Upward Mobility, Income Inequality and Facts

The politicians of all stripes are busy telling us what they can do for us to reduce income inequality and increase upward mobility in America. They also tell us that we have become a less mobile and fair society.


But have we? Have things really changed over the past few decades? Not according to a new study, the contents of which have just been released.


Upward Mobility Has Not Declined, Study Says has the deatils:


"The odds of moving up — or down — the income ladder in the United States have not changed appreciably in the last 20 years, according to a large new academic study that contradicts politicians in both parties who have claimed that income mobility is falling.

Both President Obama and leading Republicans, like Representative Paul Ryan, have argued recently that the odds of climbing the income ladder are lower today than in previous decades. The new study, based on tens of millions of anonymous tax records, finds that the mobility rate has held largely steady in recent decades, although it remains lower than in Canada and in much of Western Europe, where the odds of escaping poverty are higher. . . .

“The facts themselves are pretty unassailable,” said David Autor, an economist at the Massachusetts Institute of Technology who has read the paper, which the authors will soon submit to an academic journal. “How you want to interpret them is the question.”

The study found, for instance, that about 8 percent of children born in the early 1980s who grew up in families in the bottom fifth of the income distribution managed to reach the top fifth for their age group today. The rate was nearly identical for children born a decade earlier.

Among children born into the middle fifth of the income distribution, about 20 percent climbed into the top fifth as adults, also largely unchanged over the last decade.

To compare their results to those for earlier decades, the authors noted that a previous study of children born from 1952 to 1975 . . . found broadly similar and steady levels of mobility. Taken together, the studies suggest that rates of intergenerational mobility appeared to have held roughly steady over the last half-century . . . .

The subject of mobility has become politically popular, as Democrats make the case that the affluent are choking off opportunity from others, and Republicans contend that a large, intrusive government is the culprit.

In a December speech at the Center for American Progress, Mr. Obama said, “The problem is that alongside increased inequality, we’ve seen diminished levels of upward mobility in recent years.”

Mr. Ryan, the chairman of the House Budget Committee and a Republican vice-presidential nominee, argued in a speech at the Brookings Institution last week that a smarter, smaller government would allow the country to “get back to those days of upward mobility.” The new study focused on a measure known as relative mobility, which tracks where people end up in a national ranking of incomes compared with where they started. If a child ends up in roughly the same place in the income distribution as his or her parents, even if the country as a whole becomes richer, he is not considered to be especially mobile.

But even a second measure — absolute mobility, which examines people’s annual incomes relative to their parents’ — produces a mixed picture.

Absolute mobility has continued to improve in recent decades because incomes have risen; median family income is about 12 percent higher today than in 1980, adjusted for inflation. As a result, most adults today have more income at their disposal than their parents did at the same age. . . .

For all the continuity over recent decades, the authors emphasized that parents appeared to cast a longer shadow over their children’s lives, in some ways, than before. As inequality has risen, pushing the rungs on the income ladder further apart than they once were, the average economic penalty of being born poor has grown over time.

“It matters more who your parents are today than it did in the past,” Mr. Chetty said."

Summing Up

We need to give every young American an opportunity to pursue his or her individual dreams and path to happiness. That's the American way.

Parental and community support, accompanied by equal educational opportunities for all, are the keys.

As an integral part of trying hard to achieve equality in educational opportunity, school vouchers must become ubiquitous in America's system of public education.

Meanwhile, maybe a few facts on the table will help instill in our kids the belief that 'If we can dream it, we can do it.'

And the further belief that hard work is the single best route to converting our current dreams into our future reality. 

Thanks. Bob.

The Fed Should Try Using Common Sense Instead of Rules and Formulas to Solve Our Economic Problems

Interest rates are at historic lows and the Federal Reserve is buying billions of bonds to keep rates low. This was done with the initial intention of keeping the economy from imploding in  2008-2009, and the easy money 'stimulus' has worked. But now it's back to 'normal.'


So now what the Fed should or should not do, will or will not do, and when they should and will do whatever they are going to do, with respect to letting interest rates return to 'normal' and over what period of time is very much at issue.


And while the experts have lots of opinions, as usual there is no consensus. Let's see what a common sense approach might entail.


Notable & Quotable tells the story of using common sense instead of math to solve our economic problems:


{NOTE: Sir John Cowperthwaite Hong Kong's free market oriented financial secretary from 1961-71.}

"Cowperthwaite was a humanist in a field that had fallen victim to social science. I have no great confidence that Chairman Yellen (Fed Chairman Bernanke's replacement) will follow his lead . . . and banish statisticians from her cold marble temple on Constitution Avenue. As a highly decorated economist, she has reached the top of a trade that considers statistics indispensable to its own functioning.

But Cowperthwaite didn't believe it. Stripped of his numbers an economist would have to resort to the old home truths about how the world works: If you tax something you get less of it; as a general rule an individual manages his own affairs better than his neighbor can; it's rude to be bossy; the number of problems that resolve themselves if only you wait long enough is far larger than the number of problems solved by mucking around in them. And the cure is often worse than the disease.

In the long run, the aggregate of the decisions of individual businessmen, exercising individual judgment in a free economy, even if often mistaken, is likely to do less harm than the centralized decisions of a Government; and certainly the harm is likely to be counteracted faster.

Somehow the most successful practical economist of the twentieth century knew this was true, and he didn't have to work out a single equation."

Summing Up

Sadly, the use of common sense these days isn't all that common, especially by government officials.

But we sure could use some right now.

That's my take.

Thanks. Bob.

Buying Expensive Homes With Government Induced Low Down Payments and the Resultant Housing Bubbles

New home construction is weak, but it's rebounding from the disaster of a few years ago. What's the picture a few years from now? Well, let's hope that as a nation and world we've learned something from that terrible experience. But have we really?


The plain fact is that although we had a housing bubble of epic proportions in the crash of 2008, too little attention has been paid to what caused the bubble and ensuing crisis.


Since we tend to repeat the history we haven't yet learned, let's take a look at what distortions in elevated prices caused in large part by excessive home related borrowings take place when government induces lenders and borrowers to enter into highly leveraged loans. One very expensive and unintended consequence is that too many individuals end up buying expensive homes that they otherwise would not purchase.


According to The Bubble is Back, history may be in the early stages of repeating itself:


"Almost everyone understands that the 2007-8 financial crisis was precipitated by the collapse of a huge housing bubble. The Obama administration’s remedy of choice was the Dodd-Frank Act. It is the most restrictive financial regulation since the Great Depression — but it won’t prevent another housing bubble.

Housing bubbles are measured by comparing current prices to a reliable index of housing prices. Fortunately, we have one. The United States Bureau of Labor Statistics has been keeping track of the costs of renting a residence since at least 1983; its index shows a steady rise of about 3 percent a year over this 30-year period. This is as it should be; other things being equal, rentals should track the inflation rate. Home prices should do the same. If prices rise much above the rental rate, families theoretically would begin to rent, not buy.

Housing bubbles, then, become visible — and can legitimately be called bubbles — when housing prices diverge significantly from rents.

In 1997, housing prices began to diverge substantially from rental costs. Between 1997 and 2002, the average compound rate of growth in housing prices was 6 percent, exceeding the average compound growth rate in rentals of 3.34 percent. This, incidentally, contradicts the widely held idea that the last housing bubble was caused by the Federal Reserve’s monetary policy. Between 1997 and 2000, the Fed raised interest rates, and they stayed relatively high until almost 2002 with no apparent effect on the bubble, which continued to maintain an average compound growth rate of 6 percent until 2007, when it collapsed.

Today, after the financial crisis, the recession and the slow recovery, the bubble is beginning to grow again. Between 2011 and the third quarter of 2013, housing prices grew by 5.83 percent, again exceeding the increase in rental costs, which was 2 percent.

Many commentators will attribute this phenomenon to the Fed’s low interest rates. Maybe so; maybe not. Recall that the Fed’s monetary policy was blamed for the earlier bubble’s growth between 1997 and 2002, even though the Fed raised interest rates during most of that period.

Both this bubble and the last one were caused by the government’s housing policies, which made it possible for many people to purchase homes with very little or no money down. In 1992, Congress adopted what were called “affordable housing” goals for Fannie Mae and Freddie Mac, which are huge government-backed firms that buy mortgages from banks and other lenders. Then, as now, they were the dominant players in the residential mortgage markets. The goals required Fannie and Freddie to buy an increasing quota of mortgages made to borrowers who were at or below the median income where they lived. . . . so that in the 2000s more than 50 percent of all the mortgages Fannie and Freddie acquired had to be made to home buyers who were at or below the median income. To make mortgages affordable for low-income borrowers, Fannie and Freddie reduced the down payments on mortgages they would acquire. By 1994, Fannie was accepting down payments of 3 percent and, by 2000, mortgages with zero-down payments. Although these lenient standards were intended to help low-income and minority borrowers, they couldn’t be confined to those buyers. Even buyers who could afford down payments of 10 to 20 percent were attracted to mortgages with 3 percent or zero down. By 2006, the National Association of Realtors reported that 45 percent of first-time buyers put down no money. The leverage in that case is infinite.

This drove up housing prices. Buying a home became preferable to renting. A low or nonexistent down payment meant that families could borrow more and still remain within the monthly payment they could afford, especially if it was accompanied — as it often was — by an interest-only loan or a 30-year loan that amortized slowly. In effect, then, borrowing was constrained only by appraisals, which were ratcheted upward by the exclusive use of comparables in setting housing values.

Today, the same forces are operating. The Federal Housing Administration is requiring down payments of just 3.5 percent. Fannie and Freddie are requiring a mere 5 percent. According to the American Enterprise Institute’s National Mortgage Risk Index data set for Oct. 2013, about half of those getting mortgages to buy homes — not to refinance — put 5 percent or less down. When anyone suggests that down payments should be raised to the once traditional 10 or 20 percent, the outcry in Congress and from brokers and homebuilders is deafening. They claim that people will not be able to buy homes. What they really mean is that people won’t be able to buy expensive homes.

When down payments were 10 to 20 percent before 1992, the homeownership rate was a steady 64 percent — slightly below where it is today — and the housing market was not frothy. People simply bought less expensive homes.

If we expect to prevent the next crisis, we have to prevent the next bubble, and we will never do that without eliminating leverage where it counts: among home buyers."

Summing Up

Government rules have enabled too many people to buy what they shouldn't have bought --- an expensive and often overpriced house.

And as we've seen, over time high prices caused by too much borrowing create unsustainable housing bubbles. Low interest rates are a factor, but not the biggest factor.

The biggest contributor to unsustainably high prices is attributable to too much debt being assumed at the time of purchase.

And too much debt is not only allowed, but even encouraged, by government rules intended to make home ownership more widespread through the overwhelming presence of government agencies Freddie and Fannie.

And these government rules are in large part the product of active and effective lobbying by  the home building industry, aka realtors, home builders, renovators and mortgage lenders.

So here's my take: What happened once can happen again if there's not enough skin in the game for home buyers. And that means a down payment of 10%-20%, just like the 'good old days.'

Be careful!

Thanks. Bob.

A Great Investment Tip

As the new year begins, lots of investment advice is appearing.


Such as: the stock market is about to fall and a 'correction' is upon us, it isn't and the market will move higher, or it will pretty much stay where it is for the balance of the year, while interest rates will move higher quickly, or they won't.


Somebody will be right, since opinions are all over the lot. What's new about that? Nothing.


So here's the tip of the day, week, month and year as contained in Here's an Investment Tip: Don't Listen to Investment Tips:


"(Q) What’s the biggest mistake first-time investors make?

(A) The biggest mistake first time investors make is believing that they must identify winning investments before they invest. The second-biggest mistake is listening to family, friends, and gurus who claim to identify winning investments. First-time investors, like most long-time investors, do better with diversified portfolios, aware that winning investments are easier to identify in hindsight that in foresight."

Summing Up

Words to live by.

Work hard, start to invest early in your working career and set aside as much as you can each year. Take good care of your future self.

Invest for the long run.

Stay away from bonds for at least the next decade.

Stick with a diversified portfolio of blue chip dividend paying and growing stocks, or in the alternative, invest in a low cost S&P 500 index fund with Vanguard or Fidelity.

Then sit back and enjoy the rest of your life, knowing that you're taking the right steps for your future self and your family too.

That's my take.

Thanks. Bob.

The 'State of the Union,' Martin Luther King and Education, Hard Work, the Fruits of Our Labor and the Content of Our Character ... The Role of Parents

The single biggest contributor in achieving success in classroom/academic excellence, athletic/extracurricular excellence, job/career excellence and being accepted as a great teammate, friend and spouse is HARD WORK. Hard work isn't the only factor needed to realize success, of course, but its presence or absence is what most matters to realizing a good outcome in any endeavor we pursue, all things considered.


To me it's largely a character thing, and the characteristic of being a hard worker is essential to successfully tackling the many obstacles and maximizing the many opportunities that present themselves during our lives.


Martin Luther King dreamed of the day when we would all be judged only by the "content of our character" and not superficial matters such as race. So let's explore the character component herein and how education, knowledge and career success is impacted by the work ethic.


My basic belief is that hard work is the one factor that has the biggest impact on how "lucky" we are as we proceed through life. In other words, the harder we work, the "luckier" we are likely to become.


Long ago our parents instilled in my brother and me by their example the necessity and virtue of being a hard worker. While hard work may not be its own reward, it sure comes as close to making the difference between success and failure at whatever we choose to do in life. Somehow our parents knew that and passed it on to us. What a precious and wonderful gift we received!


But today that hard work mentality seems to me to be at risk throughout America. The hard work ethic isn't as prevalent as it once was, and the American culture has weakened as a result. At least that's my take.


Let's see what a key member of President Obama's team in Obama's Homework Assignment has to say about all this. He addresses specifically the system of education:


"PRESIDENT OBAMA will deliver his State of the Union address on Jan. 28, but, for my money, his secretary of education, Arne Duncan, already gave it. Just not enough people heard it. . . .

Are we falling behind as a country in education not just because we fail to recruit the smartest college students to become teachers or reform-resistant teachers’ unions, but because of our culture today: too many parents and too many kids just don’t take education seriously enough and don’t want to put in the work needed today to really excel? . . .

Arne Duncan, the secretary of education, tells parents to speak up and get involved, in the right way, if they want their kids to get a better education.

I’ll get to Duncan’s speech in a moment, but, if you think he’s exaggerating, listen to some teachers.

Here are the guts of a letter published recently by The Washington Post from a veteran seventh-grade language arts teacher in Frederick, Md., who explained why she no longer wants to teach. (She asked to remain anonymous.)

After complaining about the “superficial curriculum that encouraged mindless conformity,” she wrote: “I decided that if I was going to teach this nonsense, I was at least going to teach it well. I set my expectations high, I kept my classroom structured, I tutored students, I provided extra practice and I tried to make class fun. ... I quickly rose through the ranks of ‘favorite teacher,’ kept open communication channels with parents and had many students with solid A’s. It was about this time that I was called down to the principal’s office. ... She handed me a list of about 10 students, all of whom had D’s or F’s. At the time, I only had about 120 students, so I was relatively on par with a standard bell curve. As she brought up each one, I walked her through my grade sheets that showed not low scores but a failure to turn in work — a lack of responsibility. I showed her my tutoring logs, my letters to parents, only to be interrogated further.

“Eventually, the meeting came down to two quotes that I will forever remember as the defining slogans for public education: ‘They are not allowed to fail.’ ‘If they have D’s or F’s, there is something that you are not doing for them.’ What am I not doing for them? I suppose I was not giving them the answers. I was not physically picking up their hands to write for them. I was not following them home each night to make sure they did their work on time. I was not excusing their lack of discipline. ... Teachers are held to impossible standards, and students are accountable for hardly any part of their own education and are incapable of failing.”

I got an almost identical letter last month from a high school teacher in Oregon: “Until about 1992, I would have at least one kid in every class who simply wouldn’t do anything.  A bad class might have two. Today I have 10 to 15. I recently looked back at my old exams from the ’80s. These were tough, comprehensive ones without the benefit of notes. Few would pass them today.  We are dumbing down our classes.  It is an inexorable downward progression in which one day all a kid will need to pass is to have a blood pressure. The kids today are not different in ‘nature.’ ... The difference is that back then, although they didn’t want to, they would do the work. Today, they won’t. ... This is a real conversation I had with a failing student who was being quite sincere in her comments: ‘I know you’re a really good teacher, but you don’t seem to realize I have two hours a night of Facebook and over 4,000 text messages a month to deal with. How do you expect me to do all this work?’ When I collect homework at the beginning of class, it is standard out of a class of 35, to receive only 8 to 10 assignments. If I didn’t give half-credit for late work, I think most would fail.”

Now you have some idea why Duncan gave this speech to the National Assessment Governing Board’s Education Summit for Parent Leaders. Here’s an excerpt:

“In 2009, President Obama met with President Lee of South Korea and asked him about his biggest challenge in education. President Lee answered without hesitation: parents in South Korea were ‘too demanding.’ Even his poorest parents demanded a world-class education for their children, and he was having to spend millions of dollars each year to teach English to students in first grade, because his parents won’t let him wait until second grade. ... I [wish] our biggest challenge here in the U.S. was too many parents demanding excellent schools.

“I want to pose one simple question to you: Does a child in South Korea deserve a better education than your child?” Duncan continued. “If your answer is no ... then your work is cut out for you. Because right now, South Korea — and quite a few other countries — are offering students more, and demanding more, than many American districts and schools do. And the results are showing, in our kids’ learning and in their opportunities to succeed, and in staggeringly large achievement gaps in this country. Doing something about our underperformance will mean raising your voice — and encouraging parents who aren’t as engaged as you to speak up. Parents have the power to challenge educational complacency here at home. Parents have the power to ask more of their leaders — and to ask more of their kids.”

Citing Amanda Ripley’s new book — “The Smartest Kids in the World, and How They Got That Way” — Duncan said, “Amanda points a finger at you and me, as parents — not because we aren’t involved in school, but because too often, we are involved in the wrong way. Parents, she says, are happy to show up at sports events, video camera in hand, and they’ll come to school to protest a bad grade. But she writes, and I quote: ‘Parents did not tend to show up at schools demanding that their kids be assigned more challenging reading or that their kindergartners learn math while they still loved numbers.’ ... To really help our kids, we have to do so much more as parents. We have to change expectations about how hard kids should work. And we have to work with teachers and leaders to create schools that demand more from our kids.”

Now that’s a State of the Union speech the country needs to hear — and wouldn’t forget."

Summing Up

Addressing the issue of hard work which is so intimately and directly involved with properly educating our children begins at home. Instilling the values and connecting success in the classroom to lots and lots of hard work isn't properly the job or even within the capability of most teachers or other government officials.

Showing up, acting right and engaging in hard work are the essentials to a solid education, athletic success, a good job, healthy families and a prosperous America. Getting a solid education requires lots of hard work, just as becoming good at anything over time requires lots of hard work.

The part in Arne Duncan's speech about the differing priorities of parents for their kids in Korea and America especially hit home to me.When I was a kid at the height of the Korean conflict (early 1950's), my Mom would tell me to appreciate what I had and "clean my plate" because kids just like me in Korea were starving.

Now 60 years have passed and it seems that the kids, at least in South Korea (and elsewhere too), are outworking our kids in the classroom. If their kids are harder workers than our kids, tough times definitely and needlessly lie ahead for too many American youngsters being raised in today's 'no-fault' entitlement culture. It doesn't have to be that way, and we shouldn't let it happen that way.

You see, Doctor King taught that there must not be favoritism or discrimination on the basis of race when it comes to individuals pursuing opportunities by working hard and then enjoying the fruits of our labors.

But when the opportunities are there, next comes the hard work. And that starts by showing up and working hard in the classroom, on the athletic field, in the neighborhood, in the home, at the job and in the government. All day and every day.

That's my take.

Thanks. Bob.

Own Bonds? It's Your Choice, but Know the Facts, Including Why the Three Decades Long "Safe" and Successful Approach Has Ended

Bonds have long been considered a "safer" investment than stocks. Personally, I've never believed the "safety" was worth the lower return on investment, so I've pretty much stayed away from owning bonds over the years.


Except for a period when inflation is high and headed down or at least not higher, bonds won't provide nearly the same return as an investment in stocks. Today interest rates are at historic lows and headed higher over the next several years. Thus, it's definitely not a "safe" or good time to be a bond buyer.


How You Can Survive a New Era in the Bond Market summarizes the current situation and outlook:


"For investors, last year's losses in the bond market should serve as a wake-up call that the era of big bond-market returns is over. For the foreseeable future, many say meager returns and occasional losses will be the norm.

With the Federal Reserve having pushed interest rates to record-low levels to boost the economy, bond-market math means returns for the next five to 10 years should be in the low single digits at best, market pros say.

That doesn't mean investors should abandon bonds. That's especially the case for those, such as retirees, who need to protect their portfolios against significant price swings.

                                          

But for many investors, particularly those with very long time horizons, it may call for notching down the level of U.S. government bonds in favor of higher-returning investments, including conservative stocks, even if that means greater short-term ups and downs in a portfolio.

Worst Loss in 19 Years

Last year, the Barclays                                                           Your Value Your Change Short position                        U.S. Aggregate Bond Index, the most commonly used benchmark for the bond market, lost 2.1%. That marked its first decline since 1999 and the worst performance since 1994.

"2013 is a taste of what we may be seeing the next couple of years," says Shawn Rubin, a financial adviser at Morgan Stanley.                       MS in Your Value Your Change Short position

The problem is essentially that interest rates had been pushed so low by the Fed that there is nowhere to go but up. Bond prices and yields move in the opposite direction.

This marks a sea-change for bond investors who have enjoyed a bull market going back more than three decades.

From 1981 through 2012, the Barclays Aggregate index posted an average annual total return of 8.9% a year. During that time, stocks in the S&P 500 index returned 12% including dividends. More recently, from 2000 through 2012, bonds returned 6.3% while stocks returned 3.5%.

How bad will things be from here? A rule of thumb is that investors can estimate future returns based on current bond yields.

                      

                        

Wesley Phoa, an economist and portfolio manager for American Funds, does the math using the U.S. Treasury 30-year bond yield, which is currently just south of 4%.

If bond yields continue rising toward a long-run average of 4.5% or 5% in coming years, as the economy continues to recover, that would mean losses on 30-year bond prices of some 15%, he says.

With that paper loss on the bonds offsetting the slim payouts from the bonds, "you might get a 3% [total] return for long-term Treasurys," Mr. Phoa says. "You are going to earn substantially less than on stocks."

Vanguard Group has an even more muted forecast, predicting broad bond-market returns in the 1.5% to 3% a year range, says Joe Davis, head of the firm's investment strategy group. For investors whose financial plan calls for earning 5% or 6% on bond returns through a conservative portfolio, "that's going to be almost mathematically impossible.""

Summing Up

To be forewarned is to be forearmed. And it's always better to know than not know.

We've been warning about the likelihood of bonds not being a good investment for a couple of years now, and the situation won't be improving anytime soon.  Not for another decade or more.

The bond party's over, sports fans, so I suggest taking a look at owning a diversified group of relatively high yield blue chip dividend paying stocks as a bond substitute in your long term portfolio.

And some of the blue chip "defensive names" I'm suggesting may surprise you. They include stocks like Procter & Gamble, Coke, Exxon, Merck, Pfizer, GE, Intel, Microsoft, Cisco, Apple, JP Morgan, Wells Fargo and US Bank. There are many others that make sense as 'long term bond subs' as well.

The shares of these companies should provide both a stream of higher cash dividends and higher share prices over the years ahead. So for long term investors, it's worth taking a long look.

In any event, nothing stays the same forever and the three decade long declining interest rate game is over for bonds --- and perhaps in a big way too.

That's my take.

Thanks. Bob.

Going Shopping This Weekend? ... And If So, In What Way? ... Best Buy Joins Sears and JC Penney on the Very Troubled List of Brick-and-Mortar Retailers ... Others Will Soon be on the Troubled List Too

We need more jobs. For that we need a healthier economy and greater economic growth.


And for that we need consumer buying to accelerate.


Today let's address why so far in January Best Buy's stock has dropped 40%, while the shares of Sears and JC Penney have been in a serious decline for at least several months. The business models of traditional brick-and-mortar retailers are under siege, pure and simple, and the problem isn't going away anytime soon. Price competition is severe, the American consumer is stretched, and Amazon and online selling are aggressively on the move. The 'creative destruction' aspect of capitalism is hard at work.


Indeed, traditional brick-and-mortar retailers have a really big set of problems on their hands these days. They are losing customers, losing sales, and to make matters worse, their costs are too high to compete on price and earn satisfactory profits with online sellers like Amazon. Brick-and-mortar retailers have infrastructure costs that are a basic part of their business model. Amazon doesn't and therein lies a huge difference.


Stores Confront New World of Reduced Shopper Traffic is subtitled 'E-Commerce Not Only Siphons Off Sales, but Changes Shopping Habits.' We'll quote from the article extensively as its contents are well worth reflecting upon:

"Best Buy on Thursday became the latest retailer to chime in with weak holiday results. Like other chains, the electronics retailer blamed the race to offer the deepest discounts, a game of brinkmanship that hurt profit margins and held back revenue.

But there is a deeper malaise at work: A long-term change in shopper habits has reduced store traffic—perhaps permanently—and shifted pricing power away from malls and big-box retailers.

Consumers' rush to e-commerce is a challenge that brick-and-mortar retailers have wrestled with for years. Across a number of retailers, their defensive strategies don't seem to be panning out. Best Buy, for example, overhauled its store layouts and marketing in the past year, even inviting shoppers to "showroom" the electronics retailer—co-opting the term for people who try out products in stores and then buy them for less online.

             

Despite those changes, visits to Best Buy dropped off after Thanksgiving weekend, Chief Executive Hubert Joly said in an interview. Not only are more people shopping online, the Web has eroded demand for former consumer-electronics staples, such as compact discs, he said.

"There is a phenomenon that impacts traffic to the physical stores," Mr. Joly said. "There is no doubt about it."

Traffic to U.S. retailers was hurt during the financial crisis and recession, when job losses soared and shoppers kept a tight grip on their dollars. But nearly five years into the recovery, it appears many of those shoppers may never be coming back.

Retailers got only about half the holiday traffic in 2013 as they did just three years earlier, according to ShopperTrak, which uses a network of 60,000 shopper-counting devices to track visits at malls and large retailers across the country. The data firm tracked declines of 28.2% in 2011, 16.3% in 2012 and 14.6% in 2013.

                              

Online sales increased by more than double the rate of brick-and-mortar sales this holiday season. Shoppers don't seem to be using physical stores to browse as much, either. Instead, they seem to be figuring out what they want online then making targeted trips to pick it up from retailers that offer the best price. While shoppers visited an average five stores per mall trip in 2007, today they only visit three, ShopperTrak's data shows.

Retailers said traffic declines are likely to persist well past the holidays....

Online sales accounted for just 5.9% of overall retail sales in the third quarter, according to the Commerce Department, but they have an outsize impact on how shoppers use stores and what they will pay.

Retailers are missing out on chances to spur impulse purchases as consumers turn to the Web to browse or research big ticket items, while online replenishment programs like Amazon.com Inc.'s "Subscribe & Save" are reducing the need to visit stores for everyday items like diapers and toilet paper.

Meanwhile, online stores have further sharpened purchase decisions and prices, leading some shoppers to come into the stores only when they can cherry pick discounted items.

"These retailers are fighting an uphill battle," said Cowen & Co. analyst Faye Landes. "If people don't come to your stores, it reduces the possibility shoppers will buy anything."

Summing Up

To point out the obvious, we are 'over-stored' in America and online retailing is rapidly changing the game. Not good news for the weaker and more vulnerable brick-and-mortar guys.

Thus, there will be lots of store closings in the next several years as America continues to change the way it shops. Many malls will be under siege as well.

The American consumer will need to continue to maintain a close watch on purchases, at least unless and until the economy shows sufficient strength again. And to become strong more consumers will first need to get their debts under better control along with millions more steady and well paying jobs. That in turn underscores the need for a strong and growing economy.

The growth of jobs and the overall economy will be challenged as new home construction will likely remain below 'normal' for a long time, and rentals will accelerate at the expense of home construction and occupancy.

Despite all these headwinds, as a nation we will grow and return to a strong economy over the next few years. That's the magic of our free market economy driven by entrepreneurialism and individual choice.

How many years is a few years is the $64 question that needs answering. Right now we don't know the answer.

We'll have to get everybody (especially politicians) on board the GROW THE PIE train for 'normalcy' to return anytime soon.

At least that's my take.

Thanks. Bob.

Our Nation's #1 Priority Must Become HIGHER ECONOMIC GROWTH and Increased Jobs ... How to Do It in 4 Simple Steps

Our economy is not growing at a rate nearly high enough to return to full employment, which historically has resulted in an unemployment rate of 5% or below.


Our anemic economic growth problems are severe and threatening to become long term in nature. Politically motivated minimum wage hikes accompanied by government mandated income inequality and redistributionist programs won't begin to solve the fundamental problem.


Besides, in order to afford to do these things and keep the basic entitlement programs we have now, we need a fundamentally new and realistic approach to economic growth powered by productivity gains and investment in the private sector. Growing the 'pie' instead of splitting it differently is the only way.


And that "pie growing" approach will require government officials to stop trying to solve our problems by growing government's piece of that total pie. We must stop playing the zero sum political game of income redistribution and begin playing in earnest the serious game of facilitating private sector investment and hiring.


So how do we grow America's economic pie by an acceptable amount and get to a state of full employment? While the answer is relatively simple, the road ahead is by no means an easy one. Lots of hard work and truth telling lie down that road for everyone.


A Business Short List for Growth has the head of the Business Roundtable's four step prescription for getting us back on the road to solid and sustainable growth:


"No matter the topic, the debate in Washington often comes down to whether we need more government funding for social programs or less spending to reduce the debt we leave our children. But this win-lose framing completely misses the one thing required to achieve both objectives: robust economic growth.

The simple fact is that if we want to control the deficit, preserve key entitlement programs, educate our children, grow jobs, and offer upward economic mobility for everyone, we have to get our economy growing faster. . . .

And make no mistake, economic growth doesn't happen absent private investment. This isn't complex economic theory; it's something we all know from our personal experience. Where there is investment—a new factory or distribution facility being built, a new store about to open, new software being installed—that is where new jobs are created. It is no coincidence that during this period of subpar growth, private capital investment as a percentage of our economy is at post-World-War II lows.

A growth agenda designed to drive investment in the U.S. has four basic elements.

First is the necessity for fiscal stability. . . .

Nothing will drive investment and growth like business tax reform. Today's capital markets are global. Investment flows freely and easily across borders to its highest returns. It should not be surprising that investment in the U.S. is running at such low levels when the rates at which we tax capital through profits are the highest among all developed countries. Fortunately, there is broad, bipartisan consensus that current tax rates on businesses of all sizes are too high. Tax reform also means removing barriers to bringing overseas earnings back to the U.S. A study published by economists Karel Mertens and Morten Ravn in the June 2013 American Economic Review shows that a one-percentage-point decrease in the average corporate tax rate would result in an increase in real U.S. GDP of between 0.4%-0.6% within one year. Any serious agenda for economic growth must begin with reforming taxes for all businesses—large and small.

Expanded trade is also key. Today, one of every five U.S. jobs is supported by international trade. To protect these jobs and grow more, we need to expand global trade and investment. . . . Today, we need to ensure that consumers, workers and businesses can all benefit from opening more foreign markets in Asia and Europe for U.S. goods and services.

The final pillar of this growth agenda must be fixing our nation's broken immigration system. America's unique competitive advantage has always been its ability to attract the best talent. We can't turn back on that now, not at a time when high-tech innovation is more important than ever. A successful overhaul of immigration law would create a larger pool of visas for higher-skilled workers, enact a new visa system for lower-skilled workers, offer a path forward for undocumented workers already living in the U.S., and allocate greater resources to strengthen enforcement and secure our borders. Done right, immigration reform can increase our economic growth rate, reduce our deficit and contribute significantly to America's future.

It's time to get focused on this short list. Economic growth isn't a blue state/red state issue—it's an American issue. It's within our power to create the investment, the jobs and the opportunities our country needs."

Summing Up

Focusing on growing the pie is completely different than slicing the pie differently and then having government decide who gets which pieces. More pie in total is the only viable answer.

And more pie for everyone is definitely attainable for all Americans, but for that we'll need to change our ways and let the private sector lead the way.


Additional private sector investment will help create more jobs and higher incomes, thereby leading to lower levels of unemployment and greater levels of prosperity for all Americans.

And as importantly, it will enable us to stop mortgaging the futures of our kids and grandkids.

It's not a political thing: it's an American thing.

Since we're all in this together, let's force our politicians to act that way.

And if they don't, let's get some new politicians who will concentrate on doing the right thing for all Americans --- GROW THE PIE.

Thanks. Bob.

Social Security Disability Fund is Rapidly Running Out of Money While Politicians Play Wasteful Games ... In the End,Taxpayers Will Pay

OVERVIEW
I consider myself a concerned, caring American. My best guess is that you do as well.


I don't mind paying a sufficient amount in taxes to support those in need. My best guess is that neither do you.


I wish government officials would consider the money collected from taxpayers as requiring them (as trustees and fiduciaries of all of We the People) to use common sense while the money is in their care and custody. My best guess is that you feel the same way.

Grand Theft Disability is subtitled 'Rampant abuse may soon require another taxpayer bailout:'

"New York tabloids are having a field day with the news that dozens of ex-cops have been charged with scamming as much as $400 million in Social Security disability benefits. The bigger outrage is that this grand taxpayer theft went undetected for two decades and is merely part of the national scandal that the disability program has become.

Manhattan District Attorney Cyrus Vance Jr. (recently) charged 102 retirees, including 80 former New York police officers and firefighters, with making phony disability claims since as far back as 1988 to obtain Social Security benefits and tax-free pensions equalling up to 75% of their pay. About half of the cheats attributed their "disabilities" to 9/11, even if they never even worked at Ground Zero. . . .

                          

Mr. Vance says the 102 indicted retirees collected on average $210,000 in benefits. Since most are still in their 40s or early 50s, each could have extracted hundreds of thousands more had the racket continued. One alleged fraudster is only 32. Mr. Vance says as many as 1,000 people may have been involved in the scheme, and the investigation is continuing.

                              

                        

What's remarkable about all this is that it's merely an extreme example of what has been happening across the country. Oklahoma Senator Tom Coburn's Committee on Homeland Security and Governmental Affairs issued an amazing report last October describing how a Kentucky-based disability law firm colluded with a Social Security administrative law judge to abuse the program. . . .

The gist of the Senate report is that the Social Security disability program has vague criteria for qualifying and lacks even the barest oversight, which makes it ripe for abuse. Administrative law judges decide cases independently and are virtually immune to disciplinary action. Politicians enable the fraudsters by denouncing anyone who proposes a fix as an enemy of the disabled.

The truth is that opponents of reform are the ones hurting the truly disabled. The nearby chart shows how disability claims have exploded—to 8.9 million last year from 5.9 million in 2003 and 2.7 million in 1985.

Not coincidentally, that is the year Congress relaxed eligibility standards to make it easier for people reporting pain, discomfort and mental illness to qualify for benefits. . . .

The second chart shows that all of these claims are bleeding the Social Security disability trust fund, which paid out $137 billion in benefits in 2012 or nearly twice as much as a decade ago. Without reform, the fund is on track to go broke in 2016, triggering either a 20% cut in benefits for all recipients or one more taxpayer bailout.

You'd think that fixing this mess would be a Washington priority, but Mr. Coburn and a few others are voices in the wilderness. Instead the country is treated to a political game over extended jobless benefits that might even be affordable if the Obama Administration cared a whit about stopping disability fraud. The polls say public trust in government is falling to new lows, but judging by the open secret of disability insurance scams it isn't nearly low enough."

Summing Up

In Washington today, while the political debate is focused on extending unemployment benefits and raising the minimum wage, addressing how to properly pay for them (BY ATTACKING GOVERNMENT WASTE) is being ignored. It's business as usual.

And the reason for this is simple: the vast majority of government officials do not establish their priorities based on serving the best interests of all of We the People, INCLUDING SPENDING TAXPAYER MONEY PROPERLY. It's business as usual.

It's a non-serious approach to governance, and it's one we can no longer afford. Business as usual has to change.

That's my take.

Thanks. Bob.

Buy Low and Sell High is the Basic Idea Behind Long Term Investing Success ... Why Then Do So Many Do the Exact Opposite?

Too many people confuse short term stock market price volatility with long term market direction. For the short term oriented traders among us, good luck with the game you're playing. I hope you win. But for us long term investors, let's get our market set of buy and sell behaviors right. If we do, I know we'll win.


Only two prices are relevant when determining whether we are making or losing money on our stock investments: the price we paid when buying and the price we receive when selling. All the short term gyrations and ups and downs of the market are just noise. And often harmful noise at that.


So why do we often behave in a self-defeating way? Human nature --- that's why. We have more of an aversion to 'losing' money (even if it's just a short term paper loss) than the satisfaction we experience when our investments increase in value. For example, the Dow gained 116 points yesterday after dropping 179 points Monday. If you're like most people, including me, Monday's loss made you feel bad. On the other hand, yesterday's gain didn't really make you feel so good. Part of it is expectations. We expect that our investments will go up. We don't expect them to go down. And when they go down, we're impacted emotionally in a negative way.


That's simply the way we're wired. But that self-knowledge can help us avoid making self-defeating moves at times of market volatility. In other words, we are who we are and we feel how we feel, but we don't need to act against our own best interests. To be forewarned is to be forearmed.


So for many longer term term investors, the best behavior is to put money into a low cost S&P 500 Index fund regularly and then ignore the market's ups and downs. Check it every year or so, but don't get 'hooked' and become an unintentional trader.


Why We Buy in a Marked-Up Market is helpful in learning to do the right thing for ourselves. It's all about our all too human tendency to buy high and sell low which, of course, is a losing way to invest. Here's what it says:

"When dividends are included, 2013 was the fifth consecutive year of positive performance in the stock market (as measured by the annualized Standard & Poor’s 500 return). The stock market is now up more than 200 percent from the bottom of the financial crisis in March 2009. Returns since those dark days have been unbelievable, including the market’s most recent performance in 2013 of around 30 percent.

At the same time, however, the numbers also show that we have lost our appetite for stocks.

According to the research firm Lipper, from 2006 to 2012 we withdrew more than $450 billion from United States stock funds. Then, in 2013, someone flipped a switch, and we decided we liked stocks again. Through the middle of December 2013, $60 billion was added to United States stock funds.

Think about this switch for a second. When the entire stock market had a huge 50 percent-off sale in 2009, no one wanted to buy. Now that the market is marked up 200 percent, we feel that it is time to get aggressive again.

A technology sales manager was recently quoted in a recent article in The Wall Street Journal: “Frankly, from 2009 until recently, I wanted to stay very conservative,” he said. Now, “I want to get more aggressive.”

Now? More aggressive? Why weren’t people more aggressive when stocks were on sale? . . . .

Ultimately, it comes down to fear. People are worried about missing any more of the market’s gains. As a result, for example, they change their 401(k) allocations to be more aggressive (that is, invest in more stocks).

Do we behave like this with anything else?

Imagine walking into a car dealership, and the sales representative greets you with: “It’s your lucky day! The car you want is now twice as expensive as it was yesterday.” You get excited and say: “Great! I’ll take two of them!”

Stocks and other investments are the only things we rush to buy after they are marked up and hurry to return when they are on sale. We don’t care that we are losing money. Just take it back! We want out!

I know why we do it — we feel as if we have to. It feels like a matter of survival. We’re hard-wired to pursue the things that give us pleasure or security, but get away as fast as possible from things that cause us pain. When the stock market holds a once-in-a-decade sale, it’s scary. The news is scary.

Your neighbors are scared, and then we get scared.

We think the only way to stop the pain is to get out. Then, after swearing we will never invest in the stock market again, we watch it rally for a few years beyond old highs. We start hearing the news.

Our neighbors start bragging about their returns, and before we know it, we are adding stock symbols to our iPhones and buying stocks again.

We have fallen prey to a cycle as old as trading itself. We buy high, sell low, and now we’re positioned to buy high again. . . .

We are doing the very things — buying high/selling low, turning over quickly, reacting to the news — that evidence shows does not help us to be better investors. Why? Investment success is not a matter of more information, intelligence or skill. It’s a matter of behavior.

By recognizing that success is about behavior and not something else, we can start building in the corrective measures that will help us avoid mistakes in the future. We can put emotional guardrails in place to help us avoid behavior that keeps us from reaching our financial goals.

Once we accept that buying high and selling low is our natural tendency, then, and only then, can we start to fix it."

Summing Up

Our seat of the pants emotional self often overrules our objective rational self in decision making.


When it comes to investing in stocks and many other big ticket purchases, we often act like Pogo said, as our enemy.

So if we can't control our emotions and resist the urge to get out of the market when the fit hits the shan from time to time, then we should never get in the market.

That's because while markets do rise over extended periods of time, in the interim they will inevitably fall and sometimes fall hard.


The pros say we're in for perhaps a 5% to 10% fall in prices (aka a correction or fallback) sometime this year along the way to higher prices.


To which I say, "So what? I'm in it for the long run."


That's my rational self overruling my emotional self.

Thanks. Bob.