Stock Investing. One. Last. Time. 

We have been doing this investing and  trading game for now over 45 years.  We have had a real loss..not a paper loss.. more in one day than most people lose in a lifetime of owning securities. Mistakes you bet, lots of them.  We likely read more financial news in one day than most everyone reading this do in a month or more.  We are selling nothing and only offer advice from those years of experience so with that noted here goes.  Learn from our mistakes. 

Dividends from owning stocks is nice, especially if you need the income to pay your current bills either while working or retired.  However stocks that pay dividends are not the best path to wealth accumulation.  The recent 6 months is an example of exactly that.  Maybe, just maybe, owning stocks without dividends and selling the capital gains for income produces more income and the same taxation. 

What has been tagged of late as the Magnificent 7... are seven mega-cap stocks that have run up in value more than 30% the last 6 months.  The recent 20% plus move up by The S&P 500 Index was lead by those 7 stocks as that index is market cap weighted meaning the larger the market cap the bigger share of the index they occupy.  Apple, Microsoft, Alphabet, Amazon, Nividia, Tesla, and Meta have used the panicdemic to trim thousands of employees, cut costs, and now are literally printing cash for their shareholders.  Simply put these are companies which reinvest in their company and do stock buybacks as opposed to paying out dividends and are compounding wealth creators. Only two of these stocks pay dividends and the yields are so low they are meaningless.  The choice here is rather simple own a dividend paying stock yielding 5%, maybe a money market fund paying 5%, OR own a company that has a stock value run up 30% in 6 months....again...and again...and again...over decades plus.  As Warren Buffet notes the stock market is a vehicle that transfers assets from the impatient to the patient.  A dividend stock paying 5% with little or even no appreciation of value since they are paying out earnings in dividends would take 12 years to equal what one could have gotten owning the Magnificent 7 for the last six months.  The S&P 500 comparison would be 8 years to equal.  Patience indeed. 

So the bottom line here is simple own companies that grow faster than the economy by reinvesting profits and doing smart stock buybacks. Berkshire Hathaway for example is at an all time high and still going up as investors see the profits there reinvested by Warren Buffet's team.  Think you are smart enough to reinvest your own dividends?  Maybe so...but smarter than Warren Buffet's team at reinvesting profits?  Not likely. 

We personally have stayed nearly fully invested for years without going to cash.  We remain 80% invested in stock funds, mostly the S&P 500 Index/Berkshire Hathaway with another 10% in an energy ETF.  Cash invested in Money Market funds some less than 10% on hand for dry powder if needed but more likely for large ticket items since we are retired now 15 years next month.  Bonds in this environment or almost any environment are subject to Fed raising rates reducing their value and no compounding via reinvesting profits so simply avoid bonds.  We suggested over 6 months ago that the economic recession everyone was expecting was in our opinion not happening.  We suggested that the economic troubles brought on by Biden policies was less trouble than many believed them to be as the ridiculous federal spending was mostly about paying rent seekers who they would take that money and invest in America and Mexico,  and not China. That interest rates at 5% or so are not high, but well, normal.  What we did highly suggest was that the significant reshoring of manufacturing and services from China back to the US and North America plus the moving into the best earning and spending years of their lifecycle of the large millennial generation now entering their forties was a huge plus for businesses that sells to them and owning shares of those businesses was smart.  If you live in a boom area as we do like The Triangle NC the economic wealth being created and spent by the in demand Generation X management people in the mid 40's and 50's and up and coming Millennial generation is something to behold.  We are bullish on the American economy.  We do not see the above economic trends ending anytime before the mid 2030s.

Thus the stock market run up of late is now reflecting those economic realities noted above.  The forward PE of the S&P 500 is about 20, which is somewhat rich, but not as so rich to cause real concern of something like a crash.  Will there be a pullback at some point?  You can bet on it and smart investors will use that opportunity to deploy cash.  One more time buying individual stocks is like throwing darts at a dartboard and hoping you pick right.  Buying a basket of stocks means you take no risk at your future wealth creation.  The S&P 500 and/or Berkshire Hathaway is the way to go here, with some energy on the side.  Do the most you can investing into your 401k.  Do a Roth IRA outside work.  The amount you invest is not nearly as important as the amount of time you invest.  Compounding over time is your friend. Be a balance sheet investor, not a profit and loss investor. 

Ignore the economic doomsters, ignore the gold bugs, ignore the fiat currency fools, and ignore the political doomsters too, invest for YOUR long term.  If it does not have cash flow it needs to go. Investing in America going on 248 years through a Depression, a World War, a Civil War, and numerous recessions has been a big winning bet.  I only wish I was young enough to have another decade or two to be invested.  Sitting in my office chair early each morning thinking millions of Americans are getting up, going to work, and producing good, services, and profits at companies that they sell to others where I am partner owner and I get to share those profits is nice indeed.  Owning the S&P 500 and Berkshire means my biggest decision each morning is what to order when I head down to my local Bojangles, not if I picked the right stock or missed out on some higher interest rate CD. It Beats directly owning a business, directly owning real estate, since it is so much easier and at some point should help you to sit home in your office chair too and only have to decide on what's for breakfast. 

Often wrong, but Never in Doubt.

Some thoughts on the economy and market this morning...read this with the knowledge I bought my first security in 1979...so after 42 years of investing I am often wrong but I am never in doubt.

If anyone had doubts the recent government price index reports have confirmed inflation is running hot. An annualized 6.2% harkens back to the 1970's when there was double digit inflation. Much of that caused by the oil embargo and readjusting of the dollar to being delinked from gold and thus what is called the petrodollar. That petrodollar over time has been overtaken by the mass credit market, but that is a story for another time. This time around it is more about the Fed buying trillions of dollar assets and of course massive and growing spending by Congress and Biden. Frankly if Manchin does not put an end the current BBB bill inflation is likely to see double digits again. My bet is on something passing and inflation ramping up higher. (Understand Biden and Pelosi see themselves as the current reincarnation of FDR and believe they have a date with destiny regarding increasing federal government size and control over Americans. One more time if you have not read Generations and Fourth Turning by Strauss and Howe at least read the Wikipeida cliffnotes version as every politician in DC has read it and see themselves as part of the theory which is playing out right now. My use of 1940's here is in part because of generational thinking.) I use the 1970's as a focal point since many reading this post will remember those inflationary times, but the truth is this round of inflation is more suited to comparisons to the 1940's. The 1940's as now the federal government spent with abandon and the federal reserve kept interest rates low. Note I said INTEREST rates low, not INFLATION rates low, and that is the key to this time and how you spend and invest. Thinking like Ron Paul or some other doomsday forecasters all of who predicted one of the last dozen market crashes is not in order here, nor is investing like them. That will either keep you poor or make you poor via inflation.
Do the old rules of how to value the market like, PE ratios, earnings, and book value matter in this new market? Does out of control spending and federal reserve printing dollars matter to this market? The short answer is no. The real long answer is yes. Point here is trailing PE ratios are utterly ridiculous at over 30, forward PE is in the low 20's which is also high but ridiculous. If, and that is a BIG IF, the economy keeps growing even slowly and government largess keeps being pumped into the system that money will be spent and it will end up in the profit margins of businesses selling the goods and service and lots of that profit will push down PE ratios and push up stock prices. As always government largess enriches the already rich and does little long term for the middle class or poor other than make them slaves on the government plantation. There is also the fact many of these rich own millions in government bonds in essence owning in part or in business with the federal government that keeps sending them more wealth. It is a vicious cycle, but the elites in government, the press, and business enjoy and prosper handsomely the relationship.

Let me be clear we will NOT have a market crash as some are convinced will happen. The federal reserve has become the be all to both the Congressional out of control spending and the need to keep interest rates low since all the federal debt piling up can not be serviced at even one percent interest anymore, much less a real market rate interest rate of say 3% plus on treasuries. Also note even with all government spending we still are only spending 40% plus of annual production of America, none of the vast pool of savings and assets Americans own. Is it eroding the value of your savings and assets absolutely, but wealth gain is still happening only at a must slower pace of around 2% instead of say 5% annually.

If you own treasuries, including those TIPS, it must suck to be you. Besides the fact they are doing at best only keeping up with inflation and e no real return, your bond capital loses value each day. While the federal reserve keeps interest rates down they are allowing all be it with a wink and a nod inflation to do whatever it pleases. Government borrowing at less than 1% interest cost and inflation 6% and above is good for government inflating it's way out of it's current debt and making your bond and saving account dollars worth less and less. Note holding gold and crypto here is useless too since trust me if crypto gets serious use as an exchange the US will do what China has already done and clamp down on it hard. Gold is as I have opined since forever a non cash flow producing asset so holding it has no value for those who need money to live on. Gold since this round of inflation has commenced has LOST 2% of value. If you going to be able to compete with those slackers who are getting free money each month from the federal government you got to outbid them for the limited goods and services available from the provider. You do that like the rich folks with wealth accumulation.

One more time this market or economy crashing again it is not going to happen. Think of the money printing this way. Just producing more money to buy more goods does not produce more goods. It will make those goods that are produced more expensive by increasing the money chasing the goods produced. So for those producing those goods that means higher profits. Thus money printed means in essence money being handed out to the non producers or poorer workers who spend it into producer hands making them wealthier. Owning part of those producers business via stocks means you get to share in the profits. For those who say it will erode the economy that is true to a lesser extent than the money can only buy what is produced and taxed from the producers. So what is happening is the federal government is taking more of the current production of Americans and can only take 100%, but in this case all government is taking about 45% of all production, which might be the highest percentage ever. We do not get poorer overall, just lots of inefficient spending. The one item getting trashed in the dollar as the reserve currency. Do note here most of the red states are actually legislating tax cuts and holding government spending in line with inflation, which means more and more of government spending is going on in Washington.

Now one can pretty up this current economy and market all they want to regarding inflation, interest rates, valuations, and the like, but the deal here is until the current political and monetary actors in charge decide to do differently the only way to prosper is to play by THEIR rules and not the time honored rules. Right now the game is Modern Monetary Theory and if you do not know what that is go Google it and I will wait here. Lots of free money just washing around out there being spent many times by those with no idea of the value of work to money since they do not work and see no reason in doing such. You as an investor can take advantage of such of course. Anyone who got scared and dropped out of stocks in March 2020 has seen opportunity lost big and those who stayed in have been well rewarded literally more than doubling their assets in less than one year. Frankly yours truly stayed in for the most part, but wish I had put both feet in instead of just one having been scared by the dumbed down diversity hired press. I will not repeat that mistake again. Consider oil futures in April 2020 where any comer was being paid to take free oil off the market for future use by the scarecrows in our press preaching the all electric everything economy was here. But even with one foot in the market the two years have been marvelously rewarding for this long tenured investor. Going forward here I will do what I told someone else years ago regarding trading the market. You might not like the actors, the players, or the regime in control but if you want to be a part of the play you got to go by their rules. Thus I will be shortly after the new year begins be putting another 5% of assets into stocks, as I just did so about a month ago. Sorta a dollar cost averaging and watching the actors here and seeing how the economy and government spending play out over the next month and a half and on into 2022. I will no longer be waiting on a correction which will likely not come, unless we get a downturn with the first interest rate hike and that is late in 2022. Meanwhile ride this horse for more capital wealth gains.

Stocks have been and will continue to be the one place one can keep up and beat inflation going in about 250 years here in America. Even in this political mess betting against America for that same time has been a suckers bet. Businesses for profit can and do raise prices, and a profit of 10% on $100 is more profit at 10% on $110 inflated price and stock prices rise accordingly, all the while paying me a dividend from which to pay my bills. Cash flow assets make as much sense right now as they ever did. I would rather be riding with Jeff Bezos, Tim Cook, and others like them than with anyone or anything else right now. Stocks in the last 12 years have returned 19% annually, 9% annually since 2000. Nothing comes close to that return in investing. The meme stock players and millennial stock ESG players are only renting their dreams with those who see them as the latest group of suckers to be harvested for profits while those who avoid such fads are playing the better odds by putting their money with the ones in real control. Over time nothing has been able to weather out of control government spending and inflation than owning a part of a business which is owning stocks. As for stocks with so many workers retirement funds now linked to stock market appreciation imagine what will happen to politicians if the stock market sold off big time, think 2008 and we got Obama and a 60 seat Democratic Senate. These politicians understand that well.

How long will this inflation high/low interest rate scheme last? If history is a guide I give it another decade plus as it will take that long for the government to inflate their way out of the debt mess and that is assuming some no nonsense kick ass Gen X leaders take over and rights the ship soon. Meanwhile remember scared money never keeps pace with inflation and never wins the wealth accumulation game either.

So what is this investor buying? Much of the same that got us here. VOO...Vanguard S&P 500 fund... and BRK.B Berkshire Hathaway. I would suggest the same for you if you want to not only stay rich and/or get rich in this new economic/market environment. One final word you will notice we own NO individual stock, excepting for Berkshire Hathaway and that is more an index fund itself than a stock for those needing less income and more non taxable future growth. The rest of my holdings are in cash, legacy munis which you can not buy, some aggressive growth stock funds closed to new investors, and some high yield junk bonds all dry powder. Owning individual stocks, ANY ONE Stock, is taking a high gamble here only for selected fools as the current government masters can decide any day to come after your stock with a hammer and take it down. It is their rules and you must play their game. Good luck and good investing friends.

Interest Rates in the Future

 I have long opined that interest rates this low would be here for a decade or so for reasons due to generational spending patterns and we are repeating much of the post Great Depression cycle. I revise my opinion that we will likely NEVER see interest rates much higher than 2% if that. The fiat currency crowd will laugh and say printing of money will invite huge inflation issues, the economy will get better crowd will say that higher demand for loans will push up rates, and of course the gold/bitcoin crowd will say proof of such inflation is the higher prices for their commodity and all commodities. Note the attached graph that points out commodities are in fact down over the last decade and if inflation was a worry they would be up. CPI inflation, which the fed wants at and above 2% is going nowhere as well. The point there is consumers led by a frugal millennial generation is saving, not spending, having been scared by two back to back recessions. Lets also note a factoid here that it has been shown that when interest rates go above 10% and below 4% consumer spending decreases with every basis point tick up or down, the sweet spot for consumer spending is between 4% and 10% and we will not see anything between those points for years or decades to come as I will explain here. What is going up are assets prices, led by bonds which go up when interest rates go down and frankly they have nowhere else to go. Therefore owning and buying bonds now approaches the greater fool theory in that you make near nothing on interest and no chance of any cap gains on bonds. The only bonds going up as noted on this chart are High Yield bonds where interest rate chasers are seeking any kind of yield. The risk, HIGH risk, in bonds is that at this level any move up destroys bond values. The real appreciation in value is the S&P 500 or stocks in general. This is due to the fact companies produce cash flow, unlike gold nor bitcoin, and can weather any cycle of interest rates and in the current environment actually gain value as much of the excess cash not being spent is going into stocks where cap appreciation is obvious and of course dividends are being paid. The S&P 500 alone pays 1.5% plus which is much higher than any savings account or CD and frankly safer since unlike savings and even bonds their cash flow protects one from inflation depreciation. As for interest rates in the future note the huge budget deficits we currently have which are being duplicated across the world. Note the demand for additional spending by the far left democrats and thus we will see trillion dollar deficits for as far as one can see. Much of the dollars being printed are being sucked up by the Fed onto their balance sheet and they, like Japan, are now buying private issue bonds. The fed soon will follow suit of Japan and begin buying stocks via ETF's. Japans central bank owns 85% of all ETF's in that country a staggering stat. The reason is the government needs to hold up asset prices for those depending on such for needs and retirement in a country where there is huge numbers retiring. Also Japan's debt is much larger than the US presently and they need to hold down interest rates to finance all that debt. One can likely see where I am headed and that is our fed is likely on that same path for the same reasons. Thus the point here is interest rates are likely this low forever due to the need to finance all that new spending coming via the democrat control of government and truthfully the Republicans are no better there. Might want to acquaint yourself with MMT, modern monetary theory, sooner rather later as that is the way of the democratic party now. So personally I have moved and will move before the Georgia election almost all I own into some ETF's, mostly S&P 500 index funds as thus putting my money where my mouth is so to speak. You might want to consider such yourself.

Three Retirement Portfolios one of which will work for anyone.

Having stopped trading about three months ago I began a search for a quick and simple way to deploy those now retirement assets that would provide income, safety, and near no maintenance going forward.  That search led to finding three portfolios that would fit retirement investing for those needing such. 

Let's first note in this era of very low interest rates and our thinking this period has some years to run, likely more than a decade owning bonds is deadly to principal and certainly income generation.  When interest rates do up, which they will at some point, existing bond values go down.  Therefore we did not look for anything involving bonds. Thus we settled on a stock and cash portfolio.  Below are three options that should suit any retirement investor.  We also highly suggest one avoid any fund or ETF that concentrates in any sector or tries to time the market.  

For those needing more income and less growth Vanguard's High Dividend ETF suits nicely. VYM is a broad based stock ETF , 407 holdings, with emphasis on large and growing companies who produce a steady stream of growing dividend income.  The current yield is just over 3%.  These companies rarely reduce their dividend even in recessions and raise them when business is good.  Your investment might decrease in value, but recovers nicely in economic expansions.  The stocks here are solid large cap companies that have staying power. This is an all in fund for most retirement people if one keeps a cushion of cash on the side.  The cash can be invested in the Federal Money Market Fund which offers a current 1.56% yield which is quite good in these times.  

For those wanting equal parts growth and yield Vanguard's 500 Index ETF is perfect.  VOO includes the largest 500 companies in the US and yields right at 2%.  Like the above ETF you get solid and growing yield with more emphasis on growth and less taxable income until you need it.  This is the safest ETF out there and combined with the Federal Money Market fund mentioned above will give one steady income and advancing appreciation of assets.  Most people need to be here. 

For those wanting a more tax efficient ETF Vanguard's Growth ETF is the one.  VUG again rests on large cap companies, currently 282,  with above average growth prospects and some yield, in this case right at 1%.  Combine that with the Vanguard Muni Market Fund currently yielding 1.1% federal tax free and you got long term growth and good tax efficient yield. 

No need to select some or part of these portfolios just select one and you have little concern about safety going forward and no real concerns about making changes ever.  The only reason to change would be a change in your needs to retirement. Combining one of these ETF's with Social Security and any pension should take care of your income needs and is inflation protected going forward.  

The Animal Spirits are strong in this One.

As of this summer we have been trading stocks, bonds, and options for 40 years.  Seems like just yesterday we took the dive into our first investment security which was not a CD or savings account.  The first security was a $5000 NC municipal bond which paid a then outrageous 10% plus.  Seriously it was during the huge increase in interest rates the Fed was pushing in an effort to tame inflation in the late 1970's.  Of course the bond got called in mid 1980's as rates came down but at that point we were already into stocks and options trading and never looked back.  

The animal spirits were raging in us at the time and we allowed experience and yes some big losses to teach us how to trade and how to make money doing so.  Only a very very few do trading well and trust me almost everyone who says they trade and make big money is lying and bragging.   If they do not have an even bigger retirement account than trading account they are  bragging and they are stupid on steroids.  Ask them if they are so good at trading why are they not retired from a day job and trading full time. 

After 4 decades this is our swan song as at the end of 2019 we plan on putting up our trading shoes and move on to better choices.  Eleven years ago we retired much earlier than most people could or would dare to do so.  We will at some point in the next six months wind down our account to the point there is only some long term holdings.  There might be some tag ends trades that will be needed as we move into 2020, but those will be to clean up and close some positions. 

We consider the last 40 years as a blessing as trading and investing has brought us financial security of the select few.   Using some smarts, LOTS of learning and experience over those 40 years also means we are doing something special in leaving at the top of our game.  At this point in our trading career we honestly believe we have learned most of the ins and outs of trading and investing and could make much more going forward.  But as we did eleven years ago we also have considered our mortality and wish to make the most of the years we have left on this earth.   Essentially as we noted going out on top. 

In that our final long term trading assets must be positioned for the future and we have decided in a high concentration in two stocks, which will be about 60% of our entire portfolio going forward.  Those stocks will be Amazon and JP Morgan Bank.  We see these two companies as being the safest with the most capital gains opportunities in the next decade.   We will likely throw in a smallish position in Facebook with the rest of the portfolio.  

For good measure here we will reveal our final trading portfolio stocks for the final six months.  All we consider good choice for traders and individual stock buyers going forward.   Amazon, JP Morgan, Facebook, Apple, AT&T, Verizon, Wells Fargo, and Walmart.  We also currently hold Google and we will likely drop Google shortly due to slower growth over valuation.   If one is looking a good dividend portfolio going forward, JP Morgan, and especially Wells Fargo are good values here.  One we do not hold Dominion Energy would be a good dividend addition as well.  AT&T and Verizon are fairly valued and good dividend stocks as well.  Apple is concerning right now. Walmart a steady eddie.   Amazon is easily the best choice for future growth and JP Morgan is the bluest of blue chips and pays a nice and increasing dividend.  Facebook the best of breed for consumer growth here. 

We will likely continue to post on our blog from time to time, but most about investing, not trading.  If you have questions still feel free to message us as many of you do as I will always be alert to market conditions and the economy since even not trading as Warren Buffet has suggested the best portfolio going forward is a high concentration in the S&P 500 index and some cash.  The only question now is can we keep the animal spirits in check after January 2020 as the it is strong in this one. 

Why we call Johnston County NC Home.

We are not mercenaries as many in our former occupation tended to be,  despite having lived in seven towns in North Carolina when we live somewhere we make it our own.  We still share friendships and emotional attachments from all seven places we have lived in this state.  So when we moved to Johnston County NC over a quarter century ago we put down roots.  However we had no idea we would be here now over a quarter century.   Without reservation we can say today we are glad we stayed.  As one says about pets, this is our forever home. 

As some wonder will you be at the dock when your ship comes in?  Well we were standing first in line when our ship came in the early 1990's living and being employed when the economic growth ship docked in Johnston County.  We have held two jobs in the Triangle of which Johnston County is a part and in both we were beneficiaries of the economic boom that is still going on here.  We continue in retirement to prosper from our associations and investments here. That is not to say that the years spend in other counties did not prepare us for the opportunities in The Triangle because they most certainly did.  If for no other reason we learned the most important lesson of all living in places where there was no economic growth and that is problems associated with economic growth are nothing compared to problems of no economic growth.  

Johnston County has been either the fastest or second fastest growing county in North Carolina going on over two decades.  The population has essentially tripled in the time we have lived here.  The once little town of Clayton is about 6 times over in population growth and the largest high school in the county did even exist last decade and now needs expansion.  Indeed we are not the only one who sees this place as something special in which to live and sometimes work.  Yes lots of people live in Johnston and work in Wake.  Commuters make up maybe a third of the work force like we did for some years as the higher pay due to demand for employees dwarfs the issues of commuting. Skill sets are in demand in The Triangle and that remains the driver of higher income here. 

Over the years we have lived in Johnston County the county government here has literally flipped from strong democrat to now strong Republican.  We are proud to say we were there and participated in the birth of that change. The county commissioners have been and are now lead by a fiscally responsible group of Republicans who prioritize spending to meet the revenue from taxes not raised in over a decade.  The officeholders from Sheriff to Register of Deeds to Clerk of Court have been known to return money appropriated by the commissioners to the county coffers at the end of fiscal years. We have build dozens of schools and voters have approved lots of school bonds since the county governance has proven to be a wise spender of those bond dollars and again lived within their means. The result is over 100 people weekly find this county a place to call home.  Wake County has been helpful to our growth by continuing to raise taxes and increase regulations of course that give incentive for many to move to Johnston. 

Our county economic director tells us often the biggest impediment to his recruiting business and industry is lack of people to hire.  Our local community college is all in on training for anyone who needs trained employees as they have in the recent surge of life science industry locations in the county, including a recent $2 billion dollar plus location.  The quality of life for those here and experienced by newcomers can be found in either locating in the upscale Clayton community, finding land in our rural areas, or just finding a home in a small town.  The retail landscape keeps expanding and there are few national retailers not represented here.  One of the most pleasant options for leisure is the easy less than 30 minute trip to Raleigh NC where you can find even more restaurants and retailers.

We tell others maybe the most important thing we did by moving to The Triangle is our son now has found a home and job here and the wealth creation, good paying job, and quality of life benefits gets passed on to him as well.  We do have one regret of living in Johnston County part of The Triangle in that we are now officially senior citizens and frankly do not have another lifetime to live, work, and invest in finally being at the dock when our ship came in.  We invite you to quit complaining about pay, about living conditions, and quality of life opportunities and come find your piece of paradise here too.  You will be glad and your children when grown will be glad as well. 

Assumptions and Investing

This year marks our 40 year anniversary of buying our first financial security.  It was a simple $5000 municipal bond and that purchase introduced us to the new world of investing and not just saving and yes bond are investments not saving.  Try as one may there is no way to save yourself to prosperity, just not enough compounding and most importantly investing means you are using your money to get the profits of other labors and ingenuity.  The difference between 2% compounding and 6% to 8% compounding is monumental, go try the numbers on a online calculator. Same thinking that the difference between a 2% economic growth and 3% economic growth are monumental too.  Safety is important, but one can make big errors at 8% or even 6% and still win big over 2% safe CD or US Treasury Bill.  If you got zillions yeah one can live off 2% forever and still take chances, but 90% of people can not.  You either accept less in life or you go for it.  We went for it and am pleased with the results. 

One learns in early debating class the most important point of debating is to not debate the facts, but to debate the assumptions.  Most of life is assumptions and not facts.  You go to bed assuming you will get up in the morning.  You get up assuming you will not get some deadly disease.  You switch on the light assuming the power will be there.  You use water assuming it will be there.  You drive down the road assuming you will not get in an accident.  You get the picture here so like it or not there are really few givens, death and taxes and the saying goes.  So it is with investing.  

One can only make decisions based upon what they know and how others will react to what you know.  Experience is more important than intelligence, but of course in this new culture we live in experience and wisdom are not valued among young people who ASSUME they know everything, which has flipped many years of accepting wisdom comes with age.  That simple fact about young people should be kept in mind regarding their impact on the entire economic market environment.  Experience tempered by wisdom has told me that people make the same mistakes over and over given enough time to forget the prior mistakes.  Emotion driven intelligence is the worst decision player in adult life and even we must temper such when dealing with the stock market in times like these.  Our just over 60 years of life on this earth allows us to look back about three generations.  Since most people do not live past early 80's on average the worst mistakes of emotion driven intelligence is forgotten by most after about four generations.  In essence we live making the same mistakes we made in the late 1930's now.  Here is our moment of foolishness in not considering the investing mistakes of the late 1930's when yet another Federal Reserve made the mistakes the current Fed is repeating.  They hiked rates then and the nation took another dip into recession having just finally just emerged from the Great Depression.   Jerome Powell doing the same now means he of supposedly experience and intelligence is not wisely reviewing mistakes of the past.  We also believe he is being driven emotionally to prove Trump will not back him out of a interest rate increase. 

The Great Depression took prevailing interest rates from the high single digits down to the low single digits with the fact housing and big ticket purchases demand was depressed and the new normal was less pressure from what had been surging wages and inflation concerns.  The late 1930's Fed was living and operating in the assumption that the economic normal had not been radically changed by the Great Depression.  The humans running the board made the emotion driven intelligence in their 1920's economy based wired brains that they were right and everyone else was wrong at the time.  Sounds familiar huh?  We today are living in a new normal where housing, automotive, and big ticket demand is much lower than before and certainly more suppressed due to price, just like it was after the Great Depression when more people rented than bought.   We are old enough to remember a time when owning your own home WAS the American Dream.  Now many take it for granted, younger people in this country do not anymore due to the reasons noted above.  Thus the new normal we live in means mortgage rates will be in the 4% to 6% range for decades not the 8% plus many alive now remember as normal.  Take that reduction in the new normal of rates across the board in the economy now as demand is not there anywhere like it used to be. Stores are closing across the land as more evidence.  Like it or not we seem to be in a 2% economic growth future versus a more desired 3% growth economy and the Fed is numb to the real economy once again. 

So the Federal Reserve got stupid this week raising rates and saying there would be more coming.  They are repeating the mistakes of the past as are many in the political field too.  Of course the question for investors is simple how to we, or even do we, take advantage of the current economic environment.  Using experienced wisdom and some learned history and hopefully very little emotion based intelligence we believe the next decade will not be as kind to investors as the past decade.  We do not see a crash, nor anything like a huge downturn in the market.  We do see a lot of backing and filling as the Fed learns from their recent errors and the business world adjusts to those errors, nothing occurs in a vacuum in the investing world. Maybe a good idea that you too go take a look at the late 1930's stock market graph at some point too.  We in our personal account will be dealing with a lot of leverage gone bad, but believe it we stick tight much of the losses can be gained back via some patience and good trading.  It is indeed hard to be patient and not let emotionally driven actions/mistakes take us off our well worn path of success.  We are embarrassed we did not do our due diligence in considering that the Fed would make the same mistakes they made four generations ago as we are a student of history.  We will be more studied going forward tempered by our losses.  If you are young, say under 50, stay the course and accept this market setback is your chance to buy low and let the compounding work for you long term as we did.  If you are older than 50 be careful in investing decisions and do something we will be considering at some point later this year and getting back into the municipal bond market where this journey all began for us.  Indeed if the Fed is determined to push up rates then we should take advantage of those higher rates that frankly are unjustified and mean one can earn good interest in a demand depressed economy.  Never leave stocks in full as Index 500 investing is still the route to safe long term wealth.