1. The Illusion of Housing Wealth

    There is nothing quite so comforting as financial security. For a good night sleep or having bright sunny attitude toward life, having a fat financial cushion is pretty awesome.

    For about 62 million American families, financial security comes in owning their own home. Of course there is that monthly mortgage, continuing maintenance and property taxes. There is no way of avoiding these little nuisances.

    For most families, their home is their biggest investment and one that appreciates in value. If you bought your home anytime in the last decade you are doing well. Government data shows that in the last six years average housing prices have risen just about 50%.

    The Millionaires Hood

    The online real estate firm Zillow has even created a new category: the million-dollar neighborhood. In the opinion of many, Zillow may be overreaching in the name of publicity. Their definition of a million-dollar neighborhood is where just 10% of the homes in a zip code have such value.

    Zillow calculates the total to be 1280 zip codes am impressive 37% gain over the past year. We have all come to understand why this is happening. The inventory of unsold homes, recently reported to by 1.9% is the second lowest in 30 years.

    So if you are one of the lucky 60+ million American families who are well ensconced take joy in the fact that if your home is just average, it is appreciating better than 5% annually and that beats the sox off of a bank saving account: pretty nifty.

    One particularly cynical financial advisor I ran into recently described a house as “nothing more than a money sponge on a foundation”. When your money sponge is adding more than 5% a year that will quiet even the most cynical.

    The Flip Side Could Put The Breaks on The Economy

    Housing is one of the key drivers to the US economy. During the years following the financial crisis, rental construction served as the driver of the housing market. Millennials by the bazillions grabbed up new rental units as soon as a leasing office opened.
    The economics of housing are changing. Growing demand is not producing enough supply.

    Millennials are having children. That is a plus for housing ownership. Colleges are still graduating bright young members of the next wave waiting to strike out on their own. That is another plus.

    However, wages are stuck in neutral even though the unemployment rate around 4.3% is low and certain skilled jobs are going unfilled.

    Each of these factors when combined with ultra low interest rates should add up to record days for the home construction industry. Unfortunately this is not happening.

    The Commerce Department report for July showed new home sales declined 9.4 percent to a seasonally adjusted annual rate of 571,000 units last month, the lowest level since December 2016. The percentage drop was the largest since August 2016. Consensus expectations were for a 0.3 percent gain.

    New home sales, account for 9.4 percent of overall housing sales, are volatile month-to-month. Nevertheless sales declined 8.9 percent on a year-on-year basis, the first annual drop since February 2016.

    Economists are now taking note of the number of stay at home kids. This includes everyone over the age of 18 that are still living with their parents. This translates into a decline in the category “family formations”. This has been particularly noticeable over the past two years. This reverses a rising trend in family formations following the financial crisis.

    The Data Doesn’t Add Up

    It doesn’t take Robert Shiller, the Nobel Prize winning economist to see that the data is pointing in different directions.

    In a low interest rate environment with heavy demand and record high prices, home construction should be humming at a record pace. With unemployment at a 10-year low, wages should be moving up. Instead we have declining family formations, home prices that continue to rise rapidly and lots of millennials driving mammoth distances to find affordable housing.

    The US economy is barely hitting 2% annual growth while the stock market seems to be priced for something much more. Keep cozy in your home and enjoy the security.

  2. Retirement Planning: Distortions And Other Fake News

    In order to get attention in the crowded social media space these days you need to have the standard top 10 list of “Absolutely Essential” information. Otherwise it is absolutely necessary to use a sensational headline that is about 40% truth and the rest. . . well you guessed it.

    Financial planning for retirement is especially susceptible to this phenomenon. There are so damn many issues to deal with. The first and most important is finding the money. Without that, everything else is unnecessary.

    The American system is way too complicated and that is unlikely to change anytime soon. With all of its complexities it is not surprising when someone claims to have a cool and slick solution, people jump to hear the answer. But are such claims
    accurate? More importantly, do they work for your special situation?

    The media often ignores answering these questions; their job is to make headlines.

    Health Savings Accounts

    Health Savings Accounts were created back in 2004. The fake news explained how HAS’s provide more freedom to the individual, more choice and more opportunity.

    In reality, HSA’s are pre tax savings that can compound tax-deferred. They are similar to IRA’s but without the mandatory withdraw requirements. Anything that has a tax-free or even tax-deferred benefit is always going to get attention.

    For most families HSA’s do little more than add another layer of detail to our already insane health care system. Instead to adding more individual choices, HSA’s place more of the health care responsibility onto the individual.

    Here are some of reasons why this is the case.

    Not everyone is eligible so the first thing you need to do is determine if you have healthcare coverage and if it qualifies as a low cost high deductable plan.

    If you are an individual and spend more than $541.67 per month ($1,083.33 for families) and if your deductable is less than $1300 ($2,600 for families), sorry, you can’t have an HSA. Sorting through all of this mumbo jumbo is enough to make you sick.

    One so-called professional financial planner was recently quoted on CNBC extolling the virtues of HSA’s with this minor caveat, “ HSA’s aren’t for everyone. If you are on medications, have chronic illness or if you are older-anything where you might be going to the doctor a lot, then having a high-deductable will probably be very expensive.”

    In other words, if you use the health care system of the United States, just go ahead and pay outrageous premiums every month so the first $1299 of costs comes out of your pocket, too bad sucker. But you have to figure that our for yourself.

    But What If You Qualify

    If you make it into the HSA club, you can only use the money for qualified medical services. Granted, the list is long and generous but still, this is the government telling you what healthcare services you can and can not spend your own money on in order to get a tax-deferral.

    If you decide to go forward and start an HAS, the government limits your contribution to $283.33 per month ($562.50 per family). On a tax deferred basis, investing this amount over a long period of time can add up to a tidy sum. If later on you should violate the rules and spend a few bucks on a Saturday night fling, no problem. You just pay a 20% tax on the fling.

    Why Must It Always Be So Complicated

    HSA’s appear to be the perfect solution for young people with absolutely no medical issues of any kind. If you are older, especially if you take lots of prescription medications, forget about it.

    The larger question remains, why must everything our government does in the name of democracy end up shackling us with less freedom.

    The fact has been stated many times. In no other country is healthcare so complicated and so expensive. There are countries like Mexico that are expertly serving the medical needs of Americans at a fraction of the cost. Medical tourism is a booming business in most resort towns. We’re not talking about procedures covered by insurance either.

    When the cost of travel from the United States, accommodations and medical costs add up to the same as just a few months of US healthcare premiums, suddenly, things get very simple. Oh yes, the low cost of prescription drugs are another bonus.

  3. Retirement Savings: Virtual Unreality

    People tell me that there is nothing quite like reaching a certain age when you know your financial future is secure. Those are the days when the weight of life is lifted off your shoulders, you wake up with a smile and your days schedule waits to be filled out. Long term planning is limited to your second cup of coffee.

    We all know it can be done because 10,000 baby boomers are retiring about every day. Getting there is the challenge.

    Today there is more help than ever. Between traditional financial planners and the bazillion websites offering advice, as well as TV news, there is no shortage of advice.

    No matter what the source, it all starts with savings. There will always be advisors with great tax strategies that create tax differed income. Some will have three letter initials like IRA.

    Where Good Advice and Reality Collide

    All the best advice has to fit with reality. Any spreadsheet jockey can make assumptions about the cost of living 30 years from now and discount that to the present. Then you will know exactly how much to put aside every month for the next 360 months. Simple as that; don’t forget to include a 3% fee for this advice.

    During the best year for savings in the last decade, Americans were able to put aside just 5% of their earnings. The average savings rate has been closer to 2%. How does this match up with the advise of financial industry pros? Let’s start with a look at reality.

    Reality Doesn’t Look So Great

    A report from the Economic Policy Institute using government data claims that the median savings for all working-age families is only $5000. There are a number of cities in America where this amount won’t pay the rent for a single month.

    The EPI reports sends out some disturbing data. Since the year 2000 families over the age of about 40 have less savings today than at the turn of the century. The biggest drop is in the age group 56-61 where savings levels since the financial crisis have fallen 22%.

    The behavior of this later group is accentuated by the lingering high unemployment. Older workers were particularly disadvantaged in finding new jobs. Obviously, the only option for many was to dip into savings.

    Good Luck With This Bit of Advice

    Advisors like Fidelity Investments are one of the leading and most highly respected organizations in the business. Here are some of their guides to financial independence that will enable you to retire by age 67.

    Start saving 25% of your gross income. Now that is a great idea and one that we would all like to do. So if you take your gross income, deduct about 30% for taxes, another 30% for housing, 20% Food, 10%-15% for clothing you are left with 90%-95% of your income gone. This is before payment of things like student loans, credit cards etc. It is why most Americans find it impossible to meet the unrealistic guidelines from even the most respected organizations like Fidelity.

    The most absurd premise of all is the recommendation that if you want to retire by 67 you need to have 10 times your final year of income in savings. So if your final year or working earned you just $50,000 (the national average for income) then you should have $500,000 socked away in savings. According to EPI, the average family between 56-61 was $163,577.

    Authors of the study are wise to acknowledge that the mean number is distorting because US incomes are so skewed. For example, 93% of all US income taxes are paid by only 10% of the population.

    So a more accurate gage of reality is median savings, which is the midpoint of all families 56-61. In this case, family savings amount to just $17,000.

    So the next time someone explains exactly how easy it is to use their strategy to achieve nirvana, check them out through a psychiatrist. The only way to save more is to spend less and that is a tall order for most families. Maybe the best advice is how to squeeze 25% out of your paycheck for savings.

  4. Forget The X’s and O’s, Get Hot and Sweaty Over Accounting

    This time of year, people’s thoughts start turning to their second most important preoccupation: FOOTBALL! The draft is over, training camps open any minute and heated debates starts over which team has the greatest need at Quarterback.

    So we are presented with a challenge. Is there any way we to divert attention from football long enough to get fans excited about accounting. Good luck with that idea.

    In order to be politically correct and gender neutral, we assumed the number one, single most important preoccupation for men and women would clearly not be the same. That makes the challenge even more interesting.

    If you work at Amazon or Tesla, they’ve already got the accounting thing covered. Today we want to focus on startups and small businesses that don’t have a pile of dough to waste. There are tons of you creating new ideas. The last thing on your punch list is hiring bean counters to count your beans. Accounting, ugh, well here is some great news.

    You have never picked a better time to start a business. Accounting software has come light years in just the past 36 months and is likely to get even better as Artificial Intelligence finds it way into the picture.

    If there were a 10 best list of good accounting news it would start with: Prices are falling. QuickBooks is the king of accounting software with an 80% share of market. Three years ago, the basic package cost $48 per month for up to 3 users. Today, the price is $5 a month per user. They even give you a free 30-day trial.

    Competition is forcing prices down. Names like WAVE, and Billy have all the same features as QuickBooks but come at no charge. That is hard to beat especially when all three services receive the same high customer satisfaction ratings. Think of it like a QB rating in the NFL with any broken bones.

    Making a decision on what accounting software to use goes beyond price. Getting it installed and operating was always one of the biggest headaches with QuickBooks. They made a lot of rookie mistakes.

    It was kind of like the Tim Tibow situation. If you started with flaws, you could be driven to committing a capital crime trying to find a person able to do a fix.

    If you didn’t have a QuickBooks expert on staff, you were well advised to send someone through the complete QB training. This, however, could add up to several thousand dollars not to mention the amount of time.

    Over the past three years, QB has gone through a virtual metamorphosis. The game is called follow the leader. This means what is available at QB can be found pretty much elsewhere. This also means price can now be the biggest issue in choosing an accounting package.

    When setting up the software there is a video tutorial to get you off on the right path: huge improvement. Next, every one of a dozen suppliers offers a cloud-based system, a critical feature for any business needing mobility.

    If you still have X’s and O’s dancing in the back of your head, consider this amazing fact. The arrival of Artificial Intelligence is really going to add kickoff excitement to you accounting chores. AI has already begun making a mark in the tax preparation field. Bean counters need to be aware.

    One of the big future benefits will be the ability to change accounting software suppliers quickly and effortlessly. In the past many customers hated QB but had few options and were loath to go through the aggravation of reorganizing their accounting systems. All this means a future of more accounting services and even better prices. You can’t say that about beer and nachos.

  5. Risk On For Investors

    Welcome to the second half of 2017. On the first day of trading the Dow Industrials trade up 129.6 points (+0.61%) hitting another record of 21,479.27. So what is the big deal, the market hit a number of new records in the first half?

    Well for one thing, it was right in the middle of a four day 4th of July holiday. Traditional investors shy away from these times. What if North Korea launched a ballistic missile on July 4th (which they did): where would you be able to liquidate you position?

    Another thing to consider is the seasonal history of the market. The second half of the year, particularly between August and November, has historically been unkind. More market corrections, crashes and general financial misery have taken place during this period.

    And of course there is that gnarly issue of the markets overvaluation. Only twice in the past twenty years has the multiple on the S&P 500 been higher. Neither of those times proved to be pleasant for investors.

    And finally there are the actions of the United States Federal Reserve to keep in mind. Sure they talk about an interest scenario that could see 3.5% rates next year but that is a while off. In the meantime let the July barbeque sizzle and the craft beer flow- it’s risk on!

    It Is Not As Crazy As It Looks

    One of the hallmarks of market excess comes not just when prices reach record levels but when investors narrow their focus on one or sometime two sectors. This was the case in 2001 with the Internet bubble.

    This is not the case in 2017. Technology has been this year’s leader advancing 15%+, nearly double the general market. However during June, tech stocks fell 5% while the market increased 0.6%. The big name stocks in the group a.k.a. FAANG lost more than $100 billion in value. If investors were narrowly focused, this action would have brought the market down for sure.

    Meanwhile, the moribund financial stocks have come to life lately jumping nearly 7% in June. Before that financial stocks represented dead money for almost all of 2017.

    Even energy stocks have bounced lately gaining 2.0%+ in June. That still leaves investors in the group holding a 12% loss for the year but this is part of something considered healthy.

    Group Rotation

    When investors move from group to group over time, it’s a signal that perhaps some thought is going into decision making not simply investors chasing mindless greed.

    The CBOE Volatility Index, known as the VIX jumped 15% in June after meandering around the 10-12 levels for months. There are many ways of interpreting the VIX but a little volatility after months of going nowhere could be a sign of healthy concern. Obviously this is an important indicator especially if it should continue to spike going into July and August.

    Another classic bullish indicator appeared on the first trading day of July. Adherents to Dow Theory watched as both the Dow Industrial and Transportation Averages high record levels. Is Dow Theory relevant in a period of high frequency trading and other competing investment styles? The answer is probably far less so than in the past. Nevertheless, it does confirm a certain investor belief in a balance to the economy and that is healthy.

    Whatever your beliefs happen to be, enjoy the prosperity, neither good nor bad lasts for long.

  6. Retirement Heaven or Simply Death Valley

    Social media experts tell us that the quickest way to get Internet viewers to click on a story is to put in a headline like: 10 Secrets to Becoming a Billionaire, The 5 Most Expensive New Cars for 2018, or The 3 Best Receipts for Brownies.

    What started off innocently enough has exploded out of control. Seems like everywhere you read somebody has the list of 10 best for some purpose. Advice on retirement is a favorite.

    The Worst Advice List Award

    In fairness, it can be a challenge to find the right place to live in retirement. Prices of housing in many parts of the United States have gotten ridiculously expensive. Even if the mortgage is paid off, the cost of maintenance and property taxes are still rising every year. The ripple effect of higher real estate prices spills over into food and most every other cost of living. So finding the right place is important.

    It is also a fact that one location is not right for everyone. Choices are part of what makes life interesting. For example the television show Hoarders shows how people can be perfectly content living that way.

    But here is a good example of a tired idea being taken way too far. We came across an article that is so embarrassing; we are not even going to identify the source.

    The title is: “These five cities have EVERYTHING you are looking for in retirement”. This sounds inviting; an article that everyone over a certain age should read. That is until you actually dig into the recommendations.

    Here is the top choice: numero uno:

    Chesterfield Missouri is a town of 47,500. If you love small town living in the middle of nowhere this is the place for you. If you want to go somewhere, the nearest airport is a little over a half hour away in St. Louis. But who needs to go anywhere there are plenty of retirees to keep you company: over 20% compared with 11% nationwide.

    Chesterfield picked up the name Gumbo Flats because it’s soft silky soil becomes very muddy during the 3½ feet of rain it gets every year. Cultural offerings include a Wal-Mart store just a little over 30 minutes away. Not much else.

    But if you yearn for truly small town living there is Leawood (pop: 31,900) and Prairie Village (pop: 21,400) Kansas. Both towns are about 30 minutes from the Kansas City airport, for those getaway weekends to someplace or anyplace for that matter.

    The mayor of Prairie Village boosts of the 292 days a year of sunshine and ultra low crime. Both of these towns offer unobstructed views of cornfields. So if living in the flatlands is on your bucket list or if you suffer from acrophobia; go for either Leawood or Prairie Village.

    If you are more of a city person, Scottsdale Arizona with 217,000 population has been a favorite of many snowbirds for a long time. If you like sunshine but not the flatlands of Kansas, take a look at Scottsdale.

    The town claims to have 307 days of sunshine annually. Toasty warm days that average 105+ in the summer months give way to nice crisp 80 degree lows at night. But it is such low humidity that you don’t know that your body is being slowly cooked. If you have low blood pressure and constantly fee chilly in Houston, try Scottsdale.

    If An Occasional Hurricane is OK

    The final spot on the list of dubious retirement spots combines small town size with big city advantages: Naples Florida. Half the population is over 65. Home construction exceeds the mortality rate so real estate prices are kept in check.

    The airport is nearby. Beautiful ocean beaches mean you never have to travel anywhere. Family will come to visit you. Naples has less than 20,000 population but is close to Florida’s social and cultural advantages. Finally Naples has the most health care facilities of any city on the list.

    OK, now if I can find nine more bad advice articles, I will create a new Top 10 list. Just what the world needs.

  7. Tax Reform: The Perfect Solution

    This year reminds us of just how politically divided our country is. Republicans control the Executive and Legislative branches of the government. However, the Presidents Health Care reforms appear to be going nowhere.

    So where does this leave Income Tax reform, the next huge issue on the Trump Campaign List of Promises? Here is a hint: the odds of changes in tax law that result in things getting easier and better for you, zero!

    As every honest taxpayer understands, the tax code is intentionally complex because Congress is paid by powerful campaign donors to make and keep it that way.

    Legislators speak publically about the urgent need for taxpayer relief by simplifying the code, but they’re lying. This is the last thing they want.

    Bargaining with their colleagues over which special interest to support creates negotiating capital that can used now or held in reserve for a later date.

    The Tax Economy

    But the fundamental reason why tax reform will never happen is that is would disrupt the economy. The IRS employs approximately 100,000. That is the same number as Apple Inc.

    There are 300,000+ people that work in the $11 billion a year tax preparation business; one that is heavily populated by small business. In fact about 40% of the 250 million returns are prepared a mom and pop service. This is the ultimate small business. Attacking these folks is off limits.

    The Real Problem With Tax Reform

    Politicians have screwed up the tax system with all its complexity that the average citizen is left with only one question about tax reform. Am I going to pay more taxes or less tax? Why is it that I have to pay so much while the rich get off Scott free; the system is unfair.

    So much of the political discourse is spent on individual tax provisions that claim to give the tax benefits to the upper 1% while harming the rest of the 9-5 world. This creates enormous tax class warfare. Who wants to get the short end of the stick: nobody.

    Part of the blame for creating this adversarial situation rests at the doorstep of the Congressional Budget Office. Anytime a major piece of tax legislation is created, the CBO gets to opine on the proposed legislation.

    When the CBO did their work on the first attempt to repeal and rewrite Obamacare, the result was so hypothetical that hardly anyone understood. The CBO does not have best record in forecasting.

    The 50% Zero Tax Solution

    The perfect solution eliminates the class warfare over taxes. Eliminate all Federal Income Taxes for all individuals and families earning less than $60,000 annually. There are nearly 70 million people in this group. Imagine the political capital Congress would earn with this solution. Their approval rating might reach 20%!

    There is one trouble however. As popular as this solution may be, it runs counter to the spirit of the tax system: everyone should pay their fare share. This notion needs to be dispelled completely.

    The US Treasury took in a record $3.2 trillion in 2015 and the amount is likely to be even higher when all the 2016 returns are filed. Of this, people earning under $60,000 (those 70 million people) chipped in a paltry $95 billion. This equals only 3% of the total. It amounts to a rounding error, inconsequential to the history of the country.

    On October 4, 2016 Forbes Magazine reported that there were 540 billionaires in the United States, not counting those just earning a living in the US but domiciled elsewhere. Many of these folks are philanthropic helping save the starving poor in God only knows how many third world countries.

    For sake of discussion, lets assume each of the 540 has at least $6 billion stuffed under the mattress. That amount equals all the revenues generated from the bottom 50% of US wage earners.

    So instead of giving donating 3% of those assets to feeding others, just donate it to the 50% Zero Tax Solution. In the final analysis, the rich receive a tax credit for their generosity. Politicians are missing an opportunity here. Write your Congressman today.

  8. Oh Those Poor Rich People

    It’s summer and that means vacation time. But you have if ruff. After trying to pay down debt, and working 70 hours to earn a living, there is nothing left. Well stop sniveling because you’re not alone. Rich folks have their share of troubles and you don’t hear them whining.

    Just consider this. The Queen of England had to go hat in hand to Parliament asking for a salary increase. How much of a bump: about $98 million. Yes that is nearly twice last year but remember. Last year, QE2 did not get a bonus and the walls of Buckingham Palace haven’t been painted in ages.

    No wonder Prince Harry wants out of the royal family. There is hardly a decent place for him to live.

    Looking The Look

    And then there is the other pressure on the “not so poor off”. In the Donald Trump era of appearance trumping substance, it is not enough just to be a billionaire. You have to look like one.

    Here is a flash from Hermes Birkin. These are the humble people that make purses worthy of her carrying your American Express Centurion Card. A Blue Colvert Crocdile handbag is expected to be priced at $50,000 (comes with free shipping) when it goes on auction sometime soon.

    So if you are Mick Jagger and your latest flavor of the month needs something to wear to Whole Foods, what are you suppose to do? You get stuck holding the bag.

    We mustn’t forget that it is June, and that means private jets for trips to the town of Ascot and horseracing. The cost of security has reached intolerable heights.

    Bye Bye Condo In The Sky

    Things are much worst than they appear on the surface. All of a sudden there is an oversupply of ultra high priced condos in New York, the capital of foreign investment capital. If it is happening in New York can Boston and San Francisco be far behind.

    For years foreign money has been flying into America. Drug money from Latin American has remade Miami’s skyline and made South Beach a favorite hangout for the cartel.

    For just as many years capital from Asia has puffed up prices in Silicon Valley. Even with absolute government control over the banking system, private capital has managed to escape. You can be sure there was a price paid to someone.

    New York has long been the destination point for foreign investors. How can you tell which is the tallest residential condo structure in New York? It is the one with no lights on because almost nobody lives there.

    Mega Default

    Over the past few years the number of condo sales to anonymous foreign companies reached frenzied levels. But that day is over, at least for now. A measure of the times is a foreclosure that is underway on a condo that sold as recently as 2014 for $51 million. Carrying costs on the property easily work out to well over $200,000 per month, excluding electricity, water and gas.

    Nobody knows the reason for the mortgage default since the condo has an LLC owner. But the fact that for the first time in a very long time we are seeing a softening in demand opens many possible causes.

    What we do know is that real estate has been the place to anonymously hold capital. Could the current oversupply simply be a temporary condition? That’s most likely the case. However, you can never rule out the possibility that the US Dollar may be loosing some of its drawing power.

    Is The Dollar Loosing It’s Green

    A recent article in Cryptocoins News paints a gloomy picture for the greenback. The emergence of Bitcoin, ethereum and other cryptocurrencies is giving the dollar a run for its money. The price appreciation alone of these two (not withstanding recent downside blips) makes real estate price inflation look like chopped liver. And on top of that are the two key features of liquidity and anonymity.

    This is all logic and speculation until authors of the article demonstrated that over 80% of Bitcoin trades come from Asia: just something to think about.

  9. Robots: The Perfect Solution

    Take a minute and look at your last airline ticket, your last cell phone bill or your last hotel and car rental. What does each of these have in common? The hidden taxes are staggering. Politicians sneak these little tariffs one at a time piling them on one after another until the tax rate on a car rental in New York, for example, can add to more than 25%.

    How does all of this relate to robots? Those ultra productive, hyper cost effective machines that are about to dramatically reduce the role of labor should be taxed.

    Don’t Fear Them, Tax Them

    Tesla’s Elon Musk recently suggested the idea of a robotax. It really is nothing more than a common sense approach to solving the issue of replacing man with machine.

    The idea of taxing labor is nothing new so why not tax machines. People work their entire careers paying social security taxes. And what happens then, the money actually goes to pay for the retirement benefits of others. The system is deeply dependent on a steady growing number of workers. Otherwise dooms day could occur.

    If one robotically controlled machine eliminates three workers, where will the Social Security Administration get the money to pay current retirees?

    Social Security is already a financial disaster. Every so often Congress sidesteps insolvency with some crafty little accounting trick, some budgetary bamboozlement, but the implication of robots could make it tuff to continue the Congressional chicanery.

    The idea of robots replacing labor is hardly new. The auto industry has been shifting to robotic welding and other assembly techniques for well over a decade.

    Recent events could change the public outcry for protection.

    When Amazon recently offered to buy Whole Foods this grabbed the headlines and triggered prime time questions about the future of retail. Then with McDonald’s test of ordering kiosks that really pushed the limit. Taxing robots and even things like Artificial Intelligence is the next big thing.

    The Only Thing We Have To Fear Is Leisure

    It does not however answer the question, what is man/woman to do with his/her newfound leisure? If this question were raised in a country like France where leisure is an art form to be practiced religiously, there would be a list of answers.

    America is different; this is a country that is obsessed with work. Parents stress the virtues of working hard to their children. Capitalism rewards those who spend ridiculous hours every week at the office. Entrepreneurs abound in this country like no other place.

    It is no exaggeration to say that Americans are married to their work and fearful of what might happen if they don’t show up everyday. It could be their massive amount of credit card debt, the monthly mortgage or something else, but Americans are totally unprepared for more leisure.

    A survey published in May 2017 by Glassdoor revealed that half of the respondents utilized 50% or less of their allotted vacation time. Nearly 10% took no vacation time whatsoever. Some 23% used up all their allotted vacation but this is lower than when the survey was previously taken in 2014.

    What is behind this very “un French” attitude? Well according to Glassdoor, they sight fear. The say that people are either nervous or scared that no one else can do their work and that if they fall behind it might impact their chances of getting a promotion.

    Imagine when a worker is told not to worry about their work being done because a robot has replaced them? The American psyche is in store for a shock at one of its core beliefs.

    It is time to start retraining our minds. Instead of spending hours at a café on the Champs Elysees watching life, go to the closest Starbucks; just leave your Smartphone and laptop at home.

    Begin with 10 minutes a day and work your way up to a whole hour. It will take less than a week. Within two months you will be up to a whole day of leisure. It’s that simple. You can make the transition a success; you just have to work at it.

  10. The Most Important Things Financial Planners Overlook

    Ever notice how many top 10 lists there are these days? No matter what you are considering, somebody has a 10 best and worst list for about everything.

    The financial planning industry is no different. In fact they have taken the task one step further. The other day I noticed a Top 10 list if you wanted to retire at 40, 50 or 60. There was another Top 10 list if you wanted to start a savings plan at 40, 50 or 60.

    In addition to having these clever marketing tools, the industry has developed professional certifications to educate and increase professionalism in the business. Kudos to all you CFP’s.

    The whole idea of the planning is to make sure you have enough dough to last and still have enough left over to pass along. This way your funeral will be well attended and lots of good words will be said. We all want that.

    With credit to the Aegon Center for Longevity and Retirement we are reminded of the single most important point most financial planners ignore.

    You may have enough money to last you until your 100 but if you are not in the right health and state of mind you won’t last anywhere near that long. There will be tons of well off beneficiaries of your demise attending your funeral. They will be literally gushing with wonder stories, but what good does that do?

    Work Hard, Die Late

    The facts on America’s health are appalling. We may have the most advanced health care but the highest level of obesity. Some studies place the level of either severely overweight or clearly obese as high as 70%. These same studies revealed that less than 40% of these tubbys felt they had a weight problem.

    Here is one finding from Aegon that supports this point. Some 57% of the subjects in their study claimed that they eat healthy. It takes a lot of Kale to support a 350-pound person. Somebody is in denial.

    Obesity is big contributor to diabetes while stress is a big part of stroke and heart disease. Only 17% of the Aegon subjects practiced stress-reducing habits like meditation and relaxation exercises.

    It’s All In The Mind

    American healthcare offers more plans offering regular checkups and health maintenance programs. We also have access to more health clubs per capita than any country in the world.

    Owners of these facilities make fortunes selling memberships that never get used. In the final analysis, they depend on America’s tendency of consistently breaking New Years Resolutions.

    In the final analysis, achieving and maintaining good health well into retirement is a mental game that should start every bit as early as financial planning. Not only can poor health later in life have potential devastating effects on finances, they can reduce you earnings potential in the first place. Subjects in the Aegon showed 31% of retirees did so early because of poor health.

    Another part of the retirement planning mental game, according to most experts, is having a nice long bucket list to keep the blood flowing. If taking out the trash seems to be the only regular non-work activity, it is time to allocate some more “me time”.

    Mental strategies from the experts include things like: using your business skills at planning, time management and goal setting. Lots of retirees like to play golf. Turn your game into a scheduled series of goals. Tuesdays can be used to knock 3 strokes off your chipping and putting. On Fridays focus in hitting your drives down the center of the fairway. In other words, put the same purpose into your leisure activities that you did in you business. Most importantly, have multiple activities that involve physical and mental challenges.

    If you follow the advice of these experts, there will be fewer people at your funeral but the stories will be much more interesting.

  11. Scoring Some Credit

    When it comes to scoring some credit, the world breaks down squarely into two camps. The first group has none at all and no credit history but harbors a desperate desire for access to credit so they can start collecting mass quantities of material goods and begin living the blissful life of their neighbors, the Tanenbaums.

    In the other camp are the Tanenbaums that are in hock up to their asses with no clue how they got there in the first place and no idea whatsoever how to escape. The Tanenbaums just want to live a simple blissful life like their neighbors the Ratcliffs.

    There are no other types of people. The perfectly content family with no debt and whose income is exactly to three times their cost of housing doesn’t exist. The last family to fit this description went out of existence in 1993 when the first 48” flat panel television was introduced at $5000.00 a pop. And, of course, every home needs more than one.

    Even though both sets burned out long ago, the once perfectly content family is still paying the monthly minimum of $24.58.

    American families owe over $11 trillion in credit card debt and that averages just about $105,000 per household. The average household income in America is only $53,046. Because America has more Tanenbaums then it has Ratcliffs it makes it much more difficult for President Trump to hit the 4% GDP growth he promised in his election campaign. But that’s another story for another day.

    Being the American free enterprise system there is always somebody willing, for a price, to help the Ratcilffs and the Tanenbaums. Here are some free suggestions.

    Say you are just out of school and no credit history. This familiar condition means you won’t be qualified for any credit card, bank loan or mortgage. Here is how you get started.

    Go to the closest supermarket and purchase a prepaid Master or Visa card. There will be a small fee attached but that’s life. You load up the card in the same way you put money onto your debit card account. If you like, you can do it right at the supermarket or drug store. This sends a signal to the credit rating agencies that you are alive.

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  12. What My Parents Forgot To Tell Me About Money

    How we educate our children on things like money is always a tricky and complicated topic.  Here is how mine choose to do it.  I suggest you read it carefully and, for the most part, do exactly the opposite.

    Having parents is a great advantage.  What would we do without them?  In addition to the trifle things like giving birth to us, there are others like food, clothing and shelter not to mention an education.

    But then in exchange for these things there were those incessant lectures on morality, hard work and determination.

    From the moment I first opened my baby brown eyes, I realized that Mom and Dad looked exactly like my grand parents.  Before I had a chance to be young, they were already old.  If they were alive today my father would be 112 and mom 108.  Dad always went for the younger women.  Early on, I sensed that these two geezers would create a unique twist to my life.

    My parents married late.  Dad was into his 40’s. Mom was 43 when I was born. By itself having older parents was weird.  How this would weigh on shaping my life would not be known for several years.  In some countries, older people garner greater respect.  Not in this country however.

    The reason for bringing up my parents is to illustrate how developments beyond their control molded their attitudes about life.  My father and mother’s life can be visualized like two bookends.

    Both of my parents were well educated and upon graduation around 1923-1927 got a whiff of the good life that was dubbed the Roaring 20’s: a time when economic prosperity was raising and the stock market was raising even faster.

    Then the abrupt end to the celebrating came in 1929.  What followed was over 16 years of the Great Depression followed by World War II where literally millions of people died ugly and painful deaths.  Never have Americans been through a longer or more financially and spiritually crippling experience.

    My older brother and I were ushered into the world at the dawn of optimism and prosperity in the 1950’s.  All around us, children grew taller than their parents, paychecks grew bigger, space travel became a reality, cars had tail fins to look like spaceships and kids grew up aiming to go to college.  The golden rainbow included a job with a giant corporation like General Motors, Eastman Kodak or maybe a technology company like Xerox.

    There was no stopping America and nowhere was there any notion that the Camelot we were living in would ever change.  That is what my parents never told and what made them so different.  They never fully recovered from those fifteen years starting in 1929.  They were perpetually cautious.  They never borrowed money, worked hard and lived frugally.  When my mother died at the age of 84, her checking account contained nearly $100,000.  That was the smallest part of her estate.

    Ironically she came for a relatively well off family but live most of her life in fear.  When so much of your life is stuck in The Great Depression, it takes a toll.  PTSD hadn’t been identified by then, but it existed nonetheless.

    What my parents were unable to tell me about confidence, security and optimism.  Their lives were bookended by prosperity but overwhelmed by war and depression they were unable to think beyond the immediate future.

    Part of being a good parent is helping prepare their children with a life plan. Along with that goes the realization that cycles of prosperity and hardships are part of what comes with the territory.

    For most of my early life, I was not privy to the family finances.  In that era there were things one did not talk about: Uncle Leo’s drinking, Aunt Lavern’s miscarriage and most of all money.  I made the false assumption that we were borderline impoverished because we lived on the cheep.

    The result is that my parents raised a son that majored in finance and the day after receiving a college diploma went straight to Wall Street.  I had had enough of living on the cheep.  For the next 35 years, my life would be all about making money and attempting to live well.  But without confidence and optimism, no amount of money can truly provide security.

    They forgot, or simply were unable to mention how the cost of something did not equate to its value. Yes, buying shares of IBM stock at a 30% discount to its Enterprise Value was a great opportunity, but hiking through the woods with your Dad on a crisp October morning at sunrise was pretty awesome as well.  Dedicating time toward the benefit of other less fortunate people has the same value of escape as going away on an expensive vacation.

    Fast-forward 50 years to the post Great Recession of 2008.  With two grown sons, I marvel how they are part of a generation that values experiences over material possessions.  I marvel at their confidence.  This is the era of the super small home, where clothing with the Patagonia label is more popular than Ralph Lauren.  No doubt there are things that I forgot to tell my sons, but having the confidence and optimism to appreciate the breadth of life is not one of them.

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  13. Financial Planning: Worked To Death

    Back around the turn of the 20th Century, people worked themselves right up to their death. There was no Social Security and these were boom times in America’s industrial age so the working population was heavily blue collar. People lived from hand to mouth. Back then, however, life expectancy was only about 47.

    Today there is Social Security. If you are a government employee you also get a generous pension that could amount to half your current salary. If you worked for a major corporation there is a 30% chance you also receive pension benefits. For the rest, other than Social Security, you are pretty much on your own.

    Some people are just workaholics. Some people just love their work. Others fit neither of these two categories; they work because it gives them purpose in life and a social connection. There are a lot of video gamers in this group.

    And then there is the rest of us in the real world that go to work everyday because there is a need for money to pay the monthly bills.

    Historically the vicious daily work cycle began sometime after graduation from school and continued until age 65. Big corporations called this later date the mandatory retirement age. For the next 7.2 years after retirement you played golf then you died; simple as that.

    Those 7.2 years were known as the “golden years” because, over time, people saved their gold and could afford to play golf everyday and still have enough left over to pay for a burial plot. Today, things are much different.

    First of all, there is the exploding cost of green fees. And we can’t overlook the outrageous out of pocket cost of dying. As we have noted in past articles, some 40% of people over 65 have savings of under $20,000. With so little to go around, you better plan on dying close to your friends, otherwise, nobody will be able to afford to come to your funeral. Your only other choice is to be the last of your friends to go.

    All of this is leading up to a point. All along I assumed that after age 50 that age discrimination was forcing people onto the unemployment lines. Not true I have discovered thanks to the brilliant research minds at the Pew Research Center.

    Their conclusion is that today, more older Americans (65+) are working than at anytime in the 21st century. The total in 2016 was 18.8% compared with just 12.8% in 2000. The biggest increase is in the group 75 and over. Life expectancy in the United States (I asked Seri) is 78.5 years. These days it leaves only half as much time to play golf before the final 18th hole is played.

    Where have the golden years gone? Not only are there fewer but, thanks to the input from CNN, just look as the job types where senior Americans can most be found.

    1,) Handyman                                 5.) Gift and Souvenir Shops

    2.) Sewing and needlework       6.) Libraries

    3.) Religious Organizations         7.) Flower Stores

    4.) Labor Unions                            8.) Farm supplies

    One look at these challenging fascinating and fun filled jobs helps you understand why old people always look so sad. It’s not that the see their lives coming to and end, they see tomorrow as another day selling batman tee shirts at the gift shop.

    Young people everywhere, unite, and don’t let this happen to you. If you are mathematically challenged, start dating a financial planner. If you are driven by materialism, find a 12-step program. Remember a daily Grande Latté over the course of 50 years amounts to almost $100,000 in today’s prices. Save today, green fees and Latté prices will only keep rising.

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    Photos via Cybord Nest, Neil Harbisson/Facebook, Cyborg Nest


    On the one hand, you want to be bold in your investing. On the other hand, you would love to shelter it from heavy risk, especially risk that is unnecessary for the returns you seek.

    Would housing be a good shelter for investment money, like it is for your family?

    About Real Estate: The Good

    Among the various investment vehicles, real estate is a unique vehicle because it is one of the few tangible assets, and it is about the only investment in which the owner or investor can have control over the valuation of the property – such as, whether to maintain the property, replace roofs, get new tenants, evict bad ones, etc.

    Real estate can add diversity to your portfolio, whether you buy a single property in which you will reside, or whether you will buy one or several buildings to rent or lease. There are some advantages in getting involved in real estate as a part of your overall portfolio:

    1. Less risk on yields. With real estate in your portfolio, you can maintain any current yields you’re receiving with decreased risk, as real estate is a bit more stable than most vehicles (stocks and commodities, for example) and rarely becomes worthless. Real estate could also maintain your risk level but increase your yields, especially rental properties that remain rented consistently.
    2. A hedge. No, we don’t mean the bush being a shelter, but rather that real estate can be a hedge on inflation. Many rental properties have stipulations in their rental agreements that allow the owner to increase rent with each new lease according to an increase in inflation, so as long as the property remains rented, the income received will always be a step ahead of the cost-of-living increase.
    3. While housing markets have their bull and bear runs like other investments (the existing-home market is running at a high pace nationally of late), real estate is never worthless and as a long-term investment it can average 4-5 percent growth annually, which keeps pace with inflation. It makes sense to park some of your nest egg in case inflation saps your buing power later.
    4. Unlike stocks or other commodities, where market forces tend to dictate price and value, with real estate you own you have some control over the value of your property in the market. If you maintain it properly, keep up good curb appeal and have reasonable rents where it is rented regularly and you have a good vetting process for quality tenants, you can increase the value of the property regardless of the market. When you don’t do these things, your property can drop in value regardless of the market.

    About Real Estate: The No-so-good

    Also, you should know that while real estate has a lot of upside, there is also some downside just like with other investments. Before you decide to get into real estate, you will have to weigh the pros mentioned above with these cons:

    1. As you might imagine, getting into real estate involves a heavy initial investment (unless you get into a REIT, which will be explained in a minute). Not only that, but the time and cost to maintain and operate it, and potential cost when a tenant doesn’t pay the rent, can also be expensive.
    2. No liquidity. If you need money quickly, don’t put that money in real estate. Real estate is very difficult to buy and to sell, and any money you might need from a real estate investment can’t be taken out until you sell the property. Your money is locked in, as the property can take weeks or months to sell.
    3. Market timing. Because it is so hard to buy and sell properties, trying to time the market to take advantage of bull or bear runs is a matter of luck, hoping that the run lasts long enough for you to get in or out accordingly in the weeks or months it takes to buy or sell. And any run doesn’t happen quickly, so you could miss the beginning of it because the movement is subtle over months – and by the time you notice it may be too late.

    What about REITs?

    A low-cost option for getting into real estate is via an indirect route called a REIT, or a real-estate investment trust. A REIT is an investment vehicle that is traded in a similar fashion to a stock. To invest in a REIT is to invest in a company or association that owns and operates rent-bearing properties such as apartment buildings, shopping centers, commercial or industrial facilities, and residential properties.

    The advantages of a REIT as a real-estate investment are that a REIT is like a stock, so the money invested is fairly liquid and you can get money by selling your shares in minutes with a phone call to your broker. Also, like a stock or bond, to invest in real estate through a REIT takes a minimal up-front investment of $500 or $1,000, instead of six-figures like an actual real property. Also, REITs can provide better returns on your investment as an annualized percentage over time, that far exceeds that of inflation in some cases.

    The downsides to investing in REITs are that with such a small investment, it will be hard to make significant monetary returns. Though you have a much larger initial investment in real property, it can be a shorter time to make $25,000 on that investment than if you invested $5,000 in a REIT. Also, with a REIT you don’t own any property yourself, so you are not in control of increasing the value of your investment. REITs also have the risk of being worthless and have volatility that is more significant than direct real property.

    In Summation

    Real estate can be a wonderful investment, whether you buy real property or go into a REIT. However, because of its various pros and cons, it should never be a large portion of your portfolio but instead should be part of a diversified group of assets that can provide some shelter for your nest egg, stability in the long-term and beat inflation to allow you to have more buying power when you sell.

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    For decades, the state of the American economy has often been judged by the official unemployment rate as put out by the U.S. Labor Department on the first Friday of every month.

    There has been a lot of talk about the unemployment rate, especially as the Great Recession peaked in 2009 and all through the rest of President Obama’s administration, especially as the official number slowly came down from a peak of 10.0 percent to the most recent posting at the end of Obama’s term of 4.8 percent in January 2017.

    There has been much ado in the press on both the left and the right about the legitimacy of the official unemployment figure. Why? Because there are all kinds of numbers that can alter the number and give a different picture as to what is really going on.

    U-3 vs. U-6

    No, these are not two rival bands to U2. These are two column headings you may find when you look at the actual unemployment report instead of the articles produced from the report. The U-3 number is the official unemployment number, which is the percentage of people actively in the workforce but are not working (in other words, actively seeking work and who have been unemployed for at least three months). The U-6 number, which some will claim is the “actual” unemployment number, takes into account those who have been out of work for at least six months.

    The Workforce

    What is the really key number here is not the U-3 or U-6 percentages, but rather the size of the workforce. As that number changes, the unemployment numbers change. The workforce number is not static, and it especially has not been during the Great Recession and its aftermath.

    The unemployment rate is based on the size of the workforce pool, which is determined by the number of people eligible to work, the number of people actually working, those in part-time and full-time employment and those not working but actively searching for employment.

    What will you will notice as you add those numbers up and look through the unemployment report over the last seven or eight years, you will find that the size of the workforce has dwindled downward, meaning that more and more people are quitting the workforce altogether – even to the point of not searching for jobs anymore. There were months where the math didn’t add up – the number of jobs created in a month didn’t meet the number required to send the unemployment rate down 0.1 percentage point if the workforce number had remained steady, and yet the number would go down.

    Over recent years, the number has dropped more because the workforce (or labor participation) population has dropped and is not as much a result of jobs being created at any dramatic pace.

    The “Missing Workers”

    The phenomenon with the workforce is a subset of workers called the “missing workers” by the Economic Policy Institute. The group has been tracking unemployment and making a connection with this group of workers, which the EPI defines as workers who “due to weak job opportunities” are neither employed nor actively searching for work.

    What the EPI has noted is the the number of “missing workers” spiked during the Great Recession, and has not returned anywhere near the pre-Recession numbers. The EPI’s data set shows that at the end of 2006, there were an estimated 660,000 “missing workers” while the unemployment rate sat at 4.6 percent. As of January 2017, the unemployment rate was at 4.8 percent, but the number of “missing workers” was estimated at 1.85 million – nearly three times the 2006 level.

    In August 2009, the missing worker number was 410,000. The very next moth it shot up to 1.22 million, and that number has remained at more than 1 million every month since, except for one (the number dropped to 770,000 in March of 2010) – and this includes nine of 10 months in 2015 in which the number topped 3 million. All the while, the official unemployment rate continued to trickle downward.

    By the way, the 1.85 million “missing workers” in January was the first month the number was below 2 million since August of 2010 – more than six years.

    If you add in “missing workers’ to the unemployment equation, the “real” unemployment rate, according to EPI data, would be 5.9 percent, not 4.8 percent.

    Healthy Skepticism

    When the next unemployment report come out, look deeper into the numbers and don’t take them on face value. When you read about how many non-farm jobs were created in a month, take a look at the unemployment rate and the workforce participation number. A sign of strengthening is actually if the jobs created number goes up, but so does the workforce number. In that sense, the unemployment may not drop and might actually stabilize or move higher temporarily.

    If you notice the workforce participation number ticking up, then you should eventually notice the jobs-created number go up as well. If that number does not seem to go up at a similar rate to the workforce, then there may still be weakness in the market that will have to work itself out. It is possible that workforce optimism may precede the actual strengthening of the economy, but if there is anyting the last 10 years have taught us is – never take your news with a single bite. Always chew more information before digesting.

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