Reversion to the mean…

If you frequent news sites or have a passing curiosity about real estate or investing, it’s hard to miss the hand wringing stories about mortgage interest rates. Phrases like “soaring” or “crashing up” or any kind of alarmism you can think of are the order of the day for financial reporters. 

Maybe it’s because I’ve reached a certain age and have started recognizing cycles and trends from living memory, but none of it fills me with alarm or dread. Twenty years ago, when I was buying my first place, I was thrilled to get a mortgage in the 7% range. The number stuck in my head is 7.25%, but that’s without spending an hour trying to find my original paperwork from way back when.

Mortgage interest rates ranging from 2-3% over the last few years are, frankly, and aberration to what could be considered normal at any time in the last 30 or 40 years. The 2.9% rate I refinanced the current homestead into was a fluky gift of history rather than something I expected to be able to do at any time indefinitely into the future. Even as I was signing the papers, I didn’t expect to ever be able to get a mortgage that cheaply again in my lifetime. 

The problem, it seems to me, is that we collectively have an absolute shit capacity for anything beyond short term memory. Because of that, when conditions revert towards the historic average or swing past that mark in the other direction, there’s a tendency to think the sky is falling. Like most things, the trick is to not buy into the hype. 

Timing, as they say, is everything. We just lived through what could easily be a once in a lifetime interest rate environment. There are a metric shit ton of people who want to tell you exactly what will happen from here. Maybe one of them will get it precisely right.  All I can tell you is interest rates will increase, then they’ll decrease, and then they’ll increase again. If you’re in the market, the most you can ever be expected to do is figure out the math, know your budget, make the best deal you can, and find the best rate available… and maybe try not to get tied up with one of those “exotic” mortgage options that can blow up your life if the most minor thing doesn’t go exactly as planned.

Don’t get me wrong, I’m glad I’m not in the market for house right now, but casting the current environment as the end of the world is just a little bit disingenuous and a whole lot short sighted.

Global wealth, exceptionalism, and mediocrity… 

According to an article in The Guardian, in 2021 the number of millionaires in the United States increased by 2.5 million, bringing the total of millionaires in the US to 24.5 million. Put another way, approximately 7% of the people living in this country have a net worth of at least one million dollars. That number is so high compared to historical levels that according to the article “the number of millionaires was becoming so large that it was becoming ‘an increasingly irrelevant measure of wealth.’” 

In my mind, having 39% of the world’s millionaires knocking around the country is a good news story. It speaks to the unprecedented level of wealth creation the American economy and global trade have fostered. We’re creating wealth in greater amounts and more quickly than ever before in history and it’s a testament to what’s still possible with brains, effort, and a bit of luck.

The Guardian, of course, takes pains to point out that the largess of the global economy hasn’t been fairly distributed. As if anything in the world has ever been distributed fairly. Natural resources aren’t sprinkled evenly across the world. Intellect isn’t awarded equally at birth. Gnashing your teeth over issues of equity is, of course, the trendy take, but it’s not how the universe works. 

Personally, I’m far happier knowing it’s possible to be exceptional, somewhere towards the right end of the bell curve, than knowing for a certainty that we can all look forward to an equal share of mediocrity.

On crypto…

Scan the big news sites and it won’t take long to find an article where someone is decrying cryptocurrency as some kind of scam that swindled poor unsuspecting victims out of their life savings and now the bank will inevitably foreclose on the farm while Ma and Pa are tossed out to the ditch.

It makes an attention grabbing headline, but doesn’t garner any sympathy from me. It’s safe to say that most people don’t know the basics of how the Federal Reserve “creates money.” I’d wager that far fewer know with any kind of precision how an asset like Bitcoin really works, but here we are with scads of people wondering how they suddenly lost so much value, even when they didn’t know how it was generated in the first place.

You can almost hear the outcry now, begging for the government to place increasingly restrictive regulations on cryptocurrency and save the ill- and under-informed from themselves. Letting people live or die with their own decisions doesn’t play well in front of the cameras, I suppose.

In the interest of full disclosure, I hold a very small position in crypto. Mostly it’s a hedge against fear of missing out rather than any expectation of it ever shooting the moon. With much of it picked up back in 2017, I guess you can say I’m long on this brave new frontier of finance. I think some interesting things will come of it, even if no one seems quite sure what any of those will be yet.

What Annoys Jeff this Week?

1. Wet ink. Why, in the year of our lord two thousand and twenty-one, do businesses still require wet ink on basic transactional paperwork. All I want to do is to make a pretty simple deposit into my retirement account. Maybe. If it were a withdrawal, I could see it. Maybe. Although I’m perfectly happy to let anyone in the world put funds in my IRA if the spirit moves them. In the time of instant transactions, waiting around for a few days until the mail arrives, waiting a few days until the return post reaches them, and then the action taking place. It really just feels like there has to be a better way.

2. Plastics. This week I got to enjoy the mandatory de-plasticizing of a new coffee maker pot. The entire house reeks of vinegar after brewing half a dozen pots of it in hopes that I’ll eventually be able to have coffee that doesn’t taste of plastic. At this point I’m not sure coffee tinged with plastic is actually worse than the hot vinegar stench permeating every inch of the house. 

3. One o’clock. For the last few weeks, I’ve struggled to get past 1 o’clock in the afternoon without my head slamming into my desk. I’ve always gotten a little groggy in the mid-afternoon, but this is something altogether different. It’s the kind of sleepy that demands I either get on my feet or go immediately to sleep. It’s not ideal if you’re making even the barest effort to be a responsible and responsive employee. This had better just be a passing thing, because otherwise I might need to talk to the boss about expanding my cube to allow room for a cot.

A tempting target…

Back in April, Senators Jeff Merkley of Oregon and Maggie Hassan of New asked the GAO to launch a study on “risks that fossil fuel stocks currently present” to those invested in the federal government’s Thrift Savings Plan (TSP). The distinguished senators then go on to imply that the TSP should create funds that “incorporate climate change risk” as part of the 401-k style program’s offerings.

Part of the allure of the TSP is its remarkably small fee structure – it’s very cheap in comparison to many other funds. Fees are low, in part, because TSP is simple. It’s got five basic index funds and five “lifecycle funds” that automatically reallocate participant’s money based on target dates. It’s got an elegant simplicity that’s historically effective at creating wealth for its participants over their long careers.

Look, I accept that climate change is a real thing. I also don’t have any particular love of the energy sector – many leaders in the area are losing value. That’s my real issue with them, though. If we’re going to drop energy companies from a portfolio, do it because they’re not making us money – not because some holier-than-thou senator wants to score a few political points.

Congress never saw a big pot of money sitting around that it didn’t want to stick its whole hand into. With $500 billion in assets under management I can understand why the TSP is an awfully tempting target. That said, the very last thing I want to see is a good thing turned on its ear by driving TSP to respond to whatever political views happen to hold sway at any given moment. Treating retirement funds as just another political football is almost a guaranteed way to manage to take another slug of cash out of my pocket.

There are already fund options out there for just about any special interest that wants to play in the market – whether your “thing” is gender diversity, sustainable energy, human rights, or a laundry list of other causes. TSP should remain a broad-based set of fund options targeted at replicating the market overall and building wealth over time for the wide swath of federal employees. Catering to the few individuals who can’t seem to be satisfied with that just doesn’t make senses… unless of course you’re more interested in enforcing ideological purity than in making good financial decisions. Surely no member in the United States Senate could ever be accused of that.

The “right” causes…

While the smoke was still rising from Notre Dame, social media lit up with posts decrying the ultra-wealthy who were anteing up sums measured in hundreds of millions of dollars for the rebuilding of the cathedral for not giving to the “right” causes. I lost track of the number of posts that said something to the effect of “Don’t give to Notre Dame because water in Flint or because the church is rich (which is a half truth at best because the wealth of the Roman church tends to be in items they can’t sell off or borrow against like St Peters or the Vatican museum) or because Puerto Rico.

It’s utter nonsense, of course. If you bothered to know anything about how cathedrals across Europe were originally financed a thousand years ago, you’d pretty quickly find that the local nobility and ultra-wealthy of the day gave lavishly to the cause. These symphonies in stone wouldn’t exist if it weren’t for the funds that flowed in from those elite sources. 

Ultimately, these posts illustrate one of my unreconciled problems with the left – the simple fact that I don’t need their help and certainly not their permission when deciding how to allocated the money I put in the time to earn. It’s like the they just can’t resist telling me how they know better where and for what to spend my money than I do. I guess being a holier than thou do gooder is easy as long as someone else foots the bill. 

As for me, everyone can piss right off with that nonsense. Every time one of these lunatics tries to jam their hand a little further into my pocket, you can expect me to resist with all available energy. I’m no billionaire, but I’m proud of knowing that some small portion of my donation will go to restore or preserve such an important part of western civilization… But the hand wringing bleeding hearts should feel free to send their own check to the charity cause of their choice. I promise I won’t say a word about it, no matter how pretentious and attention seeking a cause they’ve selected.

Just different…

I’m old enough to have caught the tail end of what could be called “local retail.” When I was a kid even our small town of a few hundred had what in generations past would have been called a dry good store. My home town wasn’t big enough to justify its own hardware store, but the next town of any size in either direction along the George’s Creek valley had one – Pritchard’s in Frostburg anchored the central stretch of Main Street, Ternent’s in Coney sat (where it still does business) at the center of town on Jackson Street. Ames provided a primitive “big box” style of retail while G.C. Murphy represented the last bastion of traditional American department stores. Murphy’s, though, was “in town” and usually involved a special trip. You didn’t end up there to pick something up on a whim.

There was a proper 1980’s mall, of course, decorated in shades of beige with it’s glass dome and sunken fountain centerpiece. It was anchored by JC Penny, The Bon Ton / Eyerly’s, K-mart, and Sears.

I’m taking this stroll down memory lane because of all these stores – many of them one-time giants of American retail, only a handful remain. Ternent’s lives still, I suspect as much due to the loyalty of the surrounding community (and inconvenience of making the 30 minute one-way drive to the next closest hardware store) as anything else. JC Penny creaks along providing the area with “something that isn’t Walmart. Now Sears has filed for bankruptcy protection. Its lone store back home isn’t on the closure list this time, but I don’t think anyone really expects it will last forever or even that it will last long. It’s only a matter of time before Sears too becomes part of consumer history.

Protected here by my walls of books and largely tucked away from people to the extent I can manage, it’s easy to dismiss just how much the world has changed in the last 30 or 40 years. A guy I use to work for was fond of saying that on average “it’s not better or worse, it’s just different.” It’s a nice sound bite and maybe it’s even true. But I can tell you without a moment’s shame that the older I get the less interest I have in “different” overall. Slowly, the words “different” and “worse” feel like they’re becoming synonymous.

I know intellectually that bankruptcy delivers creative destruction to the marketplace, but I’d consider it an awfully big favor if we could somehow avoid sweeping away all vestiges of the world that was.

The long view…

I start most mornings with a quick review of the news – usually a scan of BBC, CNN, Fox, Washington Post, New York Times, and London Times. The one thing they all have in common this morning is that they’re screaming the arrival of a new economic collapse. The reader comment sections are even worse. Fear in the market is an ugly, ugly thing.

If I were fifteen years closer to retirement seeing the Dow bleed off 600 points in one trading session might ratchet up my pucker factor a bit. In my experience, though, it pays to remember that in financial markets time is generally your friend. Markets go up. Markets go down. But over the long term the trend has always clawed its way higher.

With six hundred points down I’m looking around the house wondering what I can sell to put my hands on cold hard cash. If I had a big pile of it just sitting around not doing anything, I’d be buying this dip with both hands… because in 20 years no one is going to even remember what a “Brexit” was. It’s one of those times where it really pays to take the long view.

Something something chickens hatching…

Long, long ago someone told me something about chickens hatching and getting the count wrong. While out and about surveying the fine interstate system here in my home state this morning, I had plenty of opportunity to run a few basic calculations – mostly involving the cost of fuel, my own average miles per gallon, and my best guess about what next year’s pay tables might look like.

If for some reason yet to be determined my daily commute were to more than double in distance the corresponding increase in salary I might expect due to this unforeseen circumstance wouldn’t quite cover the additional cost of fuel expended in traveling to and from. It certainly wouldn’t cover the cost of acquiring and maintaining a secondary, more fuel efficient commuter car. Even if it did, I’d then have to dig into my pocket to hire a dog walker due to the presumed two hour increase in the duration of the commute.

Now these chickens I’m looking at aren’t even eggs yet, but my natural tendency with life is to play all sorts of interesting “what if” scenarios out in my head. Barring a change in one of the inputs, I don’t see a clear path to balance the equation. That bit is troublesome to say the least. Of course it’s all speculation and conjecture at the moment so we’ll just proceed on assuming there will be eggs or chickens available at some point in the future. That fact too remains to be seen.

The Quickening…

The problem with having bought a house at the height of the real estate boom in 2007 while also being responsible enough to keep up with all the necessary payments is that you’re metric shit loads of cash underwater on the mortgage and no self-respecting bank wants to refinance a loan for a mortgagee who’s not teetering on the brink of foreclosure or bankruptcy. In other words, you have to be the proud owner of a “troubled asset” to qualify for many of the refinance options available. Alternately for a standard refinance through most conventional avenues, you’ve got to owe less than 80% of the value of the property. Without delving too deeply into my finances, I’ll go ahead quickenand say I owe way, way more than 80% of the home’s current market value. Because I played by the rules of the game, didn’t skip payments, and avoided becoming a general deadbeat, my options had mostly winnowed down to one: Sit down, shut up, and take it like a man.

While sitting at home on a snowy weekday, I saw a commercial for Quicken’s brand of mortgages. I don’t remember what I was trying to avoid doing, but whatever it was made spending time on the phone with another bank that was probably going to tell me no seem like a good idea by comparison. Surprisingly, a couple of phone calls, a few emails, and a dozen uploaded documents later, I’d locked in a rate and was preliminary approval on a refinance that decreased the life of the loan and lowered by interest rate (and monthly payment) significantly.

The whole process went from first contact to closing in just a hair over 30 days. That’s not bad for something any number of the large national lenders told me simply couldn’t be done. I’m not getting a dime for shilling for Quicken Loans based in this post. I’m doing it because I had a first class experience with them and realize that some of you might just be in the same boat I was. If that’s you, it’s well worth your time to give them a call and see if they can work some financial black magic for you too.