of 10 will live past age 95.

The SSA website then gives you a calculator, wherein you input your date of birth and it calculates how long you are expected to live.  I am almost 57 and I am expected to live another 26 years.  If I make it to my full retirement age of 67, I can be expected to live another 18.3 years.  The longer you live, the longer you are expected to live thereafter.  Consider the last sentence in the quote above:  If you make it to Age 65, you have a 25% chance of making it to Age 90.

Social Security 

While many within current younger generations believe that they will never collect Social Security because the SSA will run out of money before they get old enough to collect it, I believe this is unlikely.  There will not be actual cuts in Social Security.  I believe the fix will come by increasing the annual salary maximum that is subject to Social Security tax.  The maximum for 2018 is $128,700, meaning there is no Social Security tax paid on earnings above $128,700.  As demographics become more and more unfavorable for Social Security (meaning more people are collecting and fewer people are paying in), something has to give, and I believe the tax will be raised by moving up the salary cap.  The point I am making is that one’s Social Security income will still be there even when they get really old.

Other Actions to Consider

• Don’t File for Social Security at least until you reach your Full Retirement Age.  If you don’t know what your FRA is, that same SSA website can help you figure it out.
• If possible, wait until after you reach Full Retirement Age to file.  If you wait 1 year after your FRA to file, your benefits will be 8% higher.  That’s a good return on a 1-year investment that will really help if you make it to 90.
• Save More Now.  Easier said than done, but essential if you think you might live a long time.
• Look in the mirror and reflect honestly on your own health.  If you are getting on in years but you are still very healthy, eat well, and not on a lot of medications, Congratulations!  But you may be facing a money problem when you get to be really old.
• Your living expenses will probably tail off as you get older.  Consider how much you spend now staying active, and while you hope you will be able to continue with your activities, consider how much you really will be able to do in terms of active vacations that you pay for now.
• If you have to go into a home, while a home may sound expensive, it is “all inclusive”, meaning you will have little in the way of outside expenses.  Planning to have enough money to move into and to afford a nice independent living or another type of facility is a really a good objective.
• If you are a son or daughter helping your parents plan for the future, it may be best to get a financial planner involved.  Kids don’t listen to their parents, and vice versa.  A planner can be very helpful and can help preserve familial relationships.

There are a lot of other things you can do, but at least be aware of the issue of outliving your money, and become familiar with the Social Security website for tools to help in making decisions.

McDonald’s has been on a roll lately (NYSE: MCD).  Its stock is up 41% in 2017 and is at an all-time high as I write this blog.  Check it out:

Here is a link to an article on marketrealist.com that analyzes the company:

http://marketrealist.com/2017/12/why-mcdonalds-is-trading-close-to-its-52-week-high/

The purpose of this posting is to provide my opinion as to why McDonald’s has done as well as it has because it could have gone the other way.  Remember Burger King?  I don’t much, either.

Changes

I don’t go to McDonald’s very often, but I do go sometimes.  Have you been there lately?  Anyhow, since I go there infrequently, I think that gives me a better sense of how much McDonald’s has changed over the years.  It’s like, if you see kids every day, you don’t notice how much and how rapidly they grow, but if you only see those kids once every few months, you think, “My, how they have grown!”  That’s me, for McDonald’s.  My, how it has changed!  Or, try this mental exercise:  Think about going to McDonald’s 10 or even 20 years ago, and think about your most recent visit, and then think about how different it is now.  Here are some of the changes that I have noticed.  I am sure there are others, as well:

• All-day breakfast
• Emphasis on cleanliness (I’m sure there are locations that are dirtier than others, but my sense is they are trying to keep their locations as clean as possible, unlike other fast food restaurants)
• WiFi
• More modern look and fixtures
• TV
• Retirees hanging around and chatting, especially during the morning
• Menu items that come and go, and return again (such as McRib)
• Good coffee

Good Management

Kudos to McDonald’s management for doing all of these things!  The emphasis seems to be improving the customer experience in the restaurants.  Management saw Starbucks’ success and said, “You know what?  We have good coffee, too!  And we have a lot of well-located restaurants.  And our locations have tables that are conducive to customers sitting down and talking to one another.”

The point is, McDonald’s management didn’t stick to their knitting.  Instead, they changed.  They innovated.  They saw what competitors did that was successful and copied it.  They knew their markets and their customers and saw how they could provide a product and a service that was needed.  They showed how much they cared by keeping their restaurants clean, by keeping them updated and modern, and by continuing to reinvest back into their business.  The McDonald’s brand, the Golden Arches, is known worldwide, as it has been for many years.  Management has been wise enough not to squander that strong brand name.

IMO

I think there is a lesson to be learned therein.  McDonald’s could have continued to serve hamburgers as they had done for the previous 50+ years.  They could have milked their business and pulled as much money out of it as they could and not reinvested back into their restaurants.  They could have decided to just tip their hats to Starbucks and not tried instead to go after their coffee business.  They could have continued to view themselves as a restaurant rather than a community gathering place.  Instead, McDonald’s management looked forward and thought about how to grow their business rather than preserve what they already had.  They played offense instead of defense.  Not that playing defense is bad, but the only way you can grow is to play offense.  You can take that as a lesson for your own business, career, or even your life.

If you watch financial planning segments on television, or if you listen to them on the radio, one of the most frequent pieces of advice by the show hosts is that you should pay off your debt.  The most prominent TV personal advice person, whose initials are S.O., is now largely retired and living in the Caribbean.  She was a strong advocate of paying off debt.  On the radio, the most current advice advocate, whose initials are D.R., strongly criticizes, and almost berates, people who go into debt in order to live beyond their means.  My question is:  Is their advice correct?  Is it always correct to pay off your debt?

Eat Your Vegetables

Advising someone to pay off their debt is the equivalent of telling someone they need to eat their vegetables.  They know they need to do it, but they don’t like the sacrifice they need to make to do so.  Overweight people know they need to lose weight by cutting back on high-calorie foods and eating more vegetables.  Indebted people know they need to stop spending so much.  In fact, it may be more difficult to pay off debt than it is to lose weight.  People get into debt because they make $100 but spend $120.  If they cut out spending the extra $20, they are just breaking even, and not paying down their debt.  They need to spend only $90 or even $80 to actually pay down their debt.  Cutting their spending from $120 all the way down to $80 is a 33% cut in spending.  That’s a difficult thing to do and one reason why paying off debt is so difficult.  It means saying “no” to eating out, parties, event tickets, travel, and a lot of other fun things.  It may mean living a monastic life, if only for a short time.  This is very difficult for young people, or for anyone, for that matter.  I speak from experience.

Credit Card Debt

Another problem is that debt is expensive.  Most people, when they go into the “debt spiral”, do so using credit cards.  Credit card debt is expensive!  Even during this low-interest-rate era, where the US Government can borrow for a 10-year term at rates barely over 2%, credit card issuers still charge interest in the high teens for unpaid credit card balances.  That is great for the issuers’ gross margins but bad for those who carry outstanding credit card balances from month to month.  Using my earlier example, if someone saves $20 of their $100 paycheck, some of that $20 will go to pay past sins in the form of credit card interest.

Auto Loans

Auto loan debt is not bad in and of itself.  It is bad for you if you are using a car loan to buy a car that you really can’t afford.  Nice, expensive cars are very appealing and a status symbol especially here in the US of A.  Car companies and auto dealers plaster the airways with car ads, even during Christmas!  Anyone can afford the latest German import, right?  Well, no, they can’t.  Don’t forget to figure in the insurance cost.  To their credit, the car companies have greatly improved quality over the years, meaning that repairs are less frequent.  At least that is some good news.  It is very difficult not to give in to temptation and buy a nice car that you can’t afford.   Car loans are ok and pretty reasonable if you buy a car that you really can afford.

Student Loans

The problem with student loans is that new graduates don’t start off their working careers with a clean slate.  They start off already in the hole.  Think long and hard before knowingly going to a school that will necessitate that you (or your child) borrow a lot of money to go there.  The rates and repayment terms may be good but the debt may force you in a direction that you don’t really want to go.  This is a whole other blog topic.

Home Loans

The housing market is in much better shape now than it was in 2007, at the start of the financial crisis caused in part by subprime home lending.  Population and family formation has grown since 2007 and the housing stock has not kept pace, meaning that demand exceeds supply right now.  Because of high costs and other building restrictions, it is highly unlikely that builders will overbuild over the next several years.  This is good news and bad news.  The bad news is that home prices are high and likely won’t be coming down, while wages remain stagnant.  It is difficult to find a house to buy that you can afford.  The good news is that, once you are in and you own your home, and you can actually afford the payments and upkeep, the home probably won’t lose value and become “underwater” on the mortgage, which was the situation during the financial crisis.  As with auto loans, the home mortgage is ok as long as you can afford the payments.  If something goes wrong, at least you can probably sell the house and get out clean.

IMO

Don’t overspend.  Live within your means.  Don’t buy too nice of a car or house.  Don’t go into credit card debt if you can avoid it.  Go to community college and State U, or to a trade school, if it would otherwise mean you need to go into deep debt to go to the University of Private.  Don’t step off into the debt spiral.  Eat your vegetables.