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 The Simple Facts On Equities And Debt
Querant 251 posts, incept 2021-09-19
2022-09-16 17:52:10

Recommended viewing in case anyone needs a refresher:

"...it sure is a hell of a lot easier to just be first. Sell it all. Today."

Margin Call


Ronniemcghee 276 posts, incept 2012-07-28
2022-09-16 18:32:25

When I was young, there was evidence, global data, that high interest rates were correlated with unemployment.

Then I read that there are so many other covariants that its useless to look at the above relationship alone in the regression formula.

Still, the gut says to expect rising unemployment.

Then again, the gut can lose you a lot of money.

*sigh*
Sonoran_monk 1k posts, incept 2021-08-16
2022-09-16 20:33:26

I hear that Bear Stearns is fine. Nothing to worry about here folks.
Mannfm11 8k posts, incept 2009-02-28
2022-09-16 20:33:43

I was listening to Martin Armstrong. He said before the Fed started messing with money, high rates were associated with growth and a strong economy because it indicated demand for money. The alarm was when they started falling, as it indicated business was cutting back.

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The only function of economic forecasting is to make astrology look respectable.---John Kenneth Galbraith
Kikknback 1k posts, incept 2020-03-17
2022-09-16 20:33:53

Cashing out your 401K, before you're 59.5 Y/O and paying the 10% fine, is still cheaper than asking yourself after the market tanks 25-50% why you didn't cash out before the market tanked.

Look at Japan for your answer as to whether the market is guaranteed to come back, so you can recover in "your lifetime".

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"The most grotesque act of Treason is to be born into a free Constitutional Republic, for which you did not risk your life or shed blood to create, and sit back and watch it slowly be taken from you w
Tritumi 1k posts, incept 2008-11-29
2022-09-16 21:28:14

And the Yen currently hanging on by fingernails against the Yankee dollar.
Flappingeagle 4k posts, incept 2011-04-14
2022-09-16 21:41:07

Re thermostats. I love my non-wireless, simple, programmable thermostat. In the summer it cools the house before bedtime. In the winter, it warms the house before getting up time.

Flap

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Here are my predictions for everyone to see:
S&P 500 at 320, DOW at 2200, Gold $300/oz, and Corn $2/bu.
No sign that housing, equities, or farmland are in a bubble- Yellen 11/14/13
Trying to leave
Tickerguy 188k posts, incept 2007-06-26
2022-09-16 21:42:57

Indeed; the advantage of something with controls under your (and only your!) access is that you can do that remotely, you can do it on conditions (e.g. is anyone in the house?) and if the software is "smart" enough it can learn response time (e.g. how long does it take to heat or cool to the setpoint from where it was; that is, what's the delta rate?) and adjust accordingly, and do so over time as the outdoor environment (for example) changes.

In addition if you're gone (e.g. on vacation) said software can detect that despite the system being told to hold a given temperature (e.g. 80F in the summer) it's not and thus the odds are the system has failed. In the summer this is of some value but in the winter knowing that the heat isn't working while you're away for vacation is a serious thing in northern areas for obvious reasons (e.g. frozen pipes!)

But if you don't want or need any of that and your schedule is reasonably fixed then a simple programmable thermostat is just fine.

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NASA faked out a computer instead of running the test.
Then tried to launch and aborted instead of going "BOOOM!"
Did they abort the JABS after faking THOSE tests?

Mannfm11 8k posts, incept 2009-02-28
2022-09-16 23:24:39

@Querant: Great video. The head guy tells the truth. It is a cut throat business. Someone is going to get screwed anyhow. There is an old saying on Wall Street to never catch a falling knife.Another to never meet a margin call. The margin call would have gone right by.

The other moral is a little dog shit isn't noticeable, unless you step in it. A big pile is a problem. The problem in 2008 was they piled up too much of it. Had subprime been a 25% of what it was, likely nothing would have ever happened. Instead it was used to create false demand in the market and drain equity from many who couldn't pay.

The question now is where is the big pile of crap about to come into open air? We have had 14 years of this. In the tens of trillions of financing, you know it is out there. I hear Goldman is holding a sizable amount of subprime credit. Who is holding the bag? Rates on this stuff is likely high enough to pay over time. Did Biden shove the big pile under the carpet with $100K basketweaving degrees?

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The only function of economic forecasting is to make astrology look respectable.---John Kenneth Galbraith
Neal 193 posts, incept 2014-01-09
2022-09-16 23:24:54

No offence to TG but his calculations for Berkshire are understating the reductions in earnings. If interest rates double then the hit to net earnings will not be 40% but much higher. Excluding the direct interest hit there will be a hit due to all the companies Berkshire invests in paying lower dividends as they also will have taken a hit to their earnings due to both higher interest expenses and lower sales and margins as everybody tightens their belts. Could Berkshire net earnings end up in the red ? Could any of the companies Berkshire invests in suffer major losses or go bust? Maybe not but then what about all the other major companies out there that are that are not as well run and/or have major borrowings like Tesla, Amazon, the airlines. Will they survive 6% interest rates? That is assuming that even if they can take 6% what about 7% or 10%? Anyone have a prediction how high and for how long this could go on?
Tickerguy 188k posts, incept 2007-06-26
2022-09-16 23:26:04

Oh absolutely @Neal; I was simply observing that even on a TRIVIAL look without digging into any of the firms Berkshire owns, NOR the impact on their suppliers (and thus input costs) their "E" will get whalloped.

Now add the REST of the impact on operating expense and, well, yeah... they could end up with red ink quite easily.

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NASA faked out a computer instead of running the test.
Then tried to launch and aborted instead of going "BOOOM!"
Did they abort the JABS after faking THOSE tests?
Mannfm11 8k posts, incept 2009-02-28
2022-09-17 07:47:43

Don't forget Berkshire owns General RE. Float is going to be worth something again. Casualty insurance is priced so they never give back the money. A whole lot of bad would have to occur. Higher rates should produce a little competition. Float isn't worth much at zero.

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The only function of economic forecasting is to make astrology look respectable.---John Kenneth Galbraith
Chromehill 795 posts, incept 2010-03-03
2022-09-17 08:23:38

For those who say the market always comes back, just look at the S&P 500 from the mid 60's through the early/mid 90's. It was basically flat for a period of 25 to 30 years. You could make plenty of money during that time if you were astute enough to buy low and sell high (Peter Lynch for example). It just shows that buy and hold is not a viable investment strategy for most people. Most people do not have the skills, time or inside knowledge to invest like a Peter Lynch.

Two foundational steps necessary to solid investing are save your money and don't lose it. Right now it is much better to be in cash and getting 1 to 2% then in S&P500 and losing 15% with a downside of 50 to 75%. With inflation roaring along with historically low interest rates, Europe about to freeze and Biden now talking about sanctions on China in addition to those on Russia...50 to 75% downside might be kind.

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'Power, like the reproductive muscle, longs to be exercised, often without judgement or right' - Gerry Spence
Europeasant 27 posts, incept 2011-07-03
2022-09-17 10:23:11

Speaking of prices and inflation, I just received my car insurance bills. My 2019 Subaru outback 3.6 is now $606 per 6 months. That's up from $480 the previous 6 months. My 2001 SVT Cobra is now $440 and I only drive about 1,000 miles per year. Those are huge increases. I'm waiting for my energy bills this winter to shock me some more. BTW the houses sold in my area are getting insane.Last two on the block went for around $525,000.Of course some lipstick, countertops and fancy appliances were added but still ten years ago these 80 year old houses were $250,000.
Generalee 78 posts, incept 2011-04-30
2022-09-17 15:50:18

@Daedwards, Braeburn makes non-network programable thermostats with a good reputation. Some have autochangeover but basic stuff is available.
Douglasthorburn 37 posts, incept 2019-02-05
2022-09-18 08:34:16

@Clay3482 writes: " actually changed jobs so that I could cash out my 401 K, yes I paid the taxes, and the 10% penalty but I did not want to see a drop in value of 85% more or less, which is what I thought I would see if I kept it in the narrow options that my company would let me invest in."

I've never seen a 401k that did not have a "cash" option, and most have a low fixed-income option that does not have interest rate risk. There's no reason to see one of us pay unnecessary taxes. Now, if the tax rate was 12% on the entire sum, I won't argue (22% including the 10% premature distribution penalty if you didn't qualify for an exception to the penalty, of which there are several--and more if rolled to an IRA first). However, if you paid anything at higher-than 12% real rates (not the fake nominal rate, which is often a lie), you may well have screwed yourself. And don't forget state income taxes if you are in one of those states.

You want to take measured withdrawals, using up when possible only the lowest rates. And if you insist on paying higher rates because you are concerned that taxes in general and, in particular, you own real marginal rate will be higher in the future, you could have converted the sum into a Roth IRA, where it grows tax-free for your life/spouse's life plus ten years (awful rules post-2019, which dramatically shortened the post-death growth period).

There are plenty of options for alternative investments inside IRAs and Roth IRAs. There was simply very few who will benefit in the long run by paying the tax plus penalty at anything higher than 22%. And there are all sorts of possible phantom-but-very-real much higher rates you may have gotten stuck with along with way.

You paid off debt. I understand paying off most debt other than mortgage debt which, at the artificially low rate nearly everyone has, is silly. Soon, you will be able to arbitrage that with little or no risk--pay at 3% and earn risk free at 5% or more. And keep in mind: paying off debt beyond a point arguable reduces liquidity. Money that could have been used in an emergency is stuck inside the equity of you home, or car, or whatever. Not always a good idea.

Similarly, @Workerbee writes: "I turn 59 1/2, I'm cashing that bitch." Depending on how much it is and the marginal tax rate at which you will pay the tax, that could be an awful act. You can roll to an IRA with no tax consequences, and the take measured withdrawals and/or Roth conversions, enough to "use up" the low tax rates. And watch those phantom-but-very-real marginal tax rates!

@Kikknback similarly writes: "Cashing out your 401K, before you're 59.5 Y/O and paying the 10% fine, is still cheaper than asking yourself after the market tanks 25-50% why you didn't cash out before the market tanked." Again, that depends on the marginal tax rates the withdrawal is subjected to--and if any size, nearly guaranteed it will go through several marginal rates. And you can go to cash inside the 401k and, if you can roll to an IRA or convert to a Roth IRA, you have far more options, including ETFs on which you make money if the market drops.

A couple examples of marginal rates and credit phase-outs/phase-ins. One, client is in the 22% marginal rate, but from $80k to $90k AGI she's in a 72% marginal rate. How could that be, you ask? Well, Congress and its silly tax tables lie. She has two kids in college, for whom she pays at least $4k in tuition per kid (and we're going on year three). The $2,500 tuition credit phases out from $2,500 to zero as AGI increases from $80k to $90k. So, that's 25% + 25% + 22% = 72%, oh! plus her state income tax. We've taken great pains to ensure she contributes enough to her 401k and HSA to keep the income down to just under $80k. If she was not our client God knows she might have withdrawn $10k from her IRA to help fund the tuition. What a disaster that would be.

Another: low income client increases his premium tax credit and savers retirement credit by increasing his IRA contribution from zero to $7k, with tax rates of 12% on the first $3,000, 35% on the second $3,000 and 10% on the last $1,000 (going from memory on this one, but I'm in the ballpark). Because in full retirement he will have almost no income other than SS he will be able to take ratable withdrawals at the zero % tax rate, so we opted to go the full $7k.

I could give lots of other examples at all income levels (including much higher ones), but you get the idea. There is no reason for my genius friends here who have given me so much over the past three years to make the sort of gargantuan tax/financial mistakes that can cost a fortune in unnecessary taxes. Carefully plan any withdrawals and/or (preferably) Roth conversions. The only way to do that is run the numbers.

I don't say much here because I know nothing of 99.999% of mankind's knowledge. But I share this because I know it well (along with only three or four other areas of knowledge). I don't say this to denigrate our wonderful commenters, either: this is something most tax "pros" don't really know, either.
Flappingeagle 4k posts, incept 2011-04-14
2022-09-18 08:35:00

Manfm11 said
Quote:
I was listening to Martin Armstrong. He said before the Fed started messing with money, high rates were associated with growth and a strong economy because it indicated demand for money. The alarm was when they started falling, as it indicated business was cutting back.


Given how much money was borrowed at ultra-low rates just to pay for stock buy-backs, he is probably correct. Cheap money sure was not in demand to buy plant and equipment, at least not that I could see. It was demanded to fund a real-estate flipping frenzy.

Flap

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Here are my predictions for everyone to see:
S&P 500 at 320, DOW at 2200, Gold $300/oz, and Corn $2/bu.
No sign that housing, equities, or farmland are in a bubble- Yellen 11/14/13
Trying to leave
Nashville 101 posts, incept 2018-02-27
2022-09-18 13:41:50

Supposedly there is a bill in the hopper to eliminate Federal TAX on Social Security payouts. I seriously doubt it will be passed or signed into law. It might buy some votes for Joe's party, but would cost the Treasury big bucks. Why is this important - other than the obvious?

Currently, based on early 1980's legislation (to "save" SS), you pay no tax on SS as long as your total income (tortured math needed to determine that) is below $25K single or $32K married. Once over that amount, suddenly 50% of your SS payout is added atop your taxable amount. For you really lucky folks with over 34K single or 44K married that becomes 85%. In many cases, this added dollop of taxable dollars will move you into a higher marginal tax rate as well. In some cases, an additional $10,000 in taxable income can wind up boosting your taxes by $6000 or more! Everyone should be aware when converting to Roths, selling a home, selling stocks, or taking RMD's from an IRA. Things retired people do. Not one in 100 probably learns this before April 14th.
Tickerguy 188k posts, incept 2007-06-26
2022-09-18 13:43:47

Yep @Nashville, which is why the idea that you can play the game and live in a high-cost area DOES NOT WORK; your effective tax rate goes WAY up.

Thus the key: Get your nut down to something small, which means getting the fuck away from high-government-cost and thus high-tax places.

If you refuse to do that because you just "have to" live in such a place then just bend over and grab your ankles because you WILL get fucked. Period.

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NASA faked out a computer instead of running the test.
Then tried to launch and aborted instead of going "BOOOM!"
Did they abort the JABS after faking THOSE tests?
Douglasthorburn 37 posts, incept 2019-02-05
2022-09-18 14:41:39

@Nashville, the problem is the $25k/$32k point at which half the SS starts to get phased in to the taxable based has been fixed by law since 1983; the $34k/$44k point at which 85% of the SS starts to get phased in has been fixed since 1993. If these had been inflation adjusted, those phase-in points would be nearing $100k today.

It was a freebie for government: they got to increase taxes on SS recipients with hardly anyone having realizing it. Decades of tax increases on top of the inflation tax itself, where most goods and services cost more.

I tried running calc's for the maximum tax increase resulting from this unseen tax and gave up, only able to approximate maybe $5k per year for higher SS income earners whose SS is fully phased in per the 85% rule.

And the real problem, totally unseen (remember your Bastiat?) by nearly everyone is, for years, the only people affected badly by hyper-rates were singles (including single survivors). The SS starts to get phased in at $34k non-SS income plus 85% of the SS income at an 85% rate, so that once those thresholds ($34k single, $44k joint) for every $1k increase in non-SS income an additional $850 gets added to the taxable base (subjected to tax). Hence, in the 12% bracket the real tax rate is (12% of $1,000 + 12% of $850 =) 22.2%. In the early years, when SS was much less and people didn't have sizeable other income (investment, pension and IRA income, but all other types, too) that was usually the maximum tax rate (although higher under the 15% regime pre-2018; it was 27.75%). But as SS and other income grew, SS is far more frequently being added to the taxable base when singles enter the 22% nominal bracket, where the phantom-but-very-real tax rate is (22% + 85% of 22% =) 40.7%.

In the last decade we've seen increasing numbers of joint filers subjected to those rates as well. This is especially irksome when clients who (otherwise properly) delay the start of SS, which results in an increase of more than 70% in permanent SS "benefits" when delayed from age 62 to age 70 (at which point SS maxes out). By itself, if life expectancy is 82, one should generally start SS at age 66; if life expectancy of either spouse for joint filers (based on current health, family history and "do you need the income" considerations) is 89 or longer, one should generally wait to start collecting until age 70. While the hyper-phantom-tax rates no doubt affect the calculations (I have not figured out the degree of the effect), I tell clients to view it as "longevity insurance," even if it isn't true insurance.

I'd love to know which Congresscritter has brought up the idea of eliminating this awful hidden tax. While there's no way it would be eliminated, we might have a shot at increasing those thresholds, especially if the problem and "real" tax rates are made more well-known.
Rufust445 951 posts, incept 2007-08-11
2022-09-18 20:47:17

Querant wrote..
Margin Call
Based on the last days and weekend of Lehman Bros. before they went under almost to the day. Filmed on a floor of empty office space of another former Wall St. firm that went under.

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"The stock market isn't bullish, it's bull$hit." -- Alan King
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