scaremongering vs public investment, round 381 (PK; with the internal links, if it opens for you:
https://messaging-custom-newsletters.nytimes.com/template/oakv2?campaign_id=116&emc=edit_pk_20220211&instance_id=52851&nl=paul-krugman&productCode=PK&regi_id=22268089&segment_id=82386&te=1&uri=nyt://newsletter/9e7bf527-28b4-5fb5-b5b2-7ba39b7d9954)
otherwise:
A few days ago, Tressie McMillan Cottom published an insightful article in The Times about the power of “folk economics” — which she defined as “the very human impulse to describe complex economic processes in lay terms.” Her subject was the widespread enthusiasm for cryptocurrency, but her article sent me down memory lane, recalling the role folk economics has played in past policy debates.
Just to be clear, the “folk” who hold plausible-sounding but wrongheaded views of the economy needn’t be members of the working class. They can be, and often are, members of the elite: plutocrats, powerful politicians and influential pundits. In fact, elite embrace of folk economics was a large part of what went wrong in the global response to the 2008 financial crisis. And it’s starting to have a destructive effect now.
So, memories: When the 2008 financial crisis struck, economists, believe it or not, had an intellectual framework ready to go, pretty much custom-made for that situation — because it was devised in the 1930s during the Great Depression. The “IS-LM model” was introduced by the British economist John Hicks in 1937 as an attempt to encapsulate the insights of John Maynard Keynes, who had published “The General Theory of Employment, Interest and Money” the previous year. There’s endless argument about whether Hicks was true to Keynes’s vision — which is irrelevant for my discussion now — because Hicks is what economists brought to the table in 2008.
According to IS-LM (which stands for investment-savings, liquidity-money), public policy normally has two tools it can use to fight an economic slump. Loosely speaking, the Fed can print more money to drive interest rates down, or the Treasury can engage in deficit spending to pump up demand. After a financial crisis, however, the economy gets so depressed that monetary policy hits a limit; interest rates can’t go below zero. So, large-scale deficit spending is the appropriate and necessary response.
But folk economics sees deficits as irresponsible and dangerous; if anything, many people have the instinctive feeling that governments should cut back in hard times, not spend more. And this instinct had a big, adverse effect on policy. True, the Obama administration did respond to the slump with fiscal stimulus, but it was underpowered in part because of unwarranted deficit fears. (This isn’t hindsight, and I was tearing my hair out at the time.) And by 2010, influential opinion — the opinion of what I used to call Very Serious People — had shifted around to the view that debt, not mass unemployment, was the most important problem facing the United States and other wealthy nations.
This wasn’t what conventional economics said, and there was no hint that investors were losing faith in U.S. debt. But deficit scaremongering came to dominate political and media discussions, and governments turned to austerity policies that slowed recovery from the Great Recession.
Did economists unanimously oppose austerity? Hey, have economists ever unanimously agreed on anything? (There’s less disagreement within the profession than legend has it, but still.) Indeed, a handful of prominent economists managed to come up with arguments that seemed to support the folk theory that deficits are always bad — an episode that I always think of when I see demands for new economic thinking. You see, during the last crisis the new ideas that actually influenced policy did indeed go against conventional economics — but in ways that supported, rather than challenged, the prejudices of the powerful.
Two papers in particular had a malign influence. One, by Alberto Alesina and Silvia Ardagna, asserted that cutting spending in a depressed economy was actually expansionary, because it would increase confidence. The other, by Carmen Reinhart and Kenneth Rogoff, declared that government debt had big, negative effects on growth when it crossed a critical threshold, around 90 percent of gross domestic product.
Both papers were widely criticized by other economists as soon as they were circulated, and in fairly short order their empirical claims were pretty much demolished by other researchers. But their arguments were eagerly adopted by influential people who liked their message, and a funny thing happened to the discourse in the media: To a large extent, these speculative (and wrong) arguments for austerity were both accepted as fact and presented as the consensus of the economics profession. Back in 2013, I cited a Washington Post editorial that declared “economists” believed that terrible things happen when debt exceeds 90 percent of G.D.P., when in fact this was very much not what the rest of us were saying.
And I’ve been hearing echoes of that misrepresentation in some current debates, as people advocating new economic ideas — or at least what they claim are new ideas — assert that conventional economic thinking was responsible for austerity policies after 2008. Um, no: Fiscal austerity was exactly what conventional economics told us not to do in a depressed economy, and it was only the peddlers of unorthodox economics who gave austerity policies intellectual cover.
Which brings us to our current moment. This time around, fiscal stimulus wasn’t underpowered, and there’s definitely a case to be made that excessive deficit spending in 2021 was a factor in rising inflation (although we can argue about how big a factor, since inflation is also up a lot in countries that didn’t engage in much stimulus). But now what?
As I said, the IS-LM model tells us that policymakers have two tools for managing the overall level of demand: fiscal and monetary policy. When you’re trying to boost a deeply depressed economy, monetary policy becomes unavailable, because you can’t push interest rates below zero. But if you’re trying to cool off an overheated economy, monetary policy is available: Interest rates can’t go down, but they can go up.
And because changing monetary policy is easy, conventional analysis says that monetary tightening is the way to go. Indeed, the Fed has made it clear that it intends to do just that. Getting the pace and size of rate hikes right will be tricky, but conceptually it isn’t hard.
But the folk economics position — where by “folk,” I mainly mean Senator Joe Manchin — is that excessive government spending caused inflation, so now we have to call off any new spending, even if it’s more or less paid for with new revenue.
Well, that’s not what conventional economics says; on the contrary, the standard model says that the Fed can handle this while we deal with other priorities.
And while conventional economics isn’t always right, anyone attacking it now should ask themselves whether they’re doing so in a constructive way. In particular, I’m seeing a lot of denigration of monetary policy from people who don’t seem to realize that they are, de facto, giving aid and comfort to politicians who don’t want to invest in America’s children and the fight against climate change.

My suggestion is not to futz around in this space because there are only two you need. First, KBWP for stability plus growth in the financial space and then BTO to buy on big dips. Works like clockwork.

His conclusion, as he tipped, was a 2-handed conclusion:
"If you believe that last year's surge in inflation is a precursor to a long time period when inflation is likely to stay high, and come in above expectations, you should be shifting your holdings away from financial to real assets, and within your equity holdings, towards small cap stocks, stocks trading at lower pricing multiples (PE, Price to Book) and companies with more pricing power. If, on the other hand, you believe that inflation worries are overdone, and that there will be a reversion back to the low inflation that we have seen in the last decade, staying invested in stocks, and especially in larger cap and high growth stocks, even if richly priced, makes sense."

You mean, stuff like Real Estate. Gold-silver-uranium? Assuming a persistent high inflation rate?

@carew388 pointed out that DODBX has a heavy weighting in banks. Any other funds over weighting the banks?
USNews lists these as Financials:
usnews.com/funds/mutual-funds/rankings/financial

Agreed, the manager investment should be more specific as for experienced managers $1 million isn’t much, but I think many investors would be surprised to learn how many managers don’t even invest that much. Moreover, whenever any regulator suggests creating a $5 million or $10 million band for investment disclosure, the industry fights it tooth and mail. In fact, they fought the original disclosure requirements, an irony as many managers look at insider ownership at stocks they’re considering as a key indicator and would surely be angry if that ownership disclosure was taken away. Still, given how few managers eat their own cooking in a meaningful way, the $1 million threshold is significant. The younger and less experienced the manager, the more meaningful it is as that $1 million is potentially a more significant part of their net worth.
As for risk control, the point Yogi is making regarding suitability proves the other point I made. If you’re a 22 year old bond fund manager, you’re going to invest in bonds even if you think bonds are dramatically overvalued and your personal portfolio is 100% stocks and you invest nothing in your fund. And if you’re a growth stock manager, you’re going to buy growth stocks even if your own portfolio is 100% cash and you think the market will crash. Sure, prospectuses often provide leeway for risk control, but in practice it rarely happens. And with good reason if you consider that many funds are designed to stick to a portion of the style box for financial advisors to build bespoke portfolios for clients and for specific allocations in 401ks. The best place to find such risk control is in flexible allocation funds and boutique funds where the manager owns the fund company and has complete control over the firm so he/she won’t be fired if that defensive positioning is wrong.

His conclusion, as he tipped, was a 2-handed conclusion:
"If you believe that last year's surge in inflation is a precursor to a long time period when inflation is likely to stay high, and come in above expectations, you should be shifting your holdings away from financial to real assets, and within your equity holdings, towards small cap stocks, stocks trading at lower pricing multiples (PE, Price to Book) and companies with more pricing power. If, on the other hand, you believe that inflation worries are overdone, and that there will be a reversion back to the low inflation that we have seen in the last decade, staying invested in stocks, and especially in larger cap and high growth stocks, even if richly priced, makes sense."

Yes... about that jobs report-
• so we get the good news that a whole bunch of jobs have been filled...
• which suggests, it seems to me, that pressure on employers to pay more to get workers is lessened...
• which should help to keep prices maybe a bit lower...
• and also suggests that jobless benefits payments could be decreasing...
• which is apparently interpreted by the financial community to indicate increased inflation...
• which then leads to yet another market retreat.
OK, so what am I missing here?

I'm fairly certain the difference between a 13.01% annualized return and a 11.50% one over ten years is more than 14.4% cumulatively, more like 40 percentage points if this is correct: https://investor.gov/financial-tools-calculators/calculators/compound-interest-calculator I think it is the difference between a 239% cumulative return and a 197% cumulative one from the base investment, although I'm tired and my math could be off.

“As a general comment on the whole tracking/privacy/advertising issue, we have never joined any "social" organization such as Meta (nee "Facebook") which on the face of it has absolutely no reason for existence other than to abuse user privacy for financial profit. Immense profit, at that.”
I second that! I get my news from the few surviving professional journalistic organizations. And I don’t mean cable or the “Happy Talk” & “Weird Weather” (somewhere) that has become the network news (but does not “become” it!)

Although I DO use FB, I'm with ya, all the way. The ID and security business can sometimes turn absurd. I wanted to use my fb account while on vacation in Canada.
...Some BOT (presumably) figured out that it could not really be ME, in a different country..... I created a 2nd, alternative account. Then some stinky-ass BOT discovered the same person, ostensibly, with two accounts, at the same address. I was locked out of both.
So, I created a FB account with a totally silly name I created out of thin air. With a false hometown and address, and for email, I offered my "junk" email account, which I never look at, unless some outfit insists on being provided with an email address. (I also have a spam phone number that I saved and use, when I'm able to do so, too. It's some fake, unethical scumbags from India, claiming to be Microsoft Repair. So, I let them deal with each other.)
News these days? Paywall in front of the major newspapers, or you must allow the ads. Nope. Just... Nope. So, it's PBS and Aljazeera for me, currently. I do grow tired of Judy Woodruff, who likes to EMOTE so very much. The questions of interviewees are most often of the softball variety. Al Jazeera covers more of the world, too.

“As a general comment on the whole tracking/privacy/advertising issue, we have never joined any "social" organization such as Meta (nee "Facebook") which on the face of it has absolutely no reason for existence other than to abuse user privacy for financial profit. Immense profit, at that.”
I second that! I get my news from the few surviving professional journalistic organizations. And I don’t mean cable or the “Happy Talk” & “Weird Weather” (somewhere) that has become the network news (but does not “become” it!)

@Derf- I don't understand your suggestion of a connection between Apple, Amazon, and Google. While we don't use a smartphone or Kindle, we do use Apple desktops exclusively, Firefox browsers, and do purchase from Amazon very frequently.
On those platforms we've had no problems of any kind. As a matter of principle for at least fifteen years I've done everything possible to avoid use of any service offered by Google, as it was evident to me many years ago where this whole tracking/privacy/advertising thing was headed.
With respect to Amazon, certainly there's a great deal of search operation within Amazon itself when you're looking for various products. I have no idea if Amazon does all of that itself, or possibly uses Google or some other search provider to help power it's internal searches. In any case, I've never experienced any suggestion of a connection to me as an Amazon customer and Google.
As a general comment on the whole tracking/privacy/advertising issue, we have never joined any "social" organization such as Meta (nee "Facebook") which on the face of it has absolutely no reason for existence other than to abuse user privacy for financial profit. Immense profit, at that.

Unclear question. I’ll try to answer. In a nutshell Apple (to their credit) recently made it much harder for websites & apps to plant “cookies” on your Apple device that allowed them to track all your internet usage. They than sold the personal data collected to advertisers who could thereby target you for advertising. For example, if they knew you visited this board a lot, an advertiser might target you with ads for the WSJ or other financial publication. Just a guess, but the “special” subscription rates offered to you might be higher than those offered others who didn’t often visit financial sites.
Now the bottom line … With these user protections in place Facebook and many other internet domains stand to gather less user information and therefore have less of your personal information to sell advertisers. Facebook takes a financial hit. IMHO you gain.
PS - I use many Apple devices and have a Kindle and buy things at Amazon. I’ve experienced no difficulty with any of these.

What are the most important attitudes and habits of successful investors? In this podcast, Paul examines this question through the lens of “hard work,” or what is often called “grit.” He references a special 6-minute TED talk by Angela Lee Duckworth, a psychology professor at the University of Pennsylvania. The video is about the importance of “grit” in your life. While the hard work and the passion of grit may make people more successful in their daily life, Paul makes the case that it may lead to worse outcomes as an investor. In fact, the grit for an investor is to remain still and let your investments take care of themselves.
Since the grit is largely a matter of habits and attitude, Paul reads chapter 11 from Financial Fitness Forever. He discusses the importance of trust, resilience, perspective, patience and common sense, plus six productive habits that seem to favor investors over the long term.

paulmerriman-the-perfect-investor

Atlanta Federal Reserve Bank President Raphael Bostic told The Financial Times over weekend that the Fed may impose a 50 basis point rate hike in March.

Saw that too in other sites and that could have sizable impact on the long bonds. Mid March is timeframe when it starts.

Atlanta Federal Reserve Bank President Raphael Bostic told The Financial Times over weekend that the Fed may impose a 50 basis point rate hike in March. Bostic is a FOMC participant and would have been covered by the aforementioned blackout.
(Excerpt) The Federal Reserve could opt to raise its benchmark rate by 50 basis points if a more aggressive approach to taming inflation is needed, Raphael Bostic, president of the Fed’s Atlanta branch, told the Financial Times in an interview. Bostic stuck to his prediction that three quarter-point increases starting in March would be the most likely scenario, though stubbornly high consumer prices could justify a more robust rate rise …
“Every option is on the table for every meeting,” Bostic said on Friday. “If the data say that things have evolved in a way that a 50-basis-point move is required or be appropriate, then I’m going to lean into that . . . If moving in successive meetings makes sense, I’ll be comfortable with that,” he told the newspaper.
Story from Bloomberg

Vanguard and FIDO were ready mid-January
some brokerage houses invest in mighty computer resources to crunch their numbers
Surely you're not suggesting that Vanguard mightily invests in computer resources :-)

Chairman Tim Buckley said Vanguard was spending more than $1B on technology in 2019.
Yet, customers continue to report sporadic technical issues on a regular basis.
It appears that Vanguard may not be earning good returns on its technology investments!
Here's Vanguard's technology spin presented in a recent article:
“Vanguard has accelerated efforts and increased investments to improve our technology and deliver an even better experience for our retail clients, plan sponsors and participants, and financial advisors. We’re actively exploring and implementing new technologies, resources and capabilities to drive innovation, improve stability and resiliency, build efficiencies and lower operation costs across our firm.”
Yeah, right...
Link

DKNG (which I bought a week ago) +17% this morning. Who said stocks are volatile?
Will probably close down by end of day.

The only financial advice you can bank on 100% of the time to be totally accurate is: "markets will fluctuate, sometimes wildly, but most times rather tamely." :)

Stock market weakness since the start of 2022 has made me wonder what might cause the Fed to alter its anticipated course of action for the coming months. Perhaps -- in large measure due to the cumulative effect of actions taken by the Fed and Congress since the start of 2019 -- conditions have evolved to the extent that inflation finally has the upper hand. If so, this article suggests the Fed's present course of action will continue for an extended period of time even in the presence of a continued stock market drop.

“The policy path of least regret is, for the first time in a generation, to deal with higher inflation and inflation expectations now and worry about the consequences for growth and financial market stability later,” said Athey. “This is a world that most investors have never experienced.”

Stocks Trading on Fumes Probably Aren’t Keeping the Fed Awake

Jason Zweig, WSJ:
"I don't know whether we're on the cusp of a cataclysmic decline, or whether this is one of the market's normal see-saw rides.
What I am sure of is that after two years of being cooped up at home with nothing to do but stare at market charts, a lot of my colleagues in the financial media are bored stiff.
So reporters and editors will seize every opportunity to turn market molehills into mountains, and to extrapolate every drop into a correction or bear market.
As the markets buck and heave over the next few days, I would advise you to keep in mind one of Benjamin Graham's most important messages from his book The Intelligent Investor:
Price fluctuations have only one significant meaning for the true investor. They provide him with an opportunity to buy wisely when prices fall sharply and to sell wisely when they advance a great deal."

“Rising bond yields, particularly on inflation-protected Treasurys, are viewed as close indicators of borrowing costs for businesses and consumers.“
Investors pay close attention to yields on TIPS because they offer an important gauge of financial conditions, indicating whether borrowing costs for businesses and consumers are rising or falling when stripping out the effects of expected inflation.
“Often referred to as real yields, yields on TIPS have been deeply negative since the early days of the Covid-19 pandemic, helping to fuel outsize stock-market gains by pushing investors into riskier assets in search of better returns. Even today they remain below zero, meaning holders are guaranteed to lose money on an inflation-adjusted basis if they hold the bonds to maturity. Yet they have climbed even more this year than yields on ordinary Treasurys—a sign of higher borrowing costs for businesses, better forward-looking returns on bonds, and a return to more normal growth and inflation as the Federal Reserve starts tightening monetary policy …”
Also (Same Article):
“Donald Ellenberger, a senior fixed-income portfolio manager at Federated Hermes, is among those responsible for surging real yields. Starting in the early days of the Covid-19 pandemic, he was a major buyer of TIPS, steadily increasing them from 4% of his multisector bond portfolio in March 2020 to 7% by November of that year. Mr. Ellenberger’s concern at the time was that historic fiscal and monetary stimulus would lead to a surge in inflation—a fear that proved prescient as TIPS rallied and the consumer-price index soared… By the end of last year, though, the Fed had shifted course, promising to accelerate a wind-down of its bond-buying program and start raising interest rates … In response, Mr. Ellenberger and his team slashed their TIPS holdings from 7% to 1%.”
(Excerpts from)
“Tech Rout Fueled by Bond-Market Turn”
By Sam Goldfarb
The Wall Street Journal
January 24, 2022
In a separate article, the same issue of the WSJ noted that municipal bonds are also seeing outsized losses of late.