Alchanati Campbell & Associates
How to be smart, how to be less risky, how to have less regret + some more.
The Market. Two-thirds of economists expect a recession to begin by the end of 2020; the biggest fear: trade tensions. The US government payed $523 billion in interest payments, more than the total economic output from Belgium’s latest fiscal year. The confusion about tax law changes are cleared up: companies can deduct 50% of meals while entertaining clients and customers. Volatility in the market is back up. The unemployment rate fell to a 48-year low to 3.7%.
Property prices continue slow rise. For the most part, commercial property appreciation has been modest over the past few years- something like 2% per year on average. Industrial property has increased 11% and Manufactured Home park real estate has increased 16% in the past year; while Malls have declined 9% and Strip Retail property has decreased 4% in the past year.
Americans are retiring later. People are retiring and taking their benefits later. 57% claiming their benefits under social security at age 62 in 1997 versus 34% at age 62 in 2017. Increased life expectancy and improved health are some reasons for this. Another reason is private pensions have transitioned from defined-benefit plans to defined-contribution ones creating less incentive to retire earlier.
Risk management for regret. Project yourself to age 90: looking back on your life, you want to minimize the number of regrets you have. A few regrets are universal: a decision that can not be easily reversed and a decision with downside so severe that it prevents eventual recovery. Risk management comes down to avoiding decisions that can not be easily reversed, whose downsides are unrecoverable. Taking good risks requires knowing both the odds of failure and how that failure will affect you afterwards. “Risk is what’s left over when you think you’ve thought of everything,” (Carl Richards).
Lots of kinds of smart. Smart is the ability to solve problems. Accepting that your field of work is more important or influential to other people’s decisions than dozens of other fields, pushing to spend your time connecting the dots between your expertise and other disciplines. Willing to make bold moves but always within the context of making survival the top priority. Humility not in the idea of the world you’ve experienced you are likely wrong, especially in knowing how other people think and make decisions.
Insufficient sleep = risky teen behavior. Teens who sleep for less than 6 hours per night are at greater risk of mental health issues, substance abuse, accidents and other risk-taking behavior. Teens require 8-10 hours of sleep at night for optimal health, but 70% of high school students get less than that. The odds of unsafe behavior by high school students increased significantly with fewer hours of sleep. Those who slept less than 6 hours were more than three times as likely to consider or attempt suicide.
Rate hikes and investment advice that we are NOT advising you on. After the almost unprecedented job report, we can expect yet another interest rate increase come December. In fact, if nothing dramatically changes, many economists from banks including PNC Financial and J.P. Morgan Chase expect at least 2 more rate hikes in 2019. 10-year Treasury notes hit a seven year high (3.229%) following the job report, but the Fed believes the economy is still strong. In previous interest rate hikes, shares of J.P. Morgan have increased 5.2% in a month-to-month period, Goldman has seen a similar 3.9% gain, companies like Visa and Exxon Mobil have also done well. Historically, Walmart and Coca-Cola have struggled.
Is it Musky in here? Last week, Elon Musk, eccentric CEO of Tesla, was being sued by the SEC. Now, Musk has a somewhat decorated history of using social media to speak about Tesla (which often leads to sharp increases in Tesla's share price). However, he went too far this time.
In August, Musk tweeted that he was thinking of taking Tesla private at $420 dollars per share (another juicy story behind that number), and that he had already secured the funding necessary to buy back all the shares. Tesla jumped 11% on that day. However, upon further investigation by the SEC and Tesla shareholders, it's been revealed that he may have been stretching the truth just a bit.
Musk got sued by the SEC for Securities Fraud, issuing "false and misleading" statements to manipulate the stock price in a favorable manner.
Musk has settled his lawsuit with the SEC, agreeing to pay $20 million to the SEC with Tesla, Inc. also paying $20 million. Furthermore, Musk agreed to resign as Chairman of the Board but remain Tesla's CEO.
The drama seemed to be over, but that’s never the case. On Thursday, Musk further taunted the SEC. He tweeted out that the SEC is doing fabulous work but referred to them as the “Shortseller Enrichment Commission”. Given Musk's history of opposing investors shorting Tesla (betting that the stock will go down), this is clearly a jab. Investors responded by sending shares down 7% today, which wipes out the slight recuperations made from the settlement.
Remember folks, secure funding before manipulating securities!
Government spending. Government spending currently accounts for 36% of US GDP, with 57% attributable to federal spending, 26% to state spending and, 27% to local spending. Government spending is split up into 3 subsections: mandatory spending, discretionary spending, and the interest on our debt. In the last few years, the government has started to reduce the amount they are budgeting to discretionary spending, decreasing from 13.1% of GDP in 1968, to 6.3% currently. Although discretionary spending is decreasing, total government spending is increasing drastically due to mandatory spending and the earned-benefits programs under it. Specifically, when looking at the mandatory budget, you will notice Social Security and Medicare dominating a large % of the budget. This is due to one of our largest generations reaching retirement age, the Baby Boomers. It is projected that there are currently 10,000 new retirees every day, with that number projected to increase in the next few years. Currently, social security is completely funded by payroll taxes and the interest earned on previous payroll taxes that were invested. The trust fund is currently running at a surplus, but the board predicts that by 2036, the surplus will be depleted and social security revenue from payroll taxes and the interest earned on them, will only be able to cover 77% of the benefits promised to retirees.
The Alchanati Campbell and Associates Team
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WHAT'S UP FRIDAY? is a weekly newsletter that will give you a summary of "What's up?" on Wall Street, in the US and around the World written by The Alchanati Campbell and Associates Team. What makes us unique is we focus on long-term knowledge; knowledge that will still be useful to you 10 years from now.