Bob’s Journal for 12/16/21

Some Notable Events That Grabbed My Attention This Week

In case you missed it, consider listening to or viewing my recent appearance on Stan Haithcock’s (Stan the Annuity Man) “Fun with Annuities” podcast.

Stan the Annuity Man and I discussed taxes, including proposed tax changes and how to reduce taxes on your retirement income. Click here to have a listen or go to his YouTube channel to view the interview.

For an update on the latest tax proposals in Washington and how to adjust your plans, visit The Art of Legacy Planning podcast. Participants include David Phillips and Todd Phillips of Estate Planning Specialists and Richard Durfee of The Durfee Law Group.

Expect the Higher Market Volatility to Continue

Markets don’t like uncertainty, and greater uncertainty leads to more volatility.

Uncertainty has been increased by changing Federal Reserve policies, possible changes in the tax law and uncertainty about the details of each.

For example, as of the market’s close on Dec. 1, the widely followed exchange-traded funds (ETFs) tracking every major U.S. stock market index were down at least 2.5% for the five previous trading days and most of them were below their 50-day moving averages, according to Bespoke Investment Group.

A week later, each of the ETFs had increased at least 3% over the five previous trading days, and most were above their 50-day moving averages. The ETFs that lost the most in the five previous trading days had increased the most in the latest period.

The volatility isn’t restricted to stocks.

The iShares 20+ Year Treasury Bond ETF (TLT) had an average daily move above 1% over the 21 trading days ending Dec. 8. This level of volatility didn’t happen before the financial crisis and has happened only a few times since then.

More interesting is that the TLT has been more volatile than the S&P in the last month. That’s unusual. Bespoke reported the volatility of TLT has exceeded that of the S&P 500 only three other times since 2002.

As I said in the January 2022 issue of Retirement Watch (now available on the website), investors need to be prepared for a lot more market volatility in 2022. Be prepared to capture opportunities it creates.

The Boom in Data Storage

Data and data storage are booming. Many people don’t realize the amount of data being stored and processed.

A recent graphic essay in The Wall Street Journal tried to put the amount of digital data storage in understandable terms. It equated a grain of rice to 1 megabyte of data.

The EZ Pass Group uses transponders on cars to charge tolls in 19 states and keeps data on all the transactions. In 2019, drivers in Virginia logged more than half a million transactions per day. That amounted to 400 megabytes of data, or roughly a tablespoon of rice.

The U.S. Patent Office stores texts and images of approved patent applications. In 2019, those amounted to 800 megabytes, or 800 grains of rice (two tablespoons) each day.

Major League Baseball has 12 cameras at each stadium to track the ball and players during each regular season game. The league discards most of the 24 terabytes of video collected every day. But on average for each game day, it keeps 4.7 terabytes of data, or 235 pounds of rice.

The Social Security Administration maintains the earnings history and other data of each U.S. worker. It estimates that its data storage increases by 25 terabytes (or 1,250 pounds of rice) each day.

The data added to YouTube each day is staggering. About 500 hours of video is uploaded from around the world each minute. That’s 4,860 terabytes (or 122 tons of rice) each day.

Another way to consider the growth and importance of data storage is the recent outage of Amazon Web Services (AWS). Many businesses use AWS for their cloud data storage and other support for their online activities.

The obvious and expected business disruptions occurred, but many people found that a number of household appliances didn’t work. They were connected to the internet and used AWS.

Some appliances that didn’t work included automatic pet feeding machines, robot vacuum cleaners, digital assistants (such as Alexa), home security systems and more.

The growth, pervasiveness and importance of data storage is why I recommend being invested in Cohen & Steers Realty Shares (CSRSX). A significant portion of the fund has been invested in data centers for years. Those positions generated significant profits for shareholders.

Should You Follow Elon Musk and Other Insiders By Selling Stock?

Insiders at publicly listed businesses must report their stock transactions publicly. Recently, they’ve been reporting a lot of sales.

In fact, insiders have been selling shares at a record pace, according to a report from InsiderScore. The report said some insiders were selling stock for the first time in years. The number of insiders selling in 2021 was about four times the average from 2016 through 2020.

Normally, people who study insider trades say to be cautious before making investment decisions based on reports of sales by insiders.

Often, an insider has personal reasons for making a sale. Some make regular, scheduled sales or sell to limit the corporation’s percentage of their personal portfolios. Others sell for estate planning reasons or to generate cash for personal purchases. Some want to diversify into other investments.

But some analysts say this year’s trading appears to be different. Insiders who haven’t sold shares in years sold significant amounts in 2021. It is likely that insiders see the significant rise in stock prices in 2021, especially among many technology companies, as an opportunity to take advantage of market excesses. The last time insider sales were near these levels was near the bursting of the technology stock bubble in 2000.

I’ve pointed out in Bob’s Journal and Retirement Watch that some sectors of the stock market rose into bubble or extremely valued territory in 2021. These include emerging technology companies, the “unicorn stocks,” the pandemic “stay-at-home” stocks and others.

This is a good time to rebalance portfolios to reduce the percentage that’s held in stocks. It also is important to stay diversified and ensure your investments have margins of safety.

The Data

The data released in the last week set several multi-decade records.

New unemployment claims declined to 184,000 in the last week. That’s the lowest level since September 1969. The previous low was recorded just a few weeks ago.

Before the pandemic, new unemployment claims were averaging around 220,000, which was considered very low at the time.

Continuing claims, which lag a week behind new unemployment claims, increased by 38,000 to 1.992 million. But the four-week average of continuing claims declined to a pandemic low of 2.027 million.

The Consumer Price Index (CPI) also set records.

The CPI rose 0.8% in November and 6.8% over the previous 12 months. The 12-month number is the highest since 1982 (39 years) and exceeded 5% for the sixth straight month.

The core CPI (excluding food and energy) rose 0.5% in November and 4.9% over 12 months. That 12-month increase is the highest since 1991.

Inflation also remains high at the wholesale level. The Producer Price Index (PPI) increased 0.8% in November, up from 0.6% in October. Over 12 months the PPI increased 9.6%.

Excluding food and energy, the PPI increased 0.7% in November and 7.7% over 12 months.

Retail sales increased 0.3% in November, following a 1.8% rise in October. Sales were 18.2% higher than last November.

Spending at electronics stores was down 4.6% in November, and online sales were unchanged. Sales at gas stations increased 1.7% in November and 52% over 12 months, largely a reflection of higher gas prices.

Small business owners didn’t change their outlook much in November. The Small Business Optimism Index from the National Federation of Independent Business (NFIB) rose to 98.4 from 98.2 in October.

Owners expecting better business conditions in the next six months declined to a net negative 38%, tied for the lowest reading in 48 years and the lowest level since November 2012.

The net percentage of owners raising prices increased to the highest reading since October 1979. And 48% of owners reported having job openings they couldn’t fill.

The Housing Market Index from NAHB showed that optimism among home builders remains high and increased a bit in December. The index was 84 for December, up from 83 in November.

Manufacturing growth continues to be strong in New York State. The Empire State Manufacturing Index increased to 31.9 in December from November’s robust 30.9.

Consumer Sentiment, as measured by the University of Michigan, improved in the first part of December. The Consumer Sentiment Index was 70.4, compared to 67.4 at the end of November.

The November level was a multi-decade low. The preliminary December level is almost equal to the average of the last four months.

An unusual result in the preliminary December data is that there was a substantial increase in positive sentiment among households with incomes in the lowest third. Optimism declined among households in each of the upper two thirds of incomes.

The bottom third of income recipients reported that they expected income increases of 2.9% in the next 12 months, the highest income increase forecast for that group since 1981.

The Markets

The S&P 500 fell 1.05% for the week ended with Tuesday’s close. The Dow Jones Industrial Average lost 0.44%. The Russell 2000 declined 4.13%. The All-Country World Index (excluding U.S. stocks) dropped 2.03%. Emerging market equities retreated 1.79%.

Long-term treasuries lost 0.20% for the week. Investment-grade bonds fell 0.64%. Treasury Inflation-Protected Securities (TIPS) declined 0.80%. High-yield bonds dropped 0.41%.

On the current front, the U.S. dollar gained 0.23%.

Energy-based commodities fell 0.85%. Broader-based commodities lost 0.86%. Gold declined 0.77%.

Bob’s News & Updates

My latest book is “Where’s My Money: Secrets to Getting the Most out of Your Social Security.” It tells you clearly what your benefit options are in different situations and how to determine the best choice for you. You can find it on Amazon.com or Regnery.com.

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