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  • Is Starbucks' Dividend Still A Rocket Ship? [View article]
    Back in 1996, my wife pestered me to buy Starbucks, so I bought 100 shares for her IRA at $17.25 just to shut her up. Three splits later, she had 800 shares, with an adjusted cost basis of $2.23 per share. She gradually sold off 700 shares, netting over $16,000, but still has 100 shares; and last month's dividend increase raises her yield on cost to 46%. She'll never sell them, and I'm guessing the annual dividends someday will exceed what she paid for the stock. This may give you an idea of what can happen if you hold the right stock for 20 years or longer. The downside is she won't stop talking about it and now thinks she knows more about investing than I do.
    Dec 31 08:39 PM | 30 Likes Like |Link to Comment
  • Beware Long-Term Damage From Stock Market Bubble Forming Now [View article]
    Do you think letting some of the unemployed starve to death at the bottom of business cycles is good public policy? Hunger undeniably incentivizes work. The film depiction of Steinbeck's "Grapes of Wrath" comes to mind. The only wrinkle in this fabric is the unwillingness of normal human beings to live in such a starkly Darwinian world.

    Your reference to "parasites" is both interesting and telling. I recently read a piece, which I quoted in the comments to another SA article, and am pasting here because I think the quote is pertinent to the present discussion. These are words of Marilynn Robinson, a University of Iowa professor, from her essay, "Austerity As Ideology," in her book "When I Was A Child I Read Books," at pp. 45-46 as follows:

    "Everywhere the crisis of the private financial system has been transformed into a tale of slovenly and overweening government that perpetuates and is perpetuated by a dependent and demanding population. This is an amazing transformation of the terms in which our circumstance is to be understood. For about ten days the crisis was interpreted as a consequence of the ineptitude of the highly paid, and then it transmogrified into a grudge against the populace at large, whose lassitude was bearing the society down to ruin. ...

    "Austerity has been turned against institutions and customs that have been major engines of wealth creation, because they are anomalous in terms of a radically simple economics. As a professor at a public university I feel the effects of this. Of course legislators are also state employees, but for the moment they are taken to act in the public interest when they attack the public interest. If they were to tell us taxpayers how they spend their time, fiscal demolition would account for a great part of it. The phenomenon is national, indeed global, since every entity with any leverage on any other is bringing the same sort of pressure to bear."

    It may be fashionable at the moment to label as "progressive" or even "socialist" anyone who questions the austerians' ideology, but I would simply call those folks sane. It's one thing to slap labels on others and advocate antisocial ideologies when you have no chance of being elected or making actual policy. That's harmless. But God help most of us if we ever fall under the empowered thumbs of people who hold such views. If we had to live in such a society, how our stock investments turn out would be among the least of our worries. We would be too busy defending our food supplies with armed force to worry about that.
    May 18 03:14 AM | 11 Likes Like |Link to Comment
  • 5 Reasons Why You Should Sell Stocks Into This Fed-Induced Market Bubble [View article]
    On point (1), I think the author does not understand the current political situation in Washington D.C. partisan warfare will continue into 2014, but will not cause a major market decline in 2014 for several reasons. Foremost among them, GOP leaders will not risk the political fallout from another government shutdown in an election year. Also, business did not like the impact on the economy (and their businesses), and pressure on the GOP leadership from the business community, which ended this fall's standoff, will prevent a repetition. The Tea Party faction remains as intransigent as ever, but they're not calling the shots; Speaker Boehner is in control and only has to allow a vote, as there are more than enough moderate Republicans in the House, combined with Democratic votes, to pass a compromise. Finally, the author is incorrect in stating that Democrats will refuse to negotiate; a House-Senate negotiating committee was appointed, the parties are negotiating right now, and the White House is telling congressional Democrats to compromise on entitlement cuts. Putting all this together, there's no reason to believe the market will be taken down next year by a political "black swan" event. The 2014 election results will be potentially market-moving, but should not precipitate a market crash.

    On point (2), I agree with the author's assessment of QE's influence on the market up to this point, but the Fed has made it clear QE will continue until the economy reaches "escape velocity," at which point economic growth will sustain the market. In order for the ending of QE to cause a major market decline, the Fed would have to bungle the timing, but that doesn't seem likely, especially given the FOMC's pronounced easy-money bias. Will we get market dips caused by QE tapering? Sure, but market dips are for buying, not selling.

    On point (3), I agree Caterpillar is a bellwether, and its struggles highlight the weakness of the U.S. and global economies. But this isn't news, and is already baked into the market. If this weakness continues, it could cap the market's further rise, but it hasn't produced a major sell-off up to this point.

    On point (4), momentum investors chasing "frothy" stocks with "disconnected" valuations exist in all markets, nearly all the time, and this isn't indicative of anything more than unchanging human nature. The concern here is with the specific stocks the author mentioned, and if you don't own those, they're not your problem. The market as a whole, which is trading close to its historical average P/E, isn't cheap anymore but it's not dangerously overvalued. At current valuations, I think you want to keep an eye on the stocks in your portfolio on an individual basis, and take profits based on your own trusted methodology or instincts as you normally would.

    Finally, on point (5), the high level of margin debt is certainly something investors should pay attention to, but the question is how to interpret it. With interest rates very low, and the S&P 500 up more than 19% for the year, it's not surprising investors are borrowing to buy stocks. High margin debt in these circumstances isn't mysterious and doesn't necessarily imply irrational greed or unhealthy absence of fear. A more logical explanation is that low interest rates and a rising market encourage leveraging stocks. The problem, of course, is that if the market does sell off margin calls could trigger further selling. But that would be a consequence of high margin debt if something else triggered a market decline. The high level of margin debt, itself, will not be the trigger for a market decline.

    Overall, I do not think the author has made the case for a major market decline in early 2014. I'm not saying there won't be one; I can't predict the future any better than anyone else. But if there is, I don't think it will be for any of the reasons the author has propounded in this article. The likeliest cause would be a war or some other "black swan" event. Those do happen from time to time, but we can't predict them, and we can't base our investing decisions on such possibilities.

    I think the best thing to do is simply use common sense when deciding to buy or sell stocks. If something looks expensive, it probably is; if it looks cheap, make sure you understand the reason why it is before jumping in. Spotting mispriced stocks is an art that requires practice. Often the most successful baseball team is not the team that habitually swings for the fences, but the team that steadily grinds out singles and does a workmanlike job of fielding. The analogy is applicable to stock investing. Compounding 10% returns repeatedly over time will get you where you want to go, but you have to be in the market to play the game.
    Oct 31 01:37 AM | 10 Likes Like |Link to Comment
  • The Problem With The U.S. Stock Market And The Economy [View article]
    "exponentially rising Federal spending"

    With all due respect, Charles, you appear to be mistaken about the basic facts of the matter. Federal spending has been flat in absolute dollars, and falling as a percentage of GDP, since the onset of the financial crisis.

    Deficits typically increase during a recession because of lower tax receipts and temporary spending increases for things like unemployment benefits, food stamps, and financial aid to struggling state and local governments. Tax cuts intended to stimulate the economy also contribute to higher deficits. These recession-induced deficit increases are always temporary, because recessions are temporary.

    "Basic logic and economic history show that the private economy uses resources more efficiently than government, yet you argue for more inefficiency by increasing the size of the public sector."

    What economic history actually shows is that countless private companies have been badly managed and gone bankrupt. There is no evidence that private sector managers are gifted with superior intelligence or management skills that ensure a private organization will always outperform a government organization, given the same task. Privatizing government services, for example, seldom produces savings for taxpayers. The belief system that asserts government is wasteful and inefficient is a political theology, not an empirical fact. It also overlooks the fact that profit is not the purpose or goal of government. We give government tasks that are inherently unprofitable -- police and fire protection, flood insurance, poor relief, etc. There is no more wasteful or inefficient use of economic resources than fighting wars. It is governments, not businesses, that are out there looking for that missing airliner and footing the bills for the search.

    If you are arguing for a policy of government austerity, and it's not clear to me that you are, we've seen how that worked in this recession when applied to the economies of Europe -- it didn't. It didn't work in Hoover's time, either. History offers us no empirical basis for believing that slashing government spending during a recession is sound policy and makes things better. That, too, is an ideology divorced from reality.

    As a retiree on a fixed income, and with no debts, I would theoretically benefit from falling prices. Supposedly my purchasing power would increase. But let's consider what deflation would do in the larger economy. Those who owe debts (the poor and middle class) would become poorer and those who own those debts (the rich) would become richer. Debts would become harder to repay, so the economy's debt problems would become worse. Consumer spending would be further impaired, not improved. It's unlikely wage earners would benefit from deflation because wages would fall in tandem with prices; businesses couldn't reduce prices without also reducing wages. Housing prices, which are closely tied to incomes, would also fall and you'd have a new cycle of homes going underwater, triggering another round of defaulted mortgages and abandoned houses. The Fed rightly regards deflation as a threat, not a benefit, to the economy.

    In short, you haven't convinced me that your policy ideas are the right ones for our economic problems.
    Mar 30 04:20 PM | 9 Likes Like |Link to Comment
  • Inequality: Does It Matter? [View article]
    This fairytale factory doesn't exist. Nearly all the productivity and GDP gains since 1970 have gone to the top few. That's why income inequality has become an issue. Some people misinterpret this as carping about inequality of result, when the real discontent arises from a perceived unfairness of result. There is indeed a feeling on Main Street that America has become a kleptocracy run by Wall Street and banksters for their selfish benefit. It's more complicated than that -- globalization and technological change factor into this -- but it's certainly true the power realignments in American society over the last several decades favor asset owners over wage earners. And it's also true that many ordinary Americans see their American Dream unraveling. This wouldn't be happening if the prosperity was shared as you portray in your hypothetical goat bell factory.
    Jan 2 11:37 AM | 9 Likes Like |Link to Comment
  • Procter & Gamble: Low Risk, Slower Dividend Growth Ahead [View article]
    I bought PG at $65 about two years ago. That gives me a yield on cost of 3.7% and I'm comfortable with that. I think your assessment of the stock's prospects going forward is accurate. It should be noted the board recent brought back a retired CEO to reinvigorate growth, and this is a positive for business fundamentals. I think this is a good anchor stock for a conservative income-oriented long-term portfolio (i.e., a typical retirement portfolio). You buy stocks like this to bring steadiness to a portfolio, not because you're looking for spectacular outperformance. It won't go up fast, but it won't go down a lot, either. You won't get fast dividend growth, but you aren't risking a dividend cut, either. It's more than just a "bond substitute"; unlike any bond or bond fund, you do get income growth here.
    Jan 16 06:58 PM | 8 Likes Like |Link to Comment
  • What Exactly Is So Objectionable About Obamacare? [View article]
    Excellent article. The comments would make a good case study of objective vs. emotional responses.
    Oct 11 12:07 PM | 8 Likes Like |Link to Comment
  • Blaming Obamacare For Decline In Average Work Week Hours [View article]
    It's Obama's fault! It's Obama's fault! It's Obama's fault!

    Repeating this phrase, over and over, is the conservatives' solution to every problem we have.

    Obamacare would be a better law if Republicans had participated in writing it, instead of boycotting the legislative process. Whose fault is it that Republicans refused to play a constructive role when Obamacare was being debated and enacted? Despite that, what a Democratic congress enacted and what a Democratic president signed is Republican legislation. Does anyone need reminding that Obamacare is a near-exact copy of the health care reform law proposed by the Heritage Foundation and enacted by Governor Romney? Let's see the hands. Most Democrats wanted a government-run single payer system, but Obama made a massive compromise by going with Romneycare. Even that didn't satisfy Republicans, who seem to want nothing at all. Everyone agrees Obamacare needs tweaking, but instead of working on that, House Republicans have wasted everyone's time with 40 useless repeal votes. It's time to say to Republican whiners, you guys made this bed, now it's yours to sleep in.

    A final point: The American people did NOT elect the GOP House majority. That came from gerrymandering, not the will of the voters. Here is how the people voted in the 2012 House elections: Democratic candidates, 60,252,696 votes; Republican candidates, 58,541,130 votes. Don't go around saying Obama is polarizing the country, because that's not true; he's doing the job a majority of Americans elected him to do. He is the president the voters chose twice in free elections. He has to deal with a kindergarten, and is doing the best he can under those circumstances.
    Aug 25 01:32 PM | 8 Likes Like |Link to Comment
  • What Happened To All The Profits? [View article]
    "Obama has not been the most bi-partisan president"

    You're right, he's not been a "bipartisan" president, but it's hard to be bipartisan when the opposition party says "no" to everything you do, won't negotiate or compromise about anything, and campaigns on a platform of destroying your presidency. Like it or not, the Democrats, not Republicans, won the 2008 and 2012 presidential elections, and won more votes in the 2008 and 2012 House and Senate elections. So you can't expect them to agree to policies that are 100% Republican, which is essentially what the opposition party has been demanding.

    I don't intend to debate here whether Democratic or Republican policies are party for the country. People disagree about that and mostly shout past each other; we are past the point where anyone is listening to anyone else in this country, there is no meaningful debate, and no one is open-minded, so the shouting is pointless and I don't think we should do that here, on this investing blog.

    I disagree with the author that the weak recovery disproves Keynesian economics. Most Keynesian economists argue the 2009 stimulus was far too small, given the magnitude of the problem, so how can a stimulus too small to have a full Keynesian effect on the economy disprove Keynes?

    In fact, despite a recovery that's weak by historical norms, the U.S. has one of the world's healthiest economies right now. Admittedly that doesn't say much for the rest of the world. But what's different about our recovery from theirs? In Europe, austerity arguments prevailed, that is until they didn't, and those policies pushed Europe deeper into recession and some countries into depression. Now, Europe is beginning to crawl back, now that those policies have been reversed and European monetary authorities have opted for stimulus.

    Backing up a bit, let's suppose our government instead of borrowing $7.4 trillion hadn't spent it. Then, the question we need to ask is what spending would have been cut. Defense? Unlikely, as we can't readily jump in and out of our defense commitments to suit budgetary conveniences, and also because the domestic proponents of austerity defend that spending and targeted social spending for cuts. So that $7.4 trillion not spent would more likely have come from unemployment benefits, food stamps, and other transfer and relief payments not made. That would have removed another $7.4 trillion of consumer spending from the economy. Aside from the social unrest from creating millions of additional homeless people and inflicting starvation on a portion of our population, we must ask: How could such policies possibly have resulted in growth?

    I'm not sold on the author's arguments; count me skeptical.

    Btw, I've lived under 14 presidents, and every one of them was "the worst president we've ever had" in the eyes of some. We, as a nation, seem to habitually not like our leaders very much even though we choose them.
    Aug 30 02:30 AM | 7 Likes Like |Link to Comment
  • Rising Minimum Wages - The Most Vulnerable Sector And Company [View article]
    Why won't they be able to pass through rising labor costs? By and large, these businesses are able to pass through increases in their other costs.
    Dec 31 01:24 PM | 7 Likes Like |Link to Comment
  • Retirement In A World Without Social Security [View article]
    Your financial behavior as a whole, not just investing style, determines where you end up. Here are my guiding principles:

    1. Get out of debt and stay out of debt.
    2. Spending doesn't make you wealthy, it makes you poor.
    3. Live beneath your means, because this is the only way you can save, and saving is the only way you can invest.
    4. Don't own other people's debts; buy equity assets.
    5. The typical American works at a job he hates, to make money he doesn't need, to buy things he doesn't want, to impress people he doesn't like. How much sense does that make?
    6. If ten million lemmings run over a cliff together, that doesn't make them right, nor does it make the one who goes in a different direction wrong.
    7. Status symbols are the average person's biggest expense. You'll end up a lot richer if your ego doesn't need status symbols. Sam Walton, who was America's richest man of his time, drove an old pickup to work. He didn't need a fancy car to know who he was and what he had accomplished. And he didn't care what anyone else thought of him or his old pickup truck.
    8. It doesn't matter if you make mistakes. Everyone makes mistakes. What matters is whether you learn from your mistakes.
    9. Care about people more than money, not the other way around.
    Apr 22 12:44 AM | 7 Likes Like |Link to Comment
  • Supply-Side Versus Keynesian Economics [View article]
    It's somewhat brave to publish an article like this on SA, which has a strong demographic of people who believe to a moral certainty that your brand of economic thinking promotes socialism. What we largely have in this country is a sharply polarized populace whose political orientation determines their economic beliefs; and little useful debate, but a surfeit of partisans shouting past each other, with no one listening to what's being said and not much of what's being said worth listening to. I have consistently found Shareholders United articles to be a beacon of light in this darkness.

    I suppose that brands me a Keynesian, in the eyes of some, although I self-identify as a curious eclectic. I'm not politically or economically agnostic (who is?), but if you ask for my non-economist opinion, I think supply-side concepts have validity in some circumstances, and I also see that economies work much the way Keynes described. Coming from that perspective, I do not find "it's all the government's fault" arguments persuasive or usefully meaningful, and I always find Shareholders United articles a delight to read because they're invariably well reasoned.

    Having said all this, it seems obvious to me that lack of aggregate demand is the U.S. economy's main ailment, and that stagnant wages, falling personal incomes (for most), and the fountain of credit running dry, explain much of the weakness in aggregate demand.

    I don't think we can solve this problem with more capital, because it's not caused by a shortage of capital. We're swimming in capital; trillions of dollars sit idle on corporations' books. There are times when capital is the horse and demand is the cart, that is, investment must precede fulfillment of demand; but at present, demand is the horse and capital is the cart, by which I mean we have capital (the cart) but aren't going anywhere for lack of a horse (demand) to pull us. The solution is not giving corporations more money by cutting their taxes, but giving consumers the means to create demand by hiring more employees and raising wages. This may cut into short-term profits but will lead to long-term prosperity.

    Dogmatism is stasis, and we do not learn in a state of stagnation. When we discuss big issues like macroeconomic theories and economic policies, what we need is less shouting and more thinking, and an honest search for truth through fact-based reasoning. Whether you agree United Shareholders' conclusions, or not, they constructively contribute to that effort.

    Thank you very much for your disciplined and well reasoned articles, and please keep them coming.
    Aug 20 02:12 AM | 6 Likes Like |Link to Comment
  • Markets Go Up And Down. What To Buy Now... And Later! [View article]
    The administration's stated reason for delaying its Keystone XL decision is that the Nebraska supreme court has to resolve state legal issues before routing can be finalized. A cynic might argue this is just an excuse to postpone a politically difficult decision until after this fall's elections; but, I don't see how you can build a pipeline until you know what its route will be. The choices here seem to be: (a) Wait for the Nebraska courts to resolve the state legal issues holding up the route determination; or (b) override the state's siting laws and processes and impose a route on the State of Nebraska by federal decree, an exercise of federal power usually not favored by the type of people who support the pipeline.

    In any case, the result of building Keystone XL will be to give Canadian producers of heavy oil greater access to Gulf Coast refineries and ports, and much of that oil would be destined for export so it's hard to see how Keystone XL would free the U.S. from dependence on imported oil. Even if all of Keystone XL's capacity is consumed in the U.S. and displaces oil imported from elsewhere, that's still far less than the quantity of oil needed to replace imports from places like Venezuela, Nigeria, and Saudi Arabia. Some people seem to believe that Keystone XL will make the U.S. energy-independent, but that's not true.

    I don't foresee the 2014 midterm elections resulting in any major changes to U.S. economic policies. While all House members are up for re-election, most occupy "safe" seats, and it's unlikely the House will shift from GOP to Democratic control. An enlarged GOP majority in the House is possible but wouldn't change the House's ability to enact legislation over Senate or presidential opposition. The GOP has a chance to win Senate control this year, but even if it does, a Republican House and Senate could not enact legislation over President Obama's veto, unless the Republicans end up with 60 Senate seats, and the odds of that happening are nil. Thus, the 2014 midterms are shaping up to be a non-event because continued divided government until January 2017 is virtually assured.

    Whether you believe a change of party control of our government would cure our country's economic ills depends, I suppose, on whether you're a Keynesian or supply-sider. If you believe, as Krugman argues, that the root problem is lack of aggregate demand then fiscal austerity, business deregulation, and tax relief for corporations and wealthy investors won't stimulate the economy. If you believe, as most Republicans do, that the administration's policies are discouraging business investment, then one still must ask where the demand will come from to justify more investments in business expansion. U.S. corporations are already sitting on $1.8 trillion of cash they're not investing in their businesses because demand isn't there. So how does putting more cash in corporations' and investors' hands solve the problem? Regardless of your political orientation, what's needed is growth in household income from good jobs and rising wages so consumers can spend, and the pertinent question is where that will come from. Regaining some of our former manufacturing advantage, due in part to abundant supplies of cheap natural gas, will help; but I don't think we'll see all of the lost manufacturing jobs return; at best, we'll only get a fraction of them back.
    Apr 21 11:13 PM | 6 Likes Like |Link to Comment
  • Why Stagnant Wages And Trends In Interest Rates Make Me A Longer-Term Doomer [View article]
    mobyss, you've memorized all the standardized talking points against raising the minimum wage, haven't you?

    How about if, instead of raising it to $15, we just raise it to $9? Would that meet with your approval? Or do you think it should stay at $7.25 forever, regardless of inflation? Or maybe you believe we should eliminate the minimum wage and let "the market" determine everything, in other words adopt the Bangladesh model of wages and working conditions?

    You stereotype fast food workers as "teenagers" and "part-timers" who merely "put lettuce on hamburgers." That's not the reality. According to research cited by The Atlantic magazine, only 30% of fast food workers are teens, 30% are college age, 40% are over age 25; and one-fourth are parents. The median age of fast food workers is 29, meaning half are younger and half are older. "The broader point is that these jobs aren't primarily a refuge for high school dropouts."

    I'm not trying to pick on you personally. There's plenty of b.s. on both sides of this issue. If folks want to argue about the minimum wage, fine, but as I pointed out in my comment to another SA article, this issue is so politicized all you'll get from either side is talking points and no one's mind is being changed. For me, this is a waste of time. But I wish people wouldn't pollute the debate with mindless stereotyping of others. That's like screeching your fingernails across a chalkboard -- I can't stand it, and I wish you wouldn't do it. Doing a little factual research isn't hard and doesn't take much time.
    Dec 9 05:33 PM | 6 Likes Like |Link to Comment
  • 2 Reasons This Recovery Has Been So Weak [View article]
    Blaming unemployment on unemployment benefits is an interesting theory. It seems to me, however, that because unemployment precedes unemployment benefits, something else must be causing unemployment. Could a contracting economy, rather than unemployment benefits, possibly be the culprit?
    Nov 24 01:12 AM | 6 Likes Like |Link to Comment