Don Wettstein

Action Bias

 Economy, General Interest  Comments Off on Action Bias
Mar 242020

I’m certain that I can’t add much new thought to the current situation.

We are all draw on recent past circumstances to guide our emotions and actions at this time. I generally get pretty skeptical of an analysis suggests that this time is different.

However, in many respects this time does offer some differences. This is a health driven – supply and demand economic issue. We have not faced this type of economic situation before.

The health concern is very real and very challenging. It is not however, unthinkable [just think about some of the Science Fiction movies from the 1950’s and 1960’s]. Some of the images of people in their PPE’s spraying who knows what.

In my investment experience for times like this, the best course has been to suggest that doing nothing is the best option.

Not surprisingly, I don’t know if this is actually the best or right advice at this time. Without doing the math, asynchronous returns make the ride very challenging. Not only hard on the stomach, but perhaps even more so on the emotions. The following is from Morningstar this morning.

 Advisor Insights Combating Action Bias We want to act, but should we?

Samantha Lamas
Mar 23, 2020

During times of market volatility, when investors feel that they are hemorrhaging money, a natural instinct is to stop the bleeding–to take decisive action instead of riding out the storm. Though taking action in the face of difficult times often works out well in everyday life, when it comes to investing, acting on that desire won’t necessarily help. To help ourselves and investors overcome this tendency, let’s better understand what’s happening.
A Bias for Action
Action bias is our tendency to take action for reasons that are generally valid, but not in the specific situation, especially when we focus on the benefits of action and ignore the costs. In our minds, even if acting and not acting result in the same outcome, that outcome feels so much worse when we didn’t take action.
The ongoing market volatility we’re experiencing will create a vicious cycle, where suffering losses because we didn’t make a change will be more emotionally taxing than experiencing losses after we made a change. In our minds, at least we tried to do something. Following are a few reasons many investors might be experiencing action bias right now.
Experience can’t always save us. A tendency toward action bias is something we appear to all suffer from, even those who are experts in their field. Even though investors may know they should stick to their financial plan, they may still feel pressured to act.
Seeing an impact now is more salient. When we take action in our current situation, we can immediately see the impact. If we ride out the storm, we won’t likely reap the benefits of this decision for months to come, which can make it even harder to resist action bias.
Investors are struggling under the weight of responsibility. Many of us may feel personally responsible to take action to protect our savings for the sake of our loved ones. Research finds that people who are in a role–either familial or professional–that makes them responsible for an outcome are more prone to exhibit action bias.”

Labor Market

 Economy, General Interest  Comments Off on Labor Market
Apr 082019

Here are a couple of interesting charts from last week’s labor report.

Job growth appears to be relatively stable since the “great recession”.

The labor participation chart is kind of interesting. The primary working age group still has a way to go back to the pre-recession levels. On the other hand, for the over 55 age group, that recovery has been quite muted.

I believe the labor participation rates for females versus males is similar to the age participation chart. It appears females have had at least a somewhat better time regaining employment. However there participation is at a significantly lower level overall.

Yield Curve Inversion

 Economy, General Interest  Comments Off on Yield Curve Inversion
Mar 272019

There has been quite the conversation regarding the inversion of the Yield Curve between the short term US Treasury Bills versus the 10 year US Treasury Note. In essence, it appears to strongly suggest that a recession is eminent.

However this morning, Axios had a blurb regarding the 2 year US Treasury note yield versus the 10 year US Treasury Note. This spread has not [at least yet] inverted.

The Axios article suggests the Fed’s actions are more likely the cause of the rise in shorter term rates even though they have indicated they will not push up the fed funds rate this year. The level of uncertainty related to Fed policy and the level of government borrowing necessary to fund the deficit may be the key culprits in the inversion.

You can find the full article here

Clearly the ‘market’ is concerned about the economy going forward. Whether that is the result of Fed Policy, US Government Deficits, Trade Policy, or whatever, Mr. Market is nervous.

Prime Age to Employment Ratio

 Retirement Planning  Comments Off on Prime Age to Employment Ratio
Mar 112019

This looks like a really solid recover since the “Great Recession”!

It looks like this employment ratio is back to its 2009 peak, but it still has a way to go to get back to its late 1990s level. To me, it just seems unlikely that wage growth acceleration won’t be coming soon. The real question; will be whether inflation follows shortly thereafter.

Wage Growth versus S&P 500 Profit Growth

 General Interest  Comments Off on Wage Growth versus S&P 500 Profit Growth
Mar 082019

This chart was on Axios earlier this week. I think this is could be one of the reasons for the ongoing challenge between capital and labor since the ‘Great Recession’.

Clearly the recovery in Profits of 10.1% versus Wages of 3.3% is significant. However, this is part of a much longer term trend. Whether it is due to technology or some other factor, it has made it difficult for the middle class to get ahead economically.

I gather this may at least be a partial explanation for an uptick in the idea that Socialism may be desirable versus Capitalism. This appears to be especially so for younger workers.

Gross Domestic Product Update

 Economy, General Interest  Comments Off on Gross Domestic Product Update
Mar 012019

The following Wall Street Journal Chart shows the US GDP through year end 2018.

It appears that Tariff related Import and Export activity in Mid-2018 was responsible for the 2nd and 3rd Quarter bumps.

Emerging Markets

 Economy, Investing  Comments Off on Emerging Markets
Mar 012019

The MSCI Emerging Markets Index has increased its allocation to China. Per Axios:

“MSCI said Thursday it would quadruple the percentage of access foreign investors can get to stocks from mainland China in its widely tracked emerging-markets index, which is tracked by nearly $2 trillion of funds.”

Investment in Emerging Markets maybe on the rise and the change in the MSCI Index may help start a trend.

Axios 3 1 19

These charts don’t go together, but I think interesting nonetheless!

 General Interest, Investing  Comments Off on These charts don’t go together, but I think interesting nonetheless!
Feb 222019

Another group of beneficiaries from the new tax law – Accountants.

For all the headlines Alphabet has received, this is kind of interesting. Dominos stock has actually outperformed since the went public. Either one would have been a good investment 15 years ago, but 3600% does beat 2500% rather handily!

Banking – Savings Account Rates

 Economy, General Interest  Comments Off on Banking – Savings Account Rates
Feb 222019

The difference between bank savings account rates at Online Banks versus Brick and Mortar Banks is rather dramatic.

However, it would appear that a tightening of the Interest Rate Spread is not the issue!

Meanwhile, the Federal Deposit Insurance Corp. said the new tax law drove double-digit profit growth at U.S. banks last year. Banks collectively notched record annual profits of $236.7 billion, up 44% from 2017.

Two Charts – What do they Mean? Are they related?

 Economy, General Interest  Comments Off on Two Charts – What do they Mean? Are they related?
Feb 132019

I saw these two charts this morning one from the Wall Street Journal’s Daily Shot and the other Axios Markets.

This appears to highlight the quite remarkable economic recovery since the great recession. Increasing Job Openings is a very good way to address the needs of the Unemployed looking for jobs. On the other hand when the two numbers cross, we may be moving into interesting territory for wage growth / inflation.

Once upon a time, the US National Debt was supposedly not necessarily a good thing. I guess I was never overly concerned about the US Budget Deficit. But, it was always thought there were limits. Based on the very rapid growth in the deficits since the Great Recession, we may find out if there are in fact any ramifications to the level of US Government debt.