If You Were Born Between 1975 and 1985 You Got Screwed.

The Wall Street Journal had a blog post today that really hit home for me.  What I have long suspected for a long time is that a subsection of a generation (my subsection as fortune would have it) happened to be born at a time that dictated they would be coming into the work force or starting their first businesses at a time when the Great Recession hit. 

Something just seemed off to me... and I'm not talking about generational envy or "why can't I have" whatever.  My parents generation and the brief sub-generation between them and me had their own struggles I'm sure.  But still, it seemed as if my generation was working harder and longer and had much less to show for it despite technological advances.  And now that I think about that, imagine how large the disparity would be if we removed the technological advances from the equation.  In any event it puts the "just go down to the personnel office and apply for a job" advice from the guy who got one job in 1979 that he had for the rest of his life (with full-benefits and paid vacation) into perspective. 

I do love he fact that "the central bank" added the caveat that "this generation has time on their side".  Translation:  "You have time to work even harder and maybe get yourself out of the hole that we put you in". 

From the Wall Street Journal:

People born in '80s are poorer

Americans born in the ‘80s began life on the back foot economically, according to a report by the Federal Reserve. Because of the Great Recession, these people now have wealth levels “34% below where they would be absent the financial crisis and its aftermath,” The Wall Street Journal writes of the report. Those born in the ‘70s are 18% less wealthy, while those in the '60s are down 11%. The '80s generation entered the workforce during the crisis. Crucially, though, this generation has time on their side, the central bank added. This and high education levels may lift them toward their financial goals in the end.

Ray Dalio's "Principles".

If you have the time, I highly, highly, highly recommend reading Ray Dalio's "Principles".  If you don't know Ray, he is the Founder and recently retired CEO of Bridgewater Capital, the most successful hedge fund in the world.  After starting working out of his detached garage with a few friends in the 80's; Bridgewater now required a minimum liquid net worth, (I think) of $75,000,000 for them to even consider them giving you an invitation for collaboration.   You read that right, you ask them if you can give them your money, and they tell you whether or not you have enough.

It's a nice place to be in business. 

So when Mr. Dalio wrote a book that was basically a collection of the email instructions he has been sending out to his employees over the last decade, I pre-ordered.  However it is a little bulky and you do start to get lost. 

Ray boiled down the main principles of "Principles" down to a 30 minute video which I highly recommend. 

https://www.principles.com/principles-for-success/?utm_source=fb&utm_medium=ads&utm_content=152325972&utm_campaign=BPI_FB_AW_RayDalio_PFS-FB-AMP

 

Market Recap for the Week.

 

The consumer price index, which measures inflation, was slightly lower than expected in April. Lack of inflationary pressure helps keep rates lower.

The producer price index was also a bit lower than April's forecast, another sign of lower inflation pressure. Prices rose 0.1% instead of the expected 0.3%.

Oil prices continue to rise, hitting the highest levels since 2014. Increasing oil prices could push rates higher.

Could more inventory start hitting the market? In a recent FannieMae survey, 45% of respondents said it's a good time to sell, a new survey high.

Amazon's Alexa system is gaining ground in powering smart homes. New home builder Lennar announced plans to include the technology in all new homes.

Federal Reserve Press Release (with comments)

May 02, 2018

Federal Reserve issues FOMC statement

For immediate release

Information received since the Federal Open Market Committee met in March indicates that the labor market has continued to strengthen and that economic activity has been rising at a moderate rate. Job gains have been strong, on average, in recent months, and the unemployment rate has stayed low. Recent data suggest that growth of household spending moderated from its strong fourth-quarter pace, while business fixed investment continued to grow strongly. On a 12-month basis, both overall inflation and inflation for items other than food and energy have moved close to 2 percent. Market-based measures of inflation compensation remain low; survey-based measures of longer-term inflation expectations are little changed, on balance.

As always – first paragraph is the “report card” paragraph.  Uncle Sammy is showing improvement in class.  Sammy gets a B+ for job growth and unemployment, a B- for household spending (money average Joe’s and Josephine’s like you and I spend), an A- for business spending, and a C+ for recess (there was that “gum in the hair incident…).  Inflation (price increases) is moving closer to a 2% number – which is the Fed’s target.  The Fed doesn’t seem to worried because compensation inflation (wage growth) isn’t out of control.  Wage inflation is often the scariest kind – because, while it’s easy to cut the price of a sweater or a lawn mower – it’s almost impossible to reduce people’s wages, so once wage inflation takes hold it is hard to control.

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee expects that, with further gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace in the medium term and labor market conditions will remain strong. Inflation on a 12-month basis is expected to run near the Committee's symmetric 2 percent objective over the medium term. Risks to the economic outlook appear roughly balanced.

Here's where the Fed gives us their “why.”  The Fed exists to balance job growth and stable prices.  The Fed thinks the economy will keep growing “moderately” and they think inflation is under control.  Way to go Fed!

In view of realized and expected labor market conditions and inflation, the Committee decided to maintain the target range for the federal funds rate at 1-1/2 to 1-3/4 percent. The stance of monetary policy remains accommodative, thereby supporting strong labor market conditions and a sustained return to 2 percent inflation.

This is the “money paragraph.”  The Fed kept short term rates (the Federal Funds Rate) the same.  They think rates are low enough (“accommodative”) that they are still pushing the economy along.  In other words, the Fed is saying their foot is still on the accelerator – not the brake.

In determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee will assess realized and expected economic conditions relative to its objectives of maximum employment and 2 percent inflation. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments. The Committee will carefully monitor actual and expected inflation developments relative to its symmetric inflation goal. The Committee expects that economic conditions will evolve in a manner that will warrant further gradual increases in the federal funds rate; the federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run. However, the actual path of the federal funds rate will depend on the economic outlook as informed by incoming data.

Since the Fed just told us what time it is – this is the paragraph where they tell us how the watch is made.  Bottom line:  they look at lots of stuff, “carefully” monitor it, and cross their fingers really hard.

Voting for the FOMC monetary policy action were Jerome H. Powell, Chairman; William C. Dudley, Vice Chairman; Thomas I. Barkin; Raphael W. Bostic; Lael Brainard; Loretta J. Mester; Randal K. Quarles; and John C. Williams.

All the nerds agreed!  Nobody had to be voted off the island.

Where does the $1,000,000,000 Wells Fargo fine go

It's funny, several people have asked me where the fines levied against large corporations (specifically the recent $1,000,000 fine against Wells Fargo for their very recent actions in the mortgage market... Spoiler alert:  They were ripping people off) and to be frank, I didn't have a good answer.  I knew that nobody who was victimized ever got a dime, but I also didn't think that the money went back, at the very least, to the treasury.  There is obviously leakage when it comes to that much money, but billions can't just leak.  So where DID that money go?  

Dick Morris knows.   

As he mentioned on his daily lunch alert (which I have been trying to embed here but that won't work for some reason) the answer is a slush fund.  Apparently many "Victim's Advocacy Organizations" were established, but not many victims (I can't say "none" because I don't know) every received anything.  Essentially those are slush funds that provide money to political organizations, obviously those favorable to the politician who allowed the transfer in the first place. 

So basically an involuntary re-election campaign contribution.  Wonderful.  And totally legal I'm sure. 

 

 

Feds No Longer Require an Appraisal on Commercial Under $500,000

Here is the article from Reuters.  But I don't understand it.  So the Federal government will no longer require banks to have a commercial appraisal done to finance commercial properties  under $500,000.  Fine.  But what lender in their right mind is ever going to lend $500,000 on any property without at least an idea of it's worth?  I think this is going to be an overlay situation; meaning the lender has requirements above and beyond the government mandated minimums. 

Unless, of course, you found a lender that really had an intrinsic ability to accurately estimate the value of a property.  That might work.  Maybe.  I would still want an appraisal. 

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New federal regulations mean fewer commercial real estate-related loans will require an independent, certified appraiser to weigh in on a property’s value before a bank can lend against it.

An inter-agency group of regulators decided on Monday to raise the threshold for commercial real estate deals that need approval from a state-certified appraiser from $250,000 to $500,000, Reuters reported.

Now, financial institutions can utilize the less stringent evaluation process instead of a certified appraisal for deals below the threshold. Evaluations also provide a market value estimate but do not have to comply with federal standards.

Raising the threshold “will materially reduce regulatory burden,” according to a joint press release from the Federal Reserve, the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation, adding that upping the limit “will not pose a threat to the safety and soundness of financial institutions.”

The $250,000 limit was established in 1994. Regulators originally proposed raising the limit to $400,000 to keep it in line with inflation, but decided to raise the limit higher after considering comments from appraisers, financial institutions, and trade organizations received during a comment period last year. [Reuters] – Dennis Lynch

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