It is important to note that any benefits withheld while you continue to work are not "lost". Once you reach NRA, your monthly benefit will be increased permanently to account for the months in which benefits were withheld.
Independent, Fee-Only Financial Advisor
Monday, July 26, 2021
Friday, July 23, 2021
Prices go up, prices go down. Why? Nobody knows.
Everyone understands the concept of inflation - we see rising gas prices on our daily commute, we listen to stories about how our parents bought their first house for a fraction of what we paid for ours, and every now and then we notice that our grocery bill has crept up a little. Inflation is rising prices - the inexorable march upwards of prices hitting our pocketbooks. As an economic indicator, measured by the BLS, it is meant to broadly capture the change in price of goods to the American consumer.
If you put all of these goods in a basket, you generally see that basket get more and more expensive every year.
At the same time that we see prices rising, though, we also see prices fall. Last year, we saw the price of oil plummet, and saw a somewhat correlated drop in the price of gas. Every year Apple announces a new iPhone that is better, faster, and stronger than last year, and the one we bought last year drops in price. Over the years, online shopping has constantly yielded newer, faster and cheaper shopping options.
Inflation can be sneaky. Sellers change the size of packages to charge the same price for less, but they also pack more features into our cars and technology and sell it at the same price. The cost of living tends to rise every year, but the quality of living often rises too. How to we measure that? The BLS adjusts the prices it sees in all different ways, and one of those ways is "hedonic adjustments" or adjustments that take into account the fact that we sometimes get more for the our dollar as products improve.
Click here to listen to this fantastic radio report on how inflation is measured.
So how does inflation affect us?
Since time and inflation affect different products in different ways, any individual will not see their budget grow in line with the published inflation number. Houses in my neighborhood that were priced at $120/sqft a year ago are $140/sqft today. The new laptop I bought for $1,500 six months ago is $1,100 on Amazon today. An EpiPen that was $400 six years ago is $700 today, though you can buy a generic version for $120 for a two pack. Gas prices are volatile and food can range from fine dining to off-brand ramen. None of this is readily obvious if I only told you that CPI was up 24% in the last 10 years.
|What do all of these have in common?|
Gentle inflation is generally encouraged in the economy, as rising prices encourage businesses to invest and consumers to innovate. Over time, a gentle rise in price and a corresponding rise in quality of life is good for the businesses selling the products and good for the consumers enjoying them. The Federal Reserve targets 2% inflation over time.
So what is going on right now?
In the news today, we hear there is high inflation. We have all seen prices rise for transportation, homes and meals out. We also hear that this is transient. Does this mean that we will get relief in our pocketbooks soon? No. The inflation is just the increase in prices. The prices may stop going up, but they don't have to come down.
Is this high inflation going to be a problem?
A lot of the current inflation is due to bottlenecks in the supply chain. Last year, factories shut down due to sick workers, mandated lockdowns or lack or raw materials. This meant that there were fewer products, namely building supplies, cars and electronics, to be sold. As the federal government stepped in to support it's citizens, demand rebounded quickly, outstripping supply. More money was competing for fewer goods, raising the prices sharply. Bottlenecks lead to more bottlenecks.
Bottlenecks are not the only factor right now. Many raw materials and commodity prices are up. Wages and other labor costs appear to be rising. Even if other bottlenecks were freed up, these other expenses may continue to support higher prices.
Will prices keep going up forever?
Federal government investments in infrastructure may help ease some of the bottlenecks. That should slow the rise in prices. A lot of the factors that are contributing to inflation right now do truly appear temporary. How long is this temporary? I don't know. Prices will continue to rise until supply can meet this pent up demand, or demand settles down to meet the given supply.
Tuesday, June 08, 2021
Back in February we talked about the interesting market dynamics that sent Gamestop from mall video game retailer obscurity to stock market phenom. Before capturing the hearts, minds and investment accounts of retail investors, Gamestop was a dying mall store in a year of close to no mall foot traffic. GME traded as low as $2.57 in April of 2020 before a passionate group of investors, plus some technical aspects of market structure sent the price to $483 in January 2021.
What does this have to do with the movies?
At the time, r/Wallstreetbets, the forum that drove the popularity of the GME trade, started looking for other companies to fall in love with. The found a most willing partner in AMC.
|Movie Theatres suffered from declining attendance and revenue well before 2020 struck.|
AMC (short for American Multi-Cinema) operates movie theaters all over the US and Europe. Like Gamestop, foot traffic all but disappeared in 2020. This was in the industry wide context of stagnant revenues and declining attendance since 2012. As Netflix, Disney+ and HBO Max provided better and better content, the movie industry failed to produce an experience that rivaled the customer's own living room.
They're just a big fish in a dying industry.
-New Perspectives, Inc Analyst Meredith DeLaune
AMC took in about one of every three movie ticket dollars in 2019. To get that large share of revenue they increased borrowings and paid higher and higher rents, eating into any potential increased profit. In the finance world, many investors saw their troubles and sold, or even sold the company short betting that the share price would fall further. The stock price went as low as $1.95 in March and April 2020.
In January 2021, the stock price hit a new low of $1.91.
Alongside the successful investing experience provided by Gamestop, investors at r/Wallstreetbets turned their sights to AMC. Unlike executives at Gamestop, however, AMC took full advantage of this newfound popularity. On January 25 AMC announced that they had raised $917 Million in new capital. Over the next two days, at a share price around $5, the company raised another $304.8 Million by selling shares directly into the open market.
Over the next few months, with Covid restrictions easing, AMC announced theaters opening across the country. On May 9th, they used all of this good news to raise another $428 Million at a share price around $10. June 1st they raised an additional $230 Million, selling shares privately to a fund called Mudrick Capital at a price of around $27 per share. This vote of confidence sent the stock price up further. While Mudrick sold their shares the next day for a large profit, AMC went back to the market as well, selling $587 Million more at a share price of around $50. At the same time, they announced that all shareholders would be eligible to claim a free large popcorn this summer (click here if you are a shareholder and want your popcorn!).
What is next for AMC? A rising share price indicates rising demand for the shares. AMC appropriately noticed their rising price and gave the market what it was demanding - more shares. While 2021 and 2022 will likely bring in more revenue than 2020, clever financing will only keep the company afloat for so long. The funds raised this year are only a little more than this year's lease obligations. With more movies being released online it might take more than a free popcorn to draw you out of your own living room.
We talk about shareholders being the owners of a company. With the "popcorn dividend" AMC has truly connected shareholding with ownership in a meaningful way. After all, if you owned a movie theatre yourself, wouldn't you treat yourself to a free popcorn every now and then? Imagine if Delta sent shareholders frequent flyer points, or Shell offered a free tank of gas every now and then. This would bring a whole new dimension to "investing in what you know."
Thursday, May 13, 2021
Is Bitcoin and its sister digital currencies really money?
Money represents work and earnings on that work or skill. It has 3 functions. It’s a medium of exchange. You can buy stuff with it-- trade it for food, housing, clothing, etc. Certainly, we are hearing more and more about cryptocurrency being accepted as a form of payment.
Money is also a store of value. The money I make today doesn’t have to be spent today. I can put it in the bank or under my mattress and store those earnings for another day. Okay, so crypto qualifies here.
Money is also a unit of account. That means the number of dollars, euros, renminbi, required to purchase something has meaning. When I travel overseas and find myself looking at price tags in another country, I’m clueless. They have no meaning to me, but prices in dollars and cents help me to peg a value on a good or service. Wow! That’s a good deal. Or, wow! That’s expensive. This is where crypto falters. Valuations fluctuate so widely that it is hard to translate the numbers to real value. Cryptocurrency lacks stability, and, so, fails the test on this function.
But crypto is pushing the bounds of our definition of money. We have used many types of currency through the ages. Maybe this is just a new one taking hold. At one time, we used whale teeth for money. Of course, the precious metals have had their run—gold, silver, copper. We’ve even used salt for money! Heaven help you if you had a hole in your pocket. Money has gone through many iterations as we humans have looked for ways to move beyond bartering as we trade goods. For a look at a really strange currency, check out The Island of Yap.
Money has 2 forms: commodity money and fiat money. Commodity money has value in and of itself. Think of gold and silver and even that salt. But fiat money has no real intrinsic value. Its value comes from the entity backing the currency.
Anyone with old Confederate dollars in your attic? They only had value when the Confederacy was alive. Now, they are worthless (thank goodness). Ever pull out some coins from your trip to Canada at the convenience store? Sorry, worthless here. When it comes to fiat money, location is everything. Euros in Europe. Pound sterling in London. Renminbi in China. Each government issues its own currency, and the strength and stability of that currency is correlated to the strength and stability of that government.
But crypto is different. It isn’t issued by a government. As such, it’s not confined to a location and particular borders. And that’s what makes it so appealing. No converting from Euros to dollars and back again, with all the requisite fees in between. Supposedly, it would be universally accepted. No banker is keeping track of your account. The system is self-contained to assure coins are transmitted appropriately.
And crypto seems the natural transition as fewer and fewer actual coins and dollars are used. Rarely do I have actual dollars in my purse. My money is recorded in an account somewhere, and I pull out a debit card or use PayPal or Venmo to make purchases. The currency in my name is just a number on a computer screen somewhere, and isn’t that what crypto is? It’s just a digital currency.
In 2009, someone or some people with the name of Satoshi Nakamoto invented the first truly digital currency called bitcoin. The ability to move vast sums across borders very quickly made it quite appealing to the criminal element. The dark side of this currency caused it to languish until recently. More and more, reputable businesses are trading in and accumulating digital currency.
New digital currencies have sprouted up with names like Dogecoin, Ethereum, and even Polkadot. None are related to a particular government, but each serves different functions. Recently, we heard a presentation by an investment group solely focused on cryptocurrency. They have created exchange traded funds that own crypto and are encouraging advisors to include this in a diversified portfolio. We’re not convinced yet.
Implicit in our current system is the position of an intermediary. These are the folks who are in between each transaction as money changes hands throughout the day. They are the bankers. A digital currency that is self-contained does not need an intermediary. That sounds appealing since it would reduce cost and increase speed. Imagine going to your house closing and pushing the button at the table to transmit your down payment. Voila! Deal done.
But we still worry about the security of such a system. And we worry that the crypto we own today will lose value overnight. So, maybe it’s just not money… yet.
Certainly, crypto investors have been reaping big benefits in the last couple of years. Our presenters from Bitwise Asset Management told us to NOT think of it as a medium of exchange. They describe it as a new technology that can speed up the pace of business while keeping costs low. They also said to think of different types of crypto like different types of software.
It’s all so bizarre! Programmable money? Coins created from mining. Mining is just the solving of a puzzle. Coins stacked in blocks to create a blockchain. Money or not? Sort of. Maybe. But it’s crazy popular right now.
So how do you get your hands on (computers on) some crypto? Well, you can’t go through your regular brokerage account. You’ll have to go through a crypto-exchange like Coinbase or Gemini. Robinhood can give you access. You can also sign up with an investor group. There are several private crypto funds. BITW is the publicly traded exchange traded fund that we heard about.
But be careful. This is new. It’s exciting. It’s cutting edge. But it’s risky. As for us, we’re taking a “wait and see” approach. Digital currency may be the wave of the future, but, right now, it just feels like a tsunami.
Saturday, February 20, 2021
We can't plan for every crisis. No matter what your financial resources are, you will find yourself in need some day. While money cannot buy you everything - the community you cultivate around yourself will always be a valuable asset.
There is a type of investor that always believes the world is ending. They may short stocks on the thesis that companies will stop making money, or are just fraudulent houses of cards. They may buy long term US Treasuries, putting their faith in the dollar and nothing else. They may eschew the dollar and our traditional financial system altogether, buying gold coins and bars just in case the apocalypse comes and nobody will take their dollars or buy their stocks.
Many years ago, one of the first investment fund salesman I met with had a streak of world ending beliefs. He painted a different picture, one that departed from a traditional investment portfolio.
“So, do you even garden?”
I explained I had been a gardener from a young age, and had just helped my mom plant blueberries and muscadines in her yard.
“Well, you probably don’t have chickens.”
Funnily enough, my roommate and I had just built a coop and bought three hens. We weren’t the only urban poulterers in the neighborhood either!
As amusing as it was for me to parry each claim of his, he had a unique way of looking at an “end of the world” scenario that has colored my thinking ever since.
He didn’t picture an asteroid wiping out half the earth or a foreign army marching down my street. He painted a picture of general decay, lack of services and a population growing more and more in need. The future he described was one where city and state services were less reliable, supply chains didn’t always link up and communities would be forced to rely more on what they could produce themselves.
In the world he described, your talents and your community are be the most valuable things you possess. As it turns out, these things are a valuable part of anyone’s financial picture. What we have seen recently is that a strong network is a community that supports you in times of crisis.
|When your world falls apart, who, not what, will you depend on?|
Many “end of the world” investors may also advocate for preparing for the end of the world: buying farmland, stocking up on canned goods, guns and tools. That is not a practical, or desirable course of action for most people. We can do something that humans have done for millennia: rely on our networks, neighbors and communities for mutual aid.
Mutual aid is simply people helping each other. People have been helping each other since time immemorial, how is mutual aid different? In a world of increased reliance on our friends and neighbors, mutual aid represents a more organized effort to allocate the resources of a network. Importantly, as the name implies, mutual aid is a two way street - you give what you can and receive what you need.
You are the first person that you must be able to rely on. Take the time to practice a new skill instead of relying on a paid service for a small repair. Keep your tools sharpened and your pantry filled for the times when you need to support yourself. When I moved into my house, I spent $800 to have someone replace a few broken window panes. The next cracked pane I noticed was fixed with $20 spent at a local hardware store and 20 minutes spent reading and watching videos.
When I was young, my mother would send me running to the neighbor’s house to borrow a cup of sugar. Being able to rely on a community for needs, small or large, is a huge financial benefit. In the moment of fixing dinner, being able to rely on a neighbor for a single ingredient saves a huge amount of time and strengthens social bonds. I have since leaned on my neighbors for housing for guests in town for a wedding or funeral, help moving, to borrow a truck, job recommendations and even the occasional piece of legal advice.
Your community will support you, but you need to cultivate relationships that you can rely on. People often turn to their churches, neighbors and professional organizations in times of need. Know who your community leaders are and who can connect you with resources when you need it. In the most recent ice storm, I have seen friends sharing important information about city services and offers for hot food. My network can connect me with resources, even if it is not my friends directly supplying them.
It is not a community unless you turn around and support it. Through the years I have also cooked for those in need, helped cut fallen limbs and lent a helping hand where needed. None of this has been a one to one relationship or an intricate system of favors. When you give freely to your community, it grows stronger. A strong community will support you when you are in need.
Supporting your community is how you strengthen it. Volunteer in organizations that you belong to - your church, your neighborhood and professional organizations all have ongoing needs that you may be able to help with. When you see or hear of a neighbor in need - support them. Deliver food for those shut in or suffering
Looking back on difficult times, we often note that it is the people in our lives that got us through. While income, cash in the bank and insurance help, the biggest impacts come from our community.
Mutual aid can be as small and direct as borrowing a cup of sugar from your next door neighbor, to as big and indirect as helping arrange to feed strangers across your city. In every instance, it forms a valuable part of your well being.